nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒03‒20
fifteen papers chosen by
Russell Pittman
US Department of Justice

  1. Resale price maintenance: Explaining the controversy, and small steps towards a more nuanced policy By Bennett, Matthew; Fletcher, Amelia; Giovannetti , Emanuele; Stallibrass, David
  2. Outsourcing versus Integration at Home or Abroad By Stefano Federico
  3. New properties of the Cournot duopoly with isoelastic demand and constant unit costs. By Fabio Tramontana; Laura Gardini; Tönu Puu
  4. Mathematical Properties of a Combined Cournot-Stackelberg model. By Fabio Tramontana; Laura Gardini; Tönu Puu
  5. The aggregate Le Chatelier Samuelson principle with Cournot competition By Koebel, Bertrand; Laisney, François
  6. Mergers and sequential innovation: evidence from patent citations By Jessica C. Stahl
  7. Share to Scare: Technology Sharing in the Absence of Intellectual Property Rights By Jos Jansen
  8. Health Insurance Competition in Germany - The Role of Advertising By Bettina Becker; Silke Uebelmesser
  9. Entry and competition in freight transport: the case of a prospective transalpine rail link between France and Italy By Prady, Delphine; Ullrich, Hannes
  10. Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities:Evidence from EU Telecoms By Carlo Cambini; Laura Rondi
  11. Mobile Termination, Network Externalities, and Consumer Expectations By Sjaak Hurkens; Ángel L. López
  12. Information Sharing and Cross-border Entry in European Banking By Caterina Giannetti; Nicola Jentzsch; Giancarlo Spagnolo
  13. Increased price markup from union coordination: OECD panel evidence By Bjørnstad, Roger; Kalstad, Kjartan Øren
  14. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas Ruiz
  15. Heterogeneous firms and import quality: evidence from transaction-level prices By Benjamin R. Mandel

  1. By: Bennett, Matthew; Fletcher, Amelia; Giovannetti , Emanuele; Stallibrass, David
    Abstract: The paper sets out why we consider that the legal framework in the EU amplifies what are in reality relatively small differences in thinking around RPM. Primarily, this is because it asks economists, in the name of legal certainty, to draw a false dichotomy between agreements and practices which are harmful and those which are beneficial. We then provide a summary of the literature on RPM and, based on this thinking, set out a few small steps that might be taken towards a more nuanced approach to assessing RPM, within a 'presumed illegality' framework without sacrificing the beneficial legal certainty that the current approach brings.
    Keywords: Competition Policy; RPM; Resale Price Maintenance
    JEL: L42 D02 K21
    Date: 2010–01–30
  2. By: Stefano Federico (Bank of Italy, Economics and International Relations)
    Abstract: Using data on a sample of Italian manufacturing companies, this paper analyzes the location (at home or abroad) and the mode of organization (outsourcing versus integration) of intermediate inputs production. We find evidence of a productivity ordering (largely consistent with the assumptions in Antràs and Helpman 2004) where foreign integration is chosen by the most productive and domestic outsourcing by the least productive firms; those with medium-high productivity choose domestic integration, those with medium-low productivity foreign outsourcing. We also find that the preference for integration over outsourcing is positively related to some indicators of headquarter intensity, notably capital intensity, as predicted by Antràs (2003) and Antràs and Helpman (2004).
    Keywords: international outsourcing, foreign direct investment, intra-firm trade, productivity
    JEL: F12 F23 L22
    Date: 2010–02
  3. By: Fabio Tramontana (Department of Economics, University of Ancona, Italy); Laura Gardini (Department of Economics and Quantitative Methods, University of Urbino, Italy); Tönu Puu (CERUM, Umeå University, SE-90187 Umeå, Sweden)
    Abstract: The object of the work is to perform the global analysis of the Cournot duopoly model with isoelastic demand function and unit costs, presented in Puu (1991). The bifurcation of the unique Cournot fixed point is established, which is a resonant case of the Neimark-Shacker bifurcation. New properties associated with the introduction of horizontal branches are evidenced. These properties di¤er significantly when the constant value is zero or positive and small. The good behavior of the case with positive constant is proved, leading always to positive trajectories. Also when the Cournot fixed point is unstable, stable cycles of any period may exist.
    Keywords: Cournot duopoly, isoelastic demand function, multistability, border-collision bifurcations.
    JEL: C15 C62 D24 D43
    Date: 2010
  4. By: Fabio Tramontana (Department of Economics, University of Ancona, Italy); Laura Gardini (Department of Economics and Quantitative Methods, University of Urbino, Italy); Tönu Puu (CERUM, Umeå University, SE-90187 Umeå, Sweden)
    Abstract: The object of this work is to perform the global analysis of a new duopoly model which couples the two points of view of Cournot and Stackelberg. The Cournot model is assumed with isoelastic demand function and unit costs. The coupling leads to discontinuous reaction functions, whose bifurcations, mainly border collision bifurcations, are investigates as well as the global structure of the basins of attraction. In particular, new properties are shown, associated with the introduction of horizontal branches, which di¤er significantly when the constant value is zero or positive and small. The good behavior of the model with positive constant is proved, leading to stable cycles of any period.
    Keywords: Cournot-Stackelberg duopoly, Isoelastic demand function, Discontinuous reaction functions, Multistability, Border-collision bifurcations.
    JEL: C15 D24 D43
    Date: 2010
  5. By: Koebel, Bertrand; Laisney, François
    Abstract: This paper studies the aggregate substitution and expansion effects triggered by changes in input prices, in a context where firms supply a homogenous commodity and compete in quantities à la Cournot. We derive a sufficient condition for the existence of a Cournot equilibrium and show that this condition also ensures that the Le Chatelier-Samuelson principle is likely to be satisfied in the aggregate at the Cournot equilibrium, although it may not be satisfied at the firm level. These results are confirmed by the empirical findings obtained for two-digit US manufacturing industries, which also highlight the importance of imperfect competition for understanding aggregate growth, investment and employment. --
    Keywords: Aggregation,returns to scale,market power,markup,own-price elasticity
    JEL: C33 D24
    Date: 2010
  6. By: Jessica C. Stahl
    Abstract: An extensive literature has investigated the effect of market structure on innovation. A persistent concern is that market structure may be endogenous to innovation. Firms may choose to merge so as to capture information spillovers or they may choose to merge so as to dampen competition in innovation. These two scenarios have very different welfare implications. This paper attempts to distinguish between the two scenarios empirically, looking at recent mergers among public companies in the United States. Using patent citation data, I find evidence that firms increase their rate of sequential innovation in the years preceding a merger, and reduce their rate of sequential innovation in the years following a merger. This suggests that mergers are motivated more by the desire to dampen competition than by the desire to capture information spillovers. I use citation-based measures of patent value to shed light on the welfare implications. The question is relevant for policy, as the FTC and DOJ frequently cite innovation as a reason for concern about a merger.
    Date: 2010
  7. By: Jos Jansen (Max Planck Institute for Research on Collective Goods)
    Abstract: I study the incentives of Cournot duopolists to share their technologies with their competitor in markets where intellectual property rights are absent and imitation is costless. The trade-off between a signaling effect and an expropriation effect determines the technology-sharing incentives. In equilibrium at most one firm shares some of its technologies. For similar technology distributions, there exists an equilibrium in which nobody shares. If the technology distributions are skewed towards efficient technologies, then there may exist equilibria in which one firm shares all technologies, only the best technologies, or only intermediate technologies. No other equilibria can exist.
    Keywords: Innovation, strategic disclosure, trade secret, Cournot duopoly, indivisibility, open source, skewed distribution
    JEL: D82 L13 O32 O34 L17
    Date: 2009–10
  8. By: Bettina Becker (Department of Economics, Loughborough University); Silke Uebelmesser (CES, University of Munich)
    Abstract: In the 1990s, competition among health insurance funds (‘sickness funds’) was introduced in Germany. As one means of competition, free choice of initial health funds and subsequent switching between them was made available to all insured. Since then, the number of funds has decreased substantially, and funds have had to engage in competitive strategies to remain in the market. In this paper, we want to analyse the funds’ advertising activities in the face of the changed competitive environment. This has not been possible to date due to a lack of data. We use two new datasets to get a first insight into the potential effects of competition on funds’ advertising strategies; one of the volume and cost of advertisements and one of their contents. Our results suggest that competition has been associated with an increase in the amount of advertising. As to the adverts themselves, we find that there was a decrease in the share of advertisements of a ‘general’ content in favour of advertisements of a more ‘fund-specific’ content. The data therefore indicate that once the market was open to switching of funds by the insured, funds’ advertising efforts changed to differentiating their own perceived strengths from those of competitor funds. These observations allow us to draw some tentative conclusions about the relevance of (attempts of) risk selection by health funds via advertisements and about the general success of the pro-competitive legislation.
    Keywords: Regulated competition; health insurance market; risk selection; advertising; Germany
    JEL: I11 I18 G22 M37
    Date: 2010–03
  9. By: Prady, Delphine; Ullrich, Hannes
    Abstract: We analyze the expected effects of building a rail tunnel between Lyon and Turin on i) the market shares of the established and the new suppliers, and ii) consumer surplus. The prospective project consists of a 53km rail tunnel providing freight shippers with a new alpine path. We calibrate an equilibrium model where freight shippers choose a mode and alpine path to ship goods from a given origin to a given destination. Freight carriers strategically set prices for the differentiated products they supply. Deriving the market equilibrium, we simulate the entry of a quality-improved product and test its competitive viability. The prospective alpine path proves both competitive and welfare-enhancing on the regional market, loses its competitive edge on the wider North-South market, and leads to a modal shift on the West-East market. We argue that the new infrastructure is only one tool out of a global modal shift-oriented policy toolbox. --
    Keywords: Transalpine freight,New rail infrastructure,Simulation model,Competition
    JEL: R41 L92 H54 L13 C63
    Date: 2010
  10. By: Carlo Cambini; Laura Rondi
    Abstract: We examine theoretically and empirically the relationship between access regulation, financial structure and investment decisions in network industries, analyzing if financial variables can be used as a strategic device to influence the regulator’s price setting decisions. Using a panel of 15 EU Public Telecommunication Operators (PTOs) over the period 1994-2005, we first investigate the determinants of regulated prices (both wholesale and retail), firm financial structure and investment, and then test the relationship between leverage, regulated charges and firm’s investment. However, our model suggests that if leverage influences the regulated access charges, then it will also impact competition in the downstream segment. Therefore, we also investigate the impact of the PTO’s leverage on market competition. Our results show that leverage positively affects regulated rates, as well as the PTOs’ investment rate, as predicted by Spiegel and Spulber (1994). Moreover, higher leverage also leads to higher access charges and an increase in leverage is followed by a decrease in the number of competitors and by an increase of the incumbent’s market share. This suggests that the strategic use of debt to discipline the regulator’s lack of commitment within a vertically integrated network industry may somewhat impair or delay competition in the retail segment, but has a favorable counterpart in mitigating the underinvestment problem.
    Keywords: L51, G31, G32, L96, Telecommunications, Access Pricing, Capital Structure, Leverage, Fixed Investment, Competition
    Date: 2009–12–10
  11. By: Sjaak Hurkens; Ángel L. López
    Abstract: We re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on- and off-net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers' expectations are assumed passive but required to be fulfilled in equilibrium (as defined by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now.
    Keywords: Networks, Rational Expectations, Access Pricing, Interconnection, Regulation, Telecommunications
    JEL: D4 K23 L51 L96
    Date: 2010–03–10
  12. By: Caterina Giannetti; Nicola Jentzsch; Giancarlo Spagnolo
    Abstract: Information asymmetries can severely limit cross-border border expansion of banks. When a bank enters a new market, it has incomplete information about potential new clients. Such asymmetries are reduced by credit registers, which distribute financial data on bank clients. We investigate the interaction of credit registers and bank entry modes (in form of branching and M&A) by using a new set of time series cross-section data for the EU-27 countries. We study how the presence of public and private credit registers and the type of information exchanged affect bank entry modes during the period 1990-2007. Our analysis shows that the existence of both types of registers increases the share of branching in the overall entries. Additionally, the establishment of public registers reduces concentration ratios, and some banking competition indicators (such as overhead costs/assets). The introduction of a private credit bureau, on the other hand, has no effect on concentration ratios, but positively contributes to competition (by decreasing interest rate margins). This suggests that credit registers facilitate direct entry through a reduction of information asymmetries, which in turn intensifies competition.
    Keywords: credit registries, foreign entry, asymmetric information
    JEL: F37 G21 G34 L13 O16
    Date: 2010
  13. By: Bjørnstad, Roger; Kalstad, Kjartan Øren
    Abstract: Although coordination of wage bargaining probably affects entry barriers and competition in product markets, research on price determination has typically not considered such factors. In this paper the price markup depends on coordination and is estimated on a panel of 15 OECD countries. The estimates show that consumer prices may be as much as 21 percent higher in coordinated compared to uncoordinated countries, solely due to the effect of coordination on the price markup. Since coordination has a dampening effect on wages, this may explain why many researchers have been unable to find any clear effect of coordination on unemployment. --
    Keywords: Imperfect competition model,price markup,labor market institutions,unemployment,panel data model
    JEL: C23 E31 J51
    Date: 2010
  14. By: Omar Licandro; Antonio Navas Ruiz
    Abstract: Increasing evidence support the claim that international trade enhances innovation and productivity growth through an increase in competition. This paper develops a two-country endogenous growth model, with firm specific R&D and a continuum of oligopolistic sectors under Cournot competition to provide a theoretical support to this claim. Since countries are assumed to produce the same set of varieties, trade openness makes markets more competitive, reducing prices and increasing quantities. Under Cournot competition, trade is pro-competitive. Since firms undertake cost reducing innovations, the increase in production induced by a more competitive market push firms to innovate more. Consequently, a reduction on trade barriers enhances growth by reducing domestic firm's market power.
    Keywords: Trade Openness, Growth, Competition
    JEL: F13 F43 O3
    Date: 2010–03–04
  15. By: Benjamin R. Mandel
    Abstract: A key emerging insight in international economics is that the scope for quality differentiation can help to explain patterns in export prices at the level of products or firms. In this paper, a unified theoretical framework of firm heterogeneity in cost and quality is brought to bear on an expansive data set of U.S. import transaction prices collected by the Bureau of Labor Statistics (BLS). The higher moments of the price distribution are used to identify the scope for quality differentiation at the detailed product level; highly differentiated products account for about half of U.S. import value. The product classification is then used to evaluate two claims in the nascent firm-level trade quality literature. First, the positive link between exporter capability and price is found to depend on the nature of the product: productive exporters simultaneously specialize in high-priced varieties in quality differentiated goods and low-priced varieties in more homogeneous goods. Second, a novel time series test documents firm sorting into export markets according to output quality.
    Date: 2010

This nep-com issue is ©2010 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.