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on Industrial Competition |
| By: | SHIMOMURA, Ken-Ichi (RIEB, Kobe University, Japan); THISSE, Jacques-Franois (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Keywords: | oligopoly, monopolistic competition, product differentiation, welfare |
| JEL: | L13 L40 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009047&r=com |
| By: | BOCCARD, Nicolas (Departament d'Economia, University of Girona, Spain); WAUTHY, Xavier (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Keywords: | entry, quality, differentiation, Bertrand-Edgeworth competition |
| JEL: | D43 L13 L51 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009050&r=com |
| By: | Piccione, Michele; Spiegler, Ran |
| Abstract: | This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation. |
| Keywords: | price competition; industrial organization; limited comparability; bounded rationality; framing; consumer protection; product differentiation; complexity |
| JEL: | D18 C79 L13 D43 |
| Date: | 2009–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21427&r=com |
| By: | L. Lambertini |
| Abstract: | I characterise the subgame perfect equilibrium of a differential market game with hyperbolic demand where firms are quantity-setters and accumulate capacity over time à la Ramsey. I show that the open-loop solution is subgame perfect. Then, I analyse the feasibility of horizontal mergers, and compare the result generated by the dynamic setup with the merger incentive associated with the static model. It appears that allowing for the role of time makes mergers more likely to occur than they would on the basis of the static setting. |
| JEL: | C73 L13 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:692&r=com |
| By: | Biglaiser, Gary; Crémer, Jacques; Dobos, Gergely |
| Abstract: | We study the consequences of heterogeneity of switching costs in a dynamic model with free entry and an incumbent monopolist. We identify the equilibrium strategies of the incumbent and of the entrants and show that the strategic interactions are more complex and more interesting than either in static models or in models where all consumers have the same switching costs. In particular, we prove that even low switching cost customers have value for the incumbent: when there are more of them its prots increase. Indeed, their presence hinders entrants who nd it more costly to attract high switching cost customers. This leads to dierent comparative statics: for instance, an increase in the switching costs of all consumers can lead to a decrease in the prots of the incumbent. |
| Date: | 2010–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22317&r=com |
| By: | Federico Etro |
| Abstract: | I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive pro?ts in spite of free entry. |
| Keywords: | Strategic delegation, Incentive contracts, Screening contracts, Franchising, Tying, Endogenous market structures |
| JEL: | L11 L13 L22 L43 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:181&r=com |
| By: | Constantine Manasakis (Department of Economics, University of Crete, Greece); Minas Vlassis (Department of Economics, University of Crete, Greece) |
| Abstract: | In contrast with previous studies we assume no ex-ante commitment over the �price or quantity� type of contract which downstream firms will independently offer consumers in a two-tier oligopoly. Under competing vertical chains, we propose that the downstream mode of competition which in equilibrium emerges is the outcome of independent implicit agreements, between each downstream firm and its exclusive input supplier, in each vertical chain. Our findings suggest that input suppliers may thus act as commitment devices sufficient to endogenously sustain the quantity (Cournot) mode of competition. |
| Keywords: | Oligopoly; Vertical relations; Wholesale prices; Equilibrium mode of competition |
| JEL: | D43 L13 L42 |
| Date: | 2010–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1003&r=com |
| By: | ZANAJ, Skerdilajda (UniversitŽ du Luxembourg, CREA, Luxembourg) |
| Abstract: | In this paper, we present a model of endogenous vertical integration and horizontal differentiation. There exists two output brands and two versions of the input. The only mean for output differentiation is the input version used in output production. Firms may choose to vertically integrate to produce internally the required input version at marginal cost, rather then to buy it at the market price, if that version is made available. We show that vertical mergers increase the possibility that output goods are differentiated. Moreover, this occurs when the cost to differentiate the input is high. On the other hand, vertical integration is detrimental for brand variety if the cost to differentiate inputs is negligible. |
| Keywords: | horizontal differentiation, vertical agreements, successive Cournot oligopolies |
| JEL: | D43 L13 L42 |
| Date: | 2009–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009070&r=com |
| By: | Federico Etro; Michela Cella |
| Abstract: | We analyze competition between firms engaged in R&D activities in the choice of incentive contracts for managers with hidden productivities. The equilibrium screening contracts require extra effort/investment from the most productive managers compared to the first best contracts: under additional assumptions on the hazard rate of the distribution of types we obtain no- distortion in the middle rather than at the top. Moreover, the equilibrium contracts are characterized by effort differentials between (any) two types that are always increasing with the number of firms, suggesting a positive re- lation between competition and high-powered incentives. An inverted-U curve between competition and absolute investments can emerge for the most pro- ductive managers, especially when entry is endogenous. These results persist when contracts are not observable, when they include quantity precommit- ments, and when products are imperfect substitutes. |
| Keywords: | Principal-agent contracts, asymmetric information, endogenous market structures |
| JEL: | D82 D L13 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:180&r=com |
| By: | GABSZEWICZ, Jean (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | We define a two-variant model of product differentiation which, depending on the number of consumers prefering one variant to the other, provides equilibrium prices reflecting the natural valuation of these variants by the market. |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009058&r=com |
| By: | WAUTHY, Xavier (FacultŽs universitaires Saint-Louis, CEREC, Bruxelles, Belgium and UniversitŽ catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium) |
| Abstract: | In this note, we analyze the equilibrium outcomes of pricing games with product differentiation in relation with the extent of market coverage. It is a received idea in the IO literature that the horizontal and vertical models of product differentiation are almost formally equivalent. We show that this idea turns out to be wrong when the full market coverage assumption is relaxed. We then argue that there exist two fundamentally different classes of address-models of differentiation, although their difference is not perfectly captured by the standard horizontal/vertical typology |
| Keywords: | price competition, product differentiation |
| JEL: | L13 |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009081&r=com |
| By: | BOCCARD, Nicolas |
| Keywords: | merger, efficiency, concentration, welfare, antitrust, competition |
| JEL: | L40 D43 D24 |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2009040&r=com |
| By: | Sandra Ospina; Marc Schiffbauer |
| Abstract: | This paper presents empirical evidence on the impact of competition on firm productivity. Using firm-level observations from the World Bank Enterprise Survey database, we find a positive and robust causal relationship between our proxies for competition and our measures of productivity. We also find that countries that implemented product-market reforms had a more pronounced increase in competition, and correspondingly, in productivity: the contribution to productivity growth due to competition spurred by product-market reforms is around 12-15 percent. |
| Date: | 2010–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/67&r=com |
| By: | Bos Iwan; Pot Erik (METEOR) |
| Abstract: | The conventional wisdom is that cartels are bad. In particular, cartels that merely lead to lower production levels and higher prices are thought to be exclusively detrimental to social welfare. This is reflected in the fact that most capitalist societies have declared such so-called hard core cartel arrangements illegal per se. In this paper, we question this rather rigid approach to hard core cartels. In a simple but fairly general setting, we provide necessary and sufficient conditions for the existence of a hard core cartel that is beneficial for firms and society at large. We consider both strong (with side payments) and weak (without side payments) hard core cartel contracts and find that (i) both strong and weak welfare-enhancing cartels exist when at least one firm makes a loss on part of its sales in competition, (ii) a welfare-enhancing strong cartel exists whenever there is a difference in unit costs at competitive production levels, and (iii ) a welfare-enhancing weak cartel exists when this difference is sufficiently large. |
| Keywords: | mathematical economics; |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2010004&r=com |
| By: | Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Panlang Lin (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | This paper presents a theoretical model of two-sided markets with both positive inter-side externalities and negative intra-side externalities. It analyzes the net impact of negative intra-side externalities on platform prices, demands and profits in three scenarios: (i) monopoly platforms, (ii) competing platforms with two-sided single-homing, and (iii) competitive bottlenecks. The paper shows that a monopoly platform will produce lower equilibrium profits in the presence of negative intra-side externalities. By contrast, competing platforms with two-sided single-homing enjoy a higher equilibrium profit, whereas the net impact of negative intra-side externalities on the equilibrium profit of competing platforms with one-sided multi-homing (competitive bottlenecks) remains ambiguous. Based on the analysis, we derive implications for platform owners on how to manage negative intra-side externalities. |
| Keywords: | Two-sided market, platform competition, network externalities |
| JEL: | D42 D62 L11 L12 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iso:wpaper:0121&r=com |
| By: | Wilson, William W.; Dahl, Bruce |
| Abstract: | The purpose of this paper is to analyze the dynamics of R&D investments, and the structure of the seed distribution sector using novel data sets that have not been used before to describe competition in these industries. The results describe four sets of issues of particular importance. One is that while all agbiotechology firms have increased their R&D expenditures, there have been sharp differences in the scope of this spending. Most important is that this has spawned the growth in what is now referred as âseeds and traits.â Second, a large number of future traits will be commercialized in the coming years. A third set of results indicates that one firm grew its market share by 14% and a portion of this growth has been through acquisition. The other three majors lost market share, but the ISC (independent seed companies) grew by 10%. At the crop reporting district level, the industry concentration ratios for the four largest firms (CR4) in most regions are .5â.7. Finally, farmers purchased corn and soybean seed from 4â7 different companies in most crop reporting districts (CRD) and up to 20 or more companies in the larger producing regions. |
| Keywords: | Agbiotechnology, grain seeds, competition, Agribusiness, Crop Production/Industries, Demand and Price Analysis, |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:nddaae:58487&r=com |
| By: | Georges Dionne; Mélissa La Haye; Anne-Sophie Bergères |
| Abstract: | Our objective is to test the influence of information asymmetry between potential buyers on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions with asymmetric information. The theory of dynamic auctions with private values predicts that more informed bidders should pay a lower price for an acquisition. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We hypothesize that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Information asymmetry between participants is shown to influence the premium paid. Blockholders pay a much lower conditional premium than do other buyers (around 70% lower). Tests also show that the characteristics of the target, specifically the runup, sales growth and size, affect the premium. The size of the target relative to the buyer, the choice of a public takeover bid and the hostility of the bid are also influential. |
| Keywords: | Asymmetric information, merger and acquisition, blockholder, premium, English auction, test for over-identifying restriction (Sargan test), test for endogeneity (Durbin-Wu-Hausman test) |
| JEL: | C33 D81 G34 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1015&r=com |
| By: | Matteo Bugamelli (Bank of Italy); Silvia Fabiani (Bank of Italy); Enrico Sette (Bank of Italy) |
| Abstract: | The entry of China into world markets has been one of the strongest recent shocks to world trade and advanced countries. industrial sectors. This is particularly true for Italy where labour-intensive, low-technology production represents a large share of output. Using Italian manufacturing firm-level data on output prices over the period 1990-2006, we test whether increased import competition from China has affected firms’ pricing strategies causing a reduction in the dynamics of prices and markups. After controlling for other price determinants (demand and cost, domestic competition and import penetration), we find that this is indeed the case. Comparing China’s share of world exports to Italy with China’s total world export market share proves the causal nature of the relationship we find. Inspired by and in line with recent advances in the literature on international trade, we also show that the price effects of Chinese competitive pressures are stronger in less technologically advanced sectors and, within these sectors, on smaller firms. |
| Keywords: | import competition, China, firms' prices and productivity |
| JEL: | F14 F15 L2 E31 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_737_10&r=com |