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on Industrial Competition |
| By: | Boone, J.; Goeree, J.K. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper introduces three methodological advances to study the optimal design of static and dynamic markets. First, we apply a mechanism design approach to characterize all incentive-compatible market equilibria. Second, we conduct a normative analysis, i.e. we evaluate alternative competition and innovation policies from a welfare perspective. Third, we introduce a reliable way to measure competition in dynamic markets with nonlinear pricing. We illustrate the usefulness of our approach in several ways. We reproduce the empirical finding that innovation levels are higher in markets with lower price-cost margins, yet such markets are not necessarily more competitive. Indeed, we prove the Schumpeterian conjecture that more dynamic markets characterized by higher levels of innovation should be less competitive. Furthermore, we demonstrate how our approach can be used to determine the optimal combination of market regulation and innovation policies such as R&D subsidies or a weakening of the patent system. Finally, we show that optimal markets are characterized by strictly positive price-cost margins. |
| Keywords: | competition policy;dynamic markets;competition measures;Schumpeter;mechanism design |
| JEL: | K21 L40 O31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201025&r=com |
| By: | Raffaele Fiocco |
| Abstract: | We consider a vertically related market characterized by down- stream imperfect competition and by the monopolistic provision of an essential facility-based input, whose price is set by a social-welfare maximizing regulator. Our model shows that the regulatory knowl- edge about the cost for providing the monopolistic input crucially af- fects the design of the optimal industry structure. In particular, we compare ownership separation, which prevents a single company from having the control of both upstream and downstream operations, and legal separation, under which these activities are legally unbundled but common ownership is allowed. As long as the regulator has full infor- mation, the two industry patterns yield the same social welfare level. However, under asymmetric information about the input costs legal separation can make the whole society better off. |
| Keywords: | access charge, legal separation, ownership separation, regulation |
| JEL: | D82 L11 L51 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-024&r=com |
| By: | Jiawei Chen (UC-Irvine); Susanna Esteban (Universitat Autµonoma de Barcelona); Matthew Shum (Caltech) |
| Abstract: | Do active secondary markets aid or harm durable goods manufacturers? We build a dynamic equilibrium model of durable goods oligopoly, with consumers who incur lumpy costs when transacting in the secondary market, and calibrate it to U.S. automobile industry data. By varying transaction costs, we obtain a direct measure of the competitive pressure that secondary markets create on durable goods manufacturers. For our calibrated parameter values, closing down the secondary market increases (net) profits of new car manufacturers by 39%. This suggests that regulatory changes that lower liquidity in secondary markets may aid manufacturers. |
| Keywords: | secondary markets; durable goods; oligopoly; transaction costs; automobile industry; market power |
| Date: | 2010–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2010-06&r=com |
| By: | Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Jürgen-Peter Kretschmer (Economic Policy Unit, Philipps-University of Marburg, Germany) |
| Abstract: | Pricing strategies may include the advertising of meeting-the-competition clauses (MCCs). We show in a specific spatial model scenario with differently informed consumers that MCCs primarily serve as a device to facilitate collu-sion instead of allowing for price discrimination between these consumers. |
| Keywords: | Meeting-the-competition clauses; advertising; price discrimination; competi-tion; collusion |
| JEL: | M21 M37 L40 L11 D21 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:99&r=com |
| By: | Argenton, C. (Tilburg University, Center for Economic Research) |
| Abstract: | In an oligopoly configuration characterized by high barriers to (re-)entry, a finite horizon, perfect information about demand and costs and the presence of three identical firms, we show that two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately, after which the predators can enjoy higher profits, even if they do not raise their price. Predatory prices are thus observed on the equilibrium path and the predators end up earning more than in the best Bertrand (or even, collusive) equilibrium with three firms. |
| Keywords: | predation;predatory pricing;collusion;dynamic game;Bertrand competition |
| JEL: | D43 L13 L41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201026&r=com |
| By: | Paulo Barelli; Suren Basov; Mauricio Bugarin; Ian King |
| Abstract: | We extend Armstrong’s (1996) result on exclusion in multi-dimensional screening models in two key ways, providing support for the view that this result is quite generic and applicable to many different markets. First, we relax the strong technical assumptions he imposed on preferences and consumer types. Second, we extend the result beyond the monopolistic market structure to generalized oligopoly settings with entry. We also analyse applications to several quite different settings: credit markets, automobile industry, research grants, the regulation of a monopolist with unknown demand and cost functions, and involuntary unemployment in the labor market. |
| Keywords: | Multidimensional screening; exclusion; regulation of amonopoly; involuntary unemployment |
| JEL: | C73 D82 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1096&r=com |
| By: | Hongyan Li (Aarhus School of Business, Aarhus University, Denmark); Joern Meissner (Department of Management Science, Lancaster University Management School) |
| Abstract: | Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies os scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions. |
| Keywords: | computational economics, industrial competition, operations research, game theory, capacity optimization, supply chain management, lot sizing, heuristics, equilibrium |
| JEL: | C61 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:lms:mansci:mrg-0006&r=com |
| By: | Ivan Arribas (ERI-CES); Amparo Urbano Salvador (ERI-CES) |
| Abstract: | This paper focuses on oligopolistic markets in which indivisible goods are sold by multiproduct firms to a continuum of homogeneous buyers, with measure normalized to one, who have preferences over bundles of products. Our analysis contributes to the literature on delegated agency games with direct externalities and complete information, extending the insights by Berheim and Whinston (1986, a , b) to markets with indivisibilities. By analyzing a kind of extended contract schedules - mixed bundling prices - that discriminate on exclusivity, the paper shows that efficient equilibria always exist in such settings. There may also exist inefficient equilibria in which the agent chooses a suboptimal bundle and no principal has a profitable deviation inducing the agent to buy the surplus-maximizing bundle because of a coordination problem among the pricipals. Inefficient equilibria can be ruled out by either assuming that all firms are pricing unsold bundles at the same profit margin as the bundle sold at equilibrium, or imposing the solution concept of subgame perfect strong equilibrium, which requires the absence of profitable deviations by any subset of principals and the agent. More specific results about the structure of equilibrium prices and payoffs for common agency outcomes are offered when the social surplus function is monotone and either submodular or supermodular. |
| Keywords: | Multiproduct Price Competition, Delegated Agency Games, Mixed Bundling Prices, Subgame Perfect Nash Equilibrium, Strong Equilibrium |
| JEL: | C72 D21 D41 D43 L13 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0210&r=com |
| By: | Oz Shy |
| Abstract: | This paper surveys a variety of topics related to network economics. Topics covered include: consumer demand under network effects, compatibility decisions and standardization, technology advances in network industries, two-sided markets, information networks and intellectual property, and social influence. |
| Keywords: | Consumers' preferences ; Telecommunication ; Technology |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:10-3&r=com |
| By: | Bruno Merlevede; Koen Schoors; Mariana Spatareanu |
| Abstract: | We analyze how foreign presence affects local ?firm productivity. We relax the standard implicit assumption that spillovers are immediate and permanent. We ?find that spillovers are dynamic. Foreign entry of a majority foreign owned fi?rm has a short run negative effect on the productivity of local competitors, which is more than offset by a longer run positive effect. The entry of minority foreign owned fi?rms has an immediate, though short-lived, positive effect on local suppliers. The entry of majority foreign owned fi?rms also improves the productivity of local suppliers, but the effect materializes later and lasts longer. |
| Keywords: | FDI, spillovers, dynamics, timing |
| JEL: | F2 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:run:wpaper:2010-001&r=com |
| By: | Ishikawa, Jota; Morita, Hodaka; Mukunoki, Hiroshi |
| Abstract: | Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign .rm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This .nding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited. |
| Keywords: | post-production services, rade liberalization, FDI, outsourcing, international oligopoly |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:29&r=com |
| By: | Hoque, Mainul Mohammad; Schroeter, John R. |
| Abstract: | Exports of agricultural commodities to developed countries play a significant role in the economies of many developing countries. The elimination of import tariffs has the potential to benefit producers in the developing countries, but estimates of the effect of trade liberalization typically assume perfect competition. Significant concentration in the food processing and retailing sectors of the U.S. and the EU undermine the plausibility of this assumption in the case of agricultural trade, however. Sexton, Sheldon, McCorriston, and Wang (SSMW, 2007) developed a model of the effects of trade liberalization that accounts for the vertically-linked and concentrated characteristics of the developed countries’ food markets. Their principal qualitative finding is that an analysis based on the assumption of competitive conduct will overstate the effects of trade liberalization if food processing and retailing firms exercise market power. This result is sensitive to their choice of functional forms, however, as this paper demonstrates with an analysis in which SSMW’s linearity assumption is replaced by constant elasticity specifications for supply and demand. We also extend the SSMW analysis by considering ad valorem tariffs, a case for which the results exhibit both qualitative and quantitative differences from those for the unit tariff case. |
| Keywords: | oligopoly; oligopsony; trade liberalization; vertical market structure |
| JEL: | F12 L13 |
| Date: | 2010–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:31390&r=com |
| By: | Camilla Jensen |
| Abstract: | The paper shows that the standing of theory in the field of mergers and acquisitions is weak for at least three reasons. Research is best described as a battlefield of ad hoc theory testing leaving behind a fragmented field. Research has focused traditionally on high intensity markets under the Anglo-Saxon variant of capitalism. Empirical evaluation is prone to be inexact and suffers among other from significant aggregation problems between the micro (firm performance) and macro level (economic growth). The deficiencies in the standing of theory will be reflected in weak institutions to handle the political processes concerning value, liquidity, efficiency and fairness aspects that affect the market for corporate assets within and across different variants of capitalism. |
| Keywords: | Economic Growth, Institutions, Mergers and Acquisitions, the Resource Based View, Variants of Capitalism |
| JEL: | F23 G34 L25 N85 O12 O43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0401&r=com |
| By: | Appelt, Silvia |
| Abstract: | Patent holders frequently attempt to mitigate the loss of monopoly power by authorizing generic entry prior to patent expiry (early entry). Competition in off-patent pharmaceutical markets may be adversely affected if early entry substantially impairs the attractiveness of subsequent market entry. I examine generic entry decisions made in the course of recent patent expiries to quantify the impact of early entry on incentives for generic entry. Using unique micro data and accounting for the endogeneity of early entry, I estimate recursive bivariate probit models of entry. Drug markets' pre-entry revenues largely determine both independent generic entry and early entry decisions. Early entry in turn has no significant impact on the likelihood of generic entry. Original drug producers appear to authorize generic entry prior to loss of exclusivity primarily fueled by rent-seeking rather than strategic entry-deterrence motives. |
| Keywords: | Generic Entry; Early Entry; Anticompetitive Practices |
| JEL: | L41 I11 O34 C35 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11476&r=com |
| By: | Santiago Carbó; David Humphrey; Francisco Rodríguez |
| Abstract: | Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in competition between commercial and savings banks nor between large and small institutions, but the authors conclude that competition weakened after 2000. This appears related to strong loan demand where real loan-deposit rate spreads rose and fees were stable for activities where scale economies should have been realized. |
| Keywords: | Bank competition |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:10-9&r=com |
| By: | Jong, A. de; Ongena, S.; Poel, M. van der (Tilburg University, Center for Economic Research) |
| Abstract: | This paper investigates the effects of international diversification of banks on the value of their M&A advice. We study bidder returns to 1,253 cross-border M&A announcements. We find that acquirers engaging a more internationally diversified financial advisor generate lower excess returns. Acquirers benefit most from advisors with a greater focus on their home country. These results suggest that the benefits of advisors’ international diversification related to greater economies of scale and scope and the flexibility of allocating deals to the most skilled employee do not outweigh the costs emanating from a lack of country-specific knowledge and greater conflicts of interest. |
| Keywords: | Bank Diversification;Cross-Border Mergers and Acquisitions;Advisor Choice. |
| JEL: | G24 G34 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201024&r=com |
| By: | Khemraj, Tarron |
| Abstract: | Previous studies have documented the tendency for the commercial banking sector of many developing economies to be highly liquid and be characterised by a persistently high interest rate spread. This paper embeds these stylised facts in an oligopoly model of the banking firm. The paper derives both the loan and deposit rates as a mark up rate over a relatively safe foreign interest rate. Then, using a diagrammatic framework, the paper provides an analysis of: (i) the distribution of financial surplus among savers, business borrowers and banks; (ii) exogenous deposit shocks; (iii) exogenous loan demand shocks; and (iv) the impact of interest rate control on financial intermediation. |
| Keywords: | Oligopoly; commercial banks; developing economies; distribution |
| JEL: | D30 E40 G21 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:22266&r=com |
| By: | Torsten Wezel |
| Abstract: | This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07. Using two main empirical approaches, Data Envelopment Analysis and Stochastic Frontier Analysis, the paper finds that foreign banks are not necessarily more efficient than their domestic counterparts. If anything, the regional banks that were acquired by global banks in a wave of acquisitions during 2005-07 can keep up with the local institutions. The efficiency of these acquired banks, however, is shown to have dropped during the acquisition year, recovering only slightly thereafter. Finally, it is important to account for the environment in which banks operate, as country-, sector- and firm-specific characteristics are found to have a considerable influence on bank efficiency. |
| Keywords: | Banks , Central America , Cross country analysis , Foreign direct investment , International banking , Productivity , |
| Date: | 2010–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/95&r=com |
| By: | Chun-Yu Ho (Georgia Institute of Technology, Hong Kong Institute for Monetary Research) |
| Abstract: | This paper examines the effects of market deregulation on consumers and state commercial banks in China, a large developing country. I jointly estimate a system of differentiated product demand and pricing equations under alternative market structures. While China's banking reforms overall have achieved mixed results, the consumer surplus of the deposit market has increased. The welfare effects from reforms are unevenly distributed, with losses skewed toward inland provinces and certain consumer groups. There is no clear evidence that the pricing of banking services has become more competitive after the reform, and such pricing remains subject to government intervention. Encouragingly, the price-cost margins of some state commercial banks have fallen over time. |
| Keywords: | Banking Reform, Banks in China, Demand Estimation, Market Structure |
| JEL: | G21 L11 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:302009&r=com |
| By: | Kenji Fujiwara (Kwansei Gakuin University) |
| Abstract: | This paper develops a dynamic game model of an asymmetric oligopoly with a renewable resource to reconsider welfare effects of increases in the number of firms. We show that increasing not only the number of inefficient firms but also that of Efficient firms reduces welfare, which sharply contrasts to a static outcome. It is discussed that the closed-loop property of feedback strategies plays a decisive role in this finding. |
| Keywords: | Dierential game, Asymmetric oligopoly, Feedback strategy |
| JEL: | C73 L13 Q20 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:51&r=com |
| By: | Rabin Hattari (World Bank); Ramkishen S. Rajan (George Mason University ,Hong Kong Institute for Monetary Research) |
| Abstract: | This paper examines cross-border M&A activities in a large panel which includes many developing Asian economies. How important are financial drivers of M&As in the region, particularly financial risks such as market risk, credit risk, and liquidity risk? How significant are intra-(developing) Asian M&As and are there differences between intra-regional M&A transactions and M&A purchases by extra-regional sources in developing Asia? These are among the issues explored in this paper using a novel dataset of bilateral M&A purchases in developing Asia over the period 2000-2007. |
| Keywords: | Developing Asia, Distance, Finance, Foreign Direct Investment (FDI), Gravity Model, Greenfield investment, Mergers and Acquisitions (M&As), Risks |
| JEL: | F21 F23 F36 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:362009&r=com |