nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒05‒08
seven papers chosen by
Russell Pittman
US Department of Justice

  1. "Multiproduct Duopoly with Vertical Differentiation" By Yi-Ling Cheng; Shin-Kun Peng; Takatoshi Tabuchi
  2. Vertical Separation with Private Contracts By Marco Pagnozzi; Salvatore Piccolo
  3. A Note on Free Entry under Uncertainty: on the Role of Asymmetric Information By Salvatore Piccolo
  4. Exclusive Territories and Manufacturers’ Collusion By Salvatore Piccolo; Markus Reisinger
  5. On Some “Dimensions” of the Theory of the Firm By A. Stramaglia
  6. US market entry by Spanish pharmaceutical firms By Fabrizio Cesaroni; Marco S. Giarratana; Ester Martínez-Ros
  7. Introducing Competition in Container Movement by Rail By Morris Sebastian; Pandey Ajay; Raghuram G; Gangwar Rachna

  1. By: Yi-Ling Cheng (Department of Economics, National Taiwan University); Shin-Kun Peng (Academia Sinica and National Taiwan University); Takatoshi Tabuchi (Faculty of Economics, University of Tokyo)
    Abstract: The paper investigates a two-stage competition in a vertical differentiated industry, where each firm produces an arbitrary number of similar qualities and sells them to heterogeneous consumers. We show that, when unit costs of quality are increasing and quadratic, each firm has an incentive to provide an interval of qualities. The finding is in sharp contrast to the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for an interval of qualities intensifies competition, lowers the profits of each firm and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.
    Date: 2010–04
  2. By: Marco Pagnozzi (University of Napoli "Federico II" and CSEF); Salvatore Piccolo (University of Naples "Federico II" and CSEF)
    Abstract: We consider a manufacturer's incentive to sell through an independent retailer, rather than directly to final consumers, when contracts with retailers cannot be observed by competitors. If retailers conjecture that identical competing manufacturers always offer identical contracts (symmetry beliefs), vertical separation by all manufacturers is an equilibrium, and it results in higher consumers' prices and manufacturers' profits. Even with private contracts, vertically separated manufacturers reduce competition by inducing less aggressive behaviour by retailers in the final market. We characterize a condition for manufacturers' profits to be higher with private than with public contracts. Our results hold both with price and with quantity competition, and do not hinge on retailers' beliefs being perfectly symmetric.
    Keywords: Delegation, vertical separation, private contracts, symmetry beliefs
    JEL: D20 D43
    Date: 2010–04–26
  3. By: Salvatore Piccolo (University of Naples "Federico II" and CSEF)
    Abstract: In a model of competing managerial .rms I show that the equilibrium number of firms decreases with uncertainty if entry is relatively more costly than monitoring. The result adds to the earlier theoretical contributions and is consistent with the available evidence.
    Keywords: Asymmetric information, free entry, uncertainty, managerial firms
    JEL: D43 D81 L12
    Date: 2010–04–24
  4. By: Salvatore Piccolo (University of Naples "Federico II" and CSEF); Markus Reisinger (University of Munich)
    Abstract: This paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains. We show that exclusive territories have two countervailing effects on the incentives for manufacturers to sustain tacit collusion. First, granting local monopolies to retailers distributing a given brand softens inter- and intrabrand competition in a one-shot game. Hence, in repeated interaction the punishment profit after deviation from the collusive agreement is larger, thereby rendering deviation more profitable. Second, exclusive territories stifle deviation profits because retailers of competing brands can adjust their pricing decisions to the wholesale contract offered by a deviant manufacturer, whilst intrabrand competition would prevent this .instantaneous reaction’ mechanism. We show that the latter effect tends to dominate the former, whereby making exclusive territories a more suitable organizational mode to sustain cooperation between manufacturers. We also argue that these effects emerge only if manufacturers engage in information sharing about wholesale contracts, and show that they indeed always choose to do so in equilibrium. Otherwise, the strategic effects are absent and exclusive territories are of no use. Thus, the paper provides insights on the way exclusive territories and information sharing between supply chains should be bundled to improve manufacturers’ profits.
    Keywords: Exclusive territories, supply chains, tacit collusion, information sharing, vertical restraints.
    Date: 2010–04–14
  5. By: A. Stramaglia
    Date: 2010–03
  6. By: Fabrizio Cesaroni; Marco S. Giarratana; Ester Martínez-Ros
    Abstract: This work explores the factors that spur firms’ propensity to enter in international markets. Among the whole population of Spanish firms active in the pharmaceutical sector (over the period 1995-2004), we identify those firms that have entered the US market by assessing whether they have filed at least a trademark in the US Patents and Trademarks Office. By means of a hazard model, we empirically estimate which firm’s characteristics affect the probability of entry in the US market in a given year. Results show that technological capabilities (breadth and depth of firms’ patent base), and the firm’s cost structure explain the entry in the US market with a branded product. Moreover, our evidence shows that entry strategies based on differentiation advantage (technological diversification) and strategies based on cost advantage (scale economies) are exclusive and do not mix well each other
    Keywords: Foreign market entry, Internationalization strategies, Firm-Specific advantages, Competitive advantage, Innovation and R&D, Patents, Trademarks
    JEL: F23
    Date: 2010–02
  7. By: Morris Sebastian; Pandey Ajay; Raghuram G; Gangwar Rachna
    Abstract: Container movement by rail was a monopoly of Indian Railways (IR) until recently and its subsidiary, Container Corporation (CONCOR) was the sole operator of container trains. Entry of other entities in 2007 has been driven by larger public policy concerns. In the process, issues such as resistance of the incumbent, erection of entry barriers, denial of level playing field, use of a closely held organization as a consultant, and conflicting roles of IR as licensor, regulator, service provider, and operator came into sharp focus. This paper attempts to review the process starting from the policy announcement (February 2005) to evolution of a Model Concession Agreement (January 2007) and shows how policies were influenced by the incumbent to restrict competition by creating barriers on the one hand and how an alternate view provided by external entities, like the Planning Commission and other non-IR stakeholders significantly altered the course of action leading to entry of a large number of competing players.
    Date: 2010–02–08

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.