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on Industrial Competition |
| By: | George Deltas (Department of Economics, University of Illinois, U.-C., United States); Thanasis Stengos (Department of Economics, University of Guelph, Canada); Eleftherios Zacharias (Department of Economics, Athens School of Economics, Greece) |
| Abstract: | This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is ownered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization. |
| Keywords: | Pricing, Multiproduct firms, Personal Computers, Product Entry and Exit |
| JEL: | L11 D43 L63 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:14_10&r=com |
| By: | stefano Colombo (DISCE, Università Cattolica) |
| Abstract: | The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for elastic demand functions. A Bertrand-type model and a Cournot-type model are considered. If firms choose location and then set prices, agglomeration never arises; instead, if firms choose location and then set quantities, agglomeration arises at one endpoint of the segment when transportation costs are low enough. Equilibrium distance between firms is lower in Cournot than Bertrand under the whole parameters’ set. We also study the impact of firms’ location on perfect collusion sustainability. We show that when consumers can buy only from firms located on their right (left), the incentive to deviate of each firm decreases the more the firm is located to the right (left) and the more the rival is located to the left (right). |
| Keywords: | Unidirectional Hotelling model; Location equilibrium; Collusion; Bertrand; Cournot. |
| JEL: | D43 L11 L41 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0095&r=com |
| By: | Cristina Pardo-Garcia (ERI-CES) |
| Abstract: | This industry is formed by single-component producers whose components are combined to create composite goods. When a given firm has the possibility of merging with either a complement or a substitute good producer, its equilibrium choice depends on the degree of product differentiation in the composite good market. A merger between complements, which allows for mixed bundling, only happens when composite goods are very differentiated. Private incentives do not always go along with social interests and the equilibrium merger can differ from the socially optimal merger. After a merger, outsiders have also the opportunity to react and merge to other outsiders or to join the previous merge. |
| Keywords: | merger, composite goods, substitutes, complements, pricing strategies, countermerger |
| JEL: | L13 L41 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0410&r=com |
| By: | Sen, Debapriya; Stamatopoulos, Giorgos |
| Abstract: | This paper considers a Cournot duopoly game with endogenous organization structures. There are two firms A and B who compete in the retail market, where A is more efficient than B. Prior to competition in the retail stage, firms simultaneously choose their organization structures which can be either 'centralized' (one central unit chooses quantity to maximize firm's profit) or 'decentralized' (the retail unit chooses quantity to maximize firm's revenue while the production unit supplies the required quantity). Identifying the (unique) Nash Equilibrium for every retail-stage subgame, we show that the reduced form game of organization choices is a potential game. The main result is that with endogenous organization structures, situations could arise where the less efficient firm B obtains a higher profit than its more efficient rival A. |
| Keywords: | Centralized structure; decentralized structure; potential games |
| JEL: | L13 L21 D43 C72 |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23324&r=com |
| By: | Stéphane Caprice; Vanessa von Schlippenbach |
| Abstract: | Analyzing a sequential bargaining framework with one retailer and two suppliers of substitutable goods, we show that slotting fees may emerge as a result of a rent-shifting mechanism when consumer shopping costs are taken into account. If consumers economize on their shopping costs by bundling their purchases, their buying decision depends rather on the price for the whole shopping basket than on individual product prices. This induces complementarities between the goods offered at a retail outlet. If the complementarity effect resulting from shopping costs dominates the original substitution effect, the wholesale price negotiated with the first supplier is upward distorted in order to shift rent from the second supplier. As long as the first supplier has only little bargaining power, she compensates the retailer for the upward distorted wholesale price by paying a slotting fee. We also show that banning slotting fees causes per- unit price to fall and welfare to increase. |
| Keywords: | Shopping costs, rent-shifting, slotting fees |
| JEL: | L22 L42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1012&r=com |
| By: | Pedro Cantos Sanchez (ERI-CES); Rafael Moner-Colonques (ERI-CES); Jose Sempere-Monerris (ERI-CES); Oscar Alvarez (IEI) |
| Abstract: | This paper develops a theoretical model for freight transport characterized by competition between means of transport (the road and maritime sectors), where modes are perceived as differentiated products. Competitive behavior is assumed in the road freight sector, and there are constant returns to scale. In contrast, the freight maritime sector is characterized by oligopolistic behavior, where shipping lines enjoy economies of scale. The market equilibrium where the shipping lines behave as profit maximizers, provides a first approximation to the determinants of market shares, profits, and user welfare. We then characterize the equilibrium when horizontal integration of shipping lines occurs, with and without further economies of scale. An empirical application to the routes Valencia-Antwerp and Valencia-Genoa uncovers that the joint profit of the merged firms and social welfare always increase. However, user surplus only increases when economies of scale are significantly exploited |
| Keywords: | freight transport, shipping lines, horizontal integration |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0710&r=com |
| By: | Juan Esteban Carranza |
| Abstract: | This paper contains an empirical dynamic model of supply and demand in the market for digital cameras with endogenous product innovation. On the demand side, heterogeneous consumers time optimally the purchase of goods depending on the expected evolution of prices and characteristics of available cameras. On the supply side, firms introduce new camera models accounting for the dynamic value of new products and the optimal behavior of consumers. The model is estimated using data from the market for digital cameras and the estimated model replicates rich dynamic features of the data. The estimated model is used to perform counterfactual computations, which suggest that more competition or lower product introduction costs generate more product variety but lower average product quality. |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:col:000130:007127&r=com |
| By: | Evan Calford (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia); Christoph Heinzel (Centre for Energy and Environmental Markets (CEEM) School of Economics, Australian School of Business, University of New South Wales, Australia); Regina Betz (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia) |
| Abstract: | We analyse the efficiency effects of the initial permit allocation given to firms with market power in both permit and output market. We examine two models: a long-run model with endogenous technology and capacity choice, and a short-run model with fixed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the effects derived under Cournot competition, but displays higher pass-through profits. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market efficiency in the short run. |
| Keywords: | Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman |
| JEL: | L13 Q28 D43 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:eenhrr:1059&r=com |
| By: | Sakellaris, Kostis |
| Abstract: | The last decade has seen an increasing application of game theoretic tools in the analysis of electricity markets and the strategic behavior of market players. This paper focuses on the model examined by Fabra et al. (2008), where the market is described by a two-stage game with the firms choosing their capacity in the first stage and then competing in prices in the second stage. By allowing the firms to endogenously determine their capacity, through the capacity investment stage of the game, they can greatly affect competition in the subsequent pricing stage. Extending this model to the demand uncertainty case gives a very good candidate for modeling the strategic aspect of the investment decisions in an electricity market. After investigating the required assumptions for applying the model in electricity markets, we present some numerical examples of the model on the resulting equilibrium capacities, prices and profits of the firms. We then proceed with two results on the minimum value of price caps and the minimum required revenue from capacity mechanisms in order to induce adequate investments. |
| Keywords: | Capacity Constraints; Electricity Markets; Regulatory Policy; Strategic Behaviour; |
| JEL: | C63 L94 C72 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23317&r=com |