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on Industrial Competition |
| By: | António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal); Joana Pinho (Faculdade de Economia, Universidade do Porto, Portugal) |
| Abstract: | We introduce asymmetric information about consumers' transportation costs (i.e., the degree of product differentiation) in the model of Hotelling (1929). When the transportation costs are high, both firms have lower profits than in the case of perfect information. Contrarily, both firms may prefer the asymmetric information case if the transportation costs are low (the informed firm always prefers the informational advantage, while the uninformed firm may or may not prefer to remain uninformed). Information sharing is ex-ante advantageous for the firms, but ex-post damaging in the case of low transportation costs. If the information is not verifiable, the informed firm always tends to announce that the transportation cost is high. To induce truthful revelation: (i) the uninformed firm must pay for the informed firm to confess that the transportation costs are low; and (ii) the informed firm must make a payment (to the uninformed firm or to a third party) for the uninformed firm to believe that the transportation costs are high. |
| Keywords: | Hotelling model; Horizontal differentiation; Asymmetric information; Transportation costs; Information sharing |
| JEL: | D43 D82 L13 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:379&r=com |
| By: | M. Alvisi; E. Carbonara |
| Abstract: | An integrated monopoly, where all complements forming a composite good are offered by a single firm, is typically welfare superior to a complementary monopoly. This is the "tragedy of the anticommons". We consider the possibility of competition in the market for each complement. We present a model with two perfect complements and introduce n imperfect substitutes for one and then for both complements. We prove that, if one complementary good is produced by a monopolist, and if competition for the other complement does not vary the average quality in the market, then an integrated monopoly is still superior. In such case, favoring competition in some sectors, leaving monopolies in others would be detrimental for consumers and producers alike. Competition may be preferred if and only if the substitutes of the complementary good differ in their quality, so that as their number increases, average quality and/or quality variance increases. Results change when competition is introduced in each sector. In this case, if goods are close substitutes, we find that competition may be welfare superior for a relatively small number of competing firms in each sector, even with no quality differentiation. |
| JEL: | D43 D62 K11 L13 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:708&r=com |
| By: | Martin Woerter (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Christian Rammer (Centre for European Economic Research (ZEW), Department of Industrial Economics and International Management, Mannheim); Spyros Arvanitis (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | This paper analyses the relationship between past innovation output, competition, and future innovation input in a dynamic econometric setting. We distinguish two dimensions of competition that correspond to the concepts of product substitutability and entry barriers due to fixed costs. Based on firm-level panel data for Germany and Switzerland we obtain consistent results for both countries. Innovation output in t-1 as measured by the sales share of innovative products is positively related to the degree of product obsolescence in t, and negatively to the degree of substitutability in t in both countries. Further, we find that rapid product obsolescence provides positive incentives for higher – primarily product-oriented – R&D investments in t+1, while high substitutability exerts negative incentives for future R&D investment. |
| Keywords: | Innovation, R&D, Competition |
| JEL: | O3 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-259&r=com |
| By: | José J. Sempere Monerris (Universitat de València); Rafael Moner Colonques (Universitat de València); Amparo Urbano Salvador (Universitat de València) |
| Abstract: | This paper looks into the desirability of trade liberalization for manufacturers, retailers and consumers. The analysis compares the move from the autarky situation to either one of free trade that entails a change in the distribution system or not. We also examine whether the interests of manufacturers and retailers about the preferred distribution system coincide, provided trade opens. We find that market integration is beneficial to all agents only under certain conditions on the degree of market asymmetry and the degree of product differentiation. Interestingly, if integration entails a change in the distribution system, the conflict between manufacturers and retailers strengthens since only retailers prefer free trade when markets are not too asymmetric and when interbrand competition is sufficiently strong. Furthermore, consumers can be harmed by trade and, in a setting without exclusivities, one country may experience a welfare decrease. Finally, the analysis of the strategic choice concerning exclusivity clauses uncovers that retailers and manufacturers never agree about their preference for endogenous distribution systems. |
| Keywords: | International competition, vertical relationships. |
| JEL: | F12 L19 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2010-09&r=com |
| By: | Nicholas Economides (Stern School of Business, NYU) |
| Abstract: | This paper responds to arguments made in filings in the FCC’s broadband openness proceeding (GN Dkt. 09-191) and incorporates data made available since my January 14th filing in that proceeding. Newly available data confirm that there is limited competition in the broadband access marketplace. Contrary to some others’ arguments, wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services (whether offered by telephone companies or cable operators) and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain broadband providers’ behavior in providing “last mile” broadband access services. The last mile, concentrated market structure, combined with high switching costs, provides last mile broadband network providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Furthermore, the effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Unfortunately, various filings have misstated or mischaracterized the results on the economics of two-sided markets. Contrary to what some have argued, allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. This is true under a robust set of assumptions. Despite some parties’ mischaracterization of the economic literature, price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing between broadband providers and content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules. |
| Keywords: | Network Neutrality, Internet, Discrimination, Prioritization, Two-Sided Market, Market Power, Termination Fee, Broadband |
| JEL: | L1 D4 L12 L13 C63 D42 D43 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1002&r=com |
| By: | Nicholas Economides (Stern School of Business, NYU) |
| Abstract: | While some broadband providers have called Internet content and application providers free riders on their infrastructure, this is incorrect and misguided. End-users pay for their residential broadband providers for access to the Internet, and content providers pay their own ISPs for connectivity as well. However, content providers need not pay residential broadband providers’ ISPs in order to reach their customers. This feature of the Internet has been one key factor that has allowed innovation to prosper and kept barriers to entry low, as the network transport market for content and application providers functions relatively efficiently. In this paper, I consider the impact of a departure from this current system. I examine the possible impact of last-mile broadband providers’ imposing “termination fees” on third-party content providers or application providers to reach end-users. Broadband providers would engage in paid prioritization arrangements – that is, application and content providers could pay the broadband provider to have their traffic prioritized over competitors’ services. I argue that these arrangements would create inefficiency in the market and harm innovation. Because the last mile access broadband market is concentrated and consumers face switching costs, these concerns are particularly significant. Broadband providers insist that imposing these new charges will greatly improve network investment, and thus these charges are beneficial. I argue that this is not the case. Possible higher revenues from discrimination may simply be returned to shareholders and not invested. Additionally, evidence suggests networks invest more under non-discrimination requirements, and paid prioritization schemes would divert money towards managing scarcity instead of expanding capacity. Paid prioritization could even create an incentive for broadband providers to create congestion to increase the price of prioritized service. |
| Keywords: | Network Neutrality, Internet, Market Power, Discrimination, Two-Sided Market, Prioritization, Broadband, Termination Fees |
| JEL: | L1 D4 L12 L13 C63 D42 D43 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1001&r=com |
| By: | Zuzana Fungacova (BOFIT, Bank of Finland); Laura Solanko (BOFIT, Bank of Finland); Laurent Weill (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2007 with the Lerner index. Earlier studies on bank competition have focused on developed countries whereas this paper contributes to the analysis of bank competition in emerging markets. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. We would consequently qualify the procompetitive role of foreign bank entry and privatization. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as t the nonlinear influence of size. |
| Keywords: | Market power, bank competition, Russia. |
| JEL: | G21 P34 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2010-09&r=com |
| By: | Zuzana Fungacova (BOFIT, Bank of Finland); Laurent Weill (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability. |
| Keywords: | Bank competition, bank failure, Russia. |
| JEL: | G21 P34 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2010-08&r=com |
| By: | Jacint Balaguer Coll (Universitat Jaume I); José C. Pernías (Dpto. de Economía) |
| Abstract: | Based on the assumption that location is especially relevant in the lodging industry, we exploit a dataset of Spanish hotels to examine the relationship between spatial competition and retail price level and dispersion. Our results support the hypothesis that a greater density of competitors implies both a lower level and less dispersion of retail prices. We find that close competitors, in terms of hotel category and distance, have a stronger effect on price setting behavior. Moreover, we report weak evidence that the relationship between spatial competition and price level depends on whether the day considered belongs to the midweek or the weekend. Therefore, variation in the type of consumers seems to play quite an important role in explaining the relationship. Partiendo del supuesto de que la localización es especialmente relevante para el sector del alojamiento, utilizamos una base de datos de hoteles españoles para examinar la relación entre competencia espacial y el nivel y la dispersión de los precios de las habitaciones. Nuestros resultados confirman la hipótesis de que una mayor densidad de competidores implica niveles de precios menores y menor dispersión de precios. Los competidores cercanos, ya lo sean en términos de categoría hotelera como de distancia, tienen una mayor influencia sobre la fijación de precios. Adicionalmente, encontramos evidencia débil acerca de que la relación entre competencia espacial y el nivel de precios depende de si el día considerado es laborable o corresponde al fin de semana. Por tanto, las variaciones en el tipo de consumidores parecen tener un papel importante en la explicación de esta relación. |
| Keywords: | Nivel de precios, dispersión de precios, competencia espacial, sector hotelero. Price level, price dispersion, spatial competition, hotel industry |
| JEL: | L11 L81 D43 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2010-03&r=com |