nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒07‒10
eight papers chosen by
Russell Pittman
US Department of Justice

  1. Downstream labeling and upstream price competition By Bonroy, O.; Lemarié, S.
  2. Comparing Monopoly and Duopoly on a Two-Sided Market without Product Differentiation By Böhme, Enrico; Müller, Christopher
  3. Does Product Market Competition Lead Firms to Decentralize? By Nick Bloom; Raffaella Sadun; John Van Reenen
  4. Markups, bargaining power and offshoring: an empirical assessment By Moreno, L; Rodríguez , D
  5. An Economic Approach to Abuse of Dominance By Federico Etro; Ioannis Kokkoris
  6. The Impact of Competition on Management Quality: Evidence from Public Hospitals By Nicholas Bloom; Carol Propper; Stephan Seiler; John Van Reenen
  7. Does Hospital Competition Improve Efficiency? An Analysis of the Recent Market-Based Reforms to the English NHS By Zack Cooper; Stephen Gibbons; Simon Jones; Alistair McGuire
  8. The Effect of Entertainment in Newspaper and Television News Coverage By Greiner, Tanja

  1. By: Bonroy, O.; Lemarié, S.
    Abstract: The paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects : a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low quality input price, the label acts then as a subsidy which assures an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of the public labeling in cases like restaurants or GMOs.
    JEL: L15 L50
    Date: 2010
  2. By: Böhme, Enrico; Müller, Christopher
    Abstract: We propose both a monopoly and a duopoly model of a two-sided market. Both settings are fully comparable, as we impose a homogeneous good produced at zero costs without capacity constraints, as well as identical parameterization of market sizes. We determine the duopoly equilibrium and the monopoly optimum in terms of the parameters and obtain solutions with and without subsidization (prices below marginal cost) of one market side. We show that there exists a continuum of economically plausible parameter sets for which duopoly equilibrium prices exceed optimal monopoly prices and one with no observable price effect of competition, i.e. one where optimum and equilibrium prices become equal. Despite the fact that virtually everything except for the number of platform operators is identical in the latter situations, total demand on both market sides in the duopoly market exceeds total demand in the monopoly market. Furthermore, even though there is no observable price effect, there is still a competitive effect in so far that total profits in the duopoly equilibrium are strictly smaller than monopoly profits. The relationship of total welfare is ambiguous in subsidization cases, while it is strictly greater in duopoly, if no subsidization takes place. Our results sharply contradict economic intuition and common economic knowledge from one-sided markets.
    Keywords: two-sided markets; platform competition; price-concentration relationship; welfare analysis
    JEL: K20 L51 L13 D42 D43 L12
    Date: 2010–06–29
  3. By: Nick Bloom; Raffaella Sadun; John Van Reenen
    Abstract: There is a widespread sense that over the last two decades firms have been decentralizingdecisions to employees further down the managerial hierarchy. Economists have developed arange of theories to account for delegation, but there is less empirical evidence, especiallyacross countries. This has limited the ability to understand the phenomenon ofdecentralization. To address the empirical lacuna we have developed a research program tomeasure the internal organization of firms - including their decentralization decisions - acrossa large range of industries and countries. In this paper we investigate whether greater productmarket competition increases decentralization. For example, tougher competition may makelocal manager's information more valuable, as delays to decisions become more costly. Sinceglobalization and liberalization have increased the competitiveness of product markets, oneexplanation for the trend towards decentralization could be increased competition. Of coursethere are a range of other factors that may also be at play, including human capital,information and communication technology, culture and industrial composition. To tacklethese issues we collected detailed information on the internal organization of firms acrossnations. The few datasets that exist are either from a single industry or (at best) across manyfirms in a single country. We analyze data on almost 4,000 firms across twelve countries inEurope, North America and Asia. We find that competition does indeed seem to foster greaterdecentralization.
    Keywords: Decentralization, management practices
    JEL: L2 M2 O32 O33
    Date: 2010–01
  4. By: Moreno, L; Rodríguez , D
    Abstract: This paper tests the pro-competitive effect of imports on product and labour markets for Spanish manufacturing firms in the period 1990-2005. In doing so, it takes into account the type of imported products: final vs intermediate. Markups are estimated following the procedure suggested by Roeger (1995) and including an efficient bargaining model. The observed heterogeneity among firms is parameterized to consider additional product standardization and market concentration. The results support the Imports as Market Discipline hypothesis for importers of final goods, while firms that offshore intermediate inputs show similar markups to non-importers. Additionally, the union bargaining power is smaller the more final-goods oriented imports are and the more homogeneous is the type of goods elaborated by firms.
    Keywords: Markups; offshoring; bargaining power
    JEL: F16 L60
    Date: 2010–04–10
  5. By: Federico Etro; Ioannis Kokkoris
    Abstract: The European debate on abuse of dominance issues in antitrust has been recently characterized by an emphasis on purely economic aspects, and by an emerging consensus on the merits of taking an “effects-based approach” aimed at the maximization of consumer welfare and the protection of competition. The European Commission has recently issued a Guidance Paper on exclusionary abuses which purports to move EU enforcement on abuse of dominance in this direction. In spite of these developments, we are still far from reaching any consensus on the best way to apply competition policy to specific issues such as predatory pricing, bundling, vertical restraints, exclusive dealing and so on. We analyze the genesis of the European approach to antitrust and discuss the leading economic theories on competition policy and abuse of dominance, as developed by the Chicago School, the post-Chicago approach and the endogenous market structures approach. Finally, we use these economic foundations to analyze the EU approach to abuse of dominance, we examine the Guidance Paper, we provide a comparison with the American approach, and we discuss the implications of some recent important cases.
    Date: 2010–06
  6. By: Nicholas Bloom; Carol Propper; Stephan Seiler; John Van Reenen
    Abstract: In this paper we examine the causal impact of competition on management quality. We analyze thehospital sector where geographic proximity is a key determinant of competition, and English publichospitals where political competition can be used to construct instrumental variables for marketstructure. Since almost all major English hospitals are government run, closing hospitals in areaswhere the governing party has a small majority is rare due to fear of electoral punishment. We findthat management quality - measured using a new survey tool - is strongly correlated with financialand clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreimportantly, we find that higher competition (as indicated by a greater number of neighboringhospitals) is positively correlated with increased management quality, and this relationshipstrengthens when we instrument the number of local hospitals with local political competition.Adding another rival hospital increases the index of management quality by one third of a standarddeviation and leads to a 10.7% reduction in heart-attack mortality rates.
    Keywords: management, hospitals, competition, productivity
    JEL: J45 F12 I18 J31
    Date: 2010–05
  7. By: Zack Cooper; Stephen Gibbons; Simon Jones; Alistair McGuire
    Abstract: This paper uses a difference-in-difference estimator to test whether the introduction of patientchoice and hospital competition in the English NHS in January 2006 has prompted hospitalsto become more efficient. Efficiency was measured using hospitals' average length of stay(LOS) for patients undergoing elective hip replacement. LOS was broken down into its twokey components: the time from a patient's admission until their surgery and the time fromtheir surgery until their discharge. Our results illustrate that hospitals exposed to competitionafter a wave of market-based reforms took steps to shorten the time patients were in thehospital prior to their surgery, which resulted in a decrease in overall LOS. We find thathospitals shortened patients' LOS without compromising patient outcomes or by operating onhealthier, wealthier or younger patients. Our results suggest that hospital competition withinmarkets with fixed prices can increase hospital efficiency.
    Keywords: Hospital Competition, Market Structure, Prospective Payment, Incentive Structure
    JEL: C21 I18 L1 R0
    Date: 2010–06
  8. By: Greiner, Tanja
    Abstract: In this paper, we analyze the equilibrium amount of entertainment in news coverage of newspapers and television stations. We find that a shift in the inclination to read, expressed by a shift in the (psychological) distance costs, induces both media outlets to incorporate more entertaining elements in news coverage. The introduction of commercial television, however, which leads to a unilateral fall in the distance costs to the television broadcast, yields different results. It induces a negative effect on the profits of both media outlets, and increases price competition. Furthermore, the newspaper offers less while the television channel offers more entertainment. Overall, this leads to a marginalization of informational content, as the television channel gains market shares at the expense of the newspaper.
    Keywords: media economics; industrial organization; media bias; horizontal product differentiation; duopoly
    JEL: D72 L13 L82
    Date: 2010–06

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.