nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒08‒06
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Quantity Competition, Endogenous Motives and Behavioral Heterogeneity By Chirco, Alessandra; Colombo , Caterina; Scrimitore, Marcella
  2. Referrals in Search Markets By Maria Arbatskaya; Hideo Konishi
  3. Competition, product and process innovation: an empirical analysis By Carlos D. Santos
  4. Employment effects of acquisitions: Evidence from acquired European firms By Oberhofer, Harald
  5. Modelling structural changes in the volatility process By Tibor Neugebauer; Juan A. Lacomba; Francisco Lagos
  6. Strategic Collusion in Auctions with Externalities By Omer Biran
  7. Posted Pricing as a Plus Factor By Joseph E. Harrington, Jr.
  8. Competition Among Mass Media By Kwiek, Maksymilian
  9. Postal Markets and Electronic Substitution: Implications for Regulatory Practices and Institutions in Europe By Martin Maegli; Christian Jaag; Martin Koller; Urs Trinkner
  10. A Theory of Quality Competition in Newspaper Joint Operating Agreements By Charles J. Romeo; Aran Canes
  11. The Impact of Competition on Management Quality: Evidence from Public Hospitals By Nicholas Bloom; Carol Propper; Stephan Seiler; John van Reenan
  12. Death by Market Power. Reform, Competition and Patient Outcomes in the National Health Service By Martin Gaynor; Rodrigo Moreno-Serra; Carol Propper
  13. Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects By Yonghong An, Michael R. Baye, Yingyao Hu, John Morgan, and Matt Shum
  14. Measuring Competition in Slovenian Industries: Estimation of Mark-ups By Margit Molnar

  1. By: Chirco, Alessandra; Colombo , Caterina; Scrimitore, Marcella
    Abstract: The paper shows that strategic quantity competition can be characterized by behavioral heterogeneity, once competing firms are allowed in a pre-market stage to optimally choose the behavioral rule they will follow in their strategic choice of quantities. In particular, partitions of the population of identical firms in profit maximizers and relative profit maximizers turn out to be deviation-proof equilibria, both in simultaneous and sequential game structures. Our findings that in a strategic framework heterogeneous behavioral rules are consistent with individual incentives provides a game-theoretic microfoundation of heterogeneity.
    Keywords: Behavioral Heterogeneity; Endogenous Motives; Relative Performance; Multistage Games; Quantity Competition.
    JEL: L21 L13 C72
    Date: 2010–07
  2. By: Maria Arbatskaya; Hideo Konishi
    Abstract: This paper compares the equilibrium outcomes in search markets with and without referrals. Although it seems clear that consumers would benefit from referrals, it is not at all clear whether firms would unilaterally provide information about competing offers since such information could encourage consumers to purchase the product elsewhere. In a model of a horizontally differentiated product and sequential consumer search, we show that valuable referrals can arise in the equilibrium: a firm will give referrals to consumers whose ideal product is sufficiently far from the firm’s offering. It is found that the equilibrium prices are higher in markets with referrals. Although referrals can make consumers worse off, referrals lead to a Pareto improvement as long as the search cost is not too low relative to product heterogeneity. Similar results are obtained in the presence of referral fees and in the case where firms can price-discriminate among consumers and consumers can misrepresent their tastes.
    Date: 2010–07
  3. By: Carlos D. Santos (Dpto. Fundamentos del Análisis Económico)
    Abstract: Competition has long been regarded as productivity enhancing. Understanding the mechanism by which competition affects innovation and productivity is therefore an important topic for economic policy. The main contribution of this paper is to disentangle the relationship between competition and two sides of innovation: product and process. I write down a model and discuss the conditions under which we can identify the causal mechanism. Overall I find that competition, measured by the number of competitors or market shares, has negative effects on product innovation and no effects on process innovation. The explanation is very simple. By shifting demand, competition directly changes the optimality condition for product but not for process innovation. Thus, competition has no direct effects on process innovations or, as a consequence, productivity.
    Keywords: competition, innovation, R&D, product innovation, process innovation
    JEL: L11 L60 O30
    Date: 2010–07
  4. By: Oberhofer, Harald (University of Salzburg)
    Abstract: This paper examines the employment effects of acquisitions for acquired European firms taking non-random selection of acquisition targets explicitly into account. Following the empirical firm growth literature and theories put forward in the mergers and acquisition (M&A) literature we control for convergence dynamics in firm size and distinguish between different types of acquisitions. Empirically, we estimate an endogenous treatment model using accounting data for a newly created sample of acquired and non-acquired European firms. Our results reveal positive employment effects for all different types of acquisitions.
    Keywords: Acquisitions; employment effects; firm growth; endogenous treatment model
    JEL: C21 G34 L22 L25
    Date: 2010–07–27
  5. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg); Juan A. Lacomba (University of Granada, Department of Economics); Francisco Lagos (University of Granada, Department of Economics)
    Abstract: The tension between cooperation and competition that characterizes many business relationships is experimentally studied in a “pie”-creation game; value is created and increased through cooperation in a repeated prisoner’s dilemma game. At the end, the player with the greater stake in the joint pie decides on the division of the pie. Three treatments of the pie-creation game are considered: in the first treatment, rivals create the pie; in the second, non-rivals create the pie; finally, in the third, the pie is created by subjects who do not know about the future pie-division. The data show that the competition for the right to split the pie biases behaviors towards defection when subjects play with their rival.
    Keywords: Competition, cooperation, co-opetition, ambiguously repeated prisoner’s dilemma, experimental economics.
    Date: 2010
  6. By: Omer Biran (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)
    Abstract: We study a first price auction preceded by a negotiation stage, during which bidders may form a bidding ring. We prove that in the absence of external effects the all-inclusive ring forms in equilibrium, allowing ring members to gain the auctioned object for a minimal price. However, identity dependent externalities may lead to the formation of small rings, as often observed in practice. Potential ring members may condition their participation on high transfer payments, as a compensation for their expected (negative) externalities if the ring forms. The others may therefore profitably exclude such "demanding" bidders, although risking tougher competition in the auction. We also analyze ring inefficiency in the presence of externalities, showing that a ring may prefer sending an inefficient member to the auction, if the efficient member exerts threatening externalities on bidders outside the ring, which in turn leads to a higher winning price.
    Keywords: Auctions;collusion;externalities;bargaining;sub-game perfect Nash equilibrium
    Date: 2010–07–23
  7. By: Joseph E. Harrington, Jr.
    Abstract: This paper identifies conditions under which an industry-wide practice of posted (or list) pricing is a plus factor sufficient to conclude that firms violated Section 1 of the Sherman Act. For certain classes of markets, it is shown that, under competition, all firms setting a list price with a policy of no discounting is contrary to equilibrium. Thus, if all firms choose posted pricing, it is to facilitate collusion by making it easier for them to coordinate their prices. It is then argued that the adoption of posted pricing communicates the necessary intent and reliance to conclude concerted action.
    Date: 2010–08
  8. By: Kwiek, Maksymilian
    Abstract: This paper investigates how mass media provide information to readers or viewers who have diverse interests. The problem of a mass medium comes from the fact that there is a constraint on how much information can be delivered. It is shown that the mass medium optimally provides information that is somewhat useful to all agents, but not perfect to anybody in particular. This benchmark model is then used to investigate competition among mass media with differentiated products. In the equilibrium of the example studied, mass media differentiate their news fully, as if they were monopolies on the subset of readers to which they tailor their news. However, prices are disciplined by competition. <br><br> Keywords; Mass media, product differentiation, news, cheap talk, quantization <br><br> JEL Classification: D83, L11, L82
    Date: 2010–07–01
  9. By: Martin Maegli; Christian Jaag; Martin Koller; Urs Trinkner
    Abstract: There is an increasing convergence between postal products and telecom applications which suggests the need for a co-evolution of regulation. But there is hardly any discussion in academia or in practice about the consequences for regulation. Relevant questions are: Which parts of current regulation will become redundant? Is there additional regulation needed due to new bottlenecks or changes in consumer behavior? In our qualitative analysis, we investigate the implications of intermodal competition and growing convergence between postal and telecommunications services on regulatory institutions and regimes. We set up a comparison between the networks and compare the scope of universal services and issues concerning market power regulation in the two different industries.
    Keywords: Convergence, Regulation, Post, Telecommunication, Universal service obligation, Access
    JEL: L41 L52
    Date: 2010–07
  10. By: Charles J. Romeo (Economic Analysis Group, Antitrust Division, U.S. Department of Justice); Aran Canes
    Abstract: Newspaper Joint Operating Agreements (JOAs) are long term, inflexible contracts between metropolitan daily newspapers in the same market. These contracts maintain two editorial voices while combining all business operations of the two competitors in order to capture many of the scale economies that have put an end to newspaper competition in most markets. The question we address is what, if anything, drives newspapers to compete editorially once a JOA is formed? With contract terms that run in the 10s of years, one might reasonably question whether incentives exist to prod the partners to continue rigorous competition. Our study of JOA contracts indicates that the history of JOAs is filled with instances of unprogrammed renegotiations, and that how the partners fare in these negotiations appears to be driven by each party's relative success in the market since the agreement was initiated. In essence, forming a JOA does not resolve the issue of which newspaper will remain in the marketplace once the JOA terminates. Editorial competition throughout the life of the JOA resolves this issue.
    Date: 2010–07
  11. By: Nicholas Bloom; Carol Propper; Stephan Seiler; John van Reenan
    Abstract: In this paper we examine the causal impact of competition on management quality. We analyze the hospital sector where geographic proximity is a key determinant of competition, and English public hospitals where political competition can be used to construct instrumental variables for market structure. Since almost all major English hospitals are government run, closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment. We find that management quality - measured using a new survey tool - is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions (AMI). More importantly, we find that higher competition (as indicated by a greater number of neighboring hospitals) is positively correlated with increased management quality, and this relationship strengthens 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 standard deviation 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
  12. By: Martin Gaynor; Rodrigo Moreno-Serra; Carol Propper
    Abstract: The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from non experimental data. In contrast, this paper exploits a pro-competitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Patients were given choice of location for hospital care and provided information on the quality and timeliness of care. Prices, previously negotiated between buyer and seller, were set centrally under a DRG type system. Using this policy to implement a difference-in-differences research design we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. Our data set is large, containing information on approximately 68,000 discharges per year per hospital from 160 hospitals. We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.
    Keywords: competition, hospitals, quality
    JEL: I18 I11 L13 L32
    Date: 2010–07
  13. By: Yonghong An, Michael R. Baye, Yingyao Hu, John Morgan, and Matt Shum
    Abstract: This paper (1) presents a general model of online price competition, (2) shows how to structurally estimate the underlying parameters of the model when the number of competing firms is unknown or in dispute, (3) estimates these parameters based on UK data for personal digital assistants, and (4) uses these estimates to simulate the competitive effects of horizontal mergers. Our results suggest that competitive effects in this online market are more closely aligned with the simple homogeneous product Bertrand model than might be expected given the observed price dispersion and number of firms. Our estimates indicate that so long as two firms remain in the market post merger, the average transaction price is roughly unaffected by horizontal mergers. However, there are potential distributional effects; our estimates indicate that a three-to-two merger raises the average transaction price paid by price sensitive "shoppers" by 2.88 percent, while lowering the average transaction price paid by consumers "loyal" to a particular firm by 1.37 percent.
    Date: 2010–07
  14. By: Margit Molnar
    Abstract: Product market regulation on average is Slovenia does not appear particularly stringent, but heavy state involvement and high market concentration in several industries call for the gauging of competitive pressures in Slovenian industries. Owing to such characteristics, more sophisticated measures than the simple comparison of relative price levels is needed. Mark-ups can provide valuable information on competitive pressures in various sectors of the economy, reflecting pressures stemming from rules of conduct imposed by regulators as well as those arising from such factors as trade and FDI or increasing consumer demands in terms of price and quality. Conversely, the lack of competitive pressure may stem from heavy state involvement in the manufacturing and service sectors. This study is a first attempt to estimate mark-ups for manufacturing and service industries in Slovenia and in addition, its novelty is that it i) estimates mark-ups at a detailed level of sectoral disaggregation and ii) allows for non-constant returns to scale. The estimation is done for the period 1993-2006 and uses firm level data of the Amadeus database. In general, the estimated mark-ups are higher for services than manufacturing industries, but some manufacturing industries have high mark-ups in international comparison. This Working Paper relates to the 2009 OECD Economic Survey of Slovenia (<P>Mesurer la concurrence dans les branches d'activité slovènes : estimation des marges<BR>En moyenne, la réglementation des marchés de produits en Slovénie ne semble pas particulièrement restrictive, mais l'ampleur de l'intervention de l'État et la forte concentration du marché dans plusieurs secteurs requièrent une évaluation des pressions concurrentielles dans les branches d'activité slovènes. Compte tenu de ces caractéristiques, des mesures plus élaborées que la simple comparaison des niveaux de prix relatifs s'imposent. Les taux de marge peuvent être riches d'enseignements sur les pressions concurrentielles qui s'exercent dans divers secteurs de l'économie, reflétant les pressions qui résultent des règles de conduite imposées par les autorités de régulation, ainsi que celles qui découlent de facteurs tels les échanges et l'investissement direct étranger (IDE) ou l'augmentation des exigences des consommateurs en termes de prix et de qualité. Inversement, le manque de pressions concurrentielles peut avoir pour origine l'ampleur de l'intervention de l'État dans les industries manufacturières et les services. Cette étude est une première tentative d'estimer les marges dans les industries manufacturières et les services en Slovénie ; en outre, elle se caractérise par deux nouveautés : i) les marges y sont estimées à un niveau de ventilation sectorielle très poussé et ii) l'étude tient compte de rendements d'échelle non constants. Cette estimation est effectuée pour la période 1993-2006, à partir de données par entreprise tirées de la base de données Amadeus. En général, les marges estimées sont plus élevées pour les services que pour les industries manufacturières, mais ces dernières affichent dans certains cas des taux de marge élevés en termes de comparaison internationale. Ce document de travail se rapporte à l'Étude économique de l'OCDE sur la Slovénie de 2009 (
    Keywords: competition, imperfect competition, monopoly, Slovenia, market behaviour, firm production, concurrence, monopole, Slovénie, concurrence imparfaite, comportement sur le marché, production des entreprises
    JEL: D21 D4 L12
    Date: 2010–06–17

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