nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒08‒14
fifteen papers chosen by
Russell Pittman
US Department of Justice

  1. Bertrand-Edgeworth competition in an almost symmetric oligopoly By De Francesco, Massimo A.; Salvadori, Neri
  2. Managerial Incentives and Stackelberg Equilibria in Oligopoly By Scrimitore, Marcella
  3. Behavioral Economics and Consumer Protection and Competition Law: A Judicial Perspective By Ginsburg, Douglas H.; Moore, Derek W.
  4. The impact of competition on technology adoption: an apples-to-PCs analysis By Adam Copeland; Adam Hale Shapiro
  5. Who gains and who loses from credit card payments?: theory and calibrations By Scott Schuh; Oz Shy; Joanna Stavins
  6. Broadband Openness Rules Are Fully Justified by Economic Research By Economides, Nicholas
  7. Why Imposing New Tolls on Third-Party Content and Applications Threatens Innovation and Will Not Improve Broadband Providers’ Investment By Economides, Nicholas
  8. A “Principled” Approach to the Design of Telecommunications Policy By Weisman, Dennis L.
  9. Nurturing the Accumulation of Innovations: Lessons from the Internet By Greenstein, Shane
  10. Regulating Dynamic Markets: Progress in Theory and Practice By Evans, Lewis; Hahn, Robert W.
  11. Network Neutrality or Internet Innovation? By Yoo, Christopher S.
  12. The Convergence of Broadcasting and Telephony: Legal and Regulatory Implications By Yoo, Christopher S.
  13. Using Spectrum Auctions to Enhance Competition in Wireless Services By Rosston, Gregory L.; Cramton, Peter; Kwerel, Evan; Skrzypacz, Andrzej
  14. Social rights and economic objectives: The importance of competition at supra national level By Ojo, Marianne
  15. Democracy and Consumer Strength: Direct Evidence from Regulatory Reform in Developing Countries By Weymouth, Stephen

  1. By: De Francesco, Massimo A.; Salvadori, Neri
    Abstract: We analyze a Bertrand-Edgeworth game in homogeneous product industry, under effcient rationing, constant marginal cost until full capacity utilization, and identical technology across firms. We solve for the equilibrium and establish its uniqueness for capacity configurations in the mixed strategy region of the capacity space such that the capacities of the largest and smallest firm are sufficiently close.
    Keywords: Bertrand-Edgeworth competition; mixed strategy equilibrium; almost symmetric oligopoly; Mixed strategy equilibrium
    JEL: L13 D43 C72
    Date: 2010–08–03
  2. By: Scrimitore, Marcella
    Abstract: The paper investigates both quantity and price oligopoly games in markets with a variable number of managerial and entrepreneurial firms which defines market structure. Following Vickers (Economic Journal, 1985) which establishes an equivalence between the equilibrium under unilateral delegation and the Stackelberg quantity equilibrium, the outcomes of these games are compared with the ones in sequential multi-leaders and multi-followers games. The profitability of a managerial/entrepreneurial attitude vs leadership/followership is shown to critically depend upon the kind of strategy, price or quantity, and upon the assumed market structure. Indeed, the latter turns out to be crucial in determining the equivalence result that is shown to be contingent on the assumption that just one leader or one managerial firm operate in the market. A welfare analysis finally highlights the differences between the delegation and the sequential games, focusing on the impact of market structure and imperfect substitutability on the equilibria of the two games.
    Keywords: Strategic delegation; sequential games; quantity and price competition; welfare analysis.
    JEL: L13 L22 C72
    Date: 2010–08
  3. By: Ginsburg, Douglas H.; Moore, Derek W.
    Abstract: Neoclassical economics or “price theory†has had a profound effect upon antitrust analysis, first as practiced in academia and then as reflected in the jurisprudence of the Supreme Court of the United States. More recently, behavioral economics has had a large and growing influence upon legal scholarship generally. Still, behavioral economics has not yet affected judicial decisions in the United States in any substantive area of law. The question we address is whether that is likely to change in the foreseeable future, i.e., whether the courts’ present embrace of price theory in antitrust cases portends the courts’ imminent acceptance of behavioral economics in either antitrust or consumer protection cases.
    Date: 2010–04
  4. By: Adam Copeland; Adam Hale Shapiro
    Abstract: We study the effect of market structure on a personal computer manufacturer’s decision to adopt new technology. This industry is unusual because there exist two horizontally segmented retail markets with different degrees of competition: the IBM-compatible (or PC) platform and the Apple platform. We first document that, relative to Apple, producers of PCs typically have more frequent technology adoption, shorter product cycles, and steeper price declines over the product cycle. We then develop a parsimonious vintage-capital model that matches the prices and sales of PC and Apple products. The model predicts that competition is the key driver of the rate at which technology is adopted.
    Keywords: Computer industry ; Technological innovations ; Competition
    Date: 2010
  5. By: Scott Schuh; Oz Shy; Joanna Stavins
    Abstract: Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year. We build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare.
    Keywords: Credit cards
    Date: 2010
  6. By: Economides, Nicholas
    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.
    Date: 2010–04
  7. By: Economides, Nicholas
    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.<br><br>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.<br><br>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: Technology and Industry
    Date: 2010–01
  8. By: Weisman, Dennis L.
    Abstract: The Obama administration came into power championing a philosophical shift in regulatory and antitrust policy. The telecommunications industry was singled out by the administration as a case where past regulatory/antitrust policies may have been too permissive. Prominent policy issues slated for (re)examination include forbearance from network unbundling obligations, net neutrality regulation and prospective market failures in the provision of broadband. The principal objective of this article is to develop a set of competition and regulatory principles, firmly grounded in the law and economics literature, that can serve to inform the design of the optimal public policy for the telecommunications sector.
    Date: 2010–06
  9. By: Greenstein, Shane
    Abstract: The innovations that became the foundation for the Internet originate from two eras that illustrate two distinct models for accumulating innovations over the long haul. The pre-commercial era illustrates the operation of several useful non-market institutional arrangements. It also illustrates a potential drawback to government sponsorship – in this instance, truncation of exploratory activity. The commercial era illustrates a rather different set of lessons. It highlights the extraordinary power of market-oriented and widely distributed investment and adoption, which illustrates the power of market experimentation to foster innovative activity. It also illustrates a few of the conditions necessary to unleash value creation from such accumulated lessons, such as standards development and competition, and nurturing legal and regulatory policies.
    Keywords: Technology and Industry
    Date: 2010–04
  10. By: Evans, Lewis; Hahn, Robert W.
    Abstract: A key question facing regulators is how to create an economic environment that encourages appropriate investment and innovation. In this paper we analyze the importance of technological change for both competition and regulation, with a particular focus on the regulation of telecommunications and the Internet. We recommend that dynamic efficiency should be used as the appropriate benchmark for judging the effectiveness of different regulatory approaches. Contrary to conventional wisdom, we find that incentive regulation, such as price caps, is not particularly good at promoting dynamic efficiency. Neither is traditional cost-of-service regulation. As an alternative, we suggested that antitrust, judiciously applied, is likely to be better at promoting dynamic efficiency.
    Date: 2010–05
  11. By: Yoo, Christopher S.
    Abstract: Over the past two decades, the Internet has undergone an extensive re-ordering of its topology that has resulted in increased variation in the price and quality of its services. Innovations such as private peering, multihoming, secondary peering, server farms, and content delivery networks have caused the Internet’s traditionally hierarchical architecture to be replaced by one that is more heterogeneous. Relatedly, network providers have begun to employ an increasingly varied array of business arrangements and pricing. This variation has been interpreted by some as network providers attempting to promote their self interest at the expense of the public. In fact, these changes reflect network providers’ attempts to reduce cost, manage congestion, and maintain quality of service. Current policy proposals to constrain this variation risk harming these beneficial developments.
    Keywords: Technology and Industry
    Date: 2010–04
  12. By: Yoo, Christopher S.
    Abstract: This article, written for the inaugural issue of a new journal, analyzes the extent to which the convergence of broadcasting and telephony induced by the digitization of communications technologies is forcing policymakers to rethink their basic approach to regulating these industries. Now that voice and video are becoming available through every transmission technology, policymakers can no longer define the scope of regulatory obligations in terms of the mode of transmission. In addition, jurisdictions that employ separate agencies to regulate broadcasting and telephony must reform their institutional structures to bring both within the ambit of a single regulatory agency. The emergence of intermodal competition will also place pressure on both telephone-style regulation, which protects against monopoly pricing and vertical exclusion, as well as broadcast-style regulation, which focuses on content and ownership structure. It will also force regulators to rethink social policies such as universal service and public broadcasting. At the same time, it is possible that convergence will be incomplete and that end users will maintain more than one network connection, which would reduce the danger of anticompetitive activity and allow policymakers to stop short of forcing every connection to be everything to everyone. Lastly, the increase in traffic volumes associated with the advent of Internet video may require the deployment of multicast protocols, content delivery networks, and more aggressive traffic management, all of which potentially implicate the debate over network neutrality currently taking place in the U.S. This article was published in Communications & Convergence Review 2009, vol. 1, no. 1, pp. 44-55.
    Keywords: Technology and Industry
    Date: 2009–12
  13. By: Rosston, Gregory L.; Cramton, Peter; Kwerel, Evan; Skrzypacz, Andrzej
    Abstract: Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.
    Keywords: Technology and Industry
    Date: 2010–03
  14. By: Ojo, Marianne
    Abstract: The need for a supra national model which embraces and provides for social rights of individual Member States is becoming more apparent amidst the ever intensifying integration process within the EU and its involvement in areas which have been undermined by an economic model. This paper considers why, despite such a need for a supra national model, the “ordo liberal European polity” is favoured. It partly does so, by way of reference to two judgements from the European Court of Justice (ECJ) – namely, Laval un Partneri Ltd , and the Viking Cases. Can competition rules (during and beyond periods of financial crises) be designed and implemented in such a way whereby the facilitation of the aims and objectives of the EU Internal Market are optimally realised? To what extent can such rules be reconciled with the all paramount and more highly prioritised goal of sustaining economic and financial stability? Further, to what extent should competition rules be given due prominence – particularly during chronic periods of financial crises? To what extent should competition be encouraged (where it would result in downward spiral and generate unproductive and detrimental results) : to what extent, therefore, should competition rules (within such a context) be respected? These also constitute further questions which this paper seeks to address.
    Keywords: European Court of Justice (ECJ); integration; competition; regulation; ordo-liberalism; economic objectives; social rights; internal market; bank rescues
    JEL: D53 K2 G38 G21
    Date: 2010–08–01
  15. By: Weymouth, Stephen
    Abstract: The distributional implications of antitrust regulation imply a political cleavage between consumers and producers. I argue that the relative strength of these two groups depends on the level of democracy. In particular, an expansion of the franchise and competitive elections will increase the relative political weight of consumers, resulting in policies that favors their interests. An empirical implication of the argument is that the likelihood of effective competition policy reform increases with democracy. I test this proposition in two stages using an original dataset measuring competition agency design in 156 developing countries covering the period 1975-2007. First, I estimate hazard models on the timing of competition policy reform. Second, since “laws on the books” do not necessarily indicate a commitment to effective policy, I create an original index measuring governments’ commitments to antitrust policy. The index captures the independence of the agency, resource (budget and staffing) allocations, expert perceptions, and actual legal actions. The results of the empirical analysis support the proposition that democracy improves governments’ commitments to competition policy.
    Date: 2010–06

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