nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒08‒28
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Consumer Loss Aversion and the Intensity of Competition By Heiko Karle; Martin Peitz
  2. Cross-border Merger, Vertical Structure, and Spatial Competition By Beladi, Hamid; Chakrabarti, Avik; Marjit, Sugata
  3. Imperfect Competition and Efficiency in Lemons Markets By Muthoo, Abhinay; Mutuswami, Suresh
  4. Information and Industry Dynamics By Emin M. Dinlersoz; Mehmet Yorukoglu
  5. Cournot or Stackelberg competition? A survey on experimental evidence By Hildenbrand, Andreas
  6. Targeting in Advertising Markets: Implications for Offline vs. Online Media By Dirk Bergemann; Alessandro Bonatti
  7. Analyzing Entry Strategies in the Canadian Wireless Industry: The Case of the Discount Market By Sandy Mokbel
  8. Markets of information goods facing a strong P2P network By Yang Michael S.
  9. The Strength of Direct Ties: Evidence from the Electronic Game Industry By Claussen, Jörg; Falck, Oliver; Grohsjean, Thorsten
  11. What drives patent performance of German biotech firms? The impact of R&D subsidies, knowledge networks and their location By Dirk Fornahl; Tom Broekel; Ron Boschma

  1. By: Heiko Karle (Université Libre de Bruxelles); Martin Peitz (University of Mannheim)
    Abstract: Consider a differentiated product market in which all consumers are fully informed about match value and price at the time they make their purchasing decision. Initially, consumers become informed about the prices of all products in the market but do not know the match values. Some consumers have reference-dependent utilities—i.e., they form a reference-point distribution with respect to match value and price that will make them realize gains or losses if their eventually chosen product performs better or, respectively, worse than their reference point in both dimensions. Loss aversion in the match-value dimension leads to a less competitive outcome, while loss aversion in the price dimension leads to a more competitive equilibrium than a market in which consumers are not subject to reference dependence. Depending on the weights consumers attach to the price and the match-value dimension, a market with loss-averse consumers may be more or less competitive than a market with consumers that do not have reference-dependent utilities. We also show that consumer loss aversion tends to lead to higher prices if the market accommodates a larger number of firms.
    Keywords: Loss Aversion, Reference-Dependent Utility, Behavioral Industrial Organization, Imperfect Competition, Product Differentiation
    JEL: D83 L13 L41 M37
    Date: 2010–05
  2. By: Beladi, Hamid; Chakrabarti, Avik; Marjit, Sugata
    Abstract: This analysis is a natural follow up of continued efforts to assess the consequences of cross-border mergers in industries with a vertical structure. Absent free trade, in a vertically related industry, the downstream firms will not choose the social optimum under spatial price discrimination when none of the downstream firms produce all the varieties that consumers demand. We show that free trade will induce the downstream firms to gravitate toward the social optimum but an upstream merger across borders, under free trade, will pull the downstream firms away from the social optimum back to their autarkic positions.
    Keywords: Product-differentiation; Price-discrimination; Spatialcompetition; Firm-location; Cross-border Merger
    JEL: L13 F12 D43
    Date: 2010
  3. By: Muthoo, Abhinay (Department of Economics, University of Warwick); Mutuswami, Suresh (Department of Economics, University of leicester)
    Abstract: This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored. JEL Classification: C7 ; D4 ; D61 ; D82
    Date: 2010
  4. By: Emin M. Dinlersoz; Mehmet Yorukoglu
    Abstract: This paper develops a dynamic industry model in which firms compete to acquire customers over time by disseminating information about themselves under the presence of random shocks to their efficiency. The properties of the model’s stationary equilibrium are related to empirical regularities on firm and industry dynamics. As an application of the model, the effects of a decline in the cost of information dissemination on firm and industry dynamics are explored.
    Keywords: Information, industry dynamics, entry and exit, firm growth
    JEL: D80 L11 L16 M37
    Date: 2010–08
  5. By: Hildenbrand, Andreas
    Abstract: In this survey, I look into experimental studies on duopolistic quantity competition with homogeneous products and duopolistic price competition with heterogeneous products. The focus is on the sequence of competition. That is, I summarize and analyze experimental studies checking Cournot competition against Stackelberg competition. I find that while Stackelberg equilibrium outcomes are seldom under quantity competition, under price competition, the Stackelberg equilibrium prediction seems to be more appropriate. However, after discussing the experimental setups, I conclude that some methodological problems are present. Moreover, I make recommendations for further research.
    Keywords: Cournot competition; simultaneous competition; simultaneous play; Stackelberg competition; sequential competition; sequential play; duopoly; homogeneous products; heterogeneous products; experiemtal economics
    JEL: L13 D43 C72 C91
    Date: 2010–08–17
  6. By: Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT Sloan School of Management)
    Abstract: We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers, relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.
    Keywords: Targeting, Advertising, Online advertising, Sponsored search, Media markets
    JEL: D44 D82 D83
    Date: 2010–03
  7. By: Sandy Mokbel
    Abstract: This study examines entry strategies in the Canadian wireless discount market. Analysis was mainly focused on the incumbents’ strategic choices when faced with the threat of sequential entry. The main model used is Fudenberg and Tirole’s taxonomy of business strategies that is studied in the context of multimarket contact and when entry deterrence might be considered as a public good. The core of the analysis is done with two interconnected two stage games. It is argued that Fido, Solo and Virgin adopted a Puppy Dog strategy to face Koodo’s entry, then might have aligned with their new competitor and switched to a Top Dog attitude when faced with the threat of a second round of market entries. <P>Cette étude examine les stratégies d’entrée sur le marché canadien des télécommunications sans-fil à escompte. L’analyse porte principalement sur les choix stratégiques des entreprises établies qui font face à des menaces d’entrée séquentielles sur le marché. Le modèle, essentiellement basé sur la taxonomie des stratégies de gestion de Fudenberg et Tirole, est étudié dans un contexte de firmes ayant des contacts sur plusieurs marchés et en supposant que la dissuasion à l’entrée pourrait avoir les mêmes caractéristiques qu’un bien public. L’analyse se base sur deux jeux à deux phases interconnectés. Ce modèle supposerait alors que Fido, Solo et Virgin auraient adopté la stratégie d’un Gentil Chiot en préparation à l’entrée de Koodo, et se seraient ensuite alignés avec leur nouveau concurrent en adoptant ce qui semblerait être une attitude de Chien Méchant lorsque soumis à des menaces d’une nouvelle vague d’entrées.
    Keywords: market strategy, game theory, telecommunications, industrial organization, stratégie de marché, théorie des jeux, télécommunications, organisation industrielle
    Date: 2010–08–01
  8. By: Yang Michael S. (METEOR)
    Abstract: This paper studies a traditional monopolistic market of information goods in the presenceof an inherently strong peer-to-peer file-sharing network. Specifically, such a strongnetwork is made possible by a few fanatic users who selflessly contribute to the sharingof files. We find that the most prevalent equilibrium outcome is the one where the firmaccommodates the network and competes in price. We establish that coordination failurein the forming of networks is not an issue once we consider a high level of taste heterogeneity and include such fanatic users in the model. We also find possible network-deterring market structures, although these can only happen under limited circumstances. Furthermore, it is not impossible to see the firm and the network co-existing as local monopolies not serving the entire market and therefore not competing. For this market structure to occur, the taste heterogeneity has to be very large. Finally, we find that in all the equilibrium structures, total welfare always decreases in taste heterogeneity and the generic cost factor of downloading.
    Keywords: microeconomics ;
    Date: 2010
  9. By: Claussen, Jörg; Falck, Oliver; Grohsjean, Thorsten
    Abstract: We analyze the economic effects of a developer’s connectedness in the electronic game industry. Knowledge spillovers between developers should be of special relevance in this knowledge-based industry. We calculate measures for a developer’s connectedness to other developers at multiple points in time. In a regression with developer, developing firm, publishing firm, and time fixed effects, we find that the number of a developer’s direct ties, i.e., common past experience, has a strong effect on both a game’s revenues and critics’ scores. The intensity of indirect ties makes no additional contribution to the game’s success.
    Keywords: network analysis; game industry; knowledge spillovers
    JEL: L14 L86 D83
    Date: 2010–08–18
  10. By: Tanel Mehine
    Abstract: The purpose of this article is to find out the relationship between yellow price tags and consumer reference prices. A laboratory study was conducted among 150 respondents, who were put in an experimental purchase situation and their initial internal reference prices were compared affected reference prices. The results revealed that consumers perceive yellow price tags as presenters of discounts. A comparison of the mean values showed that yellow price tags influence the reference price and, moreover, a yellow price tag increased the reference price. As a practical outcome, the results of the study indicated that companies have the opportunity to increase the consumer’s reference price and thereby to raise revenues by changing the colour of the price tag without offering an actual discount.
    Keywords: yellow price tags, consumer behaviour, reference price
    JEL: M30 M31 M39
    Date: 2010
  11. By: Dirk Fornahl; Tom Broekel; Ron Boschma
    Abstract: This paper aims to explain whether firm-specific features, their engagement in collaboration networks and their location influence patent activity of biotech firms in Germany in the period 1997-2004. First, we demonstrate that non-collaborative R&D subsidies do not increase patent intensity of biotech firms. Second, the number of knowledge links biotech firms is also not influencing their patent performance. However, strong and robust evidence is found that some but not too much cognitive distance between actors involved in R&D collaborations increases patent performance of firms. Third, being located in a biotech cluster does positively impact on patent performance.
    Keywords: relatedness, R&D subsidies, biotechnology, knowledge networks, proximity paradox
    JEL: O33 O38 R58
    Date: 2010–08

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