nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒10‒09
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers By Robert Seamans; Feng Zhu
  2. Price Wars in Two-Sided Markets: The case of the UK Quality Newspapers By Timothy Keller; David Miller; Xiahua (Anny) Wei
  3. Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation By Jan Kraemer; Lukas Wiewiorra
  4. Exclusive Content and the Next Generation Networks By Juan José Ganuza; María Fernanda Viecens
  5. Interbank market integration, loan rates, and firm leverage By Steven Ongena; Alexander Popov
  6. The Effect of Regulating Interchange Fees at Cost on the ATM Market. By Donze, Jocelyn; Dubec, Isabelle
  7. Do Islamic Banks Have Greater Market Power? By Laurent Weill
  8. On R&D Information Sharing and Merger By Uday Bhanu Sinha
  9. Does Contract Complexity Limit Opportunities? Vertical Organization and Flexibility By Pennings, H.P.G.
  10. Market Regulation and Competition; Law in Conflict: A View from Ireland, Implications of the Panda Judgment By Andrews, Philip; Gorecki, Paul K.
  11. Non Linear Contracting and Endogenous Buyer Power between Manufacturers and Retailers: Empirical Evidence on Food Retailing in France By Bonnet, Céline; Dubois, Pierre
  12. Acquisitions as a Response to Deregulation: Evidence from the Cable Television Industry By David Byrne
  13. Millers, Commission Agents and Collusion in Grain Auction Markets: Evidence From Basmati Auctions in North India By A. Banerji
  14. Estrutura de mercado do setor de saúde suplementar no Brasil By Mônica Viegas Andrade; Marina Moreira da Gama; Ricardo Machado Ruiz; Ana Carolina Maia; Bernardo Modenesi; Daniel Matos Tiburcio

  1. By: Robert Seamans (NYU Stern School of Business); Feng Zhu (USC-Marshall School of Business)
    Abstract: Theories of multi-sided markets suggest that a platform’s pricing strategies on different sides of the market are closely linked, and in particular, an increase in competition on one side may lead to an increase in price on other sides. We empirically examine platforms’ pricing strategies by exploiting the gradual expansion of Craigslist, a website providing classified ads services, into local newspaper markets. We adopt a differences-in-differences approach by comparing the pricing strategies of local newspapers for which classified ads are likely to be a significant portion of their revenue to others before and after Craigslist’s entry. We find that these newspapers drop their classified ad rates significantly more after Craigslist’s entry. We also find that the impact of the entry of Craigslist propagates to other sides of the newspaper market. These newspapers increase their subscription rates relative to others, and consequently, their circulation also drops more. Finally, lower circulation also leads to lower display ad rates for these newspapers. Our study helps build an understanding of how incumbent media platforms respond to technologically disruptive entrants in multi-sided markets.
    Keywords: two-sided markets, media markets, newspapers, platforms.
    JEL: D43 K21 L13 L22 L82 L86
    Date: 2010–09
  2. By: Timothy Keller (Department of Economics, University of California, San Diego); David Miller (Department of Economics, University of California, San Diego); Xiahua (Anny) Wei (Department of Economics, University of California, San Diego)
    Abstract: We study duopoly pricing in the market for mobile phone service, which features network externalities, switching costs, and consumer heterogeneity. We introduce a steady state approach that enables a tractable analysis without endgame effects. The model can generate a variety of testable predictions, of which we focus on the comparative statics with respect to switching costs. Using data on the mobile phone service industries in 52 countries, we use the variation in market structure at the time switching costs were suddenly reduced by the regulatory imposition of mobile number portability (MNP). Firms that grew more rapidly prior to MNP respond to MNP by pricing more aggressively; firms facing large competitors respond less aggressively. Exploration of the model and its implications is an object of ongoing research.
    Keywords: Oligopoly, network externalities, switching costs, mobile number portability.
    JEL: L13
    Date: 2010–09
  3. By: Jan Kraemer (Karlsruhe Institute of Technology, Institute of Information Systems and Management); Lukas Wiewiorra (Karlsruhe Institute of Technology, Institute of Information Systems and Management)
    Abstract: We consider a two-sided market model with a monopolistic Internet Service Provider (ISP), network congestion sensitive content providers (CPs), and Internet customers in order to study the impact of Quality-of-Service (QoS) tiering on service innovation, broadband investments, and welfare in comparison to network neutrality. We find that QoS tiering is the more efficient regime in the short-run. However it does not promote entry by new, congestion sensitive CPs, because the ISP can expropriate much of the CPs' surplus. In the long-run, QoS tiering may lead to more or less broadband capacity and welfare, depending on the competition-elasticity of CPs' revenues.
    Keywords: Telecommunications, Net Neutrality, Quality of Service, Innovation, Investment, Regulation
    JEL: D42 L12 L43 L51 L52 L96
    Date: 2010–09
  4. By: Juan José Ganuza; María Fernanda Viecens
    Abstract: This paper analyzes the interaction between the market of premium contents and the next generation network industry. We assume structural separation between the network and service operators (platforms) and the comparative advantage of the service operators depends on the access to premium contents. On one side, we analyze the impact of the exclusivity of premium contents over the incentives to deploy NGNs, the performance of the operators market, and welfare. On the other side, we analyze what are the incentives of the providers of premium contents to offer exclusivity contracts (to singlehome) in NGNs settings in which they can also sell directly to consumers. In this context, we show that exclusivity only occurs when the content is not highly valued by consumers.
    Date: 2010–08
  5. By: Steven Ongena (Tilburg University, Warandelaan 2 5037 AB Tilburg, Netherlands.); Alexander Popov (European Central Bank, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We study the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6,047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis. JEL Classification: E51, G15, G21, G34.
    Keywords: interbank markets, selection, loan rates, bank competition, firm leverage.
    Date: 2010–10
  6. By: Donze, Jocelyn; Dubec, Isabelle
    Date: 2010–05
  7. By: Laurent Weill (University of Strasbourg and EM Strasbourg Business School)
    Abstract: The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000–2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives.
    Date: 2010–09
  8. By: Uday Bhanu Sinha
    Abstract: The paper deals with the issue of information sharing in a Cournot duopoly by an innovating firm in the face of a merger with its rival. The innovating firm would share information about the cost realization with its rival provided the market size is relatively small or, the R&D technology is relatively more efficient in a medium market size. However, in a large market, or in a medium market size with less efficient R&D technology, the innovating firm does not share information with its rival. They also show that the social welfare may be higher under incomplete information regime. [Working Paper No. 145]
    Keywords: Information sharing, market size, R&D, merger and welfare
    Date: 2010
  9. By: Pennings, H.P.G.
    Abstract: The vertical organization of production entails a range of make-or-buy decisions of intermediate goods that are influenced by the difficulty of writing contracts with a potential supplier. When contracting causes high transaction costs, a firm can decide to vertically integrate the production of the intermediate product. Contract complexity can be measured by decomposing the range of inputs into inputs that are traded on an exchange (low contract complexity), inputs for which reference prices exist (low to medium contract complexity) and other, often relationship-specific inputs (medium to high contract complexity). This inaugural lecture addresses the impact of contract complexity on the growth opportunities of a firm. The present value of growth opportunities are embedded in the market value of a firm, which is a multiple of the firm’ stock price. Examining the relation between the growth opportunities as part of the market value and contract complexity, we find that contract complexity has a negative impact on the growth opportunities of a firm if vertical integration is difficult. Whereas, on average, growth opportunities account for 56% of the market value of a firm, this percentage ranges between 50% and 53% for firms in sectors where contracts are complex and vertical integration is difficult. The difference represents a current market value between € 12 bn. and € 24 bn. only taking into account Dutch listed firms.
    Keywords: real options;vertical organization;outsourcing;contract theory;flexibility;firm value
    Date: 2010–09–17
  10. By: Andrews, Philip; Gorecki, Paul K.
    Abstract: On 21 December 2009 the Irish High Court found that a regulatory proposal, the Variation, by the four Dublin local authorities, is a breach of national competition law. The Variation allows a single operator to collect household waste, irrespective of whether the operator is selected by competitive tender or the local authority reserves the collection function to itself. The judgment has important, possibly groundbreaking, implications. Local government is held to be an undertaking and hence its decisions susceptible to review and prohibition under national competition rules. The burden of the paper is, however, that the local authorities are not undertakings for the purposes of competition law when they made the Variation. Even if the local authorities were undertakings in this regard, competitive tendering for selecting a single operator to collect household waste collection is neither an anti-competitive agreement nor an abuse of a dominant position. If, however, the High Court judgment is affirmed by the Supreme Court on appeal, then the wider implications of the judgment will need to be explored.
    Keywords: competition policy/regulation/geographic market definition/abuse of dominance/collective dominance/household waste collection/definition of an undertaking/anticompetitive agreement/Article 86/Competition Act 2002/Waste Management Acts,1996-2007
    Date: 2010–09
  11. By: Bonnet, Céline; Dubois, Pierre
    Abstract: We present the first empirical estimation of a structural model taking into account explicitly the endogenous buyer power of downstream players facing two part tariffs contracts offered by the upstream level. We consider vertical contracts between manufacturers and retailers where resale price maintenance may be used with two part tariffs and allow retailers to have some endogenous buyer power from the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels in these different structural models using the industry structure and estimates of demand parameters. We apply it to the market of bottled water in France, estimating a mixed logit demand model on individual level data. Empirical evidence shows that two part tariffs contracts are used with no resale price maintenance and that the buyer power of supermarket chains is endogenous to the structure of manufacturers competition.
    Keywords: competition; differentiated products; double marginalization; endogenous buyer power; manufacturers; mixed logit; non nested tests; retailers; two part tariffs; vertical contracts; water
    JEL: C12 C33 L13 L81
    Date: 2010–09
  12. By: David Byrne (University of Melbourne)
    Abstract: This paper studies the dynamics of an industry that is subject to exclusive geographical licensing. I develop a model of license ownership that predicts the evolution of profit-maximizing entry and acquisition decisions by firms over time, starting from an initial allocation of licenses. The entry and acquisition process is modeled as a one-sided coalition-formation game as in Farrell and Scotchmer (1988), where acquisition payoffs depend on economies of scale and agglomeration (economies of density). I estimate the model for the cable television industry in Canada using a panel that I have constructed from 1990 to 1996. The dataset builds up from the national regulator’s license ownership decision files, and contains license-level information on acquisition decisions, subscribership, and subscription profits. The model is estimated in two steps. I first estimate firms’ license-level profit functions, and then estimate the parameters of the fixed, merger and entry cost functions by Simulated Maximum Likelihood. Through counterfactual simulations, I use the estimated model to quantify the extent to which economies of scale and density drive acquisition behaviour, and to evaluate how merger activity reacts to a partial deregulation that occurs in 1994. Counterfactual experiments are also used to evaluate policies that stimulate entry or reduce acquisitions in the early years of the sample. The main finding is that these policies can lead to more productive dominant firms in the long-run as the industry consolidates.
    Keywords: Acquisition, Entry, Coalition Formation, Economies of Density, Economies of Scale, Simulated Maximum Likelihood, Cable Television
    JEL: L12 L22 L96 G34
    Date: 2010–03
  13. By: A. Banerji
    Abstract: This paper undertakes structural estimation of asymmetric auction models in a market for basmati, and detects the presence of a cartel consisting of a large (in market share) local miller and commission agents purchasing for large distant millers. The contracts between the distant millers and their commission agents help to explain the specific form that collusion takes. Simulations indicate that (i) the cartel gains considerably by colluding, over the competitive outcome; (ii) however, sellers (farmers) do not lose significantly under collusion when the commission agents bid; (iii) a knowledgeable auctioneer would choose much higher starting prices for auctions when commission agents bid, compared with the observed starting prices. The paper also shows that efficient collusion, the form of collusion commonly assumed in the literature, does not explain the data well. [Working Paper No. 129]
    Keywords: Auctions, Cartels, Agricultural Markets
    Date: 2010
  14. By: Mônica Viegas Andrade (Cedeplar-UFMG); Marina Moreira da Gama (Cedeplar-UFMG); Ricardo Machado Ruiz (Cedeplar-UFMG); Ana Carolina Maia (Cedeplar-UFMG); Bernardo Modenesi (Cedeplar-UFMG); Daniel Matos Tiburcio (Cedeplar-UFMG)
    Abstract: In this paper we investigate the concentration in health insurance sector in Brazil. In order to conduct this analysis it is necessary to establish the definition of relevant market in product and geographical dimensions. In this paper we apply a methodology based on gravitation models to define the geographical market. Till now the concentration analysis was performed in Brazil using geopolitical boundaries as the market definition. Geopolitical boundaries may not be an adequate criteria, once Brazil is specially large and heterogeneous country. We assume that health services are locally demanded and supplies. In that manner the market area is defined by the flow of trade. This flow is conditioned on health services supply, potential demand and friction variables. The empirical analysis was conducted using database sourced by the National Health Insurance Agency in Brazil to 2007 and 2010. We analyzed the competition structure performing concentration indexes. Our results point out that health insurance sector in Brazil is very concentrated. The most important firm is UNIMED that dominates the majority of markets.
    Keywords: health insurance sector, competition, relevant market
    JEL: L10 L11 L40 I11
    Date: 2010–09

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