nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒01‒16
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games By Victor Aguirregabiria; Victor Aguirregabiria; Aviv Nevo; Aviv Nevo
  2. Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices By Saroj Bhattarai; Raphael Schoenle
  3. Nash Equilibrium and Robust Stability in Dynamic Games: A Small-Gain Perspective By Karafyllis, Iasson; Jiang, Zhong-Ping; Athanasiou, George
  4. The roles of price points and menu costs in price rigidity By Edward S. Knotek II
  5. On the role of consumer expectations in markets with network effects By Suleymanova, Irina; Wey, Christian
  6. A Structural Approach to Market Definition With an Application to the Hospital Industry By Martin Gaynor; Samuel A. Kleiner; William B. Vogt
  7. Price effects of Dutch hospital mergers, An ex post assessment of hip surgery By Ron Kemp; Astrid Severijnen
  8. Semi-collusion in media markets By Dewenter, Ralf; Haucap, Justus; Wenzel, Tobias
  9. A framework for analyzing competition in the banking sector : an application to the case of Jordan By Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez
  10. Competition in the Turkish mobile telecommunications market: Price elasticities and network substitution By Haucap, Justus; Heimeshoff, Ulrich; Karacuka, Mehmet

  1. By: Victor Aguirregabiria; Victor Aguirregabiria; Aviv Nevo; Aviv Nevo
    Abstract: Empirically studying dynamic competition in oligopoly markets requires dealing with large states spaces and tackling difficult computational problems, while handling heterogeneity and multiple equilibria. In this paper, we discuss some of the ways recent work in Industrial Organization has dealt with these challenges. We illustrate problems and proposed solutions using as examples recent work on dynamic demand for differentiated products and on dynamic games of oligopoly competition. Our discussion of dynamic demand focuses on models for storable and durable goods and surveys how researchers have used the \
    Keywords: Industrial Organization; Oligopoly competition; Dynamic demand; Dynamic games; Estimation; Counterfactual experiments; Multiple equilibria; Inclusive values; Unobserved heterogeneity.
    JEL: L0 L1
    Date: 2010–12–31
  2. By: Saroj Bhattarai (Pennsylvania State University); Raphael Schoenle (Department of Economics, Brandeis University)
    Abstract: In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchronization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend inflation, the model matches the empirical findings.
    Keywords: Multi-Product Firms, Number of Goods, State-Dependent Pricing, U.S. Producer Prices
    JEL: E30 E31 L11
    Date: 2010–12
  3. By: Karafyllis, Iasson; Jiang, Zhong-Ping; Athanasiou, George
    Abstract: This paper develops a novel methodology to study robust stability properties of Nash equilibrium points in dynamic games. Small-gain techniques in modern mathematical control theory are used for the first time to derive conditions guaranteeing uniqueness and global asymptotic stability of Nash equilibrium point for economic models described by functional difference equations. Specification to a Cournot oligopoly game is studied in detail to demonstrate the power of the proposed methodology.
    Keywords: Dynamic game; Cournot oligopoly; Nash equilibrium; Robust stability; Small gain
    JEL: C0 C02 C61 C70 C62
    Date: 2010–01–07
  4. By: Edward S. Knotek II
    Abstract: Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using supermarket scanner data, I note two empirical facts: (1) price points, embodied in nine-ending prices, account for more than 60 percent of prices; (2) at the conclusion of sales, post-sale prices return to their pre-sale levels nearly 90 percent of the time. I construct a model that nests roles for menu costs and price points and estimate model variants via simulated method of moments. Excluding the two facts yields a statistically and economically significant role for menu costs in generating price rigidity. Incorporating the two facts yields an incentive to set nine-ending prices two orders of magnitude larger than the menu costs in this model. In this setting, the price point model can match the two stylized facts, but menu costs are effectively irrelevant as a source of price rigidity. The choice of a mechanism for price rigidity matters for aggregate dynamics.
    Date: 2010
  5. By: Suleymanova, Irina; Wey, Christian
    Abstract: We analyze the role of consumer expectations in a Hotelling model of price competition when products exhibit network effects. Expectations can be strong (stubborn), weak (price-sensitive) or partially stubborn (a mix of weak and strong). As a rule, the price-sensitivity of demand declines when expectations are more stubborn. An increase of stubbornness i) reduces competition, ii) increases (decreases) the parameter region with a unique duopoly equilibrium (multiple equilibria), iii) reduces the conflict between consumer and social preferences for de facto standardization, and iv) reduces the misalignment between consumer and social preferences for compatibility. --
    Keywords: Network Effects,Expectations,Duopoly,Compatibility,Welfare
    JEL: D43 D84 L13
    Date: 2010
  6. By: Martin Gaynor; Samuel A. Kleiner; William B. Vogt
    Abstract: Market definition is essential to merger analysis. Because no standard approach to market definition exists, opposing parties in antitrust cases often disagree about the extent of the market. These differences have been particularly relevant in the hospital industry, where the courts have denied seven of eight merger challenges since 1994, due largely to disagreements over geographic market definition. We compare geographic markets produced using common ad hoc methodologies to a method that directly applies the “SSNIP test” to hospitals in California using a structural model. Our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and define larger markets than would be implied by the merger guidelines’s hypothetical monopolist test. The use of these methods in differentiated product industries may lead to mistaken geographic market delineation, and was likely a contributing factor to the permissive legal environment for hospital mergers.
    JEL: I11 K21 L1 L4
    Date: 2011–01
  7. By: Ron Kemp (Netherlands Competition Authority); Astrid Severijnen (Netherlands Competition Authority)
    Abstract: This study analyses price effects of two mergers in the Dutch healthcare industry. We investigate whether the merging hospitals raised their prices for hip surgery after the merger and, if so, how patients react to this higher price. For the Ziekenhuis Hilversum – Ziekenhuis Gooi-Noord merger, we found a statistically significant price increase for hip surgery, whereas for the Erasmus MC ziekenhuis – Havenziekenhuis Rotterdam merger, we did not find a significant price increase due to the merger. For both mergers, travel behaviour of patients prior and after the merger increased only slightly. As we studied only one treatment, hip surgery, we cannot draw conclusions on the overall price effect of the mergers.
    JEL: C13 I11 I18 L13
    Date: 2010–10
  8. By: Dewenter, Ralf; Haucap, Justus; Wenzel, Tobias
    Abstract: This paper explores the effects that collusion can have in newspaper markets where firms compete for advertising as well as for readership. We compare three modes of competition: i) competition in the advertising and the reader market, ii) semi-collusion over advertising (with competition in the reader market), and iii) (full) collusion in both the advertising and the reader market. We find that semi-collusion leads to less advertising (but higher advertising prices) and lower copy prices which is beneficial for readers. Under certain circumstances, semi-collusion may even benefit advertisers as newspaper circulation is higher. In addition, total welfare may rise due to semi-collusion. Results under full collusion are ambiguous. However, even under full collusion newspaper copy prices may decrease and welfare may increase. --
    Keywords: Media Markets,Collusion,Two-Sided Markets
    JEL: L40 L82 D43 K21
    Date: 2010
  9. By: Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez
    Abstract: This paper proposes a framework to analyze competition in the banking sector using Jordan as an example. In particular, the paper pursues a multi-pronged approach to analyze competition including (i) an examination of the extent to which the market is contestable (that is, has low barriers to bank entry and exit), (b) an evaluation of the behavior of bank spreads, and (iii) an assessment of non-structural and direct measures of bank competition such as the H-statistic and the Lerner Index. This approach provides a more comprehensive framework to examine competition in the banking sector, compared with the commonly used alternative of looking only at bank concentration figures. In the case of Jordan, the analysis indicates that although concentration has declined, competition in the country is low and has decreased over time.
    Keywords: Banks&Banking Reform,Emerging Markets,Access to Finance,Debt Markets,Markets and Market Access
    Date: 2010–12–01
  10. By: Haucap, Justus; Heimeshoff, Ulrich; Karacuka, Mehmet
    Abstract: This paper estimates demand elasticities for the Turkish mobile telecommunication market. In contrast to most other studies, firm level data is used to estimate dynamic panel data models including instrumental variable techniques. Both short- and long-run elasticities are calculated, yielding a long-run price elasticity of -0.72 for the post-paid market and of -0.33 for the pre-paid market. The short-run price elasticity is estimated to be -0.36 for the post-paid market and -0.20 for the pre-paid market. In addition, evidence of fixed to mobile traffic substitution is provided for consumers that use pre-paid cards. --
    Keywords: mobile telecommunications,price elasticity,network substitution,dynamic panel data analysis
    JEL: C23 L13 L96
    Date: 2010
  11. By: Lucian HANCU (“Babes-Bolyai” University, Cluj-Napoca)
    Abstract: Knowledge Management deals with a multitude of tasks that range from the representation to the evolution of knowledge in its various forms. Understanding the way in which knowledge is used contributes to the improvement of the Knowledge Management Systems at the organizational level. This paper aims at investigating the risks that appear in the process of Knowledge Sharing when two or more distinct companies with different enterprise cultures collaborate, as in the form of a Virtual Enterprise or a recently-completed Merger or Acquisition. We consider the risks identified in the research literature that are linked to the Knowledge Sharing Process in Virtual Organizations and discuss to which extent these risks might appear during the integration process of both Mergers and Acquisitions. An Automatic Supervisor Module of a Knowledge Management System is subsequently presented, with the purpose of continuously monitoring these risks and promoting the sharing of knowledge within a collaborative context.
    Keywords: Knowledge Management, Knowledge Sharing, Virtual Organizations, Mergers and Acquisitions
    JEL: D80
    Date: 2010–08

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