nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒01‒23
ten papers chosen by
Russell Pittman
US Department of Justice

  1. Product differentiation decisions under ambiguous consumer demand and pessimistic expectations By Michal Król
  2. On the existence and social optimality of equilibria in a Hotelling game with uncertain demand and linearquadratic costs By Michal Król
  3. Spatial Cournot Competition and Consumers’ Heterogeneity: A Note By Corrado Benassi
  4. More price competition can benefit spatial duopolists when the consumer preferences are uncertain By Michal Król
  5. Regulatory Barriers to Entry in Industrial Sectors By Kotsios, Panayotis
  6. Advances in price time series tests for antitrust market definition By Willem H. Boshoff
  7. The Institutional Design of European Competition Policy By Antonio Manganelli; Antonio Nicita; Maria Alessandra Rossi
  8. A History-Friendly Model of the Evolution of the Pharmaceutical Industry: Technological Regimes and Demand Structure By Christian Garavaglia; Franco Malerba; Luigi Orsenigo; Michele Pezzoni
  9. Bank Market Structure, Systemic Risk, and Interbank Market Breakdowns By Marcella Lucchetta
  10. Technology, Business Models and Network Structure in the Airline Industry By Xavier Fageda; Ricardo Flores-Fillol

  1. By: Michal Król
    Date: 2011
  2. By: Michal Król
    Date: 2011
  3. By: Corrado Benassi (Dipartimento di Scienze Economiche, Alma Mater Studiorum - Università di Bologna; The Rimini Centre for Economic Analysis)
    Abstract: We consider the standard model of spatial Cournot competition and show that a necessary condition for dispersion equilibria is that the distribution be not unimodal.
    Keywords: Spatial Cournot competition, consumers’ distribution
    JEL: D31 D40
    Date: 2011–01
  4. By: Michal Król
    Date: 2011
  5. By: Kotsios, Panayotis
    Abstract: The entry of new competitors operates as a balancing force against high levels of industrial concentration and the abuse of dominant position by firms with large market shares. Entry increases supply, lowers prices, intensifies innovation and brings equilibrium to the markets that don’t operate in a socially desirable manner. This paper examines the impact of regulatory restrictions to the entry of new competitors in industrial sectors. It provides a short description of the 13 most important sources of regulatory barriers and assesses their role and importance as entry barriers. The conclusion is that regulatory restrictions can be a very important, almost insurmountable barrier to the entry of new competitors, but their role is not always socially harmful. The use of certain sources of regulatory barriers is effective in protecting social welfare instead of harming it. Barriers that promote new competition or are applied in order to protect consumer welfare are socially useful, while barriers that restrict competition and limit new competitor entry, in cases other than natural monopolies, are socially harmful.
    Keywords: entry; competition; industry; barriers
    JEL: L0
    Date: 2010–03
  6. By: Willem H. Boshoff (Department of Economics, University of Stellenbosch)
    Abstract: Market definition is an important first step in any competition policy investigation. In competition policy, a market represents the set of products (product market) or regions (geographic market) that constrain the market power of the firm being investigated. Various quantitative tools have been developed for market definition. Econometric tests on price co-movement represent one such set of tools: two regions or products are considered part of the same market if their prices co-move. However, price co-movement tests, especially the more advanced econometric tests, have been criticized in the competition policy literature. This paper applies a range of tools, including correlation analysis, Granger-causality tests, unit root tests and the recent autoregressive distributed lag (ARDL) bounds test, to data from the 2006-2008 competition investigation into business practices in the South African dairy industry. The paper argues that different price tests ask different questions and that it is not useful to argue, say, that the market suggested by a more advanced price test differs from the market suggested by a simple correlation statistic. The paper also responds to the continued practice of criticizing price co-movement for market definition on the basis of the poor performance of conventional price tests: many conventional tests have long been shown to suffer from small-sample power and size problems, but critics fail to account for recent improvements in this regard. The paper concludes that while no single price test offers conclusive evidence on the market, the combination of results offer a rich picture useful for market definition purposes.
    Keywords: market definition, price correlation, unit root, bounds test, law of one price
    JEL: L40 L11 C32 D4
    Date: 2011
  7. By: Antonio Manganelli; Antonio Nicita; Maria Alessandra Rossi
    Abstract: This paper analyzes the institutional design of the European competition policy system. Besides the multi-level public enforcement, the paper describes other two fundamental dimensions of the European competition policy system: the relationship between public and private enforcement and that between competition law enforcement and sector specific regulation, with particular regards with the Electronic Communications sector. The main effort of the paper consists in representing the EU Competition policy system as a web of vertical and horizontal relationships among a large set of actors, sometimes coordinated by formal or informal mechanisms but still characterized by competence overlaps and strategic interdependencies. Finally the paper aims at assessing the relevant economic trade-offs associated to these overlaps and interactions in terms of efficiency and effectiveness of the system, giving some policy suggestions for the future evolution of its overall design.
    Keywords: Competition policy; institutional design; multi-level governance; public and private enforcement; competition policy in regulated industries
    Date: 2010–10–08
  8. By: Christian Garavaglia (University of Milano-Bicocca, Faculty of Statistics - KITeS, Bocconi University, Milan, Italy); Franco Malerba (KITeS, Bocconi University, Milan, Italy - Bocconi University, Department of Economics); Luigi Orsenigo (KITeS, Bocconi University, Milan, Italy - DIMI, University of Brescia); Michele Pezzoni (KITeS, Bocconi University, Milan, Italy - DIMI, University of Brescia)
    Abstract: This paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry. The key question concerns the observation that - despite high degrees of R&Dand marketing-intensity - concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved modified version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore how changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration. The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, demand structure plays indeed a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Similarities and differences with other approaches are also discussed.
    Keywords: Industrial dynamics, innovation, market structure, pharmaceuticals, History-Friendly model
    JEL: C63 L10 L65
    Date: 2010–11
  9. By: Marcella Lucchetta
    Abstract: This paper explores theoretically the implications of bank market structure and banking system risks concentration for the functioning of interbank markets. It employs a simple model where banks are exposed to both credit and liquidity risk, there is no asymmetric information, no market power, no friction in secondary markets and deposit contracts are fully contingent. We show that (a) the concentration of risks induced by changes in bank market structure makes interbank market breakdowns more likely; (b) welfare monotonically decreases in risk concentration; and (c) risk concentration and a high probability of interbank market breakdowns can be driven by risk control diseconomies of scale and scope and increases in financial firms’ size. As banking systems become more concentrated, improvement of risk control technologies in financial institutions and in regulatory bodies appear as important as other policies considered in the literature to minimize the probability of interbank market breakdowns.
    Keywords: bank market structure; systemic risk; interbank markets
    Date: 2010–10–01
  10. By: Xavier Fageda (Department of Economic Policy, Universitat de Barcelona, Avinguda Diagonal 690, 08034 Barcelona, Spain.); Ricardo Flores-Fillol (Department of Economics, Universitat Rovira i Virgili, Avinguda de la Universitat 1, 43204 Reus, Spain.)
    Abstract: Network airlines have been increasingly focusing their operations on hub airports through the exploitation of connecting traffic, allowing them to take advantage of economies of traffic density, which are unequivocal in the airline industry. Less attention has been devoted to airlines? decisions on point-to-point thin routes, which could be served using different aircraft technologies and different business models. This paper examines, both theoretically and empirically, the impact on airlines ?networks of the two major innovations in the airline industry in the last two decades: the regional jet technology and the low-cost business model. We show that, under certain circumstances, direct services on point-to-point thin routes can be viable and thus airlines may be interested in deviating passengers out of the hub.
    Keywords: regional jet technology, low-cost business model, point-to-point network, hub-and-spoke network
    JEL: L13 L2 L93
    Date: 2010–12

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