nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒02‒19
thirteen papers chosen by
Russell Pittman
US Department of Justice

  1. Freedom to Trade and the Competitive Process By Edlin, Aaron; Farrell, Joseph
  2. The Welfare Effects of Third-Degree Price Discrimination in a Differentiated Oligopoly By Takanori Adachi; Noriaki Matsushima
  3. Advertising and R&D: Theory and evidence from France By Phillipe Askenazy; Thomas Breda; Delphine Irac
  4. The Profitability of Small Horizontal Mergers with Nonlinear Demand Functions By H. Esfahani; L. Lambertini
  5. Firm Size and Growth Rate Variance: the Effects of Data Truncation By Marco Capasso; Elena Cefis
  7. How much should you own? Cross-ownership and privatization By Rupayan Pal
  8. Commercialization, Renewal and Quality of Patents By Svensson, Roger
  9. Rewarding innovation efficiently: Research spill-overs and exclusive IP rights By Vincenzo Denicol; Luigi A. Franzoni
  10. Competition and Trust: Evidence from German Car Manufacturers By Leonardo Felli; Johannes Koenen; Konrad O. Stahl
  11. Market Dynamics in Sypply Chains: The Impact of Globalization and Consolidation on food companies' mark-ups By Eleni A.Kaditi; ;
  12. Structuring the Smartphone Industry. Is the Mobile Internet OS Platform the Key? By Martin Kenney; Bryan Pon
  13. Price Setting in Retailing: the Case of Uruguay By Fernando Borraz; Leandro Zipitria

  1. By: Edlin, Aaron; Farrell, Joseph
    Abstract: Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.
    Date: 2011–02–01
  2. By: Takanori Adachi; Noriaki Matsushima
    Abstract: This paper studies the relationship between horizontal product differentiation and the welfare effects of third-degree price discrimination in oligopoly. By deriving linear demand from a representative consumer's utility and focusing on the symmetric equilibrium of a pricing game, we characterize the conditions relating to such demand properties as substitutability and complementarity for price discrimination to improve social welfare. In particular, we show that price discrimination can improve social welfare if firms' brands are substitutes in a market where the discriminatory price is higher and complements in one where it is lower, but welfare never improves in the reverse situation. We verify, however, that consumer surplus is never improved by price discrimination; welfare improvement by price discrimination is solely due to an increase in the firms' profits. This means that there is no chance that firms suffer from a "prisoners' dilemma," that is, firms are better off by switching from uniform pricing to price discrimination.
    Date: 2011–01
  3. By: Phillipe Askenazy (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Institute for the Study of Labor - IZA, Banque de France - Banque de France); Thomas Breda (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Delphine Irac (Banque de France - Banque de France)
    Abstract: This paper exploits a unique panel of 59,000 French firms over 1990-2004 to investigate the interactions between R&D, advertising and the competitive environment.The empirical findings confirm the predictions of a dynamic model that complements results known in static frameworks. First, more competition pushes Neck and Neck firms to advertise more to attract a larger share of consumers on their products or services. Second, for a given competitive environment, quality leaders spend more in advertising in order to extract maximal rents; thus, lower costs of ads may favor R&D.
    Keywords: advertising ; innovation ; competition ; Lerner
    Date: 2010–12
  4. By: H. Esfahani; L. Lambertini
    Abstract: We want to take a differential game approach with price dynamics to conduct an investigation into the consequences of horizontal merger of firms where the demand function is nonlinear. We take into consideration the open-loop equilibrium. We show that in relation to the fact that the demand is nonlinear and prices follow some stickiness an incentive for small merger exists, while it does not appear under the standard approach using a linear demand function.
    JEL: C73 D43 G34 L13
    Date: 2011–02
  5. By: Marco Capasso; Elena Cefis
    Abstract: This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions, on estimations of the relation between firm size and variance in firm growth rates. We explain why the results in the literature on this relationship are not consistent. We argue that a natural threshold (0 number of employees or 0 total sales) and/or the existence of truncating thresholds in the dataset, can lead to upwardly biased estimations of the relation. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis based on a comprehensive dataset of Dutch manufacturing and service firms. The only stable relation between firm size and growth rate variance is negative regardless of how we define the measure of firm growth.
    Keywords: firm growth, growth rates variance; truncation; thresholds
    JEL: L25 C21
    Date: 2010–11
  6. By: Marco Marini; Alberto Zevi (University of Urbino "Carlo Bo", University of Roma "La Sapienza")
    Abstract: Consumer cooperatives constitute a highly successful example of democratic forms of enterprises operating in developed countries. They are usually organized as medium and large-scale ?rms competing with pro?t-maximizing ?rms in retail industries. This paper models such situation as a mixed oligopoly in which consumer cooperatives maximize the utility of consumer-members and distribute them a share of the pro?t equal to the ratio of their individual expenditure to the ?rm total sales. We show that when consumers possess quasilinear preferences over a bundle of symmetrically di¤erentiated goods and ?rms operate with a linear technology, the presence of consumer cooperatives a¤ects all industries output and social welfare positively. The e¤ect of cooperatives on welfare proves more signi?cant when goods are either complements or highly di¤erentiated and when competition is à la Cournot rather than à la Bertrand.
    Keywords: Consumer Cooperatives, Pro?t-maximizing Firms, Mixed Oligopoly
    Date: 2011
  7. By: Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines the interdependence of cross-ownership and level of privatization in case of differentiated products mixed duopoly. It shows that it is optimal for the private firm not to own any (own the entire) portion of the privatized share of its rival firm, if the level of privatization is very low (very high). In equilibrium, the government makes sure that cross-ownership is not attracted. However, in most of the situations, the possibility of cross-ownership adversely affects the prospect of privatization. Results of this paper have strong implications to antitrust regulations and divestment policies.
    Keywords: Cross-ownership, mixed duopoly, partial privatization, product differentiation
    JEL: D43 L13 H42 L32
    Date: 2010–09
  8. By: Svensson, Roger (Research Institute of Industrial Economics (IFN))
    Abstract: One of the major reasons why inventors are awarded patents by governments is they encourage R&D investments and commercialization of inventions. If the patent holder commercializes his invention, he has stronger incentives to retain the patent. The purpose here is to empirically analyze the relationship between commercialization and the renewal of patents. At the same time, I take into account defensive patent strategies (e.g. deterring competitors from utilizing the patent) and pointedly ask if there are any third factors (quality of the patent) that affect the commercialization and renewal decisions. Using a detailed database of Swedish patents, I utilize a survival model to estimate how commercialization influences the patent renewal decision. Basic results show commercialization and defensive strategies increase the probability a patent will be renewed, but also that quality influences commercialization and renewal decisions. When controlling for endogenous commercialization decision, there is still a strong positive relationship between commercialization and renewal of patents. Thus, given the quality of the patent, if the owner decides to commercialize the patent on the margin, this leads to longer survival of the patent. With regard to commercialization modes, there is some evidence licensed patents and patents commercialized in original and new firms – but not acquired patents – survive longer than non-commercialized patents. Looking more closely at the contracts of acquired and licensed patents, contracts with both variable and fixed fees – but not contracts with either variable or fixed fees – survive longer than non-commercialized patents. However, the analysis about modes and contract terms does not take into account the endogeneity problem.
    Keywords: Patents; Renewal; Commercialization; quality; Commercialization modes; Contract terms; Survival models
    JEL: L24 O31 O34
    Date: 2011–01–31
  9. By: Vincenzo Denicol (Indira Gandhi Institute of Development Research); Luigi A. Franzoni (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)
    Abstract: We investigate the conditions for the desirability of exclusive intellectual property rights for innovators as opposed to weak rights allowing for some degree of imitation and ex-post competition. The comparison between the two alternatives reduces to a specific "ratio test," which suggests that strong exclusive IP rights are preferable when competition from potential imitators is weak, the innovation attracts large R&D investments, and research spill-overs are small.
    Keywords: Kaplow test, research spill-overs, patents and trade secrets, independent invention defense, mandatory licensing
    JEL: K21
    Date: 2011–01
  10. By: Leonardo Felli (London School of Economics, CEPR); Johannes Koenen (University of Bonn); Konrad O. Stahl (University of Mannheim, CEPR)
    Abstract: We explore the determinants and effects of trust relationships between upstream suppliers and downstream producers. Using unique survey data on individual supplier-buyer relationships in the German automotive industry, we show, by means of different measures of supplier-buyertrust, tha thigher levels of trust mitigate relationship-specific underinvestment in a classical hold-up situation. Moreover, contrary to the extant literature, we show that higher levels of supplier’s trust are reflected in the buyer’s choice of a more competitive procurement strategy among potential suppliers.
    Keywords: Trust, Hold-up problem, Competition, Specific investment, Suppliers, Car manufacturers, German automotive industry
    JEL: D86 L22 L62
    Date: 2011–02
  11. By: Eleni A.Kaditi; ;
    Abstract: This paper examines whether ownership and increased competitive pressure affect food retailers’ market power, analysing whether all actors involved in the food supply chain deviate from the pricing behaviour that exists under perfect competition. A method proposed by Roeger (1995) is used to estimate price-cost margins, relaxing the assumptions of perfect competition and constant returns to scale. The obtained results show that foreign investments and consolidation have a positive and significant impact on the market power of food processors and retailers. Food processors, agricultural producers and wholesalers have lower price-cost margins than retailers, which suggests that these actors price closer to marginal costs being more concerned with maximising social welfare or that the former have higher costs than retailers. The results are robust to various estimation techniques and specifications.
    Keywords: Price-cost mark-ups, multinational firms, retailing
    JEL: F23 L13 L81
    Date: 2011
  12. By: Martin Kenney; Bryan Pon
    Abstract: Until the introduction of the iPhone, cellular telephony and the Internet were essentially separate. The Internet was a PC-based service, while mobile telephony was conducted on a telephone. Though there were mobile products that provided communication services such as email, web access and other Internet services were either unavailable or inferior to those available on a PC. The “smartphone” cate-gory redefined by Apple meant the convergence of traditional mobile telephony, Internet services, and personal computing. As these sectors merge into a single device, formerly separate industry architec-tures and their constituent firms are being forced into direct competition. We test theories of industry architecture and technological platforms regarding their ability to explain the strategies of key entrants in navigating the transition. We analyze in detail the actions and strategies of four major competitors, including Apple, Google, Microsoft, Nokia, and, more briefly, Research in Motion and HP/Palm, from the framework of technological platform theory. Our analysis suggests that currently some competitors are following traditional platform strategies, but that Google and Apple appear to have adopted strate-gies at odds with platform literature. We examine how the dynamics of this convergence may lead to a reconsideration of certain tenets of platform theory.
    Keywords: platforms, industry structure, smart phones, Android, iPhone
    Date: 2011–02–10
  13. By: Fernando Borraz (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Leandro Zipitria (Universidad de Montevideo and Universidad de San Andrés)
    Abstract: We use a rich and unique dataset of 20 million daily prices in groceries and supermarkets across the country to analyze stylized facts of the behaviour of consumer prices. Our findings are as follows: i) The median duration of prices is little over 2 months. Therefore, retail prices in Uruguay are less sticky than in the US but stickier than in the UK. ii) We do not find evidence of a seasonal pattern in the likelihood of price adjustments. iii) The frequency of price adjustment varies positively with expected inflation for the food and personal care product categories. However, in the alcohol and soft drink categories we find that firms increase the percentage points of the adjustment and not its frequency. iv) The probability of price change in the first day of the month is seven times higher than in any another day. v) The probability of a price change is not constant over time.
    Keywords: Retail; micro data; prices; price volatility; sticky prices.
    JEL: E31 D40 L16 L81
    Date: 2011–01

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