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on Industrial Competition |
| By: | Reynald-Alexandre Laurent (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, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | This paper considers a probabilistic duopoly in which products are described by their specific attributes, this form of differentiation embodying the horizontal and vertical dimensions. Consumers make discrete choices and follow a random decision rule based on these attributes. A three-stage game is studied in which firms develop new attributes for their products (innovation), then may imitate the attributes of the competing product and finally compete in price. At the equilibrium, the firm selling the less appreciated product is generally incited to imitate its rival. Confronted to a threat of imitation, the benchmark firm sometimes decreases strategically its attribute index in order to diminish its unit cost of innovation and the differentiation on the market, deterring the imitation in this way. This strategy is efficient when imitation costs are sufficiently concave. In the opposite case, it is preferable for the benchmark firm to accept the imitation. Thus, according to the shape of imitation costs, equilibria with "deterrence" or with "accommodation" "accommodation" occur, completing the current typology of strategic responses to a threat of imitation. |
| Keywords: | quality choices ; differentiation by attributes ; product innovation, product imitation |
| Date: | 2011–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00586867&r=com |
| By: | Khan Abhimanyu; Peeters Ronald (METEOR) |
| Abstract: | We study duopolistic competition in a differentiated market with firms setting prices and quantities, without explicitly imposing market clearing. Unlike the commonly adopted assumption of profit maximizing firms, we assume firm behavior to be shaped by a Darwinian dynamic: the less fitter firm imitates the fitter firm and occasionally firms may experiment with a random price and/or quantity. Our two main findings are that: (i) a market clearing outcome always belongs to the set of feasible long run outcomes, but may co-exist with non-market clearing outcomes with as well excess supply as excess demand being possible; and (ii) there exist parameter configurations for which the only feasible outcomes imply prices above monopoly level. |
| Keywords: | microeconomics ; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2011027&r=com |
| By: | Saak, Alexander |
| Abstract: | We study optimal disclosure of variety by a multi-product firm with random costs. In our model there are two varieties that are horizontally differentiated and differ in overall quality, but buyers cannot distinguish between them without labels. The equilibrium prices for labeled varieties are increasing functions of the absolute value of the cost differential and do not reveal which variety is cheaper to produce. Nondisclosure is most common when there is moderate uncertainty about the relative input cost, not too much idiosyncrasy in consumer valuations, and not too much difference in quality across varieties. Although mandatory disclosure of variety benefits consumers, it decreases expected welfare when relative input cost variability is large and quality asymmetry is small. The cheaper variety tends to be oversupplied (undersupplied) when disclosure is voluntary (mandatory). Competition among multi-product firms that source inputs in the same upstream market may not lead to more disclosure." |
| Keywords: | information, product differentiation, Labeling, quality disclosure, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1075&r=com |
| By: | Carmen Beviá; Luis C. Corchón; Yosuke Yasuda |
| Abstract: | In this paper we present a model of oligopoly and financial constraints. We study allocations which are bankruptcy-free (BF) in the sense that no firm can drive another firm to bankruptcy without becoming bankrupt. We show how such allocations can be sustained as an equilibrium of a dynamic game. When there are two firms, all equilibria yield BF allocations. When there are more than two firms, allocations other than BF can be sustained as equilibria but in some cases the set of BF allocations still useful in explaining the shape of equilibrium set. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1110&r=com |
| By: | Ivan Ledezma (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, LEDa - DIAL - Laboratoire d'Economie de Dauphine - Economie de la mondialisation et du développement - Université Paris Dauphine - Paris IX : EA4404, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | This paper analyses the potentially defensive behaviour of successful innovators and its effect on aggregate R&D effort. It proposes a quality-ladders model that endogenously determines leader's technology advantages and who innovate (the leader firm or its competitors). Regulation can have either a positive or a negative effect on R&D intensity. It can be negatively associated to aggregate innovative effort in higly deregulated economies. In more regulated ones, where deterring strategies are constrained, it yields incentives to innovate. These predictions are consistent with data on manufacturing industries of 14 OECD countries between 1987-2003. |
| Keywords: | innovative leaders ; quality ladders ; R&D, regulation ; industry-level data |
| Date: | 2011–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00586709&r=com |
| By: | Beyer, Mila; Czarnitzki, Dirk; Kraft, Kornelius |
| Abstract: | Principle-agent theory suggests managers might under-invest into R&D for reasons of risk tied to project failure, such as reduced remuneration and job loss. However, managers might over-invest into innovation for reasons of growth implying higher remuneration, power and prestige. Using a sample of 1,406 Belgian firms, we find, first, that managers holding no company shares under-invest into R&D compared to owners giving rise to the risk argument. Second, we find an inverse u-shaped relationship between the degree of managerial ownership and R&D. Thus, managers become entrenched, i.e. powerful enough to pursue their own interests. When entrenched, managers do not fear detrimental effects of risky innovation projects on their career, and hence tend to over-invest into innovation. -- |
| Keywords: | corporate governance,managerial ownership,entrenchment,innovation,R&D investments |
| JEL: | G32 O31 O32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11026&r=com |
| By: | Haucap, Justus; Heimeshoff, Ulrich |
| Abstract: | This paper explores how consumers react towards price differentiation between on-net and off-net calls in mobile telecommunications - a pricing policy that is common in many mobile telecommunications markets. Based on a survey of 1044 students we demonstrate that some consumers may suffer from a 'price differentiation bias', i.e., a fair number of consumers may overestimate the savings that result from reduced on-net and/or off-net charges, as they do not appear to weigh the prices with the probabilities of placing off-net and on-net calls. This may help to explain why it have been the smaller operators in various countries who have introduced on-net/off-net price differentiation. We also discuss the implications that such a consumer bias may have for market competition. -- |
| JEL: | L40 L96 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:16&r=com |
| By: | Thomas J. Miceli (University of Connecticut) |
| Abstract: | This paper examines markets, firms, and the law as alternative institutional arrangements for organizing transactions that involve transaction-specific investments and uncertain performance. The analysis is the logical extension of Coase's seminal examination of the market-firm boundary on one hand, and the market-law boundary on the other. It thus combines insights from the literature on industrial organization and law and economics. The result is a unified framework that reveals the relative advantages and disadvantages, within a fairly simple economic setting, of market exchange, court ordering (contracts), and internal governance (agency). |
| Keywords: | Asset specificity, contracts, firms, markets, transaction costs |
| JEL: | D23 K12 L14 L22 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2011-08&r=com |
| By: | Brouwer, E.; Ozbugday, F.C. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper tests whether the transition from the old Economic Competition Act, which was based on the so-called “abuse systemâ€, to the new Competition Act, which was based on “prohibition systemâ€, in the Netherlands had an impact on the price-cost margins in manufacturing industries during the period 1993-2007. The paper further investigates if the price-cost margins were higher in industries where temporary antitrust immunity was granted for subset of firms that engaged in concerted practices. The results indicate that the change in the competition law in the Netherlands had a very small and negative, yet statistically insignificant deterrent effect on the price-cost margins. Elsewhere, markups were higher in industries in which temporary antitrust immunity was granted for some class of coordinated actions. |
| Keywords: | Price-cost margins;Competition law;Antitrust immunity;Antitrust enforcement;Dynamic panel data model;the Netherlands. |
| JEL: | K21 L4 L6 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011038&r=com |
| By: | Duso, Tomaso; Gugler, Klaus; Yurtoglu, Burcin B. |
| Abstract: | This paper applies an intuitive approach based on stock market data to a unique dataset of large concentrations during the period 1990-2002 to assess the effectiveness of European merger control. The basic idea is to relate announcement and decision abnormal returns. Under a set of four maintained assumptions, merger control might be interpreted to be effective if rents accruing due to the increased market power observed around the merger announcement are reversed by the antitrust decision, i.e. if there is a negative relation between announcement and decision abnormal returns. To clearly identify the events' competitive effects, we explicitly control for the market expectation about the outcome of the merger control procedure and run several robustness checks to assess the role of our maintained assumptions. We find that only outright prohibitions completely reverse the rents measured around a merger's announcement. On average, remedies seem to be only partially capable of reverting announcement abnormal returns. Yet they seem to be more effective when applied during the first rather than the second investigation phase and in subsamples where our assumptions are more likely to hold. Moreover, the European Commission appears to learn over time. -- |
| Keywords: | Merger Control,Remedies,European Commission,Event Studies |
| JEL: | L4 K21 G34 C2 L2 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:15&r=com |
| By: | Herwartz, Helmut; Strumann, Christoph |
| Abstract: | The introduction of hospital reimbursement based on diagnosis related groups (DRG) in 2004 has been a conspicuous attempt to increase hospital efficiency in the German health sector. In this paper changes of hospital efficiency, quantified as a Malmquist index decomposition in pure technical efficiency change, are analyzed for periods before and after the reform. We implement a two-stage semi-parametric efficiency model that allows for spatial interdependence among hospitals. The results reveal an enhancement in overall efficiency after the DRG introduction. Moreover, an increase in the magnitude of negative spatial spillovers among German hospital performance can be diagnosed. This result is in line with a rise of competition for (low cost) patients. -- |
| Keywords: | hospital effciency,data envelopment analysis,spatial analysis,diagnosis related groups |
| JEL: | C21 D61 I11 I18 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201103&r=com |
| By: | Talat S. Genc (Department of Economics,University of Guelph); Henry Thille (Department of Economics, University of Guelph) |
| Abstract: | We study competition between hydro and thermal electricity generators that face uncertainty over demand and water flows where the hydro generator is constrained by water flows and the thermal generator by capacity. We compute the Feedback equilibrium for the in?nite horizon game and show that there can be strategic withholding of water by the hydro generator. When water inflow is relatively low, however, the hydro generator may use more water than efficient as it faces an inefficiently low shadow price of water in this case. The inefficiency of the market outcome is tempered by the capacity constraints: for a large range of possible thermal production capacities and water flow levels, welfare loss under the duopoly market structure is much less than would occur in the absence of water and capacity constraints. |
| Keywords: | Electricity markets; Electricity markets; Hydroelectricity; Imperfect Competition |
| JEL: | L13 L94 C63 C73 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2011-04.&r=com |
| By: | Axel Gautier; Keizo Mizuno |
| Abstract: | Universal service obligations are usually not competitively neutral as they modify the wayfirms compete in the market. In this paper, we consider a continuum of local markets in a dynamic setting with a stochastically growing demand. The incumbent must serve all markets (ubiquity) possibly at a uniform price and an entrant decides on its market coverage before firms compete in prices. Connecting a market involves a sunk cost. We show that the imposition of a uniform price constraint modifies the timing of entry: for low connection cost markets, entry occurs earlier while for high connection cost markets, entry occurs later. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:rpp:wpaper:1105&r=com |
| By: | Gavazza, Alessandro |
| Abstract: | When consumers concentrate their purchases at a single firm, a firm that offers more products than its rivals can gain market share for all its other products, as well. These spillovers induce firms to compete by offering a greater variety of products rather than lower prices, and a natural form of industry concentration with few large firms offering many products can arise if spillovers are strong enough. This paper presents a simple model that illustrates this mechanism explicitly. The empirical analysis documents strong demand spillovers in the retail segment of the U.S. mutual fund industry, in which fees are non-trivial, families offer a large number of funds, and the market is quite concentrated. Instead, spillovers are weaker, fees are lower, families offer fewer funds, and the market structure is more fragmented in the institutional segment. The current design of employer-sponsored defined-contribution retirement plans likely accounts for these differential demand patterns between the retail and the institutional segments. |
| Keywords: | mutual funds; retirement plans; demand spillovers; sunk costs. |
| JEL: | G11 L13 G23 D43 L22 D14 |
| Date: | 2011–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30074&r=com |