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on Industrial Competition |
| By: | Ahmed Ennasri; Marc Willinger |
| Abstract: | We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort. |
| Keywords: | Managerial Incentives, Effort, Competition, Moral hazard, Experiments |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:lam:wpaper:12-11&r=com |
| By: | Colin Davis (Institute for International Education, Doshisha University); Ken-ichi Hashimoto (Graduate School of Economics, Kobe University) |
| Abstract: | This paper investigates the relationship between geographic patterns of industrial activity and endogenous growth in a two region model of trade that exhibits no scale effect. The in-house process innovation of manufacturing firms drives productivity growth and is closely associated with firm-level scales of production and relative levels of accessible technical knowledge. Focusing on long-run industry shares and a cross-region productivity gap, we find that dispersed equilibria with positive industry shares for both regions always produce higher growth rates than core-periphery equilibria with all industry locating in one region. Moreover, the highest growth rate arises in a symmetric steady state that features no productivity gap and equal shares of industry leading to the conclusion that the geographic concentration of industry has a negative impact on overall growth. Convergence towards a dispersed equilibrium, however, is contingent on the levels of inter-regional transport costs and knowledge dispersion. Finally, we explore the implications of greater economic integration arising from reduced transport costs and greater knowledge dispersion for patterns of industry and productivity, and for regional welfare levels within a dispersed equilibrium. |
| Keywords: | Industry Concentration, Industry Share, Productivity Gap, Productivity Growth, Scale Effect |
| JEL: | F43 O30 O40 R12 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1106&r=com |
| By: | Tirole, Jean; Weyl, Glen |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24689&r=com |
| By: | József Sákovics |
| Abstract: | I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their valuation, and for why trade might a¤ect high quality local firms unfairly. |
| Date: | 2011–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:203&r=com |
| By: | Andersson, Fredrik (Department of Economics, Lund University); Jordahl, Henrik (Research Institute of Industrial Economics) |
| Abstract: | We survey the literature on the effects of public sector outsourcing. Guided by theory, we systematically arrange services according to the type and magnitude of their contractibility problems. Taken as a whole, the empirical literature indicates that public sector outsourcing generally reduces costs without hurting quality. This is clearly the case for “perfectly contractible services” like garbage collection, but outsourcing often seems to work reasonably well also for some services with more difficult contracting problems, e.g. fire protection and prisons. Outsourcing seems to be more problematic for credence goods, with residential youth care as the prime example. In contrast to previous reviews, we conclude that ownership and competition appear to be about equally important for the consequences of public sector outsourcing. |
| Keywords: | outsourcing; contracts; tendering; ownership; competition; quality |
| JEL: | D23 H11 L33 |
| Date: | 2011–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2011_020&r=com |
| By: | Martin Berka; Michael B. Devereux; Thomas Rudolph |
| Abstract: | We study a newly released data set of scanner prices for food products in a large Swiss online supermarket. We find that average prices change about every two months, but when we exclude temporary sales, prices are extremely sticky, changing on average once every three years. Non-sale price behavior is broadly consistent with menu cost models of sticky prices. When we focus specifically on the behavior of sale prices, however, we find that the characteristics of price adjustment seems to be substantially at odds with standard theory. |
| JEL: | E3 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17126&r=com |
| By: | Machiel Mulder; Mark Lengton (Netherlands Competition Authority) |
| Abstract: | Triggered by evidence that the mortgage interest margins have risen since 2009, an econometric analysis is conducted to explain the interest rates in the Dutch mortgage market at the bank level ver 2004 – 2010. Controlling for the influence of costs, risks and also for some regulatory measures, we find statistically significant evidence that the degree of competition in the Dutch mortgage market (measured by C3 or HHI) affected the level of the mortgage interest rates. An increase in market concentration equal to the size of its standard deviation over the period of analysis raised the mortgage interest rate by approximately 0.10 to 0.20 percentage points. The impact of costs as well as risks appears to be about twice as large as the impact of market concentration. |
| JEL: | G21 G28 L11 L85 C23 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:nco:wpaper:1114&r=com |
| By: | Billard, Olivier (Bredin Prat); Ivaldi, Marc (Toulouse School of Economics); Mitraille, Sébastien (Toulouse Business School) |
| Abstract: | The financial crisis drew attention to the crucial role of transparency and the independence of financial certification intermediaries, in particular, statutory auditors. Now any anticompetitive practice involving coordinated increases in prices or concomitant changes in quality that impacts financial information affects the effectiveness of this intermediation. It is therefore not surprising that the competitive analysis of the audit market is a critical factor in regulating financial systems, all the more so as this market is marked by various barriers to entry, such as the incompatibility of certification tasks with the preparation of financial statements or consulting, the expertise on (and the ability to apply) international standards for the presentation of financial information, the need to attract top young graduates, the prohibition of advertising, or the two-sided nature of this market where the quality of financial information results from the interaction between the reputation of auditors and audited firms. Against this backdrop, we propose a legal and economic study of the risks of collective dominance in the statutory audit market in France using the criteria set by Airtours case and, in particular, by analyzing how regulatory obligations incumbent on statutory auditors may favour the appearance of tacit collusion. Our analysis suggests that nothing prevents collective dominance of the auditors of the Big Four group in France to exist, which is potentially detrimental to the economy as a whole as the audit industry may fail to provide the optimal level of financial information. |
| Keywords: | Collective dominance ; Airtours criteria; Audit industry |
| Date: | 2011–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24548&r=com |
| By: | Jeon, Doh-Shin; Lovo, Stefano |
| Abstract: | We present an infinite horizon model that studies the competition between a relatively ineffective incumbent Credit Rating Agency (CRA) and a sequence of entrant CRAs that are potentially more e¤ective but whose ability in appraising default risk is unproven at the time they enter the market. We show that free entry competition in the credit rating business fails in selecting the most competent CRA as long as two conditions are met. First, investors and issuers trust the incumbent CRA to provide a sincere, although imperfect, assessment of issuersdefault risk. Second, CRAs cannot charge higher fees for low rating than for high rating. Under these conditions a rather incompetent CRA can dominate the market without being worried about potentially more competent entrants. We derive policy implications. |
| JEL: | D82 G29 L11 L13 L15 |
| Date: | 2011–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24498&r=com |