nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒07‒02
thirteen papers chosen by
Russell Pittman
US Department of Justice

  1. Advertising, Welfare Economics and Ethics By Ian Steedman
  2. Competition Leverage: How the Demand Side Affects Optimal Risk Adjustment By Bijlsma, M.; Boone, J.; Zwart, G.
  3. The effect of vertical knowledge spillovers via the supply chain on location decision of firms By Kashefi, Mohammad Ali
  4. Manufacturers and Retailers in the Global Economy By Horst Raff; Nicolas Schmitt
  5. Consumer behavioural biases in competition: A survey By Huck, Steffen; Zhou, Jidong
  6. Classical vs. Neoclassical Conceptions of Competition By Lefteris Tsoulfidis
  7. Private Agreements for Coordinating Patent Rights: The Case of Patent Pools By Gallini, Nancy
  8. The European commission's discretion as to the adoption of Article 9 commitment decisions: Lessons from Alrosa By Cavicchi, Piero
  9. Endogenous Market Structures and Labor Market Dynamics By Andrea Colciago; Lorenza Rossi
  10. Barriers to Entry, Deregulation and Workplace Training By Andrea Bassanini; Giorgio Brunello
  11. Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets By Guy David; Sara Markowitz
  12. Endogenous R&D Investment and Market Structure: A Case Study of the Agricultural Biotechnology Industry By Anderson, Benjamin; Sheldon, Ian
  13. The Emergence and Impact of Market Institutions: The Wholesale Market for Fish and Other Perishable Commodities By Sandro Sapio; Alan Kirman; Giovanni Dosi

  1. By: Ian Steedman
    Keywords: Length 31 pages
    JEL: B
    Date: 2011–06
  2. By: Bijlsma, M.; Boone, J.; Zwart, G. (Tilburg University, Center for Economic Research)
    Abstract: We study optimal risk adjustment in imperfectly competitive health insurance markets when high-risk consumers are less likely to switch insurer than low-risk consumers. First, we find that insurers still have an incentive to select even if risk adjustment perfectly corrects for cost differences among consumers. Consequently, the outcome is not efficient even if cost differences are fully compensated. To achieve first best, risk adjustment should overcompensate for serving high-risk agents to take into account the difference in mark- ups among the two types. Second, the difference in switching behavior creates a trade off between efficiency and consumer welfare. Reducing the difference in risk adjustment subsidies to high and low types increases consumer welfare by leveraging competition from the elastic low-risk market to the less elastic high-risk market. Finally, mandatory pooling can increase consumer surplus even further, at the cost of efficiency.
    Keywords: health insurance;risk adjustment;imperfect competition;leverage
    JEL: I11 I18 G22 L13
    Date: 2011
  3. By: Kashefi, Mohammad Ali
    Abstract: In this paper a game theoretic model is employed to analyze the relationship between strategic location decision of firms in the supply chain considering the role of horizontal and vertical knowledge spillovers, and numerical approach is applied to characterize the equilibria of the considered multi-stage game. Geographical concentration or isolation as equilibrium outcome is determined based on our different parameterizations and two scenarios each consists of two separated cases, which we establish according to the location of our agents. In the first scenario both suppliers are supposed to be located in different regions while in the second one they act in a same region. In addition, first case of each scenario considers geographical isolation of two producers whereas second case investigates the geographical concentration. Furthermore, the effect of different technological level of our agents on their final location decision is investigated.
    Keywords: Strategic Firm Location; Knowledge Spillover; Geographical Concentration; Supply Chain
    JEL: R30 L13 C88 C61 D83 C72
    Date: 2011–05–01
  4. By: Horst Raff; Nicolas Schmitt
    Abstract: We develop a general-equilibrium model to capture key features of the retailing and of the manufacturing industry in order to understand how these two industries interact and how labor is allocated between them. We show that the observed shift in employment from manufacturing to retailing, the rise in retailer product assortment and the emergence of slotting allowances in many retail markets are consistent with the global integration of product markets, while higher retail market concentration is best explained by technological change in retailing. We also identify a novel benefit from market integration consisting of efficiency gains in the vertical distribution chain
    Keywords: international trade, product variety, retailing, slotting allowance, multi-product firms
    JEL: F12 F15 L13
    Date: 2011–06
  5. By: Huck, Steffen; Zhou, Jidong
    Abstract: This is a survey of studies that examine competition in the presence of behaviourally biased or boundedly rational consumers. It will tackle questions such as: How does competition and pricing change when consumers are biased? Can inefficiencies that arise from consumer behavioural biases be mitigated by lowering barriers to entry? Do biased consumers make rational ones better or worse off? And will biased consumer behaviour be overcome through learning or education?
    Keywords: Behavioural Economics; Industrial Organization; Biased Consumers
    JEL: D21 D4 L1
    Date: 2011–05
  6. By: Lefteris Tsoulfidis (Department of Economics, University of Macedonia)
    Abstract: This article discusses two major conceptions of competition, the classical and the neoclassical. In the classical conception, competition is viewed as a dynamic rivalrous process of firms struggling with each other over the expansion of their market shares. This dynamic view of competition characterizes mainly the works of Smith, Ricardo, J.S. Mill and Marx; a similar view can be also found in the writings of Austrian economists and the business literature. By contrast, the neoclassical conception of competition is derived from the requirements of a theory geared towards static equilibrium and not from any historical observation of the way in which firms actually organize and compete with each other.
    Keywords: Classical Competition, Regulating Capital, Incremental Rate of Return, Rate of Profit, Perfect Competition.
    JEL: B12 B13 B14 L11
    Date: 2011–11
  7. By: Gallini, Nancy
    Abstract: Inventors and users of technology often enter into cooperative agreements for sharing their intellectual property in order to implement a standard or to avoid costly litigation. Over the past two decades, U.S. antitrust authorities have viewed pooling arrangements that integrate complementary, valid and essential patents as having procompetitive benefits in reducing prices, transactions costs, and the incidence of legal suits. Since patent pools are cooperative agreements, they also have the potential of suppressing competition if, for example, they harbor weak or invalid patents, dampen incentives to conduct research on innovations that compete with the pooled patents, foreclose competition from downstream product or upstream input markets, or raise prices on goods that compete with the pooled patents. In synthesizing the ideas advanced in the economic literature, this paper explores whether these antitrust concerns apply to pools with complementary patents and, if they do, the implications for competition policy to constrain them. Special attention is given to the application of the U.S. Department of Justiceâ€Federal Trade Commission Guidelines for the Licensing of Intellectual Property (1995) and its companion Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition (2007) to recent patent pool cases.
    Keywords: patents, patent pools, intellectual property
    JEL: O31 O34
    Date: 2011–06
  8. By: Cavicchi, Piero
    Abstract: Introduced by Article 9 of Regulation 1/2003, commitment decisions represent a tool - alternative to Article 7 infringement decisions - available to the European Commission in order to ensure an effective implementation of the EU antitrust rules. Over the last few years there has been an increased recourse to commitment decisions in antitrust cases. This paper explores the reasons for the apparent success of this new instrument and anticipates the consequences of the recent Alrosa judgment rendered by the European Court of Justice, which limits the judicial review of commitment decisions to the manifest incorrectness of the Commission's assessment. The paper concludes that, in light of the extent of the Commission's discretion as to the adoption of commitment decisions defined by the Court in Alrosa, the observed trend seems likely to continue. In particular, given the generous boundaries set by the Court to the Commission's discretionary power, hopes of avoiding system failures in commitment decisions seem actually to be pinned on the Commission's self-restraint more than on the potential for control by the Luxembourg Courts. --
    Keywords: Article 9 of Regulation 1/2003,Article 7 of Regulation 1/2003,commitment decisions,infringement decisions,Commission's discretionary power,principle of proportionality,ECJ Alrosa judgment
    Date: 2011
  9. By: Andrea Colciago (Department of Economics, University of Milano Bicocca); Lorenza Rossi (Department of Economics and Quantitative Methods, University of Pavia)
    Abstract: We propose a flexible prices model where endogenous market structures and search and matching frictions in the labor market interact endogenously. The interplay between firms endogenous entry, strategic interactions among producers and labor market frictions represents a strong amplification channel of technology shocks on labor market variables, and helps addressing the unemployment-volatility puzzle. Consistently with U.S. evidence, new firms create a large fraction of new jobs and grow faster than more mature firms, net firms’ entry is procyclical and the price mark up is countercyclical.
    Keywords: Endogenous Market Structures, Firms’ Entry, Search and Matching Frictions
    JEL: E24 E32 L11
    Date: 2011–02
  10. By: Andrea Bassanini (OECD); Giorgio Brunello (University of Padova)
    Abstract: We study the impact of regulatory barriers to entry on workplace training. We develop a model of training in imperfectly competitive product and labour markets. The model indicates that there are two contrasting effects of deregulation on training. As stressed in the literature, with a given number of firms, deregulation reduces the size of rents per unit of output that firms can reap by training their employees. Yet, the number of firms increases following deregulation, thereby raising output and profit gains from training and improving investment incentives. The latter effect prevails. In line with the predictions of the theoretical model, we find that the substantial deregulation in the 1990s of heavily regulated European industries (energy, transport and communication) increased training incidence.
    Keywords: training, product market competition, regulatory reform, Europe.
    JEL: J24 L11 O43
    Date: 2011–06
  11. By: Guy David; Sara Markowitz
    Abstract: The extent of pharmaceutical advertising and promotion can be characterized by a balancing act between profitable demand expansions and potentially unfavorable subsequent regulatory actions. However, this balance also depends on the nature of competition (e.g. monopoly versus oligopoly). In this paper we model the firm’s behavior under different competitive scenarios and test the model’s predictions using a novel combination of sales, promotion, advertising, and adverse event reports data. We focus on the market for erectile dysfunction drugs as the basis for estimation. This market is ideal for analysis as it is characterized by an abrupt shift in structure, all drugs are branded, the drugs are associated with adverse health events, and have extensive advertising and promotion. We find that advertising and promotion expenditures increase own market share but also increase the share of adverse drug reactions. Competitors’ spending decreases market share, while also having an influence on adverse drug reactions.
    JEL: I0 K0 K2
    Date: 2011–06
  12. By: Anderson, Benjamin; Sheldon, Ian
    Abstract: Over the past three decades, the agricultural biotechnology sector has been characterized by rapid innovation, market consolidation, and a more exhaustive definition of property rights. The industry attributes consistently identified by the literature and important to this analysis include: (i) endogenous sunk costs in the form of expenditures on R&D; (ii) seed and agricultural chemical technologies that potentially act as complements within firms and substitutes across firms; and (iii) property rights governing plant and seed varieties that have become more clearly defined since the 1970s. This paper adds to the stylized facts of the agricultural biotechnology industry to include the ability of firms to license technology, a phenomenon observed only recently in the market as licensing was previously precluded by high transactions costs and âanti-stackingâ provisions. We extend Suttonâs theoretical framework of endogenous sunk costs and market structure to incorporate the ability of firms to license technology under well-defined property rights, an observed characteristic not captured in previous analyses of the sector. Our model implies that technology licensing leads to lower levels of industry concentration then what would be found under Suttonâs model, but that industry concentration remains bounded away from perfect competition as market size becomes large.
    Keywords: licensing, market structure, R&D, agricultural biotechnology, Research and Development/Tech Change/Emerging Technologies, L22, L24, Q16,
    Date: 2011
  13. By: Sandro Sapio; Alan Kirman; Giovanni Dosi
    Abstract: This work introduces a special issue of the Journal of Economic Behavior and Organization on the emergence and impact of market institutions in wholesale fish markets. The analysis of fish markets has a respectable pedigree also in terms of the description of how they function. A major advantage of the analysis of fish markets in this literature is that it often gathers and exploits information that is typically not available in official market statistics. A full understanding of market dynamics, for example, is easier to obtain if one can observe not only the final outcomes of bilateral transactions which are not observed by other market participants, but also the so-called "transactions that did not happen", i.e. offers and counteroffers that were refused by the trading parties. Fish markets exhibit two features that make their analysis appealing for economists. On the one hand, fish is a perishable good, and because stocks cannot be carried over from one day to the next, the formal analysis of this market is simpler. Indeed, with no inventories, successive market sessions can be thought of as independent, at least approximately. The second intriguing feature is that the organization of fish markets varies from location to location with little obvious reason, some with pairwise trading, where prices are not posted, and others based on auctions, where, by definition, price information is centralized and publicly available. Such observed differences help also in in understanding how individual learning and adaptation take place under different market architectures, how markets adjust to disequilibria, and to what extent collective rationality is rooted in individual rationality. The research questions covered by the selected papers include, first, the impact of decentralized pair-wise bargaining versus centralized auctions on the statistical properties of fish prices and traded volumes; and second, the ways information-processing, decision-making capabilities and behavioral rules are deployed by agents and influenced by market set-ups and market size.
    Keywords: Fish markets, market institutions, aggregation, learning
    Date: 2011–06–21

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