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on Industrial Competition |
| By: | Matteo Bassi (Università di Salerno and CSEF); Marco Pagnozzi (University of Napoli "Federico II" and CSEF); Salvatore Piccolo (University of Naples "Federico II" and CSEF) |
| Abstract: | We revisit the choice of product differentiation by competing firms in the Hotelling model, under the assumption that firms are vertically separated, and that retailers choose products’ characteristics. We show that retailers with private information about their marginal costs choose to produce less differentiated products than retailers with no private information, in order to increase their information rents. Hence, information asymmetry increases social welfare because it induces firms to sell products that appeal to a larger number of consumers. The socially optimal level of transparency between manufacturers and retailers depends on the weight assigned to consumers’ surplus and trades of two effects: higher transparency reduces price distortion but induces retailers to produce excessively similar products. |
| Keywords: | product differentiation, vertical relations, transparency, regulation |
| JEL: | D43 D82 L13 L51 |
| Date: | 2011–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:288&r=com |
| By: | L. Lambertini; A. Tampieri |
| Abstract: | This paper examines the stability conditions of the equilibria in a market where profit-maximising and CSR firms coexist in the presence of an environmental externality. An equilibrium in mixed duopoly is stable for low impact of productivity on pollution and high CSR sensitivity to consumer surplus. In addition, a mixed oligopoly equilibrium is stable if the number of CSR is sufficiently low. |
| JEL: | H23 L13 O31 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp768&r=com |
| By: | Ari Hyytinen; Mika Maliranta |
| Abstract: | This paper studies how firms contribute to the productivity growth of an industry over their lifecycle. We present a decomposition method that allows us to condition the components of productivity growth on the age of production units. We find evidence for a prolonged positive exit effect that mirrors market selection during the early stages of firms’ lifecycle. This effect is tightly related to the negative initial productivity effect of entry. We also find some evidence that productivity-enhancing reallocation of resources between firms is concentrated on the middle aged firms. |
| Keywords: | productivity, decomposition, lifecycle, entry, exit |
| JEL: | O12 O14 O47 |
| Date: | 2011–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1253&r=com |
| By: | Alcalde, Jose; Dahm, Matthias |
| Abstract: | We propose a new procurement procedure which allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows to vary the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even accomplishing affirmative action goals, procurement expenditures might be lower than under a classical auction format. |
| Keywords: | Procurement Auction; Armative Action |
| JEL: | H57 D44 C72 |
| Date: | 2011–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32078&r=com |
| By: | Marco, Marini; Alberto , Zevi |
| Abstract: | Consumer cooperatives represent a highly successful example of democratic form of enterprises operating in developed countries. They are usually medium to large-scale companies competing with the profit-maximizing firms in the retail sector. This paper describes this situation as a mixed oligopoly in which consumer cooperatives maximize the utility of consumer-members and, in return, refund them with a share of the profits corresponding to the ratio of their individual spending to the cooperative's total sales. We show that when consumers possess quasi-linear preferences over a bundle of symmetrically differentiated goods, and companies operate using a linear technology, the presence of consumer cooperatives positively affects total industry output, as well as welfare. The effect of cooperatives on welfare proves to be even more significant when goods are either complements or highly differentiated, and when competition is à la Cournot rather than à la Bertrand. |
| Keywords: | Consumer Cooperatives; Profit-maximizing Firms; Mixed Oligopoly |
| JEL: | D21 I30 P13 L13 D01 |
| Date: | 2010–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31213&r=com |
| By: | Skak, Morten (Department of Business and Economics) |
| Abstract: | A homogenous goods market with nonprofit and profit companies engaged in monopolistic competition is proposed. In a short run equilibrium, entrance of more companies of both types increases consumer surplus and reduces company profit. However, nonprofit companies under a long run zero profit constraint will act inefficiently and have higher marginal costs than profit companies. From this follows that more funds for donations to nonprofit companies reduce the welfare to be gained on the market. Depending on the size of donations, nonprofit companies may have higher, the same or lower (quality) output than profit companies. |
| Keywords: | Nonprofit; Market structure; Monopolistic competition; Efficiency; Funding; Donations; Grants; Welfare |
| JEL: | I31 I38 L10 L13 L21 L25 L31 L33 L38 |
| Date: | 2011–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2011_001&r=com |
| By: | Scharf, Kimberley (University of Warwick; CEPR) |
| Abstract: | We study competition between nonprofit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where nonprofit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a nonneutral effect on entry, technology adoption, and industry performance. |
| Keywords: | Not-for-profit Organizations, Entry, Core Funding |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:44&r=com |
| By: | Federico Etro (Department of Economics, University Of Venice Cà Foscari); Dirk Czarnitzki (K.U. Leuven); Kornelius Kraft (Technical University of Dortmund) |
| Abstract: | Simple models of competition for the market with endogenous entry show that, contrary to the Arrow view, an endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms reduce R&D intensity for the average firm, but they increase it for an incumbent leader. These results hold after a number of robustness tests with instrumental variable regressions. |
| Keywords: | Endogenous market structures, innovation, leadership |
| JEL: | O31 O32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2011_04&r=com |
| By: | Chen, Yongmin |
| Abstract: | A vertically integrated firm, having acquired the intellectual property (IP) through innovation to become an input monopolist, can extract surplus by supplying efficient downstream competitors. That the monopolist would refuse to do so is puzzling and has led to numerous debates in antitrust. In this paper, I clarify the economic logic of refusal to deal, and identify conditions under which prohibiting such conduct would raise or lower consumer and social welfare. I further show how IP protection (as determined by IP laws) and restrictions on IP holders' conduct (as determined by antitrust laws) may interact to affect innovation incentive and post-innovation market performance. |
| Keywords: | Refusal to Deal; Intellectual Property Rights; IP protection; Antitrust; innovation |
| JEL: | O3 L1 L4 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31974&r=com |
| By: | Milliou, Chrysovalantou |
| Abstract: | We examine a final product manufacturer's incentives to engage in exclusive dealing with an input supplier when both market sides invest in quality and bargain over their trading terms. Taking into account that the investments' compatibility can be higher under exclusive dealing we find, in contrast to previous literature, that bargaining power distribution plays a crucial role both for investment incentives and for incentives to adopt exclusive dealing. We also find that there exist cases in which although investments are higher under exclusive dealing, the manufacturer chooses non-exclusive dealing. Our welfare analysis indicates that the manufacturer's choice of exclusive dealing in equilibrium is never welfare detrimental. |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/326&r=com |
| By: | Carlos Lever Guzmán |
| Abstract: | We present a model of imperfect price competition where not all firms can sell to all consumers. A network structure models the local interaction of firms and consumers. We find that aggregate surplus is maximized with a fully connected network, which corresponds to perfect competition, and decreases monotonically as the network becomes less connected until firms become local monopolists. When we study which networks are likely to form in equilibrium, we find that stable networks are not fully connected but are connected enough to rule out local monopolists. Our results extend to oligopolistic competition when consumers can either buy from a single firm or from all firms. |
| Keywords: | Network markets, price competition, oligopoly competition, Bertrand competition. |
| JEL: | D43 D85 L11 L13 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-04&r=com |
| By: | Steffen Hoernig (Universidade Nova de Lisboa and CEPR); Roman Inderst (University of Frankfurt (IMFS), Imperial College London and CEPR); Tommaso Valletti (Imperial College London, University of Rome II and CEPR) |
| Abstract: | We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small set of contacts. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated. We discuss implications for regulating access charges as well as on- and off-net price discrimination. |
| Keywords: | Network competition; non-uniform calling patterns; termination charge |
| JEL: | L13 L51 |
| Date: | 2011–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:206&r=com |
| By: | Christos Genakos; Kai Uwe Kühn; John Van Reenen |
| Abstract: | When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by "restoring" second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft's strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century. |
| Keywords: | Foreclosure, anti-trust, demand estimation, interoperability |
| JEL: | C3 D43 L1 L4 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1060&r=com |
| By: | Knieps, Günter |
| Abstract: | In order to create incentives for Internet traffic providers not to discriminate with respect to certain applications on the basis of network capacity require-ments, the concept of market driven network neutrality is introduced. Its basic characteristics are that all applications are bearing the opportunity costs of the required traffic capacities. An economic framework for market driven network neutrality in broadband Internet is provided, consisting of congestion pricing and quality of service differentiation. However, network neutrality regulation with its reference point of the traditional TCP would result in regulatory micro-management of traffic network management. -- |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluivr:135&r=com |
| By: | Knieps, Günter |
| Abstract: | In the U.S. paying for priority arrangements between Internet access service providers and Internet application providers to favor some traffic over other traf-fic is considered unreasonable discrimination. In Europe the focus is on mini-mum traffic quality requirements. It can be shown that neither market power nor universal service arguments can justify traffic quality regulation. In particular, heterogeneous demand for traffic quality for delay sensitive versus delay insen-sitive applications requires traffic quality differentiation, priority pricing and evolutionary development of minimal traffic qualities. -- |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluivr:136&r=com |
| By: | Knieps, Günther |
| Abstract: | Regulatory reforms in European network industries are strongly influenced by legal decisions. The cases considered in this paper not only initiated the liberali-zation process of the markets for network services but also provided an impor-tant signaling function for the remaining regulatory problems: localization of network-specific market power, abolishment of grandfathering rights, ex ante regulation of network-specific market power instead of negotiated unregulated network access, incentive regulation instead of cost-based regulation. The process towards sector-symmetric market power regulation based on economi-cally founded principles gains increasing relevance. Nevertheless, there are fur-ther reform potentials to be exhausted in the future. -- |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluivr:129r&r=com |
| By: | Nicole Jonker |
| Abstract: | The payment cards market is a two-sided market. Cost sensitivity of both consumers and merchants for card services influences total demand. Survey data of Dutch merchants shows that costs, and competition affect acceptance as well as surcharging decisions. Merchants who find payment cards expensive are less likely to accept them and more likely to surcharge their customers for using them. Merchants who face any competition accept debit card payments relatively more often than merchants with monopoly power, and they are less likely to surcharge their customers for debit card usage. Intense competition leads to higher credit card acceptance. |
| Keywords: | retail payments; merchants; costs; two-sided markets; competition; pricing; surcharging |
| JEL: | D23 D40 E41 G20 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:300&r=com |
| By: | Appelt, Silvia |
| Abstract: | This dissertation encompasses three essays on entry and competition in the German generic drug market. The first paper examines the market entry decisions of generic companies and finds that original drug producrs do not create barriers to entry by launching a generic version of the brand drug prior to patent expiry. The second paper examines generic market share dynamics and patients‘ switching behaviors among generic drugs. The analysis shows that generic market shares are little influenced by prices and highly persistent over time, conferring a substantial advantage to first generic entrants. Price differentials likewise have a negligible impact on the likelihood that patients switch to a generic drug offered by a different manufacturer. The third paper investigates generic price differentials and provides evidence of economies of scope and reputation effects. |
| Keywords: | Generic Entry; Generic Market Share Dynamics; Patient Switching Behavior; Generic Price Dispersion |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:dissen:13108&r=com |
| By: | Lee G. Branstetter; Chirantan Chatterjee; Matthew Higgins |
| Abstract: | With increasing frequency, generic drug manufacturers in the United States are able to challenge the monopoly status of patent-protected drugs even before their patents expire. The legal foundation for these challenges is found in Paragraph IV of the Hatch-Waxman Act. If successful, these Paragraph IV challenges generally lead to large market share losses for incumbents and sharp declines in average market prices. This paper estimates, for the first time, the welfare effects of accelerated generic entry via these challenges. Using aggregate brand level sales data between 1997 and 2008 for hypertension drugs in the U.S. we estimate demand using a nested logit model in order to back out cumulated consumer surplus, which we find to be approximately $270 billion. We then undertake a counterfactual analysis, removing the stream of Paragraph IV facilitated generic products, finding a corresponding cumulated consumer surplus of $177 billion. This implies that gains flowing to consumers as a result of this regulatory mechanism amount to around $92 billion or about $133 per consumer in this market. These gains come at the expense to producers who lose, approximately, $14 billion. This suggests that net short-term social gains stands at around $78 billion. We also demonstrate significant cross-molecular substitution within the market and discuss the possible appropriation of consumer rents by the insurance industry. Policy and innovation implications are also discussed. |
| JEL: | I11 I38 O3 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17188&r=com |
| By: | Patricia M. Danzon; Andrew W. Mulcahy; Adrian K. Towse |
| Abstract: | This paper analyzes determinants of ex-manufacturer prices for originator and generic drugs across a large sample of countries. We focus on drugs to treat HIV/AIDS, TB and malaria in middle and low income countries (MLICs), with robustness checks to other therapeutic categories and other countries. We examine effects of per capita income, income dispersion, number and type of therapeutic and generic competitors, and whether the drugs are sold to retail pharmacies vs. tendered procurement by NGOs. The cross-national income elasticity of prices is 0.4 across high and low income countries, but is only 0.15 between MLICs, implying that drugs are least affordable relative to income in the lowest income countries. Within-country income inequality contributes to relatively high prices in MLICs. Number of therapeutic and generic competitors only weakly affects prices to retail pharmacies, plausibly because uncertain quality leads to competition on brand rather than price. Tendered procurement attracts multi-national generic suppliers and significantly reduces prices for originators and generics, compared to prices to retail pharmacies. |
| JEL: | I11 L11 O14 O25 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17174&r=com |
| By: | Verniers, I.; Stremersch, S.; Croux, C. |
| Abstract: | Research on the launch of new products in the international realm is scarce. The present paper is the first to document how launch window (difference in months between the first worldwide launch and the subsequent launch in a specific country) and launch price are interrelated and how regulation influences both launch window and launch price. The research context is the global – 50 countries worldwide – launch of 58 new ethical drugs across 29 therapeutic areas. We show that the fastest launch occurs when the launch price is moderately high and the highest launch price occurs at a launch window of 85 months. We find that the health regulator acts strategically in that the extent to which it delays the launch of a new drug increases with the price of the new drug. We also find that regulation overall increases the launch window, except for patent protection. Surprisingly, regulation does not directly impact launch price. The descriptive information on average launch window and launch price and the interconnection between launch window and launch price allows managers in ethical drug companies to build more informed decisions for international market entry. This study also provides public policy analysts with more quantitative evidence regarding launch window and launch price on a broad sample of countries and categories. |
| Keywords: | entry timing;international new product launch;launch price;launch window;pharmaceutical;regulation |
| Date: | 2011–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765023488&r=com |
| By: | Bijlsma, Michiel; Boone, Jan; Zwart, Gijsbert |
| 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; imperfect competition; leverage; risk adjustment |
| JEL: | G22 I11 I18 L13 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8461&r=com |
| By: | Athanasoglou, Panayiotis P.; Asimakopoulos, Ioannis |
| Abstract: | The study examines the value creation of Merger and Acquisition (M&A) deals in European Banking from 1990-2004. This is performed, first, by examining the stock price reaction of banks to the announcement of M&A deals and, second, by analysing the determinants of this reaction. The findings provide evidence of value creation in European banks as the shareholders of the targets have benefited from positive and (statistically) significant abnormal returns while those of the acquirers earn small negative but non-significant abnormal returns. In the case of the shareholders of the acquirers, domestic M&As and especially those between banks with shares listed on the stock market, seem to be more beneficial compared to cross-border ones or those when the target is unlisted. Shareholders of the targets earn in all cases positive abnormal returns. Finally, although the link between abnormal returns and fundamental characteristics of the banks is rather weak, it appears that the acquisition of smaller, less efficient banks generating more diversified income are more value creating, while acquisition of less efficient, liquid and characterised by higher credit risk banks is not a value creating option. |
| Keywords: | Bank mergers; mergers and acquisitions; abnormal returns; |
| JEL: | G1 G14 G2 G34 G3 G0 G21 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31994&r=com |
| By: | Stafano Caiazza (Universit… Tor Vergata di Roma); Alberto Franco Pozzolo (University of Molise, Centro Studi Luca d'Agliano); Giovanni Trovato (Universit… Tor Vergata di Roma) |
| Abstract: | Are the drivers of domestic and cross-border M&As in the banking sector different? Despite the intense research on bank M&As in the last decade, the attention paid to this issue is surprisingly limited. We fill this gap studying the ex-ante determinants of national and international acquisitions in the banking sector in an unbalanced panel of nearly 1,000 banks from 50 world countries, from 1992 to 2007. Our results show that size and profitability have a stronger impact on the probability that a bank is a bidder in a cross-border deal than in a domestic deal. Consistent with the findings of the literature on the determinants of the internationalization of manufacturing firms, international expansion in the banking sector is therefore easier for countries with a number of large "national champions", that are more capable to overcome the fixed costs of internationalization and have a stronger incentive to diversify the idiosyncratic risks of their domestic activities. |
| Keywords: | M&As, bank, bank intrenationalization |
| JEL: | G15 G21 G34 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:52&r=com |
| By: | A. Blasco; F. Sobbrio |
| Abstract: | This paper reviews the empirical evidence on commercial media bias (i.e., advertisers inuence over news reports) and then introduces a simple model to summarize the main elements of the theoretical literature. The analysis provides three main policy insights for media regulators: i) Media regulators should target their monitoring efforts towards news contents upon which advertisers are likely to share similar preferences; ii) In advertising industries characterized by highly correlated products, an increase in the degree of competition may translate into a lower accuracy of news reports; iii) A sufficiently high degree of competition in the market for news may drive out commercial media bias. |
| JEL: | L13 L15 L82 D82 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp767&r=com |
| By: | Silvester Van Koten; Andreas Ortmann |
| Abstract: | We try to better understand the comparative advantages of structural and behavioral remedies of deregulation in electricity markets, an eminent policy issue for which the experimental evidence is scant and problematic. Specifically, we investigate theoretically and experimentally the effects on competition of introducing a forward market — considered a behavioral remedy by the European Commission. We compare this scenario with the best alternative, the structural remedy of reducing concentration by adding one more competitor by divestiture. Our study contributes to the literature by introducing more realistic cost configurations, by teasing apart competition effect and asset effect, and by investigating competitor numbers that reflect the market concentration in the European electricity industries. Our experimental data suggest that introducing a forward market has a positive effect on the aggregate supply in markets with two or three major competitors, configurations typical for the newly accessed and the old European Union member states, respectively. Introducing a forward market also increases efficiency. In contrast to previous findings, our data furthermore suggest that the effect of introducing a forward market is stronger than adding one more competitor both in markets with two, and particularly three, producers. Our data thus provides evidence that behavioral remedies may be more effective than structural remedies. Our data suggest that competition authorities are well advised, in line with EU law (European Commission, 2006a, p.11), to focus on introducing, and facilitating the proper functioning of, forward markets rather than on lowering market concentration by divestiture. |
| Keywords: | economics experiments; market power; competition; forward markets; EU electricity market; |
| JEL: | C91 D61 L13 L43 L94 Q48 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp437&r=com |
| By: | Agnès Bénassy-Quéré (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Lionel Fontagné (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Horst Raff (Institut für Weltwirtschaft (Kiel Institute for the World Economy) - Institut für Volkswirtschaftslehre (Department of Economics) Christian-Albrechts-Universität) |
| Abstract: | We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry. |
| Keywords: | Exchange-rate pass-through; duopoly; aircraft industry |
| Date: | 2011–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-00603386&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. |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2011-19&r=com |