nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒07‒21
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Endogenous Timing in a Mixed Duopoly with Endogenous Vertical Differentiation By Lin Liu; Yuanzhu Lu
  2. National Oligopolies and Economic Geography By Barbara Annicchiarico; Federica Orioli; Federico Trionfetti
  3. On Product Differentiation and Profits in Unionized Duopolies By Luciano Fanti; Nicola Meccheri
  4. Corporate competition: A self-organized network By Braha, Dan; Stacey, Blake; Bar-Yam, Yaneer
  5. The Deep-Pocket Effect of Internal Capital Markets: An Empirical Analysis By Xavier Boutin; Giacinta Cestone; Chiara Fumagalli; Giovanni Pica; Nicolas Serrano-Velarde
  6. Core stable bidding rings in independent private value auctions with externalities By Biran, Omer
  7. Does Europe have an innovation policy? The case of EU economic law By Battaglia, Lauren; Larouche, Pierre; Negrinotti, Matteo
  8. Capture, Politics and Antitrust Effectiveness By Rocco Ciciretti; Simone Meraglia; Gustavo Piga
  9. Market Structure Scenarios in International Steam Coal Trade By Trueby, Johannes; Paulus, Moritz
  10. Nations as Strategic Players in Global Commodity Markets: Evidence from World Coal Trade By Paulus, Moritz; Trueby, Johannes; Growitsch, Christian
  11. Sports Business and Multisided Markets: Towards a New Analytical Framework? (Long Version) By Oliver Budzinski; Janina Satzer
  12. Equilibrium and Strategic Communication in the Adverse Selection Insurance Model By Jaynes, Gerald D.
  13. Recent Developments in European Bank Competition By Yu Sun
  14. A theoretical model of collusion and regulation in an electricity spot market By Escobari, Diego

  1. By: Lin Liu (School of Business Administration, China University of Petroleum, Beijing Campus); Yuanzhu Lu (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: We consider a game of endogenous timing with observable delay in a mixed duopoly with endogenous vertical differentiation in the context of sequential quality and price choice. We find that a simultaneous play in the first opportunity at each stage turns out to be the unique subgame perfect Nash equilibrium, which contrasts with the endogenous timing in a purely private duopoly.
    Keywords: Endogenous timing, public firm, private firm, vertical differentiation
    JEL: L13 D43 H42
    Date: 2011–06
  2. By: Barbara Annicchiarico (Department of Economics - University of Rome “Tor Vergata”); Federica Orioli (University of Rome "Luiss Guido Carli" - University of Rome "Luiss Guido Carli"); Federico Trionfetti (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: We replace monopolistic competition with national oligopolies in a model of "new economic geography". There are many possible bifurcation diagrams but, unlike in monopolistic competition, the symmetric equilibrium is always stable for low trade costs. The antitrust policy, though identical in both countries, affects the geographical distribution of firms. In turn, migration attenuates the effectiveness of the antitrust policy in eliminating collusive behavior. For high trade costs a toughening of the antitrust policy is likely to result in more agglomeration and may reduce world welfare. The antitrust policy is more likely to be welfare improving when market integration progresses.
    Keywords: Spatial Oligopoly, Antitrust Policy, Welfare
    Date: 2011–07–10
  3. By: Luciano Fanti (Department of Economics, University of Pisa, Italy); Nicola Meccheri (Department of Economics, University of Pisa, Italy)
    Abstract: This work aims to investigate if the conventional wisdom, that a decrease in the degree of product differentiation always reduces firms’ profits, remains true in a differentiated duopoly model with decentralized, or firm-specific, monopoly unions. It is shown that, provided that unions are sufficiently wage-oriented, that is, they sufficiently prefer wages to employment, the conventional result can actually be reversed under both Cournot and Bertrand competition, implying that incentives for firms towards less differentiation may arise. Moreover, the range of product differentiation values, for which the “reversal result” applies, is larger when firms compete in quantities than in prices.
    Keywords: unionized duopoly, product differentiation, profits
    JEL: J43 J50 L13
    Date: 2011–07
  4. By: Braha, Dan; Stacey, Blake; Bar-Yam, Yaneer
    Abstract: A substantial number of studies have extended the work on universal properties in physical systems to complex networks in social, biological, and technological systems. In this paper, we present a complex networks perspective on interfirm organizational networks by mapping, analyzing and modeling the spatial structure of a large interfirm competition network across a variety of sectors and industries within the United States. We propose two micro-dynamic models that are able to reproduce empirically observed characteristics of competition networks as a natural outcome of a minimal set of general mechanisms governing the formation of competition networks. Both models, which utilize different approaches yet apply common principles to network formation give comparable results. There is an asymmetry between companies that are considered competitors, and companies that consider others as their competitors. All companies only consider a small number of other companies as competitors; however, there are a few companies that are considered as competitors by many others. Geographically, the density of corporate headquarters strongly correlates with local population density, and the probability two firms are competitors declines with geographic distance. We construct these properties by growing a corporate network with competitive links using random incorporations modulated by population density and geographic distance. Our new analysis, methodology and empirical results are relevant to various phenomena of social and market behavior, and have implications to research fields such as economic geography, economic sociology, and regional economic development.
    Keywords: Organizational networks; Interfirm competition; Economic geography; Social networks; Spatial networks; Network dynamics; Firm size dynamics
    JEL: Z1 F0 L11 C0 D40 Z13 D85 L1 R58 O1 L14 L2 R0 L8 R12 A14 D21 L0 L25 R3 L6 D4 L7 D0 L16 L13 J10 L9 C15 L22 R11
    Date: 2011
  5. By: Xavier Boutin; Giacinta Cestone; Chiara Fumagalli; Giovanni Pica; Nicolas Serrano-Velarde
    Abstract: We provide evidence suggesting that incumbent firms' access to group deep pockets has a negative impact on entry in product markets. Relying on a unique French data set on business groups, our paper shows that entry in manufacturing industries is negatively related to the cash reserves hoarded by incumbent-affiliated groups. In line with theoretical predictions, we find that the impact on entry of group cash holdings is more important in environments where financial constraints are pronounced and in more financially dependent sectors. Our findings suggest that internal capital markets operate within corporate groups and affect the product market behavior of affiliated firms by mitigating financial constraints.
    Date: 2011
  6. By: Biran, Omer
    Abstract: We consider a second price auction between bidders with independently and identically distributed valuations, where a losing bidder suffers a negative direct externality. Considering ex-ante commitments to form bidding rings we study the question of core stability of the grand coalition, namely: is there a subset of bidders that prefers forming a small bidding ring rather than participating in the grand cartel? We show that in the presence of direct externalities between bidders the grand coalition is not necessarily core stable, as opposed to the zero externality case, where the stability of the grand coalition is a known result. Finally, we study collusion in auctions as a mechanism design problem, insisting on the difficulty to compare ex-ante and interim commitments. In particular, we show that there are situations in which bidders prefer colluding before privately learning their types.
    Keywords: Auctions; collusion; externalities; Bayesian games; core; partition function game; mechanism design.
    JEL: C71 D44 C72
    Date: 2011–03
  7. By: Battaglia, Lauren; Larouche, Pierre; Negrinotti, Matteo
    Abstract: This paper is the first of a larger project aimed at exploring, among other things, whether Europe has a consistent innovation policy in the context of EU economic law (competition policy, intellectual property law, sector regulation). As such, its primary aim is to present our approach for answering this question and outline the anticipated contributions of the project. Part I of the paper sets forth the theoretical foundations of the project--namely an integrated approach to economic law that moves beyond apparent conflicts and assumes innovation as the starting point. Taking this as the foundation, the two primary components of the project are described. First, a theoretical component involving the development of an analytical grid to be used to identify ways in which economic law impacts innovation, and second an applied component that explores observable instances where choices, both implicit and explicit, are made regarding innovation in economic law. Part II of the paper builds on this and offers a preliminary illustration of the proposed analysis in the context of pharmaceuticals, specifically drug reformulation regulatory gaming.
    Keywords: antitrust; economic law; innovation; pharmaceuticals
    JEL: K21 L41 O31 O34 O38
    Date: 2011–07
  8. By: Rocco Ciciretti (Faculty of Economics, University of Rome "Tor Vergata"); Simone Meraglia (Toulouse School of Economics); Gustavo Piga (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We study a three-tier hierarchy Political Principal - Competition Authority - Firms in which the Principal chooses the Authority's (i) exante budget, (ii) state-contingent transfer, and (iii) preferences in presence of moral hazard. Collusion between the Authority and firms may arise so as to avoid fines. For high efficiency levels of side-contracting, collusion proofness induces high-powered incentives for the Authority. The Principal trades-off the benefits from allowing the Authority to exert its desidered level of effort with the cost of leaving it an increasing expected rent. This results in the budget being non-monotone in the side-contracting efficiency level. When firms bribe the Principal for a reduced budget, both the budget and the state-contingent transfer are non-increasing in the side-contracting efficiency level. Instances in which the Authority is optimally allocated a zero budget are characterized. Finally we show that the Principal prefers a consumers' surplus maximizing Competition Authority.
    Keywords: Three-tier Hierarchy, Moral Hazard, Collusion-Proofness, Endogenous Budget, Law Enforcement
    JEL: D72 D73 D86 K21
    Date: 2011–07–14
  9. By: Trueby, Johannes (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Paulus, Moritz (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: The seaborne steam coal market changed in recent years. Trade volumes grew dynamically, important players emerged and since 2007 prices increased significantly and remained relatively high since then. <p>In this paper we analyse market equilibria in the years 2006 and 2008 by testing for two possible market structure scenarios in this market: perfect competition and an oligopoly setup with major exporters competing in quantities. <p>We conclude from our results that international steam coal trade is not perfectly competitive as there is a large spread between marginal costs and prices and a low capacity utilisation in 2008. Further, trade flows are generally more diversified in reality than in the competitive scenario.<p> However, also the Cournot scenarios fail to accurately explain real market outcomes. We conclude that only more sophisticated models of strategic behaviour can predict market equilibria in international steam coal trade.
    Keywords: Steam coal trade; Mining Costs; Market Structure
    JEL: C61 L11 L71 Q31
    Date: 2011–04–12
  10. By: Paulus, Moritz (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Trueby, Johannes (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Growitsch, Christian (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: We explore the hypothesis that export policies and trade patterns of national players in the steam coal market are consistent with non-competitive market behavior. We test this hypothesis by developing an equilibrium model which is able to model coal producing nations as strategic players. We explicitly account for integrated seaborne trade and domestic markets. The global steam coal market is simulated under several imperfect market structure setups. We find that trade and prices of a China - Indonesia duopoly fit the real market outcome best and that real Chinese export quotas in 2008 were consistent with simulated exports under a Cournot-Nash strategy.
    Keywords: Strategic National Trade; Imperfect Competition; Steam Coal; China; Indonesia
    JEL: C61 F10 L13 L71
    Date: 2011–06–01
  11. By: Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Janina Satzer (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: Despite still being younger than a decade, the theory of multisided markets has offered numerous valuable insights for the analysis of industries in which a supplier serves two distinct customer groups that are indirectly interrelated through externalities. Examples include payment systems, matching agencies, commercial media, and software platforms. However, professional sports mar-kets have largely been neglected so far in this kind of research although they possess the characteristics of multisided markets. This conceptual paper con-tributes to filling this gap by describing the platform elements of professional suppliers of sports events and conceptually outlining issues where an applica-tion of this theoretical framework is likely to provide valuable insights and to add to the existing knowledge. Among these problems are integrative pricing strategies of sports clubs towards such different customer groups like attendees, broadcasters, sponsors, etc., including their welfare and antitrust implications, design decisions of sports associations in order to promote positive feedback loops among the customer groups as well as management strategies to reinforce positive externalities among customer groups and alleviate negative ones. The authors would like to thank Anna Lund Jepsen and Nadine Lindstädt for valuable comments on earlier versions of this paper as well as Barbara Güldenring and Liz Patti for editorial assistance. A substantially shorter version of this paper will be published in Sports, Business, Management: An International Journal in 2011.
    Keywords: sports economics, sports management, two-sided markets, multisided platforms, professional sports business, pricing strategies, broadcasting rights
    JEL: L83 L82 L13 M21
    Date: 2011–05
  12. By: Jaynes, Gerald D. (Yale University)
    Abstract: Shows equilibrium always exists (Rothschild-Stiglitz-Wilson model) when firms enforce policy exclusivity via strategic (profit-maximizing) communication of client purchases. Strategic communication induces two equilibrium types: partial communication of purchase information or non-communication which exhibits a lemon effect (low-risk purchase no insurance). Nonetheless, Jaynes' configuration (Jaynes; Beaudry & Poitevin) allocating both risk-types a low-coverage pooling contract and high-risk supplementary expensive coverage always characterizes equilibrium including Perfect Bayesian Equilibrium in Hellwig's two-stage framework where inter-firm informational asymmetries impose additional "competitive" features. Adverse selection induces salient features of financial markets: Bertrand-Edgeworth competition, latent contracts, strategic exclusivity-policy cancellation tactics, market institutions for sharing information.
    JEL: D82 G22
    Date: 2011–05
  13. By: Yu Sun
    Abstract: This paper investigates the degree of bank competition in the euro area, the U.S. and U.K. before and after the recent financial crisis, and revisits the issue whether the introduction of EMU and the euro have had any impact on bank competition. The results suggest that the level of bank competition converged across euro area countries in the wake of the EMU. The recent global financial crisis led to a fall in competition in several countries and especially where large credit and housing booms had preceded the crisis..
    Keywords: Banks , Competition , Cross country analysis , Economic models , Euro Area , European Economic and Monetary Union , United Kingdom ,
    Date: 2011–06–24
  14. By: Escobari, Diego
    Abstract: This paper presents a theoretical model of collusion and regulation in a wholesale electricity spot market. Given a demand for electricity, competing generators report their marginal costs. Then, only generators with the lowest marginal costs are selected to sell at a price equal to the marginal costs of the last generator selected to sell. The results show that under a fixed price level it is a weakly dominant strategy to truthfully report the marginal cost. Variable (or endogenous) prices create the possibility of profitable collusion among generators. With uncertainty in the marginal costs and risk neutrality, the results show that a necessary condition for collusion to be sustainable is that the marginal cost reported by the pivot (marginal generator) should be higher than the average of the true marginal costs of all the generators. The existence of collusion fines and audit probabilities were found to be effective in deterring collusion. It is also shown that more efficient generators have less incentive to collude.
    Keywords: Electricity; Regulation; Collusion.
    JEL: K20 L43 D43
    Date: 2011–01

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