nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒08‒09
fifteen papers chosen by
Russell Pittman
US Department of Justice

  1. Inventories and Endogenous Stackelberg Leadership in Two-period Cournot Oligopoly By Mitraille, Sébastien; Moreaux, Michel
  2. Multiproduct pricing and the Diamond Paradox By Rhodes, Andrew
  3. Merger Efficiency and Welfare Implications of Buyer Power By Özlem Bedre-Defolie; Stéphane Caprice
  4. Exchange of private demand information by simultaneous signaling By Stadler, Manfred
  5. Intrafirm conflicts and interfirm competition By Güth, Werner; Pull, Kerstin; Stadler, Manfred
  6. Disentangling the Link Between Stock and Accounting Performance in Acquisitions By Andre Betzer; Marc Goergen
  7. The Present and Future of Game Theory By Martin Shubik
  8. Imports and the structure of retail markets By Raff, Horst; Schmitt, Nicolas
  9. Price setting in a leading Swiss online supermarket By Berka, Martin; Devereux, Michael B.; Rudolph, Thomas
  10. Leveraging Monopoly Power by Degrading Interoperability: Theory and evidence from computer markets By Genakos, Christos D.; Kühn, Kai-Uwe; Van Reenen, John
  11. Doctors’ remuneration schemes and hospital competition in two-sided markets with common network externalities By David Bardey Helmuth Cremer Jean-Marie Lozachmeur
  12. A comparison of screening mechanisms for identifying potentially anticompetitive accountable care organizations By Pelnar, Gregory
  13. Auditing, Consulting, and Audit Market Concentration By Christopher Bleibtreu; Ulrike Stefani
  14. Competition and Industry Structure for International Rail Transportation By Friebel, Guido; Ivaldi, Marc; Pouyet, Jérôme

  1. By: Mitraille, Sébastien (Toulouse Business School); Moreaux, Michel (Toulouse School of Economics (IDEI and LERNA))
    Abstract: Two-period Cournot competition between n identical firms producing at constant marginal cost and able to store before selling has pure strategy Nash- perfect equilibria, in which some firms store to exert endogenously a leader- ship over rivals. The number of firms storing balances market share gains, obtained by accumulating early the output, with losses in margin resulting from increased competition and higher operation costs. This number and the industry inventories are non monotonic in n. Concentration (HHI) and competition increase due to the strategic use of inventories.
    JEL: D43 L13
    Date: 2011–07–27
  2. By: Rhodes, Andrew
    Abstract: We study the pricing behavior of a multiproduct monopolist, when consumers must pay a search cost to learn its prices. Equilibrium prices are high because rational consumers understand that visiting the store exposes them to a hold-up problem. However a firm with more products attracts more consumers with low valuations, and therefore charges lower prices. We also show that when the firm advertises the price of one product, it provides consumers with some indirect information about all of its other prices. The firm can therefore build a store-wide ‘low-price image’ by advertising just one product at a low price.
    Keywords: multiproduct search; advertising
    JEL: M3 M37 D83
    Date: 2011–07–08
  3. By: Özlem Bedre-Defolie; Stéphane Caprice
    Abstract: This paper analyzes the welfare implications of buyer mergers, which are mergers between downstream firms from different markets. We focus on the interaction between the merger's effects on downstream efficiency and on buyer power in a setup where one manufacturer with a non-linear cost function sells to two locally competitive retail markets. We show that size discounts for the merged entity has no impact on consumer prices or on smaller retailers, unless the merger affects the downstream efficiency of the merging parties. When the upstream cost function is convex, we find that there are "waterbed effects", that is, each small retailer pays a higher average tariff if a buyer merger improves downstream efficiency. We obtain the opposite results, "anti-waterbed effects", if the merger is inefficient. When the cost function is concave, there are only anti-waterbed effects. In each retail market, the merger decreases the final price if and only if it improves the efficiency of the merging parties, regardless of its impact on the average tariff of small retailers.
    Keywords: Buyer mergers, non-linear supply contracts, merger efficiencies, size discounts, waterbed effects
    JEL: D43 K21 L42
    Date: 2011
  4. By: Stadler, Manfred
    Abstract: As is well-known from the literature on oligopolistic competition with incomplete information, firms have an incentive to share private demand information. However, by assuming verifiability of demand data, these models ignore the possibility of strategic misinformation. We show that if firms can send misleading demand information, they will do so. Furthermore, we derive a costly signaling mechanism implementing demand revelation, even without verifiability. For the case of a gamma distribution of the firms' demand variables, we prove that the expected gross gains from information revelation exceed the expected cost of signaling if the skewness of the distribution is sufficiently large and the products are sufficiently differentiated. --
    Keywords: Information sharing,simultaneous signaling,demand uncertainty
    JEL: C73 D82 L13
    Date: 2011
  5. By: Güth, Werner; Pull, Kerstin; Stadler, Manfred
    Abstract: We study strategic interfirm competition allowing for internal conflicts in each seller firm. Intrafirm conflicts are captured by a multi-agent framework with principals implementing a revenue sharing scheme. For a given number of agents, interfirm competition leads to a higher revenue share for the agents, higher equilibrium effort levels and higher agent utility, but lower profits for the firms. The winners from antitrust policy are thus not only the consumers but also the agents employed by the competing firms. --
    Keywords: agency theory,strategic interfirm competition,revenue sharing
    JEL: C72 L22 M52
    Date: 2011
  6. By: Andre Betzer (University of Wuppertal); Marc Goergen (Cardiff Business School and European Corporate Governance Institute (ECGI))
    Abstract: While empirical studies that use event-study methodology find on average that the gains from mergers and acquisitions are positive, those focusing on accounting figures tend to find a significant drop in performance. We argue that each of the four possible combinations between positive or negative abnormal stock returns and accounting performance is due to a distinct acquisition motive. We find strong empirical evidence in support of this claim.
    Keywords: Mergers and acquisitions, performance measurement, synergies, preemption, overvaluation, corporate governance, agency problems
    JEL: G34 G3 G14
    Date: 2011–07
  7. By: Martin Shubik
    Date: 2011–07–31
  8. By: Raff, Horst; Schmitt, Nicolas
    Abstract: We construct a model of trade with heterogeneous retailers to examine the effects of trade liberalization on retail market structure, imports and social welfare. We are especially interested in investigating the transmission of lower import prices into consumer prices and the effects of retail market regulation. The paper shows that changes in import prices may have large effects on consumer prices and import volumes when changes in retail market structure are taken into account, and that restrictions on retailing, as they occur in several countries, may significantly alter this transmission mechanism by reducing imports and raising consumer prices. --
    Keywords: International trade,retailing,firm heterogeneity
    JEL: F12 L11
    Date: 2011
  9. By: Berka, Martin; Devereux, Michael B.; Rudolph, Thomas
    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.
    Keywords: online supermarket, price behavior, sticky price,
    Date: 2011–07–07
  10. By: Genakos, Christos D.; Kühn, Kai-Uwe; Van Reenen, John
    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: anti-trust; demand estimation; foreclosure; interoperability
    JEL: D43 L1 L4 O3
    Date: 2011–08
  11. By: David Bardey Helmuth Cremer Jean-Marie Lozachmeur
    Abstract: ABSTRACT: This paper uses a two-sided market model of hospital competition to study the implications of different remunerations schemes on the physicians'side. The two-sided market approach is characterized by the concept of common network externality (CNE)introduced by Bardey et al. (2010). This type of externality occurs when occurs when both sides value, possibly with di¤erent intensities, the same network externality. We explicitly introduce e¤ort exerted by doctors. By increasing the number of medical acts (which involves a costly e¤ort) the doctor can increase the quality of service o¤ered to patients (over and above the level implied by the CNE). We first consider pure salary,capitation or fee-for-service schemes. Then, we study schemes that mix fee-for-service with either salary or capitation payments. We show that salary schemes (either pure or in combination with fee-for-service) are more patient friendly than (pure or mixed)capitations schemes. This comparison is exactly reversed on the providers'side. Quite surprisingly, patients always loose when a fee-for-service scheme is introduced (pure of mixed). This is true even though the fee-for-service is the only way to induce the providers to exert e¤ort and it holds whatever the patients'valuation of this effort. In other words, the increase in quality brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.
    Date: 2011–08–01
  12. By: Pelnar, Gregory
    Abstract: The FTC and DOJ’s Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program explains how the antitrust agencies will screen accountable care organizations (ACOs) to identify ones that are potentially anticompetitive and therefore require further review. In contrast to the antitrust screens the agencies have set forth in earlier Statements or Guidelines which are based on market shares in relevant markets, the Proposed Statement introduces a screen based on market shares in Primary Service Areas (PSAs). By examining several numerical examples, the proposed ACO screen is compared to some alternatives, including the review thresholds set forth in the 2010 Horizontal Merger Guidelines. The results indicate that the proposed ACO screen produces results qualitatively similar to other screens in some instances, but can be more stringent or more lax in others. It is therefore at best premature to conclude that PSAs are a useful tool for screening out potentially anticompetitive ACOs.
    Keywords: accountable care organizations; antitrust; primary service area
    JEL: I18 K21 L40
    Date: 2011–07–29
  13. By: Christopher Bleibtreu (Department of Economics, University of Konstanz, Germany); Ulrike Stefani (Department of Economics, University of Konstanz, Germany)
    Abstract: In its recently published Green Paper, the European Commission 2010 discusses various methods to enhance the reliability of audits and to re-establish trust in the financial market. The Commission primarily focuses on increasing auditor independence and on reducing the high level of audit market concentration. Based on a model in the tradition of the circular market matching models introduced by Salop 1979, we show that prohibiting non-audit services as a measure intended to improve auditor independence can have counter-productive secondary effects on audit market concentration. In fact, our model demonstrates that incentives for independence and the structure of the audit market are simultaneously determined. Because market shares are endogenous in our model, it is not even clear that prohibiting non-audit services indeed increases an auditor’s incentive to remain independent.
    Keywords: auditing, Audit Fees, Knowledge Spillovers, Audit Market Concentration, Auditor Independence
    JEL: D43 L11 M42
    Date: 2011–08–02
  14. By: Friebel, Guido (Goethe University Frankfurt); Ivaldi, Marc (Toulouse School of Economics); Pouyet, Jérôme (Paris School of Economics)
    Abstract: This paper investigates various options for the organization of the railway industry when network operators require the access to multiple national networks to provide international (freight or passenger) transport services. The EU rail system provides a framework for our analysis. Returns-to-scale and the intensity of competition are key to understanding the impact of vertical integration or separation between infrastructure and operation services within each country in the presence of international transport services. We also consider an option in which a transnational infrastructure manager is in charge of oering a coordinated access to the national networks. In our model, it turns out to be an optimal industry structure.
    Keywords: Network access, Vertical separation, Transport economics
    JEL: L14 L42 L51 L92
    Date: 2011–07–18
  15. By: White, Graham
    Abstract: The purpose of the paper is a clarification of the concept of competition from a classical/ Sraffian perspective; including an elucidation of how a classical/Sraffian approach might go about defining the degree of competition. This in turn allows for a sharper contrast between the Sraffian view of competition and mainstream views. The starting point for the analysis is the work of Clifton which interprets the classical/Sraffian view of competition as more general than that of orthodoxy: one which can encompass competition between production units in a given industry as something constrained by more dominant forms of competition such as that between production units across industries for shares of the corporate surplus. Following on from the work of both Clifton and Semmler, and starting from the assumption that multi-divisional corporation is the relevant "firm", and that the corporate target rate of return is the relevant rate of profit, the question arises as to what determines the latter. And this question has received very little attention outside the more traditional post-Keynesian literature on pricing. The paper explores what is probably the most serious attempt within this literature - in the work of Eichner - to explain the target rate, in terms the desired growth rate of the corporation. This proposition has some interesting implications for a Sraffian approach, not least because it allows a link running from the expected growth of the economy to the target rate and thus the rate of profit. This in turn requires a discussion of the consistency of such a link with the Sraffian critique of the Cambridge growth equation. As well, a link between the target rate of return and the desired corporate growth rate link also has implications for the mechanics by which sectoral profit rates converge and thus for the classical/Sraffian literature on cross-dual dynamics .
    Date: 2011–02

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