nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒08‒22
nine papers chosen by
Russell Pittman
US Department of Justice

  1. Market Share Exclusion By Mikko Packalen
  2. Sales and Collusion in a Market with Storage By Francesco Nava; Pasquale Schiraldi
  3. Hidden Information, Bargaining Power, And Efficiency: An Experiment By Antonio Cabrales; Gary Charness; Marie-Claire Villeval
  4. Racial Discrimination and Competition By Ross Levine; Alexey Levkov; Yona Rubinstein
  5. Firm's damages from antitrust & abuse of dominant position investigations By Fotis, Panagiotis
  6. Antitrust market definition using statistical learning techniques and consumer characteristics By Willem H. Boshoff
  7. Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter? By Poddar, Sougata; Bouguezzi , Fehmi
  8. The Software Value Chain as an Analytical Framework for the Software Industry and Its Exemplary Application for Vertical Integration Measurement By Pussep, Anton; Schief, Markus; Widjaja, Thomas; Buxmann, Peter; Wolf, Christian Michael
  9. Do supermarkets reduce the number of traditional bookshops? An empirical application to the textbook market in Spain By Aday Hernandez; Juan Luis Jimenez

  1. By: Mikko Packalen (Department of Economics, University of Waterloo)
    Abstract: A market share exclusion contract between a seller and a buyer prevents rival sellers from competing for a share of the buyer's purchases. For non-discriminatory contracting we show that, unlike exclusion through exclusive dealing, market share exclusion can be profitable even when buyers coordinate on the best equilibrium in the contract-acceptance subgame. The condition for the profitability of market share exclusion is characterized in terms of straightforward economic concepts. With discriminatory contracting market share exclusion contracts are generally less profitable than exclusive dealing contracts. The motive for employing market share exclusion contracts, which welfare impacts have not been well understood, instead of exclusive dealing contracts, which have been the focus of both theory and policy, may thus often be the avoidance of scrutiny by competition authorities rather than some more direct economic advantage of market share exclusion over exclusive dealing. However, we also show that market share exclusion decreases both buyer and total surplus. Hence, competition authorities should not view exclusion through exclusive dealing as a pre-requisite for the possibility of anti-competitive effects from exclusionary contracting.
    JEL: L42 K11 K21
    Date: 2011–08
  2. By: Francesco Nava; Pasquale Schiraldi
    Abstract: Sales are a widespread and well-known phenomenon that has been documented in several product markets. Regularities in such periodic price reductions appear to suggest that the phenomenon cannot be entirely attributed to random variations in supply, demand, or the aggregate price level. Certain sales are traditional and so well publicized that it is difficult to justify them as devices to separate informed from uninformed consumers. This paper presents a model in which sellers want to reduce prices periodically in order to improve their ability to collude over time. In particular, the study shows that if buyers have heterogeneous storage technologies, periodic sales may facilitate collusion by magnifying intertemporal linking in consumers' decisions. The stability and the profitability of different sale strategies is then explored. The optimal sales discount and timing of sales are characterized. A trade-off between cartel size and aggregate profits arises.
    Keywords: Storage, sales, collusion, cartel size, repeated games
    JEL: L11 L12 L13 L41
    Date: 2011–07
  3. By: Antonio Cabrales (Departamento de Economía - Universidad Carlos III de Madrid); Gary Charness (Department of Economics, University of California - University of California, Santa Barbara); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    Abstract: We devise an experiment to explore the effect of different degrees of bargaining power on the design and the selection of contracts in a hidden-information context. In our benchmark case, each principal is matched with one agent of unknown type. In our second treatment, a principal can select one of three agents, while in a third treatment an agent may choose between the contract menus offered by two principals. We first show theoretically how different ratios of principals and agents affect outcomes and efficiency. Informational asymmetries generate inefficiency. In an environment where principals compete against each other to hire agents, these inefficiencies may disappear, but they are insensitive to the number of principals. In contrast, when agents compete to be hired, efficiency improves dramatically, and it increases in the relative number of agents because competition reduces the agents' informational monopoly power. However, this environment also generates a high inequality level and is characterized by multiple equilibria. In general, there is a fairly high degree of correspondence between the theoretical predictions and the contract menus actually chosen in each treatment. There is, however, a tendency to choose more 'generous' (and more efficient) contract menus over time. We find that competition leads to a substantially higher probability of trade, and that, overall, competition between agents generates the most efficient outcomes.
    Keywords: experiment; hidden information; bargaining power; competition; efficiency
    Date: 2011
  4. By: Ross Levine; Alexey Levkov; Yona Rubinstein
    Abstract: We provide the first assessment of whether an intensification of product market competition reduces the racial wage gap exactly where taste-based theories predict that competition will reduce labor market discrimination. in economies where employers have strong racial prejudices. We use bank deregulation across the U.S. states to identify an intensification of competition among banks, which in turn lowered entry barriers facing nonfinancial firms, especially firms that depend heavily on bank credit. Consistent with taste-based theories, we find that competition boosted blacks' relative residual wages within the banking industry and bank-dependent industries, but only in states with strong tastes for discrimination.
    Keywords: Discrimination, imperfect competition, banks, regulation
    JEL: J7 J31 D43 D3 G21 G28
    Date: 2011–08
  5. By: Fotis, Panagiotis
    Abstract: Competition authorities carry out investigations and impose legal penalties on firms which are caught infringing the competition law. The rationale of this policy is to prevent firms from distorting free competition in a way that is detrimental to economic efficiency and at the same time to deter them from engaging in cartels and other anti-competitive behaviour. In this paper I try to evaluate the impact of major antitrust & abuse of dominant position investigations on firm’s financial value. For this purpose I divide the period of each investigation into two sub periods: the ‘Investigation period”, which begins from the outset of the anticompetitive case and ends when the competition authority issues the statement of objections to the infringed firms and the ‘Deterrence period’, which follows the ‘Investigation period’ and ends with the final judgment of the court. I use aggregate regression based approach to estimate the Average & Cumulative Average Residuals of the firms which infringe articles 1 & 2 of Greek Competition Law. The empirical results imply that the release of the final decisions of the Hellenic Competition Commission and the Court of Appeal negatively affect the share price of the infringed firms.
    Keywords: Antitrust; competition policy; deterrence; anticompetitive practices; fines; time-series models; regression based approach; quantitative event study; marginal residuals
    JEL: C5 L4
    Date: 2011–07–01
  6. By: Willem H. Boshoff
    Abstract: Market definition is the first step in an antitrust case and relies on empirical evidence of substitution patterns. Cross-price elasticity estimates are preferred evidence for studying substitution patterns, due to advances in IO econometric modelling. However, the data and time requirements of these models weigh against their universal adoption for market definition purposes. These practical constraints — and the need for a greater variety of evidence — lead practitioners to rely on a larger set of less sophisticated tools for market definition. The paper proposes an addition to the existing toolkit, namely an analysis of consumer characteristics for market definition purposes. The paper shows how cluster analysis can be used to identify meaningful groups of substitutes on the basis of homogeneity of their consumer profiles. Cluster analysis enforces consistency, while recent bootstrap techniques ensure robust conclusions. To illustrate the tool, the paper relies on data from a recently concluded radio merger in South Africa.
    Keywords: market definition substitutes media demography clusters bootstrap
    JEL: L4 L1 C1 D1
    Date: 2011
  7. By: Poddar, Sougata; Bouguezzi , Fehmi
    Abstract: We consider the optimal licensing strategy of an insider patentee in a circular city of Salop’s model and in a linear city of Hotelling’s model when firms have asymmetric pre-innovation marginal costs of production and compete in prices. We completely characterize the optimal licensing policies using a fixed fee and per-unit royalty under the drastic and non-drastic innovations. We find that when the innovative firm is efficient compared to the licensee at the pre-innovation stage then the results regarding optimal licensing policy coincide with the results described in the literature with symmetric firms. However, this is not true when the innovative firm is inefficient in the pre-innovation stage compared to the licensee. To that end, we show that even a drastic innovation can be licensed using a royalty scheme when the patentee is highly inefficient compared to licensee in the pre-innovation stage and the size of the innovation is intermediate. We also show that in this set-up, fixed fee licensing is never optimal.
    Keywords: Innovation; Technology transfer; Salop model; Hotelling model; Patent licensing; symmetric and asymmetric costs
    JEL: L13 D45 D43
    Date: 2011–08–12
  8. By: Pussep, Anton; Schief, Markus; Widjaja, Thomas; Buxmann, Peter; Wolf, Christian Michael
    Abstract: The value chain concept disaggregates a firm into the various activities it performs. Abstracting from the firm-level this concept has also been applied to industries as a whole. In this paper we conceptualize a software specific value chain and provide a first proof of concept. Our approach aggregates and unifies findings from a literature review on industry-level value chains, software value chains, and related concepts. The resulting unified software value chain comprises eleven activities: product research, component procurement, product development, user documentation, production and packaging, marketing, implementation, training and certification, maintenance and support, operations, and replacement. A first proof of concept is provided through expert interviews with software firms. Furthermore, we present an example that shows how the software value chain can be applied to measure the degree of vertical integration in the software industry.
    Keywords: software industry, value chain, software value chain, vertical integration, degree of vertical integration, vertical integration measurement
    Date: 2011
  9. By: Aday Hernandez; Juan Luis Jimenez (University of Las Palmas de Gran Canaria. Facultad de Economía, Empresa y Turismo)
    Abstract: Some countries, especially in Europe, regulate the textbook market due to its special characteristics. In 2000, the Spanish Government passed a law that relaxes resale price maintenance and lets retailers give discounts of up to 25% off the gross price. Traditional bookshops do not favour this policy. We construct a database for the Canary Islands (a Spanish Autonomous Community) on schools, bookshops, population and other control factors. Our empirical objectives are twofold: first, we explore whether malls force the exit (or encourage entry) of bookshops; second, we test whether these larger retailers decrease consumer welfare by increasing distance from schools to points of sale. The results show that malls are not as bad as bookshops claim
    Keywords: Textbooks, Competition, Regional economic activity
    JEL: Z11 R11
    Date: 2011–07

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