nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒08‒29
twelve papers chosen by
Russell Pittman
US Department of Justice

  1. Endogenous Product Differentiation, Market Size and Prices By Ferguson, Shon
  2. Payoff Uncertainty, Bargaining Power, and the Strategic Sequencing of Bilateral Negotiations By Silvana Krasteva; Huseyin Yildirim
  3. Misleading Advertising and Minimum Quality Standards By Keisuke Hattori; Keisaku Higashida
  4. Temporal structure of firm growth and the impact of R&D By Schimke, Antje; Brenner, Thomas
  5. Information and disclosure in strategic trade policy: Revisited By Antoniou, Fabio; Tsakiris, Nikos
  6. The Consistency of Merger Decisions in a Developing Country: The South African Competition Commission By Richard J. Grimbeek; Sunel Grimbeek; Steven F. Koch
  7. Prohibition of parallel Imports as a hard core Restriction of Article 4 of Block Exception Regulation for vertical Agreements: European Law and Economics By Zevgolis, Nikolaos; Fotis , Panagiotis
  8. Price Setting Behaviour in Latvia: Econometric Evidence from CPI Microdata By Konstantins Benkovskis; Ludmila Fadejeva; Krista Kalnberzina
  9. The arrival of cheap goods: Measuring the impact of Chinese import competition on Nordic prices By Auer, Raphael; Fischer, Andreas M; Kropf, Andreas
  10. Supplier Responses to Wal-Mart's Invasion in Mexico By Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
  11. Ownership Unbundling of Gas Transmission Networks - Empirical Evidence By Growitsch, Christian; Stronzik, Marcus
  12. Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power By Lucas W. Davis; Catherine Wolfram

  1. By: Ferguson, Shon (Research Institute of Industrial Economics (IFN))
    Abstract: Recent empirical evidence suggests that prices for some goods and services are higher in larger markets. This paper provides a demand-side explanation for this phenomenon when firms can choose how much to differentiate their products in a model of monopolistic competition with horizontal product differentiation. The model proposes that consumers’ love of variety makes them more sensitive to product differentiation efforts by firms, which leads to higher prices in larger markets. At the same time, endogenous product differentiation modeled in this way can lead to a positive and concave relationship between market size and entry.
    Keywords: Endogenous Technology; Entry; Market Size Effect; International Trade; Monopolistic Competition
    JEL: D43 F12 L13
    Date: 2011–08–12
  2. By: Silvana Krasteva; Huseyin Yildirim
    Abstract: This paper investigates the sequencing choice of a buyer who negotiates with the sellers of two complementary objects with uncertain payoffs. We show that the sequencing matters to the buyer only when equilibrium trade can be inefficient. In this case, the buyer begins with the less powerful seller if the sellers have sufficiently diverse bargaining powers. If, however, both sellers are strong bargainers, then the buyer begins with the stronger of the two. For either choice, the buyer’s sequencing (weakly) increases the social surplus. Our analysis further reveals that it is sometimes optimal for the buyer to raise her own cost of acquisition to better manage the supplier competition. As such, we find that the buyer may commit to paying the sellers a minimum price strictly above the marginal cost; and that the buyer may outsource an input even though it can be made in-house. Finally, we identify the first - and second - mover advantages in negotiations for the sellers.
    Keywords: negotiation, sequencing, bargaining power, coordination
    JEL: C70 L23
    Date: 2011
  3. By: Keisuke Hattori (Faculty of Economics, Osaka University of Economics); Keisaku Higashida (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards and certication criteria, when products are vertically dierentiated in their health/safety aspects. We investigate the welfare eect of regulating misinformation and strengthening MQSs. We nd that when the amount of misinformation on both low- and high-quality products is small, regulating misinformation on low-quality products reduces welfare, although the strictness of an MQS influences its eect. On the other hand, regulating misinformation on high-quality products always improves welfare. We also nd that a stricter MQS can harm welfare. This, in particular, is likely to occur when the dierence between the perceived quality of the two types of products is large and when rms generate high degrees of misperceptions. Moreover, we extend the analysis by endogenizing quality investments and demonstrate that regulating misinformation on high-quality products may deteriorate their true quality and, thus, reduce welfare.
    Keywords: Advertising, Minimum quality standards, Misinformation, Vertical differentiation
    JEL: L13 L15 M37 Q58
    Date: 2011–08
  4. By: Schimke, Antje; Brenner, Thomas
    Abstract: This paper examines the time structure of the effects of R&D activities on firm growth. The main questions are whether R&D activities come together with firms' growth in the subsequent periods and how this relationship depends on other characteristics of the firms, such as size and industry. In addition, we study the relationship between R&D effects and the autocorrelation dynamics of firm growth. We use firm level data of 1000 European companies with details on R&D investments in 2003 to 2006. A regression approach is applied with a linear model taking into account R&D activities at points in time and autocorrelation dynamics of firm growth. We find that R&D has, on average, a positive effect on firm growth, but the effect and its temporal structure strongly depends on firm size and industry. --
    Keywords: Firm growth,R&D activities,firm size,industry,autocorrelation,time gap,temporal structure
    Date: 2011
  5. By: Antoniou, Fabio; Tsakiris, Nikos
    Abstract: In a recent paper, Creane and Miyagiwa (2008) show that the mode of competition (quantity or price) determines whether information sharing occurs between firms and governments within an international duopoly context in which the fims are located in different countries. In this paper, we show that the relative number of firms located in each country is also critical. In particular, we illustrate that with quantity competition and under the presence of demand and cost uncertainty information sharing does not occur when the number of firms in one country is higher than the number of firms in the other country. Moreover, we show that the informational prisoner's dilemma in the current context appears only when the number of firms across countries is equal.
    Keywords: Information; uncertainty; strategic trade; multiple firms
    JEL: F12 D83
    Date: 2011–08–22
  6. By: Richard J. Grimbeek (Department of Economics, University of Pretoria); Sunel Grimbeek (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: Merger decisions made by the South African Competition Commission from April 2002 to March 2010 are analyzed to empirically identify the factors, which have historically in uenced prohibition, conditional approval and unconditional approval. The key explanatory variables are linked to provisions of the 1998 Competition Act, as well as the timing of merger notications, such that the analysis provides insight into the consistency of merger decisions with respect to the legal requirements specied in the Act. Although the legislation includes standard economic concerns, it also includes a provision for advancing public interests and development concerns. Initial results point to diering behaviour over the time period, which suggests that the Commission is inconsistent; however, the majority of those inconsistencies are removed, once additional measures of market contestibility are included in the analysis. The nal results suggest that the Commission is less likely to approve mergers that they link to markets that are less contestable. Furthermore, in addition to protecting competition, the Commission is simultaneously protecting other public interests. Therefore, our research supports the hypothesis that the Commission consistantly applies its legislative remit.
    Keywords: South African Competition Commission, Merger Decisions
    JEL: K21 L40 D78
    Date: 2011–08
  7. By: Zevgolis, Nikolaos; Fotis , Panagiotis
    Abstract: This paper attempts, on the one hand, to reveal the main principles of Competition Law (regulatory and case law framework) covering the prevention of parallel trade, mainly the prohibition of parallel imports or exports, and on the other hand to cast light on the main effects of parallel imports prohibition imposed by an upstream supplier on the competitive structure of the downstream market. Especially, the regulatory framework relates Block Exception Regulation 330/2010, (ex Block Exception Regulation 2790/99), with Block Exception Regulation 461/2010 (ex Block Exception Regulation 1400/2002) in order to determine whether prohibition of parallel trade constitutes a hardcore restriction or not, while the economic analysis evaluates it in a geographical vertical market which constitutes an upstream and a downstream market with few suppliers & buyers respectively which sell goods to the final (domestic) consumers. The results indicate that prohibition of parallel imports by the upstream sellers causes vertical restraints to the domestic customers of the buyers.
    Keywords: Antitrust Law; Vertical Restraints; Block Exception Regulation; Market Imperfection; Consumer Nondurables; Repeated Games of Oligopoly Theory;
    JEL: K21 D43 C73
    Date: 2011–08–16
  8. By: Konstantins Benkovskis; Ludmila Fadejeva; Krista Kalnberzina
    Abstract: This paper discovers the driving forces behind firms' decisions to adjust prices by using various panel logit models, which explain the probability of observing price change by a broad set of exogenous variables. The results of the models show that the consumer price formation in Latvia is a combination of both state-dependent and time-dependent behaviour. On the one hand, frequency of price changes depends on inflation, demand conditions, and the size of last price changes. On the other hand, we observe some elements of time-dependent price setting, e.g. price truncation and strong seasonal pattern. We also find several important differences in the price setting behaviour for cases of price increases and decreases. The fact that frequency of price changes in Latvia depends on inflation as well as demand and supply conditions could be seen as a prerequisite for faster price adjustment process in the event of distortions in the economy. In the case of economic imbalances, statedependent price formation changes flexibility of prices and ensures a faster adjustment process towards equilibrium.
    Keywords: price setting behaviour, Latvia's consumer prices, frequency of price change, sales, time-dependent pricing, state-dependent pricing, panel logit model
    JEL: C23 D40 E31
    Date: 2011–01–28
  9. By: Auer, Raphael; Fischer, Andreas M; Kropf, Andreas
    Abstract: What is the impact of Chinese import competition on Nordic producer prices? In a panel covering 23 (2 digit) NACE manufacturing sectors from 1995 to 2008, instrumental variable estimations predict that when Chinese imports capture a 1% increase in market share, Nordic producer prices decrease by about 2.0%. This China effect entails a drop of 14% in producer prices for the analyzed period.
    Keywords: comparative advantage; globalization; intra-industry trade
    JEL: F11 F12 F14 F16 F40
    Date: 2011–08
  10. By: Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
    Abstract: This paper examines the effect of Wal-Mart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Wal-Mart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Wal-Mart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in regions with di¤ering levels of Walmex presence during the years 1994 to 2002.
    Keywords: distribution systems; firm heterogeneity; foreign direct investment; innovation; logistics; NAFTA; retailing
    JEL: F23
    Date: 2011–08
  11. By: Growitsch, Christian (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Stronzik, Marcus (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: The European Commission has intensively discussed the mandatory separation of natural gas transmission from production and services. However, economic theory is ambiguous on the price effects of vertical separation. In this paper, we empirically analyse the effect of ownership unbundling of gas transmission networks as the strongest form of vertical separation on the level of end-user prices. <p> Therefore, we apply different dynamic estimators as system GMM and the bias-corrected least-squares dummy variable or LSDVC estimator on an unbalanced panel out of 18 EU countries over 19 years, allowing us to avoid the endogeneity problem and to estimate the long-run effects of regulation. <p> We introduce a set of regulatory indicators as market entry regulation, ownership structure, vertical separation and market structure and account for structural and economic country specifics. Among these different estimators, we consistently find that ownership unbundling has no impact on natural gas end-user prices, while the more modest legal unbundling reduces them significantly. Furthermore, third-party access, market structure and privatisation show significant influence with the latter leading to higher price levels.
    Keywords: Natural gas; Networks; Regulation; Ownership unbundling; Panel data
    JEL: C23 L43 L94
    Date: 2011–07–20
  12. By: Lucas W. Davis; Catherine Wolfram
    Abstract: For the first four decades of its existence the U.S. nuclear power industry was run by regulated utilities, with most companies owning only one or two reactors. Beginning in the late 1990s electricity markets in many states were deregulated and almost half of the nation’s 103 reactors were sold to independent power producers selling power in competitive wholesale markets. Deregulation has been accompanied by substantial market consolidation and today the three largest companies control more than one-third of all U.S. nuclear capacity. We find that deregulation and consolidation are associated with a 10 percent increase in operating efficiency, achieved primarily by reducing the frequency and duration of reactor outages. At average wholesale prices the value of this increased efficiency is approximately $2.5 billion annually and implies an annual decrease of almost 40 million metric tons of carbon dioxide emissions.
    JEL: D21 D40 L51 L94 Q48
    Date: 2011–08

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