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on Industrial Competition |
| By: | Yoon-Ho Alex Lee; Donald Brown |
| Date: | 2011–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:786969000000000203&r=com |
| By: | Raphael Anton Auer; Philip Ulrich Sauré |
| Abstract: | We develop a general equilibrium model of vertical innovation in which multiple firms compete monopolistically in the quality space. The model features many firms, each of which holds the monopoly to produce a unique quality level of an otherwise homogenous good, and consumers who are heterogeneous in their valuation of the good's quality. If the marginal cost of production is convex with respect to quality, multiple rms coexist, and their equilibrium markups are determined by the degree of convexity and the density of quality-competition. To endogenize the latter, we nest this industry setup in a Schumpeterian model of endogenous growth. Each firm enters the industry as the technology leader and successively transits through the product cycle as it is superseded by further innovations. The intrinsic reason that innovation happens in our economy is not one of displacing the incumbent; rather, innovation is a means to di-erentiate oneself from existing firms and target new consumers. Aggregate growth arises if, on the one hand, increasingly wealthy consumers are willing to pay for higher quality and, on the other hand, private firms' innovation generates income growth by enlarging the set of available technologies. Because the frequency of innovation determines the toughness of product market competition, in our framework, the relation between growth and competition is reversed compared to the standard Schumpeterian framework. Our setup does not feature business stealing in the sense that already marginal innovations grant non-negligible prots. Rather, innovators sell to a set of consumers that was served relatively poorly by pre-existing firms. Nevertheless, "creative destruction" prevails as new entrants make the set of available goods more di-erentiated, thereby exerting a pro-competitive e-ect on the entire industry. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2011-10&r=com |
| By: | Leonard J. Mirman; Marc Santugini |
| Abstract: | We study the influence of the financial market on the decisions of firms in the real market. To that end, we present a model in which the shareholders’ portfolio selection of assets and the decisions of the publicly-traded firms are integrated through the market process. Financial access alters the objective function of the firms, and the market interaction of shareholders substantially influences firms’ behavior in the real sector. After characterizing the unique Nash equilibrium, we show that the financial sector integrates the preferences of all shareholders into the decisions for production and ownership structure. The participation from investors in the financial market also limits the firms’ ability to manipulate real prices, i.e., there is a loss of market power in the real sector. Note that, while the loss of market power changes expected profits, it is not detrimental to shareholders since the expected return of equity share depends on the variance (and not the mean) of profits. Indeed, any changes in expected profits are absorbed by the financial price. We also show that financial access increases production, thereby altering the distribution of profits. In particular, financial access induces firms to take on more risk. Finally, financial access renders the relationship between risk-aversion and risk-taking ambiguous. For example, it is possible that an increase in risk-aversion leads to more risk-taking, i.e., the variance of real profits increases. |
| Keywords: | Financial sector, Firm behavior, Market power, Monopoly, Nash equilibrium, Perfect competition, Publicly-traded firm, Shareholder behavior |
| JEL: | D21 D41 D42 D80 G32 L1 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1124&r=com |
| By: | Zucchini, Leon; Kretschmer, Tobias |
| Abstract: | Competitive dynamics research has focused primarily on interactions between dyads of firms. Drawing on the awareness-motivation-capability framework and strategic group theory we extend this by proposing that firms’ actions are influenced by perceived competitive pressure resulting from actions by several rivals. We predict that firms’ action magnitude is influenced by the total number of rival actions accumulating in the market, and that this effect is moderated by strategic group membership. We test this using data on the German mobile telephony market and find them supported: the magnitude of firm’s actions is influenced by a buildup of actions by multiple rivals, and firms react more strongly to strategically similar rivals. |
| Keywords: | Competitive rivalry; competitive dynamics; strategic groups; mobile telecommunications |
| JEL: | D83 M10 L11 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:msmdpa:12308&r=com |
| By: | De Silva, Dakshina G.; McComb, Robert P. |
| Abstract: | If localization economies are present, firms within denser industry concentrations should exhibit higher levels of performance than more isolated firms. Nevertheless, research in industrial organization that has focused on the influences on firm survival has largely ignored the potential effects from agglomeration. Recent studies in urban and regional economics suggests that agglomeration effects may be very localized. Analyses of industry concentration at the MSA or county-level may fail to detect important elements of intra-industry firm interaction that occur at the sub-MSA level. Using a highly detailed dataset on firm locations and characteristics for Texas, this paper analyses agglomeration effects on firm survival over geographic areas as small as a single mile radius. We find that greater firm density within very close proximity (within 1 mile) of firms in the same industry increases mortality rates while greater concentration over larger distances reduces mortality rates. |
| Keywords: | Firm Survival; Agglomeration; Localization; and Knowledge Externalities |
| JEL: | O18 R12 |
| Date: | 2011–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32906&r=com |
| By: | Ferdinand Rauch |
| Abstract: | This paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and consumer prices across industries. It makes use of a unique policy change that caused a decrease of the taxation on advertising expenditures in parts of Austria and a simultaneous increase in other parts. Advertising expenditures move immediately in the opposite direction to the marginal costs of advertising. Simultaneously the price reaction to advertising is negative in some industries (food, education) and positive in other industries (alcohol, tobacco, transportation, hotels and restaurants), depending on the information content of advertising. The paper reconciles these findings using a model that contains informative and persuasive forces of advertising. |
| Keywords: | Advertising, taxation of advertising, effects of advertising |
| JEL: | H25 M37 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1073&r=com |
| By: | Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Thulin, Per (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | Schumpeter claimed the entrepreneur to be instrumental for creative destruction and industrial dynamics. Entrepreneurial entry serves to transform and revitalize industries, thereby enhancing their competiveness. This paper investigates if entry of new firms influences productivity amongst incumbent firms, and the extent to which altered productivity can be attributed sector and time specific effects. Implementing a unique dataset we estimate a firm-level production function in which the productivity of incumbent firms is modeled as a function of firm attributes and regional entrepreneurship activity. The analysis finds support for positive productivity effects of entrepreneurship on incumbent firms, albeit the effect varies over time, what we refer to as a delayed entry effect. An immediate negative influence on productivity is followed by a positive effect several years after the initial entry. Moreover, the productivity of incumbent firms in services sectors appears to be more responsive to regional entrepreneurship, as compared to the productivity of manufacturing firms. |
| Keywords: | entrepreneurship; entry; business turbulence; incumbent firms; productivity; region; business dynamics |
| JEL: | D20 L10 L26 O31 R11 |
| Date: | 2011–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0256&r=com |
| By: | Hernán Vallejo; Miguel Espinosa |
| Abstract: | This article proposes an identity regarding economic outcomes when producers maximize profits, with free entry and exit of firms. The identity links consumer and producer theory and leads to several results that contribute to understand what should -and should not- be expected under the assumptions made, from the behavior of firms and households, and from the technology of a firm. Given that unit prices are usually known, the identity also allows to infer the value of a range of economic variables, when reasonable information is available on the price elasticity of the residual demand, the marginal revenue associated to the residual demand, the marginal cost or the elasticity of scale. |
| Date: | 2011–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:008909&r=com |
| By: | James Costain (Banco de España, C/Alcalá 48, 28014 Madrid, Spain.); Anton Nakov (Banco de España, C/Alcalá 48, 28014 Madrid, Spain and European Central Bank.) |
| Abstract: | This paper proposes two models in which price stickiness arises endogenously even though firms are free to change their prices at zero physical cost. Firms are subject to idiosyncratic and aggregate shocks, and they also face a risk of making errors when they set their prices. In our first specification, firms are assumed to play a dynamic logit equilibrium, which implies that big mistakes are less likely than small ones. The second specification derives logit behavior from an assumption that precision is costly. The empirical implications of the two versions of our model are very similar. Since firms making sufficiently large errors choose to adjust, both versions generate a strong "selection effect" in response to a nominal shock that eliminates most of the monetary nonneutrality found in the Calvo model. Thus the model implies that money shocks have little impact on the real economy, as in Golosov and Lucas (2007), but fits microdata better than their specification. JEL Classification: E31, D81, C72. |
| Keywords: | Logit equilibrium, state-dependent pricing, (S,s) adjustment, near rationality, information-constrained pricing. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111375&r=com |
| By: | Gastón Chaumont; Miguel Fuentes; Felipe Labbé; Alberto Naudon |
| Abstract: | In this paper we use a new database of scanner-level prices for the Chilean economy to characterize the microeconomic behavior of prices during a period of high inflation. We are able to characterize the price-setting behavior by supermarket chain. The evidence indicates that there is significant heterogeneity in the pricing behavior of individual retailers. Analyzing the source of shocks, results show that even though chain-specific shocks account for a sizable fraction of the observed variation, common (i.e. countrywide) shocks to individual goods and product categories are the most important factors to explain the behavior of prices. In other words, the pricing strategy of retailers seems less important in developing countries to explain microeconomic price dynamics. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:641&r=com |
| By: | Bourreau, Marc (Telecom ParisTech and CREST-LEI, Paris); Cambini, Carlo (Polytechnic University of Turin); Dogan, Pinar (Harvard University) |
| Abstract: | In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an "old" technology to a "new" technology, and discuss how the terms of wholesale access affect this migration. We show that a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the business migration effect. If both the old and the new infrastructures are subject to ex-ante access regulation, we also find that the two access charges are positively correlated. |
| JEL: | L51 L96 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp11-029&r=com |
| By: | David P.Byrne |
| Abstract: | This paper measures the impact of consolidation on cable television prices, product quality,profits and consumer welfare. I estimate a multi-product monopoly model using panel data on cable menus and costs in Canada from 1990 to 1996. Using counterfactual simulations, I find mean consumer welfare rises with acquisitions, as does welfare inequality across consumers. Scale economies are the primary driver of consolidation effects quantitatively, with firm heterogeneity in demand and costs having a smaller impact. Regional consolidation yields non-negligible welfare gains, particularly in rural markets where potential cable quality improvements and cost reductions are the largest. |
| Keywords: | Consolidation; Price Discrimination; Economies of Scale; Firm Heterogeneity; |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1118&r=com |
| By: | Bardey, David (University of Rosario (Bogota, Colombia) and Toulouse School of Economics); Cremer, Helmuth (Toulouse School of Economics (IDEI and GREMAQ-CNRS)); Lozachmeur, Jean-Marie (Toulouse School of Economics (IDEI and GREMAQ-CNRS)) |
| 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 different intensities, the same network externality. We explicitly introduce e¤ort exerted by doctors. By increasing the number of medical acts (which involves a costly effort) the doctor can increase the quality of service offered to patients (over and above the level implied by the CNE). We fi rst 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 providersside. 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 patientsvaluation 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. |
| JEL: | D41 L11 L12 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24903&r=com |
| By: | Paarsch, Harry J.; Segre, Alberto M.; Roberts, John P.; Halldorson, Jeffrey B. |
| Abstract: | Previous researchers have modelled the decision to accept a donor organ for transplantation as a Markov decision problem, the solution to which is often a control-limit optimal policy: accept any organ whose match quality exceeds some health-dependent threshold; otherwise, wait for another. When competing transplant centers vie for the same organs, the decision rule changes relative to no competition; the relative size of competing centers affects the decision rules as well. Using center-specific graft and patient survival-rate data for cadaveric adult livers in the United States, we have found empirical evidence supporting these predictions. |
| Keywords: | liver transplantation, competition, optimal stopping |
| JEL: | C14 I12 L1 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:hit:cisdps:522&r=com |
| By: | David P.Byrne; Roger Ware |
| Abstract: | This paper studies the determinants of Edgeworth Cycles, price leadership and coordination in retail gasoline markets using daily station-level price data for 110 markets in Ontario, Canada for 2007-2008. We find an “inverse-U” relationship between markets’ propensity to exhibit price cycles and their size. More concentrated markets are less likely to exhibits cycles and we highlight regional clustering among cycling and non-cycling markets. Within cycling markets, we find brands’ stations (Esso, Shell,Petro-Canada, Sunoco) lead price jumps and coordinate market prices, while independents (Ultramar, Pioneer, Olco, MacEwen) aggressively undercut prices over the cycle. |
| Keywords: | Retail gasoline prices; Edgeworth Cycles; Price leadership; Coordination |
| JEL: | L11 L9 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1124&r=com |