|
on Industrial Competition |
| By: | Norovsambuu Tumennasan (School of Economics and Management, Aarhus University, Denmark) |
| Abstract: | We revisit the question of whether price matching is anti-competitive in a capacity constrained duopoly setting. We show that the effect of price matching depends on capacity. Specifically, price matching has no effect when capacity is relatively low, but it benefits the firms when capacity is relatively high. Interestingly, when capacity is in an intermediate range, price matching benefits only the small firm but does not affect the large firm in any way. Therefore, one has to consider capacity seriously when evaluating if price matching is anti-competitive. If the firms choose their capacities simultaneously before pricing decisions, then the effect of price matching is either pro-competitive or ambiguous. We show that if the cost of capacity is high, then price matching can only (weakly) decrease the market price. On the other hand, if the cost of capacity is low, then the effect of price matching on the market price is ambiguous due to the multiplicity of equilibria. Therefore, this paper challenges the widely accepted belief that price matching is an anti-competititive practice if the firms choose their capacities simultaneously before pricing decisions. |
| Keywords: | Price matching, capacity constraint, quantity precommitment |
| JEL: | L00 |
| Date: | 2011–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2011-13&r=com |
| By: | Fanti, Luciano; Gori, Luca |
| Abstract: | We study the local stability properties of a duopoly game with price competition, different product quality and heterogeneous expectations. We show that the Nash equilibrium can loose stability through a flip bifurcation when the consumer’s type range increases. This result occurs irrespective of whether the high(low)-quality firm has either bounded rational (naïve) or naïve (bounded rational) expectations about the price that should be set in the future by the rival to maximise profits. Therefore, although, on the one hand, an increase in the consumer’s types range increases profits, on the other hand, it contributes to reduce the parametric stability region of the unique interior equilibrium. Moreover, we show that the stability region is larger when the high-quality firm has naïve expectations and the low-quality firm has bounded rational expectations. This implies that when the expectations formation mechanism of the high-quality firm becomes more complicated than the naïve one, and, in particular, it follows the mechanism proposed by Dixit (1986), the stability of the Nash equilibrium in a duopoly market with price competition becomes under increasing strain. |
| Keywords: | Bifurcation; Different product quality; Duopoly; Heterogeneous players; Price competition |
| JEL: | L13 D43 L15 C62 |
| Date: | 2011–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33480&r=com |
| By: | Bernard Caillaud (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA); Romain De Nijs (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique) |
| Abstract: | This paper proposes a dynamic model of duopolistic competition under behaviorbased price discrimination with the following property: in equilibrium, a firm may reward its previous customers although long term contracts are not enforceable. A firm can offer a lower price to its previous customers than to its new customers as a strategic means to hamper its rival to gather precise information on the young generation of customers for subsequent profitable behavior-based pricing. The result holds both with myopic and forward-looking, impatient enough consumers. |
| Keywords: | Price discrimination ; Dynamic pricing ; Loyalty reward |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00622291&r=com |
| By: | Kaldasch, Joachim |
| Abstract: | An evolutionary model of the product life cycle is applied to derive the experience curve and the market size of (expensive) durable goods. The experience (learning) curve suggests that the real costs per unit decrease with an increasing cumulative output (Henderson's law). Based on the idea that in a competitive market firms are forced to pass cost advantages on to the price, the evolutionary model suggests that the mean price and also the mean costs are governed by an exponential decline with time. Simultaneously the mean price evolution satisfies Henderson's law. The market size is defined here by the number of active firms. The market size is shown to follow the total market revenue if the latter exhibits fast variations, else the size is nearly constant. A comparison with an empirical investigation confirms the model predictions. |
| Keywords: | experience curve; learning curve; market evolution; evolutionary economics; economic growth; product diffusion; Gompertz diffusion; product life cycle; durable goods |
| JEL: | D11 D41 D91 A10 E27 C50 B52 D83 O4 E3 |
| Date: | 2011–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33370&r=com |
| By: | Fanti, Luciano; Gori, Luca |
| Abstract: | We analyse the dynamics of a Cournot duopoly game with heterogeneous players to investigate the effects of micro-founded differentiated products demand. The present analysis, which modifies and extends Zhang et al. (2007) (Zhang, J., Da, Q., Wang, Y., 2007. Analysis of nonlinear duopoly game with heterogeneous players. Economic Modelling 24, 138–148) and Tramontana, F., (2010) (Tramontana, F., 2010. Heterogeneous duopoly with isoelastic demand function. Economic Modelling 27, 350–357), reveals that a higher degree of product differentiation may destabilise the market equilibrium. Moreover, we show that a cascade of flip bifurcations may lead to periodic cycles and ultimately chaotic motions. Since a higher degree of product differentiation implies weaker competition, then a theoretical implication of our findings, that also constitute a policy warning for firms, is that a fiercer (weaker) competition tends to stabilise (destabilise) the unique positive Cournot-Nash equilibrium of the economy. |
| Keywords: | Bifurcation; Chaos; Cournot; Oligopoly; Product differentiation |
| JEL: | L13 D43 C62 |
| Date: | 2011–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33477&r=com |
| By: | Indrajit Ray; Sonali Sen Gupta |
| Abstract: | For duopoly models, we consider the notion of weak correlation using simple symmetric devices that the players choose to commit to in equilibrium. In a linear duopoly game, we prove that Nashcentric devices involving a sunspot structure are simple symmetric weak correlated equilibria. Any small perturbation from such a structure fails to be an equilibrium. |
| Keywords: | Duopoly, weak Correlation, Simple device, Sunspots |
| JEL: | C72 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:11-14&r=com |
| By: | Ju, Jiandong; Lin, Justin Yifu; Wang, Yong |
| Abstract: | A growth model with multiple industries is developed to study how industries evolve as capital accumulates endogenously when each industry exhibits Marshallian externality (increasing returns to scale) and to explain why industrial policies sometimes succeed but sometimes fail. The authors show that, in the long run, the laissez-faire market equilibrium is Pareto optimal when the time discount rate is sufficiently small or sufficiently large. When the time discount rate is moderate, there exist multiple dynamic market equilibria with diverse patterns of industrial development. To achieve Pareto efficiency, it would require the government to identify the industry target consistent with the comparative advantage and to coordinate in a timely manner, possibly for multiple times. However, industrial policies may make people worse off than in the market equilibrium if the government picks an industry that deviates from the comparative advantage of the economy. |
| Keywords: | Water and Industry,Economic Theory&Research,Industrial Management,Industrial Economics,Common Property Resource Development |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5796&r=com |
| By: | Bastié Françoise, University of Caen Basse-Normandie, CREM (UMR CNRS); Cieply Sylvie, University of Caen Basse-Normandie, CREM (UMR CNRS); Cussy Pascal, University of Caen Basse-Normandie, CREM (UMR CNRS) |
| Abstract: | In this article, we explore the issue of whether the financial conditions into which a firm is born have an effect on its survival chances. After both correction of the omitted variables bias and introduction of time varying covariates, we show two distinctive effects of banking debt on the survival of new firms in function of the time horizon: an insignificant or negative impact of banking debt in the short term (less than 2 years) and a persistently positive effect in the medium term (more than 2 years). Founding financial conditions have long-lasting effects upon survival. |
| Keywords: | Survival, New firms, Banking debt, Screening, Duration. |
| JEL: | M13 D82 G21 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201110&r=com |
| By: | Gallié, Emilie-Pauline; Legros, Diego |
| Abstract: | This article investigates the effects of human capital and technological capital on innovation. While the role of technological capital as measured by research and development (R&D) expenditure has been intensively investigated, few studies have been made on the effect of employee training on innovation. This article explores the relationship between innovation and firm employee training. Our methodological approach contributes to the literature in three ways. We propose various indicators of firm employee training. We build a count data panel with a long time-data series to deal with the issue of firms’ heterogeneity. We propose a dynamic analysis. Using dynamic count data models on French industrial firms over the period 1986–1992, we find positive and significant effects of R&D intensity and training on patenting activity. Whatever the indicators of training our results show that the firm employee training has a positive impact on technological innovation. |
| Keywords: | Patents; R&D; Employee training; Count panel data; Linear feedback model; |
| JEL: | C23 C25 J24 L60 O31 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/6962&r=com |
| By: | Fabrice Valognes, Université de Caen Basse-Normandie, CREM-CNRS UMR 6211; Hélène Ferrer, Université de Caen Basse-Normandie, CREM-CNRS UMR 6211; Guillermo Owen, Dept. of Mathematics, Naval Postgraduate School, Monterey, USA. |
| Abstract: | We consider a situation in which members of an oligopoly have different technologies, which allow them to produce at different costs. Members may license their technology to other members. Using the Aumann-Drèze modification of the Shapley value, we compute fair prices for these licenses. We also study the problem of stability for these ``licensing coalitions.'' |
| Keywords: | Cooperative Game Theory, Technology Transfers, Modified Shapley Value |
| JEL: | C71 L13 L24 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201109&r=com |
| By: | Timothy Perri |
| Abstract: | Following Rosen [1981], superstar effects (earnings convex in quality and a few firms reaping a large share of market earnings) occur with imperfect substitution between sellers, low (and possibly declining) marginal cost of output, and marginal cost falling as quality increases. However, markets without such characteristics have superstar effects, and the main result from the superstar model---small quality differences result in large earnings differences---may not hold. A competitive model can yield superstar effects when a few firms have quality significantly higher than others and cost increases in output, provided cost does not increase too rapidly in quality. Key Words: superstars & competition |
| JEL: | D21 D41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:11-11&r=com |
| By: | Sergio Aquino de Souza |
| Abstract: | The key contribution of this paper is to show how to incorporate more information into the empirical strategy in order to avoid the need of valid instruments, which are difficult to find in many instances. I use information on price elasticity to propose a methodology that is able to determine the parameters of a simplified Mixed Logit Model. I also apply this methodology to the ready-to-eat cereal industry and simulate the competitive and welfare effects of the introduction of new products. |
| Keywords: | Discrete-Choice, Demand Models, Competition |
| JEL: | L11 D12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fea:wpaper:04-2011&r=com |
| By: | Guy David; Evan Rawley; Daniel Polsky |
| Abstract: | We develop a formal model to show how integration solves task allocation problems between organizations and test the predictions of the model, using a large and rich patient-level dataset on hospital discharges to nursing homes and home health care. As predicted by the theory, we find that vertical integration allows hospitals to shift patient recovery tasks downstream to lower cost delivery systems by discharging patients earlier and in poorer health, and integration leads to greater post-hospitalization service intensity. While integration facilitates a shift in the allocation of tasks, health outcomes are no worse when patients receive care from an integrated provider. The evidence suggests that by improving the allocation of tasks, integration solves coordination problems that arise in market exchange. |
| JEL: | I12 L23 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17419&r=com |
| By: | Klênio de Souza Barbosa; Pierre C. Boyer |
| Abstract: | Many local governments allow competition between public and private rms for provision of local public services in order to reduce procurement cost. Competition is usually introduced through competitive tendering for concession contracts. We show that in a symmetric competition between public and private rms with learning-by-doing, private rm's ability to transfer learning among concessions may reduce consumer's welfare. The model provides testable implications which are consistent with the empirical evidence: little competition for concessions, retail prices higher under private operation than under public one, and subsidies and retail prices to service providers increased over time. In addition, consumers' gains from switching to private ownership are higher in industries where private rms have low-ability to transfer learning among dierent concessions. |
| Keywords: | Sequential Auction, Public versus Private Firms, Learning-by-doing, Transferability of Learning |
| JEL: | D44 H57 H70 H87 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:fea:wpaper:06-2011&r=com |
| By: | Johannes Paha (University of Giessen); Dirk Rompf (University of Giessen); Christiane Warnecke (University of Giessen) |
| Abstract: | The current level of competition in European commercial passenger rail markets is low and empirical data on customer preferences in intramodal competition has hardly been available, yet. Our study raises the knowledge of competition in commercial passenger rail by exploring the determinants of customers’ choice behaviour on two cross-border routes, Cologne-Brussels and Cologne-Amsterdam. We analyse stated preference information from about 700 on-train interviews by means of multinomial Logit regressions. Our analysis indicates that customers experiencing competition (Cologne-Brussels) show a higher preference for competitive services than customers for whom competition is a purely hypothetical situation (Cologne-Amsterdam). Moreover, travellers show a status quo bias, i.e. a preference for the service provider on whose trains they were interviewed which partly stems from switching costs. These findings regarding status quo bias and switching costs complement previous studies on the outcome of intramodal competition, implying that entry is even more difficult than they predicted. |
| Keywords: | Competition, Passenger, Rail, Transport, Discrete Choice, Multinomial Logit |
| JEL: | C25 D12 D40 L92 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201137&r=com |
| By: | Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University) |
| Abstract: | This paper investigates the effect of monopoly subsidies on entry deterrence. We consider a potential entrant who observes two signals: the subsidy set by the regulator and the output level produced by the incumbent firm. We show that not only an informative equilibrium can be supported, where information about the incumbent's costs is conveyed to the entrant, but also an uninformative equilibrium, where the actions of regulator and incumbent conceal the monopolist's type, thus deterring entry. While the regulator?s role can support entry-deterrence practices, we demonstrate that his presence is nonetheless welfare improving. Furthermore, we compare equilibrium welfare relative to two benchmarks: complete information environments, and standard entry-deterrence games where the regulator is absent. |
| Keywords: | Entry deterrence; Signaling; Monopoly subsidies |
| JEL: | D82 H23 L12 Q5 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-10&r=com |