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on Industrial Competition |
| By: | Luciano Fanti; Luca Gori |
| 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: | C62 D43 L13 |
| Date: | 2011–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2011/121&r=com |
| By: | Luciano Fanti; Luca Gori |
| 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: | C62 D43 L13 L15 |
| Date: | 2011–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2011/122&r=com |
| By: | Andreas M. Hefti |
| Abstract: | I present a game-theoretic model where economic competition and attention competition are interdependent. On the one hand the effort to attract consumer attention depends on the value of attention to the firm which depends on the grade of price competition among all perceived firms. On the other hand attracting attention involves costs which must be covered by the earnings from competition. It is the task of this paper to clarify the consequences of such an interdependence between attention competition and economic competition for prices, attention effort and market structure as determined by the strategic equilibrium. Under limited attention the market as perceived by consumers and not the effective market is relevant to the firms which implies that prices also reflect the scarcity of attention. Less attentive consumers lead to higher prices but at the same time getting attention is more valuable which intensifies the competition for attention and leads to higher attention costs. I show that if attention competition is relatively inelastic or the commodities are strong substitutes then the gains from consumer inattention outweigh the costs of attracting attention which leads to higher profits and larger effective markets. |
| Keywords: | Limited attention, competition, pricing, strategic equilibrium |
| JEL: | D43 D83 L13 C72 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:028&r=com |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Kerstin Pull (University of Tübingen, Department of Economics and Business Administration); Manfred Stadler (University of Tübingen, Department of Economics and Business Administration) |
| Abstract: | We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents. |
| Keywords: | Price competition, Agency theory |
| JEL: | C72 L22 M52 |
| Date: | 2011–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-042&r=com |
| By: | Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter |
| Abstract: | A simple theoretical network model is introduced to investigate the problem of network interconnection. Prices, profits and welfare are compared under welfare maximisation, network monopoly and network monopoly with competition over one part of the network. Given that inducing actual competition may bring disbenefits such as cost duplication and co-ordination costs, we also explore the possibility of a regulator using the threat of entry on a section of the monopoly network in order to bring about the socially preferred level of interconnectivity. We show that there are feasible parameter values for which such a threat is plausible. |
| Keywords: | Network interconnectivity, monopoly, competition, regulation |
| JEL: | L14 L33 L50 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2011020&r=com |
| By: | Bouamra-Mechemache, Zohra; Yu, Jianyu |
| Keywords: | International Relations/Trade, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114264&r=com |
| By: | Riccardo Martina (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Napoli Federico II and CSEF) |
| Abstract: | In this short paper we study a competing vertical hierarchies model where the allocation of residual claimancy is endogenous and is determined jointly with production and contractual decisions. We .nd a set of circumstances in which the (equilibrium) allocation of residual claimancy is affected by competition in a non trivial manner. More precisely, although revenue-sharing contracts foster agents. (non-contractible) surplus enhancing effort, we show that competing principals dealing with exclusive and privately informed agents might still prefer to retain a share of the surplus from production when dealing with inefficient types. This is because reducing the surplus share of inefficient types reduces the information rent given up to efficient types. Hence, the equilibrium allocation of residual claimancy follows a pro-cyclical rule. |
| Keywords: | Adverse selection, residual claimancy, vertical hierarchies |
| Date: | 2011–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:291&r=com |
| By: | Anthony Creane (Michigan State University); Chiu Yu Ko (Boston College); Hideo Konishi (Boston College) |
| Abstract: | We examine a firm that can license its production technology to a rival when firms are heterogeneous in production costs. We show that a complete technology transfer from one firm to another always increases joint profit under weakly concave demand when at least three firms remain in the industry. A jointly profitable transfer may reduce social welfare, although a jointly profitable transfer from the most efficient firm always increases welfare. We also consider two auction games under complete information: a standard first-price auction and a menu auction by Bernheim and Whinston (1986). With natural refinement of equilibria, we show that the resulting licensees are ordered by degree of efficiency: menu auction, simple auction, and joint-profit maximizing licensees, in (weakly) descending order. |
| Keywords: | licensing, production costs, technology transfer, auction games |
| JEL: | D4 L24 L4 |
| Date: | 2011–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:779&r=com |
| By: | Orley C. Ashenfelter; Daniel S. Hosken; Matthew C. Weinberg |
| Abstract: | Many experts speculate that U.S. antitrust policy towards horizontal mergers has been too lenient. We estimate the price effects of Whirlpool’s acquisition of Maytag to provide new evidence on this debate. We compare price changes in appliance markets most affected by the merger to markets where concentration changed much less or not at all. We estimate price increases for dishwashers and relatively large price increases for clothes dryers, but no price effects for refrigerators or clothes washers. The combined firm’s market share fell across all four affected categories and the number of distinct appliance products fell. |
| JEL: | K2 K21 L11 L4 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17476&r=com |
| By: | Robert M. Feinberg; Thomas A. Husted |
| Abstract: | Recent research has documented a substantial role in antitrust enforcement by U.S. states. While many of the cases litigated involve small local firms, a non-trivial portion encompass multiplestate issues. Some previous literature has investigated whether states engage in free-riding behavior in environmental regulation, and whether governments free ride on private decisions in provision of public goods. In this paper, we analyze a sample of antitrust cases involving crossstate impacts (from the Multi-State Antitrust Database, provided by the National Association of Attorneys General) and explain the determinants of free-riding (which we define as participatingin a case, but not as a lead plaintiff). JEL classification: |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:2011-07&r=com |
| By: | L. Lambertini; A. Tampieri |
| Abstract: | We examine a duopoly with polluting production where firms adopt a form of corporate social responsibility (CSR) to define their objective functions. Our analysis focusses on the bearings of CSR on collusion over an infinite horizon, sustained by either grim trigger strategies or optimal punishments. Our results suggest that assigning a weight to consumer surplus has a pro-competitive e¤ect under both full and partial collusion. Conversely, a higher impact of productivity on pollution has an anti-competitive effect under partial collusion, while exerting no effect under full collusion. Under partial collusion, the analysis of the isoquant map of the cartel reveals that complementarity arises between the two weights. |
| JEL: | H23 L13 L41 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp778&r=com |
| By: | Karen Kaiser; Carlos Lever Guzmán |
| Abstract: | Following the Hotelling model of spatial competition used by Massoud and Bernhardt (2002) to analyze competition in ATM fees, in this paper we analyze the effects of banning fees on the usage of ATMs by account holders. We find that the prohibition also reduces the fees charged to non-account holders but increases fixed fees. This latter increase is on average smaller than the decrease of the former two, which leads total consumer welfare to increase. We also find that the prohibition decreases total surplus but that this decrease is absorbed by the banks' profits. The model does not consider the decision of banks to open or close down ATMs, which we leave for future research. |
| Keywords: | Banking competition, ATM fees, bank regulation, retail banking. |
| JEL: | G21 L51 D40 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-09&r=com |
| By: | Richard Cookson (Centre for Health Economics, University of York, UK); Mauro Laudicella (Imperial College Business School, London, UK); Paolo Li Donni (Department of Economics, Finance and Business, University of Palermo, Italy) |
| Abstract: | Increasing evidence shows that hospital competition under fixed prices can improve quality and reduce cost. Concerns remain, however, that competition may undermine socio-economic equity in the utilisation of care. We test this hypothesis in the context of the pro-competition reforms of the English National Health Service progressively introduced from 2004 to 2006. We use a panel of 32,482 English small areas followed from 2003 to 2008 and a difference in differences approach. The effect of competition on equity is identified by the interaction between market structure, small area income deprivation and year. We find a negative association between market dispersion and elective admissions in deprived areas. The effect of pro-competition reform was to reduce this negative association slightly, suggesting that competition did not undermine equity. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:chy:respap:66cherp&r=com |
| By: | Esteban Bravo, Mercedes; Lado, Nora |
| Abstract: | Rival firms often cooperate horizontally in order to share risks and achieve scale advantages in production or in their research and development projects. The output of these strategic alliances is usually sold by the individual ally company under its own brand and using its own marketing mix strategies. Marketing strategies create a cumulative effect that is reflected in brand value. Although horizontal alliances often have a significant overall impact on firm profitability, undesired brand value dilution is a worrisome possibility for the partners and therefore a relevant subject of study. In this paper, we consider brand value to be the economic added value of a brand, and propose two marketbased measures of brand value: (1) price premia (which are relevant for a unit sale) and (2) revenue premia (which also account for the premia in sales volume). We apply this analysis to the Spanish market for new automobiles, in which successful and long-lasting horizontal alliances have formed. Our findings suggest that, during the introduction stage of the product life cycle, horizontal allies did not charge different price premia, but that horizontal allies profit from differences in brand reputation obtained from demand side effects such as revenue premia (specifically, the impact on sales volume). Consequently, horizontal cooperation among brands does not dilute their value at the introduction stage. Furthermore, our results suggest that horizontal allies do charge different price premia during the growth stage of the product life cycle. Consequently, horizontal allies have recognized strategies that do not dilute brand value in intense competition mitigating the brand value diluting risk |
| Keywords: | Brand value; Revenue premia; Automobile market; Price premia; Marketing; |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:ner:carlos:info:hdl:10016/12259&r=com |
| By: | Soregaroli, Claudio; Sckokai, Paolo |
| Abstract: | In this paper, we develop a model that explains the exportersâ behaviour in international commodity markets considering explicitly the case of an imperfectly competitive structure of these markets. More specifically, drawing from the imperfect competition and trade literature, we derive price transmission equations between producer and consumer prices and between producer and export prices that can be included in large commodity models in order to verify how results of these models change assuming the imperfect competition hypothesis. The results obtained carrying out a simple simulation exercise, with two competing exporting countries and one importing region, show the relevance of assuming imperfect competition in commodity markets. |
| Keywords: | Imperfect Competition, State Trading Enterprises, Policy simulation, Cereal markets, International Relations/Trade, Marketing, Q12, Q17, Q18, |
| Date: | 2011–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:116012&r=com |
| By: | Kaditi, Eleni A. |
| Abstract: | This paper examines whether ownership and increased competitive pressure affect food retailersâ market power, analysing whether all actors involved in the food supply chain deviate from the pricing behaviour that exists under perfect competition. A method proposed by Roeger (1995) is used to estimate price-cost margins, relaxing the assumptions of perfect competition and constant returns to scale. The obtained results show that foreign investments and consolidation have a positive and significant impact on the market power of food processors and retailers. Food processors, agricultural producers and wholesalers have lower price-cost margins than retailers, which suggests that these actors price closer to marginal costs being more concerned with maximising social welfare or that the former have higher costs than retailers. The results are robust to various estimation techniques and specifications. |
| Keywords: | Price-cost mark-ups, multinational firms, retailing, Agribusiness, F23, L13, L81, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114452&r=com |
| By: | Graubner, Marten; Balmann, Alfons; Sexton, Richard J. |
| Abstract: | Spatially dispersed production and processing, endemic for most agricultural or renewable resource markets, causes oligopsonistic competition. The possibility and use of spatial price discrimination in these markets is well documented. It is also well known that the location of processors relative to competitors crucially affects the intensity of competition. However, insights regarding the relation between spatial price discrimination and the spatial differentiation of firms are barely present because the simultaneous investigation of these issues is often intractable analytically. We use computational economics to study these problems under a general theoretical framework. For instance, we show whether and under which conditions firms choose to differentiate their locations and/or price strategies. Results are consistent with observations in agricultural markets. |
| Keywords: | spatial price competition, spatial differentiation, price discrimination, computational economics, Agribusiness, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114601&r=com |
| By: | von Schlippenbach, Vanessa; Teichmann, Isabel |
| Abstract: | This paper highlights the strategic role retailers private quality standards play in food supply chains. Considering two symmetric downstream  rms that are exclusively supplied by a  nite number of upstream  rms and letting the upstream  rms decide which retailer to supply, we show that there exist two asymmetric equilibria in the downstream  rms quality requirements. The asymmetry is driven by both an increase in the retailers buyer power and the retailers competition for suppliers. The use of private quality standards induces a decrease in social welfare, which can be softened by the implementation of a public minimum quality standard. |
| Keywords: | Private Quality Standards, Vertical Relations, Buyer Power, Food Supply Chain, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Food Consumption/Nutrition/Food Safety, Industrial Organization, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:gewi11:114519&r=com |
| By: | Empen, Janine; Loy, Jens-Peter; Weiss, Christoph R. |
| Abstract: | Price promotions are important marketing activities for (food) retailers; brand loyalty is a major requisite to foster brands' assets. Several theoretical papers have analyzed the relationship between price promotions and brand loyalty resulting in mixed or perhaps contradictory outcomes; only a few empirical studies for (European) grocery markets are available to test which model(s) might be most relevant to reflect pricing strategies in food retailing. In this analysis, two detailed data sets for the German ready-to-eat breakfast cereals market are merged to investigate the relationship between price promotions and brand loyalty. We find significant empirical evidence that stronger brands tend to be promoted less frequently at lower discounts compared to weaker brands. The reason might be that price reductions are more costly for brands having loyal customers who are willing to accept higher mark-ups. Therefore stronger brands might need to come up with alternative measures to recruit new customers instead of offering attractive promotional sales. |
| Keywords: | Price Promotion, Brand Loyalty, Food Retailing, Ready-to-Eat Cereals, Germany, Instruments, Tobit, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114341&r=com |
| By: | Hoffman, Angela; Senkler, Heike |
| Keywords: | Agribusiness, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114533&r=com |
| By: | Rezitis, Anthony N.; Kalantzi, Maria A. |
| Abstract: | This paper measures the degree of market power of the Greek food and beverages manufacturing industry over the period 1983â2007 at the three-digit SIC level. The present study also estimates the âdeadweightâ loss and the reduction of consumersâ income due to the possible existence of market power in the Greek food and beverages manufacturing industry. Based on Bresnahanâs (1989) conjectural variation model, three different approaches are used to investigate competitive conditions of the Greek food and beverages manufacturing industry. The first approach assesses the extent of market power of the whole industry over the period 1983â2007; the second approach tests the degree of market power in each one of the nine sectors of the industry over the whole period, i.e. 1983â2007; and the third one estimates the extent of market power for the whole Greek food and beverages manufacturing industry for specific sub-periods of the period 1983â2007. The methodology of Dickson and Yu (1989) is adopted to measure the welfare losses. The empirical results indicate the presence of some degree of market power in the whole Greek food and beverages manufacturing industry as well as in each one sector of the industry during the period 1983â 2007 and, as a result, the existence of welfare losses. In addition, the empirical findings support the presence of some degree of market power for each sub-period of the period 1983â 2007 in the whole Greek food and beverages manufacturing industry and the existence of welfare losses. |
| Keywords: | Conjectural variation, Greek food and beverages manufacturing industry, Market power, Welfare losses, Agribusiness, D43, D60, L66, Q10, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114809&r=com |
| By: | Perekhozhuk, Oleksandr; Hockmann, Heinrich; Bakucs, Lajos Zoltan; Ferto, Imre |
| Abstract: | The objective of this paper is to provide an alternative model which can be used to test for oligopsony market power applying plant-level data. For this purpose, we took into account empirical studies and specific developments in the Hungarian dairy industry and specified a model that provides useful benchmarks for an econometric test of market power. The results of the econometric analysis show that the effects from policy changes in Hungary, as well as from plant specific issues are highly statistically significant, and produce evidence suggesting the exercise of oligopsony market power in the Hungarian dairy industry. |
| Keywords: | Livestock Production/Industries, Marketing, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114768&r=com |
| By: | Perekhozhuk, Oleksandr; Matyukha, Andriy; Glauben, Thomas |
| Abstract: | This study develops a structural market model for the econometric analysis of buyersâ market power in the Ukrainian meat processing industry, because there is some evidence that suggests that meat processors may excise market power in the agricultural market of slaughtered livestock. The estimation results did not produce any evidence suggesting the existence of buyersâ market power. Contrary to many other NEIO-studies, we extended the market structure market model by the three subsequent models. Using endogenously determined values for market power parameter, we found that meat processors concerning the buyersâ market for slaughtered livestock behave consistently with Cournot conjectures. |
| Keywords: | Cournot competition, market power, meat processing industry, new empirical industrial organisation (NEIO), Ukraine, Livestock Production/Industries, Marketing, |
| Date: | 2011–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae11:114782&r=com |