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on Industrial Competition |
| By: | Kangsik, Choi |
| Abstract: | We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, regardless of whether the goods are substitutes or complements, if the degree of public firm's inefficiency is sufficiently small, there exists a dominant strategy for both public and private firms that choose Bertrand competition, while there exists a dominant strategy only for the private firm that chooses Bertrand competition if the degree of inefficiency is sufficiently large. Consequently, we show that regardless of the nature of goods, (i) social welfare under Bertrand competition is determined in equilibrium, if the degree of public firm's inefficiency is sufficiently small; and (ii) if the degree of its inefficiency is sufficiently large, social welfare under which the private firm sets its price and the public firm sets its quantity is determined in equilibrium. Moreover, the ranking of a private firm's profit is not reversed. |
| Keywords: | Inefficiency; Cournot-Bertrand Competition; Mixed Duopoly |
| JEL: | L13 D43 H44 |
| Date: | 2011–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34100&r=com |
| By: | Kieron Meagher |
| Abstract: | In Hotelling style duopoly location games the product variety (or firm locations) is typically not socially optimal. This occurs because the competitive outcome is driven by the density of consumers at the margin while the socially optimal outcome depends on the whole distribution of consumer locations/tastes. We consider a natural extension of the standard model in which firms are imperfectly informed about the distribution of consumers, in particular firms are uncertain about the consumer mean. In the uniform case, as the aggregate uncertainty about the mean becomes large relative to the dispersion of consumers about the mean, competitive locations become socially optimal. A limit result on prices for discontinuous, log-concave densities shows the result will hold in a range of cases. |
| JEL: | C72 D43 D81 L10 L13 R30 R39 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2011-555&r=com |
| By: | António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto); Luís Guimarães (Faculdade de Economia, Universidade do Porto); Carlos Seixas (Faculdade de Economia, Universidade do Porto) |
| Abstract: | Green and Porter (1984) made a huge contribution to Industrial Organization Theory where a trigger price is defined by firms and whenever the price falls below this trigger price, the firms cease to produce at the monopoly level and enter into a punishment period. Our goal with this paper is to define, endogenously in the model, relationships between the trigger price and the punishment period, which were set exogenously in the original paper. |
| Keywords: | Green and Porter (1984); trigger price; punishment period |
| JEL: | L13 L20 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:432&r=com |
| By: | Paige Ouimet; Rebecca Zarutskie |
| Abstract: | We present evidence that some firms pursue M&A activity with the objective of obtaining a larger workforce. Firms most likely to be acquired for their large labor force, firms with the largest ex ante employment, are associated with more positive post-merger employment outcomes. Moreover, we find this relation is strongest when acquiring labor outside of an M&A is likely to be most difficult, due to tight labor conditions, or most valuable, in high human capital industries. We further find that high employment target firms are associated with relatively greater post-merger wage increases and lower post-merger employee turnover. We find no evidence that the positive relation between target ex ante employment and ex post employment change is driven by target asset size, market capitalization, industry, profitability or acquirer characteristics. Our findings do not exclude the possibility that a different subset of M&A activity may be motivated to penalize managers who have tolerated over-employment. Indeed, we find evidence consistent with this disciplinary motivation when considering acquisitions of targets in declining industries. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-32&r=com |
| By: | Giulio Cainelli; Donato Iacobucci |
| Abstract: | Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system. |
| Keywords: | vertical integration, agglomeration, related-variety, business group |
| JEL: | L2 M2 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpol:1104&r=com |
| By: | Alon Brav; Wei Jiang; Hyunseob Kim |
| Abstract: | This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms’ productivity are associated with a decline in systemic risk, particularly in competitive industries. |
| JEL: | G23 G3 G34 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17517&r=com |
| By: | Nakanishi, Yasuo |
| Abstract: | The purpose of this study is to investigate the copyright protection of intellectual property under vertical relations. Vertical relations among author, manufacturer and retailer are considered. We develop several models, each with a different structure of vertical integration. R&D levels, total quantities, profits and social welfare levels are compared. We also investigate the effect of copyright protection by modeling the cases of perfect protection, partial protection and no protection. We analyze whether copyright benefits social welfare. We explain the policy implications of our results for the protection of copyright. |
| Keywords: | R&D; Patent; Copyright; Vertical Relations; Market Structure |
| JEL: | O34 O33 O32 O31 |
| Date: | 2011–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34206&r=com |
| By: | Joel Waldfogel |
| Abstract: | Recent technological changes may have altered the balance between technology and copyright law for digital products. While file-sharing has reduced revenue, other technological changes have reduced the costs of bringing creative works to market. As a result, we don’t know whether the effective copyright protection currently available provides adequate incentives to bring forth a steady stream of valuable new products. This paper assesses the quality of new recorded music since Napster, using three independent approaches. The first is an index of the quantity of high-quality music based on critics’ retrospective lists. The second and third approaches rely directly on music sales and airplay data, respectively, using of the idea that if one vintage’s music is better than another’s, its superior quality should generate higher sales or greater airplay through time, after accounting for depreciation. The three resulting indices of vintage quality for the past half-century are both consistent with each other and with other historical accounts of recorded music quality. There is no evidence of a reduction in the quality of music released since Napster, and the two usage-based indices suggest an increase since 1999. Hence, researchers and policymakers thinking about the strength of copyright protection should supplement their attention to producer surplus with concern for consumer surplus as well. |
| JEL: | K11 L82 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17503&r=com |
| By: | Ann Börestam (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main); Heiko Schmiedel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main) |
| Abstract: | The present paper explores issues surrounding multilateral interchange fees (MIFs) in payment card markets from various angles. The Eurosystem’s public stance on interchange fees is neutral. However, the Eurosystem takes a keen interest in facilitating a constructive dialogue among the stakeholders involved in this debate. Transparency and clarity with respect to the real costs and benefi ts of different payment instruments are indispensable for a modern and harmonised European retail payments market. Interchange fees (if any) should be set at a reasonable level so as to promote overall economic efficiency in compliance with competition rules. JEL Classification: G21, D43, L13 |
| Keywords: | Trade credit and debit cards, retail payment systems, two-sided markets, interchange fees |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20110131&r=com |
| By: | Rena M. Conti; Haiden A. Huskamp; Ernst R. Berndt |
| Abstract: | The US Food and Drug Administration (FDA) expends considerable efforts in regulating medications approved for use. Yet the impact of medication labeling changes on brand pharmaceutical products, and whether and what firms do to respond to increased information regarding the safety and efficacy of a drug, have not be characterized. We propose a behavioral framework for examining the effects of FDA advisories on branded pharmaceutical firms and their products. We empirically assess the impact of recent FDA advisories on the stock market valuations of a sample of branded pharmaceutical manufacturing firms using event study methods. We examine whether and how branded pharmaceutical manufacturers respond to an advisory by assessing changes in promotion compared to non-affected firms. We find firms targeted by an advisory have average stock price declines of 3% in three days and 11% in five days following the advisory release, and in turn appear to decrease total physician-directed promotion spending, journals ads and detailing visits significantly six months following the advisory release; the provision of free samples is unaffected. We find no changes among therapeutic substitutes unaffected by the advisory. Results of sensitivity analyses suggest firms with market dominant positions experience similar decreases in stock market valuations and physician-directed promotion compared to pooled results. The results are also robust to alternative definitions of the timing of advisory release dates and the severity of advisories’ wording. Theory and empirical results suggest the public release of FDA advisories negatively impacts firm’s short-term market valuations. The results suggest an additional rationale for previously documented declines in prescribing after FDA advisory releases – significant declines in physician-directed promotion following FDA advisory releases; the combined (and likely correlated) effects of the release of the advisory and declines in physician-directed promotion on prescribing behavior are likely larger than the sum of the independent effects. |
| JEL: | D43 I11 I18 K23 L1 L11 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17528&r=com |
| By: | Roberto Antonietti; Giulio Cainelli |
| Abstract: | A recent strand of the economic literature has emphasised the role of services, and in particular knowledge-intensive business services (KIBS), as a primary source of knowledge creation and diffusion. Since this transferring process often occurs through strong face-to-face interactions, the role of spatial proximity becomes crucial. Theoretical and empirical literature shows that the geographic concentration of industry induces firms to vertically disintegrate their production, due to the lowering of transport and governance costs as well as to the reduction of opportunism in managing transactions. However, the evidence is primarily based on manufacturing firms, whereas little or no attention is given to service firms. In this paper we try to fill this gap by estimating the effects of spatial agglomeration on knowledge intensive business service firms' vertical disintegration with reference to the metropolitan region of Milan. Relying on a rich firm-level dataset of about 12.000 KIBS firms located in the metropolitan area of Milan in 2008, we first geo-referenciate our data by employing a GIS routine. Then, we define a set of rings moving out of increments of 1 kilometre, and we count the number of firms located within each ring. For each firm, we compute, ring by ring, the number of neighbouring firms that are in the same three-digit industry, and the number of firms that are in all the three-digit industries except for the one in which the firm operates. In this way, we estimate the impact of proximity-based specialization Vs diversification economies on KIBS firms' vertical disintegration, exploiting information on the actual distance between each pair offirms in the sample. Our dependent variable is calculated as the share of purchased business services over total production costs. This purchased-inputs variable allows accounting for the fact that "many business services are likely to be exactly the kind of locally produced intermediate input that producers in localized areas will have greater access to than producers in isolated areas" (Holmes 1999, p. 316). |
| Keywords: | GIS, KIBS, spatial agglomeration, vertical disintegration |
| JEL: | R12 L8 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpol:1105&r=com |
| By: | Arteaga, Julio Cesar; Flores, Daniel |
| Abstract: | Mexican gas stations across the country buy and sell gasoline at regulated common prices. Therefore, authorities that set these prices do not take into account competition conditions of each market. In this paper we establish the effect of a regulated mark-up price as well as competition on the incentives that gas stations in Mexico have to dispense less amount of gasoline than what consumers pay for. The results of theoretical and empirical work indicate that a higher regulated mark-up price reduces the incentives of gas stations to cheat. Similarly, more intense competition among the retailers of a given market decreases the average shortage. |
| Keywords: | gasoline pricing; regulation; competition; fraud |
| JEL: | L11 K42 |
| Date: | 2010–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34187&r=com |
| By: | Noriaki Matsushima; Fumitoshi Mizutani |
| Abstract: | We provide a theoretical framework to discuss the relation between market size and vertical structure in the railway industry. The framework is based on a simple downstream monopoly model with two input suppliers, labor forces and the rail infrastructure firm. The operation of the downstream firm (i.e., the train operating firm) generates costs on the rail infrastructure firm. We show that the downstream firm with a larger market size is more likely to integrate with the rail infrastructure firm. This is consistent with the phenomenon in the railway industry. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0820&r=com |
| By: | Doan, Tinh |
| Abstract: | Understanding the degree and evolution of competition across industries is an important step towards understanding the impact of economic reform and competition on economic growth in Vietnam during the economic transition. In this paper, we investigate evolution of competition in Vietnam during the economic transition using the Price-Cost Margin (PCM) or Mark-up that has been widely applied in the economic literature and the Profit Elasticity (PE) recently developed by Boone (2000). This paper provides the first empirical study of intensity and evolution of competition across selected industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO). |
| Keywords: | Competition; industry; economic transition; Vietnam |
| JEL: | L5 P30 L11 P20 D40 |
| Date: | 2011–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34254&r=com |