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on Industrial Competition |
| By: | Tirole, Jean; Weyl, Glen |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24720&r=com |
| By: | Rey, Patrick (Toulouse School of Economics); Whinston, Michael (Northwestern University and NBER) |
| Abstract: | This paper examines whether retailer bargaining power and upfront slotting allowances prevent small manufacturers (who have no bargaining power) from obtaining adequate distribution. In contrast to the findings of Marx and Shaffer (2007), who showed that all equilibria involve limited distribution (i.e., exclusion of a retailer), we show that there is always an equilibrium in which full distribution is obtained, provided that full distribution is the industry profit-maximizing outcome. The key feature leading to this differing result is that we do not restrict each retailer to offering the manufacturer a single tariff. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24306&r=com |
| By: | Mitraille, Sébastien (Toulouse Business School); Moreaux, Michel (Toulouse School of Economics (IDEI and LERNA)) |
| Abstract: | Two-period Cournot competition between n identical firms producing at constant marginal cost and able to store before selling has pure strategy Nash- perfect equilibria, in which some firms store to exert endogenously a leader- ship over rivals. The number of firms storing balances market share gains, obtained by accumulating early the output, with losses in margin resulting from increased competition and higher operation costs. This number and the industry inventories are non monotonic in n. Concentration (HHI) and competition increase due to the strategic use of inventories. |
| JEL: | D43 L13 |
| Date: | 2011–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24803&r=com |
| By: | Ioannis N. Pinopoulos (Department of Economics, University of Macedonia) |
| Abstract: | We analyze a successive vertical Cournot oligopoly model with homogeneous intermediate and final goods. Under restricted entry in both upstream and downstream markets, the input price continuously falls on a sequential merger path. Partial input foreclosure never occurs. However, when there is free entry in the upstream market, we find that the input price initially falls but eventually rises as incremental vertical mergers occur. Thus, under upstream free-entry equilibrium, the possibility of partial input foreclosure arises. |
| Keywords: | Input foreclosure; Vertical integration; Vertical mergers; Free entry. |
| JEL: | L1 L4 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2011_15&r=com |
| By: | Allain, Marie-Laure; Chambolle, Claire; Rey, Patrick |
| JEL: | L13 L41 |
| Date: | 2011–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24587&r=com |
| By: | Bernhard Ganglmair (Jindal School of Management, University of Texas at Dallas); Emanuele Tarantino (Department of Economics, University of Bologna) |
| Abstract: | We present a model of industry standard setting with two-sided asymmetric information about the existence of intellectual property. We provide an equilibrium analysis of (a) firms' incentives to communicate ideas for improvements of an industry standard, and (b) firms' decisions to disclose the existence of intellectual property to other participants of the standardization process. |
| Keywords: | patent holdup; patent disclosure; standard setting organizations; industry standards; disclosure rules; conversation; asymmetric information; Bertrand competition. |
| JEL: | D71 L15 O34 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1115&r=com |
| By: | Kai Andree |
| Abstract: | This paper develops the incentives to collude in a model with spatially separated markets and quantity setting firms. We find that increases in transportation costs stabilize the collusive agreement. We also show that, the higher the demand in both markets the less likely will collusion be sustained. Gross and Holahan (2003) use a similar model with price setting firms, we compare their results with ours to analyze the impact of the mode of competition on sustainability of collusion. Further we analyze the impact of collusion on social welfare and find that collusion may be welfare enhancing. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:pot:vwldis:104&r=com |
| By: | Gaurab Aryal; Maria F. Gabrielli |
| Abstract: | This paper proposes fully nonparametric tests to detect possible collusion in first-price procurement (auctions). The aim of the tests is to detect possible collusion before knowing whether or not bidders are colluding. Thus we do not rely on data on anti-competitive hearing, and in that sense is ’ex-ante’. We propose a two steps (model selection) procedure: First, we use a reduced form test of independence and symmetry to shortlist bidders whose bidding behavior is at-odds with competitive bidding, and Second, the recovered (latent) cost for these bidders must be higher under collusion than under competition, because collusion dwarfs competition, hence detecting collusion boils down to testing if the estimated cost distribution under collusion first order stochastically dominates that under competition. We propose rank based and Kolmogorov-Smirnov (K-S) tests. We implement the tests for Highway Procurement data in California and conclude that there is no evidence of collusion even though the reduced form test supports collusion. |
| JEL: | C1 C4 C7 D4 L4 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2011-564&r=com |
| By: | Hüschelrath, Kai; Müller, Kathrin |
| Abstract: | We use T-100 traffic data and DB1B fare data from the U.S. Department of Transportation to identify patterns and effects of entry by network carriers and low-cost carriers in non-stop U.S. airline markets. For the sample period from 1996 to 2009, we find that entry activity of low-cost carriers did not only experience significant absolute increases but also led to substantial fare reductions. As route entries by network carriers do not have comparable effects, the existence and expansion of low-cost carriers must be considered as the main driver of competition in the domestic U.S. airline industry. -- |
| Keywords: | Airline industry,liberalisation,entry,low-cost carriers |
| JEL: | L40 L93 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11059&r=com |
| By: | Seongman Moon (Universidad Carlos III de Madrid); Makoto Watanabe (Universidad Carlos III de Madrid) |
| Abstract: | This paper provides new evidence on price dispersion in the US airline industry. Using the observed fare differences between refundable and non-refundable tickets, we first document evidence on the prices passengers pay for a refund option. We find that the factors related to the value of refund option and customers¡¯ individual demand uncertainty have a significant effect on the relative refund fares. This finding is robust for various market structures. Further, taking into account the variations of the relative refund fares, we investigate the effects of market structure on price dispersion. |
| Keywords: | Price discrimination, Refundability, Competition, Airline industry |
| JEL: | D43 L13 L93 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:1107&r=com |
| By: | Volodymyr Bilotkach (University of California, Irvine); Alberto A. Gaggero (University of Pavia); Claudio A. Piga (Loughborough University; RCEA) |
| Abstract: | Traditional theories of airline pricing maintain that fares monotonically increase as fewer seats remain available on a flight. A fortiori, this implies a monotonically increasing temporal profile of fares. In this paper, we exploit the presence of drops in offered fares over time as an indicator of an active yield management intervention by two main European Low-Cost Carriers observed daily during the period June 2002 - June 2003. Our results indicate that yield management is effective in raising a flight's load factor. Furthermore, yield management interventions are more intense, and generate a stronger impact, on more competitive routes: one possible interpretation is that a reduction in competitive pressure allows the carriers to adopt a more standardized approach to pricing. Similarly, we find that yield management interventions are more effective in raising the load factor on routes where the customer mix is more heterogenous (i.e., it includes passengers traveling for leisure, business and for family matters). On markets with homogeneous customer base, no robust yield management effect was observed. |
| Keywords: | Easyjet, Intertemporal Pricing, Panel Data, Ryanair, Yield Management |
| JEL: | L11 L93 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:47_11&r=com |
| By: | Anna Bottasso (University of Genoa); Maurizio Conti (University of Genoa); Claudio A. Piga (Loughborough University; RCEA) |
| Abstract: | During the last decade, the proliferation of Low Cost Carriers and the related huge increase in traffic has been the most visible effect of the deregulation of the airline market in Europe. Little attention has been paid to how airports were affected by the changes in the new institutional environment. In this study we model the total factor productivity (TFP) for a panel of the UK largest airports over the 2002-2005 period and investigate whether the presence of LCCs has some impact on airports' TFP. Empirical results are consistent with the hypothesis that conspicuous entry of LCCs on European markets has impacted positively on the vertical chain by facilitating airports' productivity improvements. This result is robust to reverse causality issues associated with the possibility that most efficient airports are those that are more likely to attract LCCs. Different possible arguments may explain our results: traffic increases brought about by LCCs for a given installed capacity might have generated higher TFP; more efficient organizational models might have been adopted to meet LCCs operational requirements (short turnaround times); cost reductions might have been realized in order to lower charges and attract LCCs; competition from a larger number of airports induced by LCCs' wider catchment areas (with respect to full service airlines) might have exerted further pressure toward TFP improvements. |
| Keywords: | Total Factor Productivity, Airports, LCCs |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:48_11&r=com |
| By: | Bonnet, Céline; Réquillart, Vincent |
| Abstract: | Healthier food diet is likely to prevent numerous non communicable diseases. Then there is a growing interest in evaluating the impact of food price taxation on food consumption. However, strategic reactions of both manufacturers and retailers are missing in empirical analysis. Rather, passive pricing is assumed. We develop a structural econometric model, to analyze vertical relationships between the food industry and the retail industry. We apply this model to the beverage industry and consider taxation of sugar. After selecting the ’best’ model of vertical relationships, we simulate different taxation scenarios. We consider excise tax as well as ad valorem tax. We find that firms behave differently when facing an ad valorem tax or an excise tax. Excise tax is overshifted to consumer prices while ad valorem tax is undershifted to consumer prices. We find that an excise tax based on sugar content is the most efficient at reducing soft drink consumption. Our results also indicate that ignoring strategic pricing by firms leads to misestimate the impact of taxation by 15% to 40% depending on the products and the tax implemented. |
| Keywords: | excise tax, ad valorem tax, vertical contracts, strategic pricing, differentiated products, soft drinks |
| JEL: | H32 L13 I18 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24382&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 providers’ side. 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 patients’ valuation 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:tse:wpaper:24907&r=com |
| By: | Dubois, Pierre; de Mouzon, Olivier; Scott Morton, Fiona; Seabright, Paul |
| Abstract: | This paper quanti es the relationship between market size and innovation in the pharmaceutical industry. We estimate the elasticity of innovation, as measured by the number of new chemical entities appearing on the market for a given disease class, to the potential market size represented by the willingness of su¤erers of diseases in that class (and others acting on their behalf such as insurers and governments) to spend on their treatment during the patent lifetime. We nd positive signi cant elasticities with a point estimate under our preferred speci cation of 25.2%. This suggests that at the mean market size an additional $1.8 billion is required in additional patent life revenue to induce the invention of one additional new chemical entity. An elasticity substantially and signi cantly below one-half is also a plausible implication of the hypothesis that innovation in pharmaceuticals is becoming more di¢ cult and expensive over time, as costs of regulatory approval rise and as the industry runs out of "low hanging fruit". |
| Keywords: | Innovation, Market Size, Elasticity, Pharmaceuticals |
| JEL: | O31 L65 O34 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:24352&r=com |
| By: | Camille Chaserant; Sophie Harnay |
| Abstract: | This article provides a rationalization of (at least partial) professional self-regulation resting on the joint production of individual and collective reputations and its impact on the quality of professional services. It presents a short model that aims to show that (i) a high-quality steady-state exists in a market for a credence goods and that (ii) the likelihood of high quality increases when the market is self-regulated by the profession in comparison to the situation where there is no self-regulation. The law and economics literature usually criticizes self-regulation as a modern form of corporatism; we show that it may help to regulate quality when clients are faced with opportunistic professionals. |
| Keywords: | professional services, credence goods, self-regulation, individual reputation, collective reputation |
| JEL: | K4 L14 L15 L43 L84 D8 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2011-32&r=com |
| By: | Rigoberto A. Lopez (Department of Agriculture and Resource Economics, University of Connecticut); Xiaoou Liu |
| Abstract: | This article quantifies the impact of Wal-Mart Supercenters on supermarkets’ profitability via a two-stage dynamic entry game, using method of simulated moments and milk scanner data from Dallas/Fort Worth supermarkets. The empirical findings show that the entry of Wal-Mart Supercenters accounts for about an average 50% decrease in milk profit margins for incumbent supermarkets. Effects of scale are found to be more significant for Wal-Mart Supercenters than for incumbent supermarkets, granting Wal-Mart a competitive edge. |
| Keywords: | Wal-Mart, entry, profit margins, milk, dynamic games |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:zwi:wpaper:3&r=com |
| By: | Friebel, Guido (Goethe University Frankfurt); Ivaldi, Marc (Toulouse School of Economics); Pouyet, Jérôme (Paris School of Economics) |
| Abstract: | This paper investigates various options for the organization of the railway industry when network operators require the access to multiple national networks to provide international (freight or passenger) transport services. The EU rail system provides a framework for our analysis. Returns-to-scale and the intensity of competition are key to understanding the impact of vertical integration or separation between infrastructure and operation services within each country in the presence of international transport services. We also consider an option in which a transnational infrastructure manager is in charge of offering a coordinated access to the national networks. In our model, it turns out to be an optimal industry structure. |
| Keywords: | Network access, Vertical separation, Transport economics |
| JEL: | L14 L42 L51 L92 |
| Date: | 2011–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24800&r=com |
| By: | Jeon, Doh-Shin; Lovo, Stefano |
| Abstract: | We present an infinite horizon model that studies the competition between a relatively ineffective incumbent Credit Rating Agency (CRA) and a sequence of entrant CRAs that are potentially more e¤ective but whose ability in appraising default risk is unproven at the time they enter the market. We show that free entry competition in the credit rating business fails in selecting the most competent CRA as long as two conditions are met. First, investors and issuers trust the incumbent CRA to provide a sincere, although imperfect, assessment of issuers’ default risk. Second, CRAs cannot charge higher fees for low rating than for high rating. Under these conditions a rather incompetent CRA can dominate the market without being worried about potentially more competent entrants. We derive policy implications. |
| JEL: | D82 G29 L11 L13 L15 |
| Date: | 2011–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24582&r=com |
| By: | Billard, Olivier (Bredin Prat); Ivaldi, Marc (Toulouse School of Economics); Mitraille, Sébastien (Toulouse Business School) |
| Abstract: | The financial crisis drew attention to the crucial role of transparency and the independence of financial certification intermediaries, in particular, statutory auditors. Now any anticompetitive practice involving coordinated increases in prices or concomitant changes in quality that impacts financial information affects the effectiveness of this intermediation. It is therefore not surprising that the competitive analysis of the audit market is a critical factor in regulating financial systems, all the more so as this market is marked by various barriers to entry, such as the incompatibility of certification tasks with the preparation of financial statements or consulting, the expertise on (and the ability to apply) international standards for the presentation of financial information, the need to attract top young graduates, the prohibition of advertising, or the two-sided nature of this market where the quality of financial information results from the interaction between the reputation of auditors and audited firms. Against this backdrop, we propose a legal and economic study of the risks of collective dominance in the statutory audit market in France using the criteria set by Airtours case and, in particular, by analyzing how regulatory obligations incumbent on statutory auditors may favour the appearance of tacit collusion. Our analysis suggests that nothing prevents collective dominance of the auditors of the Big Four group in France to exist, which is potentially detrimental to the economy as a whole as the audit industry may fail to provide the optimal level of financial information. |
| Keywords: | Collective dominance ; Airtours criteria; Audit industry |
| Date: | 2011–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24549&r=com |
| By: | Sarah Draus (CSEF) |
| Abstract: | This paper presents a model to analyze the consequences of competition in order-flow between a profit maximizing stock exchange and an alternative trading platform on the decisions concerning trading fees and listing requirements. Listing requirements, set by the exchange, provide public information on listed firms and contribute to a better liquidity on all trading venues. It is sometimes asserted that competition induces the exchange to lower its level of listing standards compared to a situation in which it is a monopolist, because the trading platform can free-ride on this regulatory activity and compete more aggressively on trading fees. The present analysis shows that this is not always true and depends on the existence and size of gains related to multi market trading. These gains relax competition on trading fees. The higher these gains are, the more the exchange can increase its revenue from listing and trading when it raises its listing standards. For large enough gains from multi-market trading, the exchange is not induced to lower the level of listing standards when a competing trading platform appears. As a second result, this analysis also reveals a cross - subsidization effect between the listing and the trading activity when listing is not competitive. This model yields implications about the fee structures on stock markets, the regulation of listings and the social optimality of competition for volume. |
| Keywords: | competition in order flow, fragmentation, listing requirements, stock exchanges |
| JEL: | G10 G18 G12 |
| Date: | 2011–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:296&r=com |
| By: | O'Mahoney, Amy; Denny, Eleanor |
| Abstract: | Electricity market liberalisation has become common practice internationally. The justification for this process has been to enhance competition in a market traditionally characterised by statutory monopolies in an attempt to reduce costs to end-users. This paper endeavours to see whether a pool market achieves this goal of increasing competition and reducing electricity prices. Here the electricity market is set up as a sealed bid second price auction. Theory predicts that such markets should result with firms bidding their marginal cost, thereby resulting in an efficient outcome and lower costs to consumers. The Irish electricity system with a gross pool market experiences among the highest electricity prices in Europe. Thus, we analyse the Irish pool system econometrically in order to test if the high electricity prices seen there are due to participants bidding outside of market rules or out of line with theory. Results indicate that the Irish pool system appears to be working efficiently and that generators are bidding their true marginal costs. Thus, the pool element of the market structure does not explain the high electricity prices experienced in Ireland. |
| Keywords: | Electricity Markets; Auction Theory; Multiple Regression Analysis |
| JEL: | D4 Q4 |
| Date: | 2011–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34847&r=com |
| By: | Hassan, Daniel; Monier-Dilhan, Sylvette; Orozco, Valérie |
| Abstract: | Geographical Indications (GIs) are considered as upmarket products because they are based on tradition and convey information about their geographical origin. Otherwise, the limitation of the geographical areas devoted to GIs and the exclusivity they benefit on the product lead to suspicions of monopoly power. Quality and market power should however reflect a stronger attachment, making consumers less price sensitive than for standard goods. This research aims to compare theses conjectures to empirical measures concerning the French cheese market. Price elasticities are computed from a demand model on 21 products, 11 Protected Designation of Origin (PDO) products and 10 non PDOs. The results are counterintuitive, PDOs being as price elastic as or more price elastic than standard products. This finding thus challenges the widespread idea that PDOs systematically correspond to high quality. It also has important implications in terms of competition policy, showing that PDO cheeses suppliers cannot decide on price increases without suffering large reductions in demand. |
| Keywords: | Geographical indications, demand model, price elasticities, competition policy |
| JEL: | C51 D12 Q18 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:24188&r=com |
| By: | Ana Espinola-Arredondo; Felix Munoz-Garcia (School of Economic Sciences, Washington State University) |
| Abstract: | This paper evaluates the welfare benefits of introducing environmental regulation in a market that is subject to the threat of entry. We consider complete and incomplete information settings, where potential entrants use the regulator’s tax policy and the incumbent’s output decisions in order to infer the incumbent’s cost structure. When the regulator is absent, we show that firms? entry-deterring practices increase pollution relative to complete information. Hence, under certain conditions, environmental regulation becomes more beneficial in incomplete than in complete information contexts. Our results, therefore, identify under which cases an under-or over-estimation of the welfare benefits of environmental regulation arises from ignoring the information setting in which firms interact. We also examine how this estimation error increases as firms become more symmetric in their production costs. |
| Keywords: | Entry deterrence; Signaling; Emission fees; Welfare Benefits |
| JEL: | D82 H23 L12 Q5 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:wsu:wpaper:espinola-11&r=com |