nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒01‒03
twenty-one papers chosen by
Russell Pittman
US Department of Justice

  1. Impact Evaluation of Merger Decisions By Oliver Budzinski
  2. Output Commitment through Product Bundling: Experimental Evidence By Jeroen Hinloopen; Wieland Müller; Hans-Theo Normann
  3. Endogenous specialization of heterogeneous innovative activities of firms under technological spillovers By Bondarev, Anton A.
  4. Competition for Procurement Shares By ALCALDE, JOSÉ; MATTHIAS, DAHM
  5. Issues in on-line advertising and competition policy: a two-sided market perspective By Emilio Calvano; Bruno Jullien
  6. Non-comparative versus Comparative Advertising of Quality By Winand Emons; Claude Fluet
  7. Asymmetric Bertrand duopoly: game complete analysis by algebra system Maxima By Carfì, David; Perrone, Emanuele
  8. Existence of equilibrium in OLG economies with increasing returns By Jean-Marc Bonnisseau; Lalaina Rakotonindrainy
  9. Market Size, Competition, and the Product Mix of Exporters By Thierry Mayer; Marc J. Melitz; Gianmarco I.P. Ottaviano
  10. Job competition, product market competition and welfare By Pompermaier, Alberto
  11. Verti-zontal Differentiation in Monopolistic Competition By Francesco Di Comite; Jacques-François Thisse; Hylke Vandenbussche
  12. The Credibility of Certifiers By Stolper, Anno
  13. Competitive Balance and Revenue Sharing in Sports Leagues with Utility-Maximizing Teams By Helmut Dietl; Martin Grossmann; Markus Lang
  14. The Impact of market structure and price discrimination strategies in the airline sector By Angela Stefania Bergantino; Claudia Capozza
  15. Superstars and the Long Tail: The impact of technology on market structure in media industries By Weeds, Helen
  16. Newspaper vs. Online Advertising – Is There a Niche for Newspapers in Modern Advertising Markets? By Nadine Lindstädt; Oliver Budzinski
  17. Bycatch ITQ Management in Oligopolistic Fisheries By Jean-Christophe Pereau; Nicolas Sanz
  18. Inter-firm R&D networks in the global pharmaceutical biotechnology industry during 1985 - 1998: A conceptual and empirical analysis By Krogmann, Yin; Schwalbe, Ulrich
  19. Bank mergers and deposit interest rate rigidity By Valeriya Dinger
  20. An Industrial Organization Theory of Risk Sharing By M. Martin Boyer; Charles M. Nyce
  21. An inter-temporal optimization of flexible nuclear plants operation in market based electricity systems : The case of competition with reservoir By Maria Lykidi; Jean-Michel Glachant; Pascal Gourdel

  1. By: Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: This paper provides a comparative analysis of methods for the empirical ex post evaluation of merger control decisions. It develops a competition-policy oriented framework of assessment criteria for the leading evaluation methods and applies them to structural modeling and simulation, differences-in-differences methods, event studies as well as survey-based methods. It concludes that a method-mix is recommendable, however, under the exclusion of event studies that fail to secure a minimum level of reliability regarding the evaluation results. Furthermore, it warns against overly optimistic expectations about the effects of systematic impact evaluations of merger decisions. I like to thank the participants of the OECD Roundtable „Impact Evaluation of Merger Decisions“ (Paris, Juni 2011), Arndt Christiansen and Knud Sinding for valua-ble comments on earlier versions of this paper as well as Janne Mordhorst for valuable editorial assistance.
    Keywords: Empirical methods of industrial organization, merger control, competition policy, antitrust decisions, comparative analysis
    JEL: C18 C54 L41 L40 K21
    Date: 2011–09
  2. By: Jeroen Hinloopen; Wieland Müller; Hans-Theo Normann
    Abstract: We analyze the impact of product bundling in experimental markets. A firm has monopoly power in one market but faces competition by a second firm in another market. We compare treatments where the monopolist can bundle its two products to treatments where it cannot, and we contrast simultaneous and sequential order of moves. Our data indicate support for the theory of product bundling, even though substantial payoff differences between players exist. With bundling and simultaneous moves, the monopolist offers the predicted number of units. When the monopolist is the Stackelberg leader, the predicted equilibrium is better attained with bundling although in theory bundling should not make a difference here. In sum: bundling works as a commitment device that enables the transfer of market power from one market to another.
    JEL: C92 D43 L11 L12 L41
    Date: 2011–12
  3. By: Bondarev, Anton A.
    Abstract: This paper proposes a reduced form model of dynamic duopoly in the context of heterogeneous innovations framework. Two agents invest into product and process innovations simultaneously. Every newly introduced product has its own dimension of process-improving innovations and there is a continuum of possible new products. In the area of process innovations the costless imitation effect is modelled while in the area of product innovations agents are cooperating with each other. As a result the specialization of innovative activity is observed. This specialization arises from strategic interactions of agents in both fields of innovative activity and is endogenously defined from the dynamics of the model.
    Keywords: Innovations; Dynamics; Multiproduct; Spillovers; Distributed Control; Differential Games
    JEL: L0 C02 O31
    Date: 2011–12–15
  4. By: ALCALDE, JOSÉ (Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica); MATTHIAS, DAHM (Universitat Rovira i Virgili)
    Abstract: We propose a new procurement procedure which allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payos are strictly positive. (ii) The mechanism allows to vary the extent to which armative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even accomplishing armative action goals, procurement expenditures might be lower than under a classical auction format.
    Keywords: Procurement Auction; Armative Action
    JEL: C72 D44 H57
    Date: 2011–12–16
  5. By: Emilio Calvano; Bruno Jullien
    Date: 2011
  6. By: Winand Emons; Claude Fluet
    Abstract: Two firms produce a good with a horizontal and a vertical characteristic called quality. The difference in the unobservable quality levels determines how the firms share the market. We consider two scenarios: In the first one, firms disclose quality; in the second one, they send costly signals thereof. Under non-comparative advertising a firm advertises its own quality, under comparative advertising a firm advertises the quality differential. In either scenario, under comparative advertising the firms never advertise together which they may do under non-comparative advertising. Moreover, under comparative advertising firms do not advertise when the informational value to consumers is small. <P>
    Keywords: quality, advertising, disclosure, signalling,
    JEL: D82 L15 M37
    Date: 2011–12–01
  7. By: Carfì, David; Perrone, Emanuele
    Abstract: In this paper we apply the Complete Analysis of Differentiable Games (introduced by D. Carfì in [3], [6], [8] and [9]) and already employed by himself and others in [4], [5], [7]) and some new algorithms employing the software wxMaxima 11.04.0 in order to reach a total knowledge of the classic Bertrand Duopoly (1883), viewed as a complex interaction between two competitive subjects, in a particularly difficult asymmetric case. The software wxMaxima is an interface for the computer algebra system Maxima. Maxima is a system for the manipulation of symbolic and numerical expressions, including differentiation, systems of linear equations, polynomials, and sets, vectors, matrices. Maxima yields high precision numeric results by using exact fractions, arbitrary precision integers, and variable precision floating point numbers. Maxima can plot functions and data in two and three dimensions. The Bertrand Duopoly is a classic oligopolistic market in which there are two enterprises producing the same commodity and selling it in the same market. In this classic model, in a competitive background, the two enterprises employ as possible strategies the unit prices of their products, contrary to the Cournot duopoly, in which the enterprises decide to use the quantities of the commodity produced as strategies. The main solutions proposed in literature for this kind of duopoly (as in the case of Cournot duopoly) are the Nash equilibrium and the Collusive Optimum, without any subsequent critical exam about these two kinds of solutions. The absence of any critical quantitative analysis is due to the relevant lack of knowledge regarding the set of all possible outcomes of this strategic interaction. On the contrary, by considering the Bertrand Duopoly as a differentiable game (games with differentiable payoff functions) and studying it by the new topological methodologies introduced by D. Carfì, we obtain an exhaustive and complete vision of the entire payoff space of the Bertrand game (this also in asymmetric cases with the help of wxMaxima 11.04.0) and this total view allows us to analyze critically the classic solutions and to find other ways of action to select Pareto strategies, in the asymmetric cases too. In order to illustrate the application of this topological methodology to the considered infinite game we show how the complete study gives a real extremely extended comprehension of the classic model.
    Keywords: Asymmetric Bertrand Duopoly; Normal-form games; software algorithms in microeconomic policy; Complete Analysis of a normal-form complex interaction; Pareto optima; valuation of Nash equilibriums; bargaining solutions
    JEL: C88 C7 C8 D43 D4 L1 C72
    Date: 2011
  8. By: Jean-Marc Bonnisseau (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Lalaina Rakotonindrainy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We consider a standard overlapping generation economy with a simple demographic structure with a new cohort of agents at each period with an economic activity extended over two successive periods and finitely many firms active forever. The production possibilities are described by a sequence of production mapping and the main innovation comes from the fact that we allow for increasing returns to scale of more general type of non-convexities. To describe the behavior of the firms, we consider loss-free pricing rules, which covers the case of the average pricing rule, the competitive behavior when the firms have convex production sets, and the competitive behavior with quantity constraints à la Dehez-Drèze. We prove the existence of an equilibrium under assumptions, which are at the same level of generality than the ones for the existence in an exchange economy.
    Keywords: Overlapping generation model, increasing returns to scale, loss-free pricing rules, equilibrium, existence.
    Date: 2011–11
  9. By: Thierry Mayer (Sciences-Po, CEPII and CEPR); Marc J. Melitz (Harvard University, NBER and CEPR); Gianmarco I.P. Ottaviano (Bocconi University, FEEM, Bruegel, CEPR and Centro Studi Luca d\'Agliano)
    Abstract: We build a theoretical model of multi-product firms that highlights how market size and geography (the market sizes of and bilateral economic distances to trading partners) affect both a firm\'s ex-ported product range and its exported product mix across market destinations (the distribution of sales across products for a given product range). We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destina-tions. Trade models based on exogenous markups cannot explain this strong significant link between destination market characteristics and the within-firm skewness of export sales (after controlling for bilateral trade costs. Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity and how it responds to changes in that trading environment.
    Date: 2011–10–17
  10. By: Pompermaier, Alberto
    Abstract: This paper presents a model of labour supply determination under job competition. In the presence of a positive rate of unemployment and increasing returns to labour, the level of labour supply chosen by each individual lies above the one that, at the offered wage, maximises utility. There is a unique strictly positive degree of job competition that is consistent with the optimal allocation. If labour supply is upward-sloping, increasing job competition raises the equilibrium level of activity and, when job competition causes production to exceed its optimal level, reducing output market competition leads to a welfare improvement.
    Keywords: labour supply; job competition; welfare; product market competition
    JEL: J22 D60 D43
    Date: 2011–12–14
  11. By: Francesco Di Comite (Université Catholique de Louvain and European Commission); Jacques-François Thisse (Université Catholique de Louvain); Hylke Vandenbussche (National Bank of Belgium)
    Abstract: The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of monopolistic competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing monopolistic competition models necessary to account for observed data patterns.
    Keywords: Heterogeneous firms, Product Differentiation, Monopolistic Competition, Nonsymmetric varieties
    JEL: D43 F12 F14 L16
    Date: 2011–10–17
  12. By: Stolper, Anno
    Abstract: It is often argued that certifiers have an incentive to offer inflated certificates, although they deny it. In this paper, we study a model in which a certifier is paid by sellers, and may offer them inflated certificates, but incurs costs if doing so. We find that the certifier may face a commitment problem: The certifier offers inflated certificates if the costs of offering the first inflated certificate are lower than the sellers' willingness-to-pay for it. However, in equilibrium, the buyers cannot be fooled. The certifier would hence make a higher profit if the certifier did not offer inflated certificates and the buyers believed it. The number of inflated certificates, which the certifier offers in equilibrium, depends on the costs of offering inflated certificates. Yet, the certifier may oppose an increase in the costs of offering inflated certificates. We show that whether a certifier welcomes tighter regulation or lobbies against it, may depend on whether the new regulation only imposes higher costs, or also reduces the certifier's commitment problem significantly.
    Keywords: Certification; commitment problem; credibility
    JEL: C72 D82 G24 L15 M42
    Date: 2011–12
  13. By: Helmut Dietl (Department of Business Administration, University of Zurich); Martin Grossmann (Department of Business Administration, University of Zurich); Markus Lang (Department of Business Administration, University of Zurich)
    Abstract: This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-oriented behavior of certain clubs affects talent investments, competitive balance and club profits. Moreover, in contrast to traditional models, we show that revenue sharing does not always reduce investment incentives due to the dulling effect. We identify a new effect of revenue sharing called the "sharpening effect". In the presence of the sharpening effect (dulling effect), revenue sharing enhances (reduces) investment incentives and improves (deteriorates) competitive balance in the league.
    Keywords: Competitive balance, contest, invariance proposition, objective function, revenue sharing, team sports league, utility maximization
    JEL: L83 D43 C72
    Date: 2011–12
  14. By: Angela Stefania Bergantino (University of Bari, Italy); Claudia Capozza (University of Bari, Italy)
    Abstract: This paper investigates which factors influence airlines’ decisions when planning pricing strategies. We explore the impact of market structure and airlines pricing behaviour in a specific geographical context characterised by a low level of intermodal competition. The data used is, in fact, collected on a sample of southern Italian routes, for which alternative accessibility through different modes of transport is limited. We focus primarily on a specific type of pricing strategy: the intertemporal price discrimination (IPD). The IPD consists in charging different fares to different travellers according to the days missing to departure when the ticket is bought. The work aims to verify whether market’s concentration levels play a significant role in defining fare levels and, more in particular, whether airlines are more or less keen to engage in IPD when competition increases or when it reduces. The paper is structured as follows. In Section 2 we survey the relevant literature; the data collection is described Section 3 and in Section 4 we present the empirical strategy. Afterward, in Section 5 we discuss the main outcomes and in Section 6 we draw some conclusions.
    Date: 2011
  15. By: Weeds, Helen
    Abstract: Technological change is transforming creative media industries. Digitisation lowers recording, storage, reproduction and distribution costs, while computer-based editing facilitates higher quality and special effects. With electronic distribution a vast range of content can be made available to consumers across global markets. The distribution of industry sales appears to be shifting: the late 20th century was the era of the 'hit parade' but attention has now shifted to the 'long tail'. This paper develops a model of differentiated products with endogenous quality and heterogeneous firms to examine the implications of technological change for product variety, quality, and the distribution of firms in media industries.
    Keywords: creative industries; digital media; long tail; superstars
    JEL: L11 L15 L82
    Date: 2011–12
  16. By: Nadine Lindstädt (Department of Environmental and Business Economics, University of Southern Denmark); Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: Newspapers have experienced declining circulation figures and declining advertising revenues for several years. In particular, declining advertising figures put a threat on newspapers – this is especially severe in the US where 73% of their revenues are generated through advertising. On the advertising side many companies have expanded their advertising expenditure towards online. Consequently, there are concerns about online advertising substituting newspaper advertising – in the same way as it has been feared for many years for the readership side. Both possible effects might put a threat on the further existence of (print) newspapers. However, though the internet – compared to newspapers – offers a variety of advantages for advertising companies, substitution tendencies cannot be generalized. In particular, we argue that newspaper advertising offers great benefits for the retailing industry. Consequently, we believe that retail advertising offers a niche for regional and local newspapers that can be expected to represent a sustainable segment of complementarity within the otherwise predominantly substitutional advertising markets. The paper substantiates this argument by applying the economic theory of advertising – in particular the differentiation between persuasive/complementary and informative advertising. The latter one presents the reason for retailers to continue advertising in newspapers. Subsequently, we conclude that no complete substitution between newspaper and online advertising can be expected to take place on the advertising side in the foreseeable future. The authors like to thank the participants of the EMMA-conference in Moscow (June 2011) and the members of the research group ‘Markets & Competition’ as well as Anna Lund Jepsen for helpful comments on an earlier version of this paper.
    Keywords: : Media economics, advertising, competition, complementation, substitution, online
    JEL: L82 A20 L13 M21
    Date: 2011–09
  17. By: Jean-Christophe Pereau (GREThA, Université Montesquieu Bordeaux IV); Nicolas Sanz (CEREGMIA, Université des Antilles et de la Guyane)
    Abstract: This paper analyzes the effects of an individual transferable quota (ITQ) system implemented on bycatch on the global harvest level of oligopolistic fisheries. We show that the impact of changes in the total allowable catch (TAC) on the equilibrium harvest level depends on the degree of returns to scale in harvest. In particular, a reduction in the TAC may lead to a rise in activity in fisheries characterized by some amount of increasing returns to scale. Besides, these effects appear to be stronger, the fiercer the competition within fisheries.
    Keywords: oligopolistic competition, fisheries, bycatch, ITQs
    JEL: Q21 Q22 D43
    Date: 2011–09
  18. By: Krogmann, Yin; Schwalbe, Ulrich
    Abstract: This paper analyses a large database on inter-firm R&D cooperation formed in the pharmaceutical biotechnology industry during the period 1985 - 1998. The results indicate that network size largely grows, whereas the density of the network declines during the periods. In the network analysis that emphasizes individual structural positions, the empirical results show that small biotechnological companies had a crucial bridging role for the large pharmaceutical firms in the second half of the 1980s. In the 1990s, the bridge role of biotechnology companies became less important and established pharmaceutical companies developed into dominant start players with many collaborators while holding central roles in the research network. The current analysis also shows that degree-based and betweenness-based network centralization are both low implying that the overall positional advantages are relatively equally distributed in the inter-firm R&D network of the pharmaceutical biotechnology industry. --
    Keywords: R&D networks,pharmaceutical biotechnology,network analysis,conceptual centrality,network visualization software
    JEL: C88 D85 L24 L65 O32
    Date: 2011
  19. By: Valeriya Dinger
    Abstract: In this paper I revisit the debate on the impact of bank and market characteristics on the rigidity of retail bank interest rates. Whereas existing research in this area has been exclusively concerned with static measures of bank and market structure, I adopt a dynamic approach which explores the rigidity effects of the changes of bank and market structure generated by bank mergers. I find that bank mergers significantly affect the frequency of changes to deposit rates. In particular, the probability of adjusting deposit rates in response to shocks in money market rates significantly drops after mergers that involve large target banks and after mergers that generate a substantial geographical expansion of bank operations. These effects, however, materialize only after a "transition" period characterized by very frequent changes of the deposit rates.
    Keywords: Bank mergers ; Bank deposits ; Interest rates
    Date: 2011
  20. By: M. Martin Boyer; Charles M. Nyce
    Abstract: Examining the global reinsurance market for catastrophic losses, we propose a new theory of optimal risk sharing that finds its inspiration in the economic theory of the firm. Our model offers a theoretical foundation for the vertical and horizontal tranching of insurance contracts (also known respectively as proportional and excess of loss reinsurance contracts). Using a two-factor production model popular in industrial economics, we show how reinsurance should be optimally layered (with attachment and detachment points) for a given book of business. This allows us to find the minimum insurance premium necessary to cover the cost of catastrophic events. We conclude with public policy implications by showing the conditions under which government intervention in the catastrophic loss insurance industry can reduce the cost to society of bearing risk and increase its welfare. <P>
    Keywords: Reinsurance; Cost of capital; Catastrophic risk; Government intervention in insurance markets,
    JEL: G22 G28
    Date: 2011–12–01
  21. By: Maria Lykidi (ADIS - Analyse des Dynamiques Industrielles et Sociales - Département d'Economie - Université Paris XI - Paris Sud); Jean-Michel Glachant (ADIS - Analyse des Dynamiques Industrielles et Sociales - Département d'Economie - Université Paris XI - Paris Sud, European University Institute - Department of Economics); Pascal Gourdel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In electricity markets where competition has been established for a long time, a nuclear operator familiar with the operation of such markets could be interested in the optimal long-term management of a flexible nuclear set (like the French) in a competitive market. To obtain a long vision of the optimal management of a nuclear set, we realize a full inter-temporal optimization of the production which results from the maximization of the value of generation over the whole game. Our model takes into consideration the periodical shut-down of nuclear units to reload their fuel, which permits to analyze the nuclear fuel as a stock behaving like a reservoir. A flexible nuclear reservoir permits different allocations of the nuclear fuel during the different demand seasons of the year. Our analysis is realized within a general deterministic dynamic framework where perfect competition is assumed and two flexible types of generation exist : nuclear and thermal non-nuclear. The marginal cost of nuclear production is (significantly) lower that the one of non-thermal production, which induces a discontinuity of producers' profit. In view of this price discontinuity, a "regularization" of the merit order price is achieved within our numerical model which leads to an alternative optimization problem (reglarized problem) that constitutes a good approximation of our initial problem. We also prove that in the absence of binding productions constraints, solutions are fully characterized by a constant nuclear production. However, such solutions do not exist within our numerical model because of production constraints that are active at the optimum. Finally, we study the maximization of social welfare in an identical framework. Similarly, we demonstrate that in the absence of binding production constraints a constant non-nuclear thermal production is a characteristic property of solutions of the social welfare maximization problem.
    Keywords: Electricity market, nuclear generation, inter-temporal optimal reservoir operation, competition with reservoir, price discontinuity, social welfare.
    Date: 2011–11

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