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on Industrial Competition |
| By: | Tao Wang (Queen's University) |
| Abstract: | In this paper, we analyze the asymmetric pure strategy equilibria in a dynamic game of pure information externality. Each player receives a private signal and chooses whether and when to invest. In some of the periods, only a subgroup of the players make decisions, which we call bunching, while the rest of the players do not invest regardless of their signals. Bunching is different from herding; it occurs in the first period and recursively until herding takes place or the game runs out of undecided players. We find that any asymmetric pure strategy equilibrium is more efficient than the symmetric mixed strategy equilibrium. When players become patient enough, herding of investment disappears in the most efficient asymmetric pure strategy equilibrium, while the least efficient asymmetric pure strategy equilibrium resembles those in a fixed timing model, producing an exact match when the discount factor is equal to 1. Bunch sizes are shown to be independent of the total number of players; adding more players to the game need not change early players' behavior. All these are unique properties of the asymmetric pure strategy equilibria. We also show that the asymmetric pure strategy equilibria can accommodate small heterogeneities of the players in costs of acquiring signals, discount factors, or degree of risk aversion. In any of these environments, there exists a unique welfare maximizing equilibrium which provides a natural way for the players to coordinate. |
| Keywords: | bunching, herding, endogenous timing, asymmetric equilibrium, information externality |
| JEL: | C73 D82 G01 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1291&r=com |
| By: | Paulo Barelli (University of Rochester); Suren Basov (La Trobe University); Mauricio Bugarin (Insper Institute); Ian King (University of Melbourne) |
| Abstract: | We extend Armstrong's result on exclusion in multi-dimensional screening models in two key ways, providing support for the view that this result is generic and applicable to many different markets. First, we relax the strong technical assumptions he imposed on preferences and consumer types. Second, we extend the result beyond the monopolistic market structure to generalized oligopoly settings with entry. We also analyze applications to several quite different settings: credit markets, the automobile industry, research grants, the regulation of a monopolist with unknown demand and cost functions, and involuntary unemployment in the labor market. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:571&r=com |
| By: | Yi Qian |
| Abstract: | In this paper, I provide a theory for the brand-protection strategies to counterfeiting under weak intellectual property rights. My theoretical framework has general implications for endogenous sunk cost investments as a means of deterring counterfeiters. My model incorporates two layers of asymmetric information that counterfeits can incur: counterfeiters fooling consumers, and buyers of counterfeits fooling other consumers. Brands have a number of different tools at their disposal to maintain a separating equilibrium in the face of counterfeits. One of the theoretical predictions of this study is that counterfeit entry would induce incumbent brand to introduce new products. This helps to explain the innovation strategies that authentic firms employ in response to entry by their counterfeiters in the real world. Authentic prices rise if and only if the counterfeit quality is lower than a threshold level. In addition, the model demonstrates how authentic producers could invest in self-enforcement to increase counterfeiters' incentives to separate themselves. Better channel management through company stores and other costly devices are forms of non-price signals and complement a company's own enforcements against counterfeits. These predictions are validated using a unique panel data collected from Chinese shoe companies covering the years 1993-2004. Data further reveal that companies with worse relationships with the government invest more in various self-enforcement strategies, which are effective in reducing counterfeit sales, and that the set of strategies are complements rather than substitutes. |
| JEL: | D21 D22 D4 K42 L26 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17849&r=com |
| By: | Takauchi, Kazuhiro |
| Abstract: | To examine the role of shipping firms in the international research and development (R&D) rivalry, we build a two-country (exporting and importing), two-firm (exporting and local) duopoly model with a shipping firm. The exporting firm competes with the local firm in the duopoly market of the local country but must pay a shipping fee to the shipping firm in order to sell its product in the local market. Similar to market competition, exporting and local firms engage in R&D competition. We compare two timing structures of the game: in one, the R&D stage is first, and in the other, the shipping firm is the leader. We show that when the R&D stage is first, there are ranges of parameter values such that the investment level of the exporting firm decreases as R&D becomes more efficient. When the shipping firm is the leader, we show that there are ranges of parameter values such that the profit of the local firm decreases as R&D becomes more efficient. Further, it is shown that consumers in the local country prefer the regime in which the shipping firm is the leader, whereas the government of the local country prefers the other regime. |
| Keywords: | International trade; R&D rivalry; Shipping firm |
| JEL: | L13 F12 |
| Date: | 2012–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:36843&r=com |
| By: | Kenji Fujiwara (School of Economics, Kwansei Gakuin University); Ngo Van Long (Department of Economics, McGill University) |
| Abstract: | Constructing a dynamic game model of trade of an exhaustible resource, this paper compares feedback Nash and Stackelberg equilibria. We consider two dierent leadership scenarios: leadership by the importing country, and leadership by the exporting country. We numerically show that as compared to the Nash equilibrium, both countries are better o if the importing country is a leader, but that the follower becomes worse o if the exporting country is a leader. Consequently, the world welfare is highest under the importing country's leadership and lowest under the exporting country's leadership. |
| Keywords: | dynamic game, feedback Nash equilibrium, feedback Stackelberg equilibrium |
| JEL: | C73 L72 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:82&r=com |
| By: | Ellis, Jesse A. (University of AL); Moeller, Sara B. (University of Pittsburgh); Schlingemann, Frederik P. (University of Pittsburgh and Erasmus University Rotterdam); Stulz, Rene M. (OH State University) |
| Abstract: | Using a sample of control cross-border acquisitions from 56 countries from 1990 to 2007, we find that acquirers from better governed countries gain more from such acquisitions and their gains are higher when targets are from worse governed countries. Other acquirer country characteristics, including the indices for laws protecting investors the earlier literature focuses on, are not consistently related to acquisition gains. However, globalization leaves a strong mark on acquisition returns. Acquisition returns are affected by global factors at least as much as they are by acquirer country factors. First, across all acquisitions, the acquirer's industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. A country's governance and global mergers and acquisitions activity are important predictors of mergers and acquisitions activity in that country. Finally, we find strong evidence that at the firm-level better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance for the bidder. |
| JEL: | G31 G32 G34 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2012-03&r=com |
| By: | Nicholas Economides; Joacim Tag |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:11-09&r=com |
| By: | Tim Reuter (Department of Economics, University of Konstanz, Germany) |
| Abstract: | It is commonly believed that the possibility to sue privately for antitrust damages decreases the number of type II errors in enforcement at the cost of creating more type I errors. We extend the analysis by taking into account the fact that private parties often submit evidence during public prosecution. Such parties consider private suit as a partial substitute for public prosecution, as both imply desistance of the violation. The trial option might induce these parties to be less willing to contribute evidence to public cases. Private trials crowd out public prosecution and can have ambiguous effects on the number of enforcement errors. |
| Keywords: | private and public enforcement, damages, antitrust litigation |
| JEL: | K21 K41 K42 L41 |
| Date: | 2012–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1204&r=com |
| By: | Mattia Guidi |
| Abstract: | Despite having always been assumed to be true, a relationship between the independence of regulatory agencies and their performance has never been formally tested. This paper aims at verifying whether formal regulatory independence affects the performance of national competition authorities in the EU member states. The author presents and discusses a statistical analysis which shows that greater formal independence leads competition authorities to investigate more cases and to issue more decisions. |
| Date: | 2011–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0302&r=com |
| By: | Kenji Fujiwara (School of Economics, Kwansei Gakuin University) |
| Abstract: | Taking into account non-constant marginal costs, this paper considers the eects of a tari cut combined with a consumption tax increase on welfare, government revenue, and market access. We show that welfare, government revenue, and market access can all improve with this policy reform under decreasing marginal costs. This result may provide a theoretical rationale for the above policy reform, which is guided by the IMF and the World Bank. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:83&r=com |
| By: | Julien Martin; Isabelle Méjean |
| Keywords: | Firm-Level Data, Quality Heterogeneity, Low-Wage Countries’ Competition, Within-product specialization |
| JEL: | F12 F14 A A A |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2012-04&r=com |
| By: | MANUEL BECERRA (Instituto de Empresa); JUAN SANTALO (Instituto de Empresa) |
| Abstract: | We investigate how the effect of competition on price discrimination varies depending on the level of quality provided by companies in the hospitality industry. Our findings reconcile conflicting results of previous literature on this topic. Namely, we provide strong empirical evidence that competition affects differently the price of single and double rooms of hotels with greater quality versus those with lower quality. In the presence (absence) of differentiation, competition increases (decreases) price discrimination. Our findings are robust to the use of econometric techniques that alleviate endogeneity concerns. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:de8-138-i&r=com |
| By: | Victor Manuel Bennett (USC Marshall School of Business); Lamar Pierce (Washington University in St. Louis); Jason A. Snyder (Anderson School of Management, University of California at Los Angeles); Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit) |
| Abstract: | Competition among firms can have many positive outcomes, including decreased prices and improved quality. Yet competition can have a darker side when firms can gain competitive advantage through illicit and corrupt activities. In this paper, we argue that competition can lead organizations to provide illicit quality that satisfies customer demand but violates laws and regulations and that this outcome is particularly likely when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a form of illicit quality that customers value but is illegal and socially costly. Firms with greater numbers of local competitors pass customers at considerably higher rates and are more likely to lose customers they fail to pass, suggesting that the alternatives that competition provides to customers intensify pressure to illegally provide leniency. We also show that, at least in contexts when pricing is restricted, firms use illicit quality as an entry strategy. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:12-071&r=com |
| By: | Greiner, Tanja |
| Date: | 2012–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:dissen:13957&r=com |
| By: | Zack Cooper; Stephen Gibbons; Simon Jones; Alistair McGuire |
| Abstract: | This paper uses a difference-in-difference style estimation strategy to test separately the impact of competition from public sector and private sector hospitals on the efficiency of public hospitals. Our identification strategy takes advantage of the phased introduction of a recent set of substantive reforms introduced in the English NHS from 2006 onwards. These reforms forced public sector health care providers to compete with other public hospitals and eventually to face competition from existing private sector providers for care delivered to publicly funded patients. In this study, we measure efficiency using hospitals' average length of stay (LOS) for patients undergoing elective surgery. For a more nuanced assessment of efficiency, we break LOS down into its two key components: the time from patients' admission to the hospital until their surgery and the time from their surgery until their discharge. Here, pre-surgery LOS serves as a proxy for hospitals' lean efficiency. Our results suggest that competition between public providers prompted public hospitals to improve their productivity by decreasing their pre-surgery, overall and post-surgery length of stay. In contrast, competition from private hospitals did not spur public providers to improve their performance and instead left incumbent public providers with a more costly case mix of patients and led to increases in post-surgical LOS. |
| Keywords: | Hospital competition, market structure, prospective payment, incentivestructure |
| JEL: | C21 I18 L1 R0 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1125&r=com |
| By: | Marrouch, Walid (BOFIT); Turk-Ariss, Rima (BOFIT) |
| Abstract: | We propose a generic oligopsony-oligopoly model to study bank behavior under uncertainty in developing countries. We derive a pricing structure that acknowledges market power in both the deposit and loan markets and identify two theoretical components to the loan rate: a rent extraction component resulting from the interaction between the choke price of loans and prevailing banking structures, and a markup on deposit funding costs that captures the transformation efficiency of financial intermediation. We then test our structural specification with longitudinal data for 103 non-OECD countries and find that both the market structure under uncertainty and the deposit rate matter significantly in pricing. However, the role played by the rent-extraction share in pricing, on average, dominates funding costs in developing countries, and so underscores the importance of market structure in banks’ pricing power. |
| Keywords: | intermediation; bank pricing; market structure; uncertainty; developing countries |
| JEL: | C33 G21 L13 |
| Date: | 2012–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2012_001&r=com |
| By: | Jörg Claussen; Tobias Kretschmer; Thomas Spengler |
| Abstract: | The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership. |
| Keywords: | backward compatibility, market leadership, network effects, video games, two-sided markets |
| JEL: | L15 L82 O33 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1124&r=com |
| By: | Christopher Bleibtreu (Department of Economics, University of Konstanz, Germany); Ulrike Stefani (Department of Economics, University of Konstanz, Germany) |
| Abstract: | Recently, the Commission of the European Communities has put up for discussion various reform proposals intended to enhance the reliability of audits and to re-establish trust in the financial market. In particular, the EU Commission seeks to strengthen auditor independence and to decrease the high level of audit market concentration. Using the example of a ban on the joint provision of audit and non-audit services, we show that strengthening auditor independence and reducing market concentration may represent competing goals. Neglecting such interdependencies in the debate on regulation could thus lead to ill-advised regulatory decisions. Our arguments are based on a model that integrates a strategic auditor-manager game into a circular market matching model. We show that prohibiting general consulting services can result in a decrease in the equilibrium number of audit firms (i.e., in an increase in market concentration). Moreover, a ban on the joint supply of general consulting services might even have negative effects on the quality of audited financial statements, since the average probability that managers will misreport increases. Our model predicts the opposite effects for a prohibition on audit-related consulting services that managers purchase in order to tempt auditors to compromise their independence. The effects of a ban on “single-provider” auditing and consulting thus depend on the kind of services an auditor is allowed to offer and, in particular, on the point in time at which consulting services are negotiated. |
| Keywords: | Auditing, Non-Audit Services, Audit Market Concentration, Auditor Independence, Quality of Audited Financial Statements |
| JEL: | D43 L11 M42 |
| Date: | 2012–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1201&r=com |
| By: | Guillermo Baquero (ESMT European School of Management and Technology); Malika Hamadi (Luxembourg School of Finance (LSF)); Andréas Heinen (THEMA, Université de Cergy-Pontoise) |
| Abstract: | Length: 57 pages |
| Keywords: | bank competition, microfinance, microcredit, microbank, loan rates, information dispersion, PAR, portfolio quality |
| JEL: | D4 G21 L1 O1 |
| Date: | 2012–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-12-02&r=com |
| By: | L. Lambertini; A. Tampieri |
| Abstract: | We compare a Bertrand with a Cournot duopoly in a setting where production is polluting and exploits natural resources, and firms bear convex production costs. We adopt Dastidar's (1995) approach, yielding a continuum of Bertrand-Nash equilibria ranging above marginal cost pricing also, to show that softening price competition may lead to a lower output production in a Bertrand rather than a Cournot industry. The market structure bringing about the lowest output determines the highest social welfare, given the fact that the negative environmental effects of production more than offset the gain in consumer surplus. |
| JEL: | L13 L51 Q55 Q58 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp812&r=com |