nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒04‒23
twenty papers chosen by
Russell Pittman
US Department of Justice

  1. Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly By Juan-José Ganuza; Jos Jansen
  2. Informing Consumers about their own Preferences By Peitz, Martin; Inderst, Roman
  3. The role of market frictions on the price differential: A search-theoretical approach By Chang, Chia-Ying
  4. Exclusive Dealing and Market Foreclosure: Further Experimental Results By Landeo, Claudia; Spier, Kathryn
  5. Partnership contracts, project finance and information asymmetries: from competition for the contract to competition within the contract? By Nicolas Dupas; Frédéric Marty; Arnaud Voisin
  7. Estimation of random coefficients logit demand models with interactive fixed effects By Hyungsik Roger Moon; Matthew Shum; Martin Weidner
  8. Network structure of inter-industry flows By James McNerney; Brian D. Fath; Gerald Silverberg
  9. Does umbrella branding really work? Investigating cross-category brand loyalty By Nadja Silberhorn; Lutz Hildebrandt;
  10. Delegation and Limited Liability in a Modern Capitalistic Economy By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Kozo Harimaya
  11. Retailers and Consumers. The pass-through of import price changes By Eike Berner; Laura Birg
  12. Patent Disclosure in Standard Setting By Bernhard Ganglmair; Emanuele Tarantino
  13. Patents Wars (3ème partie) : Les pools, du cartel à l'abolition partielle du système des patents By Pierre-André Mangolte
  14. "Impacts of Patent Expiry and Regulatory Policies on Daily Cost of Pharmaceutical Treatments: OECD Countries, 2004-2010" By Berndt, Ernst; Dubois, Pierre
  15. Open innovation, contracts, and intellectual property rights: an exploratory empirical study By Hagedoorn, John; Ridder, Ann-Kristin
  16. The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data By Gautier, E.; Le Saout, R.
  17. Combined Effects of Load Factors and Booking Time on Fares: Insights from the Yield Management of a Low-Cost Airline By Marco Alderighi; Marcella Nicolini; Claudio A. Piga
  18. "An Econometric Analysis of Insurance Markets with Separate Identification for Moral Hazard and Selection" By Shunya Sugawara; Yasuhiro Omori
  19. Effects of a Domestic Merger on Exports: The case study of a merger of Korean automakers in 1998 (Japanese) By OHASHI Hiroshi; TOYAMA Yuta
  20. De-monopolization Toward Long-Term Prosperity in China By Ashvin Ahuja

  1. By: Juan-José Ganuza; Jos Jansen
    Abstract: By using general information structures and precision criteria based on the dispersion of conditional expectations, we study how oligopolists' information acquisition decisions may change the effects of information sharing on the consumer surplus. Sharing information about individual cost parameters gives the following trade-off in Cournot oligopoly. On the one hand, it decreases the expected consumer surplus for a given information precision, as the literature shows. On the other hand, information sharing increases the firms' incentives to acquire information, and the consumer surplus increases in the precision of the firms' information. Interestingly, the latter effect may dominate the former effect.
    Keywords: Information acquisition, information sharing, information structures, oligopoly, consumer surplus
    JEL: D82 D83 L13 L40
    Date: 2012–04–18
  2. By: Peitz, Martin; Inderst, Roman
    Abstract: We analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences, e.g., about their future demand for a utility such as electricity or telecommunication. When more consumers become informed, we show that this benefits also those consumers who remain uninformed, as it reduces the firm’s incentives to extract information rent. By reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage, policy can further improve welfare, as contracts become more efficient. The last observation stands in contrast to earlier findings by Crémer and Khalil (American Economic Review 1992), where all consumers are uninformed.
    Keywords: Nonlinear pricing , price discrimination , monopolistic screening , information acquisition
    JEL: D42 D82 L12
    Date: 2012
  3. By: Chang, Chia-Ying
    Abstract: To shed light on how market frictions and the waiting time of imitators affect prices and how effective research subsidy and patent protection affect the price differential, this paper adopts a direct search-theoretical approach to capture the searching behaviors of consumers and producers in the innovative and imitative markets. As a result, this model shows that the price differential with endogenous market frictions would react to the change of quality the least. A shorter durability would result in a wider price differential in the model without the extra state for imitators than in the model with the extra state. While a research subsidy shrinks the price differential, and improve consumers’ flow values, the patent protection widens the price differential, hurts imitators’ profits and may not improve the consumers’ flow values. The innovators could take the advantage of the effects of durability on price differential by inventing products which might influence the durability of the products currently hold by the consumers. This finding might provide an explanation on why the latest versions of computer products are invented less likely convertible to older versions of Windows or associated software.
    Keywords: market frictions, price differential, direct search, innovation, imitation,
    Date: 2012–03–16
  4. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper reports further experimental results on exclusive dealing contracts. We extend Landeo and Spier’s [2009] work by studying Naked Exclusion in a strategic environment that involves a four-player, two-stage game. In addition to the roles of seller and buyers, our experimental environment includes the role of a potential entrant (a fourth passive player). Our findings are as follows. First, payoff endogeneity increases the likelihood of exclusion. Second, communication between the potential entrant and the buyers increases buyers’ coordination on their preferred equilibrium (equilibrium with entry) and hence, reduces the likelihood of exclusion. Entrant-buyers communication also induces more generous offers.
    Keywords: exclusive dealing; market foreclosure
    JEL: C72 C91 D62 D86 K12
    Date: 2012–04–01
  5. By: Nicolas Dupas (Caisses des Dépôts et Consignations - Caisse des dépôts et consignations); Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université de Nice Sophia Antipolis (UNS), OFCE - OBSERVATOIRE FRANCAIS DES CONJONCTURES ECONOMIQUES - Institut d'Études Politiques (IEP) - Paris); Arnaud Voisin (Caisses des Dépôts et Consignations - Caisse des dépôts et consignations)
    Abstract: Private finance has brought to public-private partnerships a third-party overlook on the contracts. Bringing into the appraisal of PPP deals banks and rating agencies results in outsourcing the due diligence of the project to the party best suited to perform it. This reduction in asymmetries of information can occur both in the competition for the market stage or in the competition within the market stage (yardstick competition).At the negotiation stage, funding competition helps to increase the public sector's information on the deal. Of course, the cost of collecting this information should not overweight the savings it induces. In order to maintain competitive pressure through the lifecycle of the project, value testing schemes, as benchmarking or market testing are used. However, they induce concerns about transaction costs and could reduce the certainty about the charge for the public partner.
    Keywords: Private finance initiative, asymmetries of information, funding competition
    Date: 2011–12–15
  6. By: Somekh, Babak (Department of Economics, University of Haifa)
    Abstract: Using a supply/demand consumer model with search, we show under what conditions the distribution of income within a community is related to the type of firms that exist within that community, impacting the level of prices. We assume that searching for the lowest price costs both time and money to the consumer. If time and money costs are high enough low-income consumers cannot afford the monetary cost of search, while wealthy consumer are not willing to take the time to look for the lowest price. The middle class have the right balance of time and money cost of search and therefore are the most aggressive shoppers. We use a supply side model of firm output and pricing strategy to demonstrate that firms located in more informed communities are more likely to enter the market as large low-priced retailers. By connecting these two results, we show under what conditions the size of the middle class can have a negative relationship with the level of prices in a local market. Our paper goes beyond other work on causes of price dispersion by allowing consumers to purchase a continuous amount of the good, and by incorporating a distribution of search costs. Both these modifications allow us to focus more specifically on the link between income distribution and prices.
    Date: 2012–02–19
  7. By: Hyungsik Roger Moon; Matthew Shum; Martin Weidner (Institute for Fiscal Studies and UCL)
    Abstract: <p>We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete-choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical application to US automobile demand.</p>
    Date: 2012–03
  8. By: James McNerney; Brian D. Fath; Gerald Silverberg
    Abstract: We study the structure of inter-industry relationships using networks of money flows between industries in 20 national economies. We find these networks vary around a typical structure characterized by a Weibull link weight distribution, exponential industry size distribution, and a common community structure. The community structure is hierarchical, with the top level of the hierarchy comprising five industry communities: food industries, chemical industries, manufacturing industries, service industries, and extraction industries.
    Date: 2012–04
  9. By: Nadja Silberhorn; Lutz Hildebrandt;
    Abstract: Numerous studies on the drivers of brand extension success [Aaker and Keller, 1990, Broniarczyk and Alba, 1994, Hem et al., 2003, Völckner and Sattler, 2006] found evidence that parent-brand characteristics and the fit between parent brand and transfer product are the main and most influential factors driving brand extension success. However, the ability of a brand to transfer its brand loyal customers from the parent to the extension category has been widely neglected. Brand loyalty can be regarded as a consequence of the underlying assumption of customers transferring their quality perceptions, their brand knowledge, and their experience with the brand from one category to the other [Erdem and Swait, 1998]. We find empirical evidence that consumers who are loyal to the brand in the leading (parent) product category show a higher probability to be loyal to that same brand in another (extension) category compared to those consumers who are not loyal in the leading category. Moreover, as the overall success of the extension includes positive retroactive effects of the extension product on the parent product or brand [Erdem, 1998], the arising question is whether there are differences between extension product categories regarding their attachment to the parent category and their ability to stimulate brand loyal purchases in the parent category, i.e., speaking of ’leader’ and ’follower’ categories in terms of brand loyal purchase behavior. This might even hold true for the relationship of any two categories the brand competes.
    Keywords: cross-category brand loyalty, loyalty leverage index, share of category requirements
    JEL: M31 C43
    Date: 2012–04
  10. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics, Ritsumeikan University); Makoto Okamura (Economics Department, Ritsumeikan University and Hiroshima University); Kozo Harimaya (Faculty of Business Administration, Ritsumeikan University)
    Abstract: We examine an effect of limited liability on strategic delegation in a Cournot duopoly with demand uncertainty. We establish that owners of each firm always delegate their tasks, decisions, and responsibility to a manager under limited liability, while they do not always do so under unlimited liability. This result is consistent with the fact that separation of ownership and management as well as limited liability prevail in many modern large companies.
    Keywords: limited liability, delegation, managerial incentives, and Cournot duopoly
    JEL: G32 L13 L12
    Date: 2012–04
  11. By: Eike Berner; Laura Birg
    Abstract: This paper uses German household data on apparel purchases to show that, con- ditional on income, households di¤er with respect to their shopping outlets and the prices they pay. We estimate that high-price retailers are not a¤ected by changes in import prices. By contrast, the pass-through for low-price retailers is 53% within 3 months. Consequently, pass-through rates for low-income households are 58%, signi…cantly larger than those for high-income households. We then present one explanation for these observations in a theoretical model with vertical product differentiation due to bundling an otherwise homogeneous imported good with services. Following an import price shock, retailers who sell cheaper unbundled products change prices more than retailers who sell a higher-priced bundle of product and service.
    Keywords: Import prices, Pass-through, Retailers, Households
    JEL: D12 D31 F10
    Date: 2012–03–16
  12. By: Bernhard Ganglmair; Emanuele Tarantino
    Abstract: In a model of industry standard setting with private information about firms' intellectual property, we analyze (a) firms' incentives to contribute to the development and improvement of a standard, and (b) firms' decision to disclose the existence of relevant intellectual property to other participants of the standard-setting process. If participants can disclose after the end of the process and fully exploit their bargaining leverage, then patent holders aspire to disclose always after the end of the process. However, if a patent holder cannot rely on the other participants to always contribute to the process, then it may be inclined to disclose before the end of the process. We also analyze under which conditions firms enter cross-licensing agreements that eliminate the strategic aspect of patent disclosure, and show that, in an institutional setting that implies a waiver of intellectual property rights if patents are not disclosed timely, firms aspire to disclose before the end of the process. Finally, we study the effect of product-market competition on patent disclosure.
    JEL: D71 D83 L15 O34
    Date: 2012–04
  13. By: Pierre-André Mangolte (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234)
    Abstract: Dans cette dernière partie sont analysés les différents pools de patents constitués dans les industries du cinéma, de l'automobile et de l'aviation, suite aux guerres des patents étudiées précédemment. L'analyse se concentre alors sur les Etats-Unis. Si les pools ou accords de licences croisées mis sur pied à l'époque relèvent bien d'une même nécessité, celle d'arrêter les litiges juridiques et d'assurer une certaine "paix des patents", leur nature et leurs buts sont bien différents. La Motion Pictures Patents Co prolonge et étend le principe du contrôle exclusif des activités de la loi des patents et constitue par ailleurs un cartel qui sera condamné au titre de la loi Sherman; ce procès étant une des premières confrontations entre la vieille loi des patents et la toute nouvelle législation antitrust. Les différentes expériences dans l'industrie automobile, comme la Manufacturers Aircraft Association de la construction des avions laissaient à l'inverse toutes les entreprises en concurrence, en mettant par contre en commun un certain nombre de techniques. Il y avait là, à l'échelle de toute une industrie, une abolition partielle et volontaire de l'institution des patents.
    Keywords: pool de brevet, Sherman Act, antitrust, abolition des patents, Motion Picture Patents Co, Manufacturers Aircraft Association
    Date: 2012–03–10
  14. By: Berndt, Ernst; Dubois, Pierre
    Abstract: Cross-country variability in regulatory frameworks, industrial policy, physician/pharmacy autonomy, brand/generic distinctions, and in the practice of medicine contributes to ambiguous interpretations of pharmaceutical cost comparisons. Here we report cross-country comparisons that: (i) focus on 11 therapeutic classes experiencing patent expiration and loss of exclusivity 2004-2010 in eight industrialized countries; (ii) convert revenues and unit sales to cost per day of treatment and number patient days treated using the World Health Organizations’ Defined Daily Dosage metrics; (iii) compare patterns in costs per day of treatment with price index measures based on average price per day of treatment for each molecule computed over all molecule versions; (iv) utilizing econometric methods, model and quantify various factors affecting variations in daily treatment price indexes such as national regulatory and reimbursement policy changes, physician/pharmacy autonomy, and other factors; and (v) simulate changes in expenditures by country and therapeutic class had counterfactual policies been implemented.
    Keywords: cross-country comparisons, pharmaceutical costs, generic drugs
    JEL: D4 I11 I18 L11 L65 O34
    Date: 2012–03
  15. By: Hagedoorn, John (UNU-MERIT/MGSoG, and Department of Organization & Strategy, School of Business and Economics, Maastricht University); Ridder, Ann-Kristin (Department of Organization & Strategy, School of Business and Economics, Maastricht University)
    Abstract: Our exploratory empirical study, based on a series of in-depth interviews and a survey of firms, searches for answers on a number of questions that deal with the role of formal contracts and intellectual property rights in the context of open innovation. We find that firms active in open innovation have a strong preference for the governance of their open innovation relationships through formal contracts. These contracts are relevant from both a control and a process monitoring perspective. Also, despite the open nature of open innovation, firms still see intellectual property rights as highly relevant to the protection of their innovative capabilities. In a first attempt to explain this preference for intellectual property rights by open innovation firms, we find the degree of openness of firms, their legalistic attitude, and the competitive dynamics of their product market environment to be related to this preference.
    Keywords: open innovation, contracts, intellectual property rights
    JEL: K11 K12 L24
    Date: 2012
  16. By: Gautier, E.; Le Saout, R.
    Abstract: Using millions of individual gasoline prices collected at a daily frequency, we examine the speed at which market refined oil prices are transmitted to consumer liquid fuel prices. We find that on average gasoline prices are modified once a week and the distribution of price changes displays a M-shape as predicted by a menu-cost model. Using a reduced form state-dependent pricing model with time-varying random thresholds, we find that the degree of pass through of wholesale prices to retail gasoline prices is on average 0.77 for diesel and 0.67 for petrol. The duration for a shock to be fully transmitted into prices is about 10 days. There is no significant asymmetry in the transmission of wholesale price to retail prices.
    Keywords: price stickiness, menu costs, (S,s) models, gasoline price.
    JEL: E31 D43 L11
    Date: 2012
  17. By: Marco Alderighi (Università della Valle d'Aosta and Università Bocconi); Marcella Nicolini (Università di Pavia and FEEM, Milan); Claudio A. Piga (Loughborough University and Rimini Centre Economic Analysis)
    Abstract: Based on two strands of theoretical research, this paper provides new evidence on how fares are jointly affected by in-flight seat availability and purchasing date. As capacity-driven theories predict, it emerges that fares monotonically and substantially increase with the flights occupancy rate. Moreover, as suggested in the literature on intertemporal price discrimination, the adoption of advance purchase discounts is widespread as the departure date nears, but it may be part of a U-shaped temporal profile, where discounts are preceded by periods of relatively higher fares. Finally, the intervention of yield management analysts appears to play a substantial role.
    Keywords: Pricing policy, Panel Data, Ryanair, Yield Management
    JEL: D22 L11 L93
    Date: 2012–03
  18. By: Shunya Sugawara (Graduate School of Economics, University of Tokyo); Yasuhiro Omori (Faculty of Economics, University of Tokyo)
    Abstract: This paper proposes a simple econometric framework that can identify moral hazard and selection problems separately in insurance markets. Although our methodology requires behavioral assumptions on the consumer's optimization, we show that these assumptions are necessary for the separate identification of the two sources of information asymmetry. Our method is applied to the dental insurance market in the United States. In addition to standard moral hazard, we find advantageous selection, which is not detected by a conventional methodology.
    Date: 2012–04
  19. By: OHASHI Hiroshi; TOYAMA Yuta
    Abstract: This paper examines the economic consequences of a horizontal merger between two Korean automakers in 1998. Estimates of structural demand and supply reveal that the merger enhanced the production efficiency of the merging parties by a magnitude of 8.4%. Simulations based on the estimates indicate that while the merger increased domestic auto prices, it more than doubled the exports of the merging parties. The merger effects vary according to auto model type.
    Date: 2012–04
  20. By: Ashvin Ahuja
    Abstract: During the past decade, the average Chinese earns roughly 9 times less and is 10 times less productive than the average American at purchasing power parity. Current consensus attributes large differences in output per worker to differences in total factor productivity (TFP). Evidence suggests that most of the US-China TFP differences lie in the inefficiency of China’s domestic-oriented service and agricultural sectors. This paper focuses on (1) the evidence of monopoly rights and its influence on work practice improvement at China’s firms and plants and (2) the evidence that policy arrangement there has encouraged more competition in merchandise manufacturing and heavy industries while barriers to market access remain high against new firms in the domestic market (especially in services). A numerical experiment is provided, which suggests that China can enhance long-term income per capita by a factor of 10 largely through TFP gains by implementing reform to weaken protection of monopolies and encourage entry in all industries.
    Keywords: China , Competition , Economic models , Manufacturing sector , Markets , Productivity , Services sector , United States ,
    Date: 2012–03–13

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