nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒06‒13
eighteen papers chosen by
Russell Pittman
US Department of Justice

  1. Investment in customer recognition and information exchange By Oz Shy; Rune Stenbacka
  2. Intellectual property rights in a quality-ladder model with persistent leadership By Christian Kiedaisch
  3. Market Power in the Global Economy: The Exhaustion and Protection of Intellectual Property By Kamal Saggi
  4. The effect of foreign competition on product switching activities: A firm level analysis By Nakhoda, Aadil
  5. Troubled Times: What Role for Competition and Regulatory Policy? By Gorecki, Paul K.
  6. A Note on Upward Pricing Pressure:The possibility of false positives. By Mathiesen, Lars; Nilsen, Øivind Anti; Sørgard, Lars
  7. Fines for Failure to Cooperate within Antitrust Proceedings – the Ultimate Weapon... By Stolarski, Konrad
  8. British economists on competition policy (1890-1920) By Giocoli, Nicola
  9. Old lady charm: a comment By Signorino, Rodolfo
  10. M&A as a Driver of Global Competition in the Brewing Industry By Madsen, Erik Strøjer; Pedersen, Kurt; Lund-Thomsen, Lars
  11. Spatial competition in the French supermarket industry By Stéphane Turolla
  12. Price flexibility in British supermarkets By Seaton, Jonathan S; Waterson, Michael
  13. Financial Mergers and Their Consequences By Scherer, F. M.
  14. Physician Market Power and Medical-Care Expenditures By Abe Dunn; Adam Hale Shapiro
  15. Cross-ownership, league policies and player investment across sports leagues By Mongeon, Kevin; Winfree, Jason
  16. Revisiting Wal-Mart’s Impact on Iowa Small Town Retail: Twenty-Five Years Later By Stone, Kenneth E.; Artz, Georgeanne M.
  17. Polish Telecom Regulator’s Decisions Regarding Mobile Termination Rates and the Standpoint of the EC By Wach, Marlena
  18. Made in China: Export competition and structural changes in the OECD countries By Matthias Flückiger; Markus Ludwig

  1. By: Oz Shy; Rune Stenbacka
    Abstract: We investigate how costly acquisition and exchange of customer-specific information affects industry profit and consumer welfare. Consumers differ in their preferences for competing brands and in their switching costs between brands. Brand-producing firms use their acquired knowledge of customer-specific preferences to differentiate prices. We show that consumers are worse off when firms acquire information about their preferences and that information sharing between firms further magnifies their losses. No information sharing supports a subgame perfect equilibrium that is also efficient. Finally, equilibrium investments in customer information may be excessive if firms bear low costs of acquiring customer-specific information.
    Keywords: Consumers' preferences
    Date: 2012
  2. By: Christian Kiedaisch
    Abstract: This article analyzes the effects of intellectual property rights in a quality-ladder model in which incumbent firms preemptively innovate in order to keep their position of leadership. Unlike in models with leapfrogging, granting non-expiring forward protection reduces the rate of innovation and imposing a non-obviousness requirement reduces R&D spending. It is shown that full protection against imitation, granted independently of the size of the lead, maximizes the average innovation rate.
    Keywords: Intellectual property rights, persistent leadership, cumulative innovation, preemption, forward protection, non-obviousness requirement, patent policy
    JEL: L40 O31 O34
    Date: 2012–05
  3. By: Kamal Saggi (Department of Economics, Vanderbilt University)
    Abstract: We develop a North-South model in which a firm that enjoys monopoly status in the North (by virtue of a patent or a trademark) has the incentive to price discriminate internationally because Northern consumers value its product more than Southern ones. While North's policy regarding the territorial exhaustion of intellectual property rights (IPR) determines whether the firm can exercise market power across regions, Southern policy regarding the protection of IPR determines the firm's monopoly power within the South. In equilibrium, each region's policy takes into account the firm's pricing strategy, its incentive to export, and the other region's policy stance. Major results are: (i) the North is more likely to choose international exhaustion if the South protects IPR whereas the South is more willing to offer such protection if the North implements national exhaustion; (ii) the firm values IPR protection less than the freedom to price discriminate internationally if and only if its quality advantage over Southern imitators exceeds a certain threshold; and (iii) requiring the South to protect IPR increases global welfare iff such protection is necessary for inducing the firm to export to the South.
    Keywords: Exhaustion of IPRs, imitation, market power, TRIPS, welfare
    JEL: F13 F10 F15
    Date: 2012–03
  4. By: Nakhoda, Aadil
    Abstract: Pressure from foreign competition on the decision to introduce new products or on production costs may influence firms to particpate in product switching activities. Firms switch products if they either add or drop products within their product range. I test whether pressure from foreign competition is likely to influence firms that concurrently add and drop (churn) products rather than firms that i) do not undertake any product switching activity, ii) add products only, or iii) drop products only. Firms pay substantial fixed costs to switch products and their productivity levels are likely to determine such ability. I consider whether firms that invest in research and development activities and export their final products are likely to churn products as they are able to generate greater productivity levels than firms that undertake either one of the two activities. As firms constrained by the lack of adequately educated workers may have workers who cannot adapt to different set of skills necessary for product switching activities, I consider whether such firms are likely to churn products as they are exposed to pressure from foreign competition in comparison to firms not constrained by the lack of adequately educated workers. In addition, the contract-intensive nature of an industry can also dictate whether firms exposed to foreign competition can churn products as they may be constrained due to their contract obligations with their buyers and suppliers. The results indicate that pressure from foreign competition is likely to influence the decision of firms to churn products rather than add products only or undertake neither product switching activities. There is little evidence that firms facing pressure from foreign competition will churn products rather than drop products only, except for the most productive firms that invest in research and development activities and export participation.
    Keywords: Foreign competition; product switching; trade liberalization; corporate strategies
    JEL: D21 M11 F13
    Date: 2012–05–31
  5. By: Gorecki, Paul K.
    Abstract: Hard times, occasioned by a prolonged recession resulting in a series of austerity budgetary measures, generate much economic insecurity. How should the State respond? One clear choice is between robustly enforcing competition and regulatory policy and relaxing these policies. What does the international as well as Irish evidence suggest is the result of such relaxation? Could relaxation of competition and regulatory policy provide greater economic security than robust enforcing? If so, at what price? Are there any conditions under which groups or sectors should be sheltered from market forces to provide greater economic security without losing the overall benefits associated with good principles of competition and regulatory policy? Drawing on international evidence this paper addresses these questions. It finds that choosing to relax competition and regulatory policy may deliver transitory benefits but that it is ultimately likely to be an economically costly policy. Even without relaxation, competition and regulatory policy contain provisions that permit otherwise restrictive agreements and regulations to be allowed, but only when the benefits exceed the costs. These well established precedents are contained in Irish competition law. However, the regulatory process in Ireland has, as yet, to fully reflect international best practice in judging ex ante regulation. The OECD (2010) report for Ireland contains recommendations to rectify the situation.
    Keywords: competition/cost/Ireland/Policy/recession/regulation
    Date: 2012–04
  6. By: Mathiesen, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration); Nilsen, Øivind Anti (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Farrell and Shapiro proposed a simple test of the possible upward pricing pressure (UPP) following a merger. They showed that the test may give false negatives, that is, indicate that a merger may not give an UPP, while a more comprehensive test would indicate the opposite. We show that their test applied to a case with asymmetric firms may give false positives.
    Keywords: Unilateral merger effects; post-merger price effects.
    JEL: K21 L41
    Date: 2012–05–08
  7. By: Stolarski, Konrad
    Abstract: The aim of this article is to analyse a powerful competence available to antitrust authorities in Europe in the form of the imposition of fines for the failure to cooperate within antitrust proceedings. While fines of that type are imposed in practice very rarely, the article considers the existing decisional practice of the Polish antitrust authority as well as the European Commission, and presents the way in which their approach has evolved throughout the years. The article analyses also the question of the formal initiation of proceedings concerning procedural violations and the importance of the use of a uniform and fair approach towards the scrutinized undertakings, especially as fine graduation is concerned. For that purpose, the article provides also a comparative analysis of past proceedings conducted by the European Commission and selected judgments of EU Courts.
    Keywords: fines; antitrust proceedings; dawn raid; inspection; cooperation; procedural infringements
    JEL: K21
    Date: 2011
  8. By: Giocoli, Nicola
    Abstract: Most late 19th-century US economists gave a rather cool welcome to the Sherman Act (1890) and, though less harshly, to the Clayton and FTC Acts (1914). A large literature has identified several explanations for this surprising attitude, calling into play the relation between big business and competition, a non-neoclassical notion of competition and a weak understanding of anti-competitive practices. Much less investigated is the reaction of British economists to the passing of antitrust statutes in the U.S. What we know is simply that none of them (including the top dog, Alfred Marshall) championed the adoption of a law-based competition policy during the three decades (1890-1920) of most intense antitrust debates in the U.S. The position of three prominent British economists will be examined in this paper: H.S. Foxwell, D.H. MacGregor, and, of course, Alfred Marshall – the latter in two moments at the extremes of our period, 1890 and 1919. It will turn out that they all shared with their American colleagues a theoretical and operational skepticism about the government and judiciary interference with the free working of markets. They also believed that British industrial structure and business habits were so different from those in the U.S. that the urge of interfering with markets in order to preserve competition was much weaker. Among the paper's insights is that Marshall’s key concept of “defending a competitor’s right to compete” foreran the modern characterization of the goal of competition policy as "the protection of the competitive process". Yet Marshall developed his concept without making recourse to the post-1930s neoclassical notion of competition as a static market structure which lies at the foundation of most contemporary antitrust policy: a useful lesson from the history of economic thought for those IO economists who still claim that the classical dynamic view of competition is unsuited as a foundation for an effective competition policy.
    Keywords: British economists; antitrust law; Sherman Act; Alfred Marshall
    JEL: B21 B31 K21 L40
    Date: 2012–05–30
  9. By: Signorino, Rodolfo
    Abstract: I start from Nicola Giocoli’s acute rational reconstruction of current US antitrust debate which shows that there really is no shortage of plausible explanations to the Chicago persistent appeal puzzle. Each explanation, taken in isolation, is, at best, only partial. In my view, the persistent appeal of Chicago antitrust owes much to the enduring grip of the equilibrium end-state notion of competition within top US Economics Departments and to the (alleged) resilience of market competition, absent entry/exit barriers, in the face of Type II Errors committed by antitrust Agencies.
    Keywords: Chicago school of law and economics; Type I and Type II Errors; entry barriers and horizontal merger regulation
    JEL: D40 L4
    Date: 2012–06–04
  10. By: Madsen, Erik Strøjer (Department of Economics, Aarhus School of Business); Pedersen, Kurt (Institut for Marketing og Organisation - Ledelse); Lund-Thomsen, Lars (BSS, Biblioteker - Biblioteket)
    Abstract: The international beer brewing industry has experienced massive changes over the last decade. Industry concentration has increased dramatically, and the leading brewer groups have globalised their operations across virtually all continents. The paper describes the development and puts it into an industrial economics framework. Based on a major data base the paper further assesses the effects of M&A strategies in the global beer industry
    Keywords: No; keywords
    JEL: A10
    Date: 2011–09–21
  11. By: Stéphane Turolla
    Abstract: This paper challenges the conventional wisdom on the competitive grocery retail sector in France. To that end, I develop a structural model of spatial competition that accounts for (i) market geography on consumers' preferences, and (ii) differences in their shopping list. The demand estimates are used to recover stores' price-cost margin under alternative pricing strategies. I select the best pricing model by applying non-nested tests and show that retailers noticeably distort their offer in highly concentrated markets. Finally, I perform counterfactual experiments to quantify the expected gain of an additional store on consumer welfare and retail prices.
    Keywords: spatial competition, structural model, discrete choice model, differentiated products, supermarket industry
    JEL: C35 L13 L81
    Date: 2012
  12. By: Seaton, Jonathan S (Loughborough University); Waterson, Michael (University of Warwick)
    Abstract: This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies. We examine a seven year period of pricing behaviour by the major British supermarkets encompassing the recession year 2008 and the partial recovery of 2009. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes. JEL classification: E30 ; E31 ; L81
    Date: 2012
  13. By: Scherer, F. M. (Harvard University)
    Abstract: This paper, written for a Columbia Law School - American Bar Association conference, analyzes the massive merger wave that has led to substantially increased concentration of banking activity in the United States. One consequence is the rise of banks "too big to fail." The structural changes have also been associated with a striking increase in financial institutions' share of all U.S. corporate profits along with employee compensation out of line with norms for individuals of comparable ability. Data on concentration in well-defined banking markets are quite scarce, but fragmentary evidence suggests appreciable monopoly pricing power potential in some product markets. Mergers that lead to concentration have for decades been the focus of antitrust activity. But a review of the record shows an emphasis on mergers that raise local banking market concentration and nearly total neglect of other important lines, on which data are lacking. If antitrust actions were to be taken against the concentration of power in those lines, offsetting advantages in the form of realized scale economies would have to be weighed. A review of the most recent evidence suggests that difficult tradeoffs might be confronted.
    Date: 2012–05
  14. By: Abe Dunn; Adam Hale Shapiro (Bureau of Economic Analysis)
    Abstract: We study the degree to which greater physician market power via consolidation leads to higher service prices in the commercially insured medical-care market. We also examine whether these potentially higher service prices translate into different levels of physician service utilization. We find that physicians in more concentrated markets charge higher service prices. However, due to the unique nature of patient cost sharing as well as the incentives of physicians, these higher prices lead to either no change or, in some cases, an expansion of services. This is in contrast to a typical market, where higher prices attributable to consolidation are thought to decrease quantity demanded.
    Date: 2012–04
  15. By: Mongeon, Kevin; Winfree, Jason
    Abstract: Although many sports leagues are viewed as monopolies, research suggests that some economic competition exists between teams in dierent sports leagues. If fans make consumption choices based on the quality of all teams that are present in their region, then economic competition and ownership structure can impact an owner's incentive to invest in talent. This article examines dierences between monopolists, duopolists and cross-ownership. Consumer preferences and fan loyalty are allowed to vary across sports, and the winning percentages of teams in other leagues aects demand. Our model shows that economic competition results in an ambiguous level of investment compared to a monopolist. A rm that engages in cross-ownership will invest less in talent compared to a duopolist, but the dierence in prots is ambiguous. League policies are studied and are shown to aect the quality of teams in other leagues.
    Keywords: Sports Leagues; Talent Investment; Ownership Structures
    JEL: L83
    Date: 2012–01–21
  16. By: Stone, Kenneth E.; Artz, Georgeanne M.
    Abstract: Stone conducted the first study of Wal-Mart stores economic impact in Iowa in 1988.  Since then, research on Wal-Mart’s impacts has exploded. Recent studies employ sophisticated statistical techniques to more accurately measure the size and direction of effects. Many reach conclusions similar to Stone’s original work.  This paper updates the original Stone study with additional years of data.  It draws on recent methodological advances to help account for Wal-Mart’s strategic location decisions on estimated retail sales impacts in Iowa.  Consistent with previous studies, we find that Wal-Mart’s entry into smaller trade centers in Iowa had a big initial impact on host town retail sales, with some categories experiencing large significant increases while others saw declines in sales per capita.  Wal-Mart’s presence helped to stabilize or even expand the local retail sector of most rural Iowa host communities.  To conclude, policy implications for local economic development officials are discussed.
    Keywords: Wal-Mart; retail trade; Iowa
    JEL: L81 R
    Date: 2012–05–31
  17. By: Wach, Marlena
    Abstract: The article presents key issues relating to the methods of mobile termination rates calculation by the Polish National Regulatory Agency (NRA): the UKE President. It analyses the provisions of Polish telecommunications law of 20041 with respect to the rights and obligations of the UKE President. It invokes specific cases showing how problematic rates calculation is for mobile operators. The Polkomtel, PTK Centertel, PTC sp. z o.o. cases clearly show how unclear the calculation process may be in practice and illustrate how broad the discretionary powers of the UKE President are in this respect on the grounds of Polish telecommunications law. Highlighted is also the dispute between the Polish NRA and the European Commission. Even though the UKE President acts on the grounds of Polish law, its actions have to be compliant with the European telecoms package and take into utmost account the recommendations and comments issued by the European Commission.
    Keywords: telecommunication; mobile operators; mobile termination rates (MTR); consultation process; notification process; recommendations; European Commission; UKE
    JEL: K21
    Date: 2011
  18. By: Matthias Flückiger; Markus Ludwig (University of Basel)
    Keywords: China, Export Competition, Deindustrialization
    JEL: F12 F14 F16
    Date: 2012

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