|
on Industrial Competition |
| By: | Sapi, Geza |
| Abstract: | This paper analyzes vertical integration incentives in a bilaterally duopolistic industry where upstream producers bargain with downstream retailers on terms of supply. In the applied framework integration does not affect the total output produced, but it affects the distribution of rents among players. Vertical integration incentives depend on the strength of substitutability or complementarity between products and the shape of the unit cost function. I demonstrate furthermore that in contrast to the widely prevailing view in competition policy, vertical integration can under particular circumstances convey more bargaining power to the merged entity than a horizontal merger to monopoly. The model is applied to analyze strategic merger incentives to influence entry decisions. Mergers can facilitate and deter entry. While horizontal mergers to deter entry are never profitable, firms on different market levels may strategically choose to integrate vertically to keep a potential entrant out of the market. I provide conditions for such entry-deterring vertical mergers to occur. -- |
| Keywords: | Bargaining,Vertical Mergers,Entry |
| JEL: | L13 L22 L42 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:61&r=com |
| By: | S. Nuray Akin (Department of Economics, University of Miami); Brennan Platt (Department of Economics, Brigham Young University) |
| Abstract: | We analyze an equilibrium search model where buyers seek to purchase a good before a deadline and face uncertainty regarding the availability of past price quotes in the future. Sellers cannot observe a potential buyer's remaining time until deadline nor his quote history, and hence post prices that weigh the probability of sale versus the profit once sold. The model's equilibrium can take one of three forms. In a late equilibrium, buyers initially forgo purchases, preferring to wait until the deadline. In an early equilibrium, any equilibrium offer is accepted as soon as it is received. In a full equilibrium, higher prices are turned down until near the deadline, while lower prices are immediately accepted. Equilibrium price and sales dynamics are determined by the time remaining until the deadline and the quote history of the consumer. |
| Keywords: | Equilibrium Search; Deadlines; Uncertain Recall; Price Posting; Reservation Prices |
| JEL: | D40 D83 |
| Date: | 2012–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:mia:wpaper:2012-3&r=com |
| By: | Jentzsch, Nicola; Sapi, Geza; Suleymanova, Irina |
| Abstract: | It is increasingly observable that competitors in different industries share customer data, which can be used for targeted pricing. We propose a modified Hotelling model with two-dimensional consumer heterogeneity to analyze the incentives for such sharing and its ensuing welfare effects. We show that these incentives depend on the type of customer data and on consumer heterogeneity in the strength of brand preferences. Only data on consumer transportation cost parameters is shared. The incentives to do so are stronger if consumers are relatively homogeneous. Customer data sharing is most likely to be detrimental to consumer surplus, while the effect on social welfare can be positive. -- |
| Keywords: | Customer Data Sharing,Price Discrimination |
| JEL: | D43 L13 L15 O30 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:60&r=com |
| By: | Ashish Arora; Andrea Fosfuri; Thomas Roende |
| Abstract: | Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization—where the business unit using the technology makes licensing decisions—to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing. |
| JEL: | L2 L24 O32 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18203&r=com |
| By: | Herbert Dawid (Bielefeld University); Tim Hellmann (Institute of Mathematical Economics, Bielefeld University) |
| Abstract: | In this paper, we study a standard Cournot model where rms are able to form bilateral collaboration agreements which lower marginal cost. While a static analysis of such a model can be found in Goyal and Joshi [5], we introduce an evolutionary model. Stable networks (in the static sense) exhibit the dominant group architecture and can be characterized with respect to the size of the group. However, in contrast to Goyal and Joshi [5], we nd that the group size of connected rms in stochastically stable networks is generically unique and monotonically decreasing in cost of link formation. Further, there exists a lower bound on the group size of connected rms such that a non-empty network can be stochastically stable. |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:467&r=com |
| By: | Erika Badillo (Faculty of Economics, University of Barcelona); Rosina Moreno (Faculty of Economics, University of Barcelona) |
| Abstract: | In this paper we analyse the heterogeneity in firms’ decisions to engage in R&D cooperation, taking into account the type of partner (other companies from the same group, suppliers or customers, competitors, and research institutions) and the sector to which the firm belongs (industrial or services). We use information from the Technological Innovation Panel (PITEC) for the years 2006-2008 and estimate multivariate probit models corrected for endogeneity. We find that the determinants of R&D cooperation differ between sectors. In the industrial sector, the perception of risk as an obstacle to innovation reduces the likelihood of cooperating with companies in the same group and competitors, while in the service sector it reduces cooperation with suppliers or customers. For its part, the possibility of accessing additional human resources has a significantly positive effect on cooperation with all types of partner in the service sector, but not for manufactures.. |
| Keywords: | R&D cooperation; Choice of partners; Industrial sector; Service sector; Innovative Spanish firms. JEL classification: O30; O32; L24; L60; L80. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201213&r=com |
| By: | Dessein, Wouter |
| Abstract: | The seminal work by Grossman and Hart (1986) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in providing incentives. In this essay, I discuss some new directions that the literature has taken since. As a central challenge, I identify the need to provide a formal theory of the firm in which managerial direction and bureaucratic decision-making play a key role. Merging a number of existing incomplete contracting models, I propose two approaches with very different contracting assumptions. As in transaction cost economics, a central element in those theories is the presence of a central office who directs and coordinates the actions of subordinates. More novel, I highlight the superior ability of non-integrated firms to adapt to a changing environment. |
| Keywords: | Adaptation; Coordination; Firm Boundaries; Incomplete contracts; Managerial direction |
| JEL: | D23 D83 L23 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9019&r=com |
| By: | Carlo Cambini and Virginia Silvestri |
| Abstract: | A vertically integrated incumbent and an OLO (Other Licensed Operator) dynamically compete in the market for broadband access. The incumbent has the option to invest in building a Next Generation Network that covers all urban areas with similar demand structures. The investment return in terms of demand increase is uncertain. We compare the impact of different access price regulation regimes - full regulation, partial regulation (only the copper network is regulated), risk sharing - on investment incentives and social welfare. We find that, compared to Foros (2004), the OLO gets better access condition in case of partial regulation and exclusion does not necessarily happen in equilibrium even if the incumbent has more ability than the OLO. Moreover, risk sharing emerges as the most preferable regime both from a consumer and a social welfare perspective for a large range of parameters. |
| Keywords: | Investment; Regulation; Access pricing; New Technology; Risk Sharing; L51; L96 |
| Date: | 2012–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2012/15&r=com |
| By: | Ciliberto, Federico; Williams, Jonathan W |
| Abstract: | We show that multimarket contact facilitates tacit collusion in the US airline industry using two complementary approaches. First, we show that the more extensive is the overlap in the markets that the two firms serve, i) the more firms internalize the effect of their pricing decisions on the profit of their competitors by reducing the discrepancy in their prices, and ii) the greater the rigidity of prices over time. Next, we develop a flexible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs. |
| Keywords: | Airline Industry; Airport Facilities; Collusion; Differentiated Products; Multi-Market Contact; Price Rigidity.; Screening Test |
| JEL: | L13 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9015&r=com |
| By: | Vahagn Jerbashian; Anna Kochanova |
| Abstract: | In this paper we empirically show that a more intensive use and wider adoption of telecommunication technologies significantly increases the level of product market competition in services and goods markets. Our result is consistent with the view that the use of telecommunication technologies can lower the costs of entry. This finding is robust to various measures of competition and a range of specification checks. |
| Keywords: | telecommunication technologies; entry costs; product market competition; |
| JEL: | L16 O33 O25 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp463&r=com |
| By: | Matttia De' Grassi Di Pianura (CERNA - Centre d'économie industrielle - Mines ParisTech) |
| Abstract: | To market a new network technology effectively, manufacturers need to understand the structure and size of network effects associated with the product. If consumers' surplus from adoption depends positively on the number of interconnections in the network, early adopters may need to be subsidized until a critical mass is reached. Moreover, in a two-sided market where platforms and complementary contents are constrained to non-negative prices, subsidies can be provided both by platform manufacturers and byproducers of complementary contents. The article presents a model to analyse adoption dynamics with different subsidies and different stand-alone values for technology. The model shows that if the standalone value of technology is limited, subsidies from complementary contents producers may be pivotal to reach the critical mass. Moreover, under given conditions, this type of subsidies can lead to a more efficient adoption, increasing social welfare. In this case, assuming a monopolist platform manufacturer of the technology, complete contracts are needed to reach the Pareto optimal equilibrium. |
| Keywords: | two-sided markets; network effects; technology adoption; copyright; vertical relations; media economics |
| Date: | 2012–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00714447&r=com |
| By: | Luiz Flavio Andrade (Gate-Groupe d'analyse théorique et économique) |
| Abstract: | Pharmaceutical firms have been criticized for concentrating their efforts of R&D on the so called “me-too” or “follow-on” drugs. There have been many comments against and favourable to the dissemination of these incremental innovations but few papers have broached the subject from an empirical point of view, possibly because identification of “me-too” is not so obvious. This paper focuses on the impact of entry order on “follow-on” drugs competition in the French market between years 2001 and 2007. More precisely, this study examines the effects on market share of first entrants in the follow-on drug market and how this possible competitive advantage changes over time. Our results are coherent with theoretical microeconomic issues concerning the importance of being first. We find evidence that first movers in the follow on drug market have the ability to capture and maintain greater market share for a long period of time. The hierarchical market position of follow on drugs does not seem to be affected by generic drugs emergence. From a dynamic perspective, our analysis shows that market share is positively correlated with the ability of follow on drugs to set prices higher than the average follow-on drug price in a specific therapeutic class (ATC) which means that market power remains considerably important for first movers. Finally we found that the optimum level of innovation to maximize market share is the highest one. |
| Keywords: | Incremental innovation; Follow-on drugs; Entry timing; Market share. |
| JEL: | I18 I12 L65 L51 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:irh:wpaper:dt49&r=com |
| By: | von Schlippenbach, Vanessa; Teichmann, Isabel |
| Abstract: | We explore the strategic role of private quality standards in food supply chains. Considering two symmetric retailers that are exclusively supplied by a finite number of producers and endogenizing the suppliers' delivery choice, we show that there exist two asymmetric equilibria in the retailers' quality requirements. Our results reveal that the retailers use private quality standards to improve their bargaining position in the intermediate goods market. This is associated with inefficiencies in the upstream production, which can be mitigated by enforcing a minimum quality standard. -- |
| Keywords: | private quality standards,vertical relations,buyer power,food supply chain |
| JEL: | L15 L42 Q13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:62&r=com |