nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒09‒03
nineteen papers chosen by
Russell Pittman
US Government

  1. On two-part tariff competition in a homogeneous product duopoly By Griva, Krina; Vettas, Nikolaos
  2. Strategic commitment to pursue a goal other than profit in a Cournot duopoly By Rtischev, Dimitry
  3. Suggested retail prices with downstream competition By Simona Fabrizi; Steffen Lippert; Clemens Puppe; Stephanie Rosenkranz
  4. Competing Through Information Provision By Jean Guillaume Forand
  5. Optimal quality choice under uncertainty on market development By Tamini, Lota D.
  6. Upward Pricing Pressure in Two-Sided Markets By Pauline Affeldt; Lapo Filistrucchi; Tobias J. Klein
  7. Consumers' Imperfect Information and Price Rigidities By Jean-Paul L'Huillier
  8. Costs of Low Productivity: Intensive and Extensive Margins By goksel, turkmen
  9. Quality pricing-to-market By Raphael A. Auer; Thomas Chaney; Philip Sauré
  10. An equilibrium analysis of efficiency gains from mergers By Jovanovic, Dragan; Wey, Christian
  11. Cartel overcharges and the deterrent effect of EU competition law By Smuda, Florian
  12. The Emergence of a Small World in a Network of Research Joint Ventures By Stuart McDonald; Mohamad Alghamdi; Bernard Pailthorpe
  13. Quantity or quality? Collaboration strategies in research and development and incentives to patent By Hottenrott, Hanna; Lopes-Bento, Cindy
  14. Collaborative R&D as a strategy to attenuate financing constraints By Czarnitzki, Dirk; Hottenrott, Hanna
  15. A game theory-based analysis of search engine non-neutral behavior By Luis GUIJARRO; Vicent PLA; Bruno Tuffin; Patrick MAILLÉ; Pierre COUCHENEY
  16. Net Neutrality Debate: Impact of Competition among ISPs By François Boussion; Patrick MAILLÉ; Bruno Tuffin
  17. Competition between wireless service providers sharing a radio resource By Patrick MAILLÉ; Bruno Tuffin; Jean-Marc Vigne
  18. Impact on retail prices of non-neutral wholesale prices for content providers By Giuseppe D'ACQUISTO; Patrick MAILLÉ; Maurizio Naldi; Bruno Tuffin
  19. Hospital market concentration and discrimination of patients By Dewenter, Ralf; Jaschinski, Thomas; Kuchinke, Björn A.

  1. By: Griva, Krina; Vettas, Nikolaos
    Abstract: We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.
    Keywords: Market segmentation; Non-linear pricing; Two-part tariffs
    JEL: D43 L13
    Date: 2012–08
  2. By: Rtischev, Dimitry
    Abstract: Competition among profit-seeking firms in an oligopolistic industry inherently generates incentives for firms to commit to maximize a performance metric other than profit. We briefly review the underlying theory, analyze its ramifications in a Cournot duopoly, and consider feasibility constraints from the perspective of strategic management.
    Keywords: oligopolistic competition; strategic commitment; strategic delegation
    JEL: L13 L21 D43
    Date: 2012–07–01
  3. By: Simona Fabrizi; Steffen Lippert; Clemens Puppe; Stephanie Rosenkranz
    Abstract: We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.
    Keywords: suggested or recommended retail prices, resale price maintenance, reference-dependent preferences, vertical restraints, competition law and policy
    JEL: D03 D43 K21 L42
    Date: 2012–08
  4. By: Jean Guillaume Forand (Department of Economics, University of Waterloo)
    Abstract: This paper studies the symmetric equilibria of a two-buyer, two-seller model of directed search in which sellers commit to information provision. More informed buyers have better differentiated private valuations and extract higher rents from trade.When sellers cannot commit to sale mechanisms, information provision is higher under competition than under monopoly, yet partial information is provided when sellers are price-setters. In contrast, when sellers commit to both information provision and sale mechanisms, I identify simple conditions under which sellers post auctions and provide full information in every equilibrium, ensuring that all equilibrium outcomes are constrained efficient. Sellers capture the efficiency gains from increased information and compete only over non-distortionary rents offered to buyers.
    JEL: C72 D43 D44 D82
    Date: 2012–04
  5. By: Tamini, Lota D.
    Abstract: This paper analyzes the impact of risk and ambiguity aversion - Knightian uncertainty - on the choice of optimal quality and timing of market entry. Irreversibility of the investment in product development is introduced in a continuous-time stochastic model applying the real option literature. We consider a market characterized by a duopoly with a Stackelberg-Nash game for quality choice. When the follower provides a higher-quality good, the level of quality is decreasing in ambiguity aversion while it is a non-monotonic function of the level of risk. For low levels of risk, the increase of product quality is an efficient response. Up to certain threshold level of risk, risk and ambiguity aversion reduce the optimal quality level and increase the value of waiting when the follower supplies a higher-quality good. The implication is that risk and ambiguity aversion allow the leader to make a sustainable monopoly profit. When the follower supplies a lower-quality good, there is no value for it to wait. It should therefore provide the lowest-quality good possible. In a vertically integrated supply chain firms provide higher quality, and the difference between vertically integrated and non-integrated firms is increasing in risk and ambiguity aversion.
    Keywords: Quality; Duopoly; Real option; Vertical integration; Risk; Knightian uncertainty
    JEL: D81 L13 L15
    Date: 2012–08–23
  6. By: Pauline Affeldt; Lapo Filistrucchi (Università degli Studi di Firenze,); Tobias J. Klein
    Abstract: Pricing pressure indices have recently been proposed as alternative screening devices for horizontal mergers involving differentiated products. We extend the concept of Upward Pricing Pressure (UPP) proposed by Farrell and Shapiro (2010) to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers, and the market for online search, where advertising demand depends on the number of users. The formulas we derive are useful for screening mergers among two-sided platforms. Due to the two-sidedness they depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we evaluate a hypothetical merger in the Dutch daily newspaper market. Our results indicate that it is important to take the two-sidedness of the market into account when evaluating UPP.
    Keywords: Merger evaluation, two-sided markets, network effects, UPP.
    JEL: L13 L40 L82
    Date: 2012
  7. By: Jean-Paul L'Huillier (EIEF)
    Abstract: This paper develops a model of price rigidities and information diffusion in decentralized markets with private information. First, I provide a strategic microfoundation for price rigidities, by showing that firms are better off delaying the adjustment of prices when they face a high number of uninformed consumers. Second, in an environment where consumers learn from firms' prices, the diffusion of information follows a Bernoulli differential equation. Therefore, learning follows nonlinear dynamics. Third, the price rigidity produces an informational externality that affects welfare. Fourth, the dynamics of output are hump-shaped due to consumer learning.
    Date: 2012
  8. By: goksel, turkmen
    Abstract: This paper discusses welfare costs of a decrease in productivity and argues that there are two important channels which cause a reduction in welfare: a decrease in output per firm (intensive margin) and a decrease in number of operating firms (extensive margin). Traditional Dixit-Stiglitz monopolistic competition framework with constant elasticity of substitution utility and common productivity across firms fail to capture the extensive margin. To address this problem, this paper introduces “continuum-quadratic” utility (i.e. linear demand system) while keeping the other assumptions unchanged and finds that lowering productivity affects not only the intensive but extensive margin as well.
    Keywords: productivity; quadratic utility; monpolistic competition
    JEL: L00
    Date: 2012–01
  9. By: Raphael A. Auer; Thomas Chaney; Philip Sauré
    Abstract: We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Mussa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct competitors in the quality dimension. The top quality firm, being exposed to just one direct competitor, enjoys the highest market power and equilibrium markup. Because higher quality exporters are closer to the technological leader, markups are generally increasing in quality, exporting is relatively more profitable for high quality than for low quality firms, and the degree of exchange rate pass-through is decreasing in quality.
    Keywords: Price levels ; International trade
    Date: 2012
  10. By: Jovanovic, Dragan; Wey, Christian
    Abstract: We analyze the efficiency defense in merger control. First, we show that the relationship between exogenous efficiency gains and social welfare can be non-monotone. Second, we consider both endogenous mergers and endogenous efficiencies and find that merger proposals are largely aligned with a proper social welfare analysis which explicitly considers the without merger counterfactual. We demonstrate that the merger specificity requirement does not help much to select socially desirable mergers; to the contrary, it may frustrate desirable mergers inducing firms not to claim efficiencies at all. --
    Keywords: Horizontal Mergers,Efficiency Defense,Merger Specific Efficiencies
    JEL: K21 L13 L41
    Date: 2012
  11. By: Smuda, Florian
    Abstract: This paper examines cartel overcharges for the European market. Using a sample of 191 overcharge estimates and several parametric and semi-parametric estimation procedures, the impact of different cartel characteristics and the market environment on the magnitude of overcharges is analyzed. The mean and median overcharge rates are found to be 20.70 percent and 18.37 percent of the selling price and the average cartel duration is 8.35 years. Certain cartel characteristics and the geographic region of cartel operation influence the level of overcharges considerably. Furthermore, empirical evidence suggests that the currently existing fine level of the EU Guidelines is too low to achieve optimal deterrence. --
    Keywords: cartels,overcharges,Europe,fines,deterrence,damages
    JEL: L13 L41 L44
    Date: 2012
  12. By: Stuart McDonald (School of Economics, The University of Queensland); Mohamad Alghamdi; Bernard Pailthorpe
    Abstract: Using a data set spanning the period 1899-2000, we construct a network of RJVs and track the pattern of growth of this network over time. The resulting R&D network is emergent in the sense that RJVs are contained within it, connected to other RJVs by the existence firms sharing membership with multiple RJVs. This paper shows that the largest growth in the R&D networks occurred during the last three decades of the Twentieth Century. During this growth period, the R&D network has a pattern of collaboration that can be characterized as having the “small world†property. This has implications for the rate of information diffusion across the network, as it implies that many non-collaborating firms are in fact quite close to each other in terms of degree of separation. We show that this network structure is due to the presence of a small number of highly connected firms that collaborate across multiple RJVs. These firms have an important characteristic in that without their presence in the network, the R&D network looses its cohesiveness and the small world property disappears. Hence, these highly connected firms have an important role to play in determining the overall robustness of the R&D network.
    Date: 2012
  13. By: Hottenrott, Hanna; Lopes-Bento, Cindy
    Abstract: This study shows for a large sample of R&D-active manufacturing firms that collaborative R&D has a positive effect on firms' patenting in terms of both quantity and quality. When distinguishing between alliances that aim at joint creation of new knowledge and alliances that aim at exchange of existing knowledge, the results suggest that the positive effect on patent quantity is driven by knowledge exchange rather than joint R&D. Firms engaged in joint R&D, on the other hand, receive more forward citations per patent indicating that joint R&D enhances patent quality. In light of literature on strategic patenting, our results further suggest that knowledge creation alliances lead to patents that are filed to protect valuable intellectual property, while exchange alliances drive portfolio patenting, resulting in fewer forward citations. --
    Keywords: R&D Collaboration,Knowledge Exchange,Patents,Innovation,Count Data Models
    JEL: O31 O32 O33 O34
    Date: 2012
  14. By: Czarnitzki, Dirk; Hottenrott, Hanna
    Abstract: The ability of firms to establish R&D collaborations that combine resources, exploit complementary know-how, and internalize R&D externalities has been shown to be of high importance for the successful creation and implementation of new knowledge. We argue in this article that collaborative R&D may not only be beneficial in terms of appropriability of returns to R&D investment, access to the partner's knowledge base and the exploitation of scale and scope in R&D, but that it may also be a strategy to cope with financing constraints for R&D. Studying panel data we show that collaboration with science alleviates liquidity constraints for research. Horizontal collaboration reduces liquidity constraints for both research as well as R and D. Vertical collaboration has no such effects. --
    Keywords: Collaborative Research,Industry-Science Links,Research and Development,Liquidity Constraints,Innovation Policy
    JEL: O31 O32 O38
    Date: 2012
  15. By: Luis GUIJARRO (UPV - Universitat Politecnica de Valencia - Universitat Politécnica de Valencia); Vicent PLA (UPV - Universitat Politecnica de Valencia - Universitat Politécnica de Valencia); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1); Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Pierre COUCHENEY (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: In recent years, there has been a rising concern about the policy of major search engines, and more specifically about their ranking in so-called organic results corresponding to keywords searches. The associated proposition is that their behavior should be regulated. The concern comes from search bias, which refers to search rankings based on some principle different from the expected automated relevance. In this paper, we analyze one behavior that results in search bias: the payment by content providers to the search engine in order to improve the chances to be located and accessed by a search engine user. A simple game theory-based model is presented where both a search engine and a content provider interact strategically, and the aggregated behavior of users is modeled by a demand function. The utility of each stakeholder when the search engine is engaged in such a non-neutral behavior is compared with the neutral case when no such side payment is present.
    Keywords: Search engine, Neutrality, Nash equilibrium, User welfare
    Date: 2012
  16. By: François Boussion (ENS - Ecole Normale Supérieure - Ministère chargé de l'enseignement supérieur.); Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: Network neutrality has recently been the topic of an important debate, in both the telecommunication and political worlds, because of its potential impact in every-day life. While there has been many studies discussing the advantages and drawbacks of neutrality, there is no game-theoretical study dealing with the observable situation of competitive ISPs in front of a (quasi-)monopolistic content provider (CP), while it is a complaint from ISPs, and an illustration of the non-neutrality need. This paper provides a first game-theoretical analysis of relations between two competitive ISPs and a single CP, in the form of a four-level game, played at different time scales. This game is analyzed by backward induction. We show that while the complaint from ISPs is relevant with a such a competitive model, inserting side payments does not solve the problem.
    Keywords: Network neutrality, Competition, Pricing, Game theory
    Date: 2012
  17. By: Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1); Jean-Marc Vigne (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: We present a model of competition on prices between two telecommunication service providers sharing an access resource, which can for example be the same WiFi spectrum. We obtain a two-level game corresponding to two time scales of decisions: at the smallest time scale, users play an association game by choosing their provider (or none) depending on price, provider reputation and congestion level, and at the largest time scale, providers compete on prices. We show that the association game always has an equilibrium, but that several can exist. The pricing game is then solved by assuming that providers are risk- averse and try to maximize the minimal revenue they can get at a user equilibrium. We illustrate what can be the outcome of this game and that there are situations for which providers can co-exist.
    Keywords: Game theory, Wireless networks, Pricing, Shared spectrum
    Date: 2012
  18. By: Giuseppe D'ACQUISTO (Garante per la protezione dei dati personali - Garante per la protezione dei dati personali); Patrick MAILLÉ (RSM - Département Réseaux, Sécurité et Multimédia - Institut Télécom - Télécom Bretagne - Université européenne de Bretagne); Maurizio Naldi (DISP - Dipartimento di Informatica, Sistemi e Produzione [Roma] - Università degli Studi di Roma "Tor Vergata"); Bruno Tuffin (INRIA - IRISA - DIONYSOS - INRIA - Université de Rennes 1)
    Abstract: The impact of wholesale prices is examined in a context where the end customer access both free content and payper-use content, delivered by two different providers through a common network provider. We formulate and solve the game between the network provider and the pay-per-use content provider, where both use the price they separately charge the end customer with as a leverage to maximize their profits. In the neutral case (the network provider charges equal wholesale prices to the two content providers), the benefits coming from wholesale price reductions are largely retained by the pay-peruse content provider. When the free content provider is charged more than its pay-per-use competitor, both the network provider and the pay-per-use content provider see their profit increase, while the end customer experiences a negligible reduction in the retail price.
    Keywords: Network neutrality, Game theory, Pricing
    Date: 2012
  19. By: Dewenter, Ralf; Jaschinski, Thomas; Kuchinke, Björn A.
    Abstract: In this paper we investigate the existence of a two-tier medical system in the German acute care hospital sector using data from a survey of 483 German hospitals. The focus of our analysis lies on the impact of hospital concentration on the probability of discrimination of patients with different health insurances in regard to the access to medical services. Accounting for a possible endogeneity of market structure, we find that hospitals in highly concentrated markets are less likely to pursue any differentiation among prospective patients with different health insurances. We ascribe this finding to competitive pressure in less concentrated markets. Hospitals in competitive markets are more obliged to steal business from rival hospitals by privileging profitable patients than hospitals in highly concentrated markets. --
    Keywords: Hospital markets,Patients' discrimination,Survey data
    JEL: I1 I11 L1 L19 L22
    Date: 2012

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