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on Industrial Competition |
| By: | Jong-Hee Hahn (school of economics, Yonsei Uneversity); Sang-Hyun Kim (Department of Economics, Michigan State University) |
| Abstract: | This paper shows that firms producing homogeneous goods (e.g. Bertrand competitors) can achieve supernormal profits using interfirm bundled discounts, which connect their product with a specific brand of other firm with market power. By committing to a price discount exclusively to buyers of a particular brand of another good, the firms create a sort of artificial switching costs and attain a semi-collusive outcome. In fact, the discount scheme allows the firms with no market power to avoid Bertrand trap by leveraging other firms' market power. Consumers are worse off due to higher prices under bundled discounts. |
| Keywords: | Brand-specific discounts, bundling, co-branding, co-promotion |
| Date: | 2012–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2012rwp-47&r=com |
| By: | Vladislav Damjanovic |
| Abstract: | We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between the risk measured as a probability of default and the degree of competition is established. |
| Keywords: | Competition and Risk, Risk in DSGE models, Bank competition; Bank failure, Default correlation, Risk-shifting effect, Margin effect. |
| JEL: | G21 G24 D43 E13 E43 |
| Date: | 2012–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1210&r=com |
| By: | Ursino, Giovanni; Piccolo, Salvatore; Tedeschi, Piero |
| Abstract: | We study a Bertrand game where two sellers supplying products of different and unverifiable qualities can outwit potential clients through their (costly) deceptive advertising. We characterize a class of pooling equilibria where sellers post the same price regardless of their quality and low quality ones deceive buyers. Although in these equilibria low quality goods are purchased with positive probability, the buyer (expected) utility can be higher than in a fully separating equilibrium. It is also argued that low quality sellers invest more in deceptive advertising the better is their reputation vis-à-vis potential clients — i.e., firms that are better trusted by customers, have greater incentives to invest in deceptive advertising when they produce a low quality product. Finally, we characterize the optimal monitoring effort exerted by a regulatory agency who seeks to identify and punish deceptive practices. When the objective of this agency is to maximize consumer surplus, its monitoring effort is larger than under social welfare maximization. |
| Keywords: | Misleading advertising; Deception; Bayesian Consumers; Asymmetric Information |
| JEL: | L1 |
| Date: | 2012–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42553&r=com |
| By: | Giacomo Ponzetto |
| Abstract: | This paper shows that intellectual property rights yield static efficiency gains, irrespective of their dynamic role in fostering innovation. I develop a property-rights model of firm organization with two dimensions of non-contractible investment: how much cost-minimizing effort to exert, and whether to direct it towards partnership or defection. In equilibrium, the first best can be attained if and only if property rights are as strong for intangible as for tangible assets. When IP rights are weaker, the structure of the firm is distorted and efficiency declines. An entrepreneur must either integrate her suppliers, which induces a fall in their investment; or else risk their defection, which entails a waste of her human capital. My model predicts greater prevalence of vertical integration in response to weaker IP rights. It also predicts a switch from integration to outsourcing over the product cycle. Both empirical predictions are consistent with evidence on the organization of multinational companies. As a normative implication, I …find that IP rights should be strong but narrowly defined, to protect one business opportunity without holding up its potential spin-offs. |
| Keywords: | intellectual property, organization, hold-up problem, property rights, vertical integration, outsourcing, product cycle, spin-off, licensing |
| JEL: | D23 D86 K11 L22 L24 O34 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:668&r=com |
| By: | Köhler, Christian; Rammer, Christian |
| Abstract: | Buyer power is widely considered to decrease innovation incentives of suppliers. However, there is little empirical evidence for this statement. Our paper analyses how buyer power influences innovation incentives of upstream firms while taking into account the type of competition in the downstream market, namely price and technology. We explore this relationship empirically for a unique dataset containing 1,129 observations of German firms from manufacturing and service sectors including information on the economic dependency of firms from their buyers. Using a generalised Tobit model, we find a negative effect of buyer power on a supplier's likelihood to start R&D activities. This negative effect is mitigated if the supplier faces powerful buyers operating under strong price competition. There is also weak evidence for a negative effect of buyer power on suppliers' R&D intensity if the powerful buyer operates under strong technology competition. -- |
| Keywords: | Innovation,Buyer Power |
| JEL: | L11 O31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12058&r=com |
| By: | Robin Hartwig (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Karl Inderfurth (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Guido Voigt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) |
| Abstract: | Based on a serial supply chain model with 2-periods and price-sensitive demand, we present the first experimental test of the effect of strategic inventories on supply chain performance. In theory, if holding costs are low enough, the buyer builds up a strategic inventory (even if no operational reasons for stock-holding exist) to limit the supplier's market power, to increase the own profit share, and to enhance the overall supply chain performance. The supplier anticipates the effect of the strategic inventory and differentiates prices to capture a part of the increased supply chain profits. Our results show that the positive effects of strategic inventories are even more pronounced than theoretically predicted, because strategic inventories empower buyers to reduce payoff inequalities and suppliers exhibit a willingness to reduce inequalities as long as their payoff remains above a certain threshold. Overall, strategic inventories have a double positive effect, a strategic and a behavioral, both reducing the average wholesale prices and damping the double marginalization effect and the latter leading to more equitable payoffs. |
| Keywords: | supply chain coordination, vertical contracts, fair behavior, inter-temporal supplier pricing |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:120023&r=com |
| By: | Bilotkach, Volodymyr; Hüschelrath, Kai |
| Abstract: | We examine the issue of market foreclosure by airline partnerships with antitrust immunity. Overlapping data on frequency of service and passenger volumes on non-stop transatlantic routes with information on the dynamics of airline partnerships, we find evidence consistent with the airlines operating under antitrust immunity refusing to accept connecting passengers from the outside carriers at respective hub airports. Following the antitrust immunity, airlines outside the partnership reduce their traffic to the partner airlines' hub airports by 4.1-11.5 percent. We suggest regulators should take possible market foreclosure effects into account when assessing the competitive effects of antitrust immunity for airline alliances. -- |
| Keywords: | air transportation,alliances,antitrust immunity,foreclosure |
| JEL: | L41 L93 K21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10083r&r=com |
| By: | Tjandrawinata, Raymond R.; Simanjuntak, Destrina Grace |
| Abstract: | This paper analyzes the impact of mergers and acquisitions (M&A) activities in research-based pharmaceutical companies, specifically the impact of R&D expenditure, profitability, and sales revenue on firms’ productivity, R&D intensity, in pharmaceutical industries following M&A activities. The model was estimated using annual data, gathered from seven large research-based pharmaceutical companies pre and post-M&A, during the period 2003 until 2010. The regression analysis method uses a fixed effect method with generalized least square (GLS) analysis. The result further shows that following M&A activities, firms’ one-year lagged R&D expenditure (t-1) and lagged profitability (t-1) to be positive in increasing significantly the firms’ amount of R&D intensity in research-based pharmaceutical industries, while, surprisingly firms’ one-year lagged sales revenue (t-1) have a negative impact in increasing significantly the firms’ amount of R&D intensity in research-based pharmaceutical industries. |
| Keywords: | Mergers and Acquisitions (M&A); R&D Expenditure; Profitability; Sales Revenue; R&D Intensity |
| JEL: | D21 D24 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:42514&r=com |
| By: | Nikogosian, Vigen; Weigand, Jürgen |
| Abstract: | Due to potential abuse of the market power at wholesale and retail market level for natural gas the Federal Cartel Office in Germany prohibited further forward integration of gas importing firms with retail incumbents from 2005/2006 to 2010. The Authority argued that the very few dominant gas importing companies, which also own and operate the gas pipelines, could have an incentive to foreclose existing competitors or prevent potential market entry. However, two of the importing companies remained extensively forward integrated. To analyze possible forward integration issues empirically we employ cross sectional data (for September 2009) for about 500 sub markets for household customers in Germany. These submarkets have different vertical ownership structures. Our data set contains information on ownership and market entry. By applying a market entry model, which is based on the framework introduced by Bresnahan and Reiss (1991), we do not find clear evidence that market entry is restricted by forward integration of gas importers and retail incumbents. -- |
| Keywords: | energy markets,natural gas,market entry,forward integration,vertical integration,market foreclosure |
| JEL: | L40 L42 L94 L97 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12062&r=com |
| By: | Heindl, Peter |
| Abstract: | As shown by R. Hahn [6], free allocation equal to the amount of permits a firm with market power uses in equilibrium, can prevent welfare losses. If the necessary amount of free allocation is not provided to the firm with market power, a second best solution is obtained where marginal abatement costs of regulated firms are not equated. In this paper, it is proposed that the government may change the economy wide emissions constraint (cap) as a response to market power, e.g. when free allocation cannot be adjusted. Changing the cap can lead to a situation where marginal abatement costs are equated in the presence of market power. Because changing the cap will lead to changes of social welfare, both effects must be balanced. It is shown that there exists a second best social optimum by balancing the positive effect of limiting market power and the negative effect of changing the cap. -- |
| Keywords: | Tradeable Permits,Market Power,Environmental Regulation |
| JEL: | Q53 L12 D21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12065&r=com |
| By: | Bruno Martins |
| Abstract: | Asymmetric information and transportation costs incurred by borrowers may raise spatial price discrimination in bank lending. This paper exploits the large geographic dispersion in the market structure of the Brazilian banking sector to investigate the relationship between market concentration and bank competition. Local markets are also distinguished by the degree of barrier to entry in order to assess its effect on bank competitive behavior. The findings indicate a negative correlation between market concentration and bank competition and an even stronger effect in locations where the barriers to entry are higher. The paper also highlights the importance of evaluating the geographic impact of mergers and acquisitions for the analysis of the effect of market concentration on bank competition. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:299&r=com |