nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒12‒10
seventeen papers chosen by
Russell Pittman
US Government

  1. Dynamic Price Competition with Capacity Constraints and a Strategic Buyer By James J. Anton; Gary Biglaiser; Nikolaos Vettas
  2. Partial collusion in an asymmetric duopoly By Marc Escrihuela Villar
  3. Sequential vs Collusive Payoffs in Symmetric Duopoly Games By Marco Marini; Giorgio Rodano
  4. Strategic Timing in R&D Agreements By Marco Marini; Maria Luisa Petit; Roberta Sestini
  5. Asymptotic relations in Cournot's game By Guerrazzi, Marco
  6. Bayesian Nash Equilibrium in ''Linear'' Cournot Models with Private Information About Cost By Sjaak Hurkens
  7. Defensive Disclosure under Antitrust Enforcement By Ajay Bhaskarabhatla; Enrico Pennings
  8. Impact evaluation of merger control decisions By Budzinski, Oliver
  9. International antitrust institutions By Budzinski, Oliver
  10. Deal or no deal? Consensual arrangements as an instrument of European competition policy By Budzinski, Oliver; Kuchinke, Björn A.
  11. Würde eine unabhängige europäische Wettbewerbsbehörde eine bessere Wettbewerbspolitik machen? By Budzinski, Oliver
  12. Cross-Border Mergers and Greenfield Foreign Direct Investment By Ignat Stepanok
  13. Permanent uncertainty, employment protection, and firms'location By Sophie Lecostey
  14. Innovation, tort law, and competition By Baumann, Florian; Heine, Klaus
  15. Newspaper and internet display advertising - co-existence or substitution? By Lindstädt, Nadine; Budzinski, Oliver
  16. Newspaper vs. online advertising - Is there a niche for newspapers in modern advertising markets? By Lindstädt, Nadine; Budzinski, Oliver
  17. Competition in Germany's minute reserve power market: An econometric analysis By Haucap, Justus; Heimeshoff, Ulrich; Jovanovic, Dragan

  1. By: James J. Anton; Gary Biglaiser; Nikolaos Vettas
    Date: 2012
  2. By: Marc Escrihuela Villar (Universitat de les Illes Balears)
    Abstract: In this paper we investigate the connection between cost asymmetries and the sustainability of collusion within the context of a infinitely repeated Cournot duopoly. We assume that firms are able to coordinate on distinct output levels than the unrestricted joint profit maximization outcome. We show that, in our model, regardless of the degree of cost asymmetry, at least some collusion is always sustainable if firms are patient enough. We also endogenize the degree of collusion and show that it has an upper bound determined by the most inefficient firm.
    Keywords: Collusion; Sustainability; Asymmetry
    JEL: L11 L13 L41 D43
    Date: 2012
  3. By: Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Giorgio Rodano (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: In many strategic settings comparing the payo¤s obtained by players under full cooperation to those obtainable at a sequential (Stackelberg) equilibrium can be crucial to determine the nal outcome of the game. This happens, for instance, in repeated games in which players can break cooperation by acting sequentially, as well as in merger games in which rms are allowed to sequence their actions. Despite the relevance of these and other applications, no fully-edged comparisons betwen collusive and sequential payo¤s have been performed so far. In this paper we show that even in symmetric duopoly games the ranking of cooperative and sequential payo¤s can be extremely variable, particularly when the consuete linear demand assumption is relaxed. Not surprisingly, the degree of strategic complementarity and substitutability of playersactions (and, hence, the slope of their best-replies) appears decisive to determine the ranking of collusive and sequential payo¤s. Some applications to endogenous timing are discussed.
    Keywords: Sequential Payoffs; Collusion; Duopoly Games
    Date: 2012–06
  4. By: Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Maria Luisa Petit (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Roberta Sestini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: We present a model of endogenous formation of R&D agreements among firms in which also the timing of R&D investments is made endogenous. The purpose is to bridge two usually separate streams of literature, the endogenous formation of R&D alliances and the endogenous timing literature. This allows to consider the formation of R&D agreements over time. It is shown that, when both R&D spillovers and investment costs are sufficiently low, firms may find difficult to maintain a stable agreement due to the strong incentive to invest noncooperatively as leaders. In such a case, the stability of an R&D agreement requires that the joint investment occurs at the initial stage, thus avoiding any delay. When instead spillovers are sufficiently high, cooperation in R&D constitutes a profitable option, although firms also possess an incentive to sequence their investment over time. Finally, when spillovers are asymmetric and the knowledge mainly leaks from the leader to the follower, to invest as follower becomes extremely profitable, making R&D alliances hard to sustain unless firms strategically delay their joint investment in R&D.
    Keywords: R&D Investment; Spillovers; Endogenous Timing; R&D Alliances; Endogenous Research Cartels
    Date: 2012–07
  5. By: Guerrazzi, Marco
    Abstract: In this note, I derive the asymptotic relation verified by oligopolists' iso-profit curves within Cournot's game. Thereafter, I provide an economic rationale for such a mathematical relation. The results of this exploration suggest that for each firm the asymptotes of the iso-profit curves convey the boundaries beyond which output competitors become net purchasers of the good supplied in the market.
    Keywords: Cournot's Game; Nash Equilibrium; Asymptotes
    JEL: C72
    Date: 2012–11
  6. By: Sjaak Hurkens
    Abstract: Calculating explicit closed form solutions of Cournot models where firms have private information about their costs is, in general, very cumbersome. Most authors consider therefore linear demands and constant marginal costs. However, within this framework, the nonnegativity constraint on prices (and quantities) has been ignored or not properly dealt with and the correct calculation of all Bayesian Nash equilibria is more complicated than expected. Moreover, multiple symmetric and interior Bayesian equilibria may exist for an open set of parameters. The reason for this is that linear demand is not really linear, since there is a kink at zero price: the general ''linear'' inverse demand function is P (Q) = max{a - bQ, 0} rather than P (Q) = a - bQ.
    Keywords: Cournot, Private Information, Bayesian Nash equilibrium
    JEL: C72 D43 D82
    Date: 2012–12–03
  7. By: Ajay Bhaskarabhatla; Enrico Pennings
    Abstract: We formulate a simple model of optimal defensive disclosure by a dominant firm facing uncertain antitrust enforcement and test its implications using unique data on defensive disclosures and patents by IBM. Our results indicate that stronger antitrust enforcement leads to more defensive disclosure, that quality inventions are also disclosed defensively, and that defensive disclosure served as an alternative, but less successful, mechanism to patenting at IBM in appropriating returns from R&D. We extend our analysis to two other exceptionally large firms with defensive-disclosure activity, AT&T and Xerox, and show that their patenting propensity declined under increased antitrust enforcement relative to other firms in the industry. Overall, we show how these firms used defensive disclosure as a strategy to balance the benefits of patenting with the costs of uncertain antitrust enforcement.
    Date: 2012
  8. By: Budzinski, Oliver
    Abstract: This paper provides a comparative analysis of methods for the empirical ex post evaluation of merger control decisions. It develops a competition-policy oriented framework of assessment criteria for the leading evaluation methods and applies them to structural modeling and simulation, differences-in-differences methods, event studies as well as survey-based methods. It concludes that a method-mix is recommendable, however, under the exclusion of event studies that fail to safeguard a minimum level of reliability of their results. Furthermore, the paper warns against overly optimistic expectations about the effects of systematic impact evaluations of merger decisions. --
    Keywords: empirical methods of industrial organization,merger control,competition,policy,antitrust decisions,comparative analysis
    JEL: C18 C54 L41 L40 K21
    Date: 2012
  9. By: Budzinski, Oliver
    Abstract: The paper discussed the economic theory of international antitrust institutions. Economic theory shows that non-coordinated competition policies of regimes that are territorially smaller than the international markets on which business companies compete violate cross-border allocative efficiency and are deficient with respect to global welfare. At the same time, some diversity of antitrust institutions and policies promotes dynamic and evolutionary efficiency so that globally binding, worldwide homogenous competition rules do not represent a first-best solution either. After reviewing the existing international antitrust institutions and their prospects and limits from an economic perspective (with a focus on the International Competition Network, ICN), the paper discusses reform proposals from economic literature. --
    Keywords: international competition policy,international antitrust,International,Competition Network,global governance,WTO,institutions,international organizations
    JEL: F02 F53 F55 K21 L40 D02
    Date: 2012
  10. By: Budzinski, Oliver; Kuchinke, Björn A.
    Abstract: Roughly during the last decade, European Competition Policy has undergone a series of fundamental changes. All four areas - cartel policy, merger policy, abuse control, and state aid control - have been subject to a modernization process, which led to a focus on analysing the effects of individual cases and established a tendency towards deciding each case on its individual merits. These changes can be understood as a move away from rule-based competition policy towards a case-by-case approach. The case-by-case approach especially includes consensual arrangements, so-called 'deals' between the competition authority and business companies. Therefore, this paper will discuss the pros and cons of 'deals' as an instrument of (European) competition policy. The paper's central focus lies on the economic analysis of the advantages and disadvantages of using consensual arrangements as a relevant instrument of European competition policy. With respect to European competition policy, we conclude that we need to issue a note of caution. From an economic perspective, an expansion of consensual elements necessarily walks hand in hand with a continual weakening of the protection of competition. Consumer welfare will not benefit from expanding the role and importance of consensual arrangements as a means of European competition policy. --
    Keywords: European competition policy,consensual arrangements,antitrust settlements,merger control,deals,political economics
    JEL: L40 K21 D02 P16
    Date: 2012
  11. By: Budzinski, Oliver
    Abstract: -- This chapter discusses the independence of competition authorities and addresses the question whether an independent European competition authority would perform a better competition policy than the competition office of the European Commission, which is not independent but, instead, integral part of the European government. After summarizing the main general considerations, the chapter defines better competition policy simplifying as avoiding or solving three selected problems of contemporary European competition policy. It finds that two of these three problems are indeed likely to be not existent with an independent competition agency whereas the third problem is not likely to be better solvable by an independent body. Eventually, the chapter addresses a recent proposal to implement an independent Council of European Competition Advisors (CECA) that monitors and evaluates the performance of the European Commission's competition division.
    Date: 2012
  12. By: Ignat Stepanok
    Abstract: I present a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). Working in a monopolistically competitive environment, merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology and expertise. Following empirical evidence, I model greenfield investors as the more productive group relative to M&A firms, which are in turn more productive than exporters. The model has two symmetric countries and generates two-way flows of both M&A and greenfield FDI. Greater proximity to a market makes more firms choose greenfield FDI over M&A when investing there. Empirical evidence supports this result
    Keywords: Foreign direct investment, mergers, acquisitions, greenfield, firm heterogeneity
    JEL: F12 F23
    Date: 2012–11
  13. By: Sophie Lecostey (University of Caen Basse-Normandie - CREM UMR CNRS 6211)
    Abstract: It is often argued that firms need flexibility in order to better face demand uncertainty. As employment protection legislation (EPL) impacts the cost of volume adjustments available to firms, it constrains the volume flexibility that they can achieve. Weakening EPL might thus be thought of as a desirable policy, in particular for when firms are deciding where to locate. On the other hand, it is well known that in an oligopolistic setting, flexibility is not necessarily an advantage. The aim of this paper is to analyze the consequences that different EPL regimes may have on firms' location decisions. It shows that the country characterized by the strongest EPL can nevertheless attract firms under demand uncertainty (either in an agglomeration equilibrium, or in a dispersion equilibrium), and highlights the respective and combined roles played by trade costs and strategic interaction. Moreover, it shows that if firms compete in prices, they will never agglomerate in the country with the lowest EPL.
    Keywords: oligopoly, strategic behavior, commitment, flexibility, employment protection, trade costs, firms'location
    JEL: F12 F16 L13
    Date: 2012–11
  14. By: Baumann, Florian; Heine, Klaus
    Abstract: In this paper, we examine the link between innovative activity on the part of firms, the competitive pressure to introduce innovations and optimal damages awards. While innovative activity brings forth valuable new products for consumers, competitive pressure in the ensuing innovation race induces firms to launch innovations too early, thereby raising the likelihood of severe product risks above the optimal failure rate. Introducing innovations too early may call for the application of punitive damages instead of mere compensation of harm caused, in order to decelerate such welfare-reducing innovation races. The optimal tort system is accordingly highly dependent not only on the expected profits and the effectiveness of time delays with respect to reducing expected harm, but also on the competitive environment in which firms operate. --
    Keywords: competition,innovation,punitive damages,tort law
    JEL: K13 L13 O31
    Date: 2012
  15. By: Lindstädt, Nadine; Budzinski, Oliver
    Abstract: Newspapers have been experiencing declining circulation figures and diminishing advertising revenues for several years - both effects might pose a threat to the continuing existence of (print) newspapers. In an earlier paper, Lindstädt & Budzinski (2011) argued from a theoretical viewpoint that industryspecific patterns exist that determine substitution or complementation effects between internet and newspaper advertising. It was argued that retail advertising, in particular, may offer a niche for regional/local newspapers that can be expected to present a sustainable segment of complementarity along with the otherwise mostly substitutional advertising markets. This paper empirically tests these hypotheses by analyzing advertising spending data for newspaper and internet display advertising of 13 different industries in the U.S. from 2001-2010. We find evidence for some of the hypotheses. Whereas some industries showed clear substitution effects between internet display and newspaper advertising, the majority of our hypotheses could be only partly rejected: newspaper substitution effects could be observed, however, in the direction to traditional media platforms instead of internet display advertising. For two retail-sub-industries, the hypotheses could not be rejected for the analyzed period. --
    Keywords: media economics,advertising,complementation,substitution,newspapers,internet
    JEL: L82 A20 L13 M21
    Date: 2012
  16. By: Lindstädt, Nadine; Budzinski, Oliver
    Abstract: Newspapers have been experiencing declining circulation figures and advertising revenues for several years. Declining advertising figures, in particular, pose a threat to newspapers - this is especially severe in the U.S. where 73 per cent of newspapers' revenues are generated through advertising. Many companies have expanded their advertising expenditures to online. Consequently, there are concerns about online advertising substituting newspaper advertising - much the same as has long been feared with regard to readership. Both possible effects might pose a threat to the continuing existence of (print) newspapers. However, though the internet - compared to newspapers - offers a variety of advantages for advertising companies, substitution tendencies cannot be generalized. In particular, we argue that newspaper advertising offers great benefits for the retailing industry. Thus, we believe that retail advertising offers a niche for regional and local newspapers that can be expected to represent a sustainable segment of complementarity within the otherwise predominantly substitutional advertising markets. The paper substantiates this argument by applying the economic theory of advertising - specifically the differentiation between persuasive/complementary and informative advertising. The latter presents the reason for retailers to continue advertising in newspapers. We conclude that no complete substitution between newspaper and online advertising can be expected to take place in the foreseeable future. --
    Keywords: media economics,advertising,competition,complementation,substitution,online
    JEL: L82 A20 L13 M21
    Date: 2012
  17. By: Haucap, Justus; Heimeshoff, Ulrich; Jovanovic, Dragan
    Abstract: The German reserve power market was subject to important regulatory changes in recent years. A new market design was created by synchronization and interconnection of the four control areas. In this paper, we analyze whether or not the reforms led to lower prices for minute reserve power (MRP). In contrast to existing papers, we use a unique panel dataset to account for unobserved heterogeneity between the four German regional markets. Moreover, we control for endogeneity by using weather data as instruments for electricity spot market prices. We find that the reforms were jointly successful in decreasing MRP prices leading to substantial cost savings for the transmission system operators. --
    Keywords: Competition,Frequency Control,Minute Reserve Power,Regulation,Productive Efficiency,Welfare
    JEL: C33 C36 L59 L94
    Date: 2012

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