nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒01‒12
thirteen papers chosen by
Russell Pittman
US Government

  1. Beyond price discrimination: welfare under differential pricing when costs also differ By Chen, Yongmin; Schwartz, Marius
  2. The Ambivalence of Two-Part Tariffs for Bottleneck Access By Steffen Hoernig; Ingo Vogelsang
  3. Forward trading and collusion of firms in volatile markets By Aichele, Markus F.
  4. Partial Public Ownership and Managerial Incentives By Jovanovic, Dragan
  5. Information Disclosure in Dynamic Buyer-Determined Procurement Auctions: An Empirical Study By Stoll, Sebastian; Zöttl, Gregor
  6. Multi-dimensional auctions under information asymmetry for costs and qualities By Papakonstantinou, A.; Bogetoft, P.
  7. Cross-Border M&A and Innovative Activity: Firm-Level Evidence By Stiebale, Joel
  8. Exploration for Nonrenewable Resources in a Dynamic Oligopoly: An Arrovian Result By L. Lambertini
  9. Determining disruptive innovation potential of multi-sided platforms: case of digital books By Muravskii, D. V.; Yablonsky, S. A.
  10. Target Advertising and Market Transparency By Stühmeier, Torben
  11. Real-time Pricing in Power Markets: Who Gains? By Boom, Anette; Schwenen, Sebastian
  12. Welfare Analysis of Regulating Mobile Termination Rates in the UK with an Application to the Orange/T-Mobile Merger By David Harbord; Steffen Hoernig
  13. Regulation, Imperfect Competition, and the U.S. Abortion Market By Andrew Beauchamp

  1. By: Chen, Yongmin; Schwartz, Marius
    Abstract: We extend the analysis of monopoly third-degree price discrimination to the empirically important case where marginal costs also differ between markets. Differential pricing then reallocates output to the lower-cost markets, hence welfare can increase even if total output does not, unlike under pure price discrimination. To induce output reallocation the firm varies its prices but---again, unlike under pure price discrimination---with no upward bias in the average price. Due to this price dispersion, differential pricing motivated solely by cost differences will increase consumer surplus (and total welfare) for a broad class of demand functions. We also provide sufficient conditions for beneficial differential pricing in the hybrid case where both demand elasticities and marginal costs differ.
    Keywords: price discrimination; differential pricing; price dispersion; add-on pricing
    JEL: D4 L1
    Date: 2012–12–23
  2. By: Steffen Hoernig; Ingo Vogelsang
    Abstract: Two-part tariffs, when used at the retail level, increase efficiency by lowering the price of marginal units. The same potential for higher efficiency exists for two-part tariffs at wholesale level for a given market structure, but the fixed part of the wholesale tariff can negatively affect the latter. In a simulated competition model of next-generation telecommunications access networks that has been calibrated with engineering cost data, we show that the latter effects strongly outweigh the former. That is, substituting a cost-based linear wholesale access tariff with revenue-equivalent two-part tariffs reduces the number of access seekers and therefore leads to higher prices and lower welfare and consumer surplus. JEL codes:
    Date: 2012
  3. By: Aichele, Markus F.
    Abstract: Assuming deterministic demand Liski and Montero (2006) show that forward trading is able to facilitate collusion. We present a more concise model incorporating the main reason for forward trading: Uncertainty. In general, fl uctuations make collusion harder to sustain (Rotemberg and Saloner, 1986). However, using forward contracts, firms are able to decrease the incentives to deviate from a collusive agreement even in very volatile markets. This makes collusive strategies more sustainable and decreases social welfare. --
    JEL: L40 D43 K21
    Date: 2012
  4. By: Jovanovic, Dragan
    Abstract: We analyze the impact of partial public ownership (PPO) on managerial incentives. A novelty of the paper is that it explicitly considers competition in the product market. We find that PPO negatively affects managerial incentives when all firms are partially owned by the government. When partially public firms compete with private firms, the effects on managerial incentives crucially depend on the degree of competitive pressure. Thereby, PPO induces either partially public firms or their private competitors to offer stronger managerial incentives. This result is essentially confirmed even if the government's primary concern is consumer protection rather than social welfare. --
    JEL: D82 H32 L13
    Date: 2012
  5. By: Stoll, Sebastian; Zöttl, Gregor
    Abstract: The outcome of non-binding reverse auctions critically depends on how information is distributed during the bidding process. We use data from a large European procurement platform to study the impact of different information structures, specifically the availability of quality information to the bidders, on buyers welfare and platform turnovers. First we show that on the procurement platform considered bidders indeed are aware of their rivals characteristics and the buyers preferences over those non-price characteristics. In a counterfactual analysis we then analyze the reduction of non-price information available to the bidders. As we find, platform turnovers would decrease from around 10 million euros to around 7 million euros and the buyers welfare would increase by the monetary equivalent of around 2.7 million euros. --
    JEL: D44 D82 L11
    Date: 2012
  6. By: Papakonstantinou, A.; Bogetoft, P.
    Abstract: This paper discusses the design of a novel multi-dimensional mechanism which allows a principal to procure a single project or an item from multiple suppliers through a two-step payment. The suppliers are capable of producing different qualities at costs which cannot exceed a certain value and the mechanism balances between the costs faced by the suppliers and the benefit the principal achieves from higher qualities. Iniatially, the principal implements a standard second score auction and allocates the project to a single supplier based its reported cost and quality, while then it elicits truthful reporting of the quality by issuing a symmetric secondary payment after observing the winner’s production. We then provide an alternate mechanism in which the principal issues an asymmetric secondary payment which rewards agents for producing higher qualities, while it penalises them for producing lower qualities than they reported. We prove that for both mechanisms truthful revelation of costs and qualities is a dominant strategy (weakly for costs) and that they are immune to combined misreporting of both qualities and costs. We also show that the mechanisms are individually rational, and that the optimal payments received by the winners of the auctions are equal to the payment issued by the standard second score auction.
    Keywords: multi-dimensional auctions; procurement; contract theory; auction theory
    JEL: D86 D82
    Date: 2012
  7. By: Stiebale, Joel
    Abstract: This paper provides empirical evidence on the relationship between cross-border mergers and acquisitions (M&A) and innovation. For the empirical analysis a unique firm-level data set is constructed that combines balance sheet data and an M&A database with information on patent applications. Within three years after a cross-border M&A, patent applications filed by the merged entity increase by more than 30%. Splitting patent applications by the inventors country it is found that the positive association with post-merger patenting is mainly driven by patents invented in the countries of the acquirers headquarter and its previous subsidiaries. In contrast, there is on average a decrease in patent applications invented in the targets country of more than 60%. Accounting for endogeneity of international acquisitions by estimating dynamic count data models and applying instrumental variable techniques, the results indicate that part of this correlation stems from a causal effect. --
    JEL: D22 F23 G34
    Date: 2012
  8. By: L. Lambertini
    Abstract: I investigate two versions of a differential Cournot oligopoly game with nonrenewable resource exploitation, in which each firm may either exploit its own private pool or exploit a common pool jointly with the rivals. Firms use a deterministic technology to invest in exploration activities. In both models, there emerges that (i) the individual exploration effort is higher when each firms has exclusive rights on a pool of its own, and (ii) depending on the assumptions on technology and demand, the aggregate exploration effort is either constant or increasing in the number of firms.
    JEL: C73 L13 Q30
    Date: 2013–01
  9. By: Muravskii, D. V.; Yablonsky, S. A.
    Abstract: In this work, disruptive innovation theory is applied to studying multi-sided platforms (MSPs). It is argued that a successful MSP is one that is capable of making products, which are likely to disrupt the current market. The authors develop a mechanism by which it is possible to determine the disruptive potential of an innovation. Its application is then demonstrated on the case of E-publishing and digital books. Based on the study, we suggest that determining disruptive potential should be a key strategic question, when creating and managing MSPs.
    Keywords: Multi-sided platforms, Disruptive innovations, Innovation potential, E-publishing, Digital books,
    Date: 2012
  10. By: Stühmeier, Torben
    Abstract: This paper examines the effects of increased transparency over online news sources, e.g. due to news aggregators, on online news outlets and the advertising industry. The role of news aggregators is controversially discussed, where the discussion widely points on user side effect. The present paper widens the discussion on the advertising side and shows that aggregators can help to better target advertising messages to a more homogenous group of users and, in turn, may both benefit advertisers and news outlets. --
    JEL: L22 L82 L86
    Date: 2012
  11. By: Boom, Anette; Schwenen, Sebastian
    Abstract: We examine welfare effects of real-time pricing in electricity markets. Before stochastic energy demand is known, competitive retailers contract with final consumers who exogenously do not have real-time meters. After demand is realized, two electricity generators compete in a uniform price auction to satisfy demand from retailers acting on behalf of subscribed customers and from consumers with real-time meters. Increasing the number of consumers on real-time pricing does not always increase welfare since risk-averse consumers dislike uncertain and high prices arising through market power. In the Bertrand case, welfare is the same with all or no consumers on smart meters. --
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2012
  12. By: David Harbord; Steffen Hoernig
    Abstract: We present a calibrated model of the UK mobile telephony market with four mobile networks; calls to and from the fixed network; network-based price discrimination; and call externalities. Our results show that reducing mobile termination rates broadly in line with the recent European Commission Recommendation to either "pure long-run incremental cost"; reciprocal termination charges with fixed networks; or "Bill & Keep" (i.e. zero termination rates), increases social welfare, consumer surplus and networks' profits. Depending on the strength of call externalities, social welfare may increase by as much as £ 990 million to £ 4.5 billion per year, with Bill & Keep leading to the highest increase in welfare. We also apply the model to estimate the welfare effects of the 2010 merger between Orange and T-Mobile under different scenarios concerning MTRs, and predict that consumer surplus decreases strongly.
    Keywords: telecommunications, regulation, mobile termination rates, network effects, welfare, calibration; telecommunications, regulation, mobile termination rates, network effects, welfare, calibration JEL codes: D43, L13, L51, L96
    Date: 2012
  13. By: Andrew Beauchamp (Boston College)
    Abstract: The market for abortion in the U.S. has become increasingly concentrated in recent years and many states have tightened abortion regulations aimed at providers. Using unique data on abortion providers I estimate a dynamic model of entry, exit and service provision which captures the effect of regulation on provider behavior. High fixed costs explain the growth of large clinics and estimates show regulation increased entry costs for small providers. A simulation removing all regulations increases entry by smaller providers into incumbent-markets: competition increases as does the number of abortions. Targeted entry subsidies, however, increase access while only slightly increase abortion.
    Keywords: abortion, regulation
    JEL: J13 L11
    Date: 2012–08–17

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