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on Industrial Competition |
| By: | Richter, Jan (Energiewirtschaftliches Institut an der Universitaet zu Koeln) |
| Abstract: | A Cournot oligopoly in which firms face incomplete information with respect to production capacities is studied. For the case where the firms’ capacities are stochastically independent, the functional form of equilibrium strategies is derived. If inverse demand is concave, a unique symmetric equilibrium exists, and if demand is linear, then every equilibrium is symmetric. In the case of duopoly, the impact on social welfare when firms commit ex-ante on exchanging information is analyzed. Sharing information increases expected output and social welfare in a large class of models. If the demand intercept is sufficiently large, sharing information increases producer surplus and decreases consumer surplus (and vice versa). |
| Keywords: | Oligopoly; Incomplete Information; Cournot; Capacity Constraints; Information Sharing |
| JEL: | C72 D43 L13 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2013_001&r=com |
| By: | L. Lambertini; A. Palestini |
| Abstract: | We characterise the subgame perfect equilibrium of a differential market game with hyperbolic inverse demand where firms are quantity-setters and accumulate capacity over time à la Ramsey. The related Hamilton-Jacobi-Bellman are solved in closed form both on infinite and on finite horizon setups and the optimal strategies are determined. Then, we analyse the feasibility of horizontal mergers in both static and dynamic settings, and find appropriate conditions for their profitability under both circumstances. Static profitability of a merger implies dynamic profitability of the same merger. It appears that such a demand structure makes mergers more likely to occur than they would on the basis of the standard linear inverse demand. |
| JEL: | C73 L13 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp862&r=com |
| By: | Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer |
| Abstract: | We present a theory of context-dependent choice in which a consumer's attention is drawn to salient attributes of goods, such as quality or price. An attribute is salient for a good when it stands out among the good's attributes, relative to that attribute's average level in the choice set (or generally, the evoked set). Consumers attach disproportionately high weight to salient attributes and their choices are tilted toward goods with higher quality/price ratios. The model accounts for a variety of disparate evidence, including decoy e ects, context-dependent willingness to pay, and large shifts in demand in response to price shocks. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:463&r=com |
| By: | Pier-Andre Bouchard St-Amant (Queen s University) |
| Abstract: | I examine an environment where advertisers can "seed" word-of-mouth advertising by providing initial information about a product to specific users of a social network. Discussion over a social network generates spillover effects for firms when consumers can use the social network to inform each other about products. When a firm can exploit a social network's structure, it can increase its sales. However, when the network formation process is costly, firms free-ride on such costs at the expense of agents on the network. If agents can form coalitions, I show that they can recoup the value of this externality by charging a toll. When users actively modify the information, generating word-of-mouth advertising about a product provides a "social value." This social value stems from the discussions that agents have about the product, without any intervention. Since this process occurs regardless of the firm's actions, the firm cannot capture such valuation. The opinion leaders, or highly regarded agents on the network, play a key role in the formation of this social value. |
| Keywords: | Network, Word of Mouth, Externalities, Social Value |
| JEL: | D83 D85 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1301&r=com |
| By: | Schubert, Jens |
| Abstract: | This article reports the results of a laboratory experiment that examines the strategic effect of forward contracts on market power in infinitely repeated duopolies. Two competing effects motivate the experimental design. Allaz and Vila (1993) argue that forward markets act like additional competitors in that they increase quantity competition among firms. Conversely, Liski and Montero (2006) argue that forward contracting can facilitate collusive outcomes by enabling firms to soften competition. The experiment provides a first simultaneous test of these rival effects. Contrary to previous experimental studies, the results do not support the quantity-competition effect. Further, the findings provide evidence in support of the collusive hypothesis. |
| Keywords: | Cournot oligopoly; Collusion; Experiments; Forward markets; Electricity markets |
| JEL: | L13 Q49 D43 C91 C72 |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43768&r=com |
| By: | Elena Krasnokutskaya (Johns Hopkins University) |
| Abstract: | Multi-attribute auctions are widely used in industry procurement. Recently many Internet-based auction markets adopted multi-attribute structure. Multi-attribute auctions differ from standard low price auctions in that (a) a buyer chooses a winner on the basis of several indicators instead of taking only a price quote into account; (b) the exact weighting scheme that is used to determine the winner is not announced. Often the exact set of characteristics included in the score is left unspecified. These features create natural obstacles to the analysis of multi-attribute auctions since they imply that auctioneers' tastes as well as some of the relevant bidder characteristics may not be observed in the data. The structure of the market is such that exactly the same set of suppliers is considered by a negligibly small set of buyers. Therefore, in contrast to the markets with differentiated products we cannot assume that the probability of winning given the choice set is observed in the data. This paper shows that the multi-attribute auction model with unobserved bidder characteristic and unobserved auctioneer tastes is identified from the data. An important identification step deals with recovering bidders' quality rankings. This step essentially proposes an algorithm to recover bidder classification into unobserved groups. Once quality classification is constructed unobserved bidders tastes are recovered by exploiting the variation in a bidder probability of winning in response to price variation. We show that are model is capable of generating price variation required for identification. We apply our methodology to the data for on-line multi-attribute procurement auctions for services and estimate the distribution of buyers' tastes, sellers' unobserved characteristics and the distribution of sellers' private costs. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:283&r=com |
| By: | Pagnozzi, Marco; Saral, Krista Jabs |
| Abstract: | We analyze the effects of resale through bargaining in multi-object uniform-price auctions with asymmetric bidders. The possibility of resale affects bidders' strategies, and hence the allocation of the objects on sale and the seller's revenue. Our experimental design consists of four treatments: one without resale and three resale treatments that vary both the bargaining mechanism and the amount of information available in the resale market. As predicted by theory: (i) without resale, asymmetry among bidders reduces demand reduction; (ii) resale increases demand reduction by high-value bidders; (iii) low-value bidders speculate by bidding more aggressively with resale. Therefore, resale induces speculation and demand reduction which reduce auction efficiency. In contrast to what is usually argued, resale does not necessarily increase final efficiency and may not reduce the seller's revenue. Features of the resale market that tend to increase its efficiency also reduce the seller's revenue. |
| Keywords: | multi-object auctions; resale; asymmetric bidders; bargaining; economic experiments |
| JEL: | D44 C90 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43665&r=com |
| By: | Gorecki, Paul K.; Maxwell, Sarah |
| Abstract: | Despite 33 convictions of individuals and firms for criminal cartel offences in Ireland since 1996, there is only one reported judgment. The paper examines the Duffy judgment concerning a member of the Citroen motor vehicle cartel. The judgment provides some guidance on sentencing: cartels are pernicious and jail sentences are to be expected in future cases. However, no guidance is provided as to how the jail term for an individual will be determined or the fine for an individual or a firm. Despite the statement that cartels are pernicious, the fine levied on Duffy Motors was 1.3 per cent of the maximum fine under competition legislation and 1.1 per cent of the likely increase in profits due to firm's participation in the cartel. An alternative approach to sentencing is suggested that utilises a well developed methodology and is consistent with the view that cartels are pernicious, while at the same time leaving considerable judicial discretion in determining the ultimate sentence. |
| Keywords: | Ireland/Individuals/competition |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp443&r=com |
| By: | Bayo-Moriones, Alberto (University of Navarra); Galdon-Sanchez, Jose Enrique (Universidad Pública de Navarra); Gil, Ricard (Johns Hopkins University) |
| Abstract: | In this paper we empirically explore the 'make-or-buy' decisions of peripheral services in manufacturing plants using detailed information on a data set from a new plant-level survey from 926 plants distributed in all manufacturing industries in Spain. In particular, survey respondents are asked how their contracting practices of peripheral services had changed in the last three years. The answer to this question is informative of the changes in the importance of backward integration for each of the plants interviewed. Using other information provided in the survey, we relate reported changes in backward integration to changes in other relevant plant characteristics. We show that increases in outsourcing of services are positively correlated with increases in the plant's market share as well as increases in product market competition and product prices. These findings are robust to controlling for whether plants belong to single-plant or multi-plant firms. This result is consistent with the view that market size limits the degree of specialization at the plant level in the Spanish manufacturing industry. |
| Keywords: | make-or-buy, peripheral services, manufacturing, market share, competition, outsourcing |
| JEL: | L23 L22 L60 J29 J59 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7138&r=com |
| By: | Simbanegavi, Witness; Greenberg, Josh; Gwatidzo, Tendai |
| Abstract: | This paper employs the Panzar and Rosse (1987) and the Bresnahan models to determine the level of competition in the South African banking sector. This level of competition was tested during the period 1998 to 2008 for the Panzar and Rosse approach and from 1992 to 2008 for the Bresnahan model. We find evidence of monopolistic competition in the South African banking sector. Our fi ndings are consistent with those of Bikker et al (2012) for South Africa. |
| Keywords: | banking industry; competition; South Africa; Panzar-Rosse model; Bresnahan model |
| JEL: | L10 D40 C33 G21 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43627&r=com |