nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒02‒03
thirteen papers chosen by
Russell Pittman
US Government

  1. Google, Facebook, Amazon, eBay: Is the internet driving competition or market monopolization? By Haucap, Justus; Heimeshoff, Ulrich
  2. Dynamic Voluntary Advertising and Vertical Product Quality By Tenryu, Yohei; Kamei, Keita
  3. Competition in Posted Prices With Bargaining By David Gill; John Thanassoulis
  4. Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models By Hiroaki Ino; Toshihiro Matsumura
  5. Market power in the global economy: the exhaustion and protection of intellectual property By Kamal Saggi
  6. Compulsory licensing, price controls, and access to patented foreign products By Eric Bond; Kamal Saggi
  7. Strategic Investments under Open Access: Theory and Evidence By Klumpp, Tilman; Su, Xuejuan
  8. Balancing Commercial and Non-Commercial Priorities of State-Owned Enterprises By Hans Christiansen
  9. The free-rider problem and the optimal duration of research joint ventures: theory and evidence from the Eureka program By Kaz Miyagiwa; Aminata Sissoko
  10. Cable Regulation in the Internet Era By Crawford, Gregory S.
  11. Intermodal competition on some routes in transportation networks: The case of inter urban buses and railways By Bataille, Marc; Steinmetz, Alexander
  12. The Impact of Liberalization on the Production of Electricity in Japan By Miyuki Taniguchi
  13. Empirical Evidence on Relationships between Ex Ante Innovation Pursuit and Post-M&A Performance in the Vietnamese M&A Industry, 2005-2012 By Quan Hoang Vuong; Nancy K. Napier; Donaldine E. Samson; Hong Kong Nguyen

  1. By: Haucap, Justus; Heimeshoff, Ulrich
    Abstract: This paper discusses the general characteristics of online markets from a competition theory perspective and the implications for competition policy. Three important Internet markets are analyzed in more detail: search engines, online auction platforms, and social networks. Given the high level of market concentration and the development of competition over time, we use our theoretical insights to examine whether leading Internet platforms have non-temporary market power. Based on this analysis we answer the question whether any specific market regulation beyond general competition law rules is warranted in these three online markets. --
    Keywords: two-sided markets,online markets,digital economy,antitrust,e-commerce
    JEL: L12 L41 L81 L82 L86
    Date: 2013
  2. By: Tenryu, Yohei; Kamei, Keita
    Abstract: We investigate the dynamic relationship between advertising and product quality under duopolistic competition. By using a simplified vertical product differentiation model with voluntary advertising, we show that the firm with larger market share has a larger advertising share and that there is a positive relationship between the difference in product quality and the number of customers in an industry.
    Keywords: Advertising; product quality; differential games; duopoly
    JEL: L13 C72
    Date: 2012–12–01
  3. By: David Gill; John Thanassoulis
    Abstract: In this paper we study price competition between firms when some consumers attempt tobargain while others buy at the public list or posted prices. Even though bargainers succeed innegotiating discounts off the list prices, their presence dampens competitive pressure in the marketby reducing the incentive to undercut a rival’s list price, thus raising all prices and increasingprofits. Welfare falls because of the uncertainty in the bargaining process, which generates somemisallocation of products to consumers. We also find that the bargainers facilitate collusion byreducing the market share that can be gained from a deviation.
    Keywords: Posted prices, list prices, collusion, bargaining, negotiation, haggling, discounts, outside option, price takers, Hotelling line
    JEL: C78 D43 L13
    Date: 2013–01–14
  4. By: Hiroaki Ino (School of Economics, Kwansei Gakuin University); Toshihiro Matsumura (Institute of Social Science, the University of Tokyo)
    Abstract: We investigate a Stackelberg oligopoly model in which m leaders and N-m followers compete. We find an asymmetric welfare implication of the Stackelberg model. Introducing a small number of leaders into the Cournot model can reduce welfare. However, introducing a small number of followers into the Cournot model always improves welfare. The key result behind this asymmetry is contrasting limit results in the cases where m ! 0 and m ! N. We also discuss the optimal number of leaders and the integer constraint for the number of the firms.
    Keywords: multiple leaders, Stackelberg, Cournot, limit result, integer constraint, convex cost
    JEL: L13 L40
    Date: 2013–01
  5. By: Kamal Saggi (Department of Economics, Vanderbilt University)
    Abstract: We develop a North-South model in which a firm that enjoys monopoly status in the North (by virtue of a patent or a trademark) has the incentive to price discriminate internationally because Northern consumers value its product more than Southern ones. While North's policy regarding the territorial exhaustion of intellectual property rights (IPR) determines whether the firm can exercise market power across regions, Southern policy regarding the protection of IPR determines the firm's monopoly power within the South. In equilibrium, each region's policy takes into account the firm's pricing strategy, its incentive to export, and the other region's policy stance. Major results are: (i) the North is more likely to choose international exhaustion if the South protects IPR whereas the South is more willing to offer such protection if the North implements national exhaustion; (ii) the firm values IPR protection less than the freedom to price discriminate internationally if and only if its quality advantage over Southern imitators exceeds a certain threshold; and (iii) requiring the South to protect IPR increases global welfare iff such protection is necessary for inducing the firm to export to the South.
    Keywords: Exhaustion of IPRs, Imitation, Market power, TRIPS, Welfare
    JEL: D6
    Date: 2012–12–06
  6. By: Eric Bond (Department of Economics, Vanderbilt University); Kamal Saggi (Department of Economics, Vanderbilt University)
    Abstract: Motivated by existing multilateral rules regarding intellectual property, we develop a North-South model to highlight the dual roles price controls and compulsory licensing play in determining Southern access to a patented Northern product. The Northern patent-holder chooses whether and how to work its patent in the South (either via entry or voluntarily licensing) while the South determines the price control and whether to issue a compulsory license. The threat of compulsory licensing benefits the South and also increases global welfare when the North-South technology gap is significant. The price control and compulsory licensing are complementary instruments from the Southern perspective.
    Keywords: Patented Goods, Compulsory Licensing, Price Controls, Quality, Welfare
    JEL: F0
    Date: 2012–12–07
  7. By: Klumpp, Tilman (University of Alberta, Department of Economics); Su, Xuejuan (University of Alberta, Department of Economics)
    Abstract: We examine the incentives of access-regulated firms to invest in infrastructure facilities they must share with competitors. The non-strategic incentives imply that investment depends positively on the market size. The strategic incentives imply that investment also depends on market composition, namely, the market shares of the facility owner and its competitors. Using a dataset of regulated electric utilities in the United States, we find evidence that transmission investments are indeed made strategically. Ceteris paribus, utilities are less likely to invest, and investment levels are lower, when competitors occupy a larger share of the market.
    Keywords: infrastructure investment; network industries; open access; access regulation; electricity wholesale market
    JEL: D21 D22 D43 K23 L43 L94
    Date: 2013–01–01
  8. By: Hans Christiansen
    Abstract: The overarching question for the government owners of state-owned enterprises (SOEs) is why these companies need to be owned by the state. The OECD Guidelines on Corporate Governance of State-Owned Enterprises provides a “blueprint” for the corporatisation and commercialisation of such enterprises, but it may be assumed that the reason for continued state ownership is that they are expected to act differently from private companies. A relatively clear case occurs when SOEs are established with the purpose of pursuing mostly non-commercial activities. In many cases, their activities might otherwise be carried out by government institutions; the SOE incorporation has been chosen mostly on efficiency grounds.<P>A number of other rationales for public ownership of enterprises have been offered, including: (i) monopolies in sectors where competition and market regulation is not deemed feasible or efficient; (ii) market incumbency, for instance in sectors where competition has been introduced but a state-owned operator remains responsible for public service obligations; (iii) imperfect contracts, where those public service obligations that SOEs are charged with are too complex or malleable to be laid down in service contracts; (iv) industrial policy or development strategies, where SOEs are being used to overcome obstacles to growth or correct market imperfections...
    Keywords: corporate governance, corporate social responsibility, state-owned enterprises
    JEL: G3 G34
    Date: 2013–01–18
  9. By: Kaz Miyagiwa (Department of Economics, Florida International University); Aminata Sissoko (Universite catholique de Louvain)
    Abstract: A research joint venture (RJV) faces a serious free-rider problem because its participants¡¯ contributions are mostly unobservable. We first present a model that shows that a RJV solves this problem by pre-committing to its termination date. Our analysis shows that there is an optimal termination date or duration, which increases with the value of the innovation per member and decreases with the R&D flow cost per member. Utilizing data from the European Eureka program, we then examine the factors determining the durations of Eureka RJVs. The empirical results support our hypotheses from the theoretical model.
    Keywords: research joint venture (RJV), free-rider problem, duration, innovation, Eureka projects
    JEL: L1 L2
    Date: 2013–01
  10. By: Crawford, Gregory S.
    Abstract: The market for multi-channel video programming has undergone considerable change in the last 15 years. Direct-Broadcast Satellite service, spurred by 1999 legislation that leveled the playing field with cable television systems, has grown from 3% to 33% of the U.S. MVPD (cable, satellite, and telco video) market. Telephone operators have entered in some parts of the US and online video distributors are a growing source of television viewing. This chapter considers the merits of cable television regulation in light of these developments. It surveys the dismal empirical record on the e.ects of price regulation in cable and the more encouraging but incomplete evidence on the benefits of satellite and telco competition. It concludes with a consideration of four open issues in cable markets: horizontal concentration and vertical integration in the programming market, bundling by both cable systems and programmers, online video distribution, and temporary programming blackouts from failed carriage negotiations for both broadcast and cable programming. While the distribution market is clearly now more competitive, concerns in each of these areas remain. JEL classification: L50 ; L43 ; L41 ; L42
    Date: 2013
  11. By: Bataille, Marc; Steinmetz, Alexander
    Abstract: This paper analyzes the effect of inter urban buses competing on a few routes against trains within an established railway network. In line with expectations, we show that this can lead to unprofitable train service on these routes. However, within an established railway network with every track being profitable, competition on just some tracks can result in a collapse of the entire network. External effects of individual routes on the railway network are fundamental for the profitability of the network. Hence, weakening these network effects might be crucial. As a result, efficient intermodal competition on some routes might cause the abandoning of other routes that are not facing any competition. This effect has to be taken into account by political actors when liberalization of inter urban bus travel is considered. --
    Keywords: Transportation,intermodal competition,network effects
    JEL: K2 L1 L5 R4
    Date: 2013
  12. By: Miyuki Taniguchi (Graduate School of Economics, Keio University)
    Abstract: This study aims to measure the impact of liberalization on the efficiency of electricity production in Japan, and to examine whether or not economies of scope exist between electricity generation and transmission. Since 1995, liberalization of the electricity market in Japan has been phased in and regulations on entry have been relaxed three times. One motivation for these regulatory changes has been to improve the efficiency of electricity production by introducing competition. Using a panel data set on the nine main power companies in Japan over the period 1970-2010, fixed-effects and stochastic frontier estimates of the cost function are obtained and compared. Estimates of the cost function show that liberalization has improved cost efficiency. Economies of scope are found to exist for all firms.
    Date: 2013–01
  13. By: Quan Hoang Vuong; Nancy K. Napier; Donaldine E. Samson; Hong Kong Nguyen
    Abstract: This research aims to communicate new results of empirical investigations to learn about the relationship between determination of controlling an acquired firm’s capital, assets and brand versus its capability of innovation and ex post performance of the rising Vietnamese M&A industry in the 2005-2012 period. The analysis employs a categorical data sample, consisting of 212 M&A cases reported by various information sources, and performs a number of logistic regressions with significant results as follows. Firstly, the overall relationship between pre-M&A pursuit’s determination on acquiring resources and performance of the post-M&A performance is found significant. There exist profound effects of a ‘size matters’ strategy in M&A ex post performance. When there is an overwhelming ‘resources acquiring’ strategy, the innovation factor’s explanatory power becomes negligible. Secondly, for negative performance of post-M&A operations, the emphasis on both capital base and asset size, and the brand value at the time of the M&A pursuit is the major explanation in the post-M&A period. So does the absence of innovation as a goal in the pre-M&A period. These two insights together are useful in careful M&A planning. Lastly, expensive pre-M&A expenditures tend to adversely affect the post-M&A performance. As a general conclusion, this study shows that innovation can be an important factor to pursue in M&A transitions, together with the need to emphasize and find capable and willing human capital, rather than a capital base (equity or debt) and existing values of the acquired brands.
    Keywords: Mergers and Acquisitions; Innovation; Firm Performance; Economic Transition; Human Capital; Financial Markets; Vietnam
    JEL: L25 O10 O30 P31 P34
    Date: 2013–01–28

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