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

  1. Paying not to sell By E. Bacchiega; O. Bonroy; R. Mabrouk
  2. Price setting with menu cost for multi-product firms By Fernando Alvarez; Francesco Lippi
  3. On the economics of labels : a review of the theoretical literature By Bonroy, O.; Constantatos, C.
  4. Experimentation in Two-Sided Markets By Peitz, Martin; Rady, Sven; Trepper, Piers
  5. Large buyers, preferential treatment and cartel stability By Manel Antelo; Lluis Bru
  6. Crime and punishment: When tougher antitrust enforcement leads to higher overcharge. By Jensen, Sissel; Kvaløy, Ola; Olsen, Trond E.; Sorgard, Lars
  7. Standard Essential Patents: who is really holding up (and when) ? By Vilen Lipatov, Gregor Langus, Damien Neven
  8. Threshold of Preference for Collusion and Interconnection Fees in Different Market Structures : the Tunisian Mobile Market Case By Sami Debbichi; Walid Hichri
  9. Cooperation Events, Ego-Network Characteristics and Firm Innovativeness – Empirical Evidence from the German Laser Industry By Muhamed Kudic; Katja Guhr
  10. Competition, Industrial structure and Economic Growth By J.W. Fedderke

  1. By: E. Bacchiega; O. Bonroy; R. Mabrouk
    Abstract: In this paper we show that, in the presence of buyer and seller power, a monopolist can enter into a costly contractual relationship with a low-quality supplier with the sole intention of improving its bargaining position relative to a high-quality supplier, without ever selling the good produced by that firm.
    JEL: L12 L13 L14
    Date: 2013–02
  2. By: Fernando Alvarez (University of Chicago); Francesco Lippi (University of Sassari and EIEF)
    Abstract: We model the decisions of a multi-product firm that faces a fixed “menu” cost; once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration increase with the number of products, they more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model.
    Date: 2013
  3. By: Bonroy, O.; Constantatos, C.
    Abstract: Are labels good or bad for consumers and firms? In this essay we analyze the label's nature as information revealing mechanism and explore the theoretical literature on labeling with respect to the following issues: i) the effects of labels on market structure, ii) the distortions due to the certification process, and iii) the level at which different agencies wish the label to be set at. For each issue, we highlight the key economic mechanisms, their impact on market equilibrium and how they affect all actors' payoffs. The latter gives rise to the political economy of labels, i.e., lobbying activities in favor of, or resisting the imposition of labels, and/or trying to infl uence its level. We conclude by identifying issues for further research.
    JEL: L15 L50
    Date: 2013
  4. By: Peitz, Martin; Rady, Sven; Trepper, Piers
    Abstract: We study optimal experimentation by a monopolistic platform in a two-sided mar- ket. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two sides are approximately symmetric. If the externality that one side exerts is sufficiently well known and weaker than the externality it experiences, the optimal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prices when the platform provider chooses quantities. While the optimal pol- icy does not admit closed-form representations in general, we identify special cases in which the undiscounted limit of the model can be solved in closed form.
    Keywords: Two-Sided Market , Network Effects , Monopoly Experimentation , Bayesian Learning , Optimal Control
    JEL: D42 D83 L12
    Date: 2013
  5. By: Manel Antelo (Departmento de Fundamentos da Análise Económica, Universidade de Santiago de Compostela); Lluis Bru (Department d'Economia de l'Empresa, Universitat de les Illes Baleares)
    Abstract: Bilateral deals for large clients or key account management (henceforth KAM) is traditionally justified in terms of the importance of a long-term association between a firm and such clients. However, in this paper we offer a different rationale for a seller to apply KAM to its large buyers. When facing large buyers, a firm can use KAM to deal with such buyers but not to small individual buyers in order to segment the market, charge higher prices to non-KAM buyers, and increase its profits. Paradoxically, the implementation of KAM by the seller makes it advantageous for customers to belong to a buyer group, thereby eliminating the instability that would otherwise plague the creation of the group. The formation of a buyer group thus ultimately depends on the pressure it puts upon the seller to resort to KAM to segment the market.
    Keywords: Buyer group, key account management, cartel stability
    JEL: L20 L21
    Date: 2013–01
  6. By: Jensen, Sissel (Dept. of Economics, Norwegian School of Economics and Business Administration); Kvaløy, Ola (University of Stavanger); Olsen, Trond E. (Dept. of Economics, Norwegian School of Economics and Business Administration); Sorgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: The economics of crime and punishment postulates that higher punishment leads to lower crime levels, or less severe crime. It is however hard to get empirical support for this intuitive relationship. This paper o¤ers a model that contributes to explain why this is the case. We show that if criminals can spend resources to reduce the probability of being detected, then a higher general punishment level can increase the crime level. In the context of antitrust enforcement, it is shown that competition authorities who attempt to …ght cartels by means of tougher sanctions for all o¤enders may actually lead cartels to increase their overcharge when leniency programs are in place.
    Keywords: antitrust enforcement; leniency programs; economics of crime.
    JEL: K21
    Date: 2013–02–18
  7. By: Vilen Lipatov, Gregor Langus, Damien Neven (Graduate Institute of International Studies)
    Abstract: This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a sufficiently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful), and when litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium.
    Keywords: standard essential patent, injunctions, hold up, reverse hold up
    JEL: K41 L49 O34
    Date: 2013–02–26
  8. By: Sami Debbichi (Unité de Recherche AEDD FSEGT, Campus universitaire El-MANAR 1060, TUNIS TUNISIE); Walid Hichri (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France ; Laboratoire de Recherche en Economie Quantitative du Développement (LAREQUAD) FSEGT, Campus universitaire El-MANAR 1060, TUNIS TUNISIE)
    Abstract: We present a Cournot model that compares the critical threshold of collusion in Duopoly and Oligopoly Markets where the actors are private, mixed or public. We assume that the incentive critical threshold for collusion depends on the interconnection fees. The different threshold values calculated in each Market structure are then estimated, using the OLS method, with variables related to the Tunisian market structures and prices. The Econometric estimation of the different threshold values is consistent with our theoretical results. Our findings can be used by the decision makers to control collusion, by acting on the level of interconnection fees for each market structure and by implementing the suitable market liberalization policies in this sector.
    Keywords: Interconnexion fees, Collusion, Market Structure, Private sector, Public Sctor, Tunisian Mobile Market
    JEL: L13 L51 L96
    Date: 2013
  9. By: Muhamed Kudic; Katja Guhr
    Abstract: We study how firm innovativeness is related to individual cooperation events and the structure and dynamics of firms’ ego-networks employing a unique panel dataset for the full population of 233 German laser source manufactures between 1990 and 2010. Firm innovativeness is measured by yearly patent applications as well as patent grants with a two year time-lag. Network measures are calculated on the basis of 570 knowledge-related publicly funded R&D alliances. Estimation results from a panel data count model with fixed effects are suggestive of direct innovation effects due to individual cooperation events, but only as long as structural ego-network characteristics are neglected. Innovativeness is robustly related to ego-network size and ego-network brokerage whereas ego-network density reveals some surprising results.
    Keywords: R&D cooperation, ego-networks, firm innovativeness
    JEL: L25 O32 D85
    Date: 2013–02
  10. By: J.W. Fedderke
    Abstract: This paper takes as its starting point established findings on industrial conduct as measured by pricing power in South African industry. The South African findings are contrasted with recent results derived from firm-level data from China and India. A stark contrast emerges between China, with low mark-ups of price over marginal cost of production, and South Africa and India with high mark-ups. Given the impact of pricing power on productivity growth, we show that lack of competitive pressure in the manufacturing sector, contributes one important explanation of why China has a relatively large, while South Africa and India have a relatively small manufacturing sector. We also provide an estimate of foregone employment opportunities due to the presence of pricing power has carried for South Africa. We provide a framework in terms of which the impact of success of potential policy intervention in the labour market can be assessed, given the findings on industrial structure. Returning to Chinese firm level data, we also examine whether there is a case to be made for differential policy treatment of established, new entrant, and struggling firms - and find that there is little evidence to support such a claim. For China we find that state intervention in the manufacturing sector has primarily served to suppress pricing power. We conclude with reflections on competitive pressures in other sectors of the economy, as well as final inferences on desirable policy interventions designed to stimulate growth and employment creation.
    Keywords: Competition, Industrial Structure, Economic Growth, South Africa, India, Industry
    Date: 2013

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