nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒03‒23
eighteen papers chosen by
Russell Pittman
US Government

  1. Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models By Hiroaki Ino; Toshihiro Matsumura
  2. Price setting in an innovative market By Adam Copeland; Adam Hale Shapiro
  3. The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products By Ryoma Kitamura; Tetsuya Shinkai
  4. Competing with asking prices By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  5. Customer Poaching with Retention Strategies By Rosa Branca Esteves
  6. Market Structure and Cost Pass-Through in Retail By Gee Hee Hong; Nicholas Li
  7. Interactions entre stratégies de promotion et fusions By Laurent Granier
  8. A Model of Patent Race When Firms Are Heterogeneous By Tetsugen Haruyama
  9. Effects of minimum bid increment in internet auctions: Evidence from a field experiment By Janne Tukiainen
  10. Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation By Audrey Boilley
  11. Determinants of Generic vs. Brand Drug Choice: Evidence from Population-wide Danish Data By Niels Skipper; Rune Vejlin
  12. Assurance maladie en Suisse : l'assurance supplémentaire nuit-elle à la concurrence sur l'assurance de base ? By Dormont , Brigitte; Geoffard, Pierre-Yves; Lamiraud, Karine
  13. Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark By Kaiser, Ulrich; Méndez, Susan J.; Rønde, Thomas; Ullrich, Hannes
  14. Differential market entry determinants for for-profit and nonprofit long-term care providers By Katsuyoshi Nakazawa
  15. Promotions prédatrice et coopérative sur le marché des médicaments By Laurent Granier; Sébastien Trinquard
  16. Green Technologies and the Protracted End to the Age of Oil: A strategic analysis By Niko Jaakkola
  17. Broadband Networks and Open Access By OECD
  18. Product and Labor Market Imperfections and Scale Economies: Micro-Evidence on France, Japan and the Netherlands By Dobbelaere, Sabien; Kiyota, Kozo; Mairesse, Jacques

  1. 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
  2. By: Adam Copeland; Adam Hale Shapiro
    Abstract: We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. In particular, we analyze how, in light of these forces, the downstream firm sets the price of the product over its life cycle. We focus on personal computers (PCs) and introduce two novel data sets that describe prices and sales in the industry. Our main result is that a vintage-capital model that combines a competitive market structure with a rapid rate of innovation is well able to explain the observed paths of prices, as well as sales and consumer income, over a typical PC’s product cycle. The analysis implies that rapid price declines are not caused by upstream innovation alone, but rather by the combination of upstream innovation and a competitive environment.
    Keywords: Technological innovations ; Computer industry ; Prices
    Date: 2013
  3. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University)
    Abstract: In this paper, we consider and propose a new duopoly model of cannibalization in which firms produce and sell two vertically differentiated products in the same market. We show that each firm produces the high-quality good more (less) than the low-quality good if the upper limit of taste of consumers is sufficiently high(not so high). Further, we find that the increase in the difference in quality between two goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. Furthermore, we conduct a welfare analysis.
    Keywords: Multiproduct firm, Duopoly, Cannibalization
    JEL: D21 D43 L13 L15
    Date: 2013–02
  4. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller is willing to take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers’ revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Keywords: Auctions ; Competition ; Markets
    Date: 2013
  5. By: Rosa Branca Esteves (Universidade do Minho - NIPE)
    Abstract: This paper is a first step in investigating the competitive and welfare effects of behaviourbased price discrimination (BBPD) in markets where firms have information to employ retention strategies as an attempt to raise barriers to switching. We focus on retention activity in the form of a discount offered to a consumer expressing an intention to switch. When save activity is allowed forward looking firms anticipate the effect of first period market share on second period profits and so they price more aggressively in the first-period. Thus, first period equilibrium price with BBPD and save activity is below its non-discrimination counterpart. This contrasts with first period price above the non-discrimination level if BBPD is used and save activity is forbidden. Regarding second period prices, retention discounts increase the price offered to those consumers who do not signal am intention to switch. The reverse happens to those consumer who decide to switch after being exposed to retention offers. As in other models where consumers have stable exogenous brand preferences, the instrument of behaviour based price discrimination is bad for profits and welfare but good for consumers. However, BBPD with the additional tool of retention activity boosts consumer surplus and overall welfare but decreases industry profit.
    Date: 2013
  6. By: Gee Hee Hong; Nicholas Li
    Abstract: We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that accounting for the interaction of vertical and horizontal structure is important in understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.
    Keywords: Inflation and prices, Transmission of monetary policy
    JEL: E30 E31 L11 L16
    Date: 2013
  7. By: Laurent Granier (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: De nombreuses études analysent les phénomènes de fusion en prenant en compte les variables stratégiques des firmes telles que les prix ou les quantités de vente. Or, peu d'études font le lien entre les stratégies de promotion et les fusions. Pourtant, les dépenses mondiales de promotion se porteront à 525 milliards de dollars en 2013 (Zenithoptimedia, 2012). Ceci nous incite à établir un modèle théorique étudiant l'influence de la promotion sur les incitations à fusionner. A l'instar de Friedman (1983a et 1983b), nous introduisons deux types de promotions, l'une étant prédatrice et l'autre coopérative. Nous trouvons que les incitations à fusionner différent de celles existantes dans les modèles de concurrence en prix (Brito, 2003).
    Keywords: fusions et acquisitions; promotion coopérative; promotion prédatrice
    Date: 2013–03–15
  8. By: Tetsugen Haruyama (Graduate School of Economics, Kobe University)
    Date: 2013–03
  9. By: Janne Tukiainen
    Abstract: I study the role of minimum bid increments (MBI) in internet auctions using field experiment data. I sell identical gift cards while varying the MBI. Internet auctions have typically been viewed as second-price, implying truthful bidding. However, due to the presence of the MBI, equilibrium bidding behavior involves bid-shading. I test between truthful bidding and equilibrium bidding. Truthful bidding is rejected. Bidders conduct bid-shading in a pattern consistent with equilibrium bidding. I also report that the revenue maximizing level for the MBI is higher than zero and the eBay level is close to optimal. Moreover, a high MBI inefficiently limits entry.
    Keywords: Field experiment, internet auctions, minimum bid increment, revenue, strategic bidding
    JEL: D44 C93 C72 C52 L81
    Date: 2013–02–15
  10. By: Audrey Boilley (CRESE, Université de Franche-comté)
    Abstract: We compare duopoly competition with a regulated public monopoly in the health care insurance sector using the two-sided market approach. Health plans allow policyholders and physicians to interact. Policyholders have a preference for one of two health plans and value the diversity of physicians. Physicians value the number of policyholders because they are paid on a fee-for-service basis. This is a positive network externality. We find that the resulting Nash equilibria are explained by the two standard effects of product differentiation: the price competition effect and the market share effect, and by two opposing effects related to the network externality. We call these the positive earning effect and the negative spending effect. Overall the comparison between the two types of organizations shows that regulation is preferred when the physicians' market is not covered and competition is preferred when it is covered. But each time the choice is made at the expense of one type of agent.
    Keywords: Two-Sided Markets, Managed Care Competition, Network Effects, Product Differentiation, Hotelling, Public Policy
    JEL: C72 D21 D43 L11
    Date: 2013–03
  11. By: Niels Skipper (Department of Economics and Business, Aarhus University); Rune Vejlin (Department of Economics and Business, Aarhus University)
    Abstract: When prescription medications go off patent, vastly cheaper generic drugs usually enters the market. However, the original brand medication often maintains non-negligible market shares. This paper investigates whether demand for branded medications in post-patent markets is patient- or doctor driven. We use population-wide Danish register data including all prescriptions for seven blockbuster drugs from 1998-2008. At the outset, descriptive statistics suggest large variation in drug choice over doctors. Nonetheless, using a two-way fixed effects model we find that the primary determinants of brand drug use are unobserved patient characteristics and price effects, while observed and unobserved doctor characteristics in general explain only 0.7 % of the variation in drug choice. This is suggestive evidence that the doctors in the Danish setting with no incentives to push expensive brand drugs do indeed not do so. Our results also suggest that one should be careful when applying fixed effects in small samples.
    Keywords: Prescription drug demand, fixed effects, brand preferences
    JEL: I11 L65
    Date: 2013–03–14
  12. By: Dormont , Brigitte (Université Paris Dauphine, PSL); Geoffard, Pierre-Yves (Paris School of Economics (CNRS)); Lamiraud, Karine (ESSEC Business School)
    Abstract: Many countries have introduced competition in health insurance markets. Managed competition settings have been implemented in order to avoid risk selection problems. In Germany, the Netherlands, Switzerland and Israel citizens can choose between different providers for basic coverage. In this article, we focus on the specific case of Switzerland which implemented managed competition in basic health insurance markets in 1996. We study to what extent consumer choice for one’s basic health plan may interact with the decision to subscribe to supplementary insurance. The organization of social health insurance in France is currently very different from the Swiss system. However the question of regulating complementary health care insurance markets in France may be discussed in the middle/long run using the Swiss model. In Switzerland, competition in basic health insurance markets has not been effective so far. There is no evidence of premium convergence within cantons. Consumers have been reluctant to switch to less expensive funds. We investigate one possible barrier to switching behavior, namely the influence of supplementary insurance. We show that low switching rates are the result of the existence of two health insurance markets which are regulated differently: the basic health insurance market where risk selection is prohibited and the supplementary health insurance market where risk selection practices are allowed. We show that holding a supplementary contract reduces the probability of switching basic insurance provider for those with poor self-assessed health but has no effect on the switching behavior of enrollees in good/very good health. The efficient management of competition in the basic insurance market may suffer from a lack of adequate regulation in the supplementary market.
    Keywords: Concurrence en assurance maladie; mobilité des assurés; assurance de base; assurance supplémentaire
    JEL: D41 G22
    Date: 2013–02
  13. By: Kaiser, Ulrich (University of Zurich); Méndez, Susan J. (University of Zurich); Rønde, Thomas (Copenhagen Business School); Ullrich, Hannes (University of Zurich)
    Abstract: Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an "external" (based on a basket of prices in other countries) to an "internal" (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs – for which they have strong preferences – to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures.
    Keywords: pharmaceutical markets, regulation, co-payments, reference pricing, welfare effects
    JEL: I18 C23
    Date: 2013–02
  14. By: Katsuyoshi Nakazawa (University of Toyo)
    Abstract: This study considers market entry determinants for both for-profit and non-profit at-home longterm care providers in Japan. It examines market structure incentives and barriers to entry using a panel dataset of 48 Japanese municipalities for the 2003–2011 period. Estimation results show that forprofits and non-profits face different determinants of entry. Potential for-profit entrants are sensitive to profit considerations and therefore adapt to the market structure and clear barriers to entry. However, potential non-profits with preferential tax treatment and the constraint of non-distribution of profits enter disadvantaged municipalities. Both profits and non-profits have become integrated in Japanese at-home care markets.
    Keywords: Entry, For-profit, Non-profit, Long-term at-home care, SUR
    JEL: C33 L22 L33 R19
    Date: 2013
  15. By: Laurent Granier (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Sébastien Trinquard (UNOCAM - Union nationale des organismes d'assurance maladie complémentaire - UNOCAM)
    Abstract: Ce papier propose un modèle de différenciation horizontale afin d'analyser la concurrence en promotion sur le marché pharmaceutique. La promotion pharmaceutique cible à la fois le médecin et le patient. Néanmoins, la nature de ces stratégies diffère : la promotion orientée vers le consommateur (POC) élève la demande de marché et la promotion orientée vers le médecin (POM) augmente la part de marché. Dans un cadre théorique, nous obtenons un résultat principal. D'une part, la profitabilité de la POM s'élève avec les dépenses de POC du concurrent, et celle de la POC baisse avec les dépenses de POM de son concurrent.
    Keywords: promotion prédatrice; promotion coopérative; marché du médicament
    Date: 2013–03–15
  16. By: Niko Jaakkola
    Abstract: This paper considers competition between an oil exporter depleting and selling an exhaustible resource, and an oil importer able to gradually lower the cost of substitutes. R&D into clean fuels begins before the substitutes are competitive, in order to reduce overall development costs. The substitute constrains the oil exporter's market power: after an initial Hotelling-type stage, oil pricing becomes constrained by the ever-cheaper substitute technology. Suppy is thus non-monotonic, initially falling, then forced up by competition from substitute. Climate change slows down substitute development: rapid R&D forces the exporter to extract oil faster, aggravating near-term environmental impacts. If oil extraction becomes more expensive as supplies are depleted, the importer switches into clean fuels once these price oil out of the market; technological development will eventually be hastened to leave more of the oil locked underground. Novel numerical methods for solving PDEs are introduced into a differential game context.
    Keywords: exhaustible resources, oil, alternative fuels, limit pricing, climate change
    JEL: D42 O32 Q31 Q40 Q54
    Date: 2013
  17. By: OECD
    Abstract: This report examines “open access” policies and approaches in various contexts, including fixed and mobile access networks, backhaul and backbone networks, undersea cables and Internet exchange points (IXPs). It finds that open access arrangements share some common elements: they refer to wholesale access to network infrastructure or services that is provided effectively on fair and reasonable terms, for which there is some degree of transparency and non-discrimination.
    Date: 2013–03–04
  18. By: Dobbelaere, Sabien (VU University Amsterdam); Kiyota, Kozo (Yokohama National University); Mairesse, Jacques (CREST-INSEE)
    Abstract: Allowing for three labor market settings (perfect competition or right-to-manage bargaining, efficient bargaining and monopsony), this paper relies on an extension of Hall's econometric framework for estimating simultaneously price-cost margins and scale economies. Using an unbalanced panel of 17,653 firms over the period 1986-2001 in France, 8,725 firms over the period 1994-2006 in Japan and 7,828 firms over the period 1993-2008 in the Netherlands, we first apply two procedures to classify 30 comparable manufacturing industries in 6 distinct regimes that differ in terms of the type of competition prevailing in product and labor markets. For each of the three predominant regimes in each country, we then investigate industry differences in the estimated product and labor market imperfections and scale economies. We find important regime differences across the three countries and also observe differences in the levels of product and labor market imperfections and scale economies within regimes.
    Keywords: rent sharing, monopsony, price-cost mark-ups, production function, panel data
    JEL: C23 D21 J50 L13
    Date: 2013–02

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