nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒04‒06
ten papers chosen by
Russell Pittman
US Government

  1. Strategic real options with stochastic volatility in a duopoly model By Huang, Bing; Cao, Jiling; Chung, Hyuck
  2. Does Easy Start-Up Formation Hamper Incumbents' R&D Investment? A Theoretical and Empirical Analysis By Colombo, Luca; Dawid, Herbert; Piva, Mariacristina; Vivarelli, Marco
  3. Network Structure Matters: Applications to R&D collaboration, collusion, and online communication networks. By KORKMAZ, Gizem
  4. Creating Attachment through Advertising: Loss Aversion and Pre–Purchase Information By Heiko Karle
  5. Price competition and reputation in credence goods markets: Experimental evidence By Wanda Mimra; Alexander Rasch; Christian Waibel
  6. Dynamic Effect of Low-Cost Entry on the Conduct Parameter: An Early-Stage Analysis of Southwest Airlines and America West Airlines By Hideki Murakami
  7. “Determinants of Broadband Access: Is Platform Competition always the Key Variable to Success?” By Xavier Fageda; Rafael Rubio; Montserrat Termes
  8. How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization By Suhui Li; Avi Dor
  9. Service deregulation, competition and the performance of French and Italian firms By Francesco Daveri; Rèmy Lecat; Maria Laura Parisi
  10. Does industry concentration matter for pollution haven effects? By Svetlana Batrakova

  1. By: Huang, Bing; Cao, Jiling; Chung, Hyuck
    Abstract: The investment-timing problem has been considered by many authors under the assumption that the instantaneous volatility of the demand shock is constant. Recently, Ting et al. [9] carried out an asymptotic approach in a monopoly model by letting the volatility parameter follow a stochastic process. In this paper, we consider a strategic game in which two firms compete for a new market under an uncertain demand, and extend the analysis of Ting et al. to duopoly models under different strategic game structures. In particular, we investigate how the additional uncertainty in the volatility affects the investment thresholds and payoffs of players. Several numerical examples and comparison of the results are provided to confirm our analysis.
    Keywords: Asymptotic solution, Real option, Stochastic duopoly game, Stochastic volatility.
    JEL: C61 C73
    Date: 2013–03–18
  2. By: Colombo, Luca (Università Cattolica del Sacro Cuore); Dawid, Herbert (University of Bielefeld); Piva, Mariacristina (Università Cattolica del Sacro Cuore); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: This paper investigates, both theoretically and empirically, the implications that complementary assets needed for the formation of start-ups – proxied by the ease of access to financial resources – have on the innovative efforts of incumbent firms. In particular, we develop a theoretical model, highlighting a strategic incentive effect by which the innovative efforts of incumbent firms are decreasing in the availability of the complementary assets needed for the creation of a start- up. The empirical relevance of this effect is investigated by using firm level data drawn from the third Italian Community Innovation Survey covering the period 1998-2000. The results of our empirical analysis support our theory-based insights.
    Keywords: R&D, innovation, start-up, complementary assets
    JEL: O31 L26
    Date: 2013–03
  3. By: KORKMAZ, Gizem
    Abstract: This thesis studies the interplay between network structure and strategic decision making given the backdrop of economic and social networks. The first two chapters study how firms’ incentives to invest in costly R&D are affected by the pattern of R&D collaborations in a certain industry. These two chapters propose formal models that build upon and enrich the previous literature, which abstracted from two crucial dimensions of the problem. The first chapter introduces the possibility that inter-firm links aiming at R&D collaboration could facilitate market collusion. The second chapter incorporates network-based externalities resulting from informational flows and congestion that are associated with R&D collaborations. These chapters suggest that the benefits of possible inter-firm collaboration must be reevaluated from the point of their welfare consequences. The last chapter aims to improve our understanding of how collective action spreads in large and complex networks in which agents use online social networks as communication tools. To this end, we develop a dynamic game-theoretic model of the “on-set of revolutions” that focuses on the local spread of information in order to study how network structure, knowledge and information-sharing interact in facilitating coordination through online communication networks.
    Date: 2012
  4. By: Heiko Karle (ETH Zurich, Switzerland)
    Abstract: Complementing the existing literature on anchoring effects and loss aversion, we analyze how firms can influence loss–averse consumers’ willingness to pay by product information in the form of informative advertising rather than by prices. We find that consumers’ willingness to pay is greatest when only partial information about the product—i.e. only a fraction of product attributes—is disclosed, and that partial information disclosure is the optimal mode of advertising for a monopolistic firm. This causes the consumers’ realized product valuation to diverge from their intrinsic product valuation, which leads to a reduction of consumer surplus. Consequently, transparency policies can help to protect consumers.
    Keywords: Advertising; Loss Aversion; Information Disclosure.
    JEL: D83 L41 M37
    Date: 2013–03
  5. By: Wanda Mimra (ETH Zurich, Switzerland); Alexander Rasch (Universität zu Köln); Christian Waibel (ETH Zurich, Switzerland)
    Abstract: In credence goods markets, experts have better information about the appropriate quality of treatment than their customers. As experts provide both diagnosis and treatment, this leaves scope for fraud. We experimentally investigate how intensity of price competition and the level of customer information about past expert behavior influence an expert’s incentive to defraud his customers when the expert can build up reputation. We show that the level of fraud is significantly higher under price competition than when prices are fixed. The price decline under competitive prices superimposes quality competition. More customer information does not necessarily decrease the level of fraud.
    Keywords: Credence good; Expert; Fraud; Price competition; Reputation; Overcharging; Undertreatment.
    JEL: D82 L15
    Date: 2013–03
  6. By: Hideki Murakami (Graduate School of Business Administration, Kobe University)
    Abstract: The purpose of this research is to investigate the dynamic changes in the competition between air carriers by applying a revised conduct parameter method. We examined the cases of Southwest Airlines and America West Airlines due to the availability of data. Our interest is in what fashion a low-cost carrier (LCC) entered the market, how the rival reacted, and whether the fashions of competition between two types of air carrier remained stable as time passed. Our empirical results obtained by econometric methods using 894 sample observations show that the fashions of competition fell between Cournot competition and gP=MC (price equals marginal cost)h competition, and sometimes the fashions were stable and sometimes not. Beyond four or five years after new entry by an LCC, these two fashions of competition reached a state of equilibrium. An implication for industrial policy is that an LCCfs entry improves consumer surplus but it seems not to maximize social welfare.
    Keywords: LCC, new entry, conduct parameter, dynamic analysis
    Date: 2012–07
  7. By: Xavier Fageda (Faculty of Economics, University of Barcelona); Rafael Rubio (Faculty of Economics, University of Barcelona); Montserrat Termes (Faculty of Economics, University of Barcelona)
    Abstract: Previous studies have identified the rivalry among technological platforms as one of the main driving forces of broadband services penetration. This paper draws on data from the Spanish market between 2005 and 2011 to estimate the main determinants of broadband prices. Controlling for broadband tariffs features and network variables, we examine the impact of the different modes of competition on prices. We find that inter-platform competition has no significant effects over prices, while intra-platform competition is a key driver of the prices charged in the broadband market. Our analysis suggests that the impact of different types of competition on prices is critically affected by the levels of development of the broadband market achieved by the considered country.
    Keywords: broadband prices, inter-platform competition, intra-platform competition. JEL classification: L38, L51, L96
    Date: 2013–03
  8. By: Suhui Li; Avi Dor
    Abstract: Regulatory entry barriers to hospital service markets, namely Certificate of Need (CON) regulations, are enforced in many states; although no longer federally mandated, policy makers in other states are considering reinstating CON policies in tandem with service expansions mandated under the Affordable Care Act. While numerous studies have examined the impacts of CON on hospital volumes, demand responses to actual hospital entry into local hospital markets are not well understood. In this paper, we empirically examine the demand-augmenting, demand-redistribution, and risk-allocation effects of hospital entry by studying the cardiac revascularization markets in Pennsylvania, a state in which dynamic market entry occurred after repeal of CON in 1996. Our findings with respect to demand-augmentation are mixed: we find robust evidence that high entrant market share mitigated the declining incidence of coronary artery bypass graft (CABG), but it had no significant effect on the rising trend in percutaneous coronary intervention (PCI) procedures, among patients with coronary artery disease. Consequently, incumbent hospitals experienced a decrease in the likelihood of PCI due to entry, thereby indicating a shift in demand away from incumbents to entrants, namely business-stealing. Results of our analyses further indicate that entry by new cardiac surgery centers tended to sort high-severity patients into the more invasive CABG procedure and low-severity patients into the less invasive PCI procedures. Thus, from a welfare perspective our results are mixed: on the one hand, free-entry may lead to improved access rather than business stealing for CABG procedures; on the other hand, the empirical evidence is in favor of business-stealing for PCI procedures. Moreover, free-entry improves the match between underlying medical risk and treatment intensity. These findings underscore the importance of considering market-level strategic responses by hospitals when regulatory barriers to entry are rescinded.
    JEL: I1 L4 L5
    Date: 2013–03
  9. By: Francesco Daveri; Rèmy Lecat; Maria Laura Parisi
    Abstract: We use firm-level data for France and Italy to explore the impact of service regulation reform implemented in the two countries on the mark-up and eventually on the performance of firms between the second half of the 1990s and 2007. We find that the relation between entry barriers and productivity is negative and is crucially intermediated through the firm’s mark up. If both countries adopted OECD’s best practices in terms of entry barriers, their TFP level would increase by 3% for Italy and 3.5% for France.
    Keywords: Regulation, services, performance, TFP
    JEL: D24 K20 L51 O40 O57
    Date: 2013–03
  10. By: Svetlana Batrakova
    Abstract: This paper focuses on the role of firm’s market power and industry concentration in a still debated issue of pollution haven effects or carbon ’leakage’ representedas increased trade fows in the most polluting sectors from the developing worldspurred by regulations in developed countries. A firm in a relatively competitiveindustry with less market power has no option to transfer costs of environmentalregulations to consumers and may be more likely to resort to ’importing pollution’from places with lax environmental standards that insure cheaper inputs as a resultof such regulations at home. This paper finds that a degree of industry’s concentration has an effect on firms’ margins of products that were affected by the EU ETSpolicy in 2005 and that are imported from the developing world. Firms in from the developing world post 2005 more than firms in a less competitive setting.
    Date: 2012–09

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