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on Industrial Competition |
| By: | Tamini, Lota |
| Abstract: | This paper analyzes the impact of risk and ambiguity aversion - Knightian uncertainty - on the choice of optimal quality and timing of market entry in the agri-food sector. Irreversibility of the investment in product development is introduced in a continuous-time stochastic model applying the real option literature. We consider a market characterized by a duopoly with a Stackelberg-Nash game for quality choice. When the follower provides a higher- quality good, the level of quality is decreasing in ambiguity aversion while it is a non-monotonic function of the level of risk. For low levels of risk, the increase of product quality is an efficient response. Up to certain threshold level of risk, risk and ambiguity aversion reduce the optimal quality level and increase the value of waiting when the follower supplies a higher-quality good. The implication is that risk and ambiguity aversion allow the leader to make a sustainable monopoly pro t. When the follower supplies a lower-quality good, there is no value for it to wait. It should therefore provide the lowest-quality good possible. In a vertically integrated supply chain rms provide higher quality, and the di¤erence between vertically integrated and non-integrated rms is increasing in risk and ambiguity aversion. |
| Keywords: | Quality, Duopoly, Real option, Vertical integration, Risk, Knightian uncertainty., Industrial Organization, Institutional and Behavioral Economics, Livestock Production/Industries, D81, L12, L15, |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:spaawp:148589&r=com |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market. |
| Keywords: | First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium |
| JEL: | C72 D82 D83 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1896&r=com |
| By: | Nathan H. Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) |
| Abstract: | I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201301&r=com |
| By: | Peeters R.J.A.P.; Khan A. (GSBE) |
| Abstract: | We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a ``mutually non-aggressive'' outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously. |
| Keywords: | Noncooperative Games; |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umagsb:2013022&r=com |
| By: | Lunn, Pete |
| Abstract: | This paper challenges the increasingly common view that the findings of behavioural economics constitute a fourth type of market failure. The market failure framework elevates the standard competitive market model to the status of an ideal. It provides us with tools to identify departures from the ideal model and to deduce a direction policy might take to restore it. Many behavioural phenomena also imply departures from the ideal model. Yet rather than allowing us to deduce a good direction for policy, the findings question the legitimacy and usefulness of this deductive theoretical framework for policy analysis. Two policy problems are highlighted here: the validity of inferring that consumers' choices after an intervention improve outcomes relative to their previous choices, and the potential for distributional consequences when policy alters consumers' choices. The paper concludes that, given these problems, conceiving of the relevant behavioural phenomena as an additional form of market failure is potentially to misunderstand their implications for consumer and competition policy. |
| Keywords: | Market Failure/Decision-making biases/Behavioural economics/Regulation |
| JEL: | D03 D18 L96 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp455&r=com |
| By: | Peter Arendorf Bache (Department of Economics and Business, Aarhus University); Anders Laugesen (Department of Economics and Business, Aarhus University) |
| Abstract: | We let heterogeneous firms face decisions on an arbitrary number of complementary activities in a monopolistically-competitive industry. The key insight is that firm-level complementarities may manifest themselves much more clearly at the industry level than at the firm level of analysis. The response of an individual firm to exogenous changes in the parameters of its profit maximisation problem is ambiguous due to indirect effects through changes in industry competition. Only in special cases are firm-level comparative statics monotone. Turning to the industry level, we provide sufficient conditions for firstorder stochastic dominance shifts in the equilibrium distributions of all activities regardless of the ambiguities prevailing at the firm level. Our results apply to many well-known models of international trade and provide strong, novel, and testable predictions. A technical contribution is to apply powerful supermodular optimisation techniques in a context of monopolistic competition. |
| Keywords: | Complementary Activities, Firm Heterogeneity, Supermodularity, Monotone Comparative Statics International Trade |
| JEL: | D21 F12 L22 |
| Date: | 2013–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2013-10&r=com |
| By: | Florian Hoffmann; Roman Inderst; Marco Ottaviani |
| Abstract: | Using personal data collected on the internet, fi?rms and political campaigners are able to tailor their communication to the preferences and orientations of individual consumers and voters, a practice known as hypertargeting. This paper models hypertargeting as selective disclosure of information to an audience with limited attention. We characterize the private incentives and the welfare impact of hypertargeting depending on the wariness of the audience, on the intensity of competition, and on the feasibility of price discrimination. We show that policy intervention that bans the collection of personally identi?able data (for example, through stricter privacy laws requiring user consent) is bene?ficial when consumers are naive, competition is limited, and fi?rms are able to price discriminate. Otherwise, privacy regulation often back?fires. Keywords: Hypertargeting, selective disclosure, limited attention, consumer privacy regulation, personalized pricing, competition. JEL Classi?fication: D83 (Search; Learning; Information and Knowledge; Communication; Belief), M31 (Marketing), M38 (Government Policy and Regulation). |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:479&r=com |
| By: | Gaurab Aryal |
| Abstract: | In this paper I estimate a model of competitive nonlinear pricing with multidimensional adverse selection. I model competition using a Stackelberg duopoly and solve the multidimensional screening problem by aggregating the multidimensional type into a single dimensional type. I study identification and estimation of the utility and cost parameters and the joint density of consumer types. The truncated marginal densities of the aggregated types can be nonparametrically identified but not the joint density. I use the classic Cramér-von Mises and Vuong’s test to select one parametric family of copula to estimate the joint density from the unspecified marginals. Using a unique data for advertisements collected from two Yellow Pages Directories in Central Pennsylvania I find that: (a) Joe copula characterizes the joint density of adverse selection; (b) there is a substantial heterogeneity among advertisers; (c) the estimated density rationalizes why there is more competition at the lower end of the ads than at the upper end; (d) consumers treat the ads as substitutes; and (e) a counterfactual exercise suggests that there is a substantial (3.8% of the sales) loss of welfare due to asymmetric information. |
| Keywords: | Competitive Nonlinear Pricing, Multidimensional Screening, Identification, Advertisement, Copula |
| JEL: | C14 D22 D82 L11 L13 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-610&r=com |
| By: | Akifumi Ishihara (Kyoto University); Noriyuki Yanagawa (The University of Tokyo) |
| Abstract: | This paper examines roles of patent pools with compulsory independent licensing. A seminal work by Lerner and Tirole (2004) have shown that requiring independent licensing or compulsory independent licensing is a useful tool to select only desirable patent pools. In this paper, however, we are going to show that their argument is not always true, If there are users who demand only a part of the pooled technologies, the compulsory independent licensing gives a tool for price discrimination for the patent holders, and that is welfare decreasing under some conditions. Moreover, the compulsory independent licensing may promote entry deterrence when there are lower grade entrants. Even in this sense, compulsory independent licensing decreases social welfare. The welfare under the patent pool with independent licensing may become lower than that under the competitive licensing. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf318&r=com |
| By: | Sami Debbichi (AEDD - Analyse Economique et Développement Durable - Université de Tunis El Manar); Walid Hichri (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | Nous présentons dans ce papier une modélisation du seuil critique de préférence pour la collusion dans un duopole mixte/privé en fonction du tarif d'interconnexion et de son coût marginal, dans un régime de concurrence à la Cournot. L'objectif consiste à comparer la préférence pour la collusion à travers ce seuil dans les deux structures de marché étudiées et dans deux cas de figures : coûts d'interconnexion linéaires et coût d'interconnexion quadratiques. Les résultats montrent que le seuil dépend de deux variables : Le tarif d'interconnexion et un paramètre relatif à la technologie employée par l'opérateur. Les résultats de l'application au cas du marché Tunisien sont conformes aux résultats théoriques. |
| Keywords: | Collusion; Structure des coûts; Marché Mixte |
| Date: | 2013–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00822769&r=com |
| By: | Liu, Yizao; Lopez, Rigoberto |
| Abstract: | This article estimates the impact of social media exposure on consumer valuation of product characteristics. We apply the Berry, Levinsohn and Pakes (1995) model of market equilibrium to sales data for 18 carbonated soft drink brands sold in 12 cities over 17 months (June 2011 to October 2012) and social media conversations on Facebook, Twitter and YouTube. Empirical results show that social media exposure is a significant driver of consumer behavior through altering evaluation of product characteristics and purchase choices. |
| Keywords: | Social Media, Demand, Consumer behavior, Internet, Carbonated soft drinks, Consumer/Household Economics, Demand and Price Analysis, Industrial Organization, D12, M37, L66, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea13:148913&r=com |
| By: | Julia Friesen (Georg-August-University Göttingen); Konstantin Wacker (Vienna University of Economics and Business) |
| Abstract: | This paper investigates which firms suffer from informal competition and highlights the role of access to finance in this context. We use cross-sectional data from the World Bank Enterprise Surveys covering 42,000 firms in 114 developing and transition countries for the period 2006 to 2011 and take discrete responses on the perceived severity of financial constraints and informal competition for our empirical analysis. We find that financially constrained firms face significantly more intense competition by the informal sector and that this effect is economically large. In fact, financial constraints are the most important reason why firms suffer from informal competition. Other influential variables are ill-designed labor market regulations, corruption, and firm size. A wide range of robustness checks substantiates this finding. |
| Keywords: | Firm finance; informal competition; enterprise survey data; ordered logit model |
| JEL: | C25 D21 O17 |
| Date: | 2013–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:139&r=com |
| By: | Daron Acemoglu; Ufuk Akcigit; Nicholas Bloom; William R. Kerr |
| Abstract: | We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry. |
| Keywords: | industrial policy, productivity growth, innovation, R&D |
| JEL: | E02 L1 O31 O32 O33 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1216&r=com |
| By: | HORI Takeo; UCHINO Taisuke |
| Abstract: | Extending the endogenous growth model proposed by Young (1998), we construct a two-sector growth model that explains the observed pattern of structural change. Unlike existing studies, we assume neither non-homothetic preferences nor exogenous differential in productivity growth among different sectors. Our key assumption is that any two goods produced by firms in a sector are closer substitutes than those produced by firms in other sectors, which gives rise to an endogenous differential in productivity growth among different sectors. When the two composite goods are poor substitutes, the share of employment gradually shifts from the sector with a low markup to that with a high markup. To test the validity of the prediction of our model, we also estimate industry-level total factor productivity (TFP) growth and markup using Japanese firm-level panel data. The empirical results show a negative correlation between estimated markup and long-term TFP growth, and a positive correlation between the growth of industrial labor input and markup, which supports our theoretical results. Finally, in contrast to the previous studies of structural change that consider competitive economies, we study the socially optimal allocation and characterize the optimal tax policies. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:13041&r=com |
| By: | Sabien Dobbelaere; Kozo Kiyota; Jacques Mairesse |
| Abstract: | Allowing for three labor market settings (perfect competition or right-to-manage bargaining, efficient bargaining and monopsony), this paper relies on two extensions 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. |
| JEL: | C23 D21 J50 L13 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19059&r=com |