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

  1. Competitive Targeted Advertising with Price Discrimination By Rosa Branca Esteves; Joana Resende
  2. Competition for Attention By Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
  3. Welfare-increasing third-degree price discrimination By Simon GB Cowan
  4. Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through. By Bonnet, Céline; Dubois, Pierre; Klapper, Daniel; Villas Boas, Sofia B.
  5. Monopolistic Competition: A Dual Approach with an Application to Trade By Paolo Bertoletti; Federico Etro
  6. Capital Structure, Product Market Competition and Firm Performance: Evidence from South Africa By Samuel Fosu
  7. Elasticidad precio de la demanda y su relevancia en materia de bienestar en un mercado monopolista By Juan Pablo Herrera Saavedra
  8. The Importance (or not) of Patents to UK Firms By Bronwyn H. Hall; Christian Helmers; Mark Rogers; Vania Sena
  9. Institutions, competition and regulation: Intellectual property and innovation By Tucker, C.E.
  10. Direct and indirect subsidies in markets with system goods in the presence of externalities. Preliminary version By Slivko, Olga
  11. Why define markets in competition cases? By Willem H. Boshoff
  12. Do European Union fines deter price-fixing? By Mario Mariniello
  13. The Shapley value as a guide to FRAND licensing agreements By DEHEZ, Pierre; POUKENS, SOPHIE
  14. Royalty Rate Determination By Peter Dawson
  15. The impact of EU competition law on national healthcare systems By Sauter, W.
  16. Market dominance and quality of search results in the search engine market By Lianos, I.; Motchenkova, E.
  17. Optimal Generic Advertising under Bilateral Imperfect Competition between Processors and Retailers By Chung, Chanjin; Eom, Young Sook; Yang, Byung Woo; Han, Sungill
  18. Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs By Bilotkach, Volodymyr; Fageda, Xavier, 1975-; Flores-Fillol, Ricardo
  19. Reforming the postal universal service By GAUTIER, Axel; POUDOU, Jean-Christophe
  20. Supermarket Entry and The Survival of Small Stores By Fernando Borraz; Juan Dubra; Daniel Ferrés; Leandro Zipitría
  21. Banking Competition in Africa: Sub-regional Comparative Studies By Stephen Hall
  22. Optimal pricing and quality of academic journals and the ambiguous welfare effects of forced open access: A two-sided model By Mueller-Langer, F.; Watt, R.

  1. By: Rosa Branca Esteves (Universidade do Minho - NIPE); Joana Resende (Universidade do Porto - FEP)
    Abstract: This paper investigates the effects of price discrimination by means of targeted advertising in a duopolistic market in which advertising plays two major roles. It transmits relevant information to otherwise uninformed consumers and it acts as a price discrimination device. We look at the …firms' optimal advertising and pricing decisions in two settings, namely mass advertising/non-discrimination strategies and targeted advertising/price discrimination strategies. In the case of targeted advertising, we show that …firms advertise more in its weak market than in its strong market. The analysis highlights that targeted advertising might constitute a tool to dampen price competition. We show that average prices with mass advertising/non-discrimination can be below those with targeted advertising/price discrimination (regardless of the market segment). We also fi…nd that, when advertising costs are not too high, price discrimination by means of targeted advertising can boost industry pro…fits at the expense of consumer and overall welfare. Finally, we show that overall welfare and consumer surplus falls when …firms use targeted advertising instead of mass advertising.
    Date: 2013
  2. By: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer
    Abstract: We present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each product affects how all other products are perceived. With this attention externality, depending on the cost of producing quality some markets exhibit “commoditized” price salient equilibria, while others exhibit “de-commoditized” quality salient equilibria. When the cost of producing quality changes, innovation can lead to a radical change in markets. In the context of financial innovation, the model generates the well documented phenomenon of “reaching for yield”.
    JEL: D03 D43 L13 M31
    Date: 2013–05
  3. By: Simon GB Cowan
    Abstract: The welfare and output effects of monopoly third-degree price discrimination are analyzed when inverse demand functions are parallel.  Welfare is higher with discrimination than with a uniform price when demand functions are derived from the logistic distribution, and from a more general class of distributions.  The sufficient condition in Varian (1985) for a welfare increase holds for these demand functions.  Total output is higher with discrimination for a large set of demand functions including those derived from strictly log-concave distributions with increasing cost pass-through, such as the normal, logistic and extreme value, and standard log-convex demands.
    Keywords: Third-degree price discrimination, monopoly, social welfare, output
    JEL: D42 L12 L13
    Date: 2013–04–22
  4. By: Bonnet, Céline; Dubois, Pierre; Klapper, Daniel; Villas Boas, Sofia B.
    JEL: C13 L13 L41
    Date: 2013–05
  5. By: Paolo Bertoletti (Department of Economics and Management, University Of Pavia); Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: We study monopolistic competition under indirect additivity of preferences. This is dual to the Dixit-Stiglitz model, where direct additivity is assumed, with the CES case as the only common ground. Other examples include (perceived) demand functions that are exponential or linear. Our equilibrium results are generally in contrast with those received by the literature. An increase of the number of consumers never affects prices and firms' size, but increases proportionally the number of firms, creating pure gains from variety. An increase in individual income increases prices (and more than proportionally the number of varieties) and reduces firms' size if and only if the price elasticity of demand is increasing. We also study the endogenous market structure with Bertrand competition (in which a pro-competitive effect of market size arises) and the case for inefficient entry. Finally, we provide an application to trade.
    Keywords: Monopolistic competition, Indirect additivity, Dixit-Stiglitz model, Endogenous entry
    JEL: D11 D43 L11 F12
    Date: 2012
  6. By: Samuel Fosu
    Abstract: This paper investigates the relationship between capital structure and firm performance, paying particular attention to the degree of industry competition. The paper applies a novel measure of competition, the Boone indicator, to the leverage performance relationship. Using panel data consisting of 257 South African firms over the period 1998 to 2009, this paper examines the effect of capital structure on firm performance and investigates the extent to which the relationship depends on the level of product market competition. The results suggest that financial leverage has a positive and significant effect on firm performance. It is also found that product market competition enhances the performance effect of leverage. The results are robust to alternative measures of competition and leverage.
    Keywords: Capital structure; Product market competition; Firm performance
    JEL: G32 L11 L25
    Date: 2013–05
  7. By: Juan Pablo Herrera Saavedra
    Abstract: Este documento analiza a la luz de una situación monopólica, el efecto sobre el bienestar de los consumidores derivado de cambios en la magnitud de la elasticidad precio de la demanda. En el artículo se asume una función de demanda con elasticidad precio de la demanda constante y rendimientos constantes a escala asociados a la firma productora del bien o servicio. Se encuentra que entre más elástico sea el mercado, mayor será la porción de excedente del consumidor que es tomado por la firma, en términos relativos al excedente del consumidor en una situación perfectamente competitiva.
    Date: 2013–04–29
  8. By: Bronwyn H. Hall; Christian Helmers; Mark Rogers; Vania Sena
    Abstract: A surprisingly small number of innovative firms use the patent system. In the UK, the share of firms patenting among those reporting that they have innovated is about 4%. Survey data from the same firms support the idea that they do not consider patents or other forms of registered IP as important as informal IP for protecting inventions. We show that there are a number of explanations for these findings: most firms are SMEs, many innovations are new to the firm, but not to the market, and many sectors are not patent active. We find evidence pointing to a positive association between patenting and innovative performance measured as turnover due to innovation, but not between patenting and subsequent employment growth. The analysis relies on a new integrated dataset for the UK that combines a range of data sources into a panel at the enterprise level.
    JEL: L21 L25 O34
    Date: 2013–05
  9. By: Tucker, C.E. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2012
  10. By: Slivko, Olga
    Abstract: This paper derives a model of markets with system goods and two technological standards. An established standard incurs lower unit production costs but causes a negative externality. The paper derives the conditions for policy intervention and compares the effect of direct and indirect cost-reducing subsidies in two markets with system goods in the presence of externalities. If consumers are committed to the technology by purchasing one of the components, direct subsidies are preferable. For a medium-low cost difference between technological standards and a low externality cost it is optimal to provide a direct subsidy only to the first technology adopter. As the higher the externality cost raises, the more technology adopters should be provided with direct subsidies. This effect is robust in all extensions. In the absence of consumers commitment to a technological standard indirect and direct subsidies are both desirable. In this case, the subsidy to the first adopter is lower then the subsidy to the second adopter. Moreover, for the low cost difference between technological standards and low externality cost the fi rst fi rm chooses a superior standard without policy intervention. Finally, a perfect compatibility between components based on different technological standards enhances an advantage of indirect subsidies for medium-high externality cost and cost difference between technological standards. Journal of Economic Literature Classi fication Numbers: C72, D21, D40, H23, L13, L22, L51, O25, O33, O38. Keywords: Technological standards; complementary products; externalities; cost-reducing subsidies; compatibility.
    Keywords: Externalitats (Economia), Jocs no-cooperatius (Matemàtica), Conducta organitzacional, Mercats, Oligopolis, Organització industrial, Regulació del mercat, Política industrial, Progrès tecnològic, Política i govern, 33 - Economia,
    Date: 2012
  11. By: Willem H. Boshoff (Department of Economics, University of Stellenbosch)
    Abstract: Competition policy investigations usually commence with a definition of the relevant product and geographic market. The relevant market provides a first evaluation of competitive conditions and allows for the calculation of market shares, which aids in the assessment of firms’ market power. Given its implications for assessing market power, the market definition in a competition case is frequently contested. Critics argue that market definition is often arbitrary and should be avoided. Instead, IO scholars argue that modern econometric methods are capable of directly estimating market power and competitive effects without the need for defining markets. We argue that market definition not only offers a valuable first screen for market power, but actually involves a substitution analysis that lies at the heart of any competition case. We argue that it is suboptimal to promote a single encompassing econometric model instead of the multi-faceted empirical approach underlying most market definition exercises in practice. In addition, we note that market definition involves much more than merely the estimation of price elasticities, which are in any event difficult to estimate in most competition cases.
    Keywords: market, market definition, market share, substitutability, price elasticity, antitrust, competition policy, mergers, monopolization
    JEL: L11 L40 L41 K21
    Date: 2013
  12. By: Mario Mariniello
    Abstract: The issue: Anti-cartel enforcement is the least controversial of competition policy themes. Agreements to restrict competition such as price fixing or market sharing have obvious negative effects on welfare. Within the European Union, however, industry representatives have increasingly voiced concern that the European Commission applies a too-strict fining policy to enforce anti-cartel law, particularly since the introduction of new guidelines on fines in 2006. Fines are said to be too high, disproportionate and liable to introduce distortions into the market, ultimately leading to higher prices for consumers. It is often argued that more lenient approaches should be followed in crisis times. Policy challenge: High fines for cartel activity could entail costs for society and might be difficult to implement. Nevertheless, there is no case for reducing current levels of EU anti-cartel fines. Fine levels already take the economic crisis into account, and the net present value of fines might prove to be too low to discourage collusion. We estimate that fines might even be not high enough to offset the additional profits yielded by collusion. Fines should be complemented with other measures to increase deterrence, in particular personal sanctions targeting company officers who are responsible for leading the company to commit infringements. In the short term, pressure on decision makers could be increased by reducing the expected duration of investigations.
    Date: 2013–05
  13. By: DEHEZ, Pierre (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); POUKENS, SOPHIE (Université catholique de Louvain, Belgium)
    Abstract: We consider the problem of specifying Fair, Reasonable And Non-Discriminatory agreements faced by standard-setting organizations. Along with Layne-Farrar, Padilla and Schmalensee (2007), we model the problem as a cooperative game with transferable utility, allowing for patents to be weak in the sense that they have substitutes. Assuming that a value has been assigned to weak patents, we obtain a formula for the Shapley value that gives an insight into what FRAND agreements should look like.
    Keywords: patent licensing, Shapley value, core
    Date: 2013–05–06
  14. By: Peter Dawson
    Abstract: Courts require royalty rate calculations based on rigorous economic foundations. The licensing literature provides limited guidance for royalty rate determination, leaving appraisal report readers wanting a more tangible and objective lens through which to understand and judge the credibility of royalty rate analyses. This paper develops the standard, core model for calculating market royalty rates for intangible asset licenses where royalty rates are determined ex ante in the actual market, or ex post in a hypothetical market under a market value standard. The model forms a consistent basis for performing and evaluating licensing royalty appraisals. Not being distracted with the question of how to combine the input values when calculating a royalty rate, the court can focus on understanding and verifying an appraiser’s calculations of the input variable values.
    Keywords: royalty rate, licensing, intangible asset, intellectual property rights, technology, valuation, bargaining range, royalty base, Georgia Pacific factors
    JEL: D00 D40 D45 D46 D82 D86 K00 K34 L24 M20 O34
    Date: 2013–03
  15. By: Sauter, W. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2012
  16. By: Lianos, I.; Motchenkova, E. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2012
  17. By: Chung, Chanjin; Eom, Young Sook; Yang, Byung Woo; Han, Sungill
    Abstract: The purpose of this paper is to examine the impact of bilateral imperfect competition between processors and retailers and of import supply on optimal advertising intensity, advertising expenditures, and checkoff assessment rates. First, comparative static analyses were conducted on the newly developed optimal advertising intensity formula. Second, to consider the endogenous nature of optimal advertising, a linear market equilibrium model was developed and applied to the U.S. beef industry. Results showed that the full consideration of retailer-processor bilateral market power lowered the optimal values of assessment rates, advertising expenditures, and advertising intensity for the checkoff board while consideration of importers increases the optimal values. The results indicate that ignoring the import sector in optimal generic advertising modeling should underestimate these optimal values, while ignoring the bilateral market power between processors and retailers overestimates the values.
    Keywords: bilateral market power, checkoff, import supply, oligopoly, oligopsony, optimal advertising, processor, retailer, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Industrial Organization, Marketing, L13, L66, M37,
    Date: 2013
  18. By: Bilotkach, Volodymyr; Fageda, Xavier, 1975-; Flores-Fillol, Ricardo
    Abstract: Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta s network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta s primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York s JFK airport. Keywords: primary hub; secondary hub; airport congestion; airline consolidation; airline networks JEL Classi fication Numbers: D43; L13; L40; L93; R4
    Keywords: Aeroports -- Direcció i administració, Aviació comercial, Línies aèries, Oligopolis, Trusts industrials, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2012
  19. By: GAUTIER, Axel (University of Liège, HEC Management School, Belgium & Université catholique de Louvain, CORE, Belgium); POUDOU, Jean-Christophe (LAMETA, Université de Montpellier, France)
    Abstract: The postal sector has undergone dramatic changes over the recent years under the double effect of ongoing liberalization and increased competition with alternative communication channels (e-substitution). As a result, the mail volume handled by the historical operator has declined sharply while the latter’s ability to match the same standard of universal service may be under threat. Thus, a reform of the postal universal service is on the agenda. This paper examines possible reforming options ranging from keeping universal service within the postal sector to redefining universal service as spanning postal and electronic technologies.
    Keywords: universal service, postal market, digitalization
    JEL: L51 L86 L87
    Date: 2013–05–22
  20. By: Fernando Borraz; Juan Dubra; Daniel Ferrés; Leandro Zipitría
    Abstract: We analyze the effect of supermarket entry on the exit of small stores in the food retailing sector in Montevideo between 1998 and 2007. We use detailed geographical information to identify the link between supermarket entry and the exit of nearby small stores. Entry of supermarkets using small- to medium-size formats creates a competitive threat for the existing small stores, decreasing their probability of survival. The result is robust to several model specifications and varying definitions of what constitutes a supermarket. The impact of supermarket entry is unequivocal for groceries, bakeries, fresh pasta shops, and butcher shops.
    Keywords: Supermarket entry; competition; small store attrition.
    Date: 2013
  21. By: Stephen Hall
    Abstract: This paper examines the extent of banking competition in African sub-regional markets. A dynamic version of the Panzar-Rosse model is adopted beside the static model to assess the overall extent of banking competition in each sub-regional banking market over the period 2002 to 2009. Consistent with other emerging economies, the results suggest that African banks generally demonstrate monopolistic competitive behaviour. Although the evidence suggests that the static Panzar-Rosse H-statistic is downward biased compared to the dynamic version, the competitive nature identified remains robust to alternative estimators.
    Keywords: Exchange Market Pressure; Currency Misalignment; Time-Varying-Coefficient
    JEL: G21 L10 L13 D40
    Date: 2013–05
  22. By: Mueller-Langer, F.; Watt, R. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2012

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