nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒06‒16
sixteen papers chosen by
Russell Pittman
US Government

  1. Signalling Rivalry and Quality Uncertainty in a Duopoly By Bester, Helmut; Demuth, Juri
  2. Real option game with intervention of a random partial arbitrator By Adrien Nguyen Huu
  3. Efficient Entry in Competing Auctions By James Albrecht, Pieter Gautier, Susan Vroman
  4. Competition policy and cartel size By Bos A.M.; Harrington Jr. J.E.
  5. Public and private enforcement of competition law: A differentiated approach By Hüschelrath, Kai; Peyer, Sebastian
  6. Who benefits from resale-below-cost laws? By Noriaki Matsushima; Akira Miyaoka
  7. Domestic and International Research Joint Ventures: The Effect of Collusion By Flores-Fillol, Ricardo; Ibañez-Zarate, Guiomar; Theilen, Bernd, 1965-
  8. Window shopping By Oz Shy
  9. Public Procurement of Homogeneous Goods: the Czech Republic Case Study By Jiri Skuhrovec
  11. Financial Mergers and Their Consequences By Scherer, F. M.
  12. Airline networks, mergers, and consumer welfare By Hüschelrath, Kai; Müller, Kathrin
  13. Do horizontal mergers induce entry? Evidence from the US airline industry By Bougette, Patrice; Hüschelrath, Kai; Müller, Kathrin
  14. The Effect of Mergers in Search Market: Evidence from the Canadian Mortgage Industry By Jason Allen; Robert Clark; Jean-François Houde
  15. Competition in the market for supplementary health insurance: The case of competing nonprofit sickness funds By Ellert, Alexander; Urmann, Oliver
  16. Static vs. dynamic impacts of unbundling: Electricity markets in South America By Schober, Dominik

  1. By: Bester, Helmut; Demuth, Juri
    Abstract: This paper considers price competition in a duopoly with quality uncertainty. The established firm (the `incumbent') offers a quality that is publicly known; the other firm (the `entrant') offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant's quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if observed prices make the uninformed consumers more pessimistic about the entrant's quality. When the uninformed consumers' beliefs satisfy the `intuitive criterion' and the `unprejudiced belief refinement', prices signal the entrant's quality only in a two-sided separating equilibrium and are identical to the full information outcome.
    Keywords: Quality uncertainty; Signalling; Oligopoly; Price competition
    JEL: D43 D82 L15
    Date: 2013–05
  2. By: Adrien Nguyen Huu (FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris IX - Paris Dauphine - CREST - EDF R&D, Department of Mathematics and Statistics - McMaster University)
    Abstract: We formalize the randomization procedure undertaken to discriminate players in real option games with Stackelberg leadership advantage. This is done by introducing a random arbitrator with specific parameterizations, and allows to propose a unified treatment of both Cournot and Stackelberg competition in real option games. We extend the study to a partial arbitrator, which leads to competitive advantages in various asymmetrical situations. We fully characterize strategic interactions. We then apply the procedure to risk-neutral and risk-averse firms in a stochastic preemptive real option game in complete market under regulation. The risk-averse case gives us the opportunity to study a new phenomenon we call aversion for confrontation, and its impact on the asymmetrical game.
    Keywords: real option game; timing game; regulator; asymmetry; Stackelberg competition; Cournot competition
    Date: 2013–05–22
  3. By: James Albrecht, Pieter Gautier, Susan Vroman (Department of Economics, Georgetown University)
    Abstract: In this paper, we demonstrate the e¢ ciency of seller entry in a model of competing auctions. We generalize the competitive search literature by simultaneously allowing for nonrival (many on one) meetings and private information. We consider both the case in which buyers learn their valuations before visiting a seller and the case in which they learn their valuations after visiting the seller. We also allow for seller heterogeneity with respect to reservation values.
    Keywords: JEL Codes:
    Date: 2013–01–05
  4. By: Bos A.M.; Harrington Jr. J.E. (GSBE)
    Abstract: This paper examines endogenous cartel formation in the presence of a competition authority. Competition policy makes the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either increase or decrease their inclusiveness. Highly inelastic market demand is sufficient for the presence of a competition authority to cause the least inclusive stable cartels to increase in size.
    Date: 2013
  5. By: Hüschelrath, Kai; Peyer, Sebastian
    Abstract: We investigate the relationship between public and private enforcers introducing a more differentiated approach. In contrast to the existing literature, we take into account that the costs and benefits of detection and prosecution and, thus, the usefulness of each enforcement mode may change with a variation of the type of anticompetitive conduct. We define a set of parameters that determine the costs and benefits of both types to enforce the antitrust laws and discuss implications for European competition law and policy. --
    Keywords: Competition policy,public enforcement,private enforcement,European Union
    JEL: K21 L40
    Date: 2013
  6. By: Noriaki Matsushima; Akira Miyaoka
    Abstract: We investigate the effect of banning resale-below-cost offers. There are two retailers with heterogeneous bargaining positions in relation to a monopolistic manufacturer. Each retailer sells two goods: one procured from the monopolistic manufacturer and the other, from a competitive fringe. In equilibrium, banning resale-below-cost offers can decrease the retailers' prices. The ban can benefit the weak retailer in terms of bargaining position and increase the total consumer surplus, although it harms the dominant retailer and the monopolistic manufacturer. Contrary to the basic scenario, when the weak retailer is horizontally separated, the ban benefits the monopolistic manufacturer.
    Date: 2013–06
  7. By: Flores-Fillol, Ricardo; Ibañez-Zarate, Guiomar; Theilen, Bernd, 1965-
    Abstract: We analyze the effect of research joint ventures (RJVs) on consumer welfare in an international context when collusion can occur. The main novelty of our analysis is to study the differentiated effect of domestic and international RJVs. The recent literature shows that RJVs with collusion harm consumers. However, our results introduce a qualifi cation to this statement: international RJVs with collusion might be bene ficial for consumers when internationalization costs are high. The EU and US competition policy advises against RJVs that facilitate collusion on the grounds of their expected negative effects. Our results suggest that antitrust authorities should distinguish between domestic and international RJVs and, in certain cases, be more benevolent with international RJVs. Keywords: collusion; domestic research joint venture; international research joint venture JEL Classi fication Numbers: K21, L24, L44, O32
    Keywords: Competència econòmica -- Dret i legislació, Aliança d'empreses, Innovacions tecnològiques -- Direcció i administració, Investigació industrial -- Direcció i administració, 33 - Economia,
    Date: 2013
  8. By: Oz Shy
    Abstract: The terms "window shopping" and "showrooming" refer to the activity in which potential buyers visit a brick-and-mortar store to examine a product but end up either not buying it or buying the product from an online retailer. This paper analyzes potential buyers who differ in their preference for after-sale service that is not offered by online retailers. For some buyers, making a trip to the brick-and-mortar store is costly; however, going to the store to examine the product has the advantage of mitigating the uncertainty as to whether the product will suit the buyer's needs. The model shows that the number of buyers engaged in window shopping behavior exceeds the optimal number, both under duopoly and under joint ownership of the online and walk-in store outlets.
    Keywords: Consumer behavior
    Date: 2013
  9. By: Jiri Skuhrovec (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The goal of this paper is to show how institutional and procedural characteristics affect the final price of the public procurement. In order to get comparable prices, only public procurement of homogeneous goods is analyzed. Presented model attempts to explain the variation in unit price as a function of price estimated by the contracting authority, market price and characteristic of procurement procedure – type of procedure, number of bidders and use of electronic auction. We find that the final price in the electricity and natural gas public procurement is more sensitive to purchaser’s estimate than to actual market price. At the same time, we identify that the final price is reduced by using open procedure, electronic auction or attracting more competitors.
    Keywords: public procurement, homogeneous goods, energy markets
    JEL: H57 D23 D73 C21
    Date: 2013–05
  10. By: Neha Gupta (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: This paper reviews the rice procurement operations of the Government of India from the standpoints of cost of procurement as well as effectiveness in supporting farmers' incomes. The two channels used for procuring rice are custom-milling of rice and levy. In the first, the government buys paddy directly from farmers at the minimum support price (MSP) and gets it milled from private millers; while in the second, it purchases rice from private millers at a pre-announced levy price thus providing indirect price support to farmers. Secondary data reveal that although levy imposes a lower unit cost per quintal of paddy procured, over the last decade, custom-milling has become predominant, partly on the argument that it provides minimum price support to farmers. We analyze data from auctions of paddy from a year when levy was still important to investigate its impact on farmers' revenues. We use semi-nonparametric estimates of millers' values to simulate farmers' ex- pected revenues and nd these to be rather close to the MSP; a closer analysis shows that bidder competition is critical to this result. The level of competition in the year of the data for instance, was high enough to offset the impact of sub- optimal reserve prices on revenues. Finally, we use our estimates to quantify the impact of change in levy price on farmers' revenues through its effect on millers' values and competition; and use this to discuss ways to revive the levy channel.
    Keywords: Structural Estimation, Auctions, Procurement Policy
    JEL: C14 D44 Q13 Q18
    Date: 2013–06
  11. By: Scherer, F. M. (Harvard University)
    Abstract: This paper analyzes the massive merger wave that has led to substantially increased concentration of banking activity in the United States. One consequence is the rise of banks "too big to fail." The structural changes have also been associated with a striking change in financial institutions' share of all U.S. corporate profits along with employee compensation out of line with norms for individuals of comparable ability. Data on concentration in well-defined banking markets are quite scarce, but fragmentary evidence suggests considerable monopoly pricing power in some product markets. Mergers that lead to concentration have for decades been the focus of antitrust activity. But a review of the record shows an emphasis on mergers that raise local banking market concentration and nearly total neglect of other important lines on which data are lacking. If antitrust actions were to be taken against the concentration of power in those lines, offsetting advantages in the form of realized scale economies would have to be weighed. A review of the most recent evidence suggest that difficult tradeoffs might be confronted.
    Date: 2013–06
  12. By: Hüschelrath, Kai; Müller, Kathrin
    Abstract: We study the consumer welfare effects of mergers in airline networks. Based on the development of a general classification of affected routes, we apply a difference-indifferences approach to exemplarily investigate the price effects of the America West Airlines - US Airways merger completed in 2005. We find that although average prices increased substantially on routes in which both airlines competed either on a non-stop or one-stop basis prior to the merger, substantial average price reductions observed for routes without any premerger overlap suggest that the merger led to a net increase in consumer welfare. --
    Keywords: Airline industry,merger,market power,consumer welfare,price effects
    JEL: L40 L93
    Date: 2013
  13. By: Bougette, Patrice; Hüschelrath, Kai; Müller, Kathrin
    Abstract: Theoretical research has investigated the relevance of entry-inducing effects as countervailing factor to a merger-related increase in market power. We use route-level data for the America West Airlines - US Airways merger (2005) to investigate whether such an effect can be identified empirically. Our results show that both entry-inducing and entry-dissuading effects can be observed depending on the type of affected route and the carrier under investigation. --
    Keywords: Airline industry,merger,entry-inducing effects
    JEL: K21 L40
    Date: 2013
  14. By: Jason Allen; Robert Clark; Jean-François Houde
    Abstract: We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation part- ner, weakening consumers bargaining positions. We combine reduced-form techniques to es- timate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.
    JEL: L11 L41 L85
    Date: 2013–06
  15. By: Ellert, Alexander; Urmann, Oliver
    Abstract: This paper examines the competition of nonprofit sickness funds in the market for supplementary health insurance. We investigate product quality strategies when quality is costly and the sickness funds are competing for customers. As long as the sickness funds choose the qualities for simultaneously, any equilibrium will be nondifferentiated. Only if total demand is increasing in quality, both sickness funds provide the maximum quality. For decreasing total demand the existence of an equilibrium depends on the consumers' sensitivity. If there is no equilibrium in the simultaneous competition, sequential quality competition leads to a differentiated equilibrium with a first mover advantage. --
    Keywords: supplementary health insurance,vertical differentiation,output maximization
    JEL: I11 L22 L30
    Date: 2012
  16. By: Schober, Dominik
    Abstract: Ownership unbundling and third party access are discussed as two options of unbundling in both the literature and political discussions. Focusing on the South American electricity sector, I contrast static and dynamic impacts of ownership unbundling and third party access regimes on customer prices. Substantially different results are found using dynamic rather than static analysis. In particular, negative short term effects of ownership unbundling found in static models are approximately cancelled out by subsequent positive impacts in the dynamic model. Third party access seems to allow for similar benefits while avoiding the (restructuring) costs of ownership unbundling. Previously estimated static models thus appear to suffer from either omitted variable biases or endogeneity problems of static non-difference models. --
    Keywords: (De)Regulation,dynamic panel data analysis,electricity markets,market organization,unbundling,non-discriminatory (third party) access
    JEL: L42 L51 L52 L94
    Date: 2013

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