nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒07‒05
nineteen papers chosen by
Russell Pittman
US Government

  1. Input price discrimination (bans), entry and welfare By Dertwinkel-Kalt, Markus; Haucap, Justus; Wey, Christian
  3. Organizational Structure and the Choice of Price vs. Quantity in a Mixed Duopoly By Alessandra Chirco; Caterina Colombo; Marcella Scrimitore
  4. An Example of Strategic Market Game with Infinitely Many Commodities By Tonin, Simone
  5. Inferring the strategy space from market outcomes By Menezes, Flavio; Quiggin, John
  6. Optimal Resource Allocation in General Cournot-competitive Equilibrium By Ervik, Inger Sommerfelt; Soegaard, Christian
  7. Cannibalization, Innovation and Spin-outs By James D. Campbell; April Mitchell Franco
  8. Reputation and Multiproduct-firm Behavior: Product Line and Price Rivalry Among Retailers By Sun, Shaoyan; An, Henry
  9. Considerações sobre a Relação Demanda-Inovação em um Modelo Evolucionário By Thiago Calliari; Marco Valente; Ricardo Ruiz
  10. Uncertainty, Instability, and the Control of Markets By Jo, Tae-Hee
  11. Efficient Upgrading in Network Goods : Is Commitment Always Good? By Athanasopoulos, Thanos
  12. The Choice of Airport, Airline, and Departure Date and Time: Estimating the Demand for Flights By Escobari, Diego; Mellado, Cristhian
  13. A Cournot model for analysing the effects of an open skies agreement By Vera Alves; Rosa Forte
  14. Market versus state in building the aviation value chain By Knieps, Günter
  15. One-stop shopping as a cause of slotting fees: A rent-shifting mechanism By Caprice, Stéphane; von Schlippenbach, Vanessa
  16. Competition between Private Label and National Brand for Health-differentiated Food Product: A Canadian Retailing Case By Ying, Xiongwei; Anders, Sven M.
  17. Free to choose? The impact of healthcare reform By Martin Gaynor; Carol Propper; Stephan Seiler
  18. Independent service operators in ATM markets By Wenzel, Tobias
  19. Revisiting Jansen et al.’s Modiï¬ed Cournot Model of the European Union Natural Gas Market By Zaifu Yang; Rong Zhang; Zongyi Zhang

  1. By: Dertwinkel-Kalt, Markus; Haucap, Justus; Wey, Christian
    Abstract: Katz (1987), DeGraba (1990), and Yoshida (2000) have formulated theories that price discrimination bans in intermediary goods markets tend to have positive effects on allocative, dynamic and productive efficiency, respectively. We show that none of these results is robust vis-à-vis endogenous changes in downstream market structure. An upstream monopolist's ability to price discriminate can intensify competition through entry (by a technically inefficient entrant), resulting in socially preferable market outcomes. In contrast, discrimination bans tend to blockade entry of relatively inefficient firms , thereby strengthening downstream market concentration. --
    JEL: L13 D43 K31
    Date: 2013
  2. By: Hovhannisyan, Vardges; Bozic, Marin
    Abstract: The article offers measures of own and cross cost pass-through in a structural framework. Unlike the traditional reduced-form analysis used in the previous literature, our approach is applicable in situations where firm marginal cost data are unobserved. The empirical value of the model is illustrated in an application to retail pass-through for national and store brand yogurt using an inverse demand derived from the economic theory. We find that ignoring cross pass-through between the brands biases own pass-through estimates.
    Keywords: Pass-through, retail conduct, benefit function, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization, Marketing, L10, M31,
    Date: 2013
  3. By: Alessandra Chirco (Dipartimento di Scienze dell’Economia, Università del Salento, Italy); Caterina Colombo (Dipartimento di Economia e Management, Università di Ferrara, Italy); Marcella Scrimitore (Dipartimento di Scienze dell’Economia, Università del Salento, Italy; The Rimini Centre for Economic Analysis, Italy)
    Abstract: We consider the choice of price/quantity by a public and a private firm in a mixed differentiated duopoly. First, we study the way in which the strategic choice of the market variable is affected by different given organizational structures (managerial or entrepreneurial) of the public and the private firm. Second, we investigate how the price/quantity choice interacts with the endogenous choice of the organizational structure, thus determining a subgame perfect equilibrium at which firms choose to behave as price-setters and to adopt a managerial structure.
    Keywords: mixed duopoly; strategic delegation; price competition; quantity competition
    JEL: D43 L22 L32
    Date: 2013–05
  4. By: Tonin, Simone (Department of Economics, University of Warwick,)
    Abstract: This short paper shows in an example of strategic market game that the Cournot-Nash equilibrium converges to the Walras equilibrium, even in the case of an exchange economy with infinitely many commodities.
  5. By: Menezes, Flavio; Quiggin, John
    Abstract: In this paper we show that, if demand varies stochastically, and firms compete after the realization of demand shocks, the strategy space may be inferred from market evidence. The key idea is that, in equilibrium, each firm acts as a monopolist, choosing the optimal price-quantity combination from a residual demand curve determined by a given observation of market demand and the (equilibrium) strategies of the other firms.
    Keywords: competition, supply schedules, equilibrium locus, Industrial Organization, L11,
    Date: 2013–01–17
  6. By: Ervik, Inger Sommerfelt (Department of Economics, University of Bergen and Department of Economics, University of Oxford); Soegaard, Christian (Department of Economics, University of Warwick)
    Abstract: Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that differ only in terms of productivity. We show that in general equilibrium, the more efficient industry produces too little and the less efficient industry produces too much compared to an optimal scenario with perfect competition. JEL classification: Cournot oligopoly ; GOLE (General Oligopolistic Equilibrium) ; industrial policy. JEL codes: D50 ; H21 ; L13
  7. By: James D. Campbell; April Mitchell Franco
    Abstract: When an idea for a new product arrives, will it be developed and by whom? We develop a spatial model in which an idea arrives to a researcher within the firm. Products are imperfectly substitutable, so that developing a new product that is close to an existing product will cannibalize some amount of the existing product's sales, and the cost to develop a new product is higher the further it is from an existing product. Together these forces mean that there exist ideas that can be developed more efficiently by the researcher as a spin-out than by the firm (due to the cost of fit) but that the firm prefers to buy out the researcher and either develop itself or discard (due to the potential loss from cannibalization). These inefficient outcomes occur for ideas at intermediate distance from the firm's existing portfolio, and are likelier and more severe the higher is demand and the greater the degree of substitutability.
    Keywords: -
    Date: 2013
  8. By: Sun, Shaoyan; An, Henry
    Keywords: Demand and Price Analysis, Institutional and Behavioral Economics,
    Date: 2013
  9. By: Thiago Calliari (ICSA-UNIFAL); Marco Valente (University of L’Aquila); Ricardo Ruiz (Cedeplar-UFMG)
    Abstract: This work aims to study the relationship among heterogeneity of demand and innovation taken by firms. Through the contributions of previous works – Valente (2008) and Valente (2012) – it is intended show how the influence of heterogeneous consumers regarding its perceptions, tolerances and preferences can modify market results – specifically on market share – of firms seeking innovation. The results show that can be relevant a better consideration of the “demand side” in “supply side” analysis, mainly the ones that consider technological change, as in evolutionary models.
    Keywords: evolutionary model, demand, heterogeneity, innovation.
    JEL: C63 L22 O33
    Date: 2013–06
  10. By: Jo, Tae-Hee
    Abstract: Grounded in the methodological commitments shared by various traditions in heterodox economics, this paper explores going enterprises’ cooperative actions to control markets through social networks. It is argued that 1) market institutions are created and controlled by business enterprises and the state, that 2) competition and cooperation among business enterprises are two sides of the same coin, that 3) competition is regulated, and hence that 4) market instability is managed, if not eliminated, by those who control the market. Such arguments lead to the managed competition thesis that encompasses corporate governance, market governance, and market regulation in an integrative manner.
    Keywords: Market control, managed competition, uncertainty, instability
    JEL: B5 D40
    Date: 2013–07–01
  11. By: Athanasopoulos, Thanos (Department of Economics, University of Warwick,)
    Abstract: The frequency of upgrades in technology markets is not socially optimal when the quality improvement is negligible and smaller than the adoption cost of the new product. In monopolies, the literature has identified a sufficient factor for efficient upgrading: the firm’s power to commit to whether it will upgrade or not in the future. This is not true when an entry threat applies. In fact, it could even be that commitment is a factor of inefficiency when the market is open to competition. As shown in this paper, the incumbent’s commitment adds an additional source of inefficiency while an entry threat could dissolve social optimality.
  12. By: Escobari, Diego; Mellado, Cristhian
    Abstract: This paper estimates the demand for flights in an international air travel market using a unique dataset with detailed information not only on flight choices but also on contemporaneous prices and characteristics of all the alternative non-booked flights. The estimation strategy employs a simple discrete choice random utility model that we use to analyze how choices and its response to prices depend on the departing airport, the identity of the carrier, and the departure date and time. The results show that a 10\% increase in prices in a 100-seat aircraft throughout a 100-period selling season decreases quantity demanded by 7.7 seats. We also find that the quantity demanded is more responsive to prices for Delta and American, during morning and evening flights and that the response to prices changes significantly over different departure dates.
    Keywords: Airline demand, discrete choice, flight choice, demand estimation.
    JEL: C25 L93 R41
    Date: 2013–07
  13. By: Vera Alves (Universidade do Porto); Rosa Forte (Faculdade de Economia, Universidade do Porto, and cef.up)
    Abstract: In the last decades there has been a gradual liberalisation of international air transport markets through the implementation of open skies agreements which seek the deregulation of the air transport industry and consequently the functioning of the market in a freer way. The objective of this work is to study the effects of an open skies agreement in order to understand if the airlines and the consumers will benefit after the market deregulation. With this purpose, we developed a Cournot model to compare the initial situation (without agreement) and the situation after the implementation of the open skies agreement. Based on the model developed it can be concluded that the prices on international market segments where competition increases should decline after market liberalisation, thus benefiting consumers. Regarding the incumbent airlines in the market, an open skies agreement should jeopardize the airlines that fail to operate new routes after the agreement, leading to decreased profits.
    Keywords: Open Skies agreement; Cournot model; Effects on prices; Firms’ profits.
    JEL: D43 D21
    Date: 2013–06
  14. By: Knieps, Günter
    Abstract: The aim of this paper is to analyze the liberalization of the aviation value chain and the remaining role of government policy. In particular, the role of sector-specific regulation of monopolistic bottleneck components of the air traffic value chain is analyzed. For competition on air transport markets and groundhandling services to operate efficiently, non-discriminatory access to complementary monopolistic airport infrastructures must be guaranteed. In particular, the evolution of market driven slot allocation and the role of airport regulation is analyzed. Finally, the issue of airport subsidies is taken into consideration. --
    Date: 2013
  15. By: Caprice, Stéphane; von Schlippenbach, Vanessa
    Abstract: Consumers increasingly prefer to bundle their purchases into a single shopping trip, inducing complementaries between initially independent or substitutable goods. Taking this one-stop shopping behavior into account, we show that slotting fees may emerge as a result of a rent-shifting mechanism in a three-party negotiation framework, where a monopolistic retailer negotiates sequentially with two suppliers about two-part tariff contracts. If the goods are initially independent or sufficiently differentiated, the wholesale price negotiated with the first supplier is upward distorted. This allows the retailer and the first supplier to extract rent from the second supplier. To compensate the retailer for the higher wholesale price, the first supplier pays a slotting fee as long as its bargaining power vis-à-vis the retailer is not too large. --
    Keywords: One-stop shopping,rent-shifting,slotting fees
    JEL: L22 L42
    Date: 2013
  16. By: Ying, Xiongwei; Anders, Sven M.
    Abstract: Retailers in Canada are beginning to introduce private labels to gain vertical bargaining power over manufacturers and horizontal differentiation among retailers. Product differentiation in health and wellness is an emerging trend for both private labels and national brands. This study applies a model derived from a random utility nested logit model to estimate the extent to which consumer choice of health-related food attributes has affected retailer pricing and brand-level competition, using the Distance-Matrix (DM) approach to identify the location of both private label and national brands of canned soup market in their attribute space. It suggests that private label does not have a positive effect on retailers’ demand.
    Keywords: private label, national brand, health differentiation, distance matrix, nested logit, Food Consumption/Nutrition/Food Safety, Production Economics,
    Date: 2013
  17. By: Martin Gaynor; Carol Propper; Stephan Seiler
    Abstract: Has the introduction of greater choice and competition in healthcare in England led to improved outcomes for patients? The authors assess changes in the quality of care that hospitals provided for cardiac surgery patients following the mid-2000s reforms.
    Keywords: Demand estimation, non-price competition, health economics, patient choice, health care reform
    JEL: D12 I11 I18 L13 L30
    Date: 2013–06
  18. By: Wenzel, Tobias
    Abstract: This paper studies the impact of entry of non-banks (termed Independent Service Operators, ISOs) into ATM markets. We compare two different regimes by which the ISO may generate income: i) The ISO receives interchange fees and ii) the ISO charges consumers directly. We find that due to the entry of an ISO the size of the total ATM network increases independent of the way the ISO is financed. Account fees increase if the ISO receives interchange fees and decrease if the ISO charges consumers directly. Consumers may not benefit from the entry of the ISO. If a regulator can control the interchange fee, entry by an ISO financed through interchange fees increases consumer surplus, while the entry of a surcharging ISO decreases consumer surplus. --
    Keywords: Banking,ATM networks,Investment
    JEL: L11 L13
    Date: 2013
  19. By: Zaifu Yang; Rong Zhang; Zongyi Zhang
    Abstract: In this paper we reconsider Jansen et al.’s (2012) Cournot model of the European Union natural gas market with three major suppliers Russian Gazprom, Norwegian Statoil, and Algerian Sonatrach. To reflect Russia’s geopolitical consideration, we incorporate a relative market share to Gazprom’s objective function. Compared with Jansen et al.’s use of standard market share, our study shows that the introduction of relative market share makes it not only possible to derive the same results in a more general environment, but also permits us to obtain clear-cut quantitative analysis results for equilibrium solution, consumer surplus, and social welfare. Our analysis also demonstrates for this modiï¬ed Cournot model that by seeking a proper market share, Gazprom can achieve the same profits of a Stackelberg leader in a simultaneous move model as in the classical sequential move leader-follower model. When Gazprom pursues the control of market share besides proï¬ts, it will be good news for the EU’s consumers but bad news for its rivals.
    Keywords: Natural gas market; Cournot model; Stackelberg leader’s advantage; Nonproï¬t incentives; Relative market share; European Union
    JEL: C62 C72 L13 L95 Q41
    Date: 2013–06

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