nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒08‒23
ten papers chosen by
Russell Pittman
US Government

  1. Customer Relationship and Sales By Shouyong Shi
  2. Competing for contracts with buyer uncertainty Choosing price and quality variables By Edward Anderson; Cheng Qian
  3. Consumers' Imperfect Information and Price Rigidities By Jean-Paul L'Huillier
  4. Reputations in Repeated Games, Second Version By George J. Mailath; Larry Samuelson
  5. Theory and Measurement of Competitiveness By Rantala, Olavi
  6. A look at both sides of the coin: Investigating the protective and the disclosure effect of patenting By Heger, Diana; Zaby, Alexandra K.
  7. A Macroeconomic Model of Imperfect Competition with Patent Licensing By Hui-ting Hsieh; Ching-chong Lai
  8. Does State Antitrust Enforcement Drive Establishment Exit? By Robert M. Feinberg; Thomas A. Husted; Florian Szucs
  9. Price Competition in an Inflationary Environment By Duersch, Peter; Eife, Thomas
  10. Competition in bank-provided payment services By Bolt, Wilko; Humphrey, David

  1. By: Shouyong Shi (University of Toronto)
    Abstract: I analyze a search equilibrium of a large market where customer relationship arises endogenously together with service priority and sales. A buyer is related to a seller if he just purchased from the seller, and the relationship is broken if the buyer fails to buy from the seller. I prove that there exists a unique equilibrium where it is optimal for a buyer to make repeat purchases from the related seller and optimal for a seller to give service priority to the related buyer. Moreover, a related seller posts a (high) regular price, and an unrelated seller posts a (low) sale price with the intention to revert to the regular price once he gains a relationship. The fraction of related sellers is endogenous. I examine how market conditions affect the stock of relationships, markups, the size and the duration of a sale.
    Date: 2013
  2. By: Edward Anderson (The University of Sydney Business School); Cheng Qian
    Abstract: We model a situation in which a single firm evaluates competing suppliers and selects just one. Suppliers submit bids involving both price and quality variables. The buyer makes a choice which from the supplier's perspective appears to contain a stochastic element - for example the buyer may have information, which is not shared with the suppliers, and that gives one supplier an advantage in the final choice. We use a discrete choice model of buyer choice (e.g. multinomial logit). Our main result is that the supplier's choice of the quality variables is not affected by the competitive environment. Thus the suppliers compete only on price. We compare this with a second model in which the buyer's weighting on different quality variables is uncertain at the time bids are made.
    Keywords: Supplier choice, Quality variables, Nash equilibrium, Types of uncertainty
    Date: 2013–05
  3. By: Jean-Paul L'Huillier (Einaudi Institute for Economics and Fina)
    Abstract: This paper develops a model of price rigidities and information diffusion in decentralized markets with private information. First, I provide a strategic microfoundation for price rigidities, by showing that firms are better off delaying the adjustment of prices when they face a high number of uninformed consumers. Second, in an environment where consumers learn from firms' prices, the diffusion of information follows a Bernoulli differential equation. Therefore, learning follows nonlinear dynamics. Third, the price rigidity produces an informational externality that affects welfare. Fourth, the dynamics of output and inflation are hump-shaped due to consumer learning.
    Date: 2013
  4. By: George J. Mailath (Department of Economics, University of Pennsylvania); Larry Samuelson (Department of Economics, Yale University)
    Abstract: This paper, prepared for the Handbook of Game Theory, volume 4 (Peyton Young and Shmuel Zamir, editors, Elsevier Press), surveys work on reputations in repeated games of incomplete information.
    Keywords: commitment, incomplete information, reputation bound, reputation effects, long-run relationships, reputations
    JEL: C70 C73
    Date: 2013–06–27
  5. By: Rantala, Olavi
    Abstract: The study deals with the theory and measurement of competitiveness. The basic theory of firm implies that under constant returns to scale the unit cost of production can be used to measure the marginal cost of production and to model the impact of competitiveness on the market share of a firm. The competitiveness and the market share of a firm is the lower the higher its unit costs are compared to the average unit costs of all firms in the market. Empirical measurement of the unit costs of the Finnish industry is made with respect to Germany. It turns out that the unit costs of the Finnish industry have risen higher than the unit costs of the German industry since 2005, calculated without the effect of electronics industry. In addition to production costs the study deals with the theoretical and empirical impact of transportation costs on competitiveness in export markets. This is an important issue for Finland locating geographically far away from the main markets of the world. A major disadvantage for the future competitiveness of Finnish export industry will be the EU sulphur directive and the possible inclusion of shipping into the EU emissions trading scheme. The longer marine transportation distance from Finland means that Finland will lose competitiveness for example compared to Germany.
    Keywords: competitiveness, imperfect competition, production costs, transportation costs
    JEL: C67 D43 F12
    Date: 2013–08–14
  6. By: Heger, Diana; Zaby, Alexandra K.
    Abstract: This paper presents a theoretical and empirical investigation of the two basic effects of patenting: the positive effect of temporarily mitigating competition, and the negative effect of mandatory disclosure of a patent application. Providing empirical evidence for the presented theoretical results we find that (i) a technological lead and the propensity to patent are negatively related as opposed to common intuition, (ii) in industries with imperfect appropriability in case of secrecy the extent of the technological lead is positively associated with the propensity to patent, and that (iii) the intensity of patent protection mitigates the competitive threat a patentee faces. --
    Keywords: patenting decision,disclosure requirement,patent scope,vertical product differentiation,IPC codes
    JEL: L13 O14 O33 O34
    Date: 2013
  7. By: Hui-ting Hsieh (Department of Economics, National Chung Cheng University, Taiwan); Ching-chong Lai (Institute of Economics, Academia Sinica, Taipei, Taiwan; Department of Economics, National Cheng Chi University, Taiwan; Institute of Economics, National Sun Yat-Sen University, Taiwan)
    Abstract: This paper sets up an imperfectly competitive macroeconomic model that features the strategic interaction between the patent-holding firm and licensees, and uses it to analyze the relevant macro variables under various licensing arrangements. Some main findings emerge from the analysis. First, the equilibrium aggregate output and aggregate consumption under fixed-fee and royalty licensing regimes are always greater than those under the no licensing regime. Moreover, the equilibrium aggregate output and consumption under the fixed-fee licensing regime are always greater than those under the royalty licensing regime. Second, with the higher (lower) technology level the patent-holder prefers the fixed-fee (royalty) contract. Third, welfare could be improved through technology transfer, and the level of welfare under the fixed-fee licensing regime is higher than that under the royalty licensing regime.
    Keywords: Imperfect competition, Macroeconomic model, Fixed-fee licensing, Royalty licensing
    JEL: D45 E10 L16
    Date: 2013–08
  8. By: Robert M. Feinberg; Thomas A. Husted; Florian Szucs
    Abstract: Previous work has shown that state-level antitrust enforcement activity may have impacts on entry and relocation behavior by U.S. firms. Significant state-level antitrust activity may be an indicator of a perceived adverse business environment and it is found to deter establishment entry, particularly for larger firms in the retail and wholesale sectors. An obvious question is whether establishment exit is affected in a symmetric way, or whether sunk costs of market entry may lead to a smaller impact in terms of the exit decisions. We first combine US Census establishment exit panel data with data for 1998-2006 on US state-level antitrust activity and other measures of state-level business activities that may affect establishment exit. We also consider establishment exit across different broad industry types -- manufacturing, retail and wholesale -- and several firm size categories. Local business cycle factors seem to be the primary driver of exit, though there is some evidence of political and antitrust determinants as well. In another approach, we examine firm-level exit decisions and the extent to which these respond to state antitrust enforcement, with some indication of antitrust enforcement effects here as well, especially in the wholesale and retail sectors. JEL classification:
    Date: 2013
  9. By: Duersch, Peter; Eife, Thomas
    Abstract: We study how inflation and deflation affect firms' ability to cooperate in an experimental Bertrand duopoly with differentiated products. We find that there is significantly less cooperation in the treatments with inflation and deflation compared to the no-inflation treatments. The difficulties to cooperate affect prices and welfare: Depending on the market structure, inflation and deflation lead to significantly lower (real) prices and higher welfare.
    Keywords: Bertrand Duopoly; Inflation; Experiment; Money Illusion
    Date: 2013–08–13
  10. By: Bolt, Wilko; Humphrey, David
    Abstract: Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system, it is important to maintain competition among payment service providers but data available to gauge the degree of competition are quite limited. We propose and implement a frontierbased method to assess relative competition in bank-provided payment services. Billion dollar banks account for around ninety percent of assets in the US and those with around to billion in assets turn out to be both the most and the least competitive in payment services, not the very largest banks. JEL Classification: G21 L80 L00
    Keywords: banks, competition, frontier analysis, payments
    Date: 2013–04

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