nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒09‒13
twenty-one papers chosen by
Russell Pittman
US Government

  1. Dominance and Competitive Bundling By Hurkens, Sjaak; Jeon, Doh-Shin; Menicucci, Domenico
  2. Merger Externalities in Oligopolistic Markets By Klaus Gugler; Florian Szücs
  3. Bertrand Competition under Network Externalities By Masaki Aoyagi
  4. Passive partial ownership, sneaky takeover, and merger control By Jovanovic, Dragan; Wey, Christian
  5. Competition, strategic delegation and delay in technology adoption By A. Mahati; Rupayan Pal
  6. Innovation in a generalized timing game By Smirnov, Vladimir; Wait, Andrew
  7. The value of disclosing IPR to open standard setting organizations By Hussinger, Katrin; Schwiebacher, Franz
  8. Sources of spillovers for imitation and innovation By Cappelli, Riccardo; Czarnitzki, Dirk; Kraft, Kornelius
  9. Evolution of Standards and Innovation By AOKI Reiko; ARAI Yasuhiro
  10. The Determinants of R&D Investment: An Empirical Survey By Bettina Becker
  11. A primer on damages of cartel suppliers: Determinants, standing US vs. EU and econometric estimation By Bueren, Eckart; Smuda, Florian
  12. As-Efficient Competitor Test in Exclusionary Prices Strategies: Does Post-Danmark Really Pave the Way towards a More Economic Approach? By Frédéric Marty
  13. Communication in procurement: silence is not golden By Lucie Ménager
  14. Does State Antitrust Enforcement Drive Establishment Exit? By Robert M. Feinberg; Thomas A. Husted; Florian Szücs
  15. Industrial Seigniorage, the Other Face of Competition By Jordan Melmiès
  16. Industry structure dynamics and productivity growth By Lech Kalina
  17. Clustering Properties of Merger Waves: Space, Time or Industry? By Florian Szücs
  18. NYSE changing hands: Antitrust and attempted acquisitions of an erstwhile monopoly By Jeitschko, Thomas D.
  19. R&D, IP, and firm profits in the automotive supplier industry By Stefan Lutz
  20. Do trademarks diminish the substitutability of products in innovative knowledge-intensive services? By Crass, Dirk; Schwiebacher, Franz
  21. Why are product prices in online markets not converging? By Takayuki Mizuno; Tsutomu Watanabe

  1. By: Hurkens, Sjaak; Jeon, Doh-Shin (TSE); Menicucci, Domenico
    Abstract: We study bundling by a dominant multi-product rm facing competition from a rival multi-product rm. Compared to competition under independent pricing, competition under pure bundling reduces (increases) each rm's prot for low (high) levels of dominance, while for intermediate levels of dominance, it increases the dominant rm's prot but reduces the rival's prot. The latter result provides a justication for the use of contractual bundling to build entry barrier. When we allow for mixed bundling, we nd a threshold level of dominance above which the unique outcome is the one under pure bundling.
    JEL: D43 L13 L41
    Date: 2013–08–13
  2. By: Klaus Gugler; Florian Szücs
    Abstract: We quantify externalities on profitability and market shares of competing firms in oligopolistic markets through the transition from an n to an n - 1 player oligopoly after a merger. Competitors are identified via the European Commission's market investigations and our methodology allows us to distinguish the externality due to the change in market structure from the merger effect. We obtain results consistent with the predictions of standard oligopoly models: rivals expand their output and increase their profits, whereas merging firms are negatively affected. This indicates that on average the market power effects of large mergers outweigh the efficiencies.
    JEL: L13 L40 G34
    Date: 2013
  3. By: Masaki Aoyagi
    Abstract: Two sellers engage in price competition to attract buyers located on a network. The value of the good of either seller to any buyer depends on the number of neighbors on the network who consume the same good. For a generic specification of consumption externalities, we show that an equilibrium price equals the marginal cost if and only if the buyer network is complete or cyclic. When the externalities are approximately linear in the size of consumption, we identify the classes of networks in which one of the sellers monopolizes the market, or the two sellers segment the market.
    Date: 2013–09
  4. By: Jovanovic, Dragan; Wey, Christian
    Abstract: We analyze horizontal mergers when the acquirer holds a passive partial ownership stake (PPO) in the target firm prior to the merger. We show that a PPO reduces the minimal synergy level necessary to make a merger beneficial for consumers. It follows that an antitrust authority ignoring existing PPOs when evaluating merger proposals (which reflects the current EU merger control regime) invites sneaky takeovers: Acquiring firms strategically use PPOs prior to a full merger proposal to get mergers approved which are, in fact, detrimental to consumers. --
    Keywords: Horizontal Mergers,(Passive) Partial Ownership,Antitrust,Synergies,Sneaky Takeovers
    JEL: D43 K21 L13 L41
    Date: 2013
  5. By: A. Mahati (Indira Gandhi Institute of Development Research); Rupayan Pal (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines how strategic managerial delegation affects firms' timing of adoption of a new technology under different modes of product market competition. It demonstrates that delegation has differential impacts on adoption dates under Cournot and Bertrand competition. Delegation with 'own-performance' based incentive schemes always leads to early adoption in markets with Bertrand competition compared to that under no-delegation, but not necessarily so in markets with Cournot competition. It also shows that the ranking of Cournot and Bertrand equilibria in terms of delay in adoption depends on the type of managerial incentive schemes. Adoption occurs earlier (later) in markets with Cournot competition than in markets with Bertrand competition, if product differentiation is high (low), regardless of whether there is no-delegation or delegation with 'own-performance' based incentive schemes. In contrast, under strategic delegation with 'relative-performance' based incentive schemes, adoption dates do not differ across markets with different modes of competition.
    Keywords: Technology adoption, Strategic delegation, Own-performance, Relative-performance, Cournot, Bertrand
    JEL: L13 L22 O31 O32 O33
    Date: 2013–08
  6. By: Smirnov, Vladimir; Wait, Andrew
    Abstract: We examine innovation as a timing game with complete information and observable actions in which firms decide when to enter a market. We characterize all pure strategy subgame perfect equilibria for the two-player symmetric game. In particular, we describe all subgame perfect equilibria when both the leader's and the followers' payoff functions are multi-peaked, non-monotonic and discontinuous. We find that there are potentially multiple equilibria, which could involve: joint adoption by both firms, with and without rent equalization; and, alternatively, single-firm adoption with a second-mover advantage. Economic applications are discussed including process and product innovation and the timing of the sale of an asset.
    Keywords: product innovation; process innovation; follower; leader; entry; timing games
    Date: 2013–08
  7. By: Hussinger, Katrin; Schwiebacher, Franz
    Abstract: Open standard-setting organizations (SSOs) have emerged as important coordination and diffusion mechanism for information and communication technologies. Open standards are developed non-discriminatorily and licensed to anybody at reasonable and non-discriminatory terms. Little is known about the value of IP contributions to open standards for technology providers. This paper provides a large-scale empirical assessment thereof. Our findings show that disclosure of standard-relevant IP ownership is valued positively by financial markets only if the disclosure refers explicitly to associated patents. The loss of exclusivity to IPR appears to be outweighed by the expected benefits from open standards. Patents appear to signal the technological quality of IP contributions from firms with low R&D intensities. --
    Keywords: Open standards,IP disclosures,market value
    JEL: O32 O34 L15
    Date: 2013
  8. By: Cappelli, Riccardo; Czarnitzki, Dirk; Kraft, Kornelius
    Abstract: We estimate the effect of R&D spillovers on sales realized by products new to the firm (imitation) and new to the market (innovation). It turns out that spillovers from rivals lead to more imitation, while inputs from customers and research institutions enhance original innovation. --
    Keywords: innovation,imitation,spillovers
    JEL: L12 O31 O32
    Date: 2013
  9. By: AOKI Reiko; ARAI Yasuhiro
    Abstract: We present a framework to examine how a standard evolves when a standard consortium or firm (incumbent) innovates either to improve the standard or to strengthen the installed base which increases switching cost. By investing also in technology improvement, both investments make it more difficult for another firm (entrant) to introduce a standard. Our analysis shows that that the incumbent's strategy will differ according to whether the technology is in its infancy or if it has matured, but the existing standard will never be replaced by the entrant. Stability of a standard consortium standard has dynamic benefits in that it prevents replacement by an entrant. The incumbent deters entry when the technology is in its infancy but allows entry and co-existence of two standards when the technology is mature. This implies that dominance of a single standard even for well-established technologies suggests some market power by the incumbent. Our results also indicate that superior technology will never be sufficient to overtake an existing standard.
    Date: 2013–09
  10. By: Bettina Becker (School of Business and Economics, Loughborough University, UK)
    Abstract: This paper offers an extensive survey and a critical discussion of the empirical literature on the driving factors of R&D. These factors are subsumed under five broad types. The paper first summarises the key predictions from theory regarding each type's R&D effect. It then examines for which factors differences in the theoretical predictions can also be found in empirical studies, and for which factors the empirical evidence is more unanimous. As the focus is on the empirical literature, methodological issues are also highlighted. The major factor types identified in the literature are, individual firm or industry characteristics, particularly internal finance and sales; competition in product markets; R&D tax credits and subsidies; location and resource related factors, such as spillovers from university research within close geographic proximity, membership of a research joint venture and cooperation with research centres, and the human capital embodied in knowledge workers; and spillovers from foreign R&D. Although on balance there is a consensus regarding the R&D effects of most factors, there is also variation in results. Recent work suggests that accounting for nonlinearities is one area of research that may explain and encompass contradictory findings.
    Keywords: R&D; R&D policy; innovation policy; financial constraints; competition; public funding; knowledge spillovers.
    JEL: G20 G28 M15
    Date: 2013–08
  11. By: Bueren, Eckart; Smuda, Florian
    Abstract: While private actions for damages by customers against price-cartels receive much attention, the treatment of other groups affected by such conspiracies is largely unresolved. This article narrows the research gap with respect to suppliers to a downstream price cartel. First, we show that such suppliers incur losses driven by a direct quantity, a price and a cost effect. We then analyze whether suppliers are entitled to claim these losses as damages in the two leading competition law regimes. We find that, while the majority view in the US denies standing, the emerging position in the EU and important member states is to grant supplier standing. We argue that this can indeed be justified in view of the different institutional context and the goals assigned to the right to damages in the EU. We finally present an econometric approach based on residual demand estimation that allows to quantify all determinants of cartel suppliers' damages, thereby showing that supplier damage claims are a viable option in practice that can contribute to full compensation and greater cartel deterrence. --
    Keywords: Competition policy,cartels,suppliers,damage quantification,standing,private enforcement,comparative law
    JEL: L41 K21
    Date: 2013
  12. By: Frédéric Marty
    Abstract: The Post Danmark judgment may cast the light on the interpretations by the EU Court of Justice of crucial dimensions of the competition policy as: selective price cuts, above-cost rebates, costs test for exclusionary abuses with common costs. As we see one of the main interests of the decision lies on the cost criteria used by the Court to determine if a given price practice may exclude a competitor as efficient as the incumbent. In other words, does Post Danmark constitutes a real step towards the appropriation by the Court of Justice of the more economic approach promoted by the Commission and, more broadly, is really the logic of the Court coherent with an effects-based approach? Does Post Danmark conciliates the traditional decisional practice of the Court with the new principles of competition policy enforcement advocated by the Commission since the issuance of its February 2009 guidelines, relative to the exclusionary practices of dominant undertakings?
    Keywords: exclusionary practices, abuse of dominant position, predatory pricing, as-efficient competitor test
    JEL: K21 L43 L44 L97
    Date: 2013–07
  13. By: Lucie Ménager (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442, EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille III - Sciences humaines et sociales)
    Abstract: We study the effect of cheap talk between bidders on the outcome of a first-price procurement game with N sellers in which bidding is costly. Although no side-payements or commitments are allowed, we show that the game admits a unique family of symmetric equilibria in which sellers use communication to collude on a subset of participants and/or to reveal information about their valuation. Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost.
    Keywords: Communication; procurement; collusion
    Date: 2013–08–16
  14. By: Robert M. Feinberg; Thomas A. Husted; Florian Szücs
    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 firmlevel 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.
    Keywords: antitrust enforcement, state level, firm exit
    JEL: K21 L41 L60 L81
    Date: 2013
  15. By: Jordan Melmiès
    Abstract: This paper tries to develop an original view on industrial practices in competitive capitalist economies. In particular, we question the link between prices, competition and the quality of goods and services. We try to show that it is rational for firms to try to reduce the quality and/or the identity of goods and services while still presenting theses goods and services as the same as before, in order to reduce their prices and so to improve their relative position in the competitive struggle and in order to increase their profits. By reducing quality, we mean the practice that consists of mixing inputs at the margin with cheaper ones or with alternative products that give weight. This practice reminds us of the old Seigneurs who used to mix gold with other metals to produce more coins. That’s why we propose to label this practice 'industrial seigniorage'. The article first tries to delineate the widespread existence of this practice among French firms, and then explains the fundamental elements of (Post Keynesian) consumers' behaviour which allow for this practice to exist. We especially insist on the inability of the consumer to evaluate the quality of goods and services, and his inability to distinguish a good which have been modified at the margin. In a third part, we analyze the phenomenon of industrial seigniorage in a kaleckian model. We show the impact on sectoral profit rates and on prices, as well as the global and macroeconomic consequences on growth, distribution and employment.
    Keywords: Industrial seigniorage, Input substitution, product downsizing, Post Keynesian economics, Stock-Flow consistent modelling
    JEL: B50 D11 D20
    Date: 2013–07
  16. By: Lech Kalina (Warsaw School of Economics)
    Abstract: Economic theory typically predicts that productivity should increase when a firm’s market is expanding since the benefits of reducing costs are higher when spread across a larger market. On the other hand there is a strong line of research stressing the positive impact of increasing competition and claiming that productivity should jump when a firm’s market is being squeezed by new compe titors. This paper investigates the effects of industry structure dynamics on productivity growth on panel data from industries of ten European countries. The econometric results provide empirical support for p ositive impact of less fragmented market stru ctures on productivity, however results also point out the important role which dynamics of firms turnover play in industry performance.
    JEL: D4 L1
    Date: 2013–09–04
  17. By: Florian Szücs
    Abstract: We study the degree of agglomeration of acquisition activity within clusters of temporal, geographic and industrial proximity based on almost 600,000 individual transactions. The findings indicate that significant clustering occurs in time and across industries, while the results on geographic clustering are mixed. This supports the view that merger waves are mostly driven by neoclassical motives.
    Keywords: Merger wave, clustering, acquisitions, neoclassical, behavioral
    JEL: L2 G3
    Date: 2013
  18. By: Jeitschko, Thomas D.
    Abstract: The Intercontinental Exchange's current attempted acquisition of NYSE-Euronext is the third takeover proposal in as many years. In this article the two previous attempts are reviewed and lessons are drawn from an antitrust and competition policy perspective concerning the evolving competitive landscape of exchanges. --
    Keywords: NYSE-Euronext,Deutsche Börse,Nasdaq,Intercontinental Exchange,Direct Edge,BATS Global Markets,Stock Exchanges,Derivatives Markets,Mergers,Acquisitions,Antitrust,US Department of Justice,European Competition Commission,DGComp,SEC
    Date: 2013
  19. By: Stefan Lutz
    Date: 2013
  20. By: Crass, Dirk; Schwiebacher, Franz
    Abstract: Trademarks are often supposed to reduce substitutability and imitability of product innovations. Using German CIS data for 2010, we provide empirical evidence that trademarking firms assess easy product substitutability as less characteristic for their competitive environment. This is particularly the case for knowledge-intensive service providers, product innovators and firms which consider trademarks as important intellectual property rights. This suggests that trademarks are an important supplementary mechanism to protect innovations in knowledgeintensive services. --
    Keywords: Trademarks,product differentiation,innovation,services
    JEL: O32 O34
    Date: 2013
  21. By: Takayuki Mizuno (National Institute of Informatics, Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies)
    Abstract: Why are product prices in online markets dispersed in spite of very small search costs? To address this question, we construct a unique dataset from a Japanese price comparison site, which records price quotes offered by e-retailers as well as customers’ clicks on products, which occur when they proceed to purchase the product. We find that the distribution of prices retailers quote for a particular product at a particular point in time (divided by the lowest price) follows an exponential distribution, showing the presence of substantial price dispersion. For example, 20 percent of all retailers quote prices that are more than 50 percent higher than the lowest price. Next, comparing the probability that customers click on a retailer with a particular rank and the probability that retailers post prices at a particular rank, we show that both decline exponentially with price rank and that the exponents associated with the probabilities are quite close. This suggests that the reason why some retailers set prices at a level substantially higher than the lowest price is that they know that some customers will choose them even at that high price. Based on these findings, we hypothesize that price dispersion in online markets stems from heterogeneity in customers’ preferences over retailers; that is, customers choose a set of candidate retailers based on their preferences, which are heterogeneous across customers, and then pick a particular retailer among the candidates based on the price ranking.
    Date: 2013–04

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