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on Industrial Competition |
| By: | Anderson, Simon P; Erkal, Nisvan; Piccinin, Daniel |
| Abstract: | We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We first compile an IO toolkit for aggregative games. We show strong neutrality properties across market structures. The aggregator stays the same, despite changes in the number of firms and their actions. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregator alone, and that the Bertrand pricing game is aggregative. We link together the following results: merging parties' profits fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus. |
| Keywords: | aggregative games; contests; Cournot; entry; IIA property; leadership; Logit/CES; mergers; monopolistic competition; oligopoly theory; R&D; strategic substitutes and complements |
| JEL: | D43 L13 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9511&r=com |
| By: | de Clippel, Geoffroy; Eliaz, Kfir; Rozen, Kareen |
| Abstract: | Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm's price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best offer in each market; but the enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers' radar. |
| Keywords: | Limited attention |
| JEL: | C72 D43 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9553&r=com |
| By: | Bhaskar, Venkataraman |
| Abstract: | We examine buyer strategic power in the model of dynamic Bertrand-Edgeworth competition. Two sellers with a limited inventory sell to a single buyer, who has a consumption opportunity in each period. The market power of the sellers is offset by the strategic power of the buyer. By not consuming in any period, the buyer can destroy a unit of demand, thereby intensifying future price competition. If transactions are publicly observed, we find that that a strategic buyer can do significantly better than non-strategic buyers; strategic power may also give rise to inefficiencies. However, if an agent only perfectly observes those transactions in which he is directly involved, and imperfectly observes other transactions, the strategic power of the buyer is reduced, and in some cases, may be completely eliminated. This highlights the sharp discontinuity between the equilibrium outcomes between perfect and imperfect monitoring. |
| Keywords: | Bertrand-Edgeworth competition; dynamic games; imperfect monitoring; strategic buyer |
| JEL: | D43 D92 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9526&r=com |
| By: | Beker, Pablo (Department of Economics, University of Warwick); Hernando-Veciana, Angel (Universidad Carlos III de Madrid) |
| Abstract: | We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on di?erences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks. JEL classification: bidding markets ; ?nancial constraints ; markups ; money left on the table ; market shares ; industry dynamics JEL codes: L13 ; D43 ; D44 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1017&r=com |
| By: | Alexei Alexandrov (Consumer Financial Protection Bureau Washington DC); Özlem Bedre-Defolie (ESMT) |
| Abstract: | We show that a monopolist's problem of optimal advance selling strategy can be mathematically transformed into a problem of optimal bundling strategy if four conditions hold: i. consumers and the firm agree on the probability of the states occurring, ii. the firm pre-commits to the spot prices to be charged in the advance selling stage, iii. consumers are risk-neutral, and iv. consumers and the firm do not have time preferences or when they do have time preferences, they discount future at the same rate. The result allows both researchers and practitioners to apply the insights from the well-developed vast literature on bundling to advance selling problems. In particular, we show that advance selling is more profitable than spot selling when consumer valuations across the states are independent or negatively dependent or positively dependent up to a point. We furthermore illustrate the effect of advance selling on the spot prices and consumer welfare: When the firm offers advance selling discounts, sets higher spot prices, so consumers who do not buy in advance are worse off due to the firm offering advance selling discounts. We extend our analysis to the cases of more than two states and competition only in one of the states. We also show how advance selling can be used as an entry deterrence strategy. |
| Keywords: | Advance selling, bundling, price discrimination |
| JEL: | L11 D42 |
| Date: | 2013–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-13-11&r=com |
| By: | nada, BELHADJ (ISG, University of Tunis); GABSZEWICZ, Jean J. (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium.); TAROLA, Ornella (DISSE, University of Rome “La Sapienza”) |
| Abstract: | Human actions are often guided both by individual rationality and by social norms. In this paper we explore how duopoly market competition values the variants of a product, when these variants embody at different levels the requirements derived from some social norm. In a model where preferences of consumers depend partially on the levels of compliance of the variants with the social norm, we characterize the equilibrium path along which firms choose sequentially their level of compliance and their price. |
| Keywords: | social norms, others regarding preferences, vertical product differentiation |
| JEL: | D11 L13 Q58 |
| Date: | 2013–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2013043&r=com |
| By: | Benjamin R. Handel; Igal Hendel; Michael D. Whinston |
| Abstract: | This paper studies regulated health insurance markets known as exchanges, motivated by their inclusion in the Affordable Care Act (ACA). We use detailed health plan choice and utilization data to model individual-level projected health risk and risk preferences. We combine the estimated joint distribution of risk and risk preferences with a model of competitive insurance markets to predict outcomes under different regulations that govern insurers' ability to use health status information in pricing. We investigate the welfare implications of these regulations with an emphasis on two potential sources of inefficiency: (i) adverse selection and (ii) premium reclassification risk. We find that market unravelling from adverse selection is substantial under the proposed pricing rules in the Affordable Care Act (ACA), implying limited coverage for individuals beyond the lowest coverage (Bronze) health plan permitted. Although adverse selection can be attenuated by allowing (partial) pricing of health status, our estimated risk preferences imply that this would create a welfare loss from reclassification risk that is substantially larger than the gains from increasing within-year coverage, provided that consumers can borrow when young to smooth consumption or that age-based pricing is allowed. We extend the analysis to investigate some related issues, including (i) age-based pricing regulation (ii) exchange participation if the individual mandate is unenforceable and (iii) insurer risk-adjustment transfers. |
| JEL: | D82 G22 I11 I13 I18 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19399&r=com |
| By: | Kate Ho; Robin S. Lee |
| Abstract: | We examine the impact of increased health insurer competition on negotiated hospital prices. Insurer competition can lead to lower premiums and reduced industry surplus, thereby depressing hospital prices; however, hospitals may also leverage fiercer insurer competition when bargaining in order to negotiate higher prices. We rely on a theoretical bargaining model to derive a regression equation relating negotiated prices to the degree of insurer competition, and use the presence of Kaiser Permanente in a hospital's market as a measure of insurer competition. We estimate a model of consumer demand for hospitals and use it to derive many of the other independent variables specified in the regression equation. Leveraging a unique dataset on negotiated prices between hospitals and commercial insurers in California in 2004, we find that increased insurer competition reduces hospital prices on average, but has a positive and empirically meaningful effect on the prices of attractive and high utility generating hospitals. This heterogeneous effect across hospitals—which has not been emphasized in the recent literature on hospital-insurer bargaining—provides incentives for hospital investment and consolidation, and implies that hospital market power can lead to high input prices even in markets where many insurers are present. |
| JEL: | I11 L13 L40 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19401&r=com |
| By: | Jorge Valido; M. Pilar Socorro; Francesca Medda |
| Abstract: | We consider a market with a full-service (FS) carrier (the incumbent) and a low-cost (LC) carrier (the potential entrant). If the LC carrier enters the market, airlines compete in ticket prices and frequency with vertically differentiated products. The higher the frequency, the lower passenger’s generalized price. Thus, more frequency allows airlines to increase ticket prices without losing demand. In this context, we show that the incumbent may increase the frequency offered in order to deter the LC carrier entry. We show that if the airport capacity is low enough the LC carrier entry can be easily blocked or deterred. However, if the airport capacity is sufficiently high, the LC carrier entry must be accommodated. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2013-05&r=com |
| By: | Lev Ratnovski |
| Abstract: | Traditional bank competition policy seeks to balance efficiency with incentives to take risk. The main tools are rules guiding entry/exit and consolidation of banks. This paper seeks to refine this view in light of recent changes to financial services provision. Modern banking is largely market-based and contestable. Consequently, banks in advanced economies today have structurally low charter values and high incentives to take risk. In such an environment, traditional policies that seek to affect the degree of competition by focusing on market structure (i.e. concentration) may have limited effect. We argue that bank competition policy should be reoriented to deal with the too-big-to-fail (TBTF) problem. It should also focus on the permissible scope of activities rather than on market structure of banks. And following a crisis, competition policy should facilitate resolution by temporarily allowing higher concentration and government control of banks. |
| Keywords: | Banking;Banks;Competition;Risk management;Banks, Competition Policy, Macroprudential Policy, Systemic Risk. |
| Date: | 2013–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/126&r=com |
| By: | Wen Wen; Marco Ceccagnoli; Chris Forman |
| Abstract: | We examine whether the introduction of a patent commons, a special type of royalty free patent pool available to the open source software (OSS) community influences new OSS product entry by start-up software firms. In particular, we analyze the impact of The Commons—established by the Open Source Development Labs and IBM in 2005. We find that increases in the size of The Commons related to a software market increase the rate of entry in the market by start-ups using a new product based on an OSS license. The marginal impact of The Commons on OSS entry is increasing in the cumulativeness of innovation in the market and the extent to which patent ownership in the market is concentrated. |
| JEL: | L86 O34 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19394&r=com |
| By: | Simachev, Yuri; Kuzyk, Mikhail; Feygina, Vera |
| Abstract: | The main purpose of the paper is to analyze different channels for innovations. We analyze the influence of various incentives for innovation in Russian companies taking into account the organization of industries — vertical or horizontal orientation, peculiarities of corporate demography, role and motives of different owners (including government and foreign investors), demand trends, customers‘ profile, nature and intensity of competition in relevant markets. An empirical base for our study is provided by two surveys of Russian industrial companies conducted in 2011 and 2012. One of our hypotheses: in vertically organized sectors that define innovation activeness in the economy (for example, mechanical engineering), the innovative development of the head producers is constrained by the risk of technological gap with its partners in the supply chain. We find out that innovations in Russian industry spread in accordance with two main models: vertical through corporate connections, and horizontal, based on the example of foreign companies in the atmosphere of developed competition. |
| Keywords: | innovation, industrial organization, supply chain, innovation channels |
| JEL: | D22 L2 O31 |
| Date: | 2013–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49894&r=com |
| By: | Anna D’Annunzio; Antonio Russo |
| Abstract: | We investigate possible effects of network neutrality regulation on the distribution of content in the Internet. We model a two-sided market, where consumers and advertisers interact through Content Providers (CPs), and CPs and consumers through Internet Service Providers (ISPs). Multiple impressions of an ad on a consumer are partially wasteful. Thus, equilibrium ad rates decrease with the number of CPs consumers can browse. Under network neutrality, CPs can connect to any ISP for free, while in the unregulated regime they have to pay a (non-discriminatory) access fee set by the ISP.We show that universal distribution of content is always an equilibrium with net neutrality regulation. Instead, in the unregulated regime, ISPs can use access fees to rule out universal distribution when it is not profitable, i.e. when repeated impressions of an ad rapidly lose value and consumers care for content availability to a small extent. We also find that the unregulated regime is never superior to net neutrality from a welfare point of view. Consumer and advertiser surplus are weakly higher under net neutrality. ISPs are unambiguously better off in the unregulated regime, while CPs are unambiguously worse off. |
| Keywords: | Network neutrality, two-sided markets, Internet, advertising, fragmentation |
| JEL: | L1 D43 L13 L51 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2013/57&r=com |