nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒09‒25
five papers chosen by
Russell Pittman
US Government

  1. Umbrella Effects By Roman Inderst; Frank Maier-Rigaud
  2. Sensitivity Analysis of the Newsboy Model By Khanra, Avijit; Soman, Chetan A.
  3. Towards a European Directive on Damages Actions By Frank Maier-Rigaud
  4. Tick Size Regulation and Sub-Penny Trading By Sabrina Buti; Barbara Rindi; Yuanji Wen; Ingrid M. Werner
  5. Internet banking: an exploration in technology diffusion and impact By Richard Sullivan; Zhu Wang

  1. By: Roman Inderst (Johann Wolfgang Goethe-Universität, Frankfurt/Main); Frank Maier-Rigaud (IESEG School of Management (LEM-CNRS))
    Abstract: We analyse the key determinants of umbrella effects, which arise when the price increase or quantity reduction of a cartel diverts demand to substitute products. Umbrella effects arise irrespective of whether non cartelists act as price takers (“competitive fringe”) or respond strategically to the increased demand. Sizable umbrella effects can also arise when non-cartelists are outside the relevant market (in the sense of a SSNIP test), provided that the cartel’s price increase is substantial. Further, a shift of demand to non-cartelists, triggering a price increase, can be induced also when their purchasers themselves benefit from higher demand as rivals purchase from the cartel and pass-on the respective price increase. To identify the actual damage it is thus key to take into account the overall adjustments among cartel members and outsiders as well as their respective, potentially competing purchasers. We also discuss how future analysis of the endogenous formation of cartels with partial market coverage should inform theories of the determinants of umbrella effects.
    Keywords: umbrella effect, partial cartel, pass-on, cartel effect, quantification of damages, merger effects, private enforcement, standing, market definition, cellophane fallacy, antitrust
    JEL: K21 L13 L41
    Date: 2013–07
  2. By: Khanra, Avijit; Soman, Chetan A.
    Abstract: Sensitivity analysis is an integral part of inventory optimization models due to uncertainty associated with estimates of model parameters. Though the newsboy problem is one of the most researched inventory problems, very little is known about its robustness. We study sensitivity of expected demand-supply mismatch cost to sub-optimal ordering decisions in the newsboy model. Conditions for symmetry (skewness) of cost deviation have been identied and magnitude of cost deviation is demonstrated for normal demand distribution. We found the newsboy model to be sensitive to sub-optimal ordering decisions, much more sensitive than the economic order quantity model.
  3. By: Frank Maier-Rigaud (IESEG School of Management (LEM-CNRS))
    Abstract: This paper critically reviews the European Commission’s proposed Directive on future rules concerning actions for damages for competition law infringements under national law. It is argued that the proposal underestimates the importance of loss of profits induced by increased prices and does little in ensuring that such effects will receive an equal treatment to price effects in damage claims. The paper suggests that the importance of such effects could have been emphasized by introducing a rebuttable presumption on lucrum cessans based on pass-on considerations – paralleling the presumption on overcharge. Furthermore, the decision to leave questions of causality to national tort laws is criticized as a harmonized regulation of claims based on the merits of the evidence presented would have been a superior tool, in line with a more economic approach and better suited for achieving the goal of compensation for any victim due to its intrinsic flexibility. Finally the notion that legally relevant damages only accrue within a vertical value chain is challenged.
    Keywords: quantification of damages, pass-on, passing-on defence, overcharge, unjust enrichment, private enforcement, lucrum cessans, quantity effect, damnum emergens, price effect, burden of proof, standard of proof, tort law, compensation, presumption
    JEL: K21 K40 L40
    Date: 2013–07
  4. By: Sabrina Buti; Barbara Rindi; Yuanji Wen; Ingrid M. Werner
    Abstract: We show that following a tick size reduction in a decimal public limit order book (PLB) market quality and welfare fall for illiquid but increase for liquid stocks. If a Sub-Penny Venue (SPV) starts competing with a penny-quoting PLB, market quality deteriorates for illiquid, low priced stocks, while it improves for liquid, high priced stocks. As all traders can demand liquidity on the SPV, traders' welfare increases. If the PLB facing competition from a SPV lowers its tick size, PLB spread and depth decline and total volume and welfare increase irrespective of stock liquidity.
    Date: 2013
  5. By: Richard Sullivan; Zhu Wang
    Abstract: This paper studies the diffusion and impact of a cost-saving technological innovation—Internet banking. Our theory characterizes the process through which the innovation is adopted sequentially by large and small banks, and how the adoption affects bank size distribution. Applying the theory to an empirical study of Internet banking diffusion among banks across 50 U.S. states, we examine the technological, economic and institutional factors governing the process. The empirical findings allow us to disentangle the interrelationship between Internet banking adoption and change in average bank size, and explain the variation in diffusion rates across geographic regions.
    Date: 2013

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