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on Industrial Competition |
| By: | Acemoglu, Daron (MIT, CEPR and NBER); Akcigit, Ufuk (University of Pennsylvania and NBER); Bloom , Nicholas (Stanford University, NBER and CEPR); Kerr , William (Harvard University, Bank of Finland, and NBER) |
| Abstract: | We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry. |
| Keywords: | entry; growth; industrial policy; innovation; R&D; reallocation; selection |
| JEL: | E02 L11 O31 O32 O33 |
| Date: | 2013–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_022&r=com |
| By: | Lei Ji (Ofce sciences-po,skema Business school) |
| Abstract: | I consider directed technical change in an economy where market structure is endogenous. Endogeneity of market structure leads to both theoretical and empirical implications that are substantially different from those in the existing literature and that in some cases are rather surprising. There are two dimensions of directed technical change: directed firm entry new firms enter the industry with higher returns and directed in-house research and development (R&D is higher in the industry with higher returns.). Directed firm entry responds to the industry market size effect and the price effect as in the existing literature. In sharp contrast to the existing literature, directed R&D depends on firm rather than industry market size. Furthermore, the firm’s market size is endogenous, and its response to economic conditions affect several results on the behavior of directed technical change. The endogeneity of firm size has generally been ignored in the previous literature. Directed technical change alters the relative demands for factors of production and leads to a change in relative factor returns. Directed firm entry changes relative factor returns through a social return to variety an externality, and directed RD changes relative factor returns through changes in relative factor productivities. Empirically, the second channel is the main force shaping relative factor productivities and hence relative factor returns. The model also includes fixed operating cost, which turns out to be important for the direction of RD and for the existence of balanced growth path BGP for the economy. The model provides a complete solution for the economy’s transition dynamics as well as its balanced growth path. |
| Keywords: | Directed technical change.Endogenous market structure,Relative factor returns |
| JEL: | E25 O30 O31 O33 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1318&r=com |
| By: | Baumann, Florian; Friehe, Tim |
| Abstract: | This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model à la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing. -- |
| Keywords: | product market competition,crime,deterrence,market entry |
| JEL: | K14 K23 L13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:110&r=com |
| By: | Schön, Benjamin; Pyka, Andreas |
| Abstract: | With mergers & acquisitions playing an increasingly important role in today's business world, academic research has strived to follow this trend by investigating their underlying causes and consequences. For a long time this research focused on the analysis of the financial effect of mergers & acquisitions as measured by market value or debt level. Thus, despite being a major vehicle of industry concentration and method of reallocation of resources, the technological impact of mergers & acquisitions remained comparatively underinvestigated for a long time. This, however, has changed in recent years. With the prevalence of the resource-based view and its derivates as the dominant logic in analysing today's knowledge-intensive industries the focus shifted towards the technological aspects of mergers & acquisitions. With both mergers & acquisitions and innovation being centrepieces of competitive strategies in the modern economy, it is of central importance to understand the consequences of mergers & acquisitions for the innovative potential of firms. After more than twenty years of research in this field, it is time to take stock of what we know about the technological impact of mergers & acquisitions and its determinants. The aim of this paper is to provide an overview of the respective research by performing a meta-analysis of the empirical studies in the field. The intuitive setup allows for a detailed analysis of the individual determinants while differentiating between the impact on innovation input and output. We identify the knowledge characteristics of the partnering firms as being essential to the technological success of mergers & acquisitions. Important implications for policy makers, practitioners and future research are derived. -- |
| Keywords: | Innovation,Mergers and Acquisitions |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:782013&r=com |
| By: | Emilie Dargaud (University of Lyon & CNRS & GATE); Andrea Mantovani (University of Bologna & IEB); Carlo Reggiani (University of Manchester) |
| Abstract: | The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred. |
| Keywords: | Cartel policy, managerial firms, collusion |
| JEL: | K21 L44 K42 L21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2013/6/doc2013-31&r=com |
| By: | Laitenberger, Ulrich; Smuda, Florian |
| Abstract: | We use consumer panel data to calculate the damage suffered by German consumers due to a detergent cartel that was active between 2002 and 2005 in eight European countries. Applying before-and-after and difference-in-differences estimations we find average overcharges between 6.7 and 6.9 percent and an overall consumer damage of about 13.2 million Euro over the period from July 2004 until March 2005. Under the assumptions that the cartel-induced share on turnover is representative for the entire cartel period and all affected markets, the overall consumer damage would even sum up to about 315 million Euro. Our results further suggest that the retailers reacted to the price increases of the cartel firms via price increases for their own detergent products, resulting in significant umbrella effects. We quantify the damage due to this umbrella pricing to a total of about 7.34 million Euro. With respect to the discussion whether special procedures for bringing collective actions should be available in the EU, our results are important to the extent that we show how consumer associations can use consumer panel data in order to claim damages before national courts and thereby actively fulfill their mandate of consumer protection. -- |
| Keywords: | cartels,damages,consumers,detergents,private damage claims |
| JEL: | L13 L41 L44 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13069&r=com |
| By: | Normann, Hans-Theo; Tan, Elaine S. |
| Abstract: | We analyze the effects of cartel policies on firm behavior using data from the German power-cable cartel. Antitrust authorities affected the cartel under two different legal regimes: penalizing the cartel in some years, and exempting it for ten years from the general cartel prohibition. While penalties did not reduce prices or profits, making collusion legal raised profits by at least 16% each year, compared to the time when the illegal cartel was not prosecuted. The threat of penalties was sufficient to reduce profit from collusion. The intended efficiency gains from rationalization, which was the justification for legalizing the cartel, did not materialize. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:108&r=com |
| By: | Timo Hiller; Timo Hiller |
| Abstract: | This paper presents a simple model of strategic network formation with local complementarities in effort levels and positive local externalities for a general class of payoff functions. Results are obtained for one-sided and two-sided link creation. In both cases (pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. The relevance of the convexity of the value function (gross payoffs as a function of neighbours' effort levels when best responding) in obtaining nested split graphs is highlighted. Under additional assumptions on payoffs, we show that the only efficient networks are the complete and the empty network. Furthermore, there exists a range of linking cost such that any (pairwise) Nash equilibrium is inefficient and for a strict subset of this range any (pairwise) Nash equilibrium network structure is different from the efficient network. These findings are relevant for a wide range of social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of rms. |
| Keywords: | Strategic network formation, peer effects, strategic complements, positive externalities. |
| JEL: | D62 D85 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:stitep:/2013/564&r=com |
| By: | Cremers, Katrin; Ernicke, Max; Gaessler, Fabian; Harhoff, Dietmar; Helmers, Christian; McDonagh, Luke; Schliessler, Paula; Van Zeebroeck, Nicolas |
| Abstract: | We compare patent litigation cases across four European jurisdictions - Germany, France, the Netherlands, and the UK - covering cases filed during the period 2000-2008. For our analysis, we assemble a new dataset that contains detailed information at the case, litigant, and patent level for patent cases filed at the major courts in the four jurisdictions. We find substantial differences across jurisdictions in terms of case loads. Courts in Germany hear by far the largest number of cases in absolute terms, but also when taking country size into account. We also find important between-country differences in terms of outcomes, the share of cases that is appealed, as well as the characteristics of litigants and litigated patents. A considerable number of patents are litigated in multiple jurisdictions, but the majority of patents are subject to litigation only in one of the four jurisdictions. -- |
| Keywords: | Patent litigation,Europe |
| JEL: | O34 K11 K41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13072&r=com |
| By: | Roberto Burguet; Ramon Caminal; Matthew Ellman |
| Abstract: | In a micro-founded model, we derive novel incentives for a monopoly search engine to distort its organic and its sponsored results on searches for online content and offline products. Distorting organic results towards content publishers with less effective display advertising and/or distorting sponsored results towards higher margin merchants (by underweighting consumer relevance in search auctions) increase per capita revenues but lower participation. The interplay of these incentives determines search bias and welfare. We also characterize how the welfare consequences of integration into display advertising, as intermediary or publisher, depend on asymmetries, monopolization and targeting. |
| Keywords: | search engine bias, internet economics, vertical integration, two-sided markets, antitrust |
| JEL: | L13 L41 L82 L86 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:717&r=com |
| By: | Nicollier, Luciana A (Department of Economics, University of Warwick) |
| Abstract: | Empirical evidence suggests that online reviews are an important source of consumers information and a relevant determinant of the rms revenues. Little is known, however, about how prices and reviews a ect each other. This paper proposes a dynamic game to investigate this relationship. A long-lived monopoly faces a sequence of short-lived consumers whose only information about the value of an experience good is the one contained in the reviews completed by previous buyers. Neither the monopoly nor the consumers have private information about the value of the good. After buying the good, the consumers observe a quality realisation that is correlated with the actual value of the good and decide whether to complete reviews. The consumers complete reviews according to a social rule that maximises the present value of current and future consumers utility. It is shown that a necessary condition for the existence of reviews is that the firm cannot fully appropriate the surplus generated by this increased information. Furthermore, the reviews induce a mean preserving spread on the posterior beliefs about the value of the good which, combined with the convexity with respect to the prior of the indirect utility and profit functions, implies that reviews are valuable for both the consumers and the firm. Hence, both parties are willing to face some cost in order to increase the information available in the market. The main result of the paper is that, from the firm's perspective, this cost takes the form of a discount in the price o ered to current consumers. JEL classification: Customer Reviews ; Monopoly ; Information Transmission JEL codes: L12 ; L15; D42 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1029&r=com |
| By: | Murray L. Aitken; Ernst R. Berndt; Barry Bosworth; Iain M. Cockburn; Richard Frank; Michael Kleinrock; Bradley T. Shapiro |
| Abstract: | We examine six molecules facing initial loss of US exclusivity (LOE, from patent expiration or challenges) between June 2009 and May 2013 that were among the 50 most prescribed molecules in May 2013. We examine prices per day of therapy (from the perspective of average revenue received by retail pharmacy per day of therapy) and utilization separately for four payer types (cash, Medicare Part D, Medicaid, and other third party payer – TPP) and age under vs. 65 and older. We find that quantity substitutions away from the brand are much larger proportionately and more rapid than average price reductions during the first six months following initial LOE. Brands continue to raise prices after generics enter. Expansion of total molecule sales (brand plus generic) following LOE is an increasingly common phenomenon compared with earlier eras. The number of days of therapy in a prescription has generally increased over time. Generic penetration rates are typically highest and most rapid for TPPs, and lowest and slowest for Medicaid. Cash customers and seniors generally pay the highest prices for brands and generics, third party payers and those under 65 pay the lowest prices, with Medicaid and Medicare Part D in between. The presence of an authorized generic during the 180-day exclusivity period has a significant impact on prices and volumes of prescriptions, but this varies across molecules. |
| JEL: | D01 D02 D43 I1 L65 L78 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19487&r=com |
| By: | Frédéric Loss (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CNAM Paris - Conservatoire National des Arts et Métiers - Conservatoire National des Arts et Métiers (CNAM)); Gwanaël Piaser (IPAG - Business School) |
| Abstract: | We consider a competitive insurance market in which agents can privately enter into multicontractual insurance relationships and undertake hidden actions. We study the existence of linear equilibria when insurance companies do not have any restriction on their pricing rules. We provide conditions under which a linear equilibrium exists. We show that two different types of linear equilibria could exist: A first one in which insurance companies make zero expected profits, and a second one in which they make strictly positive expected profits. We also analyze the welfare properties of the linear equilibria. We show that they are not always second best Pareto optimal. |
| Keywords: | Common Agency, Insurance, Moral Hazard, Perfect Competition, Linear Prices Equilibria |
| Date: | 2013–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00870113&r=com |
| By: | L. Aguzzoni; E. Argentesi; P. Buccirossi; L. Ciari; T. Duso; M. Tognoni; C. Vitale |
| Abstract: | We study the effect of a merger in a dynamic high-technology industry–the videogame market– which is characterized by frequent introduction of new products. To assess the impact of the merger between two large specialist retailers in the UK, we perform a difference-in-differences analysis comparing the price evolution of the merging parties to that of their 7 major competitors on an original sample of 196 videogames belonging to six different consoles. The results of our econometric analyses suggest that there has been a reduction in the general level of prices of both new and pre-owned games after the merger. This decline has been more marked for the merging parties, which suggests that the merger between Game and Gamestation did not lead to a substantial lessening of competition; rather it is consistent with the existence of efficiency gains. |
| JEL: | K21 L24 L44 D22 O32 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp908&r=com |
| By: | Ron Boschma; Matté Hartog |
| Abstract: | This paper investigates the extent to which merger and acquisition activity contributed to the spatial clustering of the Dutch banking industry in Amsterdam. This analysis is based on a unique database of all banks in the Netherlands that existed in the period 1850-1993. We found that spatial clustering of the Dutch banking industry was not driven by the fact that banks performed better in the Amsterdam region: being located in Amsterdam decreased rather than increased the survival chance of banks. However, banks in Amsterdam were disproportionally active in acquiring other banks outside Amsterdam. Experience in M&As accumulated mainly in the Amsterdam region, which in turn had a positive impact on the survival chance of banks located there. Our findings suggest that M&A activity was a driving force behind the spatial clustering of the Dutch banking industry between 1850 and 1993. |
| Keywords: | industrial dynamics, cluster, mergers and acquisitions, banking sector, evolutionary economic geography |
| JEL: | O18 R00 R11 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:1315&r=com |
| By: | Raphael S. Schoenle (Economics Department, Brandeis University); Raphael A. Auer (Swiss National Bank) |
| Abstract: | In this paper, we first document that two predictions of the heterogeneous firm version of the Dornbusch (1987) pricing model are confirmed in micro data on US import prices: while the rate at which a firm reacts to changes in its own cost is U-shaped in market share, the rate at which it reacts to competitors’ prices is hump-shaped in market share. Second, using the theory as a guidance, we present an expression for price changes in industry equilibrium that can be broken down into a component due to the direct cost response at the firm level, and another one due to price complementarities faced by the firm at the industry level. We show empirically that taking into account a sector’s market structure and the interplay of heterogeneity in reaction to own cost and reaction to the competition can substantially improve our understanding of the variation in pass-through rates across sectors and trade partners. The direct imperfect cost pass-through channel and the indirect price complementarity channel play approximately equally important roles in determining pass-through but partly offset each other. Including only one of these channels in an empirical analysis results in a failure to explain variation in the aggregate equilibrium rate of pass-through. |
| Keywords: | Exchange Rate Pass-Through, U.S. Import Prices, Market Structure, Price Complementarities |
| JEL: | E3 E31 F41 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:62&r=com |