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on Industrial Competition |
| By: | Robert Somogyi (Ecole Polytechnique (ParisTech)) |
| Abstract: | Since Kreps and Scheinkman's seminal article (1983) a large number of papers have analyzed capacity constraints' potential to relax price competition. However, the ensuing literature has assumed that products are either perfect or very close substitutes. Therefore none of the papers has investigated the interaction between capacity constraints and substantial local monopoly power. The aim of the present paper is to shed light on this question using a standard Hotelling setup. The high level of product dfferentiation results in a variety of equilibrium firm behavior and it generates at least one pure strategy equilibrium for any capacity level. Thus the presence of local monopoly power challenges one of the most general findings about Bertrand-Edgeworth competition: the non-existence of pure strategy equilibria for some capacity levels. |
| Keywords: | Duopoly, Bertrand-Edgeworth competition, Hotelling, Capacity constraint |
| JEL: | D21 D43 L13 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1332&r=com |
| By: | António Brandão (Cef.up and Faculdade de Economia do Porto.); Joana Pinho (Cef.up and Faculdade de Economia do Porto.); Hélder Vasconcelos (Cef.up and Faculdade de Economia do Porto.) |
| Abstract: | We characterize collusion sustainability in markets where demand growth may trigger the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side- payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric. |
| Keywords: | Collusion; Growing demand; Nash bargaining; Profit-sharing. |
| JEL: | K21 L11 L13 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:510&r=com |
| By: | Kräkel, Matthias; Müller, Daniel |
| Abstract: | We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations. |
| Keywords: | acquisition; merger; moral hazard |
| JEL: | D82 D86 G34 |
| Date: | 2013–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:410&r=com |
| By: | Sovinsky, Michelle (Department of Economics, University of Warwick & The University of Zurich); Eric Helland (Claremont McKenna College) |
| Abstract: | Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of 34% among telecommunications firms, 33% among computer and semiconductor manufacturers, and 27% among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function. JEL classification: research and development ; research joint ventures ; antitrust policy ; collusion JEL codes: L24 ; L44 ; K21 ; O32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1030&r=com |
| By: | Scherer, F. M. (Harvard University) |
| Abstract: | This paper considers two paradoxes concerning the relationship between capital investment decisions and competition. First, conventional capital budgeting methods imply that substantial infra-marginal surpluses are attained above the cost of capital, but this is inconsistent with the premise that returns on capital equal the cost of capital in competitive markets. Second, contrasts in the pharmaceutical industry between high reported returns on capital invested, the accounting treatment of research and development outlays, and inter-firm competition in research and development are explored. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp13-030&r=com |
| By: | Scherer, F. M. (Harvard University) |
| Abstract: | This paper, written for a centennial commemoration of the founding of the U.S. Federal Trade Commission, reviews the history of two major cases tackling one of the most difficult problems in U.S. antitrust jurisprudence: the tetracycline case of the 1950s and 1960s and the suit against four (eventually three) breakfast cereal manufacturers in the 1970s. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp13-031&r=com |
| By: | Christian, Michel |
| Abstract: | This paper proposes and empirically implements a framework for analyzing industry competition and the degree of joint profit maximization of merging firms in differentiated product industries. Using pre- and post-merger industry data, I am able to separate merging firms' intra-organizational pricing considerations from industry pricing considerations. The insights of the paper shed light on a long-standing debate in the theoretical literature about the consequences of organizational integration. Moreover, I propose a novel approach to directly estimate industry conduct that relies on ownership changes and input price variation. I apply my framework using data from the ready-to-eat cereal industry, covering the 1993 Post-Nabisco merger. My results show an increasing degree of joint profit maximization of the merged entities over the first two years after the merger, eventually leading to almost full maximization of joint profits. I find that between 14.3 and 25.6 percent of industry markups can be attributed to cooperative industry behavior, while the remaining markup is due to product differentiation of multi-product firms. |
| Keywords: | Identification of Market Structure; Post-merger Internalization of Profits; Conduct Estimation; Ex-post Merger Evaluation; Estimation of Synergies |
| Date: | 2013–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:409&r=com |
| By: | Matteo Bassi (Università di Napoli Federico II and CSEF); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università Cattolica delSacro Cuore di Milano and CSEF) |
| Abstract: | We study a supply chain model where competing manufacturers located around a circle contract with privately informed and exclusive retailers. The number of brands in the market (determined by the manufacturers’ zero profit condition) depends on the level of asymmetric information within supply chains and on the types of contracts between manufacturers and retailers. With two-part tariffs, wholesale prices fully reflect retailers’ costs. With linear contracts, wholesale prices are constant and independent of retailers’ costs. The number of brands is lower (resp. higher) with asymmetric information than with complete information when contracts are linear (resp. with two-part tariffs). Moreover, the number of brands is always higher with linear contracts than with two-part tari¤s. We also analyze the effects of endogenous entry on welfare. |
| Keywords: | Product Variety, Entry, Competing Supply Chains, Vertical Contracting, Asymmetric Information |
| JEL: | D43 D82 L13 L51 |
| Date: | 2013–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:343&r=com |
| By: | Ricardo Biscaia (Faculdade de Economia do Porto); Paula Sarmento (Faculdade de Economia do Porto) |
| Abstract: | This article focuses on the location decision of firms when competing in a spatial Cournot duopoly. Our original contribution is that firms are dependent on a natural resource input, which is assumed to be located in one of the extremes of the market, to be able to produce the output sought by the consumers, and that natural resource is controlled by an independent monopolist. We solve a three stage location game, where in the first stage downstream firms choose their location, and in the next stages upstream and downstream choose how many quantities they sell in the market, assuming that downstream firms must sell their product in all points of the linear city. We conclude that downstream firms agglomerate independently of the unit input transportation cost. In addition, increases in the unit transportation cost bring the plants closer to the natural resource location. Moreover, the upstream firm loses more profit than the downstream firms when the input transportation conditions deteriorate. When we consider the problem of a social planner, we conclude that the location that firms choose is nearly the same than the location that maximizes total welfare in the economy. |
| Keywords: | Spatial Competition; Vertical Markets; Duopoly Studies; Game Theory |
| JEL: | D43 L13 R12 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:509&r=com |
| By: | Huck, Steffen; Lünser, Gabriele K.; Tyran, Jean-Robert |
| Abstract: | We experimentally examine the effects of price competition in markets for experience goods where sellers can build up reputations for quality. We compare price competition to monopolistic markets and markets where prices are exogenously fixed (somewhere between the endogenous oligopoly and monopoly prices). While oligopolies benefit consumers regardless of whether prices are fixed or endogenously chosen, we find that price competition lowers efficiency as consumers pay too little attention to reputation for quality. This provides empirical support to recent models in behavioral IO that assume that consumers may with increasing complexity of the market place focus on selected dimensions of products (see, for example, Spiegler 2006). -- Wir untersuchen auf experimentellem Wege die Auswirkungen des Preiswettbewerbs auf Märkten, auf denen Verkäufer sich eine Reputation für die Qualität ihrer Produkte erwerben können ('experience goods'). Dabei vergleichen wir den Preiswettbewerb mit monopolistischen Märkten und Märkten, auf denen Preise exogen festgelegt werden (in einer Range zwischen endogenen Oligopol- und Monopolpreisen). Während Oligopole den Konsumenten zugutekommen, egal ob Preise festgesetzt werden oder sich endogen ergeben, mindert Preiswettbewerb die Effizienz, da die Konsumenten der Reputation der Verkäufer hinsichtlich der Qualität ihrer Produkte zu wenig Aufmerksamkeit widmen. Dieser Befund belegt auf empirischem Wege neuere Modelle der Behavioral Industrial Organization, die davon ausgehen, dass bei zunehmender Komplexität der Märkte die Konsumenten ihren Blick selektiv auf bestimmte Produkteigenschaften einengen (siehe beispielsweise Spiegler 2006). |
| Keywords: | Markets,Price competition,Behavioral IO,Price regulation,Reputation,Trust,Moral hazard,Experience goods |
| JEL: | C72 C90 D40 D80 L10 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2013312&r=com |
| By: | Hagiu, Andrei (Harvard University); Jullien, Bruno (Toulouse School of Economics (IDEI & GREMAQ)) |
| Abstract: | Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that the entry of a platform competitor leads to higher (lower) equilibrium levels of search diversion relative to a monopoly platform when the degree of horizontal differentiation between platforms is intermediate (low). On the other hand, more intense competition between active platforms (i.e. less differentiation) leads to less search diversion. When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search relative to platforms that cannot charge such fees. Finally, endogenous affiliation on both sides (consumers and advertising) leads to stronger incentives to divert search relative to the one-sided exogenous affiliation (vertical integration) benchmark, whenever the marginal advertiser derives higher profits per consumer exposure relative to the average advertiser. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27581&r=com |
| By: | Young Kwark (Warrington College of Business Administration, University of Florida); Jianqing Chen (Jindal School of Management, The University of Texas at Dallas); Srinivasan Raghunathan (Jindal School of Management, The University of Texas at Dallas) |
| Abstract: | Online retailing is dominated by a channel structure in which a retailer either buys products from competing manufacturers and resells to consumers (wholesale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme), and is characterized by easy access to product reviews to facilitate consumers' purchase decisions. We study how different types of information revealed by reviews affect the retailer under the wholesale scheme and platform scheme. We find that information provided by reviews on quality dimension homogenizes consumers' perceived utility differences between products and increases upstream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information provided by reviews on fit dimension heterogenizes consumers' estimated fits to products and softens upstream competition, which hurts the retailer under the wholesale scheme and benefits the retailer under the platform scheme. Together, we demonstrate that the quality information and fit information play very different roles in changing upstream competition, and whether the retailer benefits from reviews critically depends on its pricing scheme choice. |
| Keywords: | Online Product Reviews, Pricing Scheme, Competition |
| JEL: | L11 L15 D83 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1314&r=com |
| By: | Jullien, Bruno (Toulouse School of Economics (CNRS-GREMAQ and IDEI)); Pavan, Alessandro (Northwestern University) |
| Abstract: | We study monopoly and duopoly pricing in a two-sided market with dispersed information about users' preferences. We first show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns and product design affecting the agents' ability to estimate their own valuations and/or the distribution of valuations on the other side of the market. |
| Keywords: | two-sided markets, dispersed information, platform competition, global-games, informative advertising |
| JEL: | D82 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27580&r=com |
| By: | Gary Biglaiser (University of North Carolina, Department of Economics); Jacques CreÌmer (Toulouse School of Economics); AndreÌ Veiga (Toulouse School of Economics) |
| Abstract: | We develop a model of dynamic platform formation under positive platform externalities. Users can switch between an incumbent and entrant platforms, switching opportunities arise stochastically and users can choose whether to accept or reject an opportunity to switch. For homogeneous users, we characterize the incumbency advantage implied by a given equilibrium realization of the switching process. For linear utility, incumbency advantage increases in the mean and dispersion of the incumbent’s share during the switching process, which captures the momentum and coordination of the process. Heterogeneity in preferences may lead some users to delay their switching or never switch at all. Assuming that switching opportunities arrive according to a Poisson process, users switch to the entrant platform if the average preference favors the entrant and if preferences are not too polarized. |
| Keywords: | platform Formation, Migration, Standardization and Compatibility, Industry Dynamics |
| JEL: | D85 L14 R23 L15 L16 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1318&r=com |
| By: | Aaron Bodoh-Creed (University of California at Berkeley); Jörn Boehnke (University of Chicago); Brent R. Hickman (University of Chicago) |
| Abstract: | While much is known about optimal design of auctions within the context of a single item for sale, little is known about optimal design of large platform markets like eBay and auto auction houses that house large numbers of concurrent auctions. We attempt a macro-level empirical market design exercise by combining a unique dataset on tablet sales collected from eBay over the course of a year with methodologies developed by Bodoh-Creed (2011) and Backus and Lewis (2013). The former proposes a tractable approach to studying dynamic auction markets when the number of participants on both sides is sufficiently large. The model also delivers predictions on optimal fee schedule design -- specifically, in terms of listing fees and percentage charges for a sale -- for an auction house wishing to maximize profits by attracting the appropriate mix of buyers and sellers into the market. We begin by empirically investigating the key assumptions of the model which deliver (computational and empirical) tractability, and find that they are reasonable. We then estimate consumer demand, market supply, and the distributions of market entrants (this part still in progress). These figures are plugged into the Bodoh-Creed (2011) framework in order to compute optimal fee schedules and draw comparisons to actual fee schedules, as well as to make policy prescriptions. |
| Keywords: | Online Auctions, eBay, Market Design, Large Markets |
| JEL: | C92 L33 L51 L92 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1322&r=com |
| By: | Jin-Hyuk Kim (Department of Economics, University of Colorado at Boulder); Tin Cheuk Leung (Department of Economics, Chinese University of Hong Kong) |
| Abstract: | The demand for electronic books (e-books) and the e-book readers are complementary. On the one hand, the emergence of e-book readers such as Amazon's Kindle has triggered the recent growth of the e-book market. On the other hand, several issues in the e-book market can affect the future of the e-book reader market. Considering this complementarity, this paper quantifies the impact of digital rights management (DRM) and discounted e-book pricing on the demand for e-book readers. We collect conjoint survey data to estimate a random coefficient demand model using a hierarchical Bayesian method. Our counterfactual experiments suggest two things. First, Kindle's and Nook's market shares would increase by dropping DRM. Consumer welfare would increase seven percent if all e-book readers dropped DRM. Second, an increase in e-book prices would increase iPad's market share at the expense of that of Kindle and Nook. Consumer welfare would decrease 6 to 10 percent if Kindle's and Nook's e-book prices went up by 50 percent. |
| Keywords: | electronic book, demand estimation, DRM, agency model |
| JEL: | L15 L63 O30 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1303&r=com |
| By: | Michael R. Baye; Babur De los Santos; Matthijs R. Wildenbeest |
| Abstract: | This paper provides a data-driven overview of the different online platforms that consumers use to search for books and booksellers, and documents how the use of these platforms is shifting over time. Our data suggest that, as a result of digitization, consumers are increasingly conducting searches for books at retailer sites and closed systems (e.g., the Kindle and Nook) rather than at general search engines (e.g., Google or Bing). We also highlight a number of challenges that will make it difficult for researchers to accurately measure internet-based search behavior in the years to come. Finally, we highlight a number of open agenda items related to the pricing of books and other digital media, as well as consumer search behavior. |
| JEL: | D83 L86 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19519&r=com |
| By: | Duarte Brito (Universidade Nova de Lisboa and CEFAGE-UE); Pedro Pereira (Autoridade da Concorrência and CEFAGE-UE); João Vareda (CEFAGE-UE) |
| Abstract: | We analyze the impact of network neutrality regulation on: (i) competition between CPs, and on (ii) ISPs. incentives to invest. We consider both competition between ISPs and between CPs and show that, if ISPs can o¤er network services of different quality to CPs, they prefer to sell the highest quality network services to the CP that collects the highest advertising revenues. We further show that the impact of network neutrality regulation on the investment in the quality of network services is potentially ambiguous and depends on: (i) whether ISPs are symmetric, and (ii) the ISPs.ability to assign network.s capacity to CPs. If ISPs are symmetric and have full discretion on how to allocate the level of quality of network services among CPs, investment and welfare are higher under the discriminatory regime. |
| Keywords: | Network Neutrality; Competition; Investment. |
| JEL: | L43 L51 L96 L98 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2013_19&r=com |
| By: | Ben O. Smith |
| Abstract: | Many industries have two sales stages: the primary market and the aftermarket. Existing research shows consumers are routinely unaware of aftermarkets (Cruickshank, 2000; Hall, 2003); and due to legal or structural restrictions, firms commonly have monopoly power (Borenstein et al., 2000; Adelmann, 2010). However, the primary market could be a great deal more competitive. Examples of this sales process include products with service agreements, software with in-app purchases, and durable goods with required replacement parts. But in many of these aftermarkets, the consumer has the option to obtain the aftermarket product through non-traditional means (e.g. âpiracyâ). We model such an environment by combining the two most common travel cost models: A Salop circle (Salop, 1979) for the primary market and a Hotelling linear city (Hotelling, 1929) for the aftermarket. We find that firms with more competition in the primary market will spend more on âenforcementâ (disincentivising non-traditional acquisitions) and reduce prices in the primary market so they may exhibit more market power in the aftermarket. This is in direct contradiction with the common belief that anti-piracy efforts are the domain of âbig businessâ (Tan, 2002; Kwong et al., 2003; Lysonski and Durvasula, 2008). Further, we find that it is social welfare enhancing for âenforcementâ spending to be as effective as possible. |
| JEL: | D21 L11 L12 |
| Date: | 2013–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2013:psm164&r=com |
| By: | Keith M Marzilli Ericson; Amanda Starc |
| Abstract: | Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange. Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands' market shares. We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals. |
| JEL: | D14 D80 H31 I11 L15 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19527&r=com |
| By: | Duarte Brito (Universidade Nova de Lisboa and CEFAGE-UE); Pedro Pereira (Autoridade da Concorrência and CEFAGE-UE); Joaquim Ramalho (CEFAGE-UE) |
| Abstract: | We evaluate the impact on market power and efficiency of a series of mergers on three Portuguese non-life insurance markets. We specify and estimate, with a panel of firmlevel data, a structural model which includes: preferences, technology, and a market equilibrium condition. Firms’ demand curves are not very elastic. Firms’ technologies exhibit scale and scope economies and high cost efficiency scores. We find that, for the period following the mergers, there is no evidence of: (i) an increase in market power through coordinated behavior, or (ii) changes in cost efficiency levels. In addition, social welfare increased. |
| Keywords: | Mergers; Market Power; Efficiency; Non-Life Insurance. |
| JEL: | D43 K21 L13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2013_18&r=com |
| By: | Peter Arcidiacono; Paul B. Ellickson; Peter Landry; David B. Ridley |
| Abstract: | We estimate a model of drug demand and supply that incorporates insurance, advertising, and competition between branded and generic drugs within and across therapeutic classes. We use data on antiulcer drugs from 1991 to 2010. Our simulations show generics and ``me-too'' drugs each increased consumer welfare more than $100 million in 2010, holding insurance premiums constant. However, insurance payments in 2010 fell by nearly $1 billion due to generics and rose by over $7 billion due to me-too antiulcer drugs. |
| JEL: | I11 L13 L65 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19522&r=com |
| By: | Joao Macieira (Department of Economics, Virginia Tech); Pedro Pereira (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora); Joao Vareda (Autoridade da Concorrencia and Centro de Estudos e Formacao Avancada em Gestao e Economia, Universidade de Evora) |
| Abstract: | We analyze firms' incentives to bundle and tie in the telecommunications industry. As a first step, we develop a discrete-choice demand model where firms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a firm may sell. We exploit these properties to examine bundling behavior when firms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify firm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision. |
| Keywords: | Bundles, Discrete-Choice Model, Equilibrium Simulation, Differentiated Product, Consumer Level Data. |
| JEL: | D43 K21 L44 L96 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1315&r=com |
| By: | Theodoros M. Diasakos (University of St Andrews); Kostas Koufopoulos |
| Abstract: | This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz (QJE, 1976). We propose a simple extension of the game-theoretic structure in Hellwig (EER, 1987) under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson (ECMA, 1983). |
| Keywords: | Insurance Market, Adverse Selection, Incentive Efficiency |
| JEL: | D86 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:1313&r=com |
| By: | Elena Krasnokutskaya (Department of Economics, Johns Hopkins University); Kyungchul Song (Department of Economics, University of British Columbia); Xun Tang (Department of Economics, University of Pennsylvania) |
| Abstract: | We develop an empirical methodology to study markets for services. These markets are typically organized as multi-attribute auctions in which buyers take into account seller's price as well as various characteristics, including quality. Our identification and estimation strategies exploit observed buyers' and sellers' decisions to recover the distribution of sellers' qualities, the distribution of seller's costs conditional on quality, and the distribution of buyers' tastes. Our empirical results from the on-line market for programming services confirm that quality plays an important role. We use our estimates to study the effect of licensing restrictions and to assess the loss of value from using standard rather than multi-attribute auctions as is common in public procurement. |
| Keywords: | quality, services, licensing, procurement, multi-attribute auctions, identification, unobserved heterogeneity, unobserved buyers'tastes, participation in auctions |
| JEL: | C14 C18 D22 D44 D82 L15 L86 |
| Date: | 2013–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-053&r=com |
| By: | Basco, Sergi; Mestieri, Marti |
| Abstract: | This paper empirically analyzes how the adoption of Information Technologies (IT) has changed the organization of the supply chain of Northern firms. We focus on international mergers, which are a growing and important component of foreign direct investment. We use data on North-South vertical mergers and acquisitions for all manufacturing industries. We show that the effect of IT adoption on the number of vertical mergers and acquisitions is decreasing with the “routineness” of the industry. Our interpretation is that the IT revolution has enabled new monitoring mechanisms. This has allowed Northern headquarters to better monitor suppliers, specially those in less routine-intensive industries –which were harder to monitor prior to the IT revolution. |
| Keywords: | Mergers and Acquisitions, Information Technologies, Routine Intensity. |
| JEL: | D23 F14 F23 L22 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:27548&r=com |
| By: | Scherer, F. M. (Harvard University) |
| Abstract: | This paper reviews the theory and historical developments that made it possible for the world's least affluent citizens to obtain the benefits of modern pharmaceutical therapy at affordable prices. Considered in turn are the theory of differential prices, the reasons why differential pricing was not widely practiced by pharmaceutical companies selling patented medicines; how low prices eventually became available, with emphasis on AIDS anti-retrovirals; and the consequences of low prices in the least developed nations for the creation of new and more effective medicines. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp13-029&r=com |
| By: | Cassey LEE (University of Wollongong, Australia); Yoshifumi FUKUNAGA (Economic Research Institute for ASEAN and East Asia) |
| Abstract: | Competition policy is an important beyond-the-border element of the single market and production base envisioned in the ASEAN Economic Community (AEC). The targets for competition policy in the AEC Blueprint have been largely met. Looking beyond 2015, ASEAN needs to consider broadening the policy measures for competition policy to encompass the state’s presence and interventions that affect the level playing field within markets. In the longer term, the main challenge for AEC will be related to the depth of integration desired in terms of harmonization of competition policy. Deeper integration may require fundamental changes in ASEAN institutions. |
| Keywords: | Competition Policy, Competition Law, Consumer Protection, ASEAN, Regional Integration, ASEAN Economic Community, AEC Blueprint |
| JEL: | F15 K21 L40 L50 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:era:wpaper:dp-2013-17&r=com |
| By: | Harry Bloch; B. Curtis Eaton (University of Calgary); R. Rothschild |
| Abstract: | In their efforts to create a position in a market, and to maintain that position, firms make positioning investments of various sorts, in R&D, plant, advertising, and location, or more generally, in product development and maintenance. The heart of this paper is the hypothesis that the success of these positioning investments is not assured. In an environment where the success of positioning investments is stochastic, the positioning game played by firms that compete to serve a market is necessarily dynamic. We model the positioning and operating decisions of firms in an environment of this sort. When the market is large enough to support at least one active firm, the expected number of firms serving the market at a point in time is a nearly continuous function of market size, in sharp contrast to the familiar integer valued step function seen in classic models of market structure. As a result, equilibrium expected total surplus and expected consumer surplus are higher than standard non-stochastic models would suggest, especially in circumstances where the expected number of firms is small. This suggests that classic models of market structure are not always a sound guide for policy. |
| Date: | 2013–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2013-26&r=com |
| By: | Sara G. Castellanos; Jesus G. Garza-Garcia |
| Abstract: | The Mexican banking sector experienced a process of liberalization which aimed towards increasing the level of competition and efficiency. This paper studies the evolution of the efficiency of the Mexican banking sector from 2002 to 2012 and also analyses its relationship with the degree of banking competition. To do so, efficiency scores are estimated by applying the non-parametric methodology, Data Envelopment Analysis. Furthermore, the Boone Indicator is used to assess the degree of competition and included among other possible determinants of bank efficiency. The main results indicate increasing trends of efficiency in the banking sector during the period of study. Moreover, a direct relationship between banking competition and efficiency is observed. Besides, the capitalization index, market share and loan intensity increase efficiency whereas noninterest expenses and non performing loans decrease the level of efficiency. Lastly, in regards to the relative efficiency of local or foreign ownership of banks, it is found that the system’s average efficiency trend is observed among both local and foreign banks, but local banks are somewhat more efficient. |
| Keywords: | Panel Data, Bank Competition, Mexican Banking Sector, Boone Indicator |
| JEL: | D4 G15 G21 L11 N2 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1329&r=com |
| By: | Blomquist, Johan (AgriFood Economics Centre); Hammarlund, Cecilia (Department of Economics, Lund University); Waldo, Staffan (AgriFood Economics Centre) |
| Abstract: | How are market conditions affected by a change in fishery regulations? Who benefits and who loses? The paper discusses the price effects of a reform in the Swedish Baltic cod fishery where vessels using active gear were given annual quotas rather than the previously applied quarterly quotas. We investigate whether the bargaining power of fishers using trawlers have improved after the reform using a difference-in-difference approach. Since fishers have more freedom to fish for cod over the year and processors are keen to have regular landings of fish (in order not to have unused capital), we suggest that prices are likely to increase following the reform. The results indicate that prices have increased due to the increased bargaining power of fishers after the reform. We control for the effects of fish size, fish quality, landing port and landing date. We also investigate whether the price change that we have found is driven by changes in reservation prices and find that this is not the case. Thus, we conclude that introducing yearly quotas is likely to have changed bargaining power between fishers and buyers in the Swedish Baltic cod fishery. |
| Keywords: | Bargaining power; Difference-in-difference; Fishery management; Baltic Cod |
| JEL: | Q21 Q22 |
| Date: | 2013–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2013_035&r=com |