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on Industrial Competition |
| By: | Hombert, Johan; Pouyet, Jérôme; Schutz, Nicolas |
| Abstract: | We develop a model of vertical merger waves leading to input foreclosure. When all upstream firms become vertically integrated, the input price can increase substantially above marginal cost despite Bertrand competition in the input market. Input foreclosure is easiest to sustain when upstream market shares are the most asymmetric (monopoly-like equilibria) or the most symmetric (collusive-like equilibria). In addition, these equilibria are more likely when (i) mergers generate strong synergies; (ii) price discrimination in the input market is not allowed; (iii) contracts are public; whereas (iv) the impact of upstream and downstream industry concentration is ambiguous. |
| Date: | 2013–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:440&r=com |
| By: | Léautier, Thomas-Olivier; Rochet, Jean-Charles |
| Abstract: | This article examines how rms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk averse rms decide on their hedging strategies before their product market strategies. We nd that hedging modi es the pricing and production strategies of rms. This strategic e¤ect is channelled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders risk aversion. It has opposite e¤ects depending on the nature of product market competition: hedging toughens quantity competition while it softens price competition. Finally, if rms can decide not to commit on their hedging position, this can never be an equilibriumoutcome: committing is always a best response to non committing. In the Hotelling model, committing is a dominant strategy for all rms. |
| Keywords: | Risk Management, Price and Quantity Competition. |
| Date: | 2013–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27642&r=com |
| By: | Schutz, Nicolas |
| Abstract: | I develop a model in the spirit of Ordover, Saloner, and Salop (1990), in which two upstream firms compete to supply a homogeneous input to two downstream firms, who compete in prices with differentiated products in a downstream market. Upstream firms are allowed to offer exclusive two-part tariff contracts to the downstream firms. I show that, under very general conditions, this game does not have a subgame-perfect equilibrium in pure strategies. The intuition is that variable parts in such an equilibrium would have to be pairwise-proof. But when variable parts are pairwise-proof, downstream competitive externalities are not internalized, and there exists a profitable deviation. I contrast this non-existence result with earlier papers that found equilibria in similar models. |
| Date: | 2013–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:439&r=com |
| By: | Rey, Patrick; Tirole, Jean |
| Abstract: | The paper makes two related contributions. First, and in contrast with the rich body of literature on collusion with (mainly perfect) substitutes, it derives general results on the sustainability of tacit coordination for a class of nested demand functions that allows for the full range between perfect substitutes and perfect complements. Second, it studies the desirability of joint marketing alliances, an alternative to mergers. It shows that a combination of two informationfree regulatory requirements, mandated unbundling by the joint marketing entity and unfettered independent marketing by the firms, makes joint-marketing alliances always socially desirable, whether tacit coordination is feasible or not. |
| Keywords: | tacit collusion, cooperation, substitutes and complements, essentiality, joint marketing agreements, patent pools, independent licensing, unbundling, co-opetition. |
| JEL: | D43 L24 L41 O34 |
| Date: | 2013–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:27695&r=com |
| By: | Cavagnac, Michel; Cheikbossian, Guillaume |
| Abstract: | In a two-stage game with three firms and two countries, we study the profitability of a domestic merger in the context of an international oligopoly game with differentiated products and in a strategic trade policy environment. In contrast to a completely unregulated economy, we show that the domestic merger under Cournot competition is always profitable to the host country irrespective of the degree of product differentiation. Furthermore, it is also profitable to the competing country - hosting one firm only if products are sufficiently differentiated. Under Bertrand competition the merger is always profitable to both countries independently of the product range rivalry. But in a strategic trade environment it is more profitable to the country in which the merger occurs than to the other country. |
| Keywords: | , |
| JEL: | D43 F12 F13 L13 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:27150&r=com |
| By: | Arve, Malin |
| Abstract: | This paper studies the interaction between financially constrained and financially strong firms on a procurement market. It characterizes and discusses a procurement agency’s optimal response when faced with financially asymmetric firms. By considering a dynamic setting, both present and future consequences and incentives are taken into account. |
| Keywords: | Asymmetric information; Dual sourcing; Favoritism; Financial constraints; Procurement. |
| JEL: | D82 G30 H57 |
| Date: | 2013–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:441&r=com |
| By: | Staahl Gabrielsen, Tommy (University of Bergen); Johansen, Bjørn Olav (University of Bergen) |
| Abstract: | We study a setting where the opportunism or commitment problem identifed by Hart and Tirole (1990) may arise. An upstream monopolist may sell its product to two differentiated downstream retailers. Contract unobservability induces the manufacturer and each retailer to free-ride on margins earned by rival retailers, resulting in low transfer prices and low overall profit. O'Brien and Shaffer (1992) proposed a solution to this problem involving squeezing retail margins by using maximum RPM and high transfer prices. We show that when retail demand depends in any degree of retail sales effort, this equilibrium breaks down, and the opportunism problem reappears with full force. We show that no type of own-sale contracts or combination of own-sale restraints will solve the problem if sales effort matter. Moreover we show that certain horizontal commitments, as for example industrywide minimum RPM, may restore the fully integrated outcome, but only in special cases. |
| Keywords: | Opportunism; RPM; sales effort |
| JEL: | L12 L14 L42 |
| Date: | 2013–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2013_007&r=com |
| By: | Robert Ritz |
| Abstract: | Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important yet thus far unquantified impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets). Forthcoming in Journal of Industrial Economics. |
| Keywords: | Delegation, forward trading, managerial incentives, market structure, welfare losses. |
| JEL: | D43 D61 L13 L22 L41 |
| Date: | 2013–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1334&r=com |
| By: | Lawrence J. White |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:13-13&r=com |
| By: | Mario Mariniello |
| Abstract: | Chinaâ??s Anti-Monopoly Law, adopted in 2007, is largely compatible with antitrust law in the European Union, the United States and other jurisdictions. Enforcement activity by the Chinese authorities is also approaching the level seen in the EU. The Chinese law, however, leaves significant room for the use of competition policy to further industrial policy objectives. The data presented in this Policy Contribution indicates that Chinese merger control might have asymmetrically targeted foreign companies, while favouring domestic companies. However, there are no indications that antitrust control has been used to favour domestic players. A strategy to achieve convergence in global antitrust enforcement should include support for Chinese competition authorities to develop the institutional tools they already have, and to improve merger control by promoting the adoption of a consumer-oriented test and enforcing M&A notification rules. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:799&r=com |
| By: | Renaud Foucart; Jana Friedrichsen |
| Abstract: | We study two platforms competing for members by investing in network quality.� Quality is complementary to the network size: the marginal utility generated by an additional member increases with the network's quality.� Platforms are imperfect substitutes: a share of the potential members are biased toward each of the platforms and some are indifferent ex ante.� We assume that, in case of multiple equilibria, consumers use the investment in quality as a coordination device.� We find that, in equilibrium, platforms randomize over two disconnected intervals of investment levels, corresponding to competing for either the entire population or the mass of ex-ante different members.� While the "prize" of winning the competition for members is identical for both platforms, the value of the outside option "not investing" depends on a platform's share of ex-ante biased members.� The platform with the smallest share of ex-ante biased members bids more aggressively to compensate for its lower outside option and achieves a monopoly network with higher probability than its competitor. |
| Keywords: | Internet, Platforms, Investment, Network Effects |
| JEL: | D43 D44 M13 |
| Date: | 2013–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:675&r=com |
| By: | Robert P. Gilles (Queen's University Management School, Belfast, UK); Dimitrios Diamantaras (Department of Economics, Temple University) |
| Abstract: | Recent research in industrial organisation has investigated the essential place that middlemen have in the networks that make up our global economy. In this paper we attempt to understand how such middlemen compete with each other through a game theoretic analysis using novel techniques from decision-making under ambiguity. We model a purposely abstract and reduced model of one middleman who provides a two-sided platform, mediating surplus-creating interactions between two users. The middleman evaluates uncertain outcomes under positional ambiguity, taking into account the possibility of the emergence of an alternative middleman offering intermediary services to the two users. Surprisingly, we find many situations in which the middleman will purposely extract maximal gains from her position. Only if there is relatively low probability of devastating loss of business under competition, the middleman will adopt a more competitive attitude and extract less from her position. |
| Keywords: | competition, middlemen, ambiguity, platform, two-sided market, market intermediation |
| JEL: | C72 D81 D85 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1303&r=com |
| By: | Niedermayer, Andras; Shneyerov, Artyom |
| Abstract: | We consider optimal pricing by a profit-maximizing platform running a dynamic search and matching market. Buyers and sellers enter in cohorts over time, meet and bargain under private information. The optimal centralized mechanism, which involves posting a bid-ask spread, can be decentralized through participation fees charged by the intermediary to both sides. The sum of buyers’ and sellers’ fees equals the sum of inverse hazard rates of the marginal types and their ratio equals the ratio of buyers’ and sellers’ bargaining weights. We also show that a monopolistic intermediary in a search market may be welfare enhancing. |
| Keywords: | Dynamic random matching; two-sided private information; intermediaries |
| JEL: | D82 D83 |
| Date: | 2013–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:436&r=com |
| By: | Bergemann, Dirk (Cowles Foundation, Yale University); Alessandro Bonatti (Sloan School of Management, MIT) |
| Abstract: | We develop a model of data pricing and targeted advertising. A monopolistic data provider determines the price to access "cookies," i.e., informative signals about individual consumers' preferences. The demand for information is generated by advertisers who seek to tailor their spending to the value of each consumer. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the set of targeted consumers provides incentives to lower prices. Thus, the monopoly price of data is decreasing in the reach of the database and increasing in the number of competing sellers of exclusive data. Finally, we explore the implications of nonlinear pricing of information and characterize the exclusive data sales that emerge as part of the optimal mechanism. |
| Keywords: | Data providers, Information sales, Targeting, Online advertising, Media markets |
| JEL: | D44 D82 D83 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1920&r=com |
| By: | Renaud Foucart |
| Abstract: | Consumption in the time of Internet is characterized by extremely low search costs, leading to increased product diversity (the long tail) and large mainstream products (superstars).� In this paper, I show how the mainstream taste can be catered by a niche product, while minority tastes can be mainstream.� A competitive market with arbitrarily small search costs supplies a product design corresponding to the mainstream taste at a price that only mainstream buyers are willing to pay.� Products corresponding to the taste of the minority are offered at lower price, and bought by several types of buyers. |
| Keywords: | Search, matching, horizontal product diversity |
| JEL: | C7 D8 L11 |
| Date: | 2013–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:670&r=com |
| By: | Mian Dai (Department of Economics, Drexel University); Xun Tang (Department of Economics, University of Pennsylvania) |
| Abstract: | This paper studies entry and capacity decisions by dialysis providers in the U.S. We estimate a structural model where providers make strategic continuous choices of capacities based on private information about own costs and beliefs about competitors’ behaviors. We evaluate the impact on market structure and provider profits under counterfactual regulatory policies that increase per capacity cost or reduce per capacity payment. We find that these policies reduce the market capacity of dialysis stations. However, the downward sloping reaction curve shields some providers from negative profit shocks in certain markets. The paper also has a methodological contribution in that it proposes new estimators for Bayesian games with continuous actions, which differ qualitative from discrete Bayesian games such as those with binary entry decisions. |
| Keywords: | Bayesian Games with Continuous Actions, U.S. Dialysis Market |
| JEL: | L11 L13 I11 |
| Date: | 2013–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-057&r=com |
| By: | Boom, Anette (Department of Economics, Copenhagen Business School); Schwenen, Sebastian (DIW Berlin, German Institute for Economic Research) |
| Abstract: | We examine welfare effects of real-time pricing in electricity markets. Before stochastic energy demand is known, competitive retailers contract with final consumers who exogenously do not have real-time meters. After demand is realized, two electricity generators compete in a uniform price auction to satisfy demand from retailers acting on behalf of subscribed customers and from consumers with real-time meters. Increasing the number of consumers on real-time pricing does not always increase welfare since risk-averse consumers dislike uncertain and high prices arising through market power. In the Bertrand case, welfare is the same with all or no consumers on smart meters. |
| Keywords: | Electricity; Real-time Pricing; Market Power; Efficiency. |
| JEL: | D42 D43 D44 L11 L12 L13 |
| Date: | 2013–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2013_001&r=com |
| By: | Florian Szücs |
| Abstract: | We evaluate the impact of M&A activity on the growth of R&D spending and R&D intensity of 265 acquiring firms and 133 merger targets between 1990 and 2009. We use different matching techniques to construct separate control groups for acquirers and targets and use appropriate difference-in-difference estimation methods to single out the causal effect of mergers on R&D growth and intensity. We find that target firms substantially decrease their R&D efforts after a merger, while the R&D intensity of acquirers drops due to a sharp increase in sales. |
| Keywords: | Mergers, R&D growth, R&D intensity, propensity-score matching, difference in difference estimation |
| JEL: | D22 G34 O3 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1331&r=com |