nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒11‒09
eight papers chosen by
Russell Pittman
US Government

  1. Price Setting with Customer Retention By Luigi Paciello; Andrea Pozzi; Nicholas Trachter
  2. The effects of cartel damage compensations By Hunold, Matthias
  4. Entry, exit, and the determinants of market structure By Timothy Dunne; Shawn D. Klimek; Mark J. Roberts; Daniel Yi Xu
  5. Securitization, Competition and Monitoring. By Ahn, J-H.; Breton, R.
  6. Income-specific estimates of competition in European banking By Samantas, Ioannis
  7. "Testing the Effectiveness of Regulation and Competition on Cable Television Rates" By Mary T. Kelly; John S. Ying
  8. Chinese Trade Reforms, Market Access and Foreign Competition: the Patterns of French Exporters By Maria Bas; Pamela Bombarda

  1. By: Luigi Paciello (EIEF and CEPR); Andrea Pozzi (EIEF and CEPR); Nicholas Trachter (Federal Reserve Bank of Richmond)
    Abstract: We study a model where customers face frictions when changing their supplier, generating sluggishness in the firm's customer base. Firms care about retaining customers and this affects their pricing strategy. We characterize optimal pricing in this model and estimate it using data on the evolution of the customer base of a large US retailer. The introduction of customer retention concerns reduces markups, more markedly for less productive firms. We show that our model delivers pro-cyclical markups, as well as heterogeneous pass-through of cost shocks. These results help explaining recent empirical evidence.
    Date: 2013
  2. By: Hunold, Matthias
    Abstract: Damage compensation claims in case of cartels are supposed to increase deterrence, compensate losses and increase efficiency. I show that such claims can instead have adverse effects: If suppliers or buyers of cartelists are compensated in proportion to the profits lost due to the cartel, expected cartel profits can increase. Claims of downstream firms against upstream cartelists who do not monopolize the market increase consumer prices. Suppliers of cartelists can be worse off when eligible to compensation. These results apply also to abuses of dominance and call for a more careful approach towards the private enforcement of competition law. --
    Keywords: competition law,cartel damage compensation,deterrence,overcharge,private enforcement,vertical relations
    JEL: K21 L41
    Date: 2013
  3. By: Svetlana Avdasheva (1National Research University Higher School of Economics. Institute for Industrial and Market Studies. Deputy Director;); Polina Kryuchkova (2National Research University Higher School of Economics. Institute for Industrial and Market Studies, Laboratory of Competition and Antimonopoly Policy. Leading Research Fellow;)
    Abstract: Law enforcement by regulatory authorities on complaints may replicate not only advantages but also disadvantages of both public and private enforcement. In Russian antitrust enforcement there are strong incentives to open investigations on almost every complaint. The increasing number of complaints and investigations decreases both the resources available per investigation and the standards of proof. It also distorts the structure of enforcement, increases the probability of both wrongful convictions and wrongful acquittals, and lowers deterrence. Statistics of antitrust enforcement in the Russian Federation, including Russian regions, highlight the importance of complaints for making decisions on whether to open investigations and the positive dependence of convictions on the number of investigations
    Keywords: antitrust, Russia, public enforcement, complaints, legal errors.
    JEL: K21 K42
    Date: 2013
  4. By: Timothy Dunne; Shawn D. Klimek; Mark J. Roberts; Daniel Yi Xu
    Abstract: This paper estimates a dynamic, structural model of entry and exit in an oligopolistic industry and uses it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. Entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all found to be important determinants of long-run firm values, firm turnover, and market structure. Estimates for the dentist industry allow the entry cost to differ for geographic markets that were designated as Health Professional Shortage Areas and in which entry was subsidized. The estimated mean entry cost is 11 percent lower in these markets. Using simulations, we compare entry-cost versus fixed-cost subsidies and find that entry-cost subsidies are less expensive per additional firm.
    Date: 2013
  5. By: Ahn, J-H.; Breton, R.
    Abstract: We analyze the impact of loan securitization on competition in the loan market. Using a dynamic loan market competition model where borrowers face both exogenous and endogenous costs to switch between banks, we uncover a competition softening effect of securitization that allows banks to extract rents in the primary loan market. By reducing monitoring incentives, securitization mitigates winner’s curse effects in future stages of competition thereby decreasing ex ante competition for initial market share. Due to this competition softening effect, securitization can adversely affect loan market efficiency while leading to higher equilibrium profits for banks. This effect is driven by primary loan market competition, not by the exploitation of informational asymmetries in the secondary market for loans. We also argue that banks can use securitization as a strategic response to an increase in competition, as a tool to signal a reduction in monitoring intensity for the sole purpose of softening ex ante competition. Our result suggests that securitization reforms focusing exclusively on informational asymmetries in markets for securitized products may overlook competitive conditions in the primary market.
    Keywords: securitization, loan sales, banking competition, monitoring, rent extraction.
    JEL: G21 L12 L13
    Date: 2013
  6. By: Samantas, Ioannis
    Abstract: This paper constitutes a new endeavor of investigating competitive conditions in European banking. Since the vast literature of competition modeling has produced mixed results, the proposed methodology goes one step further in order to investigate the intensity of key effects on bank competition as decomposed into specific bank activities. The sample comprises nine of the most developed banking markets in the European region during the period 2002-2010. The concluding remarks over the explanatory power of traditional collusion, relative market power and efficiency alongside other key controls on bank pricing conduct, provide considerable policy implications.
    Keywords: Competition; Banking income, Collusion, Market power, Cost efficiency
    JEL: D4 D57 G21 L11 L21
    Date: 2013–10
  7. By: Mary T. Kelly (Department of Economics, Villanova University); John S. Ying (Department of Economics, University of Delaware)
    Abstract: Regulation of the cable television industry was marked by remarkable periods of deregulation, re-regulation, and re-deregulation during the 1980s and 1990s. Using FCC firm-level survey data spanning 1993 to 2001, we model and econometrically estimate the effect of regulation and competition on cable rates. Our calculations indicate that while regulation lowered rates for small system operators, it raised them for medium and large systems. Meanwhile, competition consistently decreased rates from 5.6 to 8.8 percent, with even larger declines during periods of regulation. Our results suggest that competition is more effective than regulation in containing cable prices.
    Keywords: cable rates; regulation; competition.
    JEL: L50 L51 L96 L97 L98
    Date: 2013
  8. By: Maria Bas (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Pamela Bombarda (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)
    Abstract: A unilateral trade reform generates two opposite effects: market access expansion and strengthening of competitive pressures in the liberalized market. Using detailed trade and firm-level data from France, we investigate how French firms' product scope and export sales changed after Chinese liberalization vis-à-vis Asian liberalization. Our findings suggest that lower Chinese import tariffs account on average for 7 percent of the new products exported by French firms, and for 18 percent of additional French export sales. These results are robust when accounting for foreign competition faced by French firms in the liberalized market.
    Keywords: unilateral trade liberalization, market access, foreign competition, export margins and firm level data
    Date: 2013–01–30

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