nep-com New Economics Papers
on Industrial Competition
Issue of 2013‒12‒06
twenty papers chosen by
Russell Pittman
US Government

  1. Strategic Location Choice under Dynamic Oligopolistic Competition and Spillovers By Luca Colombo; Herbert Dawid
  2. Oligopolistic competition and search without priors By Alexei Parakhonyak
  3. Vertical Integration in Two-Sided Markets: Exclusive Provision and Program Quality By Anna D'Annunzio
  4. Information and Two-Sided Platform Profits By Andrei Hagiu; Hanna Halaburda
  5. Multisector monopolistic competition model By Igor Pospelov; Stanislav Radionov
  6. External capital access and new product launch in start-up firms with uncertain intellectual property rights By Heger, Diana; Hussinger, Katrin
  7. Spillovers, product substitution and R&D investment : theory and evidence By Thomas Grebel; Lionel Nesta
  8. Innovation Determinants over Industry Life Cycle By Tavassoli, Sam
  9. Cartel Sales Dynamics when Monitoring for Compliance is More Frequent than Punishment for Non-Compliance By Joseph E. Harrington, Jr.; Juan-Pablo Montero
  10. Standard-Essential Patents By Lerner, Josh; Tirole, Jean
  11. Pollution Permits, Imperfect Competition and Abatement Technologies By Clémence Christin; Jean-Philippe Nicolai; Jerome Pouyet
  12. On licensing and diffusion of clean technologies in oligopoly By Idrissa Sibailly
  13. Citizen-Editors' Endogenous Information Acquisition and News Accuracy By Francesco Sobbrio
  14. Cross-Checking the Media By Rudiger, Jesper
  15. The effects of mergers on sellers, customers, and competitors in Russia’s ferrous and non-ferrous metal industries: the application of financial event study By Dina Tsytsulina
  16. What impact does antitrust intervention have on competition? The case of public drug procurement in Russia By Maria Ostrovnaya; Elena Podkolzina
  17. Collusion detection in procurement auctions By Ilya Morozov; Elena Podkolzina
  18. Leniency program and cartel deterrence in Russia: effects assessment By Gyuzel Yusupova
  19. The Russian Electricity Supply Industry: from Reform to Reform? By Nadia Chernenko
  20. A teoria do mercado religioso : evidências empíricas da literatura By Oliveira, Livio Luiz Soares de; Neto, Giácomo Balbinotto

  1. By: Luca Colombo (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Herbert Dawid (Universität Bielefeld)
    Abstract: This paper investigates firms' optimal location choices explicitly accounting for the role of inwards and outwards knowledge spillovers in a dynamic Cournot oligopoly with firms that are heterogeneous in their ability to carry out cost-reducing R\&D. Firms can either locate in an industrial cluster or in isolation. Technological spillovers are exchanged between the firms in the cluster. It is shown that a technological leader has an incentive to locate in isolation only if her advantage exceeds a certain threshold, which is increasing in firms' discount rate, in industry dispersion, and in the intensity of knowledge spillovers. Scenarios are identified where although it is optimal for the technological leader to locate in isolation, from a welfare perspective it would be desirable that she locates in the cluster.
    Keywords: Location Choice, Knowledge Spillovers, Technological Leadership, Markov-perfect Equilibrium
    JEL: L13 C73 O31 R12
    Date: 2013–11
  2. By: Alexei Parakhonyak (National Research University Higher School of Economics, Moscow, Russia.)
    Abstract: I study a model of oligopolistic competition in which consumers search for prices, but have no idea about the underlying price distribution. Consumers’ behaviour satisfies four consistency requirements such that beliefs about the underlying distribution maximize Shannon entropy. I derive the optimal stopping rule and equilibrium price distribution of the model. Unlike in Stahl (1989), the expected price is decreasing in the number of firms. Moreover, consumers can benefit from being uninformed, if the number of firms is sufficiently large.
    Keywords: consumer search, search without priors, bounded rationality, entropy
    JEL: D83 D43 L11
    Date: 2013
  3. By: Anna D'Annunzio (Universita' degli Studi di Roma "La Sapienza")
    Abstract: We study distribution and investment in content quality in a two-sided media market. We show that a content provider prefers to provide the premium content exclusively to a platform, no matter what the vertical structure of the industry is. However, a vertically integrated content provider has fewer incentives to invest in quality than an independent one. When downstream platforms are asymmetric, the platform with a competitive advantage on the advertising market gets the exclusive content and the content provider invests even less in quality when it is integrated with it. When we endogenize the vertical structure of the industry, we find that the content provider acquires the platform with a competitive advantage on the advertisers market. Vertical integration reduces both consumer surplus and total welfare. Our results suggest that, in merger control,authorities should carefully assess the effects of the integration on the incentives to invest in content quality. Moreover, a policy intervention at the distribution stage that enforces non-exclusive provision might have adverse effects on consumer surplus and welfare. Also advertising cap could have the effect of reducing quality.
    Keywords: exclusive contracts, premium content, investment, quality, media, twosided markets, vertical integration, merger, advertising cap
    Date: 2013
  4. By: Andrei Hagiu (Harvard Business School, Strategy Unit); Hanna Halaburda (Bank of Canada)
    Abstract: We study the effect of different levels of information on two-sided platform profits?under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because this leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition.
    Keywords: two-sided platforms, information, responsive expectations, passive expectations, wary expectations
    Date: 2013–11
  5. By: Igor Pospelov (Research University Higher School of Economics); Stanislav Radionov (National Research University Higher School of Economics. Research group on macro-structural modeling of Russian economy. Junior Researcher)
    Abstract: We present a natural generalization of the Dixit-Stiglitz monopolistic competition model (DSM) | we assume that there is a continuum of industries, each of them described as in DSM, and each characterized with its own elasticity of substitution. Although rms in all industries share the same level of productivity and costs, exogenous technological progress leads to non-trivial reallocations of labor and production to industries with lower elasticities of substitution. Thus the model, despite is simplicity and absence of additional assumptions about industry structure, generates the structural changes described in the economic growth literature
    Keywords: Dixit-Stiglitz model, monopolistic competition, economic growth, labor reallocations.
    JEL: D43 J21 L13 O41
    Date: 2013
  6. By: Heger, Diana; Hussinger, Katrin
    Abstract: Classical patent literature assumes that patents grant well-defined legal rights to exclude others from practicing an invention. In this scenario, start-up companies benefit from the exclusive right to commercialize patent-protected inventions and the certification effect of patents which signals the ventures' 'quality' to investors. If the decision about patent applications is pending at the patent office patent rights become probabilistic and both effects may not realize. We show that start-up companies are reluctant to launch new products if patents are pending. Further, pending patents attract risk-seeking investors (venture capitalists), while more cautious investors (banks) do not react on pending patents. --
    Keywords: start-ups,patents,probabilistic patents,pending patents,access to finance,new product launch
    JEL: L26 O31 O34
    Date: 2013
  7. By: Thomas Grebel (Economics Deprtment, TU Ilmenau); Lionel Nesta (Ofce)
    Abstract: We investigate the conditions under which R&D investment by rival firms may be negatively or positively correlated. Using a two-stage game the influence of spillovers and product substitution is investigated. It is shown that under Cournot competition, the sign of the R&D reaction function depends on four types of environments in terms of the level of product substitution and of spillovers. We then test the prediction of the model on the world’s largest manufacturing corporations. We assume that firms make oblivious R&D investments based on the R&D decision of the average rival company. We then develop a dynamic panel data model that accounts for the endogeneity of the decision of the mean rival firms. Results corroborate the validity of the theoretical model.
    Keywords: Process R&D, Spillovers, Product substitution, Reaction function, GMM
    JEL: D43 L13 O31
    Date: 2013–10
  8. By: Tavassoli, Sam (CSIR, Blekinge Inst of Technology)
    Abstract: This paper analyzes how the influence of firm-level innovation determinants varies over the industry life cycle. Two sets of determinants are distinguished: (1) determinants of a firm’s innovation propensity, i.e. the likelihood of being innovative and (2) determinants of its innovation intensity, i.e. innovation sales. By combining the literature emphasizing firms’ internal resources (micro level) with the research strand on the role of the industry context (meso-level), the paper develops hypotheses about the relative importance of firm-level innovation determinants over the industry life cycle. Estimation of a firm-level model of innovation in Sweden, while acknowledging the stage of the life cycle of the industry a firms belongs to, shows that the importance of the determinants of innovation propensity and intensity are not equal over the stages of an industry’s life cycle.
    Keywords: Determinants of innovation; innovation intensity; innovation propensity; Industry Life Cycle (ILC); Community Innovation Survey (CIS4)
    Date: 2013–12–02
  9. By: Joseph E. Harrington, Jr.; Juan-Pablo Montero
    Abstract: This study investigates when a cartel that uses a sales quota allocation scheme monitors more frequently than it enforces; for example, monitoring of sales is done on a weekly basis but firms are only required to comply with sales quotas on a quarterly basis. In a simple three-period quantity game with iid cost and demand shocks, we show that the volatility of a cartel member’s sales follows a U-shape within the compliance horizon. In comparison, sales volatility is constant over time under competition. This result offers a simple empirical test for distinguishing collusion from competition using sales data.
    Date: 2013
  10. By: Lerner, Josh; Tirole, Jean
    Abstract: A major policy issue in standard setting is that patents that are ex-ante not that important may, by being included into the standard, become standard-essential patents (SEPs). In an attempt to curb the monopoly power that they create, most standard-setting organizations require the owners of patents covered by the standard to make a loose commitment to grant licenses on reasonable terms. Such commitments unsurprisingly are conducive to intense litigation activity. This paper builds a framework for the analysis of SEPs, identifies several types of inefficiencies attached to the lack of price commitment, shows how structured price commitments restore competition, and analyzes whether price commitments are likely to emerge in the marketplace.
    Keywords: Standards, licensing commitments, standard-essential patents, royalty stacking, FRAND, hold ups and reverse hold ups.
    JEL: D43 L24 L41 O34
    Date: 2013–11–05
  11. By: Clémence Christin (Université de Caen Basse-Normandie, France); Jean-Philippe Nicolai (ETH Zurich, Switzerland); Jerome Pouyet (Paris School of Economics, France)
    Abstract: Under imperfect competition, the effect of a cap-and-trade system on indus- try profits depends on the type of abatement technology that is used by firms: industries that use process-integrated technologies are more affected than those using end-of-pipe abatement technologies. The interaction between environmental policy and the evolution of the market structure is then studied. In particular, a reserve of pollution permits for new entrants is justified when the industry uses a process-integrated abatement technology, while a system with a preemption right may be justified in the case of end-of-pipe abatement technology.
    Keywords: Cap-and-trade system; imperfect competition; abatement technologies.
    JEL: L13 Q53 Q58
    Date: 2013–10
  12. By: Idrissa Sibailly (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, LEI - Laboratoire d'Economie Industrielle - Centre de Recherche en Économie et STatistique (CREST))
    Abstract: Clean technologies implemented by polluters subject to environmental regulation are often developed and patented by specialized technology suppliers. This paper investigates the impact of the environmental regulation stringency on the diffusion of patented clean technologies when the polluters (i.e. the potential licensees) compete in imperfectly competitive markets. We show that the polluters' willingness to pay for clean technology and the diffusion of such technology (i.e. the extent to which it is privately disseminated through licensing) depend not only on the regulatory stringency and the technological efficiency, but also on the polluters' competitive environments. More stringent regulations (e.g., higher carbon taxes) or increased technological efficiency (e.g., supported by more R&D subsidies) do not necessarily induce more diffusion of efficient clean technologies. Indeed, as the returns to implementing a clean technology increase, so do the technology supplier's incentives to sell fewer licenses so as to extract more rent from each of its licensees.
    Keywords: Clean technology, Environmental Regulation, Oligopoly, Licensing
    Date: 2013–11–29
  13. By: Francesco Sobbrio (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: This paper provides a model of the market for news where profit-maximizing media outlets choose their editors from a population of rational citizens. The analysis identifies a novel mechanism of media bias: the bias in a media outlet's news reports is the result of the slanted endogenous information acquisition strategy of its editor. In particular, the results show that the expected accuracy of news reports is lower the more ideological an editor is. Nevertheless, citizens find it optimal to acquire information from a media outlet whose editor has similar ideological preferences. Depending on the distribution of citizens' ideological preferences, a media outlet may choose an ideological editor even in a monopolistic market. Moreover, ideological editors are more likely to be present in the market for news: i) the higher the number of media outlets competing in the market for news; ii) the lower the opportunity cost that citizens have to incur to acquire information
    Keywords: Media Bias, Slant, Information Acquisition, Valence, Competition
    JEL: D81 D82 L82
    Date: 2013–11
  14. By: Rudiger, Jesper
    Abstract: A characteristic of the news market is that consumers often cross-check information, i.e. observe several news outlets. At the same time, data on political media suggest that more partisan consumers are more likely to cross-check. We explore these phenomena by building a model of horizontal competition in newspaper endorsements. Without cross-checking, outlets are unbiased and minimally differentiated. When cross-checking is allowed, we show that cross-checkers are indeed more partisan than those who only acquire one report. Furthermore, cross-checking induces outlets to differentiate, and the degree of differentiation is increasing in the dispersion of consumer beliefs. Differentiation is detrimental to consumer welfare, and a single monopoly outlet may provide higher consumer welfare than a competitive duopoly.
    Keywords: News Markets; Media Bias; Cross-checking; Hotelling
    JEL: D82 D83 L81
    Date: 2013–11–28
  15. By: Dina Tsytsulina (National Research University Higher School of Economics. Economics Department. Lecturer.)
    Abstract: Russian producers are large participants in both domestic and international markets of ferrous and non-ferrous metals. Their market power is limited on the world market due to the presence of competitors, while in Russia most of them have achieved an “almost monopolistic” position strengthened by a high market share as a result protection from import tariffs. During 1999-2011 numerous mergers in these industries were completed and approved by the Federal Antitrust Service – Russia’s competition agency. The key problem of merger analysis in Russia’s ferrous and non-ferrous metal industries is the trade-off between a (possible) weakening of competition in domestic markets and achieving competitive advantages in international markets. Most merger deals were approved only together with precisely developed merger remedies aimed at preventing dominance abuse. However, it is still unknown whether the weakening of competition and the abuse of dominance on the domestic market as the result of a merger indeed lead to harmful consequences. Using the financial event study method developed by Eckbo and Wier (1985), this paper empirically verifies the significance of anticompetitive effects of mergers in the domestic ferrous and non-ferrous metal markets. I find that, according to the financial market, mergers between Russian metal producers restrict competition and reduce consumer gains
    Keywords: merger, competition, financial event study, Russia.
    JEL: G14 L40
    Date: 2013
  16. By: Maria Ostrovnaya (Research Assistant in the Center for Institutional Studies at the National Research University Higher School of Economics); Elena Podkolzina (Ph.D. in economics, Senior Researcher in the Center for Institutional Studies at the National Research University Higher School of Economics)
    Abstract: In this paper we study antitrust intervention in long-term relationships between public procurer and his preferred supplier in one of the Russian regions. We presume that antitrust control of auctions held by affiliated procurer increases the risks of implementing long-term relationships with his preferred supplier. However we found out that after the intervention of antitrust agency the number of bidders in the auctions increased, but relative contract prices remained the same. We argue that procurer and preferred bidder invited firm with passive bidding strategy to decrease the risks of antitrust punishment. Thereby, antitrust intervention led to fake competition, but not to honest non-corrupt behavior in public auctions
    Keywords: public auctions, antitrust policy, pharmaceuticals, Russia.
    JEL: H57 L40
    Date: 2013
  17. By: Ilya Morozov (Research Assistant, International Laboratory for Institutional Analysis of Economic Reforms); Elena Podkolzina (Senior Researcher, International Laboratory for Institutional Analysis of Economic Reforms)
    Abstract: This paper proposes a method of bid-rigging detection, which allows us to reveal cartels in procurement auctions without any prior knowledge of the market structure. We apply it to data on highway construction procurements in one of the Russian regions and show that five suppliers demonstrated passive bidding behavior, which is consistent with the so called ‘rotating bidding’ scheme of collusion. The suggested methodology can be potentially used by both researchers and anti-trust agencies for cartel disclosure in various markets.
    Keywords: Bid-rigging, Tacit collusion, Public procurement, Cartel, Open auction.
    JEL: H57 L41 L92
    Date: 2013
  18. By: Gyuzel Yusupova (National Research University Higher School of Economics, Institute of Industrial and Market Studies, associate professor)
    Abstract: The empirical assessment of leniency program (LP) in Russia shows the effects of changes in the rules on the behavior of market participants. In this paper we test hypotheses about LP enforcement against the characteristics of cartels: their subject, duration and the number of participants. We show that LP in Russia makes enforcement of the behavior of market participants less effective and accordingly reduces cartel discoveries. However the reforms of Program in 2009 give some positive results
    Keywords: Leniency Program, Collusion, Antitrust legislation
    Date: 2013
  19. By: Nadia Chernenko
    Abstract: The paper looks at the development of the industry in the post-Soviet Russia, starting from the ealry 1990s. The main focus is on the last reform 2003-11 and the relationship of cost, prices and investment. In particular, the author examines the new designs for the electricity and capacity markets and their impact on incentives for short-run production and long-term planning and construction. The author defends the pro-competitive approach to the electricity industry reform in Russia and traces the roots of its success and failures.
    Keywords: Russian Electricity Industry, RAO EES, reform 2003-11, restructuring, market liberalisation, capacity markets
    JEL: L11 L22 L43 L52 L94
    Date: 2013–11–27
  20. By: Oliveira, Livio Luiz Soares de; Neto, Giácomo Balbinotto
    Abstract: This paper deals with the Religious Market Theory. Concepts are presented, drawn of Economics, as, for example, religious commodity, supply and demand for goods and religious services, competition and monopoly in religious market and the degree of regulation in the religious market. We also presented definitions of religious organizations and its types, concepts of religious compensators, and the possible consequences of government intervention in the religious market. The main contribution of this paper is a review of the literature, based on the results of empirical tests, on main premise of Religious Market Theory, this is, that there is a positive correlation between religious pluralism and religious attendance.
    Keywords: Religious Market, monopoly, religious pluralism
    JEL: D11 Z12
    Date: 2013–11–13

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