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on Industrial Competition |
| By: | Khan A.; Peeters R.J.A.P. (GSBE) |
| Abstract: | We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a Salop circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a mutually non-aggressive outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously. |
| Keywords: | Noncooperative Games; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Firm Behavior: Theory; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Production, Pricing, and Market Structure; Size Distribution of Firms; Oligopoly and Other Imperfect Markets; |
| JEL: | C72 C73 D21 D43 L11 L13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2013022&r=com |
| By: | Schwalbe, Ulrich; Baake, Pio |
| Abstract: | The paper deals with the competitive effects of price guarantees in a spatial duopoly where consumers can search for lower prices but have to incur hassle costs if they want to claim a price guarantee. It is shown that symmetric equilibria with and without price guarantees exist but price guarantees will have no effect on prices if search costs are low, hassle costs are high and the number of uninformed consumers is small. However, when both firms use price guarantees, there also exist payoff-dominant equilibria where both firms use mixed pricing strategies in the form of "high-low" pricing schemes, provided that the search costs are sufficiently high. -- |
| JEL: | D43 L13 C72 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80023&r=com |
| By: | Müller, Daniel; Herweg, Fabian |
| Abstract: | We consider a monopolistic supplier's optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs. Under discriminatory pricing, downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs. Under uniform pricing, the same wholesale tariff is offered to all downstream firms. In contrast to the extant literature on price discrimination with nonlinear wholesale tariffs, we find that banning discriminatory wholesale contracts often improves welfare. This also holds if the manufacturer is not an unconstrained monopolist. Moreover, uniform pricing increases downstream investments in cost reduction in the long run. -- |
| JEL: | D43 L11 L42 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79978&r=com |
| By: | Kovac, Eugen; Eugen, Kovac; Robert, Schmidt |
| Abstract: | We analyze dynamic price competition in a homogeneous goods duopoly, where consumers exchange information via word-of-mouth communication. A fraction of consumers, who do not learn any new information, remain locked-in at their previous supplier in each period. We analyze Markov perfect equilibria in which firms use mixed pricing strategies. Market share dynamics are driven by the endogenous price dispersion. Depending on the parameters, we obtain different 'classes' of dynamics. When firms are impatient, there is a tendency towards equal market shares. When firms are patient, there are extended intervals of market dominance, interrupted by sudden changes in the leadership position. -- |
| JEL: | C73 D83 L11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79994&r=com |
| By: | Greer, Katja |
| Abstract: | This paper studies the impact of a dominant firm's conditional discounts on competitors' learning-by-doing. In a vertical context where a dominant upstream supplier and a competitive fringe sell their products to a single downstream firm, we analyze whether the dominant supplier prefers to off er a discount scheme, as in particular a quantity or market-share discount. In a dynamic setting with complete information and learning-by-doing, short-term market-share discounts and long-run contracts are more pro fitable to the dominant supplier than simple two-part tariff s or quantity discounts. We show that two-part tariff s as well as quantity discounts lead to more learning than market-share discounts, or long-term contracts. Thus, the dominant fi rm's contract choice restricts the competitive fringe's e fficiency gain. Similar results occur for network eff ects. -- |
| JEL: | L42 L13 D43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79730&r=com |
| By: | Güth, Werner; Pull, Kerstin; Stadler, Manfred; Zaby, Alexandra |
| Abstract: | We present a model of price leadership on homogeneous product markets where the price leader is selected endogenously. The price leader sets and guarantees a sales price to which followers adjust according to their individual supply functions. The price leader clears the market by serving the residual demand. As price leaders, firms with different marginal costs induce different prices. We compare two mechanisms to determine the price leader, majority voting and competitive bidding. According to the experimental data at least experienced price leaders with lower marginal costs choose higher prices. In the bidding treatment, compensation payments to the price leader crowd in efficiency concerns. -- |
| Keywords: | price leadership,majority voting,bidding,experimental economics |
| JEL: | D43 D74 L11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:68&r=com |
| By: | Li X.; Peeters R.J.A.P. (GSBE) |
| Abstract: | In the recent past there have been numerous scandals around bad practices in the food industry. Although it can be easily rationalized why these bad practices have not been reported by the inflictors themselves, it is more difficult to understand why the non-inflicting competitors did not report their rivals conspicuous acts. In this paper we study these competitors incentives to acquire and to disclose information on the quality of their rivals products and how regulatory intervention may enhance information disclosure. Our model involves two firms that compete in prices within a differentiated product market, where the quality of one of the firms is publicly known while that of the other firm is unknown. Before the firms set their prices, the former firm has the possibility to acquire information on the quality of the latter firms product, and, if decided to do so, subsequently, the possibility to credibly reveal this information to the public. We find that low quality levels can be disclosed in a substitute market, but should not be expected to be disclosed in a complement market. Policies that mandate acquisition or disclosure may enhance disclosure of low quality levels, but fail to be welfare enhancing. |
| Keywords: | Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Information and Product Quality; Standardization and Compatibility; Enterprise Policy; |
| JEL: | L15 L53 D43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2013032&r=com |
| By: | Gugler, Klaus; Szücs, Florian |
| Abstract: | We estimate the spillovers on firm profitability and market shares in oligopolistic markets through the transition from an n to an n-1 player oligopoly after a merger in the industry. Competitors are identified via the European Commission s market investigations and our methodology allows us to disentangle the spillover due to the change in market structure from the merger effect. We obtain results consistent with the predictions of standard oligopoly models: non-merging rivals expand their output and increase their profits, while merging firms barely break even. The size of the effect is larger in industries with fewer oligopolists and higher initial profits. -- |
| JEL: | L13 L40 G34 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79905&r=com |
| By: | Wismer, Sebastian |
| Abstract: | When sellers join a platform to sell their products, the platform operator may restrict their strategic decisions. In fact, several platform operators impose most-favored treatment or no-discrimination rules (NDRs), asking sellers not to offer better sales conditions elsewhere. In this paper, I analyze a model that allows for an endogenous split-up of consumers between sales channels. Competing sellers might set different prices across channels, depending on the platform tariff and presence of a NDR. I find that the platform operator imposes a NDR if he faces high transaction costs, if seller competition is weak, and if the initial distribution of consumers on channels is strongly skewed. Prohibiting NDRs can have both positive and negative effects on welfare. -- |
| JEL: | L81 L42 D40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79999&r=com |
| By: | Marco Pagnozzi (Università di Napoli Federico II and CSEF); Antonio Rosato (University of Technology Sydney) |
| Abstract: | We compare two mechanisms through which a potential entrant can take over an incumbent in a market with asymmetric firms: auctions (where other incumbents can bid for the target) and bilateral negotiations between the entrant and the target. The entrant’s choice of target depends on the mechanism, and it may not maximize ex-post profit or consumer welfare. In an auction, the entrant pays a higher price to take over a target with higher synergies, because they impose stronger negative externalities on incumbents and increase their willingness to pay for preventing entry. This provides a new rationale for takeover premia. Auctions increase the price obtained by the target, but reduce welfare compared to negotiation because they may discourage the entrant from acquiring a target with higher synergies. |
| Keywords: | Takeover; Mergers; Auctions with Externalities |
| JEL: | D44 G34 L13 |
| Date: | 2014–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:353&r=com |
| By: | Letina, Igor |
| Abstract: | This paper develops an innovation model where firms choose which research paths to follow. Contrary to most of the literature which focuses only on the level of investment in innovation, this model captures both the variety of research paths undertaken and the amount of duplication of research. A characterization of the equilibrium market portfolio is provided. It is shown that an increase in the number of firms weakly increases the variety of developed projects and weakly increases the amount of duplication of research. An increase in the intensity of competition among firms leads to an increase in the variety of developed projects and a decrease in the amount of duplication of research. A characterization of the socially optimal portfolio is provided. It is shown under which conditions market suboptimally invests in the variety and duplication of research projects. Market underinvestment in the variety of R&D projects is demonstrated for a large class of homogeneous goods products. -- |
| JEL: | L13 L22 O31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79871&r=com |
| By: | Pirschel, Inske; Ahrens, Steffen; Snower, Dennis |
| Abstract: | This paper provides an alternative theory of price adjustment resting on consumer loss aversion in the price dimension. In line with prospect theory the perceived losses from price increases are weighted stronger in the consumer s utility function than the perceived gains resulting from price decreases of equal magnitude. Prices are evaluated relative to a certain reference price which is endogenous, sluggish and depends to the consumer s recent rational price expectations. Two key modeling implications arise: First, demand responses are more elastic for price increases than for price decreases and thus firms face a downward-sloping demand curve that is kinked at the consumer s reference price. Second, changes in the consumer s recent rational price expectations and hence in the consumer s reference price can alter demand through what we call the reference-price-updating effect. We incorporate this into an otherwise standard dynamic neoclassical model of monopolistic competition and analyze price and quantity reactions to various demand shocks. We find that although firms may change their prices flexibly, depending on the size of the shock the prices adjust more or less pronounced than in the standard monopoly model and that prices can even be rigid. Additionally, we find that the price adjustment is asymmetric with respect to shock size and sign and the current state of the business cycle, i.e. pricing is state-dependent. -- |
| JEL: | D03 D21 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79793&r=com |
| By: | Friedrichsen, Jana |
| Abstract: | In this paper, I study markets where consumers are heterogeneous with respect to both their concerns for the quality of goods and the image associated with them. Consumers with a taste for quality lend a positive image to the product of their choice and thereby increase the product's value to others. A monopolist restricts the product portfolio and charges price premia to allocate image along with quality. Heterogeneity in image concerns thereby provides a rationale for pooling consumers with differing quality preferences. Although image is correlated with a product's quality in equilibrium, an increase in the value of image may decrease quality provision. In a competitive market, premium prices are unsustainable so that image-concerned consumers buy excessive quality instead. Monopoly may therefore yield higher welfare than competition. Policy options to remedy the efficiency losses are discussed. -- |
| Keywords: | image motivation,conspicuous consumption,two-dimensional screening,ethical consumption |
| JEL: | D21 D82 L15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2013211&r=com |
| By: | Elberg, Christina; Kranz, Sebastian |
| Abstract: | Liberalized electricity markets are characterized by a fluctuating price-inelastic demand, non-storable electricity and often show substantial market shares held by one or few incumbent firms. These characteristics have led to a controversial discussion concerning the need for and the design of capacity mechanisms, which combine some form of capacity payments with price caps in the spot market. The purpose of this study is to understand the effects of different capacity mechanisms on the market structure. We consider a model with a dominant firm and a competitive fringe and investigate the impact of price caps and capacity payments on investment incentives and market shares of both parties. While lower price caps reduce the potential for the exercise of market power in static models, we find that in the dynamic model with endogenous investments lower price caps increase market concentration and the frequency of capacity withholding, as well as, the dominant firm's profits. -- |
| JEL: | L11 L51 L94 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79811&r=com |
| By: | Seifert, Jacob |
| Abstract: | This paper develops a three-stage model of innovation, fixed-fee licensing and production to evaluate the welfare effects of compulsory licensing, taking into account both static (information sharing) and dynamic (innovation incentive) effects. Compulsory licensing is shown to have an unambiguously positive impact on consumer surplus. Compulsory licensing has an ambiguous effect on total welfare, but it is more likely to increase total welfare in industries which are naturally less competitive. Furthermore, compulsory licensing can be an effective policy to safeguard the competitive process per se. These welfare results hold independently of whether R&D incentives in the absence of licensing favour the leading firm ('persistent dominance') or predict that the follower will overtake the incumbent ('action-reaction'). -- |
| JEL: | L13 O31 O34 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79778&r=com |
| By: | Abbring, J.H.; Campbell, J.R.; Tilly, J.; Yang, N. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level data on demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the xed points of low-dimensional contraction mappings. We characterize the model's identi cation and extend Rust's (1987) nested xed point estimator to account for the observable implications of mixed strategies on survival. We illustrate the model's application with ten years of County Business Patterns data from Motion Picture Theaters in 573 Micropolitan Statistical Areas. |
| Keywords: | demand uncertainty;dynamic oligopoly;rm entry and exit;Markov-perfect equilibrium;nested xed point estimator;sunk costs;toughness of competition |
| JEL: | L13 C25 C73 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2014008&r=com |
| By: | Steg, Jan-Henrik |
| Abstract: | We present a duopoly model of strategic capital accumulation in continuous time with uncertainty, such that investment takes the form of singular control. Spot competition is of Cournot type. For this model there exists a parameterized and Pareto-rankable family of Markov perfect equiblibria in symmetric strategies, according to which implicit collusion induces positive option values. However, preemption can also eliminate any option value in a limiting case corresponding to Bertrand prices. -- |
| JEL: | C73 D43 D92 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79948&r=com |
| By: | Kiedaisch, Christian; Grafenhofer, Dominik |
| Abstract: | This article analyzes the effects of intellectual property rights protection on innovation in a quality-ladder model in which part of the consumers value being the exclusive consumers of the newest generation of a good. In the case of a monopoly innovator, we show that reducing IP protection can increase the average innovation rate by regularly destroying exclusivity and thereby creating incentives to invent new exclusive goods. In the case where R&D is undertaken by entrants, the innovation rate, however, increases in the strength of IP protection for most market structures. In each case, we derive the welfare-maximizing strength of IP protection. -- |
| JEL: | O34 O31 L40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80017&r=com |
| By: | Muthers, Johannes; Inceoglu, Firat; Doganoglu, Toker |
| Abstract: | The literature on the licensing of an innovation has mainly focused on some speci c contract types. We show within the framework of a fairly general model that removing these contractual limitations will lead to extreme market outcomes. Speci cally, we nd that when the patentee can employ observable contracts that can condition on market entry, it can achieve the monopoly outcome. Furthermore, when the patentee can only use unconditional quantity forcing contracts, it captures the entire market, albeit not at monopoly price, via a single licensee. Our results point out to the signi cance, and perhaps the particularity, of observable, nonrenegotiable contracts. -- |
| JEL: | D45 K11 L11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79757&r=com |
| By: | Güth, Werner; Pull, Kerstin; Stadler, Manfred |
| Abstract: | We study interfirm competition on a product market where effort decisions are delegated to the firms' workers. Intrafirm organization is captured by a principal-multiagent framework where firm owners implement alternative compensation schemes for the workers. We show that the value of delegation as well as the optimal design of the compensation scheme crucially depend on the intensity of competition. In particular, our model explains why piece rates and performance-based revenue sharing may be observed in different markets at the same time. -- |
| Keywords: | delegation,agency theory,compensation schemes |
| JEL: | C72 L22 M52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:67&r=com |
| By: | Ãlvaro Bustos |
| Abstract: | Companies that offer services with capacity constraints in which there are negative consumption externalities (such as restaurants that serve smokers and non-smokers, airlines that fyy passengers travelling with infants and without infants or organizers of sport events that serve aggressive and friendly supporters) tend to separate generators of the externality from receptors of the externality. Do consumers and/or Society end better off with this type of separation? We show that if firms have complete information then: unless the number of consumers is small enough, as a net effect, consumers end worse off with separation than without it. Instead, when investment in separation is negligible, firms always prefer separation. This is true regardless whether firms price discriminate consumers. On the other side, if firms have incomplete information then: consumers prefer no separation if their number is small enough and firms always prefer no-separation -also when investment in separation is negligible. First we derive the results in the context of a monopoly that serves a linear demand, later we address robustness and discuss policy implications. |
| Keywords: | Optimal prices, welfare analysis, capacity constraints, negative consumption externality, market separation |
| JEL: | L4 L5 L8 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:448&r=com |
| By: | Rosar, Frank |
| Abstract: | I study the interaction between optimal procurement and outsourcing of production in small industries. First, two sellers decide about outsourcing. By outsourcing, a seller loses information about the costs of producing to his supplier. Then the buyer designs the procurement mechanism and sellers who outsourced production subcontract with their respective suppliers. The focal equilibrium might exhibit bilateral outsourcing although outsourcing is modeled to have no direct positive effects. When a seller is able to extract his supplier s rent ex ante, the focal equilibrium exhibits bilateral outsourcing for any distribution of production costs satisfying a regularity condition. -- |
| JEL: | D44 D82 L23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79812&r=com |
| By: | Li X.; Peeters R.J.A.P. (GSBE) |
| Abstract: | We consider a cheap-talk setting that mimics the situation where an incumbent firm the sender is endowed with incentives to understate the true size of the market demand to two potential entrants the receivers. Although our experimental data reveals that senders messages convey truthful information and this is picked up by the receivers, this overcommunication relative to standard theoretical prediction does not enhance efficient entry levels and payoffs to beyond what can be achieved without any communication. The reason is that receivers fail to optimally translate the information received in their entry decision, possibly due to overcautiousness. |
| Keywords: | Noncooperative Games; Design of Experiments: Laboratory, Group Behavior; Asymmetric and Private Information; Mechanism Design; Search; Learning; Information and Knowledge; Communication; Belief; |
| JEL: | C72 C92 D82 D83 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2013035&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. -- |
| JEL: | D82 D86 G34 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79914&r=com |
| By: | Rickert, Dennis; Wey, Christian; Haucap, Justus; Heimeshoff, Ulrich; Klein, Gordon J. |
| Abstract: | Given various recent antitrust investigations on the retail sector, we deal with uncovering demand systems substitution patterns for a particular market (diapers) to investigate the inter-format competition (supermarkets vs. discounters vs. drugstores). Using the uncovered demand system we compute retail and manufacturer margins and combine those with standard market delineation techniques, showing that the strongest substitution patterns are between the leading brand as well as private labels sold at drugstores and discounters. This result is important given controversies among competition authorities, firms and academic researchers. -- |
| JEL: | L40 L81 C50 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79797&r=com |
| By: | Halbheer, Daniel; Bertini, Marco; Koenigsberg, Oded |
| Abstract: | Managers like to think well of themselves, and of the firms that employ them. However, positive illusions can bias a manager's evaluation of market outcomes, self-servingly crediting success on the superior quality of one's own product but blaming failure on the aggressive price of a competitor's offering. These distorted attributions stem from the idea that product quality better serves the manager's motivation for self-enhancement and self-presentation than price: product quality is seemingly more central to the firm, less susceptible to external market forces, and more stable over time. We position our theory in the psychology of attribution, define self-serving behavior and provide experimental and survey evidence of this phenomenon, and develop a model of price-quality competition that incorporates the empirical findings. In particular, we first study the natural benchmark equilibrium provided by unbiased decision makers. We then introduce self-serving behavior in the presence of myopic principals, or of forward-looking principals who anticipate the limitations of managers and set first-period decisions accordingly. -- |
| JEL: | L21 M21 M31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79842&r=com |
| By: | Michel, Christian |
| 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 9.7 and 19.1 percent of industry markups can be attributed to cooperative industry behavior, while the remaining markup is due to product differentiation of multi-product firms. -- |
| JEL: | L22 L11 C52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80488&r=com |
| By: | Paha, Johannes |
| Abstract: | This article provides a framework for the analysis of cartel formation. It models the strategic interaction among firms who invest into production capacity, sell a near-homogeneous good, and are subject to unexpected demand shocks with persistence. The firms either compete or collude in prices. The model shows that a reduction of demand may promote collusion despite lowering collusive profits. This is the case when capacities are durable and a perceptible decline in demand creates excess capacities that make competition more intense. One finds unstable cartels especially for low discount rates as these lead the firms to choose asymmetric capacities. -- |
| JEL: | D43 L11 L41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79726&r=com |
| By: | Klein, Gordon J.; Günster, Andrea |
| Abstract: | The study analyzes the impact of European antitrust enforcement on industry performance measured as competition intensity (Price Cost Margin) and productivity (labor productivity and distance to the frontier). For a panel of OECD countries on the industry level since 1988, we estimate the impact of an infringement decision by the European Commission on the competitive market structure. We find that enforcement has a considerable e ffect, both on competition intensity and on productivity. However, the impact di ffers with the anticompetitive economic conduct. Cartels behave as theoretically predicted with an increase in competition and productivity after the cartel break-up. The impact of vertical conduct is more complex, with positive and negative effi ciency eff ects of antitrust enforcement depending on the exclusivity of the vertical restraint. -- |
| JEL: | L40 K21 K20 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79989&r=com |
| By: | Wey, Christian; Dertwinkel-Kalt, Markus |
| Abstract: | We analyze the effects of structural remedies on merger activity in a Cournot oligopoly when the antitrust agency applies a consumer surplus standard. Remedies increase the scope for profitable and acceptable mergers, while divestitures to an entrant firm are most effective in this regard. Remedial divestitures are most attractive from a social welfare point of view, when the merging parties can extract the entire gains associated with the asset sale. We also show that the merging parties have strong incentives to search for the most efficient buyer and we identify instances so that a remedy rule induces strictly price-decreasing mergers. Finally, under incomplete information an effcient merger type is to be doomed to "overshoot" with its divestiture proposal in a pooling equilibrium which is also possible under separation. -- |
| JEL: | L13 L41 K21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79888&r=com |
| By: | Stiebale, Joel; Haucap, Justus |
| Abstract: | This papers analyses how horizontal mergers affect innovation activities of the merged entity and its non-merging competitors. We develop an oligopoly model with heterogeneous firms to derive empirically testable implications. Our model predicts that a merger is more likely to be profitable in an innovation intensive industry. For a high degree of firm heterogeneity a merger reduces innovation in both the merged entity and in non-merging competitors in an industry with high R\&D intensity. Using data on horizontal mergers among pharmaceutical firms in Europe, we find that our econometric results are consistent with many predictions of the theoretical model. Our main result is that after a merger patenting and R\&D of the merged entity and its non-merging rivals declines substantially. The results are robust towards alternative specifications and using an instrumental variable strategy. -- |
| JEL: | D22 D43 O31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79831&r=com |
| By: | Bos A.M.; Harrington Jr. J.E. (GSBE) |
| Abstract: | This paper examines endogenous cartel formation in the presence of a competition authority. Competition policy makes the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either increase or decrease their inclusiveness. Highly inelastic market demand is sufficient for the presence of a competition authority to cause the least inclusive stable cartels to increase in size. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2013027&r=com |
| By: | Breinlich, Holger; Nocke, Volker; Schutz, Nicolas |
| Abstract: | Decisions of national competition authorities have important effects on other jurisdictions. We provide a framework to quantify the domestic and cross-border effects of mergers, and to draw conclusions for the coordination of national merger policies. We develop a two-country model with many sectors. In each sector, producers vary in terms of their marginal costs, and are engaged in Cournot competition. We allow for profitable mergers to take place subject to the non-violation of a given national competition policy. Because of trade costs and perceived differences in qualities between domestic and foreign products, mergers may have different consumer surplus effects in the home and the foreign country. We calibrate the model using data for the year 2002 for 167 manufacturing sectors in the U.S. and Canada. We choose parameters to match relevant moments in the data, including industry sales, concentration ratios and trade flows. We find that in the majority of industries a merger approval policy based on domestic consumer surplus is too restrictive from the viewpoint of the neighboring country. We also show that adopting a supra-national policy that approves a merger if and only if it increases the sum of consumer surplus in the two countries would lead to significant gains for U.S. consumers but hurt consumers in Canada. These results highlight the difficulties in coordinating national competition policies in a way acceptable to all participating countries. -- |
| JEL: | F12 L44 L13 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79837&r=com |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:446&r=com |
| By: | Bueren, Eckart; Hüschelrath, Kai; Veith, Tobias |
| Abstract: | Public and private action against cartels is an internationally recognized cornerstone of antitrust enforcement. Effective private enforcement requires that cartel victims can receive (at least) full compensation for the harm suffered. Academics and competition authorities support this goal with guidance for the calculation of cartel damages. However, they usually neglect that the prosecution of competition law infringements can be very time-consuming, so that it often takes several years until cartel victims obtain damages. Interest and inflation are thus two key drivers of adequate compensation. This paper is the first to provide a comparative law and economics perspective on this topic: We investigate how various legal systems treat interest and inflation as part of competition law actions for damages, and, using real-world data from the lysine cartel, simulate the economic differences, which turn out to be substantial. By comparing and evaluating the regulatory techniques, our paper provides important insights for regulators, litigation practitioners and the ongoing reform discussions in the EU and the US. At the same time, our approach is a first step towards a quantitative comparative law and economics analysis of the law on interest in the field of tort law. -- |
| Keywords: | Antitrust policy,cartels,private enforcement,damages,interest,inflation |
| JEL: | K21 L41 L61 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:14008&r=com |
| By: | Aichele, Markus |
| Abstract: | I model the optimal semi-collusive strategy of firms using forward contracts in volatile markets. It has been shown that forward contracts can be used to stabilize a collusive agreement under deterministic (Liski and Montero, 2006) as well as under stochastic market conditions (Aichele, 2012). However, forward trading has a negative effect on the expected profit for collusive firms, since firms have the obligation to fulfill their forward contracts in booms as well as in recessions. Thus, in recessions firms involuntarily sell more than the optimal collusive amount. This profit decreasing effect of forward trading is in contrast to the existing literature, since under certainty forward trading does not alter the collusive profit. -- |
| JEL: | L13 D43 K21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79755&r=com |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Holmås, Tor Helge (Uni Rokkan Centre); Straume, Odd Rune (University of Minho) |
| Abstract: | This paper studies the effects of price regulation and parallel imports in the on-patent pharmaceutical market. First, we develop a theory model in which a pharmacy negotiates producer prices with a brand-name firm and then sets retail prices. We show that the effects of price regulation crucially depend on whether the producer faces competition from parallel imports. While parallel imports improve the bargaining position of the pharmacy, price regulation counteracts this effect and may even be profitable for the producer. Second, we use a unique dataset with information on sales and prices at both producer and retail level for 165 substances over four years (2004-7). Exploiting exogenous variation in the regulated price caps, we show that stricter price regulation reduces competition from parallel imports. While the effect is clearly negative on producer profits for substances without parallel imports, the e¤ect is not significant for substances with parallel imports. Finally, we show that stricter price regulation reduces total expenditures, but the e¤ect is much stronger for substances with parallel import. Thus, our results suggest that price regulation may promote both static and dynamic efficiency in the presence of parallel imports. |
| Keywords: | Pharmaceutical market; Price regulation; Parallel imports. |
| JEL: | I11 I18 L13 L51 L65 |
| Date: | 2014–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2014_001&r=com |
| By: | Reisinger, Markus; Ambrus, Attila; Calvano, Emilio |
| Abstract: | This paper develops a fairly general model of platform competition in media markets allowing viewers to use multiple platforms. This leads to a new form of competition between platforms, in which they do not steal viewers from each other, but affect the viewer composition and thereby the resulting value of a viewer for the other platform. We label this form of competition "either or both." A central result is that platform ownership does not affect advertising levels, despite nontrivial strategic interaction between platforms. This result holds for general viewer demand functions and is robust to allowing for viewer fees. We show that the equilibrium advertising level is inefficiently high. We also demonstrate that entry of a platform leads to an increase in the advertising level if viewers' preferences for the platforms are negatively correlated, which contrasts with predictions of standard models with either/or competition. We validate this result in an empirical analysis using panel data for the U.S. cable television industry. -- |
| JEL: | L13 M37 L82 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79912&r=com |
| By: | Duso, Tomaso; Argentesi, Elena; Aguzzoni, Luca; Ciari, Lorenzo; Tognoni, Massimo |
| Abstract: | This paper empirically evaluates the effects of a merger between the two largest book retail chains in the UK. We build an original dataset of book titles with data on the prices at the store level and at the national level. We then apply difference-in-differences techniques to assess the impact of the merger. A key feature of the books market is that titles become obsolete very quickly. Therefore, we compare different titles before and after the merger in an hedonic approach. Since retail mergers may have either local or national effects (or both) according to the level at which retail chains set prices, we undertake an ex post assessment of the impact of the merger at both aggregation levels. At the local level, we compare the changes in the average price charged before and after the merger in the shops located in overlap areas (i.e. areas where both chains were present before the merger) and in non-overlap areas (i.e. areas where only one chain was present before the merger). Our results do not show any significant difference between non-overlap and overlap areas where the merger could have been expected to generate the strongest effect. To investigate the effects of the merger at the national level, we employ two distinct control groups, namely the competitors and the top-selling titles. In both cases we find that the merger did not result in an increase in prices at the national level. -- |
| JEL: | K21 L44 D22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80025&r=com |
| By: | Zulehner, Christine; Elsinger, Helmut; Schmidt-Dengler, Philipp |
| Abstract: | We investigate the role of competition on the outcome of Austrian Treasury auctions. EU accession by Austria provides a natural experiment causing an exogenous increase in the number of bidders in Treasury Auctions. Difference-in-difference estimates suggest that the increased number in bidders caused a significant drop in the yields Austria had to pay for newly issued debt. We use structural estimates of bidders private values to examine the effect of increased competition on auction revenue. We compare bidder surplus before and after the auction. We find a small effect on the the surplus earned by bidders as a result of increased competition. -- |
| JEL: | D44 L13 G12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79963&r=com |
| By: | Wagner, Lilo; Baumann, Julian |
| Abstract: | We rationalize a special type of sharing information which can typically be found in markets for occupational disability insurances. There, firms share information about acceptances and rejections of an applicant. We set up a multiple-step signalling model with uninformed agents and endogenize competing principals' decisions to acquire information on risk types. We formalize the idea that information exchange also serves as a tool to signal an applicant's switching type. This may lessen competition and increase industry profits or result in a higher share of uninsured applicants as compared to a market without information sharing. In any case, consumer welfare is reduced. Our model also helps to understand why access to the system is not made dependent on the provision of own data. In addition, we rationalize the existence of anonymous prequalification tests that allow consumers to gain information about their risk type without risking to enter a system entry. -- |
| JEL: | D82 D83 G22 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80015&r=com |
| By: | Huppmann, Daniel |
| Abstract: | This article proposes a two-stage oligopoly model for the crude oil market. In a game of several Stackelberg leaders, market power increases endogenously as the spare capacity of the competitive fringe goes down. This effect is due to the specific cost function characteristics of extractive industries. The model captures the increase of OPEC market power before the financial crisis and its drastic reduction in the subsequent turmoil at the onset of the global recession. The two-stage model better replicates the price path over the years 2003-2011 than a standard simultaneous-move, one-stage Nash-Cournot model with a fringe. I also discuss how most large-scale numerical equilibrium models, widely applied in the energy sector, over-simplify and misinterpret market power exertion. Furthermore, I show that this two-stage Stackelberg model can be solved numerically as a Mixed Complementarity Problem with heterogeneous firms and discuss uniqueness. -- |
| JEL: | C61 C72 L71 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79758&r=com |