nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒03‒01
twelve papers chosen by
Russell Pittman
US Government

  1. Contracting for Multiple Goods under Asymmetric Information: The Two-goods Case By Kazumi Hori
  2. Process Innovation and Product Quality Improvement in a Dynamic Monopoly By L. Lambertini; R. Orsini
  3. The Structure and Evolution of Buyer-Supplier Networks By Mizuno, Takayuki; Souma, Wataru; Watanabe, Tsutomu
  4. Towards an Economics of Convention-based Approach of the European Competition Policy By Frédéric Marty
  5. The effectiveness of simple homogeneous commodity procurement under rigid govermental regulation: the case of granulated sugar procurement in Russia By Andrey Yakovlev; Aleksandra Bashina; Olga Demidova
  6. Economic Rationales of Exclusive Dealing ; Empirical Evidence from the French Distribution Networks By Muriel Fadairo; Jianyu Yu
  7. A Note on Merger and Acquisition Evaluation By Benjamin Furlan; Harald Oberhofer; Hannes Winner
  8. International Network Competition By Tangerås, Thomas; Tåg, Joacim
  9. Real-time versus Day-ahead Market Power in a Hydro-based Electricity Market By Mauritzen, Johannes; Tangerås, Thomas
  10. Multilateral Interchange Fees: Competition and regulation in light of recent legislative developments By Malaguti, Maria Chiara; Guerrieri, Alessandra
  11. Market structure, financial intermediation and riskiness of banks:Evidence from Asia Pacific By Wahyoe Soedarmono; Amine Tarazi
  12. The economics of Bitcoin transaction fees By Nicolas Houy

  1. By: Kazumi Hori (College of Economics, Ritsumeikan University)
    Abstract: This paper investigates how a buyer and a seller exchanging two goods should write the contract, where the seller makes sequences of unobservable relation-specific investments and the buyer privately learns valuations for goods which are stochastically influenced by the investments and these two types of asymmetric information cause inefficiency in trading. Three types of contract structures are possible. In a dynamic contract, the goods are traded sequentially and the order for the second good can be canceled to restore efficiency for the first good. In separate contracts, two goods are treated independently, whereas the two goods are bundled as a single good in bundled contracts. It will be shown that the dynamic contract is suboptimal and that the second-best contract is either a separate or a bundle contract, depending on the costs of investments.
    Keywords: bilateral trading, cooperative investment, dynamic contract, hidden action, hidden information.
    JEL: C72 D23 D82 D86
    Date: 2014–02
  2. By: L. Lambertini; R. Orsini
    Abstract: We investigate the optimal R&D portfolio of a single-product monopolist investing in cost-reducing activities accompanied by efforts improving the quality of its product. There emerges that the firm’s relative incentives along the two directions are conditional upon market affluency, measured by consumers’ willingness to pay for quality, and R&D efforts are complements at equilibrium. We also perform the stability analysis, showing that a stable branch exists along the quality dimension only.
    JEL: L12 O31
    Date: 2014–02
  3. By: Mizuno, Takayuki; Souma, Wataru; Watanabe, Tsutomu
    Abstract: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf’s law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks - shocks affecting only a particular firm - through customer-supplier chains.
    Keywords: buyer-supplier networks, supply chains, input-output analysis, power-law distributions, firm dynamics
    JEL: L11 L14 C67
    Date: 2014–01
  4. By: Frédéric Marty (GREDEG CNRS; University of Nice Sophia Antipolis; OFCE - Sciences Po. Paris)
    Abstract: Our paper aims at developing an analysis of the European competition law enforcement dynamics based on an economics of conventions' framework. We question the ordoliberal theoretical foundations of the EU competition policy and we assess to what extent the implementation of a "more economic approach" might pertain to a convention inspired by the Chicago School normative views. We question the economic history, the history of economics thought, and the legal history as we consider that the European courts case law is the main driving force of conventional shifts in matter of competition law enforcement.
    Keywords: Competition policy, abuse of dominant position, ordoliberalism, Chicago school competition law and economics
    JEL: B52 K21 L41 N44
    Date: 2014–02
  5. By: Andrey Yakovlev (National Research University Higher School of Economics); Aleksandra Bashina (National Research University Higher School of Economics); Olga Demidova (National Research University Higher School of Economics)
    Abstract: In the 2000s the Russian government considered electronic auctions (e-auctions) as the best way to procure goods for public needs. In this paper we confirm this proposition using an empirical dataset of contracts for the procurement of granulated sugar in Russia in 2011. Our data shows that unit prices are higher in the case of long-term contracts. This result can be explained by the rigidity of public procurement regulations as Russian legislation allows only fixed price contracts. Under these conditions suppliers can participate in public procurement tenders for long-term contracts only if their price includes a “risk premium” covering additional expenses of the supplier in case of an unfavorable turn in the market. Our analysis shows that sugar prices in Russian public procurement are lower for contracts with higher volume. These results are in the line with conclusions of previous studies of public procurement in other countries. The influence of competition measured by the number of suppliers participating in the procurement procedure has a quadratic form. It means that the effect of a new participant is lower when number of competitors is higher and vice versa. Our analysis also shows that there are essential distinctions in the influence of the same factors on contract prices for competitive procedures and void auctions
    Keywords: public procurement, e-auctions, procurement effectiveness
    JEL: H57 P35
    Date: 2014
  6. By: Muriel Fadairo (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France); Jianyu Yu (Research Institute of Economics and Management, Southwest University of Economics and Finance, Chengdu, Sichuan, China, 610074)
    Abstract: This paper investigates the rationales of exclusive dealing (ED), which is one of the most common forms of vertical restraint and attracts intense policy debates in anti-trust regulations. Based on a survey of the theoretical literature, we derive several hypotheses relative to the anti- and pro-competitive motivations of ED. These hypotheses are submitted to French data regarding several types of distribution networks in a wide range of sectors. Considering the industry features, our empirical analysis indicates that in the French distribution system, ED contracts tend to be procompetitive. The evidence suggests that the motivation of ED mainly lies in its positive role to foster the investment of upstream firms.
    Keywords: Exclusive dealing, Vertical restraints, Competition policy
    JEL: C12 L42
    Date: 2014
  7. By: Benjamin Furlan; Harald Oberhofer; Hannes Winner (WIFO)
    Abstract: This note proposes the continuous treatment approach as a valuable alternative to propensity score matching for evaluating economic effects of mergers and acquisitions (M&As). This framework allows to consider the variation in treatment intensities explicitly, and it does not call for the definition of cut-off values in traded ownership shares in order to construct a binary treatment indicator. We demonstrate the usefulness of this approach using data from European M&As and by relying on the example of post-M&A employment effects.
    Keywords: Merger and acquisition evaluation, continuous treatment models, generalised propensity score matching, employment effects
    Date: 2014–02–18
  8. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: We analyse network competition in a market with international calls. National regulatory agencies (NRAs) have incentives to set regulated termination rates above marginal cost to extract rent from international call termination. International network ownership and deregulation are alternatives to combat the incentives of NRAs to distort termination rates. We provide conditions under which each of these policies increase efficiency and aggregate welfare. Our findings provide theoretical support for recent policy initiatives by the European Commission.
    Keywords: Cross-border ownership; Decentralized regulation; International markets; Network
    JEL: L51 L96
    Date: 2014–02–12
  9. By: Mauritzen, Johannes (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Research Institute of Industrial Economics (IFN))
    Abstract: We analyse in a theoretical framework the link between real-time and day-ahead market performance in a hydro-based and imperfectly competitive wholesale electricity market. Theoretical predictions of the model are tested on data from the Nordic power exchange, Nord Pool Spot (NPS).We reject the hypothesis that prices at NPS were at their competitive levels throughout the period under examination. The empirical approach uses equilibrium prices and quantities and does not rely on bid data nor on estimation of demand or marginal cost functions.
    Keywords: Hydro power; Market power; Nord Pool Spot
    JEL: D43 D92 L13 L94 Q41
    Date: 2014–02–19
  10. By: Malaguti, Maria Chiara; Guerrieri, Alessandra
    Abstract: Two-sided payment card markets generate costs that have to be distributed among the participating actors. For this purpose, payment card networks set an interchange fee, which is the fee paid by the merchant’s bank to the cardholder’s bank per transaction. While in recent years many antitrust authorities all over the world - including the European Commission - have opened proceedings against card brands in order to verify whether agreements to collectively establish the level of interchange fees are anticompetitive, the Reserve Bank of Australia – as a regulator - has directly tried to address market failures by lowering the level of interchange fees and changing some network rules. The US has followed with new legislation on financial consumer protection, which also intervenes on interchange fees. This has opened a strong debate not only on legitimacy of interchange fees, but also on the appropriateness of different public tools to address such issues. Drawing from economic and legal theories and a comparative analysis of recent case law in the EU and other jurisdictions, this work investigates whether a regulation rather than a purely competition policy approach would be more appropriate in this field, considering in particular, at EU level, all of the competition and regulatory concerns that have arisen from the operation of SEPA with multilateral interchange fees. The paper concludes that a wider regulation approach could address some of the shortcomings of a purely antitrust approach, proving to be highly beneficial to the development of an efficient European single payments area.
    Date: 2014–01
  11. By: Wahyoe Soedarmono (Universitas Siswa Bangsa Internasional, Faculty of Business / Sampoerna School of Business - un); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)
    Abstract: From a sample of commercial banks in Asia Pacific over the 1994-2009 period, this study highlights that banks in less competitive markets exhibit lower loan growth and higher instability. Such instability is further followed by a decline in deposit growth, suggesting that Asian banks are also subject to indirect market discipline mechanisms through bank market structure. This study therefore sheds light on the importance of enhancing bank competition to overcome bank risk and strengthen financial intermediation. This study also advocates greater reliance on market discipline to promote bank stability.
    Keywords: Bank competition; loan growth; risk; market discipline; Asia Pacific
    Date: 2014
  12. By: Nicolas Houy (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: We study the economics of Bitcoin transaction fees in a simple static partial equilibrium model with the specificity that the system security is directly linked to the total computational power of miners. We show that any situation with a fixed fee is equivalent to another situation with a limited block size. In both cases, we give the optimal value of the transaction fee or of the block size. We also show that making the block size a non binding constraint and, in the same time, letting the fee be fixed as the outcome of a decentralized competitive market cannot guarantee the very existence of Bitcoin in the long-term.
    Keywords: Bitcoin, transaction fee, mining, crypto-currency
    JEL: D23 E42
    Date: 2014

This nep-com issue is ©2014 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.