nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒03‒08
eleven papers chosen by
Russell Pittman
US Government

  1. Optimal Compatibility in Systems Markets By Sang-Hyun Kim; Jay Pil Choi
  2. Mergers and the Incentives to Undertake Product Innovation Oriented R&D: First Steps Towards an Assessment Approach By Benjamin Rene Kern; Juan Manuel Mantilla Contreras
  3. Targeted pricing, consumer myopia and investment in customer-tracking technology By Baye, Irina; Sapi, Geza
  4. Short Run Effects of Bleaker Prospects for Oligopolistic Producers of a Non-Renewable Resource By Kristine Grimsrud; Knut Einar Rosendahl; Halvor Briseid Storrøsten; Marina Tsygankova
  5. Monopolistic competition under uncertainty By Shapoval Aleksander; Goncharenko Vasiliy
  6. The Impact of R&D Cooperations on Drug Variety Offered on the Market. Evidence from the Pharmaceutical Industry By Tannista Banerjee; Ralph Siebert
  7. Foreign ownership and market power in banking: Evidence from a world sample By Manthos D. Delis; Sotirios Kokas
  9. Precautionary and operative costs of freight train delays: a case study of a Swedish grocery company By Krüger, Niclas A.; Vierth, Inge
  10. Term structure of discount rates under multivariate s-ordered consumption growth. By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla; Sofia B. villas-boas
  11. The economics of Bitcoin transaction fees By Nicolas Houy

  1. By: Sang-Hyun Kim (University of East Anglia); Jay Pil Choi (University of New South Wales)
    Abstract: We analyze private and social incentives for standardization to ensure market-wide system compatibility in a two-dimensional spatial competition model. It is shown that there is a fundamental conflict of interest between consumers and producers over the standardization decision. Consumers prefer standardization with full compatibility because it offers more variety that confers better match with their ideal specifications. However, firms are likely to choose the minimum compatibility to maximize product differentiation and soften competition. This is in sharp contrast to the previous literature that shows the alignment of private and social incentives for compatibility. We also characterize the free-entry equilibria under the maximum and the minimum compatibility. With free entry, more firms enter without standardization, but the number of available system variety is less than the one under standardization.
    Date: 2014–02
  2. By: Benjamin Rene Kern (University of Marburg); Juan Manuel Mantilla Contreras
    Abstract: The firms that compete with one another in terms of innovation do not necessarily coincide with the relevant competitors on pre-innovation product markets. As a consequence, the findings about the ambiguous interrelation between (product) market concentration and innovation cannot be transferred one-to-one to the interrelationship between innovation competition and innovation. By identifying and classifying the most relevant effects, which are decisive for the impact of mergers on the incentives to invest in product innovation oriented R&D, we will demonstrate that the interrelation between innovation competition and innovation is not always as unclear as it seems. Hence, by analyzing the model-theoretic industrial organization literature, this article aims to contribute to the discussion about the development of a decision theoretic assessment framework for analyzing the impact of mergers on innovation and is therefore also in line with the idea of a rule-based competition policy which is, from a law and economics perspective, ought to reduce error costs, give legal guidance and reduce legal uncertainty.
    JEL: K21 L12 L41 O31
    Date: 2014
  3. By: Baye, Irina; Sapi, Geza
    Abstract: We analyze how consumer myopia influences investment incentives into a technology that enables firms to track consumers' purchases and make targeted offers based on their preferences. In a two-period Hotelling setup firms may invest in customer-tracking technology. If a firm acquires the technology, it can practice first-degree price discrimination among consumers that bought from it in the first period. We distinguish between the cases of all consumers being myopic and when they are sophisticated. In equilibrium firms collect customer data only when consumers are myopic. In that case two asymmetric equilibria emerge, with either one firm investing in customer-tracking technology. We derive several surprising results for consumer policy: First, contrary to conventional wisdom, firms are better-off when consumers are sophisticated. Second, consumers may be better-off being myopic than sophisticated, provided they are sufficiently patient (the discount factor is high enough). Third, in the latter case there is a tension between consumer and social welfare, and correspondingly between consumer and other policies: With myopic consumers, banning customer-tracking would increase social welfare, but may reduce consumer surplus. --
    Keywords: Price Discrimination,Customer Data,Consumer Myopia
    JEL: D43 L13 L15 O30
    Date: 2014
  4. By: Kristine Grimsrud; Knut Einar Rosendahl; Halvor Briseid Storrøsten; Marina Tsygankova
    Abstract: In a non-renewable resource market with imperfect competition, both the resource rent and current prices influence a large resource owner’s optimal supply. New information regarding future market conditions that affect the resource rent will consequently impact current supply. Bleaker demand prospects tend to accelerate resource extraction. A more pessimistic outlook for future demand may, however, slow down the early resource extraction of producers with sufficiently large resource stocks and thus more limited resource rent, because the supply from these producers is driven more by current market considerations than by changes in the resource rent. As producers with relatively smaller resource stocks accelerate their supply in response to bleaker demand prospects, producers with sufficiently large resource stocks will reduce their current supply. A numerical model of the European gas market illustrates that the effect of the shale gas revolution is an accelerated supply by most gas producers, but a reduced supply by Russia who loses market shares even before the additional gas enters the market.
    Keywords: resource extraction, Cournot competition, European gas market
    JEL: Q31 Q33 Q42
    Date: 2014
  5. By: Shapoval Aleksander; Goncharenko Vasiliy
    Abstract: Inspired by advances in general equilibrium modelling with monopolistic competition were-consider the problem of the choice of firms under uncertainty, explore it in the framework of general equilibrium modelling, and develop a theory of monopolistic competition under demand uncertainty. We distinguish between two cases of uncertainty. In the first case the uncertainty disappears by the moment of trade and the output but not the prices are chosen under uncertainty. Then the uncertainty is established not to affect the equilibrium. The trade under uncertainty, considered in the second case, causes market imperfetions. The supply is bigger (smaller) than the expected demand when the goods are good (bad) substitutes. In contrast to previous study, we show that uncertainty affects basically the prices and demand, but not the output.
    JEL: D81 D11 D41 L11
    Date: 2014–02–26
  6. By: Tannista Banerjee; Ralph Siebert
    Abstract: Our study puts special attention to the fact that R&D cooperations in the pharmaceutical industry are formed at different stages throughout the drug development process. We study if the timing to engage in R&D cooperations in the pharmaceutical industry has different impacts on the technology and product markets. Using a comprehensive dataset on the pharmaceutical industry, and estimating a heterogeneous treatment effects model (Heckman et al., 2006) our results show that R&D cooperations formed at the early stages increase the number of R&D projects and the number of drugs launched on the product market. Most interestingly, late stage R&D cooperations significantly reduce the number of drugs launched on the market, even though they increased firms’ activity in the technology markets. This result highlights the fact that firms re-optimize their drug development portfolio to avoid wasteful duplication and cannibalizing the sales of the jointly developed drug in R&D cooperations. Our study show that firms cooperating in late stage collaborations re-optimize their individual drug development portfolios, which significantly reduces the number of drugs offered on the market.
    Keywords: drug development, dynamics, co-development, pharmaceutical industry, product variety, product market competition, Research and Development cooperation
    JEL: L24 L25 L65 D22
    Date: 2014
  7. By: Manthos D. Delis; Sotirios Kokas
    Abstract: Using a novel global data set with bank-year estimates of market power, we examine the impact of (i) the ownership status (foreign or domestic) of individual banks and (ii) the country-level trends in foreign bank presence on our market power estimates. We find that the ownership status of individual banks does not explain banks’ market power. In contrast, the country-level trends in foreign bank ownership have a positive and significant effect on banks’ market power that is primarily due to the fact that most foreign bank entry occurs through mergers and acquisitions and not through de novo penetration. We also find that the positive nexus between foreign bank presence and market power is considerably weaker in countries with well-capitalized banks.
    Keywords: Bank market power, Competition, Foreign banks, World sample
    Date: 2014–02
  8. By: Dixon, Huw (Cardiff Business School); Seaton, Jonathan (Loughborough University); Waterson, Michael (Department of Economics, University of Warwick)
    Abstract: This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies, largely resulting from the fact that our weekly price data for the three major British supermarkets spans a seven year period including the crisis years 2008-2010. We find that there is a large and significant change in the behaviour of prices from 2008 onwards: prices change more frequently and the average duration of price spells declines significantly. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes. Key words: Micro pricing ; price flexibility ; regular prices ; menu costs JEL classification: E30 ; E31 ; L81
    Date: 2014
  9. By: Krüger, Niclas A. (VTI); Vierth, Inge (VTI)
    Abstract: There is limited knowledge about the valuation of reduced transport time variability for freight transports. This paper analyses a Swedish grocery company’s transports by shuttle train, as a case study. The distribution of the train arrival time is analyzed; it is shown that the 10 per cent worst delays contribute to more than half of the total train delays. Type and amount of the firm’s precautionary and operative costs are identified and calculated. It is shown that it is possible to get estimates for the cargo component of the VTTV (Value of Transport Time Variability) valid for the specific company based on the precautionary costs, the operative costs for delays and for the costs for cancellations separately or in combination. Further case studies are advocated in order to cover the whole freight transport market and study the differences between different segments of the market.
    Keywords: Value of Transport Time Variability (VTTV); Rail freight transports; Freight train delays; Monetary valuation; Precautionary costs; Operative costs; Cost-benefit analysis; Case study
    JEL: R41 R42 R48
    Date: 2014–02–26
  10. By: Marie-Laure Allain; Claire Chambolle; Stéphane Turolla; Sofia B. villas-boas
    Abstract: This paper analyzes the impact of a merger in the French retail sector on food prices, using a consumer panel data. We perform a difference-in-differences analysis by comparing price changes in stores for which the local market structure is affected by the merger to unaffected stores. In addition, we empirically investigate economic forces behind the observed price changes. On average, we find that the merger significantly raised competitors' prices contemporaneously with merging firms' price increases. Further, we show that competitor prices increase more in local markets that experience larger structural changes in concentration and chain differentiation.
    Keywords: ex-post merger evaluation, retail grocery sector, difference-in-differences
    JEL: K21 L11 L66
    Date: 2014
  11. By: Nicolas Houy (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I)
    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
    Date: 2014–02–24

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