|
on Industrial Competition |
| By: | Gabriel Desgranges (THEMA - Université de Cergy); Stéphane Gauthier (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | We study rationalizable solutions in a linear asymmetric Cournot oligopoly. We show that symmetry across firms favors multiplicity of rationalizable solutions: A merger (implying a greater asymmetry across firms) makes out-of-equilibrium behavior less likely and should dampen &lquo;coordination&rquo; volatility. The market structure maximizing consumers' surplus at a rationalizable solution is not always the competitive one: This may be a symmetric oligopoly with few firms. An empirical illustration to the airlines industry shows that a reallocation of 1% of market share from a small carrier to a larger one yields a 1.3% decrease in volatility, measured by the within carrier standard error of the number of passengers. |
| Keywords: | Competition policy, Cournot oligopoly, dominance solvability, efficiency, rationalizability, stability, airline industry. |
| JEL: | D43 D84 L40 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14028&r=com |
| By: | Thomas J. Miceli (University of Connecticut) |
| Abstract: | This paper examines markets, firms, and the law as alternative institutional arrangements for organizing transactions that involve transaction-specific investments and uncertain performance. The analysis is the logical extension of Coase’s seminal analysis of the market-firm boundary on one hand, and the market-law boundary on the other. It thus combines insights from the literature on industrial organization and law and economics. The result is a unified framework that reveals the relative advantages and disadvantages, within a fairly simple economic setting, of market exchange, court ordering (contracts), and internal governance (agency). |
| Keywords: | Asset specificity, contracts, firms, holdup problem, market exchange |
| JEL: | D23 K12 L14 L22 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2014-06&r=com |
| By: | Ian Jewitt; Clare Leaver; Heski Bar-Isaac |
| Abstract: | This paper develops a framework for the analysis of how asymmetric information impacts on adverse selection and market efficiency.� We adopt Akerlof's (1970) unit-demand model extended to a setting with multidimensional public and private information.� Adverse selection and efficiency are defined quantitatively as real valued random variables.� We characterize how public information disclosure and private information acquisition affect the relationship between adverse selection and efficiency.� These results are applied to inform welfare and empirical analysis and, in an employer learning setting, to study the endogenous choice of information structures.� Equilibrium information structures impose adverse selection efficiently.� We show that this makes adverse selection hard to detect using standard positive correlation tests. |
| Keywords: | asymmetric information, adverse selection, information structures, information acquisition, information disclosure, employer learning |
| JEL: | D82 J30 |
| Date: | 2014–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:695&r=com |
| By: | Talia Bar (University of Connecticut); Vidya Atal (Montclair State University); Sidartha Gordon (Département d'économie) |
| Abstract: | We examine project adoption decisions of firms constrained in the number of projects they can handle at once. Adoption requires a commitment for a period of uncertain duration, restricting the firm in subsequent periods. Capacity constraints create a “fear of commitment” — some positive return projects are not adopted. In the sequential move dynamic game, the second mover sometimes adopts projects that were rejected by the first, even when both firms are symmetric and equally informed. We study the e§ects of competition on the fear of commitment, and compare the jointly optimal adoption decision to the behavior of strategic non-cooperative firms. |
| Keywords: | adoption, project selection, commitment, Markov perfect equilibrium |
| JEL: | L10 L13 D21 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7o52iohb7k6srk09n8t8j8cil&r=com |
| By: | Paolo Pellizzari (Dept. of Economics, Università Ca' Foscari Venice); Elena Sartori (Dept. of economics, Università Ca' Foscari Venice); Marco Tolotti (Dept. of Management, Università Ca' Foscari Venice) |
| Abstract: | We study optimal pricing strategies and consequent market sharesÕ dynamics in a transition from an old and established technology to a new one. We simulate an agentbased model, in which a large population of possible buyers decide whether to adopt or not depending on prices, private signals and herding behavior. The firm, on its part, sets prices to maximize revenues. We show that trade-in programs, in practice comparable to very aggressive discounts, are supported by a rational attitude. |
| Keywords: | agent-based models, mobile phone market, random utilities, technology competition, threshold models |
| JEL: | C63 C73 O33 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:vnm:wpdman:75&r=com |
| By: | Athanasopoulos, Thanos (Department of Economics, University of Warwick) |
| Abstract: | This paper analyses firms’ behaviour towards compatibility and the relation of these decisions with their incentives to invest into improving their durable, network goods. By using a sequential game where the dominant firm plays first, we give its competitor the ability to build on innovations previously introduced by the market leader. Recognizing the intertemporal linkage in forward looking customers’purchasing choices, we find that in anticipation of a relatively large quality improvement by the rival, strategic pricing leads the dominant firm to support compatibility even if it could exclude its rivals by using a patent for its invention. Furthermore, not only doesn’t interoperability de-facto maximise social welfare but we also identify no market failure when network effects are not particularly strong. Key words: Firms ; Pricing ; Compatibility ; Innovation ; Technological Change ; Intellectual Property Rights ; Antitrust Law ; Competition ; Externalities ; Product Durability ; Welfare JEL classification: D43 ; L13 ; D71 ; D62 ; L15 ; L4 ; K21 ; L51 ; O34 ; O31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1043&r=com |
| By: | Naylor, Robin (Department of Economics, University of Warwick); Soegaard, Christian (Department of Economics, University of Warwick) |
| Abstract: | We show that a firm's profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by decentralised bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. An incumbent monopolist will have an incentive to accommodate entry if the labour market effect dominates. We also show that this incentive is stronger if the incumbent anticipates that, post entry, it will be able to act as a Stackelberg leader. Key words: Oligopoly ; wage bargaining ; profits and entry JEL classification: D43 ; J50 ; L13 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1044&r=com |
| By: | Baye, Irina; Hasnas, Irina |
| Abstract: | We analyze firms' location choices in a Hotelling model with two-dimensional consumer heterogeneity, along addresses and transport cost parameters (flexibility). Firms can price discriminate based on perfect data on consumer addresses and (possibly) imperfect data on consumer flexibility. We show that firms' location choices depend on how strongly consumers differ in flexibility. Precisely, when consumers are relatively homogeneous, equilibrium locations are socially optimal regardless of the quality of customer flexibility data. However, when consumers are relatively differentiated, firms make socially optimal location choices only when customer flexibility data is perfect. These results are driven by the optimal strategy of a firm on its turf, monopolization or market-sharing, which in turn depends on consumer heterogeneity in flexibility. Our analysis is motivated by the availability of customer data, which allows firms to practice third-degree price discrimination based on both consumer characteristics relevant in spatial competition, addresses and transport cost parameters. -- |
| Keywords: | Location Choice,Price Discrimination,Customer Data |
| JEL: | D43 L13 R30 R32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:139&r=com |
| By: | Lionel Nesta (OFCE); Thomas Grebel |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p529o10r5&r=com |
| By: | Éric Darmon (CREM UMR CNRS 6211, University of Rennes 1, France); Dominique TORRE (GREDEG CNRS, Universite Nice Sophia-Antipolis, France) |
| Abstract: | To distribute software, commercial vendors of proprietary software have the opportunity to use some dual licensing (DL) strategy i.e. to provide their software under two different licensing terms (proprietary and open source). We investigate the relevance and impacts of this distribution strategy in the presence of an incumbent open source software competitor. We determine the conditions for this strategy to be protable for the commercial rm and its impact on price, market shares and welfare. We show that dual licensing may be used as a complement for proprietary software when development spillovers are large. We examine how, in this case, a dual licensing strategy can be used to exclude the open source software from the market and how this is compatible with higher price and lower market share for the proprietary distribution. This situation can also generate conflicts of interests between proprietary software and users resulting in sub-optimal outcomes. Finally, our analysis reveals the key role played by development spillovers and software compatibility for the DL decision. |
| Keywords: | dual licensing, hybrid business model, software distribution strategy, open source spillover |
| JEL: | D23 D42 L86 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:201405&r=com |
| By: | Markus Pasche (School of Economics and Business Administration, Friedrich-Schiller-University Jena) |
| Abstract: | In case of digital goods such like music, intellectual property rights are typically not exerted by the creators (artists) but by intermediaries. Their profits, and therefore also the income of the artists, are endangered by copyright infringements (piracy). It is well known from static welfare analysis that to some extent piracy reduces the deadweight loss by limiting monopoly power and could therefore increase welfare. This paper contributes to the discussion by including the costs of law enforcement into the welfare analysis. Most models in the literature assume that law is enforced by governmental activities. In contrast, this paper considers that law enforcement is exerted by agents (e.g. lawyer chancellories, provider of screening technologies) which are also seen as intermediaries. The enforcement effort is therefore endogenously determined. It is shown that this will lead to suboptimal welfare outcomes. A social planner has to regulate punishment and enforcement effort to a moderate level. A more rigorous fight against piracy could only be justified by negative dynamic welfare effects due to a loss of creativity. However, there is no empirical evidence for that. |
| Keywords: | digital goods, music, piracy, copyright, intermediation, law en- forcement, welfare |
| JEL: | D60 L12 K11 K42 |
| Date: | 2014–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2014-008&r=com |
| By: | Ho, Chun-Yu (BOFIT) |
| Abstract: | This paper develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time. Existing consumers are forward-looking and incur a fixed cost for switching banks, whereas incoming consumers are forward-looking but do not incur any cost for joining a bank. The main finding is that consumers prefer banks with more employees and branches. The switching cost is approximately 0.8% of the deposit’s value, which leads the static model to bias the demand estimates. The dynamic model shows that the price elasticity over a long time horizon is substantially larger than the same elasticity over a short time horizon. Counterfactual experiments with a dynamic monopoly show that reducing the switching cost has a comparable competitive effect on bank pricing as a result of reducing the dominant position of the monopoly. |
| Keywords: | banks in China; demand estimation; switching cost |
| JEL: | G21 L10 |
| Date: | 2014–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2014_009&r=com |
| By: | Matousek, Roman (Sussex University, UK); Nguyen, Thao Ngoc (Nottingham Trent University, UK); Stewart, Chris (Kingston University London) |
| Abstract: | This paper examines the market structure of Vietnam’s banking system from 1999 to 2009 using the non-structural (Panzar-Rosse) model. We consider a more comprehensive range of specifications, in terms of a greater number of environmental covariates and different dependent variables, than in previous applications of this model. Further, this is the first study that uses lagged input prices (to avoid endogeneity) and excludes assets (to avoid specification bias) in such a study of the Vietnamese banking system. We find that the Vietnamese banking system operates in monopolistic competition with non-state owned commercial banks behaving more competitively than state owned commercial banks. |
| Keywords: | Banking; performance; Non-structural model; Vietnam |
| JEL: | G21 |
| Date: | 2013–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kngedp:2013_001&r=com |
| By: | Duso, Tomaso; Herr, Annika; Suppliet, Moritz |
| Abstract: | We investigate the welfare impact of parallel imports using a large panel data set containing monthly information on sales, ex-factory prices, and further product characteristics for all 700 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand and, based on an oligopolistic model of multi- product firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports' policy by calculating a counter-factual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11% and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by e19 million per year (or e130 million in total) which is relatively small compared to the average annual market size of around e227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by e18 million (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers. -- |
| Keywords: | parallel imports,pharmaceuticals,structural models,anti-diabetic drugs |
| JEL: | I11 I18 L13 L51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:137&r=com |
| By: | Dieter Pennerstorfer (WIFO) |
| Abstract: | This paper investigates the influence of competition on price and product quality among Austrian camping sites, a market charactised by both horizontal (spatial) and vertical product differentiation. Theoretically, the effect of competition on quality is ambiguous and depends on the degree of cost substitutability between output and quality. Estimating a system of equations shows that intense competition has a positive impact on product quality and a negative effect on prices (conditional on quality). As high quality is associated with high prices, the total effect of competition on prices is quite small. |
| Keywords: | Spatial competition, price and quality competition, retail markets, camping sites |
| Date: | 2014–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2014:i:466&r=com |
| By: | Evgeny A. Antipov (National Research University Higher School of Economics) |
| Abstract: | Some Internet stores manage to charge prices that are significantly higher than market averages, therefore, obtaining some sort of price premium. This paper is dedicated to building a model that can be used to explain and predict a typical price premium that an Internet store charges for a specific product based on the information about the characteristics of the store and the features of the market for this product. Such models can provide support for pricing and assortment decisions: in particular, they allow detecting products that a store is likely to sell with the highest or the lowest markup based on price premia that are charged by stores with similar characteristics on similar markets |
| Keywords: | hierarchical linear modeling, e-Commerce, price dispersion |
| JEL: | L81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:19man2014&r=com |
| By: | Lubica Hikkerova |
| Abstract: | The widespread use of loyalty programs in the tourism sector raises questions about their differentiating capacity and more broadly about the real advantages they offer firms. We have chosen to focus on the hotel sector and propose a conceptual model on the determinants of loyalty to a hotel or a hotel chain. The subjacent hypothesis is to determine if a loyalty program and its associated advantages manage to take precedence over other factors which influence choice and thus modify the probability of the hotel being chosen. More precisely, we seek to better understand the antecedents of commitment and trust and look at how these factors influence customer loyalty and thus determine the impact of loyalty schemes. Our empirical study, carried out on a sample group of consumers, enabled us to identify the four antecedents of loyalty (economic value of the exchange, reputation in terms of quality of the firm, communication, and shared values) so as to make managerial recommendations concerning the effectiveness of loyalty programs. |
| Keywords: | Loyalty; Price; Behaviour; Commitment; Trust; Hotel |
| JEL: | M1 M3 |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-194&r=com |