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on Industrial Competition |
| By: | Teodora Paligorova; Jun Yang |
| Abstract: | This paper examines the impact of product market competition and corporate governance on the cost of debt financing and the use of bond covenants. We find that more anti-takeover provisions are associated with a lower cost of debt only in competitive industries. Because they are exposed to higher takeover risk in competitive industries, bondholders charge higher bond spreads to firms that have fewer anti-takeover provisions. Once firms’ anti-takeover provisions are in place, we find that bondholders use fewer payment and debt priority covenants in competitive industries. Our results suggest that product market competition plays a crucial role in explaining the way a firm’s anti-takeover protection affects the cost of debt and the use of bond covenants. |
| Keywords: | Financial markets |
| JEL: | G12 G34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-5&r=com |
| By: | Gaëtan Fournier (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne); Marco Scarsini (Engineering and System Design Pillar - Singapore University of Technology and Design) |
| Abstract: | We consider a Hotelling game where a finite number of retailers choose a location, given that their potential customers are distributed on a network. Retailers do not compete on price but only on location, therefore each consumer shops at the closest store. We show that when the number of retailers is large enough, the game admits a pure Nash equilibrium and we construct it. We then compare the equilibrium cost bore by the consumers with the cost that could be achieved if the retailers followed the dictate of a benevolent planner. We perform this comparison in term of the induced price of anarchy, i.e., the ratio of the worst equilibrium cost and the optimal cost, and the induced price of stability, i.e., the ratio of the best equilibrium cost and the optimal cost. We show that, asymptotically in the number of retailers, these ratios are two and one, respectively. |
| Keywords: | Induced price of anarchy; induced price of stability; location games on networks; pure equilibria; large games |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00983085&r=com |
| By: | Nowak, Verena; Schwarz, Christian; Suedekum, Jens |
| Abstract: | We consider a property rights model of a firm with two heterogeneous suppliers. The headquarters determine the firm's organizational structure, and we analyze which sourcing mode (outsourcing or vertical integration) is chosen for which of the asymmetric inputs. If suppliers' investment choices are strategic complements, the firm may keep the technologically more important input inside its boundaries and outsource the less important supplier. The firm also tends to keep more sophisticated inputs in-house, while choosing an external supplier organization for simpler and for low-cost components. These theoretical predictions are consistent with numerous case studies and recent empirical evidence on the internal organization of firms. -- |
| Keywords: | firm organization,outsourcing,intra-firm trade,property rights approach |
| JEL: | D23 L23 F23 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:141&r=com |
| By: | Pierre-Alexandre Balland; José Antonio Belso-Martínez; Andrea Morrison |
| Abstract: | Although informal knowledge networks have often been regarded as a key ingredient behind the success of industrial clusters, the forces that shape their structure and dynamics remain largely unknown. Drawing on recent network dynamic models, we analyze the evolution of business and technical informal networks within a toy cluster in Spain. Empirical results suggest that the dynamics of the two networks differ to a large extent. We find that status drives the formation of business networks, proximity is more crucial for technical networks, while embeddedness plays an equally important role in the dynamics of business and technical networks. |
| Keywords: | Knowledge networks, industrial clusters, network dynamics, toy industry |
| JEL: | D85 B52 O18 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:1412&r=com |
| By: | Hasnas, Irina |
| Abstract: | In this note we analyze the sustainability of collusion in a game of repeated interaction where firms can price discriminate among consumers based on two types of customer data. This work is related to Liu and Serfes (2007) and Sapi and Suleymanova (2013). Following Sapi and Suleymanova we assume that consumers are differentiated both with respect to their addresses and transportation cost parameters (flexibility). While firms have perfect data on consumer addresses, data on their flexibility is imperfect. We use three collusive schemes to analyze the impact of the improvement in the quality of customer flexibility data on the incentives to collude. In contrast to Liu and Serfes in our model it is the customer flexibility data which is imperfect and not the data on consumer addresses. However, our results support their findings that with the improvement in data quality it is more difficult to sustain collusion. -- |
| Keywords: | Price Discrimination,Customer Data,Collusion |
| JEL: | D43 L13 L15 O30 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:140&r=com |
| By: | Jason Shachat; J.Todd Swarthout |
| Abstract: | We consider two mechanisms to procure differentiated goods：a sealed-bid buyer-determined auction and a dynamic-bid price-based auction with bidding credits. The sealed-bid buyer-determined auction is analogous to the ââ¬Årequest for quoteâ⬠procedure commonly used by procurement agencies, and has each seller submit a price and the inherent quality of his good. Then the buyer selects the seller who offers the greatest difference in quality and price. In the dynamic-bid price-based auction with bidding credits, the buyer assigns a bidding credit to each seller conditional upon the quality of the sellerââ¬â¢s good. Then the sellers compete in an English auction, with the winner receiving the auction price and his bidding credit. Game-theoretic models predict the sealed-bid buyer-determined auction is socially efficient but the dynamic-bid price-based auction with bidding credits is not. The optimal bidding credit assignment undercompensates for quality advantages, creating a market distortion in which the buyer captures surplus at the expense of the sellerââ¬â¢s profit and social efficiency. In our experiment, the sealed-bid buyer-determined auction is less efficient than the dynamic-bid price-based auction with bidding credits. Moreover, both the buyer and seller receive more surplus in the dynamic-bid price-based auction with bidding credits. |
| Keywords: | procurement; auction; product differentiation; experiment |
| Date: | 2013–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:wyi:journl:002123&r=com |
| By: | Hyungsik Roger Moon (Institute for Fiscal Studies and USC); Matthew Shum; Martin Weidner (Institute for Fiscal Studies and UCL) |
| Abstract: | We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coefficients discrete choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical application to US automobile demand. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:20/14&r=com |
| By: | Dijkstra, P.T. (Groningen University) |
| Abstract: | We consider experimental markets of repeated homogeneous pricesetting duopolies. We investigate the effect on collusion of sequential versus simultaneous price setting. We also examine the effect on collusion of changes in the size of each subject's market share in case both subjects set the same price. Our results show that sequential price setting compared with simultaneous price setting facilitates collusion, if subjects have equal market shares or if the follower has the larger market share. With sequential price setting, we find more collusion if subjects have equal market shares rather than unequal market shares. We observe more collusion if the follower has the larger market share than if the follower has the smaller market share. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:14013-eef&r=com |
| By: | Segarra Blasco, Agustí, 1958-; Teruel, Mercedes |
| Abstract: | This paper analyses the effect of R&D investment on firm growth. We use an extensive sample of Spanish manufacturing and service firms. The database comprises diverse waves of Spanish Community Innovation Survey and covers the period 2004–2008. First, a probit model corrected for sample selection analyses the role of innovation on the probability of being a high-growth firm (HGF). Second, a quantile regression technique is applied to explore the determinants of firm growth. Our database shows that a small number of firms experience fast growth rates in terms of sales or employees. Our results reveal that R&D investments positively affect the probability of becoming a HGF. However, differences appear between manufacturing and service firms. Finally, when we study the impact of R&D investment on firm growth, quantile estimations show that internal R&D presents a significant positive impact for the upper quantiles, while external R&D shows a significant positive impact up to the median. Keywords : High-growth firms, Firm growth, Innovation activity. JEL Classifications : L11, L25, L26, O30 |
| Keywords: | Empreses -- Creixement, Innovacions tecnològiques, Emprenedoria, Investigació industrial, 33 - Economia, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/228402&r=com |
| By: | Raffaello Bronzini (Bank of Italy); Paolo Piselli (Bank of Italy) |
| Abstract: | This paper evaluates the impact of an R&D subsidy program implemented in a region of northern Italy on innovation by beneficiary firms. In order to verify whether the subsidies enabled firms to increase patenting activity, we exploit the mechanism used to allot the funds. Since only projects that scored above a certain threshold received the subsidy, we use a sharp regression discontinuity design to compare the number of patent applications, and the probability of submitting one, of subsidized firms with those of unsubsidized firms close to the cut-off. We find that the program had a significant impact on the number of patents, more markedly in the case of smaller firms. Our results show that the program was also successful in increasing the probability of applying for a patent, but only in the case of smaller firms. |
| Keywords: | research and development, investment incentives, regression discontinuity design, patents |
| JEL: | R0 H2 L10 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_960_14&r=com |
| By: | José Manuel Montero (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | This paper explores the dynamics of price-cost mark-ups using firm-level data, paying particular attention to the crisis period 2008-2011. To this end, we apply the econometric framework developed by Klette (1999) to a comprehensive sample of Spanish non-financial corporations in order to estimate price-cost mark-ups for the period 1995-2011 at the aggregate and sectoral levels. The results reveal a widespread pattern of increasing pricecost mark-ups since 2008, both by industry and firm size. Moreover, with the aim of interpreting the pattern identified in our findings, we also relate the changes in our industrylevel estimates of price-cost margins between 2007 and 2011 to some relevant industry characteristics suggested by the literature, with an emphasis on the extent of market power and of financial pressure. We find a positive and statistically significant association between the growth rate of estimated mark-ups and both our direct measure of market power and our proxy of financial pressure |
| Keywords: | mark-ups, returns to scale, production function, market power, financial pressure, GMM estimator, rolling regression |
| JEL: | C23 C26 D24 E31 L11 L16 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1407&r=com |
| By: | Radoslav S. Raykov |
| Abstract: | Classical oligopoly models predict that firms differentiate vertically as a way of softening price competition, but some metrics suggest very little quality differentiation in the U.S. auto insurance market. I explain this phenomenon using the fact that risk-averse insurance companies with uncertain costs face incentives to converge to a homogeneous quality. Quality changes are capable of boosting as well as reducing profits, since quality differentiation softens price competition, but also undermines the lower-end firm’s ability to charge the markup commanded by risk aversion. This can make differentiation suboptimal, leading to a homogeneous quality; the outcome depends on consumers’ quality tastes and on how costly quality is. Additional trade-offs between quality costs, profits and profit variances compound this effect, resulting in equilibria at very low quality levels. I argue that this provides one explanation of how insurer competition drove quality down in the nineteenth-century U.S. market for fire insurance. |
| Keywords: | Market structure and pricing; Economic models |
| JEL: | G22 D43 L22 D81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-14&r=com |
| By: | Bing Xu (Universidad Carlos III); Adrian van Rixtel (Bank for international settlements); Michiel van Leuvensteijn (All pensions group) |
| Abstract: | Since the 1980s, important and progressive reforms have profoundly reshaped the structure of the Chinese banking system. Many empirical studies suggest that financial reform promoted bank competition in most mature and emerging economies. However, some earlier studies that adopted conventional approaches to measure competition concluded that bank competition in China declined during the past decade, despite these reforms. In this paper, we show both empirically and theoretically that this apparent contradiction is the result of flawed measurement. Conventional indicators such as the Lerner index and Panzar- Rosse H-statistic fail to measure competition in Chinese loan markets properly due to the system of interest rate regulation. By contrast, the relatively new Profit Elasticity (PE) approach that was introduced in Boone (2008) as Relative Profit Differences (RPD) does not evidence these shortcomings. Using balance sheet information for a large sample of banks operating in China during 1996-2008, we show that competition actually increased in the past decade when the PE indicator is used. We provide additional empirical evidence that supports our results. We find that these, firstly, are in line with the process of financial reform, as measured by several indices, and secondly are robust for a large number of alternative specifications and estimation methods. All in all, our analysis suggests that bank lending markets in China have been more competitive than previously assumed. |
| Keywords: | competition, banking industry, China, lending markets, marginal costs, regulation, deregulation |
| JEL: | D4 G21 L1 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1404&r=com |