nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒05‒24
seventeen papers chosen by
Russell Pittman
US Government

  1. Price vs. quantity competition in a vertically related market By Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
  2. Bertrand Competition under Network Externalities By Masaki Aoyagi
  3. Inter-Firm Price Coordination in a Two-Sided Market. By Kind, Hans Jarle; Nilssen, Tore; Sørgard, Lars
  4. Nesting Vertical and Horizontal Differentiation in Two-Sided Markets By Vitor Miguel Ribeiro; João Correia-da-Silva; Joana Resende
  5. Strategic delegation in two-sided markets By Vitor Miguel Ribeiro
  6. Bundling and joint marketing by rival firms By Jeitschko, Thomas D.; Jung, Yeonjei; Kim, Jaesoo
  7. Competing with Asking Prices By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  8. A Spatial Model of Perfect Competition By Dimitrios Xefteris; Nicholas Ziros
  9. Where Gibrat meets Zipf: Scale and Scope of French Firms By MArco Bee; Massimo Riccaboni; Stefano Schiavo
  10. Seller - paid Ratings By Sergei Kovbasyuk
  11. Meeting Technologies and Optimal Trading Mechanisms in Competitive Search Markets By Benjamin Lester; Ludo Visschers; Ronald Wolthoff
  12. Sustaining collusion in markets with a general evolution of demand By João Correia-da-Silva; Joana Pinho; Hélder Vasconcelos
  13. Opening Hours and Quality Choices By Yamada, Mai
  14. Capacity choice and welfare under alternative unionisation structures. By Luciano Fanti; Nicola Meccheri
  15. Macroprudential Consolidation Policy in Interbank Networks By Edoardo Gaffeo; Massimo Molinari
  16. More Insurers Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces By Leemore Dafny; Jonathan Gruber; Christopher Ody
  17. Consumer Attention, Engagement, and Market Shares: Evidence from the Carbonated Soft Drinks Market By Liu, Yizao; Rui, Huaxia

  1. By: Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
    Abstract: This paper demonstrates that the standard conclusions regarding the comparison of Cournot and Bertrand competition are reversed in a vertically related market with upstream monopoly and trading via two-part tariffs. In such a market, downstream Cournot competition yields higher output, lower wholesale prices, lower final prices, higher consumers' surplus, and higher total welfare than Bertrand competition. --
    Keywords: Cournot,Bertrand,vertical relations,two-part tariffs
    JEL: D43 L13 L14
    Date: 2014
  2. By: Masaki Aoyagi
    Abstract: Two sellers engage in price competition to attract buyers located on a network. The value of the good of either seller to any buyer depends on the number of neighbors on the network who consume the same good. For a generic specification of consumption externalities, we show that an equilibrium price equals the marginal cost if and only if the buyer network is complete or cyclic. When the externalities are approximately linear in the size of consumption, we identify the classes of networks in which one of the sellers monopolizes the market, or the two sellers segment the market.
    Date: 2013–09
  3. By: Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics and Business Administration); Nilssen, Tore (University of Oslo); Sørgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: In many two-sided markets we observe that there is a common distributor on one side of the market. One example is the TV industry, where TV channels choose advertising prices to maximize own profi…t and typically delegate determination of viewer prices to independent distributors. We show that in such a market structure the stronger the competition between the TV channels, the greater will joint profits in the TV industry be. We also show that joint pro…ts might be higher if the wholesale contract between each TV channel and the distributor consists of a simple fixed fee rather than a two-part tariff.
    Keywords: Vertical relations; advertising; media economics.
    JEL: L11 L82 M31 M37
    Date: 2014–05–22
  4. By: Vitor Miguel Ribeiro (CEF.UP and Faculdade de Economia do Porto); João Correia-da-Silva (CEF.UP and Faculdade de Economia do Porto); Joana Resende (CEF.UP and Faculdade de Economia do Porto)
    Abstract: We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal dierentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with dierent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indifferent consumer being closer to the high-quality platform. The difference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible dierence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.
    Keywords: Two-sided markets, Horizontal differentiation, Vertical differentiation
    JEL: D42 D43 L13
    Date: 2014–05
  5. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor)
    Abstract: In a two-sided market duopoly, we investigate the effects of delegating long run restrictive and unrestrictive decisions to managers by the platforms' owners, the effects of the platforms' ownership establishing long run decisions without managers and the impacts of asymmetric regimes between platforms in terms of profitability, consumer surplus and total welfare. The fact that our analysis is focused on platforms introduces inter-group externalities. We find that for sufficiently low intensity of the inter-group externality, the owners of symmetric platforms should take the long run decisions by themselves. However, for an intermediate level of the inter-group externality, the owners of symmetric platforms should delegate the long run decision to their managers. Finally, for sufficiently high level of the inter-group externality, only tipping equilibria occur. Under an asymmetric environment, that is, one platform owner establishes long run decisions and the other owner delegate's long run decisions to their manager the long run decisions should be taken by the platform's owners.
    Keywords: Two-sided markets, tipping, spatial competition, strategic delegation, managerial incentives.
    JEL: D43 L11 L13 R12
    Date: 2014–05
  6. By: Jeitschko, Thomas D.; Jung, Yeonjei; Kim, Jaesoo
    Abstract: We study joint marketing arrangements by competing firms who engage in price discrimination between consumers who patronize only one firm (single purchasing) and those who purchase from both competitors (bundle purchasers). Two types of joint marketing are considered. Firms either commit to a component-price that applies to bundle-purchasers and then firms set stand-alone prices for single purchasers; or firms commit to a rebate off their stand alone price that will be applied to bundle-purchasers, and then firms set their stand alone prices. Both methods allow firms to raise prices and earn higher profits. However, the effect of price discrimination on social welfare depends on how prices are chosen. The rebate joint marketing scheme increases joint purchasing, whereas bundle pricing diminishes bundle purchases. If the marginal social value of a bundle over a single purchase is large, the former increases total welfare. However, welfare can also increase with bundle pricing compared to non-discriminatory pricing. --
    Keywords: Bundling,Joint Marketing,Price Discrimination
    JEL: D4 D8
    Date: 2014
  7. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers’ revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Keywords: Asking Prices, Directed Search, Inspection Costs, Efficiency
    JEL: C78 D44 D82 D83 L11 R31 R32
    Date: 2014–05
  8. By: Dimitrios Xefteris; Nicholas Ziros
    Abstract: This paper employs the theory of strategic market games (enhanced with a spatial dimension) in order to study the issue of market location in a perfectly competitive setup. In this framework, each player decides strategically where and what quantities she wishes to trade and, hence, the market structure (or simply the distribution of the active trading posts and prices) emerges endogenously. We conduct a comprehensive analysis for a class of simple games with a continuum of traders and we show that (i) not all market structures can support a Nash equilibrium, (ii) at least some multi-market structures can support a Nash equilibrium and (iii) prices in a multi-market Nash equilibrium, generically, diverge.
    Keywords: Spatial model; Market locations; Strategic market games; Perfect competition.
    Date: 2014–05
  9. By: MArco Bee; Massimo Riccaboni; Stefano Schiavo
    Abstract: The proper characterization of the size distribution of business firms represents an important issue in economic literature, with the most common reference distribu- tions being the lognormal and the Pareto varieties. This analysis is related to some methodological issues that are rarely properly addressed in applied work, and may significantly affect the results: the major difficulties arise from low power of the tests caused by limited sample size and the common practice of binning the data. In this paper we contribute to this body of literature by analyzing the size distribu- tion of all French companies, strongly rejecting the hypothesis that it is a Pareto distribution. Moreover, we argue that the lognormal distribution is a more reason- able first-cut benchmark for the entire population of firms. This is especially true for single-product firms, while we show the emergence of a Zipf tail for the class of multi-product companies. Our findings are in strong agreement with some recent theoretical contributions, which predict that the size distribution depends on a set of industry specific determinants.
    Keywords: Firm size distribution, multi-product firms, Pareto, ZipfÕs law, lognormal
    JEL: C46 L11 L25
    Date: 2014
  10. By: Sergei Kovbasyuk (EIEF)
    Abstract: We study the interaction between the seller of a product, the buyers who are uncertain about the product quality and a rating agency who observes the quality and send signals about it. Assuming the seller-pays model of rating agency, we analyze the cases in which payment to the rater is publicly disclosed and fixed, publicly disclosed and rating-contingent, private and rating-contingent. First, we characterize all possible equilibrium partitions of the underlying quality range into ratings in these three cases. We then characterize the seller's optimal ratings in the three cases. Finally, we perform welfare analysis and discuss regulation.
    Date: 2013
  11. By: Benjamin Lester; Ludo Visschers; Ronald Wolthoff
    Abstract: In a market in which sellers compete by posting mechanisms, we allow for a general meeting technology and show that its properties crucially affect the mechanism that sellers select in equilibrium. In general, it is optimal for sellers to post an auction without a reserve price but with a fee, paid by all buyers who meet with the seller. However, we define a novel condition on meeting technologies, which we call invariance, and show that meeting fees are equal to zero if and only if this condition is satisfied. Finally, we discuss how invariance is related to other properties of meeting technologies identified in the literature.
    Keywords: search frictions, matching function, meeting technology, competing mechanisms
    JEL: C78 D44 D83
    Date: 2014–01
  12. By: João Correia-da-Silva (CEF.UP e Faculdade de Economia do Porto.); Joana Pinho (CEF.UP e Faculdade de Economia do Porto.); Hélder Vasconcelos (CEPR, CEF.UP e Faculdade de Economia do Porto.)
    Abstract: This paper proposes a general framework to study the sustainability of collusion in markets where demand growth (although deterministic) is not restricted to occur at a constant rate and may trigger future entry. It is shown that, typically, entry occurs later along the collusive path than along the punishment path (since profits are lower in the latter case). The possibility of delaying entry, therefore, constitutes an additional incentive for deviating just before entry is supposed to occur along the collusive path. In case discontinuing collusion does not delay entry, collusion is shown to be typically more difficult to sustain after than before entry. The proposed model encompasses and explains conflicting results derived in the extant literature under more restrictive settings, and derives some additional results. In particular, it is shown that whether collusion is more difficult before or after entry crucially depends on the magnitude of the entry costs and on the speed at which demand converges to its long-term evolution.
    Keywords: Collusion; Demand evolution; Entry.
    JEL: K21 L11 L13
    Date: 2014–05
  13. By: Yamada, Mai
    Abstract: Using a duopoly model with symmetric retailers, we show that retailer strategies regarding opening hours and quality choices of goods vary depending on the cost structure of the quality investment in goods. In the case of the cost remaining constant regardless of the length of opening hours, a retailer with longer opening hours chooses higher quality and charges higher prices. Conversely, in the case of the cost increasing proportional to opening hours, a retailer with longer opening hours chooses lower quality and charges lower prices. The latter case is consistent with the behavior of retailers in Japan.
    Keywords: Duopoly; Opening hours; Multi-dimensional product differentiation
    JEL: L13 L51 R32
    Date: 2014–05–18
  14. By: Luciano Fanti; Nicola Meccheri
    Abstract: This paper studies how unionisation structures that differ in the de-gree of wage setting centralisation interplay with the strategic choice of production capacity by firms and how this affects product market outcomes. When labour markets are unionised and firms compete in quantities, they typically opt for under-capacity in order to dampen the unions’ wage claims. This is in contrast with the convent ional choice of over-capacity that applies when labour markets ar e competitive. Moreover, the level of capacity is generally more effic ient under centralised unionisation than in a decentralised structur e. Relative to more general welfare outcomes, profits are always higher und er decentralised unionisation, but both consumer surplus and overa ll welfare can be higher under a centralised structure, depending on th e unions’preference towards wages or employment. Introducing produ ct differentiation and price competition enlarges the range of situa tions, in which centralised unionisation is welfare-enhancing
    Keywords: unionised duopoly, unions’ structure, capacity choice, welfare.
    JEL: J51 L13 L21
    Date: 2014–02–01
  15. By: Edoardo Gaffeo; Massimo Molinari
    Abstract: Can consolidation policy be made consistent with macro-prudential supervision? In this study, we seek to provide new insights on this key-question using a network approach. We study how the resilience of a banking network evolves as we shock an initially homogenous competitive market with a sequence of M&A activities that significantly alter the topology of the network. We study how different M&A treatments impact on the structural vulnerabilities that can propagate through the system and we show that the severity of contagion and default dynamics depends on the chosen treatment. The desirability of alternative competitive settings (such as hub-centered market or a more concentrated and yet symmetric market) are assessed against an homogenous benchmark case and we show that the choice depends crucially on the size of the interbank market and the level of bank capitalization. The existence of a large highly connected hub is beneficial in a capitalized network with a well-developed interbank market but it can significantly weaken the system resilience in a poorly capitalized market. Antitrust and competition authorities shall adopt a state-contingent approach to M&A activities according to the market conditions in which banks operate.
    Keywords: Consolidation Policy, Macroprudential Regulation, Interbank Networks
    Date: 2014
  16. By: Leemore Dafny; Jonathan Gruber; Christopher Ody
    Abstract: First-year insurer participation in the Health Insurance Marketplaces (HIMs) established by the Affordable Care Act is limited in many areas of the country. There are 3.9 participants, on (population-weighted) average, in the 395 ratings areas spanning the 34 states with federally facilitated marketplaces (FFMs). Using data on the plans offered in the FFMs, together with predicted market shares for exchange participants (estimated using 2011 insurer-state market shares in the individual insurance market), we study the impact of competition on premiums. We exploit variation in ratings-area-level competition induced by United Healthcare’s decision not to participate in any of the FFMs. We estimate that United’s nonparticipation decision raised the second-lowest-price silver premium (which is directly linked to federal subsidies) by 5.4 percent, on average. If all insurers active in each state’s individual insurance market in 2011 had participated in all ratings areas in that state’s HIM, we estimate this key premium would be 11.1% lower and 2014 federal subsidies would be reduced by $1.7 billion.
    JEL: H51 I11 I18 L1
    Date: 2014–05
  17. By: Liu, Yizao; Rui, Huaxia
    Abstract: among consumers and between consumers and brands. Social media users can now interact with brands directly through Facebook and Twitter. These new features make social media a very distinctive class of online WOM. In this paper, we formulate a random coefficient discrete choice model of consumer demand to study whether and how consumer engagement and attention on the Internet affect the consumption of carbonated soft drinks (CSDs). We model consumer attention and engagement on social media as goodwill in order to capture the carry-over effects of WOM’s impact on demand and combine two types of product level data: monthly CSD sales data and social media data. Our results suggest that the three types of social media messages all have significant and positive effects on CSD demand. In particular, indirect engagement on Twitter has the largest impact on consumer demand, followed by direct engagement on Twitter and consumer engagement on Facebook.
    Keywords: Consumer Engagement, Consumer Attention, Social Media, Consumer Demand, Consumer/Household Economics, Institutional and Behavioral Economics,
    Date: 2014–04–03

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