nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒06‒28
twenty papers chosen by
Russell Pittman
US Government

  1. Industry structure and pricing over the business cycle By Spiegel, Yossi; Stahl, Konrad
  2. The Structure and Evolution of Buyer-Supplier Networks By Takayuki Mizuno; Wataru Souma; Tsutomu Watanabe
  3. New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry By Federico Etro; Lorenza Rossi
  4. Retail Pricing Patterns and Driving Factors of Price Variation By Li, Chenguang; Volpe, Richard
  5. Bank Competition and Account Penetration: Evidence from Mexico By Ana Georgina Marín; Rainer  Schwabe   
  7. Asking Price Mechanism with Dynamic Arrivals By Peyman Khezr
  8. Competition and Environmental Externalities in the European Market of Municipal Waste. By Francesco Silvestri
  9. The Effect of Trade Liberalization on Manufacturing Price Cost Margins: The Case of Mexico, 1994-2003 By Gabriela López Noria
  10. Adjustment Strategies in Response to Supply and Demand Shocks: Evidence from a Mexican Firms Survey By Paula Sánchez-Romeu; Ernesto Rattia-Lima
  11. Financial decisions, market competition and firm performance: Empirical evidence for Ibero-American countries By Manuel Sánchez Valadez
  12. Supermarket Promotions and Food Prices By Lan, H.; Lloyd, T. A.; Morgan, C. W.
  13. An empirical examination of the R&D boundaries of the firm - a problem-solving perspective By Shaopeng Huang; Darryl Holden
  14. Coping with area price risk in electricity markets: Forecasting Contracts for Difference in the Nordic power market By Egil Ferkingstad; Anders L{\o}land
  15. Competition between firms in developing and developed countries By Kimura, Koichiro
  16. R&D Investment and Financial Frictions By Oscar M. Valencia
  17. Spatial agglomeration and firm exit: a spatial dynamic analysis for Italian provinces By Giulio Cainelli; Sandro Montresor; Giuseppi Vittucci Marzetti
  18. Competitive Environment, Indebtedness and Asset Specificity: Evidence from Spanish Firms By Manuel Sánchez Valadez
  19. Buyer-Size Discounts and Inflation Dynamics By Mayumi Ojima; Junnosuke Shino; Kozo Ueda
  20. Does anti-competitive service sector regulation harm exporters? Evidence from manufacturing firms in Spain By Monica Correa Lopez; Rafael Domenech

  1. By: Spiegel, Yossi; Stahl, Konrad
    Abstract: We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization. --
    Keywords: price competition,business cycle,entry,entry deterrence
    JEL: D43 L41
    Date: 2014
  2. By: Takayuki Mizuno (National Institute of Informatics, Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies); Wataru Souma (College of Science and Technology, Nihon University); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies)
    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
  3. By: Federico Etro (Department of Economics, University of Venice Ca' Foscari); Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: We derive a New Keynesian Phillips Curve under Calvo staggered pricing and price competition. Firms strategic interactions induce price adjusters to change their prices less when there are more fi?rms that do not adjust. This reduces the slope of the Phillips curve and generates an additional source of real rigidity that magnifi?es the impact of monetary shocks on the economic activity. Endogenous entry amplifi?es the impact of both monetary and real shocks. We study the design of the optimal Taylor rule in the case of a ?fixed number of ?firms and we characterize the optimal monetary policy to restore the social planner allocation and the optimal Ramsey steady state in the case of endogenous entry.
    Keywords: New Keynesian Phillips Curve, Real rigidities, Sticky prices, Optimal monetary policy, Infl?ation, Endogenous entry
    JEL: E3 E4 E5
    Date: 2014–06
  4. By: Li, Chenguang; Volpe, Richard
    Abstract: This study explores the strategic pricing behaviors across retail chains for produce products. We adopt a Panel-VAR model to identify the driving factors of retail price variation and find that retail price history, competition, product cost are among the key drivers of retail price change. Forecast Error Variance Decomposition (FEVD) is used to quantify the relative impact of driving factors to retail price changes and show how they affect prices differently across retail chains. We also find that higher responsiveness to competition may indicate superior management ability in price setting that associates with better profitability in practice.
    Keywords: Retail Pricing Strategy, Price Driver, Panel-VAR, Retail Competition, Demand and Price Analysis, Production Economics, Research Methods/ Statistical Methods, Q11, Q13,
    Date: 2014–04
  5. By: Ana Georgina Marín; Rainer  Schwabe   
    Abstract: This paper documents a positive relation between bank competition and the penetration of bank accounts at the municipal level in Mexico. To account for potential biases in our regressions due to the endogeneity of market structure, we employ a two-stage estimation approach based on an equilibrium structural model. Our preferred estimate implies that moving from a monopoly to a duopoly will lead to an increase of 1,016 accounts per 10,000 adults, a 42% increase over the cross-municipality mean. This is comparable to the effect of large increases in per capita income and years of schooling, or the establishment of an additional branch by a bank who is already present in the local market. Our results suggest that competition policy should be given a prominent role in the financial inclusion agenda.
    Keywords: Financial inclusion, banking, competition
    JEL: O16 G21 L13 D43
    Date: 2013–10
  6. By: Loy, Jens-Peter; Holm, Thore; Steinhagen, Carsten; Glauben, Thomas
    Abstract: In food retailing a high degree of static price dispersion between and within stores and between brands has been documented, but at the brand and/or retail outlet level the dynamic behaviour of prices, as well as its causes, have not been analysed in the European food market context. In this paper we estimate the dynamic pricing behaviour of brands at various retail outlets to identify the role of private (low-price brands) and national (high-price brands) labels to explain the dispersion of retail price dynamics. The results indicate significant asymmetries in cost pass-through processes, which vary between brands and outlets. In particular, private labels (low-price brands) adjust prices faster than national labels (high-price brands). Moreover, cost pass-through is slightly more (positive) asymmetrical for private labels than for high-price national brands.
    Keywords: Cost Pass-Through, Panel Threshold Error Correction Model, Dairy, Retail Market, Germany, Demand and Price Analysis, International Relations/Trade, Livestock Production/Industries, Marketing, C32, D21, L11, L81,
    Date: 2014–04
  7. By: Peyman Khezr (School of Economics, The University of Queensland)
    Abstract: This paper studies a popular selling mechanism relevant to the Australian housing market in which the seller of the object posts an asking price to attract potential buyers for further negotiations. The game is studied in a dynamic setting with the possibility of more than one potential buyer arriving at each period. The game is designed such that in the event when only one buyer arrives, the seller engages in negotiation with that buyer and when two or more buyers arrive, the seller runs an auction with a reserve price. We show the conditions under which this mechanism can extract more expected payoffs to the seller comparing to a uniform price selling or an standard auction. The selling mechanism we study is applicable to many real world markets, specially the housing market of Australia and adds to the theoretical literature by explaining why sometimes sale prices are higher than the asking prices. We also explain the role of the asking price in the relevant markets. Other small variations of this mechanism are also studied for the purposes of comparison.
    Date: 2014–06–18
  8. By: Francesco Silvestri (Dipartimento di Economia e Management, Università di Ferrara.)
    Abstract: The article focuses on the European Union Municipal Waste (MW) industry, exploring the effects of the conjoint implementation of Self Sufficiency Principle and of Proximity Principle (SSP/PP), that force local community to divert MW in the same district where it is generated. Since the num-ber of disposing facilities allowed to operate in a district is regulated by (regional) public planning, forbidding through SSP/PP the opportunity to divert MW outside the district reduces the degree of competition in the whole sector. The rationale for a rule that denies a pillar of EU thinking such as competition policy seems to be to limit the end-of-the-pipe disposal of MW, and to favour the alternative strategy of selected collection and reuse-recycling. Setting an Industrial Organization model and solving it through backward induction, we show that in facts any increased competition in the industry leads to higher environmental externality, but even that the a compensation scheme from gainers to losers would be for effective than SSP/PP. This is true for any consistent value of the relevant variables, apart the case when the marginal external cost is over a specific threshold; in that unique case, the use of SSP/PP as a command and control environmental standard is justified.
    Keywords: EU Regulation, solid waste, oligopoly, environmental externalities.
    JEL: D21 H41 O33 Q53
    Date: 2014–05
  9. By: Gabriela López Noria
    Abstract: This paper analyzes the effect of the North American Free Trade Agreement (NAFTA) on Mexican manufacturing price cost margins (PCMs) for the period 1994-2003. Taking into account the sensitivity of each industry to the speed of the tariff reductions under NAFTA, the results show that PCMs immediately decreased once the second round of trade liberalization in Mexico had commenced in 1994. However, in subsequent years, no clear pattern emerges for these PCMs. Additionally, the paper accounts for the sensitivity of each industry to the initial level of its tariff and presents evidence showing that while NAFTA had an effect on the PCMs of the group of industries that liberalized in 10 years, no robust effect was found for the group of industries that liberalized in 5 years. The results on the group of industries that liberalized in 10 years suggest that NAFTA sharpened competition and exerted market discipline by forcing firms with market power to set prices closer to marginal costs. The findings on the group of industries that liberalized in 5 years suggest that additional factors may be also playing a role in the containment of their market power.
    Keywords: PCMs, Trade Liberalization, NAFTA
    JEL: F13 F15 L11
    Date: 2013–08
  10. By: Paula Sánchez-Romeu; Ernesto Rattia-Lima
    Abstract: This paper analyzes the adjustment strategies used by some Mexican firms to face supply and demand shocks. The information is provided by a survey carried out in 2012 by Banco de México among 1,138 firms from different sectors. The results show that the response of firms to both types of shocks is not symmetrical in general, and that firms react to these shocks combining adjustment strategies (mostly choosing to reduce costs) to smooth the pass-through to prices and production. Stronger competition makes firms use the adjustment strategies more intensively, and it encourages price flexibility. For all shocks, the costs more likely to be reduced are non-labor costs, followed by temporary employment. A high degree of competition and a high labor share make the pass-through of shocks to employment stronger. On the other hand, collective wage agreements smooth this pass-through. Nominal wage rigidity is evident in the presence of any shock.
    Keywords: Firms survey, price, cost, wage, and employment adjustment, supply and demand shocks, competition, Wage Dynamics Network (WDN)
    JEL: J30 J31 D21 D22 E3
    Date: 2013–09
  11. By: Manuel Sánchez Valadez
    Abstract: Economic literature had shown the existence of the interrelationship between the financial decisions of the firms and their competitive decisions; either by convenience or by data availability, most of empiric papers addressed separately the influence of both kinds of decisions over firm performance. With it, this paper through a cross-section model, which uses information of around 3,900 enterprises in 14 Iberoamerican countries, explores jointly the possible effects of both kinds of decisions of the firms (financial and competitive) over their performance. The results suggest the existence of differences in the relationships between variables accordingly the market competition intensity. Also the results suggest that the financial decisions of the firms could be used as an additional tool of the competitive strategy of the firms.
    Keywords: Indebtedness, trade credit, competition, firm performance
    JEL: G32 L20
    Date: 2013–06
  12. By: Lan, H.; Lloyd, T. A.; Morgan, C. W.
    Abstract: Using a sample comprising nearly a quarter of a million weekly prices from the largest seven supermarket chains in the UK, we present statistical evidence on two pricing practices that have attracted public interest. Analysing price dynamics before and after periods of promotional discounting the investigation finds first, no evidence of a general tendency for sales to disguise rises in the regular price, and second, some evidence for prices to rise prior to sales in a manner that is consistent with the exaggeration of the discount. As such, the results parallel the competition authority’s view of supermarkets use of promotions and also point to the useful contribution that retail price microdata might play in keeping prices in check.
    Keywords: supermarket promotion, food prices, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, Marketing, L16, L66, E30,
    Date: 2014–04
  13. By: Shaopeng Huang (Department of Economics, University of Strathclyde); Darryl Holden (Department of Economics, University of Strathclyde)
    Abstract: We consider, both theoretically and empirically, how different organization modes are aligned to govern the efficient solving of technological problems. The data set is a sample from the Chinese consumer electronics industry. Following mainly the problem solving perspective (PSP) within the knowledge based view (KBV), we develop and test several PSP and KNV hypotheses, in conjunction with competing transaction cost economics (TCE) alternatives, in an examination of the determinants of the R&D organization mode. The results show that a firm's existing knowledge base is the single most important explanatory variable. Problem complexity and decomposability are also found to be important, consistent with the theoretical predictions of the PSP, but it is suggested that these two dimensions need to be treated as separate variables. TCE hypotheses also receive some support, but the estimation results seem more supportive of the PSP and the KBV than the TCE.
    Keywords: Problem-solving perspective, knowledge-based view, firm boundaries
    Date: 2014–06
  14. By: Egil Ferkingstad; Anders L{\o}land
    Abstract: Contracts for Difference (CfDs) are forwards on the spread between an area price and the system price. Together with the system price forwards, these products are used to hedge the area price risk in the Nordic electricity market. The CfDs are typically available for the next two months, three quarters and three years. This is fine, except that CfDs are not traded at NASDAQ OMX Commodities for every Nord Pool Spot price area. We therefore ask the hypothetical question: What would the CfD market price have been, say in the price area NO2, if it had been traded? We build regression models for each observable price area, and use Bayesian elicitation techniques to obtain prior information on how similar the different price areas are to forecast the price in an area where CfDs are not traded.
    Date: 2014–06
  15. By: Kimura, Koichiro
    Abstract: We analyze competition in emerging markets between firms in developing and developed countries from the viewpoint of the boundaries of the firm. Although indigenous firms generally face a disadvantage in technology compared with foreign firms, they have an advantage in marketing as local firms. Moreover, they have opportunities to leave weaker fields to independent specialized firms and use lower wages. On the other hand, foreign firms also have their own advantages and disadvantages for growth. Therefore, entry conditions for indigenous firms can vary greatly depending on the situation. We classify these conditions into eight cases by developing a model and showing each boundary choice for indigenous firms.
    Keywords: Developing countries, Developed countries, Business enterprises, Foreign affiliated firm, Indigenous firms, The boundaries of the firm, Foreign firms
    JEL: F23 L22 O12
    Date: 2014–06
  16. By: Oscar M. Valencia
    Abstract: R&D intensity for small firms is high and persistent over time. At the same time, small firms are often financially constrained. This paper proposes a theoretical model that explains the coexistence of these two stylized facts. It is shown that self-financed R&D investment can distort the effort allocated to different projects in a firm. In a dynamic environment, it is optimal for the firm to invest in R&D projects despite the borrowing constraints. In addition, this paper shows that beyond a certain threshold, effort substitution between R&D and production appears. When transfers from investor to entrepreneur are large enough, R&D intensity decreases with respect to financial resources. Conditional on survival, the more innovative and financially constrained firms are, faster they grow and exhibit higher volatility. Classification JEL: O41, 031, D86
    Date: 2014–06
  17. By: Giulio Cainelli (University of Padova); Sandro Montresor (University of Bologna); Giuseppi Vittucci Marzetti (University of Milano - Bicocca)
    Abstract: The paper investigates the effect of spatial agglomeration on firm exit in a dynamic framework. Using a large dataset at the industry-province level for Italy (1998-2007), we estimate a spatial dynamic panel model via a GMM estimator and analyze the short-run impact of specialization and variety on firm exit. Specialization negatively affects firm exit rates in the short-run. The effect is particularly significant for low-tech firms. The impact of variety on firm mortality rates at the industry level is instead less clear, although still negative and significant for low-tech firms.
    Keywords: Firm exit, Localization, Spatial agglomeration, Specialization, Variety. Classification-JEL: R11, R12, L11, G20.
    Date: 2013–10
  18. By: Manuel Sánchez Valadez
    Abstract: In the firm's competitive strategy act together their financial decision and their decisions in the product markets. Even if in the last three decades the theoretical and empirical literature has growth, still are topics few explored. One of them is the relationship between firm's asset specificity, as a characteristic of the competitive environment, and their indebtedness as competitive tool. This paper tries answer if additionally to the level of specificity in the firm's assets the corporations use their indebtedness as another tool in their competitive strategy. The results show that the asset specificity influences in different way the firms' debt, the effect differs accordingly at the debt' maturity and the competitive environment faced.
    Keywords: Asset specificity, Indebtedness, Competitive strategy
    JEL: G32 L10
    Date: 2013–10
  19. By: Mayumi Ojima (Bank of Japan); Junnosuke Shino (Bank of Japan); Kozo Ueda (Waseda University)
    Abstract: This paper considers the macroeconomic effects of retailers' market concentra- tion and buyer-size discounts on inflation dynamics. During Japan's "lost decades," large retailers enhanced their market power, leading to increased exploitation of buyer-size discounts in procuring goods. We incorporate this effect into an other- wise standard New-Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that despite a reduction in procurement cost, strength- ened buyer-size discounts did not cause deflation; rather, they caused inflation of 0.1% annually. This arose from an increase in the real wage due to the expansion of production.
    Date: 2014–01
  20. By: Monica Correa Lopez; Rafael Domenech
    Abstract: In a panel study of firm-level data from Spanish manufacturers, we show that reducing anti-competitive regulation in the provision of upstream services has a positive and sizeable effect on the volume of exports of downstream firms. Our estimates indicate that deregulation is very beneficial for the export performance of large corporations, especially if they are foreign-owned multinationals, while the evidence for SMEs is much weaker. Hence, firm characteristics matter for the connection between regulation and exports. Simulation exercises suggest that large firms increased their volume of exports by an average of 49% as a result of deregulation, such that the industries that benefited the most were typically more dependent on service inputs. The improvements in the regulatory framework of transportation services and energy provision that took place over the 1990s and 2000s in Spain had particularly strong effects on the volume of foreign sales.
    Keywords: Exports, Service regulation, Margins of trade, Firm size
    JEL: F14 L43 F23 D24
    Date: 2014–06

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