|
on Industrial Competition |
| By: | Tomoya Nakamura |
| Abstract: | This study analyzes one-leader and multiple-follower Stackelberg games with private information regarding demand uncertainty. In the equilibrium of the Stackelberg games, a leader's private information becomes public information among followers. This study demonstrates that the strategic relationship between the leader and each follower is determined by the weight on public information regarding a follower's estimation of demand uncertainty. If the weight is sufficiently low (high), then the relationship is a strategic substitute (complement), and the leader has a first-mover (dis)advantage, respectively. In the case of strategic complementarity, the leader can exit from a market. The threshold is determined by the intensity of Cournot competition among the followers. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0908&r=com |
| By: | Nicholas Trachter (Federal Reserve Bank of Richmond); Andrea Pozzi (Einaudi Institute for Economics and Fina); Luigi Paciello (Einaudi Institute (EIEF)) |
| Abstract: | We study a model where customers face frictions when changing their supplier, generating sluggishness in the firm's customer base. Firms care about expanding their customer base and this affects their pricing strategy. We characterize optimal pricing in this model and estimate it using data on the evolution of the customer base of a large US retailer. The introduction of customer markets reduces average markups, more markedly for less productive firms. We use the model to perform a counterfactual exercise and investigate the cyclical behaviour of markups in response to both aggregate supply and demand shocks. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:39&r=com |
| By: | Jason R. Blevins (Department of Economics, Ohio State University) |
| Abstract: | In models of strategic interaction, there may be important order of entry effects if one player can credibly commit to an action (e.g., entry) before other players. If one estimates a simultaneous-move model, then the move-order effects will be confounded with the payoffs. This paper considers nonparametric identification and simulation-based estimation of sequential games of complete information. Relative to simultaneous-move games, these models avoid the problem of multiple equilibria and require fewer payoff normalizations. We apply the estimator in several Monte Carlo experiments and to study entry-order effects using data from the airline industry. |
| Keywords: | static games, sequential games, identification, simulation-based estimation, airline industry |
| JEL: | C15 C35 C72 L13 L93 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:osu:osuewp:14-01&r=com |
| By: | Karsten Wasiluk (Department of Economics, University of Konstanz, Germany) |
| Abstract: | This paper analyzes the effect of imitation on the rate of technological progress in an endogenous growth model. Quality leaders protect themselves from imitation by secondary development, which increases technological progress. Nevertheless, lower intellectual property rights protection reduces the incentives to enter the research sector which reduces innovation by outsiders. Simulations show that the net effect of increased imitation on the growth rate is ambiguous - it can be positive, negative, or inversely U-shaped, depending on the productivity of secondary research. Lower patent protection also reduces the degree of market power in the economy so that output, the wage rate, and welfare is typically increased. |
| Keywords: | Innovation, Intellectual Property Rights, Market Power |
| JEL: | L12 |
| Date: | 2014–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1412&r=com |
| By: | Andrew T. Ching (Rotman School of Management, University of Toronto, Canada); Tülin Erdem (Stern School of Business, New York University, USA); Michael P. Keane (Nuffield College, University of Oxford) |
| Abstract: | Models of consumer learning and inventory behavior have both proven to be valuable for explaining consumer choice dynamics. In their pure form these models assume consumers solve complex dynamic programming (DP) problems to determine optimal choices. For this reason, these models are best viewed as “as if” approximations to consumer behavior. In this paper we present an estimation method, based on Geweke and Keane (2000), which allows us to estimate dynamic models without solving a DP problem and without strong assumptions about how consumers form expectations about the future. The relatively low computational burden of this method allows us to nest the learning and inventory models. We also incorporate the “price consideration” mechanism of Ching, Erdem and Keane (2009), which essentially says that consumers may not pay attention to a category in every period. The resulting model may be viewed as providing a more “realistic” or “descriptive” account of consumer choice behavior. |
| Date: | 2014–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:1401&r=com |
| By: | Cédric Clastres (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre-Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Haikel Khalfallah (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre-Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I) |
| Abstract: | The aim of this work is to demonstrate analytically under what conditions activating elasticity of demand of consumers could be beneficial for the social welfare. It has added to the literature on analyzing the use of price signals in eliciting demand response by an analytical approach. We develop so an analytical Nash model to quantify the effect of implementing demand response, via price signals, on social welfare and energy exchanges. A prior results show that the trade-off between producing locally and exporting energy depends on the opportunity cost of the energy and the global efficiency of the generation technology. Results are moreover impacted by the degree of integration between the countries. The novelty of this research is the demonstration of the existence of an optimal region of price signal for which demand response leads to increase the social welfare. This optimality region is negatively correlated to the degree of competitiveness of the generation technologies and to the market size of the system. We particularly notice that the value of un-served energy or energy reduction the producers could lose from such demand response program would limit the effectiveness of its implementation. This constraint is strengthened when energy exchanges between countries are limited. Finally, we demonstrate that when we only consider the impact in term of consumers' surplus, more aggressive DR could be adopted. The intensity of DR program is however negatively correlated to the degree of the elasticity of demand. |
| Keywords: | demand response ; elasticity of demand ; electricity market |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01019679&r=com |
| By: | Fedor Iskhakov (University New South Wales); John Rust (Georgetown University); Bertel Schjerning (Department of Economics, Copenhagen University); Jean-Robert Tyran |
| Abstract: | We define a class of dynamic Markovian games that we call directional dynamic games (DDG) in which directionality is represented by a partial order on the state space. We propose a fast and robust state recursion algorithm that can find a Markov perfect equilibrium (MPE) via backward induction on the state space of the game. When there are multiple equilibria, this algorithm relies on an equilibrium selection rule (ESR) to pick a particular MPE.We propose a recursive lexicographic search (RLS) algorithm that systematically and efficiently cycles through all feasible ESRs and prove that the RLS algorithm finds all MPE of the overall game. We apply the algorithms to find all MPE of a dynamic duopoly model of Bertrand price competition and cost reducing investments which we show is a DDG. Even with coarse discretization of the state space we find hundreds of millions of MPE in this game. |
| Keywords: | Dynamic games, directional dynamic games, Markov-perfect equilibrium, subgame perfect equilibrium, multiple equilibria, partial orders, directed acyclic graphs, d-subgames, generalized stage games, state recursion, recursive lexicographic search algorithm, variable-base arithmetic, successor function |
| JEL: | D92 L11 L13 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1416&r=com |
| By: | Aryal, Gaurab; Gabrielli, Maria F. |
| Abstract: | Collusion in auctions affects both revenue and efficiency and are prevalent. Yet, sellers do not use collusion-proof auctions as often as they should. Why is that? We find that one reason for this could be the cost of implementing efficient collusion-proof auctions. We use California highway procurements data, to estimate the cost of implementing collusion-proof auction. Our estimates show that cost must increase by at least 10.8% to ensure efficient outcome. The cost can sometimes be as high as 48.8% (depending on the size of bidding-ring in the data). |
| Keywords: | Public Procurement, Collusion-Proof Auction, Local Polynomial, Efficiency-Revenue Trade-off |
| JEL: | C1 C13 C4 D44 L41 |
| Date: | 2012–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57353&r=com |
| By: | Nicole Nulsch |
| Abstract: | Even though state aid in order to rescue or restructure ailing companies is regularly granted by European governments, it is often controversially discussed. The aims for rescuing companies are manifold and vary from social, industrial and even political considerations. Well-known examples are Austrian Airlines (Austria) or MG Rover (Great Britain). Yet, this study aims to answer the question whether state aid is used effectively and whether the initial aim why aid has been paid has been reached, i.e. the survival of the company. By using data on rescued companies in the EU and applying a survival analysis, this paper investigates the survival rates of these companies up to 15 years after the aid has been paid. In addition, the results are compared to the survival rates of non-rescued companies which have also been in difficulties. The results suggest that despite the financial support, business failure is often only post-poned; best survival rates have firms with long-term restructuring, enterprises in Eastern Europe, smaller firms and mature companies. However, non-funded companies have an even higher ratio to go bankrupt. |
| Keywords: | European competition policy, state aid, firm survival, survival analysis |
| JEL: | K21 L49 L59 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:9-14&r=com |
| By: | Mayer, Thierry; Melitz, Marc J.; Ottaviano, Gianmarco I. P. |
| Abstract: | We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm's exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales toward its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within-firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:faseco:12330897&r=com |
| By: | Hirsch, Boris (University of Erlangen-Nuremberg); Oberfichtner, Michael (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg) |
| Abstract: | Using linked employer-employee panel data for West Germany that include direct information on the competition faced by plants, we investigate the effect of product market competition on the gender pay gap. Controlling for match fixed effects we find that intensified competition significantly lowers the unexplained gap in plants with neither collective agreements nor a works council. Conversely, there is no effect in plants with these types of worker codetermination, which are unlikely to have enough discretion to adjust wages in the short run. We also document a larger competition effect in plants with few females in their workforces. Our findings are in line with Beckerian taste-based employer wage discrimination that is limited by competitive forces. |
| Keywords: | gender pay gap, discrimination, product market competition |
| JEL: | J16 J31 J71 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8317&r=com |
| By: | Ana P. Fernandes (University of Exeter); Priscila Ferreira (NIMA, Universidade do Minho); L. Alan Winters (University of Sussex, CEPR, CEP and IZA) |
| Abstract: | This paper studies the effect of competition on executive compensation. We estimate the effect of increased product market competition on the performance-pay sensitivity of CEOs, and contrast it with the effect for department managers and other workers in the corporation. We use a recent reform that simplied firm entry regulation in Portugal as a quasi-natural experiment. The empirical strategy exploits the staggered implementation of the reform across municipalities. Using linked employer-employee data for the universe of workers and firms, we show that increased product market competition, following the deregulation, decreased the sensitivity of pay to performance of CEOs and other managers, with no significant effects found for other workers. These findings are consistent with existing theoretical results in a principal-agent framework that a fall in entry costs leads to weaker managerial incentives. |
| Keywords: | Entry, Deregulation, Product Market Competition, Executive Compensation, Performance-related Pay |
| JEL: | J31 J33 M52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nim:nimawp:57/2014&r=com |
| By: | M. DISLI; K. SCHOORS (-) |
| Abstract: | We analyze how rebranding affects depositor discipline in a sample of Turkish banks. Depositor discipline refers to the empirical regularity that banks with higher capitalization attract more deposits at lower cost. Bank rebranding tends to increase depositor discipline, especially when there is only a small cosmetic change to the name. Rebranding a Turkish named bank into a foreign named one is associated with increased depositor discipline. In a similar manner, depositor discipline tends to decrease in the short-run if the bank rebrands from a foreign name to a Turkish one. These results suggest the presence of depositor ethnocentrism. Our main findings are robust to controls for major ownership changes and for selection effects. |
| Keywords: | depositor discipline; rebranding; banks |
| JEL: | G2 M3 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:13/867&r=com |
| By: | JAAP W.B. BOS; MARTIEN LAMERS; VICTORIA PURICE (-) |
| Abstract: | We examine the relationship between bank size and financial stability by viewing the supervisor of a banking system as an ‘investor’ holding a portfolio of banks. Based on this view, we investigate the role of large banks in determining the systemic risk in this portfolio. Our results, based on book data of U.S. banks and Bank Holding Companies, indicate that the largest banks are consistently overrepresented in the current portfolio compared with the minimum variance portfolio. Moreover, the risk level of the portfolio can be reduced by limiting concentration without sacrificing returns. |
| Keywords: | Systemic risk; Modern Portfolio Theory; U.S. banking |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:14/882&r=com |
| By: | Le, Trung H. |
| Abstract: | Vietnamese banking system has been playing a vital role in the development and economic growth since the economic renewal campaign namely “Doi Moi” in 1986. However, since the global financial crisis, financial and banking system has been under stress, exposing much weaknesses, severely affecting the whole economy. Additionally, the wave of financial liberalization raise questions about the competitiveness of Vietnamese commercial banks in the competition with the foreigners. The main purpose of this paper is to measure the market concentration using Hirschman-Herfindahl index (HHI) and test for the market competition in Vietnamese banking sector under Panzar – Rossse approach by an unbalanced panel data of 33 commercial banks for the period from 2004 to 2013. Vietnamese banking sector is found to be high-concentration although it is experiencing a decreasing trend. The test for market competition indicate a monopolistic behavior of Vietnamese commercial banks. No surprising, the state-owned commercial banks and foreign banks are found to be superior in the competition with joint-stock commercial banks and domestic banks respectively. In addition, the foreign investment in banks seem to increase competitiveness of a commercial bank. |
| Keywords: | Market concentration, bank competition, commercial banks |
| JEL: | G21 |
| Date: | 2014–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57406&r=com |
| By: | Satsangi Malhotra, Madhuri; Bhartiya, Anand |
| Abstract: | The study examines the performance of banks after acquisition. Operating profits have been analyzed for Indian Private and Public sector banks The results from the analysis of Pre and post-merger operating performance ratios for the acquiring banks show that operating profit margins were increased in post merger period and there was a marginal decline in return on net worth and capital employed. The sample consists of 16 banks. Data from Prowess database has been collected for three years before and after the acquisition has taken place. The results show that most of the banks had performed well in post merger period. The profitability margin such as gross profit margin, net profit margins are very high in the post merger period which signifies that after acquiring the target bank their performance was well appraised. The returns on investment and capital employed were increased after acquisition. Some of the Indian public sector banks showed a decline in the post merger period which may be attributed to the inefficiency and the increase of Non Performing Assets (NPAs) with the target banks. Private sector banks have shown a rising trend in the profit margins after the acquisition. |
| Keywords: | Operating performance, Banks, Merger, Acquisition |
| JEL: | L24 |
| Date: | 2014–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57460&r=com |
| By: | A. F. AYSAN; M. DISLI; H. OZTURK; I. M. TURHAN (-) |
| Abstract: | We look at market discipline in the Islamic deposit market of Turkey for the period after the 2000 crisis. We find support for quantity based disciplining of Islamic banks through the capital ratio. The evidence for price disciplining is, however, less convincing. In addition, we also look at the effect of the deposit insurance reform in which the dual deposit insurance was revised and all banks were put under the same deposit insurance company in December 2005. We observe that the reform increased quantity based disciplining in the Turkish Islamic deposit market. |
| Keywords: | Depositor discipline, Islamic banks |
| JEL: | G23 G28 O52 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:13/871&r=com |
| By: | Asongu, Simplice A |
| Abstract: | The goal of this paper is to assess how knowledge economy (KE) plays out in financial sector competition. It suggests a practicable way to disentangle the effects of different components of KE on various financial sectors. The variables identified under the World Bank’s four knowledge economy index (KEI) are employed. An endogeneity robust panel instrumental variable fixed-effects estimation strategy is employed on data from 53 African countries for the period 1996-2010. The following findings are established. First, education and innovation in terms of scientific and technical publications broadly bear an inverse nexus with financial development. Second, the incidence of information and communication technologies is positive on all financial sectors but increases the non-formal sectors to the detriment of the formal sector. Third, economic incentives have positive implications for all sectors though the formal financial sector benefits most. Fourth, institutional regime is positive (negative) for the semi-formal (informal) financial sector. The findings contribute at the same time to the macroeconomic literature on measuring financial development and respond to the growing fields of informal sector importance, microfinance and mobile banking by means of KE promotion. Policy implications and future research directions are discussed. |
| Keywords: | Financial development; Knowledge Economy; Africa |
| JEL: | G21 O10 O34 P00 P48 |
| Date: | 2014–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57385&r=com |
| By: | Michael P. Keane (Nuffield College, University of Oxford); Olean Stavrunova (University of Technology, Sydney, Australia) |
| Abstract: | The size of adverse selection and moral hazard eects in health insurance markets has important policy implications. For example, if adverse selection eects are small while moral hazard eects are large, conventional remedies for ineciencies created by adverse selection (e.g., mandatory insurance enrolment) may lead to substantial increases in health care spending. Unfortunately, there is no consensus on the mag- nitudes of adverse selection vs. moral hazard. This paper sheds new light on this important topic by studying the US Medigap (supplemental) health insurance market. While both adverse selection and moral hazard eects of Medigap have been studied separately, this is the rst paper to estimate both in a unied econometric framework. Our results suggest there is adverse selection into Medigap, but the eect is small. A one standard deviation increase in expenditure risk raises the probability of insur- ance purchase by 0.055. In contrast, our estimate of the moral hazard eect is much larger. On average, Medigap coverage increases health care expenditure by 24%. |
| Keywords: | Health insurance, adverse selection, moral hazard, health care expendi- ture |
| JEL: | I13 D82 C34 C35 |
| Date: | 2014–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:econwp:1402&r=com |
| By: | Wuppermann, Amelie C.; Bauhoff, Sebastian; Grabka, Markus M. |
| Abstract: | We investigate two determinants of the price sensitivity of health plan demand: the size of the choice set and the salience of premium differences. Using variation in both features in the German Social Health Insurance (SHI) and information on health plan switches of retirees in the German Socio Economic Panel, augmented with information on individuals’ choice sets we find that retirees react less to potential savings from switching when they have more plans to choose from and when differences between premiums are less salient. Simplifying choices could save consumers money and improve the functioning of the health insurance market. |
| Keywords: | health plan choice; choice architecture; German social health insurance |
| JEL: | I11 D12 I18 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:21080&r=com |
| By: | Ladislav Kristoufek; Petra Lunackova |
| Abstract: | We reinvestigate the "rockets and feathers" effect between retail gasoline and crude oil prices in a new framework of fractional integration, long-term memory and borderline (non-)stationarity. The most frequently used error-correction model is examined in detail and we find that the prices return to their equilibrium value much more slowly than would be typical for the error-correction model. Such dynamics is usually referred to as "the Joseph effect". The standard procedure is shown to be troublesome and we introduce three new tests to investigate possible asymmetry in the price adjustment to equilibrium under these complicated time series characteristics. On the dataset of seven national gasoline prices, we report that apart from Belgium, there is no asymmetry found. The proposed methodology is not limited to the gasoline and crude oil case but it can be utilized for any asymmetric adjustment to equilibrium analysis. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1407.5466&r=com |
| By: | Donatella Baiardi (Department of Economics, Quantitative Methods and Business Strategies, University of Milano-Bicocca); Carluccio Bianchi (Department of Economics and Management, University of Pavia); Eleonora Lorenzini (Department of Economics and Management, University of Pavia) |
| Abstract: | This paper investigates the relevance of relative prices and world income as determinants of food exports for the top trading countries in the period 1992-2012 using a panel data framework. A distinction between processed and unprocessed goods is drawn and, within this last category, a specific focus on commodities is made. We find that price elasticities generally take lower values for processed goods, and the opposite holds for income elasticities. Processed goods are also characterized by an inverse relationship between price elasticities and average unit values. The overall analysis leads to the conclusion that both emerging and advanced countries should increase their export specialization in processed goods. Furthermore, developed economies could face the fierce competition from emerging countries by enhancing the quality content of their processed goods exports. |
| Keywords: | Food Exports, Price and Income elasticities, Cross-country comparisons, Panel data analysis, Panel Granger causality |
| JEL: | F14 L66 Q17 C23 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:083&r=com |