nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒08‒02
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Relative profit maximization in asymmetric oligopoly By Satoh, Atsuhiro; Tanaka, Yasuhito
  2. Mixed equilibrium in a pure location game: the case of n ≥ 4 firms By Christian Ewerhart
  3. Supplier Innovation in the Presence of Buyer Power By Zhiqi Chen
  4. Fixed-Mobile Substitution and Termination Rates By Steffen Hoernig, Marc Bourreau, Carlo Cambini
  5. Increasing the Efficiency of Spectrum Allocation By Gregory Rosston
  6. Optimal bid disclosure in license auctions with downstream interaction By Fan, Cuihong; Jun, Byoung Heon; Wolfstetter, Elmar G.
  7. Managing quantity, quality, and timing in Indian cane sugar production : ex post marketing permits or ex ante production contracts ? By Patlolla, Sandhyarani; Goodhue, Rachael E.; Sexton, Richard J.
  8. Innovation on the seed market: the role of IPRs and commercialisation rules By Marc Baudry; Adrien Hervouet
  9. Developing shared product platforms during a merger: The Fiat-Chrysler case By Anna Cabigiosu; Francesco Zirpoli; Markus Becker
  10. Competitive Search Equilibrium in the Credit Market under Asymmetric Information and Limited Commitment By Song, Jae Eun
  11. Does Rising Import Competition Harm Local Firm Productivity in Less Advanced Economies? Evidence from Vietnam's Manufacturing Sector By Tinh Doan; Son Nguyen; Tuyen Tran; Huong Vu; Steven Lim

  1. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We analyze Bertrand and Cournot equilibria in an asymmetric oligopoly in which the firms produce differentiated substitutable goods and seek to maximize their relative profits instead of their absolute profits. Assuming linear demand functions and constant marginal costs we show the following results. If the marginal cost of a firm is lower (higher) than the average marginal cost over the industry, its output at the Bertrand equilibrium is larger (smaller) than that at the Cournot equilibrium, and the price of its good at the Bertrand equilibrium is lower (higher) than that at the Cournot equilibrium.
    Keywords: relative profit maximization, asymmetric oligopoly, Cournot and Bertrand equilibria
    JEL: D43 L13
    Date: 2014–07–27
  2. By: Christian Ewerhart
    Abstract: The Hotelling game of pure location allows interpretations in spatial competition, political theory, and professional forecasting. In this paper, the doubly symmetric mixed-strategy equilibrium for n ≥ 4 firms is characterized as the solution of a well-behaved boundary value problem. The analysis suggests that, in contrast to the cases n = 3 and n → ∞ , the equilibrium for a finite number of n ≥ 4 firms tends to overrepresent locations at the periphery of its support interval. Moreover, in the class of examples considered, an increase in the number of firms universally leads to a wider range of location choices and to a more dispersed distribution of individual locations. The results are used to comment on the potential benefit of competition in forecasting markets.
    Keywords: Location, Hotelling game, mixed-strategy equilibrium, boundary value problem
    JEL: C72 D43 D72 L13
    Date: 2014–07
  3. By: Zhiqi Chen (Department of Economics, Carleton University)
    Abstract: A theoretical framework is constructed to derive general conditions under which increased buyer power weakens or strengthens a supplier’s incentive to innovate. These conditions are then applied to two sets of specific models: one on product innovation and the other on process innovation. The analysis shows that the effects of buyer power depend on the type of innovation, the source of buyer power, and the channel through which buyer power manifests itself. It identifies circumstances under which an increase in buyer power has a negative, positive or zero impact on innovation. The welfare consequences of buyer power are also investigated.
    Keywords: Buyer power, innovation, product variety
    JEL: L1 L4
    Date: 2014–05–14
  4. By: Steffen Hoernig, Marc Bourreau, Carlo Cambini
    Abstract: This paper studies the effect of termination rates on substitution between fixed and mobile calls and access, in a model where heterogeneous consumers can subscribe to one or both types of offers. Simulations show that each (fixed or mobile) termination rate has a positive effect on the take-up of the corresponding service, via the waterbed effect, and lowers subscriptions to the other service, via a cost effect. The prevailing asymmetric regulation, with very low fixed and higher mobile termination rates, corresponds to the social optimum. However, the interests of the mobile operators and of the different customer groups do not coincide. JEL codes: L51, L92
    Keywords: Network competition, Fixed-mobile substitution, termination rates
    Date: 2014
  5. By: Gregory Rosston (Stanford University)
    Abstract: Over the past 80 years, the Federal Communications Commission has been responsible for the allocation of non-governmental use of the radio frequency spectrum. Over that time, here have been significant changes in spectrum use that have been driven by changes in demand and technology. The technical, regulatory, and business obstacles in past reallocations shed light on some of the FCC’s implementation decisions for its upcoming two-sided auction.
    Keywords: Spectrum; Competition; Regulation.
    Date: 2014–08
  6. By: Fan, Cuihong; Jun, Byoung Heon; Wolfstetter, Elmar G.
    Abstract: The literature on license auctions for process innovations in oligopoly assumed that the auctioneer reveals the winning bid and stressed that this gives firms an incentive to signal strength through their bids, to the benefit of the innovator. In the present paper we examine whether revealing the winning bid is optimal. We consider three disclosure rules: full, partial, and no disclosure of bids, which correspond to standard auctions. We show that more information disclosure increases the total surplus divided between firms and the innovator as well as social surplus. More disclosure also increases bidders’ payoff. However, no disclosure maximizes the innovator’s expected revenue.
    Keywords: Auctions; innovation; licensing; information sharing.
    JEL: D21 D43 D44 D45
    Date: 2014–07
  7. By: Patlolla, Sandhyarani; Goodhue, Rachael E.; Sexton, Richard J.
    Abstract: Private sugar processors in Andhra Pradesh, India use an unusual form of vertical coordination. They issue'permits'to selected cane growers a few weeks before harvest. These permits specify the amount of cane to be delivered during a narrow time period. This article investigates why processors create uncertainty among farmers using ex post permits instead of ex ante production contracts. The theoretical model predicts that ex post permits are more profitable than ex ante contracts or the spot market under existing government regulations in the sugar sector, which include a binding price floor for cane and the designation of a reserve area for each processor wherein it has a legal monopsony for cane. The use of ex post permits creates competition among farmers to increase cane quality, which increases processor profits and farmer costs. Empirical analysis supports the hypothesis that farmers operating in private factory areas have higher unit production costs than do their counterparts who patronize cooperatives.
    Keywords: Crops and Crop Management Systems,Food&Beverage Industry,Regional Economic Development,Agricultural Knowledge and Information Systems,Rural Development Knowledge&Information Systems
    Date: 2014–07–01
  8. By: Marc Baudry; Adrien Hervouet
    Abstract: This article deals with the impact of legislation in the seed sector on incentives for variety creation. The first category of rules consists in intellectual property rights and is intended to address a problem of sequential innovation and R&D investments. The second category concerns commercial rules that are intended to correct a problem of adverse selection. We propose a dynamic model of market equilibrium with vertical product differentiation that enables us to take into account the economic consequences of imposing either Plant Breeders’ Rights (PBRs) or patents as IPRs and either compulsory registration or minimum standards as commercialisation rules. The main result is that the combination of minimum standards and PBRs (patents) provides higher incentives for sequential and initial innovation and may be preferred by a public regulator when sunk investment costs are low (high) and the probability of R&D success is sufficiently high (low).
    Keywords: Intellectual Property Rights, Plant Breeders’ Rights, Catalogue, Product differentiation, Seed market, Biodiversity
    JEL: D43 K11 L13 Q12 Q16
    Date: 2014
  9. By: Anna Cabigiosu; Francesco Zirpoli; Markus Becker
    Abstract: This paper, building on R&D integration and improvisation literature, explores how firms organize to jointly develop common product platforms if their integration process is still in progress. In order to address our exploratory research question, we draw on a unique set of empirical data gathered during the Fiat-Chrysler R&D integration process and during the development of their first shared product platform. We show that, how due to fierce competition on time in the industry, the two companies did not have time to complete the planned R&D integration. As a consequence, the first shared platform development project represented the real locus of technological, knowledge, and organizational integration between the two firms. In line with the R&D integration literature, this paper identifies a set of planned integration mechanisms: a centralized R&D area, two teams that mirror each other, integrator roles and shared technical norms. This organization was designed to help Fiat and Chrysler exploiting their complementarities. Furthermore, building on the improvisational literature, we show that the planned organization did not suffice: interstices between the two firms exist and planning and improvisation are complementary. Improvisation should be built upon a minimum structure and firms willing to accelerate their integration process can rely upon NPD activities.
    Keywords: R&D integration, improvisation, NPD organization, merger and acquisitions
    JEL: O32
    Date: 2014–07
  10. By: Song, Jae Eun
    Abstract: This paper develops a model of a competitive search credit market under hidden information and limited commitment. Using the model, it provides a theoretical account that links time delays and costs in financial intermediation as well as lack of collateral to the distribution of credit supply and interest rate spreads. The link sheds light on and explains the possibility of pure credit rationing due to the credit frictions. This paper also demonstrates the possibility of contract dispersion among homogeneous borrowers.
    Keywords: credit frictions, competitive search, contract, market tightness
    JEL: D82 E43 E51 G21
    Date: 2014–07
  11. By: Tinh Doan (University of Waikato); Son Nguyen (VNU University of Economics and Business); Tuyen Tran (VNU University of Economics and Business); Huong Vu (University of Waikato); Steven Lim (University of Waikato)
    Abstract: This paper examines whether rising import penetration has an effect on the productivity of domestic firms. The study uses data on a 10-year unbalanced panel of firms in the manufacturing sector in Vietnam from 2000 to 2009. Panel and instrumental variable methods are used to control for firm heterogeneity and endogeneity of import penetration. We find significantly negative effects of import competition on local firms’ productivity. Further investigation on the basis of firm size and industry technology levels shows that SMEs are more adversely affected, but that industry technology level does not matter.
    Keywords: import penetration; productivity; Vietnam
    JEL: F19 L25 P45
    Date: 2014–07–11

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