nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒08‒16
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Search and Ripoff Externalities By Mark Armstrong
  2. Modeling Strategic Investment Decisions in Spatial Markets By Lorenczik, Stefan; Malischek, Raimund; Trüby, Johannes
  3. Product Market Competition and Industry Returns By M. Cecilia Bustamante; Andrés Donangelo
  4. Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation By Pedro Bento
  5. When Economics Met Antitrust: The Second Chicago School and the Economization of Antitrust Law By Patrice Bougette; Marc Deschamps; Frédéric Marty
  6. European Networking and Training for National Competition Enforcers (ENTRANCE 2012). Selected Case Notes By Giorgio Monti; Pier Luigi Parcu
  7. Patent Protection as a Tax on Competition and Innovation By Pedro Bento
  8. Let the market decide: an experimental study of competition and fairness By Bartling Björn; Grieder Manuel; Zehnder Christian
  9. Net Neutrality and the Incentives (Not) to Exclude Competitors By Dewenter, Ralf; Rösch, Jürgen
  10. Bank Competition and Credit Constraints in Developing Countries: New Evidence By Florian LEON
  11. The optimal short-term management of flexible nuclear plants in a competitive electricity system as a case of competition with reservoir By Pascal Gourdel; Maria Lykidi

  1. By: Mark Armstrong
    Abstract: This paper surveys models of markets in which some consumers are "savvy" while others are not.� We discuss when the presence of savvy consumers improves the deals available to non-savvy consumers in the market (the case of search externalities), and when the non-savvy fund generous deals for savvy consumers (ripoff externalities).� We also discuss when the two groups of consumers have aligned or divergent views about market interventions.� The analysis covers two overlapping families of models: those which examine markets with price/quality dispersion, and those which exhibit forms of consumer hold-up.
    Keywords: Consumer protection, consumer search, price dispersion, hold-up, add-on pricing
    JEL: D03 D18 D43 D83
    Date: 2014–07–29
  2. By: Lorenczik, Stefan (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Malischek, Raimund (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Trüby, Johannes (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Markets for natural resources and commodities are often oligopolistic. In these markets, production capacities are key for strategic interaction between the oligopolists. We analyze how different market structures influence oligopolistic capacity investments and thereby affect supply, prices and rents in spatial natural resource markets using mathematical programing models. The models comprise an investment period and a supply period in which players compete in quantities. We compare three models, one perfect competition and two Cournot models, in which the product is either traded through long-term contracts or on spot markets in the supply period. Tractability and practicality of the approach are demonstrated in an application to the international metallurgical coal market. Results may vary substantially between the different models. The metallurgical coal market has recently made progress in moving away from long-term contracts and more towards spot market-based trade. Based on our results, we conclude that this regime switch is likely to raise consumer rents but lower producer rents. The total welfare differs only negligibly.
    Keywords: Spatial Natural Resource Markets; Capacity Investment; Oligopoly; Equilibrium Problem with Equilibrium Constraints (EPEC); Coal
    JEL: C61 C70 L13 L72
    Date: 2014–04–15
  3. By: M. Cecilia Bustamante; Andrés Donangelo
    Abstract: This paper shows that product market competition has two opposing effects on asset returns. The first relates to the procyclical nature of the value destruction from expansion of competitors, which lowers exposure to systematic risk in more competitive industries. The second is related to the narrower profit margins due to competition, which increase exposure to systematic risk. We find that the first effect dominates the second, so that firms in more competitive industries generally earn lower asset returns. Our results are robust to using five alternative measures of competition and to controlling for the sample selection bias of publiclylisted firms.
    Date: 2014
  4. By: Pedro Bento (West Virginia University, College of Business and Economics)
    Abstract: I incorporate an insight of Friedrich Hayek - that competition allows a thousand flowers to bloom, and discovers the best among them - into a model of Schumpeterian innovation. Firms face uncertainty about the optimal direction of innovation, so more innovations implies a higher expected value of the `best' innovation. The model accounts for two seemingly contradictory relationships reported in recent empirical studies - a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. Notwithstanding the positive relationship between competition and growth, I find antitrust policy reduces industry-level growth.
    Keywords: competition, innovation, productivity growth, inverted-u, antitrust, regulation
    JEL: O31 O40 L41 L51
    Date: 2013–08
  5. By: Patrice Bougette (University of Nice Sophia Antipolis, France; GREDEG CNRS); Marc Deschamps (University of Nice Sophia Antipolis, France; GREDEG CNRS; BETA CNRS); Frédéric Marty (GREDEG CNRS; University of Nice Sophia Antipolis; OFCE - Sciences Po. Paris)
    Abstract: In this article, we use a history of economic thought perspective to analyze the process by which the Chicago School of Antitrust emerged in the 1950s and became dominant in the US. We show the extent to which economic objectives and theoretical views shaped antitrust laws in their inception. After establishing the minor influence of economics in the promulgation of U.S. competition laws, we then highlight U.S. economists' very cautious views about antitrust until the Second New Deal. We analyze the process by which the Chicago School developed a general and coherent framework for competition policy. We rely mainly on the seminal and programmatic work of Director and Levi (1956) and trace how this theoretical paradigm was made collective, i.e. the 'economization' process took place in US antitrust. Finally, we discuss the implications, if not the possible pitfalls, of such a conversion to economics-led competition law enforcement.
    Keywords: Antitrust, Chicago School, Consumer welfare, Efficiency, Monopolization
    JEL: K21 L40
    Date: 2014–07
  6. By: Giorgio Monti; Pier Luigi Parcu
    Abstract: The working paper includes a collection of the case notes written by the national judges who attended the European Networking and Training for National Competition Enforcers (ENTraNCE 2012). The training program was organized by the RSCAS between September 2012 and June 2013 with the financial contribution of DG Competition of the European Commission. The case notes included in the working paper summarize judgments of new EU Member States and candidate countries related to different aspects of competition law enforcement. The working paper thus aims at increasing the understanding of the challenges faced by the national judiciary in enforcing national and EU competition in the context of the decentralized regime of competition law enforcement introduced by Reg. 1/2003.
    Keywords: Competition law, Art. 101 TFEU, Art. 102 TFEU, Reg. 1/2003, judicial training, national judges
    Date: 2014–06
  7. By: Pedro Bento (West Virginia University, College of Business and Economics)
    Abstract: I introduce patents into a general equilibrium model of innovation, where innovators choose between creating a new product market and competing in an existing market. Patent holders demand royalties from sequential innovators, but are constrained by the ability of innovators to work around patents. I show patent protection acts as a net tax on sequential innovators, reducing both competition and productivity growth. Calibrated to match moments from U.S. data, the model predicts that eliminating patent protection in the U.S. would generate a 23% increase in steady-state productivity growth as well as an increase in welfare equivalent to that from a 16% increase in annual consumption. I test several implications of the model using both U.S. and cross-country data. Consistent with the model, the data suggests an increase in the strength of patent protection reduces both productivity growth and the average quality of innovations.
    Keywords: patent protection, competition, innovation, productivity, regulation, growth
    JEL: O1 O4
    Date: 2013–10
  8. By: Bartling Björn; Grieder Manuel; Zehnder Christian
    Abstract: Is competition perceived as a fair procedure? We report data from laboratory experiments where a powerful buyer can trade with one of several sellers. Sellers who feel shortchanged can engage in counterproductive behavior to punish the buyer. We find that the same unfavorable terms of trade trigger significantly less punishment if the buyer uses a competitive auction to determine the terms of trade than if she uses her authority to dictate the same terms directly. Our results inform the debate on the fairness of market outcomes by showing that the use of a competitive procedure can, by itself, affect how people judge unequal distributive outcomes.
    Keywords: Competition, authority, markets, fairness, responsibility, procedures
    JEL: C91 D03 D63
    Date: 2014–05
  9. By: Dewenter, Ralf (Helmut Schmidt University, Hamburg); Rösch, Jürgen (Helmut Schmidt University, Hamburg)
    Abstract: This paper analyses the incentives of a vertical integrated Internet service provider (ISP) to block competitors from content markets. Using a simple model we find that the ISP does not block competing content providers as long as the contents are differentiated sufficiently. Exclusion only takes place when the competitor offers perfect homogeneous content and the ISP has a local monopoly over its Internet access customers or if network effects are strong. In this case, however, the abuse of market power can at least in Europe be prohibited by competition authorities. That is, according to our model there is no need for a regulation of net neutrality.
    Keywords: net neutrality; competition; Internet service providers
    JEL: D40 K20 L12 L82 L86
    Date: 2014–07–28
  10. By: Florian LEON (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: Bank Competition and Credit Constraints in Developing Countries: New Evidence Whether competition helps or hinders small firms' access to finance is in itself a much debated question in the economic literature and in policy circles, especially in the developing world. Economic theory offers conflicting predictions and empirical contributions provide mixed results. This paper considers the consequences of interbank competition on credit constraints using firm level data covering 70 developing and emerging countries. In addition to the classical concentration measures, competition is assessed by computing three non-structural measures (Lerner index, Boone indicator, and H-statistics). The results show that bank competition alleviates credit constraints, while bank concentration measures are not robust predictors of a firm's access to finance. Findings highlight that bank competition not only leads to less severe loan approval decisions but also reduces borrowers' discouragement. In addition, a secondary result of this paper documents that banking competition enhances credit availability more by reducing prices than by increasing relationship lending.
    Keywords: discouraged borrower;developing countries;access to credit;Bank competition
    Date: 2014–06–27
  11. By: Pascal Gourdel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Maria Lykidi (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In many countries, the electricity systems are quitting the vertically integrated monopoly organization for an operation framed by competitive markets. It therefore questions how flexible nuclear plants capable of load-following should be operated in an open market framework. A number of technico-economical features of the operation of flexible nuclear plants drive our modelling complex which makes difficult to determine the optimal management of the nuclear production within our model. In order to examine the existence of an equilibrium and calculate it, we focus on a short-term (monthly) management horizon of the fuel of nuclear reactors. The marginal cost of nuclear production being (significantly) lower than that of thermal production induces a discontinuity of producer's short-term profit. The problem of discontinuity makes the resolution of the optimal short-term production problem extremely complicated and even leads to a lack of solutions. That is why it is necessary to study an approximate problem (continuous problem) that constitutes a "regularization" of our economical problem (discontinuous problem). Its resolution provides us with an equilibrium which proves the existence of an optimal production trajectory.
    Keywords: Electricity market; nuclear generation; competition with reservoir; optimal short-term production problem; price discontinuity; quadratic programming
    Date: 2014–01

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