nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒09‒25
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Equilibrium downstream mark-up and upstream free entry By Ioannis N. Pinopoulos
  2. On the benefits of contractual inefficiency in quality-differentiated markets By Bacchiega, E.; Bonroy, O.
  3. Optimal Sharing Strategies in Dynamic By Nisvan Erkal "; " Deborah Minehart
  4. Should Auctions be Transparent? By Dirk Bergemann; Johannes Horner
  5. An Efficient and Strategy-Proof Double-Track Auction for Substitutes and Complements By Ning Sun; Zaifu Yang
  6. Horizontal Mergers with Capital Adjustment: Workers' Cooperatives and the Merger Paradox By F. Delbono; L. Lambertini
  7. Consumer information networks By Simon MIEGIELSEN
  8. Regulation, Competition, Diversification, Governance and Costs: An Empirical Analysis of Public Utility and Manufacturing Firms in Japan By Fumitoshi Mizutani; Eri Nakamura
  9. Classical Competition and Freedom of Contract in American Laissez Faire Constitutionalism By Nicola Giocoli
  10. Determinants of the Duration of European Appellate Court Proceedings in Cartel Cases By Florian Smuda; Patrice Bougette; Kai Hüschelrath
  11. Search and Stockpiling in Retail Gasoline Markets By David P. Byrne; Nicolas de Roos
  12. Merit order effect and strategic investments in intermittent generation technologies By Silvia Concettini
  13. Health Care Demand in the Presence of Discrete Price Changes By Gerfin, M.;; Kaiser, B.;; Schmid, C.;
  14. Instability and network effects in innovative markets By Paolo Sgrignoli; Elena Agliari; Raffaella Burioni; Augusto Schianchi

  1. By: Ioannis N. Pinopoulos (Department of Economics, University of Macedonia, Greece)
    Abstract: We consider a successive Cournot oligopoly model where firms freely enter into the upstream market. We show that, under specific conditions, a higher number of downstream firms can lead to a higher mark-up in the downstream market. Although downstream market power may increase, consumer prices still decrease with the number of downstream firms implying that higher market power does not necessarily imply lower consumer surplus.
    Keywords: Vertical relations; Cournot competition; Free entry; Market Power.
    JEL: L22
    Date: 2014–09
  2. By: Bacchiega, E.; Bonroy, O.
    Abstract: Contractual inefficiencies within supply chains increase an input price above its marginal cost, therefore they are considered detrimental to consumer surplus. We argue that such inefficiencies may be beneficial to consumers in quality-differentiated markets. Indeed, enhancing contractual efficiency in high-quality supply chains may adversely affect the market structure by driving low-quality vertical chains out of the market and, consequently, reduce consumer surplus. Due to the finiteness property (counter-)integration in the low-quality channel does not allow this channel to be in business. Our result holds irrespective of whether the contractual inefficiencies originate from the double marginalization or the "commitment effect".
    JEL: L13 L22 L4
    Date: 2014
  3. By: Nisvan Erkal "; " Deborah Minehart
    Abstract: A question central to R&D policy making is the impact of competition on cooperation. This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. We model an uncertain research process and ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity. Such a dynamic approach allows us to analyze the interaction between how close the ?rms are to product market competition and how intense that competition is. We uncover a basic dynamic of sharing such that ?rms are less likely to share as they approach the product market. This dynamic is driven by a trade-o¤ between three e¤ects: the rivalry e¤ect, the duplication e¤ect and the speed e¤ect. We show that this dynamic can be reversed when duopoly pro?ts are su¢ ciently low. We also explore the implications of the model for patent policy and R&D subsidies, and discuss under what circumstances such policies should be directed towards early vs. later stage research.
    Keywords: Multi-stage R&D; innovation; knowledge sharing; licensing; dynamic games; patent
    Date: 2013
  4. By: Dirk Bergemann (Cowles Foundation, Yale University); Johannes Horner (Cowles Foundation, Yale University)
    Abstract: We investigate the role of market transparency in repeated first-price auctions. We consider a setting with independent private and persistent values. We analyze three distinct disclosure regimes regarding the bid and award history. In the minimal disclosure regime each bidder only learns privately whether he won or lost the auction. In equilibrium the allocation is efficient and the minimal disclosure regime does not give rise to pooling equilibria. In contrast, in disclosure settings where either all or only the winner’s bids are public, an inefficient pooling equilibrium with low revenues exists.
    Keywords: First price auction, Repeated auction, Private bids, Information revelation
    JEL: D44 D82 D83
    Date: 2010–08
  5. By: Ning Sun (Shanghai University of Finance and Economics); Zaifu Yang (Department of Economics and Related Studies, University of York, United Kingdom)
    Abstract: We propose a dynamic auction mechanism for efficiently allocating multiple heterogeneous indivisible goods. These goods can be split into two distinct sets so that items in each set are substitutes but complementary to items in the other set. The seller has a reserve value for each bundle of goods and is assumed to report her values truthfully. In each round of the auction, the auctioneer announces the current prices for all items, bidders respond by reporting their demands at these prices, and then the auctioneer adjusts simultaneously the prices of items in one set upwards but those of items in the other downwards. We prove that although bidders are not assumed to be price-takers and thus can strategically exercise their market power, this dynamic auction always induces the bidders to bid truthfully as price-takers, yields an efficient outcome and also has the merit of being a detail-free, transparent and privacy preserving mechanism.
    Keywords: Dynamic auction, gross substitutes and complements, incentives, efficiency, indivisibility, incomplete information
    JEL: D44
    Date: 2014–09
  6. By: F. Delbono; L. Lambertini
    Abstract: We study the incentives towards horizontal merger among firms when the amount of capital is the strategic variable. We focus on is workers' cooperatives, but our conclusions apply also to employment-constrained profit maximisers. Within a simple oligopoly model, we prove that the horizontal merger, for any merger size, is: (i) privately efficient for insiders as well as for outsiders; (ii) socially efficient if market size is large enough, even in the case of merger to monopoly.
    JEL: D43 L13 L21 L41
    Date: 2014–09
  7. By: Simon MIEGIELSEN
    Abstract: This paper examines the informativeness of consumer information networks and their effect on price competition between .rms. Under the proposed information mechanism, consumers share their initial information with the members of their network and as such become better informed. The main result of this paper shows how informative such networks are by characterizing how many different pieces of information a network is likely to contain. This informativeness is crucial for the degree of competition, as consumers comparing more prices induce firms to compete more fiercely. We find that larger networks imply better information transmission, which intensifies competition and decreases all the percentiles of the price distribution. An increase in the number of firms makes networks more informative, and decreases all the percentiles as well. Our results are robust to the introduction of sequential search and network segregation, but an increase in segregation decreases information transmission and increases all percentiles.
    Date: 2014–06
  8. By: Fumitoshi Mizutani (Graduate School of Business Administration, Kobe University); Eri Nakamura (Faculty of Economics, Shinshu University)
    Abstract: The main purpose of this study is to investigate how regulation, competition, governance structure, and business diversification strategy affect the cost structure of firms. By using 358 observations comprised of public utility firms and manufacturing firms from 1989 to 2002, we estimate the translog cost function. From our empirical analysis, the following results are obtained: (i) The regulation factor does not affect the cost structure. (ii) Compared with the regulation factor, the competition factor shows a quite clear effect on a firm' s cost reduction. (iii) As a company diversifies further from its core industry into other industries, all of the firm' s business costs increase, indicating an apparent lack of economies of scope. (iv) The governance factor has an important effect on a firm' s cost structure. As the ratio of foreign shareholders increases and there is more dependence on one main bank, the costs of a firm decrease.
    Keywords: Regulation, Competition, Governance, Diversification Strategy, Japanese Firms
    Date: 2013
  9. By: Nicola Giocoli
    Abstract: It is impossible to tell the history of American antitrust law and economics during the so-called formative era (1890- 1915) without a preliminary understanding of the economic rationale underlying that major phase of American constitutional law commonly called laissez faire constitutionalism, or Lochner era. The essay is a preliminary effort to locate such a rationale in the almost perfect overlap between classical political economy, especially the notion of competition as the supreme organizing principle of thriving societies, and classical liberalism, in particular the notion of liberty of contract. It is argued that the well-known Progressive interpretation of the Lochner era fails to recognize the true meaning and extent of this overlap. The protagonists of our story are economists Adam Smith, John Stuart Mill and Francis Wayland, and Supreme Court Justices James Wilson, Oliver Wendell Holmes and Rufus Peckham.
    Date: 2014–06–10
  10. By: Florian Smuda (ZEW Centre for European Economic Research; MaCCI Mannheim Centre for Competition and Innovation); Patrice Bougette (University of Nice Sophia Antipolis, France; GREDEG CNRS; LAMETA CNRS); Kai Hüschelrath (ZEW Centre for European Economic Research; MaCCI Mannheim Centre for Competition and Innovation)
    Abstract: The duration of appellate court proceedings is an important determinant of the efficiency of a court system. We use data of 234 firm groups that participated in 63 cartels convicted by the European Commission between 2000 and 2012 to investigate the determinants of the duration of the subsequent one- or two-stage appeals process. We find that while the speed of the first-stage appellate court decision depends on the court’s appeals-related workload, the complexity of the case, the degree of cooperation by the firms involved and the clarity of the applied rules and regulations, the second-stage appellate court proceedings appear to be largely unaffected by those drivers. We take our empirical results to derive conclusions for both firms that plan to file an appeal as well as public policy makers.
    Keywords: Law and economics, antitrust policy, cartels, appeals, European Union
    JEL: K21 K41 K42 L41
    Date: 2014–09
  11. By: David P. Byrne; Nicolas de Roos
    Abstract: This note presents some simple, direct tests for search and dynamic demand behavior in retail gasoline markets. We exploit a unique market-level dataset that allows us to directly measure search intensity with daily web traffic data from a gasoline price reporting website, and perfectly measure daily changes in price levels and dispersion. We find stark evidence of both search and stockpiling behavior.
    Keywords: search, dynamic demand, retail gasoline
    JEL: D8 L8
    Date: 2014
  12. By: Silvia Concettini
    Abstract: This paper studies the strategic interactions between two electricity generators, the first producing with a \traditional" technology and the second employing a \renewable" technology characterized by the random availability of capacity due to the intermittency of its power source. The competition between the \traditional" and the \renewable" power producers is examined through a modified version of the two stage Dixit model for entry deterrence (Dixit, 1980) with Cournot competition in the post entry stage. The outcome of the game suggests that the \renewable" generator exploits the merit order rule which governs spot electricity markets to invest and produce as if it were a sort of Stackelberg leader. While in most cases producer's preferences over strategies do not depend on the average value of capacity availability, according to the value of this parameter the market may lead to an equilibrium which benefits both the \renewable" producer and the consumers. Given that production of electricity from the renewable source depends on actual weather conditions, the analysis of ex-post payoffs reveals that \renewable" producer's preferences over strategies may be reversed for small errors in the forecasting of the true value of the average capacity availability factor when the investment cost in the renewable technology is relatively low. In this case, the incentives for strategic behaviour of the \renewable" producer may be even stronger. The main insights of the model seem to be barely sensitive to changes in the market power of competitors: even when the \renewable" generator behaves as a competitive fringe in the spot market, it is able to infuence equilibrium outcome to its own advantage through investment choices although to a smaller degree than in the standard setting.
    Keywords: Competition, Renewable generation, Capacity investments, Merit order.
    JEL: D43 L13 L43 L94
    Date: 2014
  13. By: Gerfin, M.;; Kaiser, B.;; Schmid, C.;
    Abstract: Deductibles in health insurance generate nonlinear budget sets and dynamic incentives. This paper uses detailed individual claims data from a large Swiss insurance company to estimate the response in health care demand to the discrete price increase that is generated by resetting the deductible at the start of each calendar year. We use a regression discontinuity type framework based on daily data to estimate the change in health care demand right before and right after the turn of the year. We find that for individuals with high deductibles health care demand drops by 27%, which translates into an elasticity of −.21. The decrease is most pronounced for inpatient care and prescription drugs. By contrast, for individuals with low deductibles there is no significant change in health care demand (except for prescription drugs). A remaining open question is whether the observed behavioral responses can be attributed to intertemporal substitution or whether they constitute a classic moral hazard effect.
    Keywords: health care demand; nonlinear pricing; dynamic incentives; health insurance;
    JEL: C31 D12 I13
    Date: 2014–08
  14. By: Paolo Sgrignoli; Elena Agliari; Raffaella Burioni; Augusto Schianchi
    Abstract: We consider a network of interacting agents and we model the process of choice on the adoption of a given innovative product by means of statistical-mechanics tools. The modelization allows us to focus on the effects of direct interactions among agents in establishing the success or failure of the product itself. Mimicking real systems, the whole population is divided into two sub-communities called, respectively, Innovators and Followers, where the former are assumed to display more influence power. We study in detail and via numerical simulations on a random graph two different scenarios: no-feedback interaction, where innovators are cohesive and not sensitively affected by the remaining population, and feedback interaction, where the influence of followers on innovators is non negligible. The outcomes are markedly different: in the former case, which corresponds to the creation of a niche in the market, Innovators are able to drive and polarize the whole market. In the latter case the behavior of the market cannot be definitely predicted and become unstable. In both cases we highlight the emergence of collective phenomena and we show how the final outcome, in terms of the number of buyers, is affected by the concentration of innovators and by the interaction strengths among agents.
    Date: 2014–09

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