nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒10‒03
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Strategic Choice on Product Line in Vertically Differentiated Duopoly By Ryoma Kitamura; Tetsuya Shinkai
  2. Evolutionary Stability in Asymmetric Oligopoly. A Non-Walrasian Result By Wolfgang Leininger; Hamed Moghadam
  3. Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment By Jos Jansen; Andreas Pollak
  4. Welfare enhancing coordination in consumer cooperatives under mixed oligopoly By Marco Marini; Paolo Polidori; Desiree Teobaldelli; Alberto Zevi
  5. Foreign Rivals are Coming to Town: Responding to the Threat of Foreign Multinational Entry By Cathy Ge Bao; Maggie
  6. CSR in an Asymmetric Duopoly with Environmental Externalities By L. Lambertini; A. Palestini; A. Tampieri
  7. Environmental R&D in the Presence of an Eco-Industry By Alain-Désiré Nimubona; Hassan Benchekroun
  8. Innovation and copyright infringement: The Case of Commercial Piracy and End-user Piracy By Dyuti Banerjee; Sougata Poddar
  9. Selling Cookies By Bergemann, Dirk; Alessandro Bonatti
  10. Automobile Prices in Market Equilibrium with Unobserved Price Discrimination By D’Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe
  11. Pricing and competition in Specialist Medical Services: An Overview for South Africa By Ankit Kumar; Grégoire de Lagasnerie; Frederica Maiorano; Alessia Forti

  1. By: Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University)
    Abstract: In a real oligopoly, firms often supply multiple products differentiated by quality in the same market. To examine why they do so, we consider a duopoly model in which firms can choose between supplying two vertically differentiated products and selling a single product in the same market. By deriving equilibriums for possible games and comparing their outcomes with each other, we explored the conditions in which firms strategically determine their product lines, choosing to sell between a single product and two products. The first three are the cases in which both firms supply both products, or they supply either homogeneous product of the two in the same market. The last two are those in which one firm supplies both but another firm does either of the two. We find that a firm producing only one product has an incentive to launch another product as long as it can do so.
    Keywords: Multi-product firm; Duopoly; Strategic choice of product line; Vertical product differentiation, Cannibalization, Launch of product
    JEL: D21 D43 L13 L15
    Date: 2014–08
  2. By: Wolfgang Leininger; Hamed Moghadam
    Abstract: It is a very well-known result that in terms of evolutionary stability the long-run outcome of a Cournot oligopoly market with finitely many firms approaches the perfectly competitive Walrasian market outcome (Vega-Redondo, 1997). However, in this paper we show that an asymmetric structure in the cost functions of firms may change the long-run outcome. Contrary to Tanaka (1999) we show that the evolutionarily stable price in an asymmetric Cournot oligopoly needs not equal the marginal cost, it may rather equal a weighted average of (different) marginal cost. We apply a symmetrization technique in order to transform the game with asymmetric firms into a symmetric oligopoly game and then extend Schaffer’s definition (1988) of a finite population ESS (FPESS) to this setup. Moreover, we show that the FPESS in this game represents a stochastically stable state of an evolutionary process of imitation with experimentation.
    Keywords: Cournot oligopoly; asymmetry; finite population evolutionary stable strategy; stochastic stability
    JEL: C72 C73 D43 L13
    Date: 2014–08
  3. By: Jos Jansen (Department of Economics and Business, Aarhus University, Denmark); Andreas Pollak (University of Cologne)
    Abstract: We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor’s product-market strategy. Subsequently, we analyze the firms’ behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.
    Keywords: duopoly, Cournot competition, Bertrand competition, information disclosure, incomplete information, common value, product differentiation, asymmetry, skewed distribution, laboratory experiment
    JEL: C92 D22 D82 D83 L13 M4
    Date: 2014–09–01
  4. By: Marco Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Paolo Polidori (Universita' degli Studi di Urbino "Carlo Bo"); Desiree Teobaldelli (Universita' degli Studi di Urbino "Carlo Bo"); Alberto Zevi (Centro Studi Legacoop, Rome, Italy)
    Abstract: The recent globalization of world economies has led the retail markets of developed countries towards increasing levels of integration and strategic interdependence. A non negligible share of retail and food markets is currently served by co-operative societies. Consistently with this trend, the consumer cooperatives have recently experienced increasing levels of integration. The main aim of this paper is to study the welfare effects of coordination among consumer cooperatives competing in quantities in a mixed oligopoly against profit-maximizing firms. We show that, in absence of agency problems, whereas under increasing or constant returns to scale a higher output coordination of consumer cooperatives may not affect the total welfare as long as a nonnegative profit constraint holds, under decreasing returns to scale the consumer cooperatives may contribute more to social welfare when acting on behalf of all consumers. This is because, by coordinating consumers' preferences, these firms can reduce their market output, thus helping the market to come closer to the first best. All together these results seem to provide an argument in favor of the recent process of integration involving consumer cooperatives in many developed countries.
    Keywords: Consumer Cooperatives ; Mixed Oligopoly ; Profit-maximizing Firms; Mergers
    Date: 2014
  5. By: Cathy Ge Bao (Department of Economics/Institute for International Economic Policy, George Washington University); Maggie (Department of Economics/Institute for International Economic Policy, George Washington University)
    Abstract: How do domestic Örms respond to the threat of foreign competition? This paper quantifies the threat of competition from foreign multinational firms by exploring investment news that appear in over 35,000 newspapers, trade presses, magazines, newswires, and other forms of media in 200 countries. The analysis shows that, on average, domestic Örms respond to foreign multinational threats by increasing productivity, R&D, labor training, patent applications, and advertising expense and changing product composition. However, the response exhibits substantial heterogeneity oss industries and Örms: industries with "neck-to-neck" competition are more likely to upgrade productivity; within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping threatened products. Moreover, the degree of response increases significantly with the size of the threat, the influence of the news, the amount of information embedded in the news--on, for example, the credibility of the threat, and the number of news in downstream industries. The main findings are robust to placebo tests and IV analyses that explore detailed and unique characteristics--such as the publishing timing and location, the primary consumers, and the substance--of each news.
    Keywords: threat, foreign investment news, and domestic Örm responses
    JEL: F1 F2 L2 D2
    Date: 2014
  6. By: L. Lambertini; A. Palestini; A. Tampieri
    Abstract: We investigate a linear state dfferential game describing an asymmetric Cournot duopoly with capacity accumulation à la Ramsey and a negative environmental externality (pollution), in which one of the firms has adopted corporate social responsibility (CSR) in its statute, and therefore includes consumer surplus and the environmental effects of production in its objective function. If the market is sufficiently large, the CSR firm sells more, accumulates more capital and earns higher profits than its profit-seeking rival.
    JEL: C73 H23 L13 O31
    Date: 2014–08
  7. By: Alain-Désiré Nimubona (Department of Economics, University of Waterloo); Hassan Benchekroun (Department of Economics, McGill University)
    Abstract: We compare the performance of R&D cooperation and R&D competition within the eco-industry using a model of vertical relationship between a polluting industry and the eco-industry. The polluting industry is assumed perfectly competitive and the eco-industry is a duopoly in the market for abatement goods and services, with one fi?rm acting as a Stackelberg leader and the other fi?rm as a follower. When there are full information sharing under R&D cooperation and involuntary information leakages under R&D competition, we ?find that the only case where government intervention is needed is the case where R&D cooperation yields a higher welfare but smaller pro?fits for the follower eco-industrial fi?rm than R&D competition. Furthermore, because of the market power that the eco-industry enjoys, we show that more total R&D efforts under R&D competition do not necessarily translate into more abatement activities and larger social welfare. When there are no involuntary leakages of information under R&D competition, this result occurs because R&D competition can induce more total R&D efforts than R&D cooperation even for signi?ficantly high R&D spillovers if the marginal environmental damage is large.
    JEL: L13 O32 Q55 Q58
    Date: 2014–09
  8. By: Dyuti Banerjee (Department of Economics, Monash University, Australia); Sougata Poddar (Department of Economics, Faculty of Business and Law, Auckland University of Technology)
    Abstract: The purpose of this paper is to analyse the question, whether copyright infringement of digital products like software commonly labelled as piracy impedes innovation. We find the answer depends on the nature of piracy i.e. whether it is end-users or commercial piracy. For end user piracy, copyright infringement does not necessarily impede innovation; in fact it can be shown that it encourages innovation when the pirates are active. However, for commercial piracy, it always impedes innovation which has negative implications on the overall welfare of the society. We show under what conditions the government intervention through IPR protection strategy (like monitoring and imposing a fine to the pirate) can support the copyright holder for higher level of innovation. We find the socially optimally monitoring rate for the government that result in maximum innovation for the copyright holder
    Keywords: Innovation; piracy; monitoring; social welfare
    JEL: D21 D43 L13 L21 L26 O3
    Date: 2013–09
  9. By: Bergemann, Dirk (Cowles Foundation, Yale University); Alessandro Bonatti (Sloan School of Management, MIT)
    Abstract: We propose a model of data provision and data pricing. A single data provider controls a large database that contains information about the match value between individual consumers and individual firms (advertisers). Advertisers seek to tailor their spending to the individual match value. The data provider prices queries about individual consumers' characteristics (cookies). We determine the equilibrium data acquisition and pricing policies. Advertisers choose positive and/or negative targeting policies. The optimal query price influences the composition of the targeted set. The price of data decreases with the reach of the database and increases with the fragmentation of data sales.
    Keywords: Data providers, Data pricing, Selling information, Targeting, Online advertising, Cookies, Media markets
    JEL: D44 D82 D83
    Date: 2013–10
  10. By: D’Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe
    Abstract: This paper deals with the estimation of structural models of demand and supply with incomplete information on prices. When the seller is able to price discriminate, or the buyer to bargain, individuals pay different prices that are usually not collected in the data. This paper explores a method to estimate the supply and demand models jointly when only posted prices are observed. We consider that heterogenous transaction prices occur due to price discrimination by firms on observable characteristics of consumers. Within this framework, the identification is secured by (i) supposing that at least one group of individuals does pay the posted prices and (ii) assuming that the marginal costs of producing and selling the goods does not depend on the characteristics of the buyers. This methodology is applied to estimate the demand in the new automobile market in France. Results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 5.2%, with large variation according to the buyers’ characteristics. Our results are in line with discounts generally observed in European and American automobile markets.
    Date: 2014–09–04
  11. By: Ankit Kumar; Grégoire de Lagasnerie; Frederica Maiorano; Alessia Forti
    Abstract: Major disparities in the cost of health care have made the pricing of specialist and hospital services a contentious issue in South Africa, particularly in the private sector. To help inform policy debate, this paper profiles selected experiences on the pricing of health services, competition policy and models of buying specialist health care services from the private sector across the OECD. Firstly, South Africa is compared to OECD countries to identify countries where voluntary private health insurance – the major source of financing for private hospitals – plays a similar role. Second, this paper provides an overview of price setting across OECD health care systems. It then covers the economic rationale and the institutional arrangements which OECD countries have established to set prices, before moving to an overview of competition policy considerations surrounding these arrangements. Finally, the paper highlights a few models of buying services from the private sector for public patients, with a particular focus on Mexico and Turkey. It is argued that South Africa should separate the task of establishing a schedule of medical services from negotiations over overall payments to medical professionals. La tarification des services spécialisés et hospitaliers est devenue en Afrique du Sud, en particulier dans le secteur privé, une question controversée suite à d'importantes disparités dans le coût des soins de santé. Pour éclairer le débat politique, ce document décrit différents exemples de tarification des services de santé, de politique de concurrence et des modèles d'achat de services de soins spécialisés au secteur privé dans la zone OCDE. Dans un premier temps, l’étude compare l'Afrique du Sud à d'autres pays de l'OCDE pour identifier les pays où l'assurance-maladie volontaire privée - la principale source de financement pour les hôpitaux privés en Afrique du Sud - joue un rôle similaire. Il donne ensuite un aperçu de la fixation des prix dans les systèmes de santé de l'OCDE. Puis, il aborde la logique économique et les dispositifs institutionnels mis en place par les pays de l’OCDE pour fixer les prix, avant de présenter une vue d'ensemble de la réflexion concernant la politique de la concurrence autour de ces arrangements. Enfin, le document expose quelques modèles d'achat de services au secteur privé pour les patients du secteur public, en développant plus particulièrement les exemples du Mexique et de la Turquie. Il apparaît que l'Afrique du Sud devrait séparer d’un côté l’élaboration d’une liste de services médicaux et de l’autre les négociations faites sur l'ensemble des paiements des professionnels de santé.
    JEL: I1 I11 I18
    Date: 2014–06–12

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