nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒10‒22
twelve papers chosen by
Russell Pittman
United States Department of Justice

  1. Merger control on two-sided markets: is there need for an efficinecy defense? By Edmond Baranes; Thomas Cortade; Andreea Cosnita-Langlais
  2. Capital Structure, Product Market Competition and Default Risk By Magali Pedro Costa; Cesaltina Pires
  3. Learning in a Perfectly Competitive Market By Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
  4. The Merger-Paradox: A Tournament-Based Solution By Fan, Cuihong; Wolfstetter, Elmar G.
  5. Patent Licensing Networks By Doh-Shin Jeon; Yassine Lefouili
  6. Extending The Scope Of Antitrust Legislation Over The Area Of Exclusive Ip-Rights Exercise: Evidence From Russia By Mikhail S. Zhuravlev
  7. Structural Analysis of Nonlinear Pricing By Yao Luo; Isabelle Perrigne; Quang Vuong
  8. Competition, Product Proliferation and Welfare: A Study of the U.S. Smartphone Market By Ying Fan; Chenyu Yang
  9. Let the Market Decide: The Case Against Mandatory Pick-and-Pay By Lawson Hunter; Edward Iacobucci; Michael Trebilcock
  10. Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics By Filip Switala; Malgorzata Olszak; Iwona Kowalska
  11. Liberalization of the Interurban Coach Market in Germany: Do Attitudes and Perceptions Drive the Choice between Rail and Coach? By Francisco J. Bahamonde-Birke; Uwe Kunert; Heike Link; Juan de Dios Ortúzar
  12. Price-setting behaviour in New Zealand By Miles Parker

  1. By: Edmond Baranes (LAMETA-CNRS and Labex Entreprendre, Faculté d'Economie, Université de Montpellier, Rue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2, France); Thomas Cortade (BETA-CNRS, Université de Lorraine, Ile du Saulcy, BP 80794, 57012 Metz cedex 1, France); Andreea Cosnita-Langlais (EconomiX-CNRS, Université Paris Ouest Nanterre La Défense, 200 Avenue de la République, 92001 Nanterre cedex, France)
    Abstract: We study horizontal mergers on two-sided markets between horizontally differentiated platforms. We provide a theoretical analysis of the merger's price effect based on the amount of cost savings it generates, the behavior of outsider platforms, and the size of cross-group network effects. We point out differences as compared with the standard, one-sided merger analysis, and also discuss the merger control policy implications.
    Keywords: horizontal merger; two-sided markets; cost savings; merger control
    JEL: L41 D82 K21
    Date: 2014–09
  2. By: Magali Pedro Costa (CEFAGE-UE and ESTG, Instituto Politécnico de Leiria, Portugal); Cesaltina Pires (CEFAGE-UE and Departamento de Gestão, Universidade de Évora, Portugal)
    Abstract: The aim of this paper is to analyze the equilibrium default risk in a two-stage duopoly model, where firms decide their financial structure in the first stage of the game and take their output market decisions in the second stage of the game. Using the framework of Brander and Lewis (1986) we analyze the impact of changing the parameters of the model (level of demand uncertainty, parameters that affect both firms and firm specific parameters) on the equilibrium default probabilities. This analysis is done both for the Nash equilibrium in the second stage of the game (for fixed debt levels) as well as for the subgame perfect equilibrium. Our results show that both direct and indirect effects (through changes in the equilibrium capital structure and product market decisions) need to be considered and that, in some cases, the total impact of parameters changes on the default risk may be counterintuitive.
    Keywords: Capital structure; Product market competition; Default risk.
    JEL: D43 G32 L13
    Date: 2014
  3. By: Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
    Abstract: We study the informativeness of the price in a perfectly competitive market. A price-taking firm sells a good whose quality is unknown to some buyers. The uninformed buyers use the price to infer information about quality. The shape of the supply curve influences the amount of information contained in the equilibrium price.
    Keywords: Asymmetric information, Learning, Perfect competition, Rational expectations
    JEL: D2 D41 D8 L1
    Date: 2014
  4. By: Fan, Cuihong; Wolfstetter, Elmar G.
    Abstract: According to the well-known “merger paradoxâ€, in a Cournot market game mergers are generally unprofitable unless most firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable, more profitable than in other known mechanism, and in many cases welfare increasing. The proposed mechanism assumes that merged firms continue to operate as independent subsidiaries that are rewarded according to a simple and commonly observed relative performance measure.
    Keywords: Mergers; multi-divisional firms; tournaments; industrial organization.
    JEL: L00 D4
    Date: 2014–08
  5. By: Doh-Shin Jeon (Toulouse School of Economics and CEPR); Yassine Lefouili (Toulouse School of Economics)
    Abstract: This paper investigates the patent licensing networks formed by competing firms. Assuming that licensing agreements can involve the payment of fixed fees only and that firms compete à la Cournot, we show that the complete network is always bilaterally efficient and that the monopoly network is bilaterally efficient if the patents are complementary enough. In the case of independent patents, we fully characterize the bilaterally efficient networks and find that when the cost reduction resulting from getting access to a competitor's technology is large enough, the complete network is the only bilaterally efficient one. We also show that the bilaterally efficient networks can be sustained as subgame-perfect Nash equilibria with symmetric payoffs. This implies that the Pareto-dominance criterion selects the network that maximizes industry profits when more than one bilaterally efficient network exists.
    Keywords: Licensing; Networks; Antitrust and Intellectual Property
    JEL: L12 L13 L41
    Date: 2014–09
  6. By: Mikhail S. Zhuravlev (National Research University Higher School of Economics)
    Abstract: This paper deals with the issues of competition law and IP law interaction. Current Russian legislation provides absolute immunity from extending the antitrust prohibitions over the exercise of exclusive IP-rights. The idea of the article is that this approach needs to be revised. Russian court practice, legal doctrine and economic theory necessitate more flexible antitrust regulation in the area of IP. The analysis of US, EU, and Japanese models of legal regulation has revealed different approaches to the issues of antitrust policy in this field of social relations. Therefore, this paper suggests a different concept of regulation¬ – keep the general immunity from the application of antitrust prohibitions to rightholders, but make it conditional. At the same time, in order to ensure the optimal balance between private and public interests and to maintain the incentives for innovative activity, antitrust legislation should provide a system of guarantees for rightholders
    Keywords: competition law, IP law, anticompetitive exercise of IP-rights, Russian antitrust legislation, economic approach, balance of interests, amendments to legislation
    JEL: K21
    Date: 2014
  7. By: Yao Luo; Isabelle Perrigne; Quang Vuong
    Abstract: This paper proposes a methodology for analyzing nonlinear pricing data with an illustration on cellular phone. The model incorporates consumer exclusion. Assuming a known tariff, we establish identification of the model primitives using the first-order conditions of both the firm and the consumer up to a cost parameterization. Next, we propose a new one-step quantile-based nonparametric method to estimate the consumers’ inverse demand and their type distribution. We show that our nonparametric estimator is root-N-consistent. We then introduce unobserved product heterogeneity with an unknown tariff. We show how our identification and estimation results extend. Our analysis of cellular phone consumption data assesses the performance of alternative pricing strategies relative to nonlinear pricing.
    Keywords: Nonlinear Pricing, Nonparametric Identification, Empirical Processes, Quantile, Transformation Model, Unobserved Heterogeneity, Telecommunication
    JEL: L8 C5
    Date: 2014–10–01
  8. By: Ying Fan (Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109); Chenyu Yang (Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109)
    Abstract: We consider a structural model of demand and supply where firms endogenously offer vertically differentiated products and exercise second-degree price discrimination. We apply this model to the smartphone industry and quantify the welfare effects of price discrimination and competition. We use counterfactual simulations to assess how the welfare changes when each firm only offers its highest-quality product. We also study the market outcomes such as price, product variety and welfare if later entrants in the market entered earlier.
    Keywords: endogenous product choice, second-degree price discrimination, smartphone industry
    JEL: L11 L15 L13 L63
    Date: 2014–09
  9. By: Lawson Hunter; Edward Iacobucci; Michael Trebilcock
    Abstract: A proposal by the Canadian Radio-Television and Telecommunications Commission (CRTC) to mandate “pick-and-pay” television offerings for Canadians is deeply misguided, according to a report from the C.D. Howe Institute. In “Let the Market Decide: The Case Against Mandatory Pick-and-Pay,” authors Lawson Hunter, Edward Iacobucci and Michael Trebilcock find that mandating consumers to be able to subscribe to pay and specialty services on a service-by-service basis would be a slippery slope to still more regulation, and would become irrelevant at best in the ongoing telecom revolution.
    Keywords: Governance and Public INstitutions, Telecommunications, broadcasting
    JEL: L82 L96
  10. By: Filip Switala (University of Warsaw, Faculty of Management); Malgorzata Olszak (University of Warsaw, Faculty of Management); Iwona Kowalska (University of Warsaw, Faculty of Management)
    Abstract: This paper aims to find out how intense is the competition in Polish commercial banks loan market. Using Panzar – Rosse H-statistics and applying several estimation techniques (GLS, one-step GMM and two-step GMM) we find that this intensity is sensitive to the estimator applied. Upon analysis of results, one can conclude that competition evolves differently across years in Poland. In some years, competition was relatively high, as the H-statistics reached the level of 0.75, which is relatively close to perfect competition. In other years it gradually decreased reaching its bottom line in 2010, and took upward trend in 2011 and 2012. Generally, the values of our competitive environment measure indicate at monopolistic competition in Poland.
    Keywords: competition intensity, marginal costs, contestabily, banking industry
    JEL: G21 G28 L1 L16
    Date: 2013–12
  11. By: Francisco J. Bahamonde-Birke; Uwe Kunert; Heike Link; Juan de Dios Ortúzar
    Abstract: In January 2013 the interurban passenger transport market in Germany was liberalized and several coach carriers emerged offering an alternative to the Deutsche Bahn, a state owned rail monopoly. The coach carriers have attempted to position themselves not just through lower prices but also through product differentiation, for example marketing their services as the most ecological way to travel. Hence, it is important to consider attitudes and perceptions when analyzing this market. One year after liberalization we conducted a stated-choice experiment among students and employees at the Technical University of Berlin, where participants had to choose between different interurban public transport alternatives (regional and intercity trains or interurban coaches). Additionally, the experiment gathered perception and attitudinal indicators used to construct latent variables. Our results show that attitudes and perceptions indeed affect the way individuals choose between different transport modes and, therefore, they must be taken into account when analyzing the interurban passenger market in Germany.
    Keywords: Liberalization, Coach Market, Latent Variables, Hybrid Discrete Choice Modelling, Attitudes and Perceptions
    JEL: R41
    Date: 2014
  12. By: Miles Parker (Reserve Bank of New Zealand)
    Abstract: New evidence from a large survey of over 5300 firms provides insight into price-setting behaviour in New Zealand. There is considerable heterogeneity in behaviour both between and within sectors, and marked asymmetry in the responses to shocks. The median number of prices reviews is twice per year, but the median number of changes is just once. Multi-product firms reset prices more frequently, even accounting for other firm characteristics. Explicit and implicit contracts and strategic complementarity are the most widely recognised causes of price stickness. Menu costs and sticky information are not widely recognised.
    JEL: E30 D40
    Date: 2014–07

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