nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒11‒28
twenty-two papers chosen by
Russell Pittman
United States Department of Justice

  1. Endogenous timing decisions for product R&D investment competition with demand spillovers in a horizontally differentiated duopoly By Tsuyoshi Toshimitsu
  2. Do buyer groups facilitate collusion? By Normann, Hans-Theo; Rösch, Jürgen; Schultz, Luis Manuel
  3. Price disclosure rules and consumer price comparison By Stühmeier, Torben
  4. The Impatient Salesperson and the Delegation of Pricing Authority By Edward P. Lazear
  5. Trade Liberalization and Aftermarket Services for Imports By ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi
  6. Buyer-Supplier Networks and Aggregate Volatility By Takayuki Mizuno; Wataru Souma; Tsutomu Watanabe
  7. Using a Randomized Choice Experiment to Test Willingness to Pay for Multiple Differentiated Products By Zaffou, Madiha; Campbell, Benjamin L.; Martin, Jennifer
  8. Market competition and abatement technology diffusion under environmental liability law By Li, Yi
  9. On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly By L. Lambertini
  10. Platform pricing and consumer foresight: The case of airports By Flores-Fillol, Ricardo; Iozzi, Alberto; Valletti, Tommaso
  11. The discontent cartel member and cartel collapse: The case of the German cement cartel By Harrington, Joseph E.; Hüschelrath, Kai; Laitenberger, Ulrich; Smuda, Florian
  12. Spatial Competition and Economics of Biofuels from Corn Stover By Sesmero, Juan; Balagtas, Joseph Valdes; Pratt, Michelle
  13. The impact of local loop and retail unbundling revisited By Klein, Gordon J.; Wendel, Julia
  14. Power and control strategies in online video services By Gonçalves, Vânia; Evens, Tom; Alves, Artur Pimenta; Ballon, Pieter
  15. The impact of regulation and competition on the migration from old to new communications infrastructure: Recent evidence from EU27 member states By Briglauer, Wolfgang
  16. Market driven network neutrality and the fallacy of a two-tiered Internet traffic regulation By Knieps, Günter; Stocker, Volker
  17. Spectrum policy and innovation: A Japanese perspective By Bourna, Maria; Mitomo, Hitoshi
  18. Credence Attributes’ Valuation and Price Dispersion: Quantile Regression vs. Stochastic Frontier – an Application to Health Claims in Yogurts By Bonanno, Alessandro; Costanigro, Marco; Bimbo, Francesco; Oude Lansink, Alfons; VIscecchia, Rosaria
  19. Effects of Alternative Marketing Arrangements on Spot Market Price Distribution in the U.S. Hog Market By Kim, Jong-Jin; Zheng, Xiaoyong
  20. The Market Structure of Shale Gas Drilling in the United States By Wang, Zhongmin; Xue, Qing
  21. When the Price You See Is Not the Price You Get: A Bargaining Study By Sandro Shelegia; Joshua Sherman
  22. Kaplow, Louis: Competition Policy and Price Fixing By David Encaoua

  1. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: By focusing on the constructive and combative spillover effects of the firms’ investment in research and development (R&D), we develop a horizontally differentiated duopoly model in which R&D investment used to improve product quality influences consumer preferences and the choice of consumption goods. Applying the framework of endogenous timing decisions to the model, we examine the mutually beneficial timing of product R&D investment and demonstrate that, if there are asymmetric demand spillovers between the firms, a natural Stackelberg equilibrium persists in noncooperative product R&D investment competition in which the firm producing the product with weaker (stronger) demand spillovers moves first (second) to commit to the investment, regardless of the mode of competition. We consider the outcome of the endogenous timing decisions, based on the view of “endogenous sunk costs (i.e., The Sutton Approach)”. Furthermore, we address process R&D investment competition with technology spillovers under endogenous timing.
    Keywords: endogenous timing, natural Stackelberg equilibrium, product R&D investment, demand spillovers, horizontally differentiated Cournot duopoly, endogenous sunk cost
    JEL: L13 L15
    Date: 2014–10
  2. By: Normann, Hans-Theo; Rösch, Jürgen; Schultz, Luis Manuel
    Abstract: We explore whether lawful cooperation in buyer groups facilitates collusion in the product market. Buyer groups purchase inputs more economically. In a repeated game, abandoning the buyer group altogether or excluding single firms constitute credible threats. Hence, in theory, buyer groups facilitate collusion. We run several experimental treatments using three-firm Cournot markets to test these predictions and other effects like how buyer groups affect outcomes when group members can communicate. The experimental results show that buyer groups lead to lower outputs when groups can exclude single firms. Communication is often abused for explicit agreements and this strongly reduces competition.
    Keywords: buyer groups,cartels,collusion,communication,experiments,repeated games
    JEL: C7 C9 L4 L41
    Date: 2014
  3. By: Stühmeier, Torben
    Abstract: Search frictions are regarded as a major impediment to active competition in many markets. In some markets, such as financial and retail gasoline, governments and consumer protection agencies call for compulsory price reporting. Consumers could then more easily compare the firms' offers. We showthat for a given level of price comparison, mandatory price reporting indeed generally benefits consumers. Such regulation, however, feeds back into firms' strategies, resulting in lower levels of price comparison in equilibrium. This effect may dominate so that the regulation lead to higher expected market prices.
    Keywords: Mixed Strategies,Price Comparison,Regulation
    JEL: D83 L13 L51
    Date: 2014
  4. By: Edward P. Lazear
    Abstract: Sales agents are impatient relative to owners. If a good fails to sell, the owner still retains possession of that good and can enjoy its services, whereas the agent receives nothing. As a consequence, sales agents prefer a lower price than does an owner. Owners are therefore reluctant to delegate pricing authority to sales agents even when the agents have superior market information. Pricing authority is more likely to be delegated to agents when the owner lacks monopoly power and sells competitively and when the good is a non-durable. Agents who are given pricing authority are less likely to be paid commissions and more likely to be on a straight salary.
    JEL: D4 M5
    Date: 2014–09
  5. By: ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi
    Abstract: We analyze the provision of repair services (aftermarket services that are required for a certain fraction of durable units after sales) through an international duopoly model in which a domestic firm and a foreign firm compete in the domestic market. Trade liberalization in goods, if not accompanied by the liberalization of service foreign direct investment (FDI), induces the domestic firm to establish service facilities for repairing the foreign firm's products. This weakens the firms' competition in the product market, and the resulting anti-competitive effect hurts consumers and reduces world welfare. Despite the anti-competitive effect, trade liberalization may also hurt the foreign firm because the repairs reduce the sales of the imported good in the product market. Liberalization of service FDI helps resolve the problem because it induces the foreign firm to establish service facilities for its own products.
    Date: 2014–11
  6. By: Takayuki Mizuno (National Institute of Informatics, Department of Informatics, The Graduate University for Advanced Studies, PRESTO, Japan Science and Technology Agency, Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies); Wataru Souma (College of Science and Technology, Nihon University); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies)
    Abstract: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf's law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks – shocks affecting only a particular firm – through customer-supplier chains.
    Date: 2014–11
  7. By: Zaffou, Madiha; Campbell, Benjamin L.; Martin, Jennifer
    Abstract: The purpose of this paper is to evaluate the importance of different attributes of three major product categories: fruits, vegetables and ornamental plants, in order to understand the relative effect of these attributes on consumer’s choice. Using an online survey we implemented a choice based conjoint experiment. Respondents were asked to randomly evaluate two of the ten products being tested in the survey. A mixed logit model was used to analyze the data and determine willingness to pay for each product attribute. We further tested for the impact of purchase behavior and any randomization effect. Results for most of the products we analyzed demonstrate that consumers value locally grown products more than national products. Furthermore, results show that consumers tend to pay more money for farm and organic produce, but less for the latter one if consumers do not have prior experience buying organic. We also find a randomization effect that should be accounted for when evaluating multiple products in a survey.
    Keywords: Willingness to Pay, Choice Based Conjoint Analysis, Specialty Crops, Consumer/Household Economics, Demand and Price Analysis, Research Methods/ Statistical Methods, Q13,
    Date: 2014–07
  8. By: Li, Yi
    Abstract: One challenge in environmental liability law is to apportion the liability appropriately among multiple parties, when these multiple parties generate a single and non-separable damage. This paper provides a method of designing efficient apportionment rule in the presence of product market competition. In particular, I examine the role of apportionment rule in inducing abatement technology diffusion between competing firms. I show that such diffusion can be induced by an efficient apportionment rule. And this apportionment rule allocates a relatively large (more than 1/2) portion of the liability to the firm which originally owns the abatement technology. Furthermore, allocating the liability equally between the firms cannot induce diffusion.
    Keywords: Environmental liability law, Apportionment rule, Diffusion, Competition, Environmental Economics and Policy, Industrial Organization,
    Date: 2014
  9. By: L. Lambertini
    Abstract: This paper offers an overview of the literature discussing oligopoly games in which polluting emissions are generated by the supply of goods requiring a natural resource as an input. An analytical summary of the main features of the interplay between pollution and resource extraction is then given using a differential game based on the Cournot oligopoly model, in which (i) the bearings on resource preservation of Pigouvian tax rate tailored on emissions are singled out and (ii) the issue of the optimal number of firms in the commons is also addressed.
    JEL: C73 H23 L13 O31 Q52
    Date: 2014–11
  10. By: Flores-Fillol, Ricardo; Iozzi, Alberto; Valletti, Tommaso
    Abstract: Airports have become platforms that derive revenues from both aeronautical and commercial activities. The demand for these services is characterized by a one-way complementarity in that only air travelers can purchase retail goods at the airport terminals. We analyze a model of optimal airport behavior in which this one-way complementarity is subject to consumer foresight, i.e., consumers may not anticipate in full the ex post retail surplus when purchasing a flight ticket. An airport sets landing fees, and, in addition, also chooses the retail market structure by selecting the number of retail concessions to be awarded. We find that, with perfectly myopic consumers, the airport chooses to attract more passengers via low landing fees, and also sets the minimum possible number of retailers in order to increase the concessions’ revenues, from which it obtains the largest share of profits. However, even a very small amount of anticipation of the consumer surplus from retail activities changes significantly the airport’s choices: the optimal airport policy is dependent on the degree of differentiation in the retail market. When consumers instead have perfect foresight, the airport establishes a very competitive retail market, where consumers enjoy a large surplus. This attracts passengers and it is exploited by the airport by charging higher landing fees, which then constitute the largest share of its profits. Overall, the airport’s profits are maximal when consumers have perfect foresight. Keywords: two-sided markets, platform pricing, one-way demand complementarity, consumer foresight. JEL classification: L1, L2, L93.
    Keywords: Organització industrial, Aviació comercial, Aeroports, Comerç al detall, Consumidors, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2014
  11. By: Harrington, Joseph E.; Hüschelrath, Kai; Laitenberger, Ulrich; Smuda, Florian
    Abstract: We hypothesize a particular source of cartel instability and explore its relevance to understanding cartel dynamics. The cartel instability is rooted in the observation that, upon cartel formation, the relative positions of firms are often fixed which may lead some growthconscious members to be discontent. This incongruity between a cartel member's allocated market share and its desired market share may result in systematic deviations and the eventual collapse of the cartel. This hypothesis is then taken to the German cement cartel of 1991-2002. We argue that Readymix was such a discontent cartel member and, using a rich pricing data set, are able to characterize how Readymix deviated, how other firms responded, and how it led to the collapse of the cartel.
    Keywords: collusion,cartel,antitrust enforcement,cement
    JEL: L41 K21
    Date: 2014
  12. By: Sesmero, Juan; Balagtas, Joseph Valdes; Pratt, Michelle
    Abstract: This paper develops a model of spatial competition nesting the classical Zhang and Sexton (2001) duopsony and spatial monopsony in order to evaluate the effects of alternative stover market structures on stover prices, supply of biofuels, and firm profits. We show theoretically, as well as in an empirical implementation calibrated to reflect supply conditions in Indiana, that spatial competition may significantly increase feedstock cost, reduce profits of biofuels plants, and decrease a plant’s optimal scale of production and supply elasticity.
    Keywords: biofuels, spatial competition, corn stover, Nash equilibrium, Industrial Organization, Production Economics, Resource /Energy Economics and Policy,
    Date: 2014
  13. By: Klein, Gordon J.; Wendel, Julia
    Abstract: For more than a decade the unbundling of telecommunications networks has been used as a regulatory means to stifle competition. However, despite its assumed positive effects on market entry and competition intensity, the negative effects on network investment incentives are widely shown in the theoretical literature. Therefore broadband penetration might also be affected negatively. In our paper we concentrate on the impact of local loop unbundling and Bitstream access on broadband penetration. Using a panel of European countries for a time period of 17 years, we find that the effect of unbundling on penetration is positive when an intermediate level of broadband penetration has been achieved in a country. However, this impact turns negative if the initial level of broadband penetration is rather low or high. We argue that this confirms possible negative effects on investment incentives, but may successfully lower prices to foster demand. These are two findings which should be carefully considered by policy makers when deciding on unbundling policies.
    Keywords: Broadband Internet Penetration,Local Loop Unbundling,Bitstream Access,Policy Evaluation,Panel Data Analysis
    Date: 2014
  14. By: Gonçalves, Vânia; Evens, Tom; Alves, Artur Pimenta; Ballon, Pieter
    Abstract: In the emerging market of online video services, new media entrants and traditional gatekeepers are making efforts to reinvent the dominant modes of video supply and consumption while fighting for market power and customer lock-in. This article studies, through a number of U.S. and European online video services, two different groups of strategies employed by stakeholders to control their gatekeeper position and build up or maintain market power. It is suggested that traditional media gatekeepers typically engage in strategic alliances and mergers and acquisitions to establish new services and build a stronger power and bargaining position towards upstream and downstream players. In addition, copyright and IPR disputes are also being used to deter online content aggregators, which depend on content producers and broadcasters' resources. Finally, online content aggregators are building strategic alliances with CE vendors in order to quickly enter a new distribution outlet, benefit from network externalities and build market position.
    Keywords: Online video,online television,VOD,TV Everywhere,business model,power,alliances,mergers and acquisitions
    Date: 2014
  15. By: Briglauer, Wolfgang
    Abstract: Fibre-deployment of next-generation communications networks is currently a major challenge for investing firms as well as for national regulators and is also subject to hot debates at EU level. This work examines the role of regulatory policies and competition controlling for relevant supply and demand side factors. Our econometric model employs dynamic panel data methods that take into account potential endogeneity due to omitted heterogeneity, reverse causality and the dynamic investment specification. Our results indicate that relevant forms of previous broadband access regulations have had a negative impact on investment in new infrastructure. Furthermore, infrastructure-based competition from mobile operators and the replacement effect stemming from the incumbents' existing infrastructure exert a negative impact on ex ante investment incentives. As regards the dynamics of the adjustment process, we find that there are both short-term and long-term effects towards the desired infrastructure level.
    Keywords: next-generation communications networks,sector-specific regulation,infrastructure competition,investment conditions,adjustment process,EU27 panel data
    JEL: H5 L38 L43 L52
    Date: 2014
  16. By: Knieps, Günter; Stocker, Volker
    Abstract: Within a Generalized DiffServ architecture entrepreneurial flexibility for build-ing intelligent multipurpose traffic architectures enables the provision of a varie-ty of tailored traffic services for a wide range of heterogeneous application ser-vices. In order to solve the entrepreneurial traffic capacity allocation problem, we propose an incentive compatible pricing and quality of service (QoS) differ-entiation model for the Generalized DiffServ architecture resulting in market driven network neutrality. Optimal allocation decisions based on the opportunity costs of capacity usage require that all relevant traffic classes are taken into ac-count simultaneously, rather than 1) excluding traffic classes (by means of min-imum traffic quality requirements), 2) prescribing a maximum or minimum number of traffic classes or 3) arbitrarily including parameter specifications for or levels of QoS which are not reflected by demand side. It is particularly im-portant that the opportunity costs of capacity reservations for deterministic pre-mium traffic classes are interrelated with subsequent non-deterministic traffic classes. As a consequence, every form of market split would be artificial.
    Date: 2014
  17. By: Bourna, Maria; Mitomo, Hitoshi
    Abstract: This paper investigates how spectrum policy affects the diffusion of innovation in the telecommunications sector, and is part of a general discussion on expanding spectrum policy aims to address sector innovativeness. We argue that innovation can be analytically depicted not only as the appearance of new technology, but also as physical network expansion of said technology, and adoption by end users. This definition is used in contrast with previous work on spectrum policy and innovation, which tends to use R&D or infrastructure investment as proxies for innovation, resulting in a more limited understanding of the innovation process. The study surveys the telecommunications industry in Japan over a period of 13 years (2001-2013), and discusses the effect of spectrum allocations and other regulatory acts on the expansion of the 3G mobile network. We found that spectrum policies excluding allocations had a negative effect on the expansion of the physical network, while the growth of said network correlated strongly with 3G penetration. This may suggest that the effect that spectrum policy has on innovation is most likely mediated by the role of competition in the infrastructure layer and is more pronounced in the contraction stage of the innovation life cycle. These results provide a preliminary basis for gaining a better understanding of the ways in which the policy environment relates to the evolutionary processes behind innovation.
    Keywords: Radio spectrum,Innovation,Japan,Telecommunications
    Date: 2014
  18. By: Bonanno, Alessandro; Costanigro, Marco; Bimbo, Francesco; Oude Lansink, Alfons; VIscecchia, Rosaria
    Abstract: Food manufacturers use health claims to signal higher product quality and attract health oriented consumers. However, consumers’ willingness to pay for health-related attributes may not be large enough to repay firms of the high costs associated with developing, certifying, and marketing such products. We investigate the impact of several health-related credence attributes on product’s price, and what may help manufacturers to reach consumers with the highest willingness to pay for yogurt. To achieve our goals we use a large database of yogurt sales in Italy and two empirical approaches recently introduced in the hedonic price literature: Quantile Regression (QR) and Stochastic Frontier Analysis (SFA). Results show that the implicit prices of health claims differ across price levels (i.e. quantiles), and that manufacturers differ in their ability to target consumers with high willingness to pay.
    Keywords: Hedonic price, Price Dispersion, Incomplete Information, Quantile Regression, Stochastic Frontier, Agribusiness, Demand and Price Analysis, Marketing, Q11, Q13, I12,
    Date: 2014
  19. By: Kim, Jong-Jin; Zheng, Xiaoyong
    Abstract: We propose a stylized model that elucidates the two channels through which alternative marketing arrangements (AMAs) can affect the spot market price in livestock markets. The direct effect of AMAs on spot market price works through their effect on demand and supply conditions in the spot market. This effect has been widely studied in the literature. The indirect effect works through their effect on spot market price volatility. This effect has been ignored in the literature. We then estimate a dynamic (time series) model with data from the U.S. hog market to test our model implications and quantify the two effects. We find increases in the use of AMAs increase spot market price volatility and decrease spot market price level. The short-run effects are small but the long-run effects are nontrivial.
    Keywords: Alternative Marketing Arrangements, Hog, Industrial Organization, Livestock Production/Industries, Q13, L66,
    Date: 2014
  20. By: Wang, Zhongmin (Resources for the Future); Xue, Qing
    Abstract: This paper provides the first empirical study of the market structure of the shale gas drilling industry in the United States. Modern shale gas drilling, which is a major revolution in the energy industry, was highly concentrated during its experimental stage, roughly from the early 1980s to the early 2000s, and has since become less concentrated, exhibiting a long tail of infrequent drillers. Nevertheless, even during the latter stage, the vast majority of shale gas wells have been drilled by a limited number of large independent oil and gas producers.
    Keywords: shale gas, market structure, concentration, entry
    JEL: L11 L71 Q4
    Date: 2014–09–12
  21. By: Sandro Shelegia; Joshua Sherman
    Abstract: Although (or because) it is uncommon to observe consumers bargaining at retail stores in the Western world, the circumstances under which retail rms are actually willing to bargain is largely unknown. We construct a theoretical model in order to better understand how price and rm characteristics in uence a rm's incentives to bargain and test the model's predictions by conducting a eld experiment at nearly 300 stores throughout Vienna, Austria. In particular, we analyze the extent to which retail rms throughout Vienna consent to granting a discount when asked. A discount was granted approximately 40% of the time, and the average positive discount was approximately 10% o of a product's posted price. We relate rms' willingness to bargain to price and rm characteristics, in line with our theory.
    JEL: L81 D12 C78 C93
    Date: 2014–11
  22. By: David Encaoua (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: Book's Review:Louis Kaplow, Competition Policy and Price Fixing, Princeton University Press, Princeton and Oxford, 2013
    Keywords: collusive behavior: economic and legal approaches
    Date: 2014–04

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