nep-com New Economics Papers
on Industrial Competition
Issue of 2014‒12‒24
29 papers chosen by
Russell Pittman
United States Department of Justice

  1. Shrouded Transaction Costs By Bourguignon, Hélène; Gomes, Renato; Tirole, Jean
  2. Staggered Contracts, Market Power, and Welfare By Cabral, Luís M B
  3. Shrinking Goods By Levy, Daniel; Snir, Avichai
  4. On firm choice between online and physical markets By Yijuan Chen; Xiangting Hu; Sanxi Li
  5. Welfare Analysis of Dynamic Voluntary Advertising in Covered Markets By Tenryu, Yohei; Kamei, Keita
  6. Industry structure and pricing over the business cycle By Spiegel, Yossi; Stahl, Konrad
  7. Horizontal mergers in the presence of vertical relationships By Ghosh, Arghya; Morita, Hodaka; Wang, Chengsi
  8. Distressed Acquisitions By Meier, Jean-Marie A.; Servaes, Henri
  9. Market potential, start-up size and the survival of new firms By Klaesson, Johan; Klaesson, Charlie
  10. Public regulatory intervention in consumer-friendly firms By Vitor Miguel Ribeiro
  11. Long-term regulatory orientation and the ideal timing of quality investment By Vitor Miguel Ribeiro
  12. Endogenous cartel formation: Experimental evidence By Fonseca, Miguel A.; Normann, Hans-Theo
  13. Direct and cross-scheme effects in a research and development subsidy program By Hottenrott, Hanna; Lopes-Bento, Cindy; Veugelers, Reinhilde
  14. Radical or incremental: Where does R&D policy hit? By Beck, Mathias; Lopes-Bento, Cindy; Schenker-Wicki, Andrea
  15. A Survey of the Economics of Patent Systems and Procedures By Eckert, Andrew; Langinier, Corinne
  16. Business Associations, Lobbying, and Endogenous Institutions By Larrain Aylwin, M.J.; Prüfer, J.O.
  17. Competition and third party access in railroads By Knieps, Günter
  18. Does European high-speed rail affect the current level of air services? An EU-wide analysis By Frédéric Dobruszkes; Catherine Dehon; Moshe Givoni
  19. Road pricing: An overview By M. Rouhani, Omid
  20. Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies By Klaus Gugler; Mario Liebensteiner; Stephan Schmitt
  21. Provider competition and over-utilization in health care By Boone, Jan; Douven, Rudy
  22. The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti-diabetics By Duso, T.;; Herr, A.;; Suppliet, M
  23. Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector By Kifmann, Mathias; Siciliani, Luigi
  24. Prescribing Behavior of General Practitioners : Competition Matters! By Schaumans, C.B.C.
  25. A Quantitative Analysis of the Retail Market for Illicit Drugs By Manolis Galenianos; Alessandro Gavazza
  26. Governance mode vs. governance fit? : Performance implications of make-or-ally choices for product innovation in the worldwide aircraft industry, 1942-2000 By Castaner, X.; Mulotte, L.; Garrette, B.; Dussauge, P.
  27. Substitution between Fixed-line and Mobile Access: the Role of Complementarities By Grzybowski, Lukasz; Verboven, Frank
  28. Banking Competition and Stability : The Role of Leverage By Freixas, X.; Ma, K.
  29. Competition in the Cryptocurrency Market By Gandal, Neil; Halaburda, Hanna

  1. By: Bourguignon, Hélène; Gomes, Renato; Tirole, Jean
    Abstract: The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants’ incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that match, and shed light on existing evidence. Finally, it shows that the optimal regulation of surcharging is related to public policy toward merchant fees and substantially differs from current practice.
    Keywords: card surcharges; cash discounts; hold-ups in two-sided markets; missed sales; payment cards
    JEL: D83 L10 L41
    Date: 2014–10
  2. By: Cabral, Luís M B
    Abstract: I show that exclusive, staggered supply contracts can decrease industry competition when there are economies of scale: buyers pay a higher price to the incumbent seller and the expected value received by an entrant seller is lower when contracts are staggered. Moreover, under staggered contracts there may exist equilibria where an inefficient firm forecloses a more efficient one. Given that contracts are staggered, contract length further increases market power; however, increasing contract length may also eliminate the inefficient foreclosure equilibrium. Finally, I show that, allowing firms to choose contract structure endogenously, the resulting equilibrium path features staggered contracts.
    Keywords: dynamic competition; exclusion; staggered contracts
    JEL: L12 L41
    Date: 2014–08
  3. By: Levy, Daniel; Snir, Avichai
    Abstract: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices don't change. We study a situation where producers adjust the quantity per package rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information.
    Keywords: Quantity Adjustment,Cognitive Costs of Attention,Information Processing
    JEL: L11 L15 L16 M21 M31 M37 M38 K20 E31 D21 D22 D40 D83
    Date: 2013–01–22
  4. By: Yijuan Chen; Xiangting Hu; Sanxi Li
    Abstract: Consumers buying goods online often cannot physically inspect the products prior to purchase. Thus an online market may turn what is usually regarded as a search good into an experience good. We investigate how this feature, together with other features of the marketplace, affects a firms choice between online and physical markets. Using a simple yet flexible framework, we show that the choice of a marketplace can be used to disclose or hide product quality. If the production cost is convex with respect to quality, the firm's choice will be characterized by a cutoff quality level, below which the firm will choose the online market, and above which the firm will choose the physical market. However, if the production cost of quality is concave, there are situations where the highest qualities pool with the lowest ones in the online market, leaving the physical market to intermediate qualities.
    JEL: L15 D83
    Date: 2014–08
  5. By: Tenryu, Yohei; Kamei, Keita
    Abstract: In this study, we analyze a dynamic duopoly game in which firms can use advertising and price as competitive tools. The market is assumed to be completely covered in the sense that all consumers purchase a product from one of the two firms. We assume that advertising creates a positive externality. Thus, each firm voluntarily advertises to persuade consumers to buy its products over those of the other firm, even though the firms compete with one another in price. Two cases are considered: an interior case and a corner case. In this situation, we investigate how changes in consumer preference and firm technology level affect advertising, profits, and economic welfare and highlight the differences between the two cases.
    Keywords: Advertising, vertical product differentiation, differential games, duopoly.
    JEL: C72 L13 M37
    Date: 2014–12
  6. By: Spiegel, Yossi; Stahl, Konrad
    Abstract: We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is the first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is the first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.
    Keywords: business cycle; entry; entry deterrence; price competition
    JEL: D43 L41
    Date: 2014–06
  7. By: Ghosh, Arghya; Morita, Hodaka; Wang, Chengsi
    Abstract: We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from cost- inefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.
    Keywords: merger , successive oligopoly , welfare , reallocation , rationalization
    JEL: L13 L41 L42
    Date: 2014
  8. By: Meier, Jean-Marie A.; Servaes, Henri
    Abstract: Firms that buy distressed and bankrupt companies or some of these companies’ assets earn excess returns that are at least 1.6 percentage points higher than when they make regular acquisitions. These returns come at the expense of the target firm’s shareholders, while overall wealth gains are not affected. Returns to acquirers of distressed assets are higher when fewer large firms operate in the target firm’s industry, and when firms in the target’s industry have lower liquidity, and are financially constrained, thus limiting the number of potential buyers. They are lower when the M&A market in the target firm’s industry is more vibrant, when the target’s assets have more alternative uses, and when the economy is doing well. This evidence is consistent with the view that some firms can take advantage of fire sales by distressed and bankrupt companies needing to sell assets while restructuring.
    Keywords: bankruptcy; distress; fire sales; mergers and acquisitions; restructuring
    JEL: G14 G32 G33 G34
    Date: 2014–08
  9. By: Klaesson, Johan (Jönköping International Business School (JIBS) & Centre of Excellence for Science and Innovation Studies (CESIS)); Klaesson, Charlie (Jönköping International Business School (JIBS) & Centre of Excellence for Science and Innovation Studies (CESIS))
    Abstract: Abstract: Many phenomena in the economy are influenced by geography. The size of new firm start-ups vary in many dimensions, among them industry and geography. The purpose of this paper is to explore the determinants of the geographical distribution of the size of new firms. Re¬gional size itself can be expected to influence the size of the new firm. Given that there are fixed costs present in the new firms small and low-density regions will demand a larger size of the new firm. The reason for this is that in small regions the firm may not be able to find customers nearby, but need to sell its produce over some distance. This means that the firm must house capacities to do so and this increases the fixed cost component and hence forces the firm to produce a larger amount of the output. Another possible reason can be found in the availability of producer services. In small regions, the number of producer services is more limited and, hence, force the firms to produce some of these services in-house. Gener¬ally, the overall diversity found in small regions is smaller compared to large re-gions. This means that the variation in goods and services available in the market will be smaller, once again forcing the new firm to do more things within the firm. In addition, it is ex¬pected that there is a relationship between entry rate and the size of the entrants.
    Keywords: Entry; Start-up size; Market Potential; Region; Industry; Sweden
    JEL: C21 L11 M13 R11 R12
    Date: 2014–11–26
  10. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP - Vitor Miguel de Sousa Ribeiro)
    Abstract: We study a duopoly with differentiated and substitutable goods composed of one consumer-friendly firm and one pure-profit maximizing firm. In such a duopoly, a regulatory authority intervenes to control the degree of altruism of the consumer-friendly firm. We conclude that under quantity competition, if firms sell goods that are too homogeneous the policymaker should impose a ceiling on the level of benevolence of the consumer-friendly firm. However, under price competition, the policymaker never imposes a ceiling on the level of kindness of the consumer-friendly firm. Our results also show that, whatever the degree of product differentiation, the social welfare under price competition is always higher than the social welfare under quantity competition, which restores the arguments pointed out by the traditional literature and constitutes a sharp contrast with Nakamura (2013).
    Keywords: Consumer-Friendly Firm, Product Differentiation, Public Intervention
    JEL: D43 L11 L13 R12
    Date: 2014–11
  11. By: Vitor Miguel Ribeiro (Vitor Miguel Ribeiro - FEP - Vitor Miguel de Sousa Ribeiro)
    Abstract: This paper builds on a duopoly with horizontally differentiated firms, where firms simultaneously decide the long-term plan (location) in addition to the short-term issue (price). As in Bárcena-Ruiz and Casado-Izaga (2014), we introduce a third entity in the city by considering the presence of a policymaker that targets the long-run ideology (location) of the regulated sector. While Bárcena-Ruiz and Casado-Izaga (2014) relies on a non-discriminatory setting relatively to firms' quality, here we introduce quality distortion (a high-quality firm versus a low-quality firm). Our aim is to study the relationship between the long-term regulatory guidance provided by a policymaker and the ideal timing of the quality investment conducted by the high-quality firm. We find that it is irrelevant to the firm invest before or after the long-term decision of the policymaker. In this sense, we show that the long-term strategic guideline conducted by a regulatory authority is not the motivating source of firms' improvement-quality investments. Finally, we conclude that the presence of an asymmetric quality environment between firms leads to a movement to the right on firms' location, creates an ambiguous (an enhancing) effect on the equilibrium profit of the low-quality (high-quality) firm and generates a reduction of the equilibrium consumer surplus and equilibrium social welfare as well, relatively to a situation where no quality discrimination exists.
    Keywords: Spatial competition, Long-run decision, Policymaker location, Quality asymmetry, Price competition.
    JEL: D43 L13 L50 R12
    Date: 2014–12
  12. By: Fonseca, Miguel A.; Normann, Hans-Theo
    Abstract: In a Bertrand-oligopoly experiment, firms choose whether or not to engage in cartel-like communication and, if so, they may get fined by a cartel authority. We find that four-firm industries form cartels more often than duopolies because they gain less from a hysteresis effect after cartel disruption.
    Keywords: cartels,collusion,communication,experiments,repeated games
    JEL: C7 C9 L41
    Date: 2014
  13. By: Hottenrott, Hanna; Lopes-Bento, Cindy; Veugelers, Reinhilde
    Abstract: This study investigates the effects of an R&D subsidy scheme on participating firms' net R&D investment. Making use of a specific policy design in Belgium that explicitly distinguishes between research and development grants, we estimate direct and cross-scheme effects on research versus development intensities in recipients firms. We find positive direct effects from research (development) subsidies on net research (development) spending. This direct effect is larger for research grants than for development grants. We also find cross-scheme effects that may arise due to complementarity between research and development activities. Finally, we find that the magnitude of the treatment effects depends on firm size and age and that there is a minimum effective grant size, especially for research projects. The results support the view that public subsidies induce higher additional investment particularly in research where market failures are larger, even when the subsidies are targeting development.
    Keywords: R&D,Complementarity,Research Subsidies,Development Subsidies,Innovation Policy
    JEL: H23 O31 O38
    Date: 2014
  14. By: Beck, Mathias; Lopes-Bento, Cindy; Schenker-Wicki, Andrea
    Abstract: This study investigates the efficacy of public R&D support. Compared to most existing studies, we do not stop at substitution effects or general innovation outcome measures, but we are interested in knowing where the policy effect is highest: on innovation close to the market (i.e. incremental innovation) or on innovation that is still far from the market and hence more risky and radical. Using firm level data from the period 1999 to 2011, we find that the policy hits where the market failure is highest, that is, for radical innovation. Taking into account that the Swiss funding agency encourages collaboration, we find no evidence that the impact of the policy is positively effected by various R&D collaboration patterns.
    Keywords: R&D subsidies,collaborative innovation,diversity,innovation performance,radical innovation,incremental innovation,policy evaluation,treatment effects
    JEL: C14 C30 H23 O31 O38
    Date: 2014
  15. By: Eckert, Andrew (University of Alberta, Department of Economics); Langinier, Corinne (University of Alberta, Department of Economics)
    Abstract: The last several decades have seen increases in patenting activity worldwide, as well as growing issues related to patent quality. In response to these quality issues a recent patent literature has emerged, that investigates the behavior and incentives of patent examiners, applicants, and third parties. In this paper, we provide an overview of patent procedures, patent systems and a survey of the new economic literature on patent systems. Both theoretical and empirical papers are considered. Policy implications coming from this literature are presented.
    Keywords: patents; patent examination; patent systems; innovation; incentives
    JEL: K40 O31
    Date: 2014–09–01
  16. By: Larrain Aylwin, M.J. (Tilburg University, Center For Economic Research); Prüfer, J.O. (Tilburg University, Center For Economic Research)
    Abstract: Are business associations - private, formal, nonprofit organizations designed to promote the common interests of their members - positive or negative for the economy and overall welfare? Scholars from institutional and organizational economics, on the one side, and from industrial organization, law & economics, and public choice, on the other side, have given different answers to this question, which is instrumental for policy making. We construct a model that endogenizes association membership of firms and the main functions of associations, which can have positive or negative spillovers on the economy. We derive predictions regarding associations’ functions and their net welfare effects, depending on the level of property rights securitization, which are in line with empirical observations.
    Keywords: Business Associations; Trade associations; Professional organizations; Guilds; Lobbying; Private Ordering; Endogenous institutions; Quality of Legal Institutions
    JEL: D02 D62 D72 L44
    Date: 2014
  17. By: Knieps, Günter
    Abstract: This chapter is organized as follows: In section 2 the historical roots of third party access regulation are characterized. This includes the Prussian railway law of 1838 and the terminal railroad case of 1912. In section 3 a normative frame-work, based on modern network economics, for the evaluation of third party access policies is provided. In section 4, the gradual process of market opening for railway transport services and the evolution of third party access regulation in Europe are characterized. In this context the potentials for competition on the markets for passenger rail services and public subsidies are also considered.
    Date: 2014
  18. By: Frédéric Dobruszkes; Catherine Dehon; Moshe Givoni
    Abstract: This paper analyses whether the current provision of air services in Europe is impacted by high-speed rail (HSR). An ex-post analysis is carried out considering 161 routes EU-wide using transnational data. We use censored regressions with special attention paid to the presence of outliers in the sample and to the potential problem of non-normality of error terms. It is found that shorter HSR travel times involve less air services, with similar impact on both airline seats and flights. This impact quickly drops between 2.0- and 2.5-h HSR travel time. The impact of HSR frequencies is much more limited. Hubbing strategies led by the airlines have the opposite effect from HSR, as hubs involve more air services. Airline/ HSR integration at the airport and cities being served by both central and peripheral stations have no significant impact. Metropolitan and national spatial patterns may help to better understand intermodal effects.
    Date: 2014
  19. By: M. Rouhani, Omid
    Abstract: This paper offers a general overview of the road pricing concept. It first examines the common objectives used in road pricing, namely (a) congestion reduction; (b) raising profits; (c) social welfare maximization; etc. Then, it explores various types of road pricing, including two major ones: (1) road tolls and (2) congestion pricing charges. Next, general modeling approaches used for estimating the impacts of road pricing are discussed. Finally, the paper concludes with a checklist explaining how to promote a successful road pricing scheme.
    Keywords: road pricing, congestion pricing, congestion reduction, profit maximization, road tolls.
    JEL: L91 R4 R41 R48
    Date: 2014–11–03
  20. By: Klaus Gugler (Department of Economics, Vienna University of Economics and Business); Mario Liebensteiner (Research Institute for Regulatory Economics, Vienna University of Economics and Business); Stephan Schmitt (WIK Consult and Research Institute for Regulatory Economics, Vienna University of Economics and Business)
    Abstract: The EU has been promoting unbundling of the transmission grid from other stages of the electricity supply chain with the aim of fostering competition in the upstream stage of electricity generation. At presence, ownership unbundling is the predominant form of unbundling in Europe. However, the benefits of increased competition from ownership unbundling of the transmission grid may come at the cost of lost vertical synergies between the formerly integrated stages of electricity supply. The policy debate generally neglects such potential costs of unbundling, yet concentrates on its benefits. Therefore European cross-country evidence may shed some light on this issue. This study helps fill this void by empirically estimating the magnitude of economies of vertical integration (EVI) between electricity generation and transmission based on a quadratic cost function. For this purpose we employ novel firm-level panel data of major European electricity utilities. Our results confirm the presence of substantial EVI, which put the policy measure of transmission ownership unbundling into question.
    Keywords: Cost function, Economies of Scope, Ownership Unbundling, Vertical Integration
    JEL: L22 L25 L51 Q48
    Date: 2014–11
  21. By: Boone, Jan; Douven, Rudy
    Abstract: This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We argue that each of these can be optimal depending on the contracting environment of a speciality. In particular, CfM is optimal in a clinical situation where the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer's and patients' preferences are aligned.
    Keywords: competition; health care; mechanism design; over-utilization; selective contracting
    JEL: D82 I11 L5
    Date: 2014–09
  22. By: Duso, T.;; Herr, A.;; Suppliet, M
    Abstract: We investigate the welfare impact of parallel imports using a large panel data set containing monthly information on sales, ex-factory prices, and further product characteristics for all 700 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand and, based on an oligopolistic model of multiproduct firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports’ policy by calculating a counter-factual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11% and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by e19 million per year (or e130 million in total) which is relatively small compared to the average annual market size of around e227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by e18 million (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers.
    Keywords: parallel imports; pharmaceuticals; structural models; anti-diabetic drugs;
    JEL: I11 I18 L13 L51
    Date: 2014–04
  23. By: Kifmann, Mathias; Siciliani, Luigi
    Abstract: This study investigates hospitals’ dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients’ severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.
    Keywords: DRGs; hospitals; selection; severity
    JEL: I11 I18 L13 L44
    Date: 2014–09
  24. By: Schaumans, C.B.C. (Tilburg University, Center For Economic Research)
    Abstract: Background: General Practitioners have limited means to compete. As quality is hard to observe by patients, GPs have incentives to signal quality by using instruments patients perceive as quality. Objectives: We investigate whether GPs exhibit different prescribing behavior (volume and value of prescriptions) when confronted with more competition. As there is no monetary benefit in doing so, this type of (perceived) quality competition originates from GPs satisfying patients’ expectations. Method: We look at market level data on per capita and per contact number of items prescribed by GPs and the value of prescriptions for the Belgian market of General Practitioners. We test to which extent different types of variables explain the observed variation. We consider patient characteristics, GP characteristics, number and type of GP contacts and the level of competition. The level of competition is measured by GP density, after controlling for the number of GPs and a HHI. Results: We find that a higher number of GPs per capita results in a higher number of units prescribed by GPs, both per capita and per contact. We argue that this is consistent with quality competition in the GP market. Our findings reject alternative explanations of GP scarcity, availability effect in GP care consumption and GP dispersing prescription in time due to competition.
    Keywords: Competition; General Practitioners; Prescription; Drugs; Quality
    JEL: D22 I10 I11 L11 L15
    Date: 2014
  25. By: Manolis Galenianos; Alessandro Gavazza
    Abstract: We develop a theoretical framework to study illicit drugs markets and we estimate it using data on purchases of crack cocaine. Buyers are searching for high-quality drugs, but they determine drugs' quality (i.e., their purity) only after consuming them. Hence, sellers can rip off first-time buyers or can offer higher-quality drugs to induce buyers to purchase from them again. In equilibrium, a distribution of qualities persists. The estimated model implies that sellers' moral hazard reduces the average and increases the dispersion of drug purity. Moreover, increasing penalties may increase the purity and affordability of the drugs traded because doing so increases sellers' relative profitability of targeting loyal buyers versus first-time buyers.
    Date: 2014–12
  26. By: Castaner, X.; Mulotte, L. (Tilburg University, School of Economics and Management); Garrette, B.; Dussauge, P.
    Abstract: We examine the impact of governance mode and governance fit on performance in make-or-ally decisions. We argue that while horizontal collaboration and autonomous governance have direct and countervailing performance implications, the alignment of make-or-ally choices with the focal firm's resource endowment and the activity's resource requirements leads to better performance. Data on the aircraft industry show that relative to aircraft developed autonomously, collaborative aircraft exhibit greater sales but require longer time-to-market. However, governance fit increases unit sales and reduces time-to-market. We contribute to the alliance and economic organization literatures.
    Date: 2014
  27. By: Grzybowski, Lukasz; Verboven, Frank
    Abstract: We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process.We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.
    Keywords: broadband access; fixed-to-mobile substitution; incumbency advantage
    JEL: L13 L43 L96
    Date: 2014–06
  28. By: Freixas, X.; Ma, K. (Tilburg University, Center For Economic Research)
    Abstract: This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. By means of a simple model we show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on banks’ liability structure, on whether banks are financed by insured retail deposits or by uninsured wholesale debts, and on whether the indebtness is exogenous or endogenous. In particular we suggest that, while in a classical originate-to-hold banking industry competition might increase financial stability, the opposite can be true for an originate-to-distribute banking industry of a larger fraction of market short-term funding. This leads us to revisit the existing empirical literature using a more precise classification of risk. Our theoretical model therefore helps to clarify a number of apparently contradictory empirical results and proposes new ways to analyze the impact of banking competition on financial stability.
    Keywords: Banking Competition; Financial Stability; Leverage
    JEL: G21 G28
    Date: 2014
  29. By: Gandal, Neil; Halaburda, Hanna
    Abstract: We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with "winner-take-all" dynamics.
    Keywords: Bitcoin; cryptocurrency; network effects
    JEL: L17 L86
    Date: 2014–09

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