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on Industrial Competition |
| By: | Müller, Stephan; Götz, Georg |
| Abstract: | In this paper, we study the rational for an incumbent to launch a second brand when facing potential entry in a market with quality differentiated products and a fringe producer. Depending on market size, costs for a second brand and a potential entrant's setup cost the incumbent might use a second brand both when deterring and when accommodating entry. The analysis generates predictions about the equilibrium degree of product differentiation, the presence of a multiproduct incumbent, and the determinants of successful entry. |
| Keywords: | multiproduct firms,quality competition,vertical product differentiation,entry accommodation,entry deterrence |
| JEL: | L13 D43 M31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:223&r=com |
| By: | Brekke, Kurt Richard; Siciliani, Luigi; Straume, Odd Rune |
| Abstract: | Using a spatial competition framework with three ex ante identical firms, we study the effects of a horizontal merger on quality, price and welfare. The merging firms always reduce quality. They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger leads to higher average prices and quality in the market. The welfare implications of a merger are not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit from the merger and social welfare might also increase. |
| Keywords: | horizontal mergers; quality; spatial competition |
| JEL: | L13 L15 L41 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10156&r=com |
| By: | Hinnerk Gnutzmann (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | Price discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare eects { even though prices and industry prots fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric rms yielded sharply dierent results, the pro{competitive eect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare. |
| Keywords: | History{based price discrimination, asymmetric price discrimination, switching cost |
| JEL: | L13 L41 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def19&r=com |
| By: | Yijuan Chen; Xiangting Hu; Sanxi Li |
| Abstract: | We study a model where an entrant chooses between online and offline markets to compete with an offline-market incumbent. When consumers buy a product from the online market, they cannot inspect the product's quality prior to purchase. Conventional wisdom and some literature suggest that this feature drives low-quality products to hide themselves in the online market. However, the literature on vertical product differentiation indicates that a firm may prefer to reveal its product quality in the offline market, because quality differentiation helps alleviate price competition. We show that under fairly general conditions the entrant will choose the offline market for not only the highest qualities but also the lowest ones, and choose the online market for intermediate qualities. While the average quality of the online good is lower than the incumbent's quality, the actual quality of the online good may be higher than that. |
| JEL: | L13 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2014-620&r=com |
| By: | Aoki, Reiko; Hillas, John; Kao, Tina |
| Abstract: | We use a spokes model to analyze ?ms?customization incentives when facing the choices of standard and niche products. Products at or near the end of the spokes are customized products, while products near the origin are more standardized products that cater to the taste of many consumers. Our results indicate that although monopolist always offers the standard product, if a ?m anticipates entry, it may choose to stake claim to a customized product. For low transportation costs, the early entrant chooses the standard product. But this equilibrium is characterized by aggressive pricing behavior. |
| Keywords: | product differentiation, product customization, entry, spatial oligopoly |
| JEL: | L11 L13 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2014-8&r=com |
| By: | Paciello, Luigi; Pozzi, Andrea; Trachter, Nicholas |
| Abstract: | We study a model of firm price setting with customer markets and empirically evaluate its predictions. Our framework captures the dynamics of customers in response to a change in the price set by firms, describes the behavior of optimal prices in the presence of customer retention concerns, and delivers a general equilibrium model of price and customer dynamics. We exploit micro data on purchases from a large U.S. retailer by a panel of households to quantify the model and compare it to the counterfactual benchmark of the monopolistic competition setting. We show that our model with customer markets has markedly dierent implications in terms of the equilibrium price distribution, and better fits the available empirical evidence on retail prices. Moreover, the dynamic of the response of demand to policy relevant shocks is also distinctive. Our results suggest that inertia in customer reallocation across firms increases the persistence in the response of firms' demand to these shocks. |
| Keywords: | customer markets; price setting; product market frictions |
| JEL: | E12 E30 L16 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10220&r=com |
| By: | Abbring, J.H. (Tilburg University, Center For Economic Research); Campbell, J.R.; Tilly, J.; Yang, N. (Tilburg University, Center For Economic Research) |
| Abstract: | Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level data on demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the xed points of low-dimensional contraction mappings. We characterize the model's identi cation and extend Rust's (1987) nested xed point estimator to account for the observable implications of mixed strategies on survival. We illustrate the model's application with ten years of County Business Patterns data from Motion Picture Theaters in 573 Micropolitan Statistical Areas. |
| Keywords: | demand uncertainty; dynamic oligopoly; rm entry and exit; Markov-perfect equilibrium; nested xed point estimator; sunk costs; toughness of competition |
| JEL: | L13 C25 C73 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:e3ea59c9-f4d4-4ab6-b349-505fcba3aaa2&r=com |
| By: | Koebel, Bertrand; François, Laisney |
| Abstract: | This paper studies the aggregate substitution and expansion effects triggered by changes in input prices in a context where firms supply a homogeneous commodity and compete in quantities à la Cournot. We derive a sufficient condition for the existence of a Cournot equilibrium and show that this condition also ensures that the Le Chatelier-Samuelson principle is satisfied in the aggregate at the Cournot equilibrium, although it may not be satisfied at the firm level. |
| Keywords: | Aggregation, returns to scale, market power, markup, own-price elasticity. |
| JEL: | D21 D43 |
| Date: | 2014–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:60476&r=com |
| 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: | L1 L4 L5 |
| Date: | 2014–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:60275&r=com |
| By: | Drugov, Mikhail |
| Abstract: | This paper studies a dynamic bargaining model with informational externalities between bargaining pairs. Two principals bargain with their respective agents about the price they will pay for their work while its cost is agents' private information and correlated between them. The principals benchmark their agents against each other by making the same offers in the equilibrium even if this involves delaying or advancing the agreement compared to the autarky. When principals compete in complements this pattern is reinforced while under competition in substitutes the principals trade off the benefits of differentiation in the product market against the cost of the agents' rent. |
| Keywords: | adverse selection; bargaining; competition; delay; externalities; information |
| JEL: | C78 D82 D83 L10 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10021&r=com |
| By: | Codognato, Giulio; Ghosal, Sayantan; Tonin, Simone |
| Abstract: | In a bilateral oligopoly, with large traders, represented as atoms, and small traders, represented by an atomless part, when is there a non-empty intersection between the sets of Walras and Cournot-Nash allocations? Using a two commodity version of the Shapley window model, we show that a necessary and sufficient condition for a Cournot- Nash allocation to be a Walras allocation is that all atoms demand a null amount of one of the two commodities. We provide two examples which show that this characterization holds non-vacuously. When our condition fails to hold, we also confirm, through some examples, the result obtained by Okuno, Postlewaite, and Roberts (1980): small traders always have a negligible influence on prices, while the large traders keep their strategic power even when their behavior turns out to be Walrasian in the cooperative framework considered by Gabszewicz and Mertens (1971) and Shitovitz (1973). |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:580&r=com |
| By: | Klein, Tobias J.; Lambertz, Christian; Stahl, Konrad |
| Abstract: | We study how seller exit and continuing sellers’ behavior on eBay are affected by an improvement in market transparency. The improvement was achieved by reducing strategic bias in buyer ratings. It led to a significant increase in buyer satisfaction with seller performance, but not to an increase in seller exit. When sellers had the choice between exiting—a reduction in adverse selection—and improving behavior—a reduction in moral hazard—, they preferred the latter because of lower cost. Increasing market transparency improved market outcomes. |
| Keywords: | Anonymous markets , adverse selection , moral hazard , reputation mechanisms , market transparency , market design |
| JEL: | D83 L15 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mnh:wpaper:37275&r=com |
| By: | Muller, Daniel; Schmitz, Patrick W |
| Abstract: | The standard property rights approach is focused on ex ante investment incentives, while there are no transaction costs that might restrain ex post negotiations. We explore the implications of such transaction costs. Prominent conclusions of the property rights theory may be overturned: A party may have stronger investment incentives when a non-investing party is the owner, and joint ownership can be the uniquely optimal ownership structure. Intuitively, an ownership structure that is unattractive in the standard model may now be desirable, because it implies large gains from trade, such that the parties are more inclined to incur the transaction costs. |
| Keywords: | incomplete contracts; joint ownership; property rights approach; transaction costs; vertical integration |
| JEL: | D23 D86 L24 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10207&r=com |
| By: | Fernandes, Ana; Ferreira, Priscila; Winters, L. Alan |
| Abstract: | This paper studies the effect of competition on executive compensation. We estimate the effect of increased product market competition on the performance-pay sensitivity of CEOs, and contrast it with the effect for department managers and other workers in the corporation. We use a recent reform that simplified firm entry regulation in Portugal as a quasi-natural experiment. The empirical strategy exploits the staggered implementation of the reform across municipalities. Using linked employer-employee data for the universe of workers and firms, we show that increased product market competition, following the reform, decreased the sensitivity of pay to performance of CEOs, with no significant effects found for other managers or workers. These findings are consistent with existing theoretical results in a principal-agent framework that a fall in entry costs leads to weaker managerial incentives. |
| Keywords: | entry deregulation; executive compensation; performance-related pay; product market competition |
| JEL: | J31 J33 M52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10054&r=com |
| By: | Herweg, Fabian; Schmidt, Klaus M. |
| Abstract: | For the procurement of complex goods the early exchange of information is important to avoid costly renegotiation ex post. We show that this is achieved by bilateral negotiations but not by auctions. Negotiations strictly outperforms auctions if sellers are likely to have superior information about possible design improvements, if renegotiation is costly, and if the buyer's bargaining position is sufficiently strong. Moreover, we show that negotiations provide stronger incentives for sellers to investigate possible design improvements than auctions. This provides an explanation for the widespread use of negotiations as a procurement mechanism in private industry. |
| Keywords: | Auctions; Negotiations; Procurement; Renegotiation; Adaptation Costs; Loss Aversion; Behavioral Contract Theory. |
| JEL: | D03 D82 D83 H57 |
| Date: | 2014–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:484&r=com |
| By: | Matthias Kräkel and Daniel Müller |
| Abstract: | We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies—even when targets with high synergies are available—to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. |
| Keywords: | acquisition; merger; moral hazard |
| JEL: | D82 D86 G34 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse02_2014&r=com |
| By: | Joseph E. Harrington, Jr. (Department of Business Economics & Public Policy, The Wharton School, University of Pennsyslvania); Yanhao Wei (Department of Economics, University of Pennsylvania) |
| Abstract: | There are many data sets based on the population of discovered cartels and it is from this data that average cartel duration and the annual probability of cartel death are estimated. It is recognized, however, that these estimates could be biased because the population of discovered cartels may not be a representative sample of the population of cartels. This paper constructs a simple birth-death-discovery process to theoretically investigate what it is we can learn about cartels from data on discovered cartels. |
| Keywords: | Cartel detection, Collusion, Antitrust |
| JEL: | L1 L4 |
| Date: | 2014–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-042&r=com |
| By: | Johannes Paha (University of Giessen) |
| Abstract: | This article provides a model of two risk-neutral firms that may cooperate to achieve a goal that is potentially illegal. The model assumes enforcement risk and firms that are imperfectly informed about antitrust law enforcement. It is shown that compliance training, which educates the agents about law enforcement, may prevent hardcore cartels. Compliance training programs may also promote forms of cooperation that are beneficial for customers. The article shows that a competition authority can sometimes spur the implementation of compliance programs by imposing lower sanctions on wrongdoers. |
| JEL: | K21 K42 L41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201460&r=com |
| By: | Damien Neven (IHEID, The Graduate Institute of International and Development Studies, Geneva); Vilen Lipatov; Gregor Langus |
| Keywords: | competition policy |
| JEL: | K21 K40 L40 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2014&r=com |
| By: | Behringer, S.; Filistrucchi, L. (Tilburg University, Center For Economic Research) |
| Abstract: | Areeda and Turner (1975) were the first to argue that a price below marginal costs should be considered a sign of predation. Recognizing that marginal cost data were typically unavailable, the authors concluded that a price below average variable cost should be presumed unlawful. This socalled Areeda-Turner Rule has become the standard to assess claims of predation. We first show that in two-sided markets price cost margins on the two-sides of the market are interrelated and that a monopolist, even in the absence of actual or potential competition, may find it optimal to charge a price below marginal cost on one side of the market. As a result, showing that the price is below average variable cost on one side of the market cannot be considered a sign of predation in such markets. This is in contrast to a recent decision of the Commercial Court of Paris that sanctioned Google for giving away for free its online mapping services. We thus extend the Areeda-Turner rule to two-sided markets. We argue that one should apply the rule by taking into account revenues and costs from both sides of the market. As applications, we analyse three alleged cases of predatory behaviour in the market for daily newspapers. Our examples highlight that applying a one-sided Areeda-Turner rule may lead to assess a perfectly legitimate profit maximizing pricing policy as a predatory attempt. |
| Keywords: | predation; market definition; two-sided markets; network effects; daily newspapers |
| JEL: | L12 L41 L82 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:86efd9ae-a8f9-44c9-9942-268ccae0a70b&r=com |
| By: | Gregory Jolivet; Helene Turon |
| Abstract: | We analyse consumers’ search and purchase decisions on an Internet platform. Using a rich dataset on all adverts posted and transactions made on a major French Internet platform (PriceMinister), we show evidence of substantial price dispersion among adverts for the same product. We also show that consumers do not necessarily choose the cheapest advert available and sometimes even choose an advert that is dominated in price and non-price characteristics (such as seller’s reputation) by another available advert. To explain the transactions observed on the platform, we derive and estimate a structural model of sequential directed search where consumers observe all advert prices but have to pay a search cost to see the other advert characteristics. We allow for flexible heterogeneity in consumers’ preferences and search costs. After deriving tractable identification conditions for our model, we estimate sets of parameters that can rationalize each transaction. Our model can predict a wide range of consumer search strategies and fits almost all transactions observed in our sample. We find empirical evidence of heterogenous, sometimes positive and substantially large search costs and marginal willingness to pay for advert hedonic characteristics. |
| Keywords: | Consumer Search, Revealed Preferences, Individual Heterogeneity, Price Dispersion, Internet. |
| JEL: | C13 D12 D81 D83 L13 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:14/647&r=com |
| By: | Hottenrott, Hanna; Lopes-Bento, Cindy |
| Abstract: | R&D collaboration facilitates pooling of complementary skills, learning from the partner as well as sharing risks and costs. Research therefore repeatedly stressed the positive relationship between collaborative R&D and innovation performance. Fewer studies addressed potential drawbacks of collaborative R&D. Collaborative R&D comes at the costs of coordination and monitoring, requires knowledge disclosure and involves the risk of opportunistic behaviour by the partners. Thus, while the net gains from collaboration can be high initially, cost may start to outweigh those benefits if firms engage in multiple collaborative projects simultaneously. This study explicitly considers a firm's collaboration intensity, that is, the share of collaborative R&D projects in the firms' total R&D project portfolio. For a sample of 2,891 firms located in Germany, active in abroad range of manufacturing and service sectors and of which 86% are SMEs, we indeed find that increasing the share of collaborative R&D projects in total R&D projects is associated with a higher probability of product innovation and with a higher market success of new products. While we can confirm previous findings in terms of gains for innovation performance, we also find that collaboration has decreasing and even negative returns on product innovation if its intensity increases above a certain threshold. Consequently, the relationship between collaboration intensity and innovation has an inverted-U shape. In particular, costs start outweighing benefits if a firm pursues more than about two thirds of its R&D projects in collaboration. This result is robust to conditioning market success to the introduction of new products and to accounting for the selection into collaborating. |
| Keywords: | innovation performance,product innovation,R&D partnerships,collaboration intensity,SMEs,transaction costs,selection model,endogenous switching |
| JEL: | O31 O32 O33 O34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:14108&r=com |
| By: | Philipp Herrmann (University of Paderborn) |
| Abstract: | It is well known that consumer ratings play a major role in the purchase decisions of online shoppers. To examine the effect of the variance of these ratings on future product pricing and sales we propose an analytical model which considers products where the variance of consumer ratings results from two types of product attributes: observational search attributes and experience attributes. We find that if a higher variance is caused by an observational search attribute it results in a higher equilibrium price and lower equilibrium demand, whereas if it is caused by an experience attribute the result is a lower equilibrium price and demand. Interestingly, when the average rating as well as the total variance of ratings are held constant and the relative share of variance caused by the observational search attribute is increased, we observe a rise in both the equilibrium price and the demand for products with low total variance. Via this mechanism, and depending on the composition of the variance of consumer ratings, it is possible for the equilibrium price and demand to increase with increasing total variance of product ratings. In other words we are able to demonstrate that, when faced with a choice between two similar products with the same average rating, risk-averse consumers may prefer a more expensive product with a higher variance of ratings. Moreover, our analytical model provides a theoretical foundation for the empirically observed j-shaped distribution of consumer ratings in electronic commerce. |
| Keywords: | Product Rating Distribution, User Generated Content, Electronic Word-of-Mouth, Analytical Model |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:dispap:07&r=com |
| By: | Heger, Diana; Zaby, Alexandra K. |
| Abstract: | Technology leaders protecting a technological headstart with a patent are provided with a powerful legal measure to restrict market entry. We analyze the impact of knowledge spillover on the decision to patent and the effect of varying patent breadth on the threat of market entry. An empirical test of our theoretical results suggests that (i) a large technological lead is protected by a patent only in industries with high knowledge spillover, and that (ii) patent breadth can mitigate the market entry threat. |
| Keywords: | patenting decision,disclosure requirement,patent breadth,market entry threat,IPC codes |
| JEL: | L13 O33 O34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:77&r=com |
| By: | Genakos, Christos D.; Koutroumpis, Pantelis; Pagliero, Mario |
| Abstract: | We study the repeal of a regulation that imposed maximum wholesale and retail markups for all but five fresh fruits and vegetables. We compare the prices of products affected by regulation before and after the policy change and use the unregulated products as a control group. We find that abolishing regulation led to a significant decrease in both retail and wholesale prices. However, markup regulation affected wholesalers directly and retailers only indirectly. The results are consistent with markup ceilings providing a focal point for collusion among wholesalers. |
| Keywords: | markup regulation; markups; policy evaluation |
| JEL: | L0 L1 L4 L5 |
| Date: | 2014–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10243&r=com |
| By: | Madhuri Saripalle (Madras School of Economics) |
| Abstract: | This study attempts to capture the impact of vertical and horizontal R and D spillovers across the supply chain. Empirical studies have captured vertical spillovers while finding the role of horizontal spillovers in R and D to be negligible, as the pool of accessible knowledge is the same for a cross section of firms within an industry. However, from a supply chain perspective, though firms may be suppliers to an industry, they belong to different industries themselves; and different tiers of the supply chain. The automobile industry is a good case in point: though auto component firms supply to the automobile sector, they come under diverse industrial classification schemes like rubber, electronics and engineering. The present study attempts to measure the horizontal spillovers within Indian Indian auto components Industry as well as spillovers coming vertically from the original equipment manufacturers (OEM) from a flow and a stock perspective. The trend in R and D expenditures undertaken by various component types suggests that most of the R and D occurs in the engine, suspension and tyre category indicating the adaptive nature of R and D, given India’s infrastructure. The study finds spillovers from within the component group are a substitute for firm’s own in-house R and D, while spillovers coming from outside the component group act as complements, thus indicating the integral nature of automobile design, requiring collaborative R and D effort. Among the OEMs, spillovers vary based on vehicle category suggesting that nature of OEM-supplier collaboration differs by vehicle types. |
| Keywords: | Industry studies, Research and Development, Country studies, Industrial Organization, Supply chain |
| JEL: | L6 L22 O33 R D |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:mad:wpaper:2013-083&r=com |
| By: | Knieps, Günter; Stocker, Volker |
| Abstract: | Network neutrality regulations for the Internet have been discussed for about a decade. In Europe, recent efforts have produced a proposal by the European Commission for a network neutrality regulation. Envisaged is the introduction of a two-tiered Internet traffic regulation based on a regulatory market split between the markets for 'public' Internet traffic services and markets for specialized services giving higher and ensured quality of data transmission. We argue that regulatory market splits are artificial and the proposed regulation of markets for Internet traffic services constitutes a regulatory fallacy. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluivr:151&r=com |
| By: | Boone, J. (Tilburg University, Center For Economic Research); Douven, R.C.M.H. (Tilburg University, Center For Economic Research) |
| 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; selective contracting; over-utilization; mechanism design |
| JEL: | D82 L5 I11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:56362c38-f32c-45b9-93fc-1339aa175961&r=com |
| By: | Mark Duggan (Stanford University); Craig Garthwaite (Northwestern University); Aparajita Goyal (World Bank) |
| Abstract: | In 2005, as the result of a World Trade Organization mandate, India began to implement product patents for pharmaceuticals that were compliant with the 1995 Trade-Related Aspects of Intellectual Property Rights (TRIPS). We combine pharmaceutical product sales data for India with a newly gathered dataset of molecule-linked patents issued by the Indian patent office. Exploiting variation in the timing of patent decisions, we estimate that a molecule receiving a patent experienced an average price increase of just 3-6 percent with larger increases for more recently developed molecules and for those produced by just one firm when the patent system began. Our results also show little impact on quantities sold or on the number of pharmaceutical firms operating in the market. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:sip:dpaper:14-005&r=com |
| By: | Choné, P.;; Coudin, É.;; Pla, A.; |
| Abstract: | We assess the extent to which specialist doctors respond to local competition when setting prices (including extra-billings) in a fee-for-service system. We use an exhaustive panel data set to estimate physician reaction functions, exploiting exogenous changes in medical density and labor supply to identify the effects of local market structure and competitors' prices. We find that fees are strategic complements and decrease with physician density. Our results are consistent with a static competition model where patient choice is based on distance, price and observable physician characteristics and doctors have standard consumption-leisure preferences. Finally, we examine how the presence of physicians subject to full price regulation affects strategic interactions. |
| Keywords: | fee-for-service; local competition; price competition; physicians' labor supply; extra billings; |
| JEL: | I11 J22 L11 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:14/20&r=com |
| By: | Freixas, Xavier; Ma, Kebin |
| Abstract: | This paper reexamines the classical issue of the possible trade-o s 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: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10121&r=com |
| By: | Maria Ana Vitorino (University of Minnesota); Ali Hortacsu (University of Chicago); Elisabeth Honka (The University of Texas at Dallas) |
| Abstract: | Does advertising serve to (i) increase awareness of a product, (ii) increase the likelihood that the product is considered carefully, or (iii) does it shift consumer utility conditional on having considered it? We utilize a detailed data set on consumers' shopping behavior and choices over retail bank accounts to investigate advertising's eect on product awareness, consideration, and choice. Our data set has information regarding the entire purchase funnel, i.e. we observe the set of retail banks that the consumers are aware of, which banks they considered, and which banks they chose to open accounts with. We formulate a structural model that accounts for each of the three stages of the shopping process: awareness, consideration, and choice. Advertising is allowed to aect each of these separate stages of decision-making. Our model also endogenizes the choice of consideration set by positing that consumers undertake costly search. Our results indicate that advertising in this market is primarily a shifter of awareness, as opposed to consideration or choice. Along with advertising, branch density, marital status, race and income are very signicant drivers of awareness. We also find that consumers face non-trivial search/consideration costs that lead the average consumer to consider only 2.2 banks out of the 6.7 they are aware of. Conditional on consideration, branch density, the consumer's current primary bank (i.e. inertia), interest rates and education are the primary drivers of the final choice. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:574&r=com |
| By: | Yaremenko, Nataliia |
| Abstract: | The article provides a rationale for carrying out the analysis of investment attractiveness of a bank at choosing a target bank for merger or acquisition. The author's own methodology is suggested for bank investment attractiveness assessment which enables a well-grounded bank choice for such a type of agreement considering its comparable investment attractiveness. |
| Keywords: | mergers and acquisitions; investment attractiveness; Harrington's desirability function; integral index. |
| JEL: | C58 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:60635&r=com |
| By: | Feng Zhu (Harvard Business School, Technology and Operations Management Unit); Qihong Liu (University of Oklahoma) |
| Abstract: | Platform owners sometimes enter complementors' product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: Platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms' overall quality. Using data from Amazon.com, we analyze the patterns of Amazon's entries into its third-party sellers' product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon's entry is positively correlated with the popularity and customer ratings of third-party sellers' products. Amazon's entry reduces the shipping costs of affected products and hence increases their demand. Results also show that third-party sellers affected by Amazon's entry appear to be discouraged from growing their businesses on the platform subsequently. |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:15-044&r=com |
| By: | Germeshausen, Robert; Panke, Timo; Wetzel, Heike |
| Abstract: | This paper empirically analyzes the existence of market power in the global iron ore market during the period 1993-2012 using an innovative Stochastic Frontier Analysis approach introduced by Kumbhakar et al. (2012). In contrast to traditional econometric procedures, this approach allows for the estimation of firm- and time-specific Lerner indices and, therefore, the assessment of the influence of individual firm characteristics on the ability to generate markups. We find that markups on average amount to 20%. Moreover, location and experience are identified to be the most important determinants of the magnitude of firm-specific markups. |
| Keywords: | Estimation of market power,Lerner indices,Stochastic Frontier Analysis,Non-renewable resources |
| JEL: | D22 L11 L72 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:14105&r=com |
| By: | Kumar, Vishal; Deodhar, Satish Y. |
| Abstract: | Gone are the days when the only branded footwear Indians knew was Bata. After years of economic liberalization, one finds many firms; local, national, and international jostling for consumer attention by producing various types of footwear in Indian market. In fact, today Indian footwear industry is the second largest in the world. This market can be described as a stylized case of a monopolistically competitive market where there is intense competition among firms manufacturing differentiated products. In this study, we focus our attention on men’s formal shoes which are distinguished by the presence (or absence) of many differentiated attributes such as heel, toes, colour, surface, laces, buckles and brands. Invoking hedonic price analysis and bid and offer curves of the customers and firms respectively, shoe prices are viewed as the sum total of the valuation of each of the shoe attributes. We estimate the relative valuation of the shoe attributes by regressing market prices of shoes on various quality attributes. Analysis shows that shoes made of leather, shiny surface, buckles, laces, and brands carry a premium and differentiation based on colour, pointed toes, high heels, and texture is not important. In a highly competitive market, such data driven studies can provide pointers to firms in altering existing shoe models and successfully launching newer ones. |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:13107&r=com |