nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒02‒22
thirty papers chosen by
Russell Pittman
United States Department of Justice

  1. Quantity Competition in the Presence of Strategic Consumers By Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
  2. Reconciling Cournot and Bertrand Outcomes: A Review By Kirui, Benard Kipyegon
  3. Search and ripoff externalities By Armstrong, Mark
  4. Sequential Markets, Market Power and Arbitrage By ITO Koichiro; Mar REGUANT
  5. Platform Pricing under Dispersed Information By Bruno Jullien; Alessandro Pavan
  6. Consumer Search With Chain Stores By Kuniavsky, Sergey
  7. Price disclosure rules and consumer price comparison By Stühmeier, Torben
  8. Markets with Technological Progress: Pricing, Quality and Novelty By von Auer, Ludwig; Trede, Mark
  9. Price Competition in an Inflationary Environment By Dürsch, Peter; Eife, Thomas
  10. Heterogeneous Beliefs and Imperfect Competition in Sequential Auction Markets By Fabrice Rousseau; Hervé Boco; Laurent Germain
  11. Brand Loyalty, Volume of Trade and Leapfrogging: Consumer Behavior for Durable Experience Goods By Martin Paredes
  12. Long-Run Market COnfigurations in a Dynamic Quality-Ladder Model with Heterogeneity By Mario Samano; Marc Santugini
  13. Bundling information goods under 'breakeven' price By Kuroda, Toshifumi
  14. Competition and consumer protection in the cyberspace marketplace By Klein, Joseph A.; Rao, P. M.
  15. Outside directors on the board, competition and innovation By Buchwald, Achim; Thorwarth, Susanne
  16. Competitive Pressure and Corporate Crime By Baumann, Florian; Friehe, Tim
  17. Bank Competition and Financial Stability: Much Ado About Nothing? By Diana Zigraiova; Tomas Havranek
  18. Has the Financial Crisis had an Adverse Effect on Bank Competition? By Ali Mirzaei; Tomoe Moore
  19. Bank market power and firm performance By Manthos D. Delis; Sotirios Kokas; Steven Ongena
  20. When Banks Strategically React to Regulation: Market Concentration as a Moderator for Stability By Schliephake, Eva
  21. Empirical analysis of mobile broadband adoption in major six countries from the view of competition policy By Shinohara, Sobee; Morikawa, Hiroyuki; Tsuji, Masatsugu
  22. Network neutrality: Insights gained by juxtaposing the US and Korea By Shin, Dong-Hee; Lee, Jaegil; Kim, Nam Cheol; Jung, Jaeyoel
  23. Analysis on switching cost versus bundling price under consumer adoption for choosing smart TV over pay TV By Hong, Ahreum; Yu, Eun; Hwang, Junseok
  24. The impact of local loop and retail unbundling By Klein, Gordon J.; Wendel, Julia
  25. Bundling incentives in markets with product complementarities: The case of triple-play By Macieira, João; Pereira, Pedro; Vareda, João
  26. Competition and market strategies in the Swiss fixed telephony market By Balmer, Roberto E.
  27. A Welfare Assessment of Revenue Management Systems By Dupuis, Nicolas; Ivaldi, Marc; Pouyet, Jérôme
  28. Air Ticket Sales as Bids from Airline Alliances By Ivaldi, Marc; Petrova, Milena; Urdanoz, Miguel
  29. The design of insurance coverage for medical products under imperfect competition By Bardey, David; Cremer, Helmuth; Lozachmeur, Jean-Marie
  30. Efficiency and competition in the Dutch non-life insurance industry: Effects of the 2006 health care reform By Jaap Bikker; Adelina Popescu

  1. By: Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail
    Abstract: Oligopolistic retailers decide on the initial inventories of an undifferentiated limited-lifetime product offered to strategic consumers. A manufacturer sets the first-period (full) price, while the second-period (clearance) price is determined by a market clearing process. The resulting symmetric pure-strategy equilibria may lead to no sales in the first or second period (Cournot outcome versus collusion), and sales in both periods with the clearance price above or at the salvage value. The equilibria possess a comprehensive set of monotonic properties. In particular, increasing strategic behavior can benefit retailers and hurt consumers, increasing competition may harm the local economy, and high levels of strategic behavior may insure against oversupply that leads to clearance sales at the salvage value. The welfare-optimal number of retailers can lead to the above-cost clearance price.
    Keywords: quantity competition, two-period game, strategic consumers, symmetric equilibria
    JEL: C72 D91 L13
    Date: 2015–01–28
  2. By: Kirui, Benard Kipyegon
    Abstract: This paper reconciles the Cournot and Bertrand Models of oligopolistic competition, highlighting its weaknesses and giving an opinion thereafter. The pertinent question in this paper is why Cournot (1838) ignored the price and Bertrand (1883) ignored the quantity? From the review, the main conclusion of this paper is that oligopoly competition is guided in the long run by production capacity competition, as advocated by Cournot, equilibrated through price competition in the short run, as advocated by Bertrand.
    Keywords: Cournot Competition,Bertrand Competition,Oligopoly,equilibrium
    JEL: D43 L13
    Date: 2013–04
  3. By: Armstrong, Mark
    Abstract: This paper surveys models of markets in which only some consumers are "savvy". I discuss when the presence of savvy consumers improves the deals available to all consumers in the market (the case of search externalities), and when the non-savvy fund generous deals for all consumers (ripoff externalities). I also discuss when the two groups of consumers have aligned or divergent views about market interventions. The analysis focusses on two kinds of models: (i) an indivisible product in a market with price dispersion, and (ii) products which involve add-on pricing.
    Keywords: Add-on pricing, bounded rationality, consumer protection, consumer search, externalities, price dispersion
    JEL: D11 D18 D4 D83 D86 L1
    Date: 2015–02
  4. By: ITO Koichiro; Mar REGUANT
    Abstract: We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power. It reduces consumer costs but decreases productive efficiency.
    Date: 2015–02
  5. By: Bruno Jullien; Alessandro Pavan
    Abstract: We study monopoly and duopoly pricing in a two-sided market with dispersed information about users’ preferences. First, we show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns affecting the agents’ ability to estimate their own as well as other agents’ valuations, and product design affecting the distribution of valuations on the two sides of the market.
    Keywords: two-sided markets, dispersed information, platform competition, global-games, informative advertising JEL Classification: D82
    Date: 2014–06–01
  6. By: Kuniavsky, Sergey
    Abstract: The Stahl model is one of the most applied consumer search models, with many applications and an empirical background. The present paper explores an extension where sellers have asymmetries, which is mostly excluded by the literature. Sellers with heterogeneous numbers of stores are introduced, re ecting a typical market structure. As in the original Stahl model, a market consists of several sellers, and consumers, where some face a cost when sequentially searching. The paper shows that no symmetric Nash equilibrium exists in the extension. Additional results suggest that smallest sellers will be the ones o ering the lowest prices, in line with several real world examples provided in the paper. However, profi ts remain in most cases fi xed per store, making a larger fi rm more pro table, yet with lower quantity sold. The fi ndings suggest that on some level price dispersion will still exist, together with some level of price stickiness, both observed in reality.
    JEL: D43 D83 L13
    Date: 2014
  7. By: Stühmeier, Torben
    Abstract: Search frictions are classified as a main impediment to active competition in many markets. In some markets, such as in financial and retail gasoline markets, governments and consumer protection agencies call for a compulsory price reporting. Consumers should then more easily compare the firms' offers. We show that for a given level of price comparison, a mandatory price reporting indeed widely benefits consumers. The regulation, however, feeds back into firms' strategies, resulting in lower equilibrium levels of price comparison. This effect may dominate and the regulation may lead to higher expected market prices.
    JEL: D83 L13 L51
    Date: 2014
  8. By: von Auer, Ludwig; Trede, Mark
    Abstract: New and old products differ in two respects: quality and newness. Whereas a higher quality of a new product always benefits consumers, the newness itself benefits some consumers, but not others, and for some, it is even a disadvantage. We capture these features in a Hotelling model of Over- Lapping Innovators (HOLI model), entailing a sequence of static Hotelling games of horizontal product differentiation (newness), that we extend by vertical product differentiation (quality). In this model the firms compete on quality and price. Using advanced dynamic hedonic regression methods, we empirically investigate the actual pricing of firms in the German laser printer market. We show that their pricing corresponds to our model with the entrant acting as the Stackelberg follower.
    JEL: L11 L63 C23
    Date: 2014
  9. By: Dürsch, Peter; Eife, Thomas
    Abstract: A constant price level facilitates cooperation among firms whereas steady inflation and deflation rates lower firms' ability to cooperate. In an experimental market with price competition we show that both inflation and deflation signi cantly reduce cooperation compared to treatments with a constant price level. The diffi culties to cooperate also aff ect prices and welfare: depending on the market structure, inflation and deflation lead to signifi cantly lower real prices and higher welfare.
    JEL: C92 D43 E31
    Date: 2014
  10. By: Fabrice Rousseau (Department of Economics, Finance and Accounting, National University of Ireland, Maynooth); Hervé Boco (Toulouse University, Toulouse Business School, France); Laurent Germain (Toulouse University, Toulouse Business School, France)
    Abstract: This paper analyzes a multi-auction setting in which informed strategic agents are endowed with heterogeneous noisy signals about the liquidation value of a risky asset. One result is that when the variance of the noise is small the competition between traders takes the form of a rat race during all the periods of trading. As we increase the level of the noise in the traders’ signals, a waiting game phase appears and the intensity of the rat race, observed only at the last auctions, decreases. In sharp contrast with the previous literature, when the variance of the noise is very large, we only observe a waiting game.
    Keywords: efficiency, asymmetric information, noise, liquidity, adverse selection, competition
  11. By: Martin Paredes (Universidad de Piura)
    Abstract: We present a dynamic model that addresses how the interaction between durability and experience consumers’ replacement decisions. Despite obsolescence, consumers keep used goods because of quality uncertainty of new goods. Contrary to adverse selection articles, incomplete trade in secondary markets can be efficient provided experience involves idiosyncratic tastes. As some consumers decide which vintage to buy depending on past experiences, brand loyalty can be higher for new goods. When consumers’ expected experience differs across brands, the best brand exhibits higher loyalty, larger sales, longer ownership spells, and higher resale prices, results consistent with evidence from the U.S. automobile industry.
    Keywords: Durable goods, experience goods, consumer behavior
    JEL: D82 D83 L15
    Date: 2015–02
  12. By: Mario Samano; Marc Santugini
    Abstract: We study the long-run market configurations in a quality-ladder dynamic model. Specifically, we assume that the return to investment in quality differs across the firms. That is, for a given level of investment, one firm has a higher probability to raise the quality of the good it produces. We show that the model can generate five different types of long-run market configurations (market collapse, market collapse or monopoly, monopoly, duopoly and monopoly, and duopoly). A high degree of heterogeneity in the return to investment can mitigate the effect of highly reversible investments on the probability of market collapse, giving rise to non-negligible probabilities of observing a duopoly or even dominance of the firm with the lowest return to investment.
    Keywords: Differentiated-good markets, Quality-ladder model, Heterogeneity, Dynamic investment
    JEL: C61 C73 L13
    Date: 2015
  13. By: Kuroda, Toshifumi
    Abstract: Bundling under monopoly tends to increase demand and market efficiency, but likely at the expense of transferring consumers' surplus to firms. Public utilities can use this increase in demand to reduce the monthly fee per consumer. To demonstrate it, I conduct a numerical analysis of the effects of bundling under breakeven price regulation for the Japan Broadcasting Corporation. I estimate the willingness-to-pay for broadcasting services and simulate consumer choices under pure bundling and a-la-carte pricing with breakeven price regulation. Comparing pure bundling and a-la-carte pricing of terrestrial television and satellite television, the increase in demand caused by bundling is very slight due to the strong positive correlation of WTPs. However, compared with a-la-carte pricing, consumer welfare increases by 1.7% with bundling of channels and by 28.2% with bundling of genres.
    Keywords: Bundling,Public utilities,Policy analysis
    JEL: L82 L30 D49
    Date: 2014
  14. By: Klein, Joseph A.; Rao, P. M.
    Abstract: This paper will examine legal and marketing implications of certain Internet technological developments impacting competition and consumer protection in cyberspace. The paper will explore to what extent antitrust and consumer protection laws are adequate to deal with the challenges to a competitive marketplace and consumer privacy posed by the development of cyberspace technologies and markets, for example, Internet search engines, social networks and wearable devices. The paper concludes that legal tools for protecting a competitive cyberspace marketplace are fairly robust, while the legal tools to protect consumers from being tracked and profiled by marketers and from the potential intrusions of individual privacy made possible by even more advanced Internet connected sensor and related data-based technologies are still a work in progress. At the same time, the extent of further government regulation in this area must be carefully balanced so as not to unduly restrict data dependent innovation.
    Date: 2014
  15. By: Buchwald, Achim; Thorwarth, Susanne
    Abstract: We investigate the influence of non-executive outside directors on firms' innovative performance for a sample of 1,393 listed firms in the EU - 15 member states plus Norway and Switzerland in the period 2005 to 2010. Our results show that the fraction of non-executive outside directors on the board is associated with a significant decrease in the number of patent applications if competition in the market is low. This may indicate that restrictive monitoring and lower advising competences of outside directors mitigate executives' incentives to innovate. In industries with effective competition, the negative influence of outsiders is offset by the pressure to focus on innovation strategies.
    Keywords: Competition,Corporate Governance,Innovation,Patents,Board Composition,Outside Directors
    JEL: G34 L14 L25 M21 O31
    Date: 2015
  16. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing.
    JEL: K14 L13 D43
    Date: 2014
  17. By: Diana Zigraiova; Tomas Havranek
    Abstract: The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition-stability nexus reported in 31 studies and analyze the literature using meta-analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, especially in developing and transition countries, even when corrected for publication bias and potential misspecifications.
    Keywords: Bayesian model averaging, bank competition, financial stability, publication selection bias, meta-analysis
    JEL: C83 C11 G21 L16
    Date: 2015–01–01
  18. By: Ali Mirzaei; Tomoe Moore
    Abstract: This article investigates whether the recent financial crisis has had any adverse impact on bank competition for 24 emerging and 25 advanced countries with large and small-size banks over the sample period 2001-2010. The H-statistic advocated by Panzar and Rosse (1987) is employed as the measure of competition. We find that the adverse effect of the financial crisis on bank competition seems to be trivial and on the contrary, competition is marginally boosted during the crisis period. This applies to both types of economies, irrespective of bank size. This suggests that currently ongoing policies to avert further crises in the banking sector have not exerted so great an adverse effect on competition. In the individual countries’ study, the recent global financial crisis, however, led to a significant decline in competition in some countries.
    Keywords: Bank competition, Bank concentration, Financial crisis, Emerging banking system
    JEL: G01 D4 G21 L11
  19. By: Manthos D. Delis; Sotirios Kokas; Steven Ongena
    Abstract: Does bank market power affect firm performance? We answer this question by examining 25,236 syndicated loan facilities granted between 2000 and 2010 by 296 banks to 9,029 US non-financial firms. Even though recently poorly-performing firms obtain loans from banks with more market power, we find that in the year after loan origination bank market power positively affects firm performance, albeit mostly for moderate levels of market power. Our estimates thus suggest that a moderate level of bank market power not only facilitates access to credit by poorly-performing firms but also boosts the performance of those firms that obtain it.
    Keywords: Bank market power, Lerner index, Firm performance, Syndicated loans
    Date: 2015–02
  20. By: Schliephake, Eva
    Abstract: Minimum capital requirement regulation forces banks to refund a substantial amount of their investments with equity. This creates a buffer against losses, but also in- creases the cost of funding. If higher refunding costs translate into higher loan interest rates, then borrowers are likely to become more risky, which may destabilize the lending bank. This paper argues that, in addition to the buffer and cost effect of capital regulation, there is a strategic effect. A binding capital requirement regulation restricts the lending capacity of banks, and therefore reduces the intensity of loan interest rate competition and increases the banks price setting power as shown in Schliephake and Kirstein (2013). This paper discusses the impact of this indirect effect from capital regulation on the stability of the banking sector. It is shown that the enhanced price setting power can reverse the net effect that capital requirements have under perfect competition.
    JEL: G21 K23 L13
    Date: 2014
  21. By: Shinohara, Sobee; Morikawa, Hiroyuki; Tsuji, Masatsugu
    Abstract: The purpose of this paper is to study competition policy on mobile broadband, consisting of 3G and 4G (LTE).Currently mobile broadband has been developing rapidly and its access speed amounts to 150Mbps for the latest 4G, which is similar to fixed broadband. This paper analyzesthe factors affect the mobile broadband adoption in major six countries,such as the U.S., UK, France, Germany, Japan, and Korea,those cover more than fifty percentof total population and adoption ratio of OECD 34 member countries. The factors examined here includeHHI and frequency auction as completionpolicy, FTTH adoption, FMC (Fixed mobile convergence), and launching Android and iPhone, inaddition to economic variables such as price and income. Panel data analysis showed that smartphone, competition among telecommunicationcarriers observed by HHI and FTTH affect mobile broadband adoption. This result provides important basis for competition policy on mobile broadband in each country.
    Keywords: Mobile Broadband,Competition Policy,Smartphone,iPhone,Android,Feature Phone,3G,4G,FTTH,Panel Data Analysis
    Date: 2014
  22. By: Shin, Dong-Hee; Lee, Jaegil; Kim, Nam Cheol; Jung, Jaeyoel
    Abstract: In this study, we compare and contrast the U.S. and Korea in the context of network neutrality, focusing on debates among stakeholders and regulatory approaches. Interesting similarities and differences are highlighted by comparisons within the broadband ecosystem framework: government functions, histories, people's perceptions, regulatory approaches, legislative initiatives, and implementation. In Korea, there is an existing regulatory framework with suggestive guidelines that can be used to address net neutrality in a case-by-case fashion. The U.S. follows a regulatory approach by creating enforceable non-discrimination rules. Our findings suggest that the issue is not only complicated, but also as complex and vague as the parties' diverse interests are. We conclude that a careful combination of government coordination and market forces is an effective way to govern net neutrality.
    Keywords: Network neutrality,comparative case study,Korea,the U.S.,broadband,competition
    Date: 2014
  23. By: Hong, Ahreum; Yu, Eun; Hwang, Junseok
    Abstract: The emergence of smart TV device encourages the reconsideration of the customer's subscription on the pay TV so that the phenomenon of cord-cutting evokes the other dimension of MVPD (Multi-Channel Video Programming Distribution) industry itself. Two major paths to adopt the new platform in MVPD market cover the switching cost and effect for the new platform such as smart TV and restrain the discount price by bundling triple-play which is one provision over a single broadband connection of two bandwidth-intensive services such as high-speed Internet access and television, and the latency-sensitive telephone. The research question over this simultaneous equation model exhibits that rate of customer subscription affects with more attention from demand-pull phenomenon by the high switching cost versus bundling price for multiple play service in behavioral economics way. Behavioral economics can explain the way of consumer's choice by providing it with more realistic psychological foundations. The hypothesis investigates the incentive mechanism has positive effect from the discount rate by tying the product bundling within MVPD service provision. Shapiro and Varian (1998) examine some of the business strategy implications of switching costs at a lay reader level. The switching cost results in the lock-in effect and takes scale economies of demand side. Farrell and Shapiro (1989) mention that once they are locked in, they can be a substantial source of profit whether it is substation or not. Also customer left the current service due to that cost. The prerequisite for switching cost investigate the product complexity (Gatignon and Robertson, 1992; Klemperer, 1995), heterogeneity of supplier in market (Schmalensee, 1982), the product diversity from the supplier side (Blattberg and Deighton, 1996; Klemperer, 1995; Ram and Jung, 1990), the level of modification in consideration of customer demand (Bhardawaj et al., 1993), the experience of alternatives (Bhattachary et al., 1995), the experience of switching choice (Bhattacharya et al.,1995; Nilssen, 1992), and time limitation of selection pressure or individual characteristic of risk aversion could be the factor to reorganization of switching cost by customer. Previous literature tries to explore the path and find out the factors which effect on the customer's switching behavior.
    Keywords: Pay TV market,Switching cost,Bundling price,Smart TV,Simultaneous Equation Modeling
    JEL: L22 L82
    Date: 2014
  24. 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
  25. By: Macieira, João; Pereira, Pedro; Vareda, João
    Abstract: We analyze …firms incentives to bundle and tie in the telecommunications industry. As a fi…rst step, we develop a discrete-choice demand model where fi…rms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a fi…rm may sell. We exploit these properties to examine bundling behavior when fi…rms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify fi…rm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles,Discrete-Choice Model,Equilibrium Simulation,Differentiated Product,Consumer Level Data
    JEL: D43 K21 L44 L96
    Date: 2014
  26. By: Balmer, Roberto E.
    Abstract: Fixed telephony has long been a fundamentally important market for European telecommunications operators. The liberalisation and the introduction of regulation in the end of the 1990s, however, allowed new entrants to compete with incumbents at the retail level. A rapid price decline and a decline in revenues followed. Increased retail competition eventually led a number of national regulators to deregulate this market. In 2013, however, many European countries (including Switzerland) continued to have partially binding retail price regulation in this market. More than a decade after liberalisation and the introduction of wholesale and retail price regulation, sufficient data is available to empirically measure the success of regulation and assess its continued necessity. This paper develops a market model based on a generalised version of the traditional dominant firm - competitive fringe model allowing for the incumbent a more competitive conduct than that of a dominant firm. A system of simultaneous equations is developed and direct estimation of the incumbent's residual demand function is performed by instrumenting the market price by incumbent-specific cost shifting variables as well as other variables. Unlike earlier papers that assess market power in this market, this paper also adjusts the market model to ensure a sufficient level of cointegration and avoid spurious regression results. This necessitates the introduction of intertemporal effects. While the incumbent's conduct cannot be directly estimated using this framework, the concrete estimates show that its residual demand is inelastic (long run price elasticity of residual demand of -0.12). Such a level of elasticity is shown to be only compatible with a profit maximising incumbent in the case of largely competitive conduct (conduct parameter below 0.12 and therefore close to zero). It is consequently found that the Swiss incumbent acted rather competitively in the fixed telephony retail market in the period under review (2004-2012) and that the (partial) retail price caps in place can no longer be justified on the basis of a lack of competition.
    Keywords: residual demand estimation,competition,conduct,time series,dynamic residual demand estimation,fixed voice,fixed telephony,retail market,telecommunications
    Date: 2014
  27. By: Dupuis, Nicolas; Ivaldi, Marc; Pouyet, Jérôme
    Abstract: We study the welfare impact of revenue management, i.e. intertemporal price discrimination when the product availability is limited both in time and quantity, and consumers' arrival is random. This practice is particularly relevant, and widely spread, in the transport industry, but little is known about its implications on profits and consumer surplus. We develop a theoretical model of revenue management allowing for heterogeneity in product characteristics, capacity constraints, consumer preferences, and probabilities of arrival. We also introduce dynamic competition between revenue managers. We solve this model computationally and recover the optimal pricing strategies. We find that revenue management is welfare enhancing. Revenue managers face two types of constraints: a limited booking period and fixed capacities. Previous sales affect the relative slackness of these two constraints, explaining price variations. Profits increase as the practice offers more leeway to the seller compared to posting a fixed price throughout the booking period. Total consumer surplus also increases for a wide range of specifications, as revenue management raises the number of sales. In the presence of heterogeneous consumers, consumers with low price sensitivity subsidize ones with high price sensitivity when demand is low but both types benefit from the practice when demand is high. This sheds some light on the impact of revenue management on the surplus of business and leisure passengers.
    Keywords: revenue management, transport fares, intertemporal price discrimination, dynamic computational models.
    JEL: C63 R41
    Date: 2015–01–05
  28. By: Ivaldi, Marc; Petrova, Milena; Urdanoz, Miguel
    Abstract: Motivated by the higher price sensitivity and service homogenisation in the airline industry in recent years, we propose a new methodology to deal with transaction prices and to estimate the effect of alliances in the US domestic market. The assumption that airlines compete on price allows us to take advantage of the observational equivalence between Bertrand competition and the reverse English auction. We then apply an MLE method, developed by Paarsch (1997) for estimating auctions, to recover the distributional characteristics of air fares using a sample of airline tickets from the US domestic market. This procedure allows us to benefit from the heterogeneity of individual prices while most studies have used average prices, which would have involved a loss of information and a potential bias. We find that an alliance operating in a market is associated with prices on average 18.9 percent higher. Additionally, we find the standard deviation of ticket prices to be 4.3 percent higher, which is likely related to more effcient revenue management practice by alliance partners operating together in the same market.
    Keywords: airfares; airlines; alliances
    JEL: L40 L93 R48
    Date: 2015–02
  29. By: Bardey, David; Cremer, Helmuth; Lozachmeur, Jean-Marie
    Abstract: This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing, price negotiation or horizontal differentiation are considered. The insurance contract specifies two types of copayments: an ad valorem coinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer’s revenue just covers fixed costs. Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule of individual expenditures as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition as advocated by Feldstein (1973) is thus not necessary. Interestingly the optimal policy closely resembles a reference price mechanism in which copayment rates are low (possibly negative) and coinsurance rates are high.
    Keywords: ex post moral hazard, health insurance contracts, copayments, imperfect competition.
    JEL: I11 I13 I18
    Date: 2015–01
  30. By: Jaap Bikker; Adelina Popescu
    Abstract: This paper investigates the cost efficiency and competitive behaviour of the non-life – or property and casualty – insurance market in the Netherlands over the period 1995-2012. We focus on the 2006 health care reform, where public health care insurance has been included in the non-life insurance sector. We start with estimating unused scale economies and find that after the health care reform in 2006, unused scale economies are, at 21%, much higher than before the reform (4%), pointing to a relative increase of fixed costs. Scale inefficiencies are generally higher for smaller insurance and lower for large insurance companies. As a benchmark, we also estimate scale economies for non-health lines of business (LOB), which range from 5% to 10%. To measure competition directly, we apply a novel approach that estimates the impact of marginal costs as indicator of inefficiency on either market shares or profits. Over time, competition in health insurance has increased significantly, but the inclusion of the (non-competitive) public health care funds in the health insurance sector in 2006 caused a fall in the average level of competitive pressure. After the reform, competition continued to improve. In the non-health LOB non-life insurance, we find similar significant effects of efficiency on both market shares. The non-life effects are weaker than in life insurance, banking and non-financial sectors, suggesting less heavy competition.
    Keywords: competition, concentration, efficiency, non-life insurance, performance conduct structure model, health care insurance, scale economies, scope economies
    Date: 2014–09

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