nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒02‒28
25 papers chosen by
Russell Pittman
United States Department of Justice

  1. Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare By Hinnerk Gnutzmann
  2. Stability in price competition revisited By Faias, Marta ; Hervés-Estévez, Javier ; Moreno-García, Emma
  3. Strategic Location Choice under Dynamic Oligopolistic Competition and Spillovers By Luca Colombo ; Herbert Dawid
  4. Efficiency and Foreclosure Effects of All-Units Discounts: Empirical Evidence By Julie Mortimer ; Christopher Conlon
  5. Competition, outside directors and executive turnover: Implications for corporate governance in the EU By Buchwald, Achim
  6. A continuous time Cournot duopoly with delays By Gori, Luca ; Guerrini, Luca ; Sodini, Mauro
  7. Competing Teams By Hector Chade
  8. Tipping in Two-Sided Markets with Asymmetric Platforms By Alex Gold ; Christiaan Hogendorn
  9. Transparency and Distressed Sales under Asymmetric Information By William Fuchs ; Aniko Ory ; Andrzej Skrzypacz
  10. Noisy Learning in a Competitive Market with Risk Aversion By Leonard J. Mirman ; Egas M. Salgueiro ; Marc Santugini
  11. Competition in Kenyan markets and its impact on income and poverty : a case study on sugar and maize By Argent, Jonathan ; Begazo, Tania
  12. Greenfield versus Merger & Acquisition FDI: Same Wine, Different Bottles? By Ronald B Davies ; Rodolphe Desbordes ; Anna Ray
  13. Innovation strategies and stock price informativeness By Ding, Haina
  14. PQ Strategies in Monopolistic Competition: Some Insights from the Lab By Tiziana Assenza ; Jakob Grazzini ; Cars Hommes ; Domenico Massaro
  15. Empirical Games of Market Entry and Spatial Competition in Retail Industries By Aguirregabiria, Victor ; Suzuki, Junichi
  16. Institutional Design and Antitrust Evidentiary Standards By Andreea Cosnita-Langlais ; Jean-Philippe Tropeano
  17. The adjustment of Moldova's competition law to European Union competition law By Bologan, Dumitriţa
  18. Does Banking Market Power Matter on Financial (In)Stability? Evidence from the Banking Industry MENA Region By Labidi, Widede ; Mensi, Sami
  19. Bank competition and credit booms By Phurichai Rungcharoenkitkul
  20. OTC Trading vs. Exchanges: A welfare comparison By Venky Venkateswaran ; Ali Shourideh ; Benjamin Lester
  21. The impact of open access on intra- and inter-modal rail competition. A national level analysis in Italy. By Bergantino, Angela Stefania ; Capozza, Claudia ; De Carlo, Angela
  22. A Welfare Assessment of Revenue Management Systems By Dupuis, Nicolas ; Ivaldi, Marc ; Pouyet, Jérôme
  23. Airline strategic alliances in overlapping Markets: Should policymakers be concerned? By Gayle, Philip ; Brown, Dave
  24. Health provider networks, quality and costs By Boone, Jan ; Schottmüller, Christoph
  25. Is Sniping A Problem For Online Auction Markets? By Matthew Backus ; Tom Blake ; Dimitriy V. Masterov ; Steven Tadelis

  1. 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
  2. By: Faias, Marta ; Hervés-Estévez, Javier ; Moreno-García, Emma
    Abstract: We consider consumers with the same reservation price, who desire to buy at most one unit of a good. Firms compete only in prices but there are other features firms cannot control that would eventually lead an agent to buy in one firm or another. We introduce such uncertainty in a model of a price competition game with incomplete information. This competition takes place under stability and we provide equilibrium existence results. We analyze different specifications of residual demands which yield further interpretations that deepen the phenomenon of price dispersion, Bertrand’s paradox and market power.
    Keywords: Price competition, incomplete information, Nash equilibrium, ap- proximate equilibrium, price dispersion.
    JEL: C70 D4 L00 L1 L13
    Date: 2014–08–31
  3. By: Luca Colombo (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); Herbert Dawid (Universität Bielefeld )
    Abstract: This paper investigates firms' optimal location choices explicitly accounting for the role of inwards and outwards knowledge spillovers in a dynamic Cournot oligopoly with firms that are heterogeneous in their ability to carry out cost-reducing R\&D. Firms can either locate in an industrial cluster or in isolation. Technological spillovers are exchanged between the firms in the cluster. It is shown that a technological leader has an incentive to locate in isolation only if her advantage exceeds a certain threshold, which is increasing in firms' discount rate, in industry dispersion, and in the intensity of knowledge spillovers. Scenarios are identified where although it is optimal for the technological leader to locate in isolation, from a welfare perspective it would be desirable that she locates in the cluster.
    Keywords: Location Choice, Knowledge Spillovers, Technological Leadership, Markov-perfect Equilibrium
    JEL: L13 C73 O31 R12
    Date: 2013–11
  4. By: Julie Mortimer (Boston College ); Christopher Conlon (Columbia University )
    Abstract: We study an All-Units Discount, in which a downstream firm pays a linear wholesale price up to a quantity threshold, beyond which a discount applies to all future and previous units. Such contracts, which are common in many industries, potentially have both efficiency and foreclosure effects. We estimate a structural model of demand and retailer effort to quantify the efficiency gains induced by the contracts, and to identify cases in which the contract results in either efficient or inefficient exclusion of competing products. We show how the contract allocates the cost of a stock-out between upstream and downstream firms, and find evidence that the contract induces inefficient exclusion in the confection industry. Finally, we point out that the impact of upstream mergers in many markets is likely to be felt not through the price in the final-goods market, but rather in the wholesale market. We examine the impact of various upstream mergers on the willingness of the dominant firm to offer rebate contracts, and the impact that the rebate contracts have on social welfare.
    Date: 2014
  5. By: Buchwald, Achim
    Abstract: This study contributes to the ongoing debate on the relevance of non-executive outside directors for corporate governance building on a large panel of European listed firms in the period 2003 to 2011. Focusing on executive turnover as an indicator for effective monitoring, the findings reveal that outside directors and product market competition are substitutes. Outsiders increase the performance-turnover sensitivity of executives exclusively if competition in the industry is relatively weak. In an environment with effective competition, outsiders do not significantly influence the decision to replace underperforming managers. In fiercely competitive markets, the higher threat of bankruptcy or hostile takeover seems to effectively limit managerial discretion for opportunistic behavior.
    Keywords: Competition,Corporate Governance,Executive Turnover,Outside Directors
    JEL: G34 J24 J63 L40 M00
    Date: 2015
  6. By: Gori, Luca ; Guerrini, Luca ; Sodini, Mauro
    Abstract: This paper extends the classical repeated duopoly model with quantity-setting firms of Bischi et al. (1998) by assuming that production of goods is subject to some gestation lags but exchanges take place continuously on the market. The model is expressed in the form of differential equations with discrete delays. By using some recent mathematical techniques and numerical experiments, results show some dynamic phenomena that cannot be observed when delays are absent. In addition, depending on the extent of time delays and inertia, synchronisation failure can arise even in the event of homogeneous firms.
    Keywords: Chaos; Cournot duopoly; Time delays
    JEL: C62 D43 L13
    Date: 2015–02–21
  7. By: Hector Chade (arizona state university )
    Abstract: In many economic environments, firms compete in output markets that are not competitive, either because there is strategic interaction such as in a patent race or an oligopoly, or there are externalities such as knowledge spillovers. Very often, having skilled workers is crucial for success in these non-competitive markets. The key question in the presence of market failure is how and when the market allocation of workers to teams differs from the socially optimal allocation. Is it optimal to have the best workers together in superstar teams competing against low skilled teams, or is it better to have competition between balanced teams? Under what circumstances is the market allocation efficient? This has far-reaching implications for the optimal design of markets, ranging from research to sports competitions.
    Date: 2014
  8. By: Alex Gold (Bipartisan Policy Center ); Christiaan Hogendorn (Economics Department, Wesleyan University )
    Abstract: This paper examines tipping in the Armstrong (2006) two-sided market model. By adding simple cost asymmetries to the original model, we show that the model is quite robust to dierences in network size and deviations from 50-50 market share. It well represents situations where asymmetries compensate for one another; for example, one platform might incur marginal costs to court developers and make up for it with lower costs to users. Our tests also make clear that there is an implicit stand-alone utility in the Armstrong model even when it is not specifically modeled. These results improve interpretation of the many studies that use the Armstrong model for policy analysis.
    Date: 2015–02
  9. By: William Fuchs (Haas School of Business, UC Berkeley ); Aniko Ory (Cowles Foundation, Yale University ); Andrzej Skrzypacz (Graduate School of Business, Stanford University )
    Abstract: We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good sold by an informed seller suffering a liquidity shock. We contrast public versus private price offers. In a two-period case all equilibria with private offers have more trade than any equilibrium with public offers; under some additional conditions we show Pareto-dominance of the private-offers equilibria. If a failure to trade by the deadline results in an efficiency loss, public offers can induce a market breakdown before the deadline, while trade never stops with private offers.
    Keywords: Adverse selection, Transparency, Distress, Market design, Volume
    JEL: D82 G14 G18
    Date: 2015–02
  10. By: Leonard J. Mirman ; Egas M. Salgueiro ; Marc Santugini
    Abstract: We address the issue of risk aversion in a competitive equilibrium when some buyers engage in learning and information is conveyed through the price system. Specifically, since the learning process yields uncertainty, we study the effect of risk aversion on the equilibrium outcomes of the model, including the amount of information released by the market. We show that risk aversion has an effect on the market outcomes but not on the flow of information. In particular, an increase in risk aversion lowers the competitive price and quantity. However, an increase in risk aversion does not change the amount of information embedded in the equilibrium price.
    Keywords: Learning, Risk aversion, Uncertainty
    JEL: D21 D42 D82 D83 D84 L12 L15
    Date: 2015
  11. By: Argent, Jonathan ; Begazo, Tania
    Abstract: This paper investigates the link between competitive, well-functioning food markets and consumer welfare. The paper explores two key food markets in Kenya -- sugar and maize -- and argues that a variety of factors conspire to distort market prices upward. Distortionary factors include import tariff policy, nontariff barriers, potential anticompetitive conduct by firms, and direct state intervention in markets. Changes in sugar and maize prices are shown to have significant welfare effects on consumers. Equivalent income effects are estimated using the most recent available representative household survey data -- the Kenya Integrated Household Budget Survey 2005/06. The paper shows that relaxing trade barriers to allow sugar prices to fall by 20 percent could reduce poverty by 1.5 percent. Similarly, adjusting government interventions in the maize market, which have been shown to inflate maize prices by 20 percent on average, could reduce poverty by 1.8 percent. The magnitude of the estimated income effects may vary based on updated household-level consumptiondata, assumptions regarding demand elasticities, and estimates of import parity prices for these staples. However, in all the scenarios, more competitive prices have a larger average effect on the poorest households in urban and rural areas, supporting the relevance of effective competition policies for poverty reduction strategies.
    Keywords: Markets and Market Access,Food&Beverage Industry,Economic Theory&Research,Climate Change Economics,Emerging Markets
    Date: 2015–01–01
  12. By: Ronald B Davies (University College Dublin ); Rodolphe Desbordes (University of Strathclyde ); Anna Ray (Paris School of Economics )
    Keywords: Foreign Direct Investment; Mergers and Acquisitions; Greenfield Investment; Multinational Firms
    JEL: F21 F23
    Date: 2015–02–03
  13. By: Ding, Haina
    Abstract: This paper models the interactions among technological innovation, product market competition and information leakage via the stock market. There are two firms who compete in a product market and have an opportunity to invest in a risky technology either early on as a leader or later once stock prices reveal the value of the technology. Information leakage thus introduces an option of waiting, which enhances production efficiency. A potential leader may nevertheless be discouraged from investing upfront, when anticipating its competitor to invest later in response to good news. I show that an increase in product market competition increases the option value of waiting but has an ambiguous effect on information production. It may thus be the case that intense competition leads to more leakage such that no firm would invest, especially so in a smaller market. Given a moderate level of competition, price informativeness may also improve investment outcome when investment profitability and the market size are relatively large. The model predicts that, under these conditions, the investment of a follower firm is more sensitive to share price movements.
    Keywords: Price efficiency; Information leakage; Innovation; Feedback
    JEL: G14 G31 D43
    Date: 2015
  14. By: Tiziana Assenza (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore and CeNDEF, Amsterdam School of Economics, University of Amsterdam ); Jakob Grazzini (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore ); Cars Hommes (CeNDEF,Amsterdam School of Economics, University of Amsterdam and Tinbergen Institute ); Domenico Massaro (CeNDEF, Amsterdam School of Economics, University of Amsterdam and Tinbergen )
    Abstract: We present results from 50-rounds experimental markets in which firms decide repeatedly both on price and quantity of a perishable good. The experiment is designed to study the price-quantity setting behavior of subjects acting as firms in monopolistic competition. In the implemented treatments subjects are asked to make both production and pricing decisions given different information sets. We investigate how subjects decide on prices and quantities in response to signals from the firms' internal conditions, i.e., individual profits, excess demand, and excess supply, and the market environment, i.e., aggregate price level. We find persistent heterogeneity in individual behavior, with about 46% of market followers, 28% profit-adjusters and 26% demand adjusters. Nevertheless, prices and quantities tend to converge to the monopolistically competitive equilibrium and we find that subjects' behavior is well described by learning heuristics.
    Keywords: Laboratory Experiments, Price-Quantity Competition, Monopolistically Competitive markets.
    Date: 2014–03
  15. By: Aguirregabiria, Victor ; Suzuki, Junichi
    Abstract: We survey the recent empirical literature on structural models of market entry and spatial competition in oligopoly retail industries. We start with the description of a framework that encompasses various models that have been estimated in empirical applications. We use this framework to discuss important specification assumptions in this literature: firm heterogeneity; specification of price competition; structure of spatial competition; firms' information; dynamics; multi-store firms; and structure of unobservables. We next describe different types of datasets that have been used in empirical applications. Finally, we discuss econometric issues that researchers should deal with in the estimation of these models, including multiple equilibria and unobserved market heterogeneity. We comment on the advantages and limitations of alternative estimation methods, and how these methods relate to identification restrictions. We conclude with some issues and topics for future research.
    Keywords: econometrics of discrete choice games; market entry and exit; retail industries; spatial competition
    JEL: L11 L13 L81 R30
    Date: 2015–02
  16. By: Andreea Cosnita-Langlais ; Jean-Philippe Tropeano
    Abstract: The purpose of this paper is to study the relative impact of public and private competition law enforcement on antitrust liability. We develop a model with asymmetric information during trial, where the number of cases filed depends on the amount of damages awarded and on the standard of evidence applied either by the public authority or by the judge. Our model predicts that higher damages result in a higher standard of evidence, which is not always welfare improving. We also show that public enforcement better incentivizes pro-competitive practices by allowing a lower standard of evidence. This may lead the public enforcement to outperform the private enforcement.
    Keywords: antitrust, public and private enforcement, evidentiary standard.
    JEL: K21 L41 D82
    Date: 2015
  17. By: Bologan, Dumitriţa
    Abstract: This paper explores the historical background of the political and economic relations between the Republic of Moldova and the European Union, presenting an overview of relevant documents such as the Partnership and Cooperation Agreement and the Association Agreement. Special emphasis is put on the development of competition law in Moldova as one of the main instruments for ensuring the function of a market economy. In this context, the paper also addresses the process of adjustment of Moldova's relevant legislation to the European Union competition law, describing the range of legal instruments and institutions involved in this process and the monitoring thereof by the European Union.
    Keywords: European integration,Partnership and cooperation agreement,Association agreement,European competition law,Moldavian competition law,Adjustment of competition rules,Neighbor policy
    Date: 2015
  18. By: Labidi, Widede ; Mensi, Sami
    Abstract: The various financial crisis incidents during the two last decades and particularly since the 2007-2008 Global Financial Crisis has revealed the complexity of the interaction between bank market structure, regulation and the stability of the banking industry. Due to its effects on financial stability, banking market structure has been a focus of academic and policy debates of which we prefer the market power paradigm. More precisely, the impact of competition and market concentration on the probability of financial crisis emerges as a crucial topic. Despite their importance, little is known about the relationship between Banking Market Power and Bank Soundness from banks of MENA region. This paper tries to overcome the tradeoff between banking market power and financial (in)stability among 157 commercial banks chosen from 18 countries of MENA region between 2000 and 2008. The results indicate that although the banks operate in a competitive market, they suffer from financial instability. The results also revealed a non-significant negative relationship between the rather low degree of market power and financial instability. In other words, we concluded that financial instability is not affected by competition in the banking market in the MENA region.
    Keywords: market power, financial stability, competition, MENA.
    JEL: D4 G00
    Date: 2015–01–07
  19. By: Phurichai Rungcharoenkitkul
    Abstract: A model of imperfectly competitive banks is examined under asymmetric information about borrower quality. Greater bank competition and a lower risk-free rate raise the screening costs of lending, which can result in pooling Nash equilibria with credit booms. Such equilibria are characterised by sharp increases in credit supply and deteriorations in average loan quality, which are inefficient for banks. In the model, banks' incentives to make risky loans can vary despite unchanged capital structure, thus highlighting the role of a risk-taking mechanism. This approach helps explain the existing mixed empirical results on the relationship between bank competition and financial stability. The model can be used to define a neutral interest rate in the context of financial cycles, namely a finance-neutral interest rate, which is estimated in the case of the United States.
    Keywords: bank competition, credit booms, asymmetric information, optimal contract, coordination failure, finance-neutral rate of interest, monetary policy
    Date: 2015–02
  20. By: Venky Venkateswaran (NYU Stern School of Business ); Ali Shourideh (University of Pennsylavnia ); Benjamin Lester (Federal Reserve Bank of Philadelphia )
    Abstract: We study the welfare implications of different market structures in a model of adverse selection. In particular, we contrast a competitive exchange, where the informed agents can trade simultaneously with multiple principals with an íover-the-counterí setting characterized by search frictions and bilateral trading. We show that the latter can lead to higher ex-ante welfare. The intuition is that non-exclusivity in contracts in the competitive arrangement constrains the principalís ability to provide incentives for truthful revelation. Search frictions mitigate this problem, but create local monopolies. When this tension between competition and incentive provision is resolved in favor of the latter, frictional markets lead to better outcomes.
    Date: 2014
  21. By: Bergantino, Angela Stefania ; Capozza, Claudia ; De Carlo, Angela
    Date: 2015
  22. 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: dynamic computational models; intertemporal price discrimination; revenue management; transport fares
    JEL: C63 R41
    Date: 2015–02
  23. By: Gayle, Philip ; Brown, Dave
    Abstract: When there is significant overlap in potential partner airlines' route networks, policymakers have expressed concern that an alliance between such airlines may facilitate collusion on price and/or service levels in the partners' overlapping markets. The contribution of our paper is to put together a structural econometric model that is able to explicitly disentangle the demand and supply effects associated with an alliance between such airlines. The estimates from our structural econometric model do identify demand-increasing effects associated with the Delta/Continental/Northwest alliance, but statistically reject collusive behavior between the partners.
    Keywords: Codeshare Alliance; Collusion; Airline Competition; Discrete Choice Demand Model; Nested Logit
    JEL: L13 L40 L93
    Date: 2015–01
  24. By: Boone, Jan ; Schottmüller, Christoph
    Abstract: We provide a modeling framework to think about selective contracting in the health care sector. Two health care providers differ in quality and costs. When buying health insurance, consumers observe neither provider quality nor costs. We derive an equilibrium where health insurers signal provider quality through their choice of provider network. Selective contracting focuses on low cost providers. Contracting both providers signals high quality. Market power tends to lower quality and lead to inefficiency. In a dynamic extension of the model, providers under-invest in quality while there can be both over and under-investment in cost reductions if there is a monopoly insurer while an efficient investment equilibrium exists with insurer competition.
    Keywords: common contracts; exclusive contracts; health care quality; managed care; selective contracting; signaling
    JEL: D86 I11 L13
    Date: 2015–02
  25. By: Matthew Backus ; Tom Blake ; Dimitriy V. Masterov ; Steven Tadelis
    Abstract: A common complaint about online auctions for consumer goods is the presence of "snipers," who place bids in the final seconds of sequential ascending auctions with predetermined ending times. The literature conjectures that snipers are best-responding to the existence of "incremental" bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond. As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer's propensity to participate in future auctions. We show the effect to be causal using a carefully selected subset of auctions from and instrumental variables estimation strategy. Bidders respond to sniping quite strongly and are between 4 and 18 percent less likely to return to the platform.
    JEL: D12 D44 L81
    Date: 2015–02

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