nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒03‒27
ten papers chosen by
Russell Pittman
United States Department of Justice

  1. Revisitation to R&D market failure with spillover effects: A real option game approach By Gihyun Kwak; Jeongdong Lee
  2. Pricing-to-market, Trade Policy, and Market Power By Nicolas Berman; Alan Asprilla; Olivier Cadot; Mélise Jaud
  3. Information and Online Reviews By Oksana Loginova; Andrea Mantovani
  4. Familiarity and Competition: The Case of Mutual Funds By Ariadna Dumitrescu; Javier Gil-Bazo
  5. Essays on competition in banking By van Boxtel, A.A.
  6. Competitive Conditions in the Turkish Banking Systems By Taner SEKMEN; Ömer AKKUÅž; Ä°lyas ÅžIKLAR
  7. Market Share Analysis of Mobile Operators in Turkey By Hulisi Öğüt; Asunur Cezar; Merve Guven
  8. Non-Competitive Potential in the Iranian Electricity Market By Ali Nazemi; Anahita Farsaee
  9. Financial constraints and modes of market exit in Slovenian manufacturing and service firms By Nina Ponikvar; Katja Zajc Kejžar; Darja Peljhan
  10. Land competition and monopsonistic monopoly: the role of the narco-insurgency in the colombian cocaine market By Omar Fdo., Arias-R.; Alfonso, Aza-Jacome

  1. By: Gihyun Kwak (Technology, Mangament, Economics and Policy Programme, Seoul National University); Jeongdong Lee (Technology, Mangament, Economics and Policy Programme, Seoul National University)
    Abstract: One of the main topics regarding R&D investment in economics is “R&D market failureâ€. This is imputed that knowledge, which is the primary output of R&D, has spillover effects due to its public-good-like properties. It cause incomplete appropriability of innovating firm and will lead the underprovision of R&D investment in the economy which hinders the process of economic growth as a result. To explain and find solutions for R&D market failure, spillover effects generated in R&D should be thoroughly analyzed. Following earlier literatures on R&D spillovers, we consider two dimensions of spillovers in R&D simultaneously. First one is related to input-side knowledge spillover and second one is related to output-side knowledge spillover. The former implies that information about research activities at one firm may trickles out and influences the research activities of other firms. They are different in affecting incentives to invest in R&D. To consider both spillover effects concurrently, we take real option game approach which can be used to analyze situations with combined strategic interactions among players and uncertain environment. As a benchmark, we first derive an optimal R&D investment rule of a monopolist. Next, we derive an optimal R&D invest rule of a duopolist. To compare both of them, we can find how incomplete appropriaiblity problem of R&D investment is affected by two dimensions of spillover effects. Further, we can derive policy implications such as private R&D investment is stimulated if input-side or output-side spillovers could be mitigated.
    Keywords: R&D market failure, Knowledge spillovers, Real options game
    Date: 2014–10
  2. By: Nicolas Berman (IHEID, The Graduate Institute of International and Development Studies, Geneva and CEPR); Alan Asprilla (University of Lausanne); Olivier Cadot (University of Lausanne and CEPR); Mélise Jaud (World Bank)
    Abstract: This paper studies the determinants of pricing-to-market at the firm-level, with a particular focus on the role of firm-specific and policy-induced market power. We use a large dataset containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries, over several years. We first show that firms in our sample do price to market, i.e. significantly adjust their unit values in home currency in response to exchange-rate variations. The extent of pricing-to-market is quantitatively limited but highly significant and homogenous across origin countries despite their very different levels of development. We then study how firm performance and trade policy affect pricing-to-market at the firm-level. We find that within a given origin-destination-product cell, large, high-performance exporters price more to market. More importantly, we identify significant effects of trade-policy instruments on pricing-to-market: Higher import tariffs on a destination market are associated with less pricing-to-market, whereas non-tariff measures are associated with more. These results are consistent with models where pricing-to-market is increasing in firm size and market share, and suggest that trade policy has deep effects on market power, the direction of which depends on the type of instrument used.
    Keywords: Pricing-to-market, trade policy, exchange rate, tariffs
    JEL: F12 F13 F14 F31
    Date: 2015–03–23
  3. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia); Andrea Mantovani
    Abstract: Online review aggregators, such as TripAdvisor, HotelClub and OpenTable help consumers identify the products and services that best match their preferences. The goal of this study is to understand the impact of online review aggregators on firms and consumers. We adopt Salop's circular city model in which consumers initially do not know the locations of the firms in the product space. The firms decide whether or not to be listed on an online review aggregator's website and choose their prices. When a firm resorts to the aggregator, its location and price become observable to the consumers who visit the website. We consider two different scenarios, depending on the possibility for online firms to offer discounts to the consumers who book online. We show that in equilibrium not all firms will go online -- some will remain offline. Online firms attract more customers than their offline counterparts due to reduced mismatch costs, but face a tougher price competition. Comparing the equilibrium prices, profits and the number of firms that go online across the scenarios, we derive interesting conclusions from the private and the social standpoints.
    Keywords: online review aggregators, price discrimination, competition
    JEL: C72 D43 D61 L11 L13 M31
    Date: 2015–03–12
  4. By: Ariadna Dumitrescu; Javier Gil-Bazo
    Abstract: We build a model of mutual fund competition in which a fraction of investors ("unsophisticated") exhibit a preference for familiarity. Funds differ both in their quality and their visibility: While unsophisticated investors have varying degrees of familiarity with respect to more visible funds, they avoid low-visibility funds altogether. In equilibrium, bad low-visibility funds are driven out of the market of sophisticated investors by good low-visibility funds. High-visibility funds do not engage in competition for sophisticated investors either, and choose instead, to cater to unsophisticated investors. If familiarity bias is high enough, bad funds survive competition from higher quality funds despite offering lower after-fee performance. Our model can thus shed light on the persistence of underperforming funds. But it also delivers a completely new prediction: Persistent differences in performance should be observed among more visible funds but not in the more competitive low-visibility segment of the market. Using data on US domestic equity funds, we find strong evidence supporting this prediction. While performance differences survive at least one year for the whole sample, they vanish within the year for low-visibility funds. These results are not explained by differences in persistence due to fund size or investment category. The evidence also suggests that differences in persistence are not the consequence of other forms of segmentation on the basis of investor type (retail or institutional) or the distribution channel.
    Keywords: familiarity bias, competition, mutual funds, performance persistence
    JEL: G2 G23
    Date: 2015–03
  5. By: van Boxtel, A.A. (Tilburg University, School of Economics and Management)
    Abstract: Abstract: This thesis consists of three chapters of a theoretical nature, all related to the topic of competition in the financial sector. The first chapter studies how competition for talented workers induces banks to set variable wage<br/>schemes, and how these wage schemes can lead to excessive risk. The<br/>second chapter argues that non-exclusive investor-firm relations can lead<br/>to an excessive provision of liquidity. The third chapter studies an economy<br/>in which different investors all compete non-exclusively for investment in<br/>a long-term project subject to a stochastic liquidity demand. The result is<br/>that investment can only take place if an intermediary is present in this<br/>economy.<br/>
    Date: 2015
  6. By: Taner SEKMEN (EskiÅŸehir Osmangazi University); Ömer AKKUÅž (Anadolu University); Ä°lyas ÅžIKLAR (Anadolu University)
    Abstract: In this paper, we investigate competition in Turkish banking sector over the period 2003– 2012. In order to understand the competitive condition in Turkish banking sector, we use the well-known Panzar-Rosse model based on a nonstructural estimation of the H-statistic by employing the quarterly panel data set. The emprical evidences indicate that the Turkish banking sector operates under conditions of monopolistic competition. Therefore, although there have been growing structural changes in the Turkish banking sector since 2000s, there is no remarkable change in the market structure of the Turkish banking sector as compared to previous studies and it can still be characterized by the monopolistic competition.
    Keywords: Competition, Panzar-Rosse Model, Turkish Banking Sector, H-Statistic
    JEL: A10 D40 E44
    Date: 2014–06
  7. By: Hulisi Öğüt (TOBB Economics and Technology University); Asunur Cezar (TOBB University of Economics and Tehnology); Merve Guven (Agricultural and Rural Development Support Institution)
    Abstract: We investigate the factors influencing the demand for mobile voice services in Turkey using firm level data which spans from January 2008 to December 2012. The competition in mobile telecommunication market in Turkey has become more intense as a result of mobile number portability (MNP) service introduced in 2008 and 3G technology introduced in 2009. The intense competition not only helps to keep prices down but also supports subscriber growth. Besides prices, we believe that network effects have an impact on market growth. Approximating sales levels using subscription levels and churn rates and using revenue per minute (RPM) as a price measure, we find that while price has a significant negative impact on the demand for mobile services, network effects has a significant positive impact on demand for mobile services. We also estimate own and cross price elasticities of the firms operating in mobile telecommunication market.
    Keywords: telecommunication;3G; mobile number portability
    JEL: L96
    Date: 2014–06
  8. By: Ali Nazemi (University of Economic Sciences); Anahita Farsaee (University of Economic Sciences)
    Abstract: The electricity markets worldwide have distinctive particularities due to some political and historical reasons. However, principal guidelines of market design remain very similar. The Iranian electricity market has been inaugurated as a pay-as-bid market in 2004. Although the Iranian electricity market has had positive consequences, the economic discussion about proper market design and architecture is in its infancy. The main goal of this paper is analyzing market power and efficiency in the Iranian electricity market.Generally, in spite of the fact that Iranian electricity market is not a high concentrated market, it has potential for non-competitive results. Analyzing results and other facts of the market shows that the most important reason for this is the urgent shortage of supply threshold in this market, rather than the extent of concentration in the industry.
    Keywords: market power, efficiency, Iranian Electricity Market
    JEL: D49
    Date: 2014–07
  9. By: Nina Ponikvar (University of Ljubljana, Faculty of Economics); Katja Zajc Kejžar (University of Ljubljana, Faculty of Economics); Darja Peljhan (University of Ljubljana, Faculty of Economics)
    Abstract: The recent financial and economic crisis has brought back the attention to studying the characteristics of surviving firms and those exiting the market. Among these characteristics the access to finance has received large attention, since the economic crisis decreased the availability of finance and increased its costs. Further, literature from industrial organization, entrepreneurship and strategic management all show that factors behind different types of firm exit decisions, such as bankruptcy, voluntary liquidation, mergers and acquisitions (M&A) differ. Our paper studies factors that influence the firm’s decision to exit the market by explicitly considering alternative firm exit modes. Our competing risk models are estimated with a standard multinomial logit model and the alternative multinomial probit model on the population of Slovenian firms in 2006-2012. We distinguish between (1) court driven exit as a result of bankruptcy or forced liquidation; (2) voluntary liquidation, (3) disappearances from the dataset as a result of mergers and acquisitions, and (4) termination based on a resolution/decision of the registration agency or according to the law. We argue that decision over whether to close down a business or to sell out to another company is influenced by financial constraints, firm specific characteristics (size, age, productivity, capital intensity), and industry factors. The paper tests whether different facets of financial constraints and other firm and industry level characteristics hold different degrees of relevance for alternative routes of the firm operations termination. In measuring financial constraints as antecedent to an exit event, we propose the exploratory factor analysis and derive to three dimensions of the financial constraint measure, i.e. liquidity, operational-efficiency factor, and profitability factor and in this way contribute to the financial constraints literature. We contribute to the firm exit literature by showing that court-driven exit, voluntary liquidation and M&A follow diverse exit routes driven by different firm level and industry characteristics. We find that the main difference between bankrupt and liquidated firms is that the choice of exiting through voluntary liquidation is characterized by economic distress while firms choosing to exit by bankruptcy are firms in financial and economic distress. Economically distressed firms have bad prospects because of low or negative profitability and little opportunity for improvement. The main characteristic of financially distressed firms is high leverage level causing problems in repaying debts. Firms that decided to exit by M&A usually have profitability problems, but are not financially distressed.
    Keywords: firm exit, financial constraints, bankruptcy, liquidation, merger and acquisition (M&A)
    JEL: G32 L25 C23
    Date: 2014–07
  10. By: Omar Fdo., Arias-R.; Alfonso, Aza-Jacome
    Abstract: The main purpose of this paper is to model the role of the narco-insurgency in the structure and functioning of the colombian cocaine market. The narco-insurgency gets important profits from this market by controlling the land for producing coca-leaf, and the production of inputs for trading cocaine. These inputs could be paste or base of cocaine, or even cocaine before trading it to the final consumers. Those profits allow the narco-insurgency to configure and sustain such a market structure that guarantees it to obtain them permanently. We proceed by four steps. First, we model the land conflict between the narco-insurgency and the government. The output of this process is a valuation of the land for producing coca-leaf. The second stage concerns the farmers. By using violence, the narco-insurgency obligates the farmers to participate in the cocaine market as producers of coca-leaf. It charges them a tax for the coca-leaf production, and also it fixes them the coca-leaf price through its monopsonistic power. In the third stage, the narco-insurgency produces those inputs for trading cocaine and sell them monopolistically to cocaine traffickers, which compete each one in an oligopolistic market. The gap between the coca-leaf price and the price of inputs for trading cocaine explains the profits that narco-insurgency obtains from this illegal market.
    Keywords: narco-insurgency, land-competition, monopsonistic monopoly, coca-leaf, cocaine, oligopoly.
    JEL: D43 J42 K42
    Date: 2015–03–21

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