nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒06‒13
25 papers chosen by
Russell Pittman
United States Department of Justice

  1. Prices, Profits, and Preference Dependence By Chen, Yongmin; Riordan, Michael
  2. Informative Advertising with Discretionary Search By Gardete, Pedro M.; Guo, Liang
  3. Learning from Unrealized versus Realized Prices By Kathleen Ngangoué; Georg Weizsäcker
  4. Evolutionary stability in asymmetric oligopoly: A non-Walrasian result By Leininger, Wolfgang; Moghadam, Hamed M.
  5. Should Brand Firms Always Take Pioneering Position? By Cong Pan
  6. Unfair Competition in the Field of Intellectual Property By Shastitko, Andrey; Komkova, Anastasia; Kurdin, Alexander
  7. From old to new industrial policy via economic regulation By Mark Thatcher
  8. Economic indicators for the presence of tacit collusion in merger control under varied focal points By Proctor, Adrian
  9. 'Comparable Markets' as a Tool of Antitrust Policy: Design, Application Experience, Development Directions By Shastitko, Andrey; Golovanova, Svetlana
  10. Program for Smoothening Punishment for Participating in a Cartel: The Problematic Field, and the Effects of Structural Alternatives By Shastitko, Andrey; Pavlova, Natalia
  11. When Organizational Justice Matters for Affective Merger Commitment By Ralf BEBENROTH; Kai Oliver THIELE
  12. Subsidy or tax policy for new technology adoption in duopoly with quadratic and linear cost functions By Hattori, Masahiko; Tanaka, Yasuito
  13. The role of diversification profiles and dyadic characteristics in the formation of technological alliances: Differences between exploitation and exploration in a low-tech industry By Krammer, Sorin M.S.
  14. Behavioral Consumers in Industrial Organization By Michael D. Grubb
  15. Failing to Choose the Best Price: Theory, Evidence, and Policy By Michael D. Grubb
  16. Overconfident Consumers in the Marketplace By Michael D. Grubb
  17. Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform By Kurt R. Brekke; Chiara Canta; Odd Rune Straume
  18. Defining hospital markets: An application to the German hospital sector By Hentschker, Corinna; Schmid, Andreas; Mennicken, Roman
  19. Mergers and acquisitions in the German hospital market: Who are the targets? By Pilny, Adam
  20. Altruism heterogeneity and quality competition among healthcare providers By Kairies-Schwarz, Nadja
  21. An Overview of the Stratified Economics of Stratified Medicine By Mark R. Trusheim; Ernst R. Berndt
  22. Is the German retail gas market competitive? A spatial-temporal analysis using quantile regression By Kihm, Alex; Ritter, Nolan; Vance, Colin
  23. Welfare Effects of Home Automation Technology with Dynamic Pricing By Bollinger, Bryan; Hartmann, Wesley R.
  24. The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya By Troug, Haytem Ahmed; Sbia, Rashid
  25. Changing prices ... changing times: evidence for Italy By Silvia Fabiani; Mario Porqueddu

  1. By: Chen, Yongmin; Riordan, Michael
    Abstract: We develop a new approach to discrete choice demand for differentiated products, using copulas to separate the marginal distribution of consumer values for product varieties from their dependence relationship, and apply it to the issue of how preference dependence affects market outcomes in symmetric multiproduct industries. We show that greater dependence lowers prices and profits under certain conditions, suggesting that preference dependence is a distinct indicator of product differentiation. We also find new sufficient conditions for the symmetric multiproduct monopoly and the symmetric single-product oligopoly prices to be above or below the single-product monopoly price.
    Keywords: Product differentiation, discrete choice, copula, multiproduct industries.
    JEL: D4 L1
    Date: 2014–12
  2. By: Gardete, Pedro M. (Stanford University); Guo, Liang (Chinese University of Hong Kong)
    Abstract: We consider a model of strategic information transmission where a firm can communicate its quality to consumers through informative advertising. Our main result is that informative advertising claims can be credible even when the firm faces consumers with exante homogeneous preferences. A fundamental assumption of our model is that whether the product is available for purchase is independent of consumers' information acquisition efforts (i.e., search is discretionary). This assumption, in conjunction with the pricing problem of the firm, provides incentives for truth-telling. When quality is common knowledge, increases in quality lead to a higher market price. However, firm profit and consumer welfare are non-monotonic in product quality. The firm may be worse off with a better product because of increased consumer search and resulting preference heterogeneity. Consumers may also become worse off with a higher quality product when the option value of searching is low because in this case the firm raises price quickly in order to target consumers who do not search. Finally, when product quality is unknown but credible information is available, consumers become worse off with the probability of facing a high type firm because this firm is able to extract value from trade most effectively.
    Date: 2015–01
  3. By: Kathleen Ngangoué; Georg Weizsäcker
    Abstract: Our market experiment investigates the extent to which traders learn from the price, differentiating between situations where orders are submitted before versus after the price has realized. When market participants have to submit their bids conditional on the price, they show a bias by reacting only to their private information and not to the hypothetical value of the price. In a sequential trading mechanism, where the price is known at the bid submission, bids react to price to an extent that is roughly consistent with the benchmark theory.
    Keywords: Naive expectations, asymmetric information, rational expectations, sequential markets
    JEL: D82 D81 C91
    Date: 2015
  4. By: Leininger, Wolfgang; Moghadam, Hamed M.
    Abstract: It is a very well-known result that in terms of evolutionary stability the long-run outcome of a Cournot oligopoly market with finitely many firms approaches the perfectly competitive Walrasian market outcome (Vega-Redondo, 1997). However, in this paper we show that an asymmetric structure in the cost functions of firms may change the long-run outcome. Contrary to Tanaka (1999) we show that the evolutionarily stable price in an asymmetric Cournot oligopoly needs not equal the marginal cost, it may rather equal a weighted average of (different) marginal cost. We apply a symmetrization technique in order to transform the game with asymmetric firms into a symmetric oligopoly game and then extend Schaffer's definition (1988) of a finite population ESS (FPESS) to this setup. Moreover, we show that the FPESS in this game represents a stochastically stable state of an evolutionary process of imitation with experimentation.
    Abstract: Einem bekannten und überraschenden Result zufolge ist das langfristige evolutionäre Gleichgewicht in einem endlichen Cournot-Opligopol durch die Allokation des vollkommenen Wettbewerbsgleichgewichts nach Walras (und nicht die des klassischen Cournot-Gleichgewichts) gekennzeichnet (Vega-Redondo, 1997). Diese Arbeit zeigt, dass dies nicht mehr zutrifft, wenn sich die Firmen asymmetrisch durch unterschiedliche Kostenfunktionen unterscheiden. Das Ergebnis wird durch die Analyse einer symmetrisierten Version des ursprünglich asymmetrischen Spiels erzeugt, in der das Lösungskonzept einer evolutionär stabilen Strategie für endliche Populationen (Schaffer, 1988) für diesen Modellrahmen adaptiert wird. Das Ergebnis widerspricht insbesondere einem Resultat von Tanaka (1999), der das "marginal cost pricing"-Resultat von Vega-Redondo für symmetrische Firmen auch auf einen asymmetrischen Fall übertragen hatte. Die vorliegende Arbeit kritisiert dessen Modell und sein Ergebnis und weist ein "average cost pricing"-Resultat als evolutionär stabile Oligopollösung nach.
    Keywords: Cournot oligopoly,asymmetry,finite population evolutionary stable strategy,stochastic stability
    JEL: C72 C73 D43 L13
    Date: 2014
  5. By: Cong Pan
    Abstract: This paper discusses brand firms' endogenous timing problem when facing nonbrand firms under quantity competition. We study a market comprising brand and nonbrand products. There exist heterogeneous consumer groups-one group buys only brand products while the other one cares little about the brand. These two consumer groups constitute the high-@and low-end markets respectively. The brand firms' moving order is endogenized, whereas the nonbrand firms are restricted to move in a later period. We show that if the low-end market is of an intermediate size, the leader-follower equilibrium outcome occurs, and the follower obtains second mover advantage which diminishes when the number of nonbrand firms increases. These results follow from the fact that each brand firm's best response function has an upward jump if the rival's output exceeds a particular level. Thus, the leader's profit function has a downward jump at some particular point while the follower's profit does not.
    Date: 2015–06
  6. By: Shastitko, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Komkova, Anastasia (Russian Presidential Academy of National Economy and Public Administration (RANEPA); Moscow State University - Faculty of Economics); Kurdin, Alexander (Russian Presidential Academy of National Economy and Public Administration (RANEPA); Moscow State University - Faculty of Economics; National Research University Higher School of Economics)
    Abstract: The paper discusses various aspects of unfair competition in the field of intellectual activity results. Authors analyzed and classified the main types of unfair competition and proposed models for the formal analysis of the situation of spreading of false information about the objects of intellectual property and unfair competition as a result of violations of the rights of intellectual property.
    Keywords: unfair competition, intellectual activity, intellectual property
    Date: 2015–05
  7. By: Mark Thatcher
    Abstract: Major institutional reforms that have introduced economic regulation in Europe and elsewhere appear to have ended traditional industrial policies of favouring selected national champion suppliers. Privatisation, the delegation of powers over mergers and acquisitions to the EU and independent competition authorities, new rules to ensure competition and prohibit state support to favoured companies and the end of planning, all appear to have led to a regulatory state. However, the article argues that regulatory reforms have in fact provided additional or alternative instruments for policy makers to favour European or international champion firms. The article analyses the different institutional reforms to show how they have provided instruments for policy makers to construct larger Europeanised and internationalised champion firms, shape markets through mergers and acquisitions, aid selected firms in liberalised markets, and to plan policies in ways that privilege chosen firms. It concludes that regulatory institutions are compatible with new forms industrial policy.
    JEL: J1 O14
    Date: 2014
  8. By: Proctor, Adrian
    Abstract: This article discusses how different focal points in a market can lead to different collusive agreements and how merger analysis can identify markets that may be vulnerable to these potential agreements. Focal points based on customer allocation and geographic markets are considered with recent UK examples of this type of analysis. The focal point firms are using for coordination can affect the transparency required to maintain coordination and how targeted or effective any punishment for deviation can be.
    Keywords: Identifying Tacit Coordination, Customer Geographic Focal points, Collusion, Merger Analysis.
    JEL: L4 L41
    Date: 2013–11
  9. By: Shastitko, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Golovanova, Svetlana (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: This work carried out theoretical reconstruction of "comparable markets in a competitive environment" standard, both Russian and foreign experience of its application were summarized, the legal structure of comparable markets in the Russian antimonopoly legislation were assessed, structural alternative to the use of this tool, the options and limits of its development from the perspective of the applicability of economic theory, statistical information available to researchers and the analytical capacity of modern mathematical methods of analysis, were revealed.
    Keywords: comparable markets, competition, antimonopoly legislation, economic theory
    Date: 2015–05
  10. By: Shastitko, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Pavlova, Natalia (National Research University Higher School of Economics - Institute for Industrial and Market Studies)
    Abstract: The work is an attempt to analyze leniency programs for cartel participants in terms of discrete structural alternatives of their design. A set of basic theoretical bifurcations in the structure of such programs is established. Consequently, for each bifurcation the main structural alternatives are defined. Leniency programs in the US and the EU are used to illustrate some of the specifics of programs functioning in practice. The analysis allows us to outline the problem field of developing leniency programs and to offer a number of solutions to emerging problems.
    Keywords: leniency programs, cartels, discrete structural alternatives, antitrust policy
    Date: 2015–05
  11. By: Ralf BEBENROTH (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kai Oliver THIELE (Hamburg University of Technology(TUHH), Germany and Human Resource Management and Organizations (HRMO), Germany)
    Abstract: We investigate when organizational justice matters to employees' commitment in the post-acquisition process after a company is overtaken in a cross-border acquisition. There is overwhelming evidence that employees who are treated fairly during acquisitions are more committed to their new firms. We extend this finding by dividing organizational justice into three sub-dimensions: informational justice, interpersonal justice, and procedural justice. We find evidence that procedural justice is an important antecedent of affective merger commitment at an early stage of the integration period, while informational justice becomes important at a later stage. Further analysis on heterogeneity between the target firm's employees and the bidder firm's employees reveals that, immediately after the acquisition, target-firm's employees value knowing where they will be at the new firm (procedural justice), while bidder-firm employees are more concerned about communication and transparency (informational justice). Our results point to the importance of organizational justice in a cross-border M&A setting and the need for a separate study of issues related to bidder firms and target firms.
    Keywords: Lobby, Theorisation, Competition policy, Publishing, Japan, Resale price maintenance, Neoliberalism
    Date: 2015–06
  12. By: Hattori, Masahiko; Tanaka, Yasuito
    Abstract: We present an analysis about subsidy (or tax) policy for adoption of new technology in a duopoly with a homogeneous good. Technology itself is free. However, firms must expend fixed set-up costs for adoption of new technology, for example, education costs of their staffs. We assume linear demand function, and consider two types of cost functions of firms. Quadratic cost functions and linear cost functions. There are various cases of optimal policies depending on the level of the set-up cost and the forms of cost functions. In particular, under linear cost functions there is the following case. The social welfare is maximized when one firm adopts new technology, however, both firms adopt new technology without subsidy nor tax. Then, the government should impose taxes on one firm or both firms. Under quadratic cost functions there exists no taxation case. There are subsidization cases both under quadratic and linear cost functions.
    Keywords: subsidy or tax for new technology adoption, duopoly, quadratic cost, linear cost
    JEL: D43 L13
    Date: 2015–06–09
  13. By: Krammer, Sorin M.S.
    Abstract: This paper posits that firms' corporate and technological diversification profiles and their relatedness in terms of products and technologies impact their propensity to form alliances for exploitation and exploration. The empirical investigation employs a dataset of all tire producers worldwide between 1985 and 1996 that combines detailed firm level data on establishment, patenting, and alliance activities. The results support these theoretical predictions and indicate that exploitative alliances are driven primarily by complementarity in terms of corporate diversification strategies, as well as partner characteristics (e.g., size, age, and technological capabilities). Moreover, firms with similar product portfolios but uneven technological performance are more likely to engage in exploitative interactions. In contrast, exploration alliances are driven by strong partner similarity across all firm characteristics and product portfolios. Both market and technological diversification have positive effects on the propensity to engage in explorative alliances while technological distance has a negative one.
    Keywords: Alliances; Technology; Diversification strategy; Dyadic characteristics; Global tire industry;
    JEL: D21 L62 L65 O32 O33
    Date: 2015–06–05
  14. By: Michael D. Grubb (Boston College)
    Abstract: This paper succinctly overviews three primary branches of the industrial organization literature with behavioral consumers. The literature is organized according to whether consumers: (1) have non-standard preferences, (2) are overconfident or otherwise biased such that they systematically misweight different dimensions of price and other product attributes, or (3) fail to choose the best price due to suboptimal search, confusion comparing prices, or excessive inertia. The importance of consumer heterogeneity and equilibrium effects are also highlighted along with recent empirical work.
    Keywords: behavioral industrial organization; bounded rationality; loss aversion; present bias; overconfidence; search; obfuscation; switching; inertia
    JEL: D41 D42 D43 D81 D82 D83 L11 L12 L13 L15
    Date: 2015–05–12
  15. By: Michael D. Grubb (Boston College)
    Abstract: Both the "law of one price" and Bertrand's (1883) prediction of marginal cost pricing for homogeneous goods rest on the assumption that consumers will choose the best price. In practice, consumers often fail to choose the best price because they search too little, become confused comparing prices, and then show excessive inertia through too little switching away from past choices or default options. This is particularly true when price is a vector rather than a scalar, and consumers have limited experience in the relevant market. All three mistakes may contribute to positive markups that fail to diminish as the number of competing sellers increases. Firms may have an incentive to exacerbate these problems by obfuscating prices, thereby using complexity to make price comparisons diffcult and soften competition. Possible regulatory interventions include simplifying the choice environment, for instance by restricting price to be a scalar, advising consumers of their expected costs under each option, or choosing on behalf of consumers.
    Keywords: behavioral industrial organization; bounded rationality; search; obfuscation; switching; inertia
    JEL: D43 D83 L11 L13 L15
    Date: 2015–05–18
  16. By: Michael D. Grubb (Boston College)
    Keywords: overconfidence; overoptimism; overprecision; bias; naiveté; three-part tariff; present bias; self-control; prospective memory; inattention; pass-through; nudge; contract; behavioral industrial organization
    JEL: D41 D42 D43 D81 D82 D83 L11 L12 L13 L15
    Date: 2015–03–15
  17. By: Kurt R. Brekke (Department of Economics, Norwegian School of Economics); Chiara Canta (Department of Economics, Norwegian School of Economics); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: In this paper we study the impact of reference pricing (RP) on entry of generic firms in the pharmaceutical market. For given prices, RP increases generic firms' expected profit, but since RP also stimulates price competition, the impact on generic entry is theoretically ambiguous. In order to empirically test the effects of RP, we exploit a policy reform in Norway in 2005 that exposed a subset of drugs to RP. Having detailed product-level data for a wide set of substances from 2003 to 2013, we find that RP increased the number of generic drugs. We also find that RP increased market shares of generic drugs, reduced the prices of both branded and generic drugs, and led to a (weakly significant) decrease in total drug expenditures. The reduction in total expenditures was relatively smaller than the reduction in average prices, reflecting the fact that lower prices stimulated total demand.
    Keywords: Pharmaceuticals; Reference pricing; Generic entry
    JEL: I11 I18 L13 L65
    Date: 2015
  18. By: Hentschker, Corinna; Schmid, Andreas; Mennicken, Roman
    Abstract: The correct definition of the product market and of the geographic market is a prerequisite for assessing market structures in antitrust cases. For hospital markets, both dimensions are controversially discussed in the literature. Using data for the German hospital market we aim at elaborating the need for differentiating the product market and at investigating the effects of different thresholds for the delineation of the geographic market based on patient flows. Thereby we contribute to the scarce empirical evidence on the structure of the German hospital market. We find that the German hospital sector is highly concentrated, confirming the results of a singular prior study. Furthermore, using a very general product market definition such as 'acute in-patient care' averages out severe discrepancies that become visible when concentration is considered on the level of individual diagnoses. In contrast, varying thresholds for the definition of the geographic market has only impact on the level of concentration, while the correlation remains high. Our results underline the need for more empirical research concerning the definition of the product market for hospital services.
    Keywords: hospital market,concentration,product market,geographic market,Germany
    JEL: L11 I11
    Date: 2014
  19. By: Pilny, Adam
    Abstract: Since the introduction of the DRG system in 2004, the German hospital market experienced a stream of consolidations in terms of mergers and acquisitions, resulting in a decreasing number of hospital owners. In this study, I examine the ex-ante characteristics of hospitals prior to a merger or an acquisition occurring between 2005 and 2010 in Germany, predominantly focusing on the financial conditions of hospitals. The results reveal that hospitals with a higher probability of default and less liquid resources are more often the targets of acquisitions. On the other hand, hospitals with a lower equity-to-assets ratio exhibit a higher probability of merger. This pattern can be explained by different motives and rationales of hospital chains and potential investors.
    Abstract: Seit der Einführung des DRG-Systems im Jahr 2004 fand im deutschen Krankenhausmarkt eine Konsolidierung statt, die durch Fusionen und Akquisitionen geprägt gewesen ist. In deren Folge nahm die Anzahl der Träger im Krankenhausmarkt stetig ab. In dieser Studie werden die ex-ante Charakteristika von Krankenhäusern vor ihrer Fusion und Akquisition untersucht, wobei insbesondere der Fokus auf die finanzielle Lage der Kliniken gelegt wird. Die Ergebnisse zeigen, dass Krankenhäuser mit einer größeren Ausfallwahrscheinlichkeit und mit geringeren liquiden Mitteln häufiger von Akquisitionen betroffen sind. Dahingegen weisen Kliniken mit einer geringeren Eigenkapitalquote eine höhere Wahrscheinlichkeit auf fusioniert zu werden. Diese Ergebnisse lassen sich durch die Motive und Übernahmeabsichten seitens der Klinikketten und potenzieller Investoren erklären.
    Keywords: hospital market,mergers,acquisitions,consolidation
    JEL: I11 L33
    Date: 2014
  20. By: Kairies-Schwarz, Nadja
    Abstract: New empirical evidence shows substantial heterogeneity in the altruism of healthcare providers. Spurred by this evidence, we build a spatial quality competition model with altruism heterogeneity. We find that more altruistic healthcare providers supply relatively higher quality levels and position themselves closer to the center. Whether the social planner prefers more or less horizontal differentiation is in general ambiguous and depends on the level of altruism. The more altruistic healthcare providers are, the more likely it is that the social planner prefers greater horizontal differentiation to offset costly quality competition.
    Abstract: Neue empirische Evidenz für Leistungsanbieter im Gesundheitswesen zeigt, dass es erhebliche Heterogenität im Grad des Altruismus gibt. Auf Basis dieser neuen Evidenz entwickeln wir ein räumliches Wettbewerbsmodell, in dem Leistungsanbieter mittels Qualität konkurrieren und das für Heterogenität im Grad des Altruismus erlaubt. Wir finden, dass Leistungsanbieter, die durch einen relativ höheren Grad an Altruismus gekennzeichnet sind, auch höhere Qualitäten anbieten und sich zentraler allokieren (niedrigere horizontale Differenzierung). Ob aus der sozialen Perspektive mehr oder weniger horizontale Differenzierung bevorzugt wird, hängt von dem Grad des Altruismus ab. Je höher der Grad des Altruismus, desto wahrscheinlicher ist es, dass der Sozialplaner mehr horizontale Differenzierung bevorzugt, um den Qualitätswettbewerb einzuschränken.
    Keywords: healthcare provider altruism and heterogeneity,quality competition
    JEL: H42 I11 I18 L13
    Date: 2014
  21. By: Mark R. Trusheim; Ernst R. Berndt
    Abstract: The economics of stratified medicine depend critically on setting the cut-off score of the companion diagnostic (CDx). This action integrates scientific, clinical, ethical and commercial considerations, and simultaneously determines the value of the stratified medicine to developers, providers, payers and patient. Setting a high cut-off ensures a larger response by excluding more non-responders but also denies treatment to patients who would respond. This creates ethical and clinical concerns, and limits market size. Setting a low cut-off includes more patients who can benefit but includes more non-responders with commensurate costs, side effects and lost time. CDx’s capture little value under current reimbursement and exclusivity protections. Combined with low CDx investment incentives for generic drug manufacturers, little CDx development occurs for older legacy drugs. Therefore payers face an asymmetric situation of novel stratified medicines raising public health and payers’ costs, but no CDx’s for legacy treatments to reduce costs. It would be in payers’ interests to rediscover their heritage of direct investment in diagnostic development.
    JEL: D04 D21 I11 I18 L11 L65
    Date: 2015–06
  22. By: Kihm, Alex; Ritter, Nolan; Vance, Colin
    Abstract: We explore whether non-competitive pricing prevails in Germany's retail gasoline market by examining the influence of the crude oil price on the retail gasoline price, focusing specifically on how this influence varies according to the brand and to the degree of competition in the vicinity of the station. Our analysis identifies several factors other than cost - including the absence of nearby competitors and regional market concentration - that play a significant role in mediating the influence of the oil price on the retail gas price, suggesting price setting power among stations.
    Keywords: panel data,quantile regression,spatial competition,gasoline market
    JEL: C33 Q41 R41
    Date: 2014
  23. By: Bollinger, Bryan (Duke University); Hartmann, Wesley R. (Stanford University)
    Abstract: A fixed cost investment in home automation technology can eliminate consumers' marginal costs of responding to changing demand conditions. We estimate the welfare effects of a home automation technology using a field experiment run by a large electric utility that randomly assigned both a technology and price treatment. Average treatment effects reveal that the home automation technology reduces demand more than twice as much as an alternative technology that only informs consumers of price changes. Furthermore, the average demand reductions during critical price events provide sufficient supply-side welfare gains to fully offset the installation costs of the device. Finally, we estimate household-specific treatment effects by matching households on their pre-treatment policy functions. This demonstrates the additional surplus gained by the utility if it targeted these treatments to households with the largest estimated demand responses.
    Date: 2015–03
  24. By: Troug, Haytem Ahmed; Sbia, Rashid
    Abstract: In our paper, we examined the relationship between non-performing loans, as a measure of stability, and concentration, as a measure of competition, in the Libyan banking sector. We used aggregate quarterly data for the 15 commercial banks in the country during the period 2002-2013. A broad set of tests were conducted to measure the relationship between the two variables, and alternative robustness tests were conducted to assure our core finding that less competition in the banking sector leads to a more resilient banking sector. Thus, our results offer empirical support against “competition–stability” theory and conform to the “competition–fragility” literature. We conclude by recommending the need to inspect in more detail (on a bank by bank level) the relationship between competition and fragility in developing countries in general and in Libya in particular.
    Keywords: Banking competition, Financial stability, developing countries, Oil exporting countries, Libya.
    JEL: C50 C58 G00 G21
    Date: 2015
  25. By: Silvia Fabiani (Bank of Italy); Mario Porqueddu (Bank of Italy)
    Abstract: This paper examines the process of adjustment of prices in Italy to determine whether nominal flexibility, measured by the frequency of price changes, has increased in the recent years of protracted stagnation and double-dip recession. The analysis is based on a large micro-level dataset of individual prices collected monthly by Istat from 2006 to 2013 for the Consumer Price Index. We find that both the percentage of prices adjusted monthly and the average size of the adjustment have risen significantly since the 1996-2001 period, in particular for downward changes. This greater flexibility is related in part to the spread of modern distribution structures. Our estimates further indicate that the recession has affected the price adjustment mechanism: for manufactures, price cuts have become larger and more frequent, while increases are more moderate; for services, both the frequency and the size of price increases have diminished.
    Keywords: consumer prices, nominal flexibility, frequency of price adjustmen.
    JEL: E31 D21 D40 L11
    Date: 2015–06

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