nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒07‒04
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Law of one price and optimal consumption-leisure choice under price dispersion By Malakhov, Sergey
  2. Demand Analysis with Partially Observed Prices By Ian Crawford; Matthew Polisson
  3. Selling to the mean By Nenad Kos; Matthias Messner
  4. On the properties of linear supply functions in oligopoly By F. Delbono; L. Lambertini
  5. Leniency and Damages By Buccirossi, Paolo; Marvão, Catarina; Spagnolo, Giancarlo
  6. Does Financing of Chinese Mergers and Acquisitions Have “Chinese Characteristics”? By Lulu Gu; W. Robert Reed
  7. The impact of R&D subsidy on innovation: a study of New Zealand firms By Adam Jaffe; Trinh Le
  8. Strategic Investment Dependence and Net Neutrality By Nielsen, Martin
  9. Competition, Selectivity and Innovation in the Higher Educational Market By Lynne Pepall; Dan Richards
  10. Bank bailouts and competition - Did TARP distort competition among sound banks? By Koetter, Michael; Noth, Felix
  11. Bank Competition and Financial Stability: Much Ado About Nothing? By Tomáš Havránek; Marek Rusnak; Anna Sokolova
  12. What do we know about the role of bank competition in Africa? By Florian LEON
  13. The Economics of Television and Online Video Markets By Crawford, Gregory S
  14. Media Competition, Information Provision and Political Participation By Julia Cage

  1. By: Malakhov, Sergey
    Abstract: If the demand under price dispersion is formed by consumers with zero search costs and consumers with positive search costs, the law of one price holds at the equilibrium price level, where the lowest willingness to pay between consumers with zero search costs meets the willingness to accept or to sell of consumers with positive search costs. The equilibrium price level is provided by the individual equality of marginal losses in labor income during the search with marginal savings on purchase. Suboptimal decisions of consumers with positive search costs create an opportunity of arbitrage with willingness to pay at the zero costs search level that results in a new equilibrium price and in optimal consumption-leisure choices of all consumers.
    Keywords: equilibrium price, consumption-leisure choice, cost of search, price dispersion, willingness to pay, willingness to accept
    JEL: D11 D83
    Date: 2015–06–25
  2. By: Ian Crawford; Matthew Polisson
    Abstract: In empirical demand, industrial organization, and labor economics, prices are often unobserved or unobservable since they may only be recorded when an agent transacts. In the absence of any additional information, this partial observability of prices is known to lead to a number of identification problems. However, in this paper, we show that theory-consistent demand analysis remains feasible in the presence of partially observed prices, and hence partially observed implied budget sets, even if we are agnostic about the nature of the missing prices. Our revealed preference approach is empirically meaningful and easy to implement. We illustrate using simple examples.
    Keywords: Demand; missing prices; partial identification; revealed preference
    JEL: D11 D12
    Date: 2015–06
  3. By: Nenad Kos; Matthias Messner
    Abstract: We study optimal selling strategies of a seller who is poorly informed about the buyer’s value for the object. When the maxmin seller only knows that the mean of the distribution of the buyer’s valuations belongs to some interval then nature can keep him to payoff zero no matter how much information the seller has about the mean. However, when the seller has information about the mean and the variance, or the mean and the upper bound of the support, the seller optimally commits to a randomization over prices and obtains a strictly positive payoff. In such a case additional information about the mean and/or the variance affects his payoff. JEL Code: C72, D44, D82. Keywords: Optimal mechanism design, Robustness, Incentive compatibility, Individual rationality, Ambiguity aversion.
    Date: 2015
  4. By: F. Delbono; L. Lambertini
    Abstract: In this note we revisit the result by Menezes and Quiggin (2012), showing that under linear supply function competition, the same Nash equilibrium results when firms choose slopes or intercepts of their supply functions. This is because the first order conditions emerging in the two strategy spaces are not linearly independent.
    JEL: D43 L13
    Date: 2015–06
  5. By: Buccirossi, Paolo; Marvão, Catarina; Spagnolo, Giancarlo
    Abstract: Damage actions may reduce the attractiveness of leniency programs for cartel participants if their cooperation with the competition authority increases the chance that the cartel’s victims will bring a successful suit. A long legal debate culminated in an EU directive, adopted in November 2014, which seeks a balance between public and private enforcement. It protects the effectiveness of a leniency program by preventing the use of leniency statements in subsequent actions for damages. Our analysis shows such compromise is not required: limiting the cartel victims’ ability to recover their loss is not necessary to preserve the effectiveness of a leniency program and may be counterproductive. We show that damage actions will actually improve its effectiveness, through a legal regime in which the civil liability of the immunity recipient is minimized and full access to all evidence collected by the competition authority, is granted to claimants, like in the US.
    Keywords: cartels; competition policy; Leniency Program; private and public enforcement
    JEL: C72 C73 D43 D81 H11 K21 K42 L13 L44 L51
    Date: 2015–06
  6. By: Lulu Gu; W. Robert Reed (University of Canterbury)
    Abstract: This paper investigates two hypotheses about Chinese financing of mergers and acquisitions (M&As). The first hypothesis is that foreign ownership restrictions by the government cause Chinese acquirers to rely more on cash to finance their overseas M&A deals. The second hypothesis is that state-owned enterprizes (SOEs) will rely more on cash to finance their M&A deals because they are able to secure better borrowing terms. We collate data from four databases to obtain a sample of over 6000 M&A deals that were completed during the 1997-2014 period. We find strong evidence to support the first hypothesis but not the second.
    Keywords: Mergers and acquisitions (M&As), foreign ownership restrictions, state owned enterprises (SOEs), M&A financing, Chinese firms
    JEL: G34 G28 N20
    Date: 2015–06–22
  7. By: Adam Jaffe (Motu Economic and Public Policy Research); Trinh Le (Motu Economic and Public Policy Research)
    Abstract: This paper examines the impact of government assistance through R&D grants on innovation output for firms in New Zealand. Using a large database that links administrative and tax data with survey data, we are able to control for large number of firm characteristics and thus minimise selection bias. We find that receipt of an R&D grant significantly increases the probability that a firm in the manufacturing and service sectors applies for a patent during 2005–2009, but no positive impact is found on the probability of applying for a trademark. Using only firms that participated in the Business Operation Survey, we find that receiving a grant almost doubles the probability that a firm introduces new goods and services to the world while its effects on process innovation and any product innovation are relatively much weaker. Moreover, there is little evidence that grant receipt has differential effects between small to medium (<50 employees) and larger firms. These findings are broadly in line with recent international evidence from Japan, Canada and Italy which found positive impacts of public R&D subsidy on patenting activity and the introduction of new products.
    Keywords: Industrial policy, innovation, R&D
    JEL: O31 O34 O38
    Date: 2015–05
  8. By: Nielsen, Martin (Department of Business and Economics)
    Abstract: This paper analyzes the way payments by content providers to an Internet service provider may affect investment in Internet speed and content quality. It derives payment mechanisms capable of aligning investment incentives between the two groups; in fact, some of them are Pareto-improving also for consumers, who are willing to pay for quality of content. On the other hand, some parameter combinations may require public intervention for Pareto improvement to be attained.
    Keywords: Internet regulation; Network neutrality; Investment incentives; Monopoly; Duopoly; Regulation; Internet content; Netflix; Internet service providers; AT&T; Verizon; Comcast
    JEL: C72 D42 D43 L12 L13 L14
    Date: 2015–06–29
  9. By: Lynne Pepall; Dan Richards
    Abstract: Recent innovations in digital learning and web-based technologies have enabled scalability in educational services that has previously not been feasible presenting a potential disruption in traditional higher education markets. This paper explores the impact of these innovations in a vertically differentiated higher educational market with both selective and nonselective institutions. Selective institutions are characterized by peer effects and a revenue model that assures quality. Nonselective institutions have open admissions and are tuition driven. Students differ in their ability to benefit from educational services. We describe how selective and non-selective institutions compete for students through tuition and admission criteria and how free non-credentialed educational services such as MOOCs affect the market equilibrium. Our model also helps explain why selective institutions are the main proprietors of MOOCs.
    Keywords: Higher Education, Vertical Differentiation, Network Effects
    JEL: D43 I23
  10. By: Koetter, Michael; Noth, Felix
    Abstract: This study investigates if the Troubled Asset Relief Program (TARP) distorted price competition in U.S. banking. Political indicators reveal bailout expectations after 2009, manifested as beliefs about the predicted probability of receiving equity support relative to failing during the TARP disbursement period. In addition, the TARP affected the competitive conduct of unsupported banks after the program stopped in the fourth quarter of 2009. The risk premium required by depositors was lower, and loan rates were higher for banks with higher bailout expectations. The interest margins of unsupported banks increased in the immediate aftermath of the TARP disbursement but not after 2010. These effects are economically very small though. No effects emerged for loan or deposit growth, which suggests that protected banks did not increase their market shares at the expense of less protected banks. JEL Classification: C30, C78, G21, G28, L51
    Keywords: bailout expectations, Banking, competition, TARP
    Date: 2015–06
  11. By: Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Marek Rusnak (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Anna Sokolova (Higher School of Economics, Moscow)
    Abstract: We examine 567 estimates of habit formation from 69 studies published in peer-reviewed journals. In contrast to previous results for most fields of empirical economics, we find no publication bias in the literature. The median estimated strength of habit formation equals 0.4, but the estimates vary widely both within and across studies. We use Bayesian model averaging to assign a pattern to this variance while taking into account model uncertainty. Studies using micro data report consistently smaller estimates than macro studies: 0.1 vs. 0.6 on average. The difference remains large when we control for 21 other study aspects, such as data frequency, geographical coverage, variable definition, estimation approach, and publication characteristics. We also find that estimates of external habit formation tend to be substantially larger than those of internal habits, that evidence for habits weakens when researchers use higher data frequencies, and that estimates differ systematically across countries.
    Keywords: Habit formation, consumption, meta-analysis, publication bias, Bayesian model averaging
    JEL: C83 D12 E21
    Date: 2015–05
  12. By: Florian LEON
    Abstract: This paper reviews the literature regarding the consequences of interbank competition. The literature has identified three reasons why competition in the financial sector is important: firstly, for efficient functioning of financial intermediaries and markets, secondly, for firms and households access to financial services and thirdly, for stability of the financial system. While special attention is dedicated to empirical papers focusing on African banking systems, this review also considers works on other developing and developed economies.
    Keywords: Bank competition, bank efficiency, access to credit, financial stability, Africa
    JEL: O55 G21 D40
    Date: 2015–06
  13. By: Crawford, Gregory S
    Abstract: Television is the dominant entertainment medium for hundreds of millions. This chapter surveys the economic forces that determine the production and consumption of this content. It presents recent trends in television and online video markets, both in the US and internationally, and describes the state of theoretical and empirical research on these industries. A number of distinct themes emerge, including the growing importance of the pay-television sector, the role played by content providers (channels), distributors, and negotiations between them in determining market outcomes, and concerns about the effects of market power throughout this vertical structure. It also covers important but unsettled topics including the purpose for and effects of both the old (Public Service Broadcasters) and the new (online video markets). Open theoretical and empirical research questions are highlighted throughout.
    Keywords: advertising; bargaining; bundling; economics; foreclosure; market power; net neutrality; online video; pay television; public service broadcasting; television
    JEL: C72 D40 L32 L40 L50 L82 L86 M37
    Date: 2015–06
  14. By: Julia Cage
    Abstract: This paper investigates the impact of increased media competition on the quantity and quality of news provided and, ultimately, changes in political participation. Drawing from the literature on vertical product differentiation to model the production choices of newspapers, I show how an increase in the number of newspapers can decrease both the quantity and quality of news provided. I build a new county-level panel dataset of local newspaper presence, newspapers' costs and revenues and political turnout in France, from 1945 to 2012. I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not. These counties exhibit similar trends prior to newspaper entry, but newspaper entry then leads to substantial declines in the total number of journalists. More newspapers are also associated with fewer news articles and lower hard news provision. These effects are concentrated in counties with homogeneous populations, as predicted by the model, with little impact on counties with heterogeneous populations. Newspaper entry, and the associated decline in information provision, is ultimately found to decrease voter turnout.
    Keywords: Media Competition; Newspaper's Content; Hard News; Soft News; Product Differentiation; Political Participation
    JEL: D72 L11 L13 L82
    Date: 2014–01

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