nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒07‒18
fifteen papers chosen by
Russell Pittman
United States Department of Justice

  1. ’Is Dynamic Competition Socially Beneficial? The Case of Price as Investment By David Besanko; Ulrich Doraszelski; Yaroslav Kryukov
  2. Pricing Heterogeneous Goods under Ex Post Private Information By Holger Herbst
  3. Three Equivalent Salop Models and their Normative Representative Consumer By Steffen Hoernig
  4. Large-Scaled Chain Stores versus Small-Scaled Local Stores By Hiroaki Sandoh; Risa Suzuki
  5. Private Benefits and Product Market Competition By Jacques THÉPOT
  6. On Cobb-Douglas Preferences in Bilateral Oligopoly By Alex DICKINSON
  7. Strategic Interactions and Atoms' Power in Public Goods Economies By Hovav PERETS; Benyamin SHITOVITZ
  8. Noncooperative Oligopoly in Markets with a Cobb-Douglas Continuum of Traders By Giulio CODOGNATO; Ludovic A. JULIEN
  9. Patent Portfolio Management of Sequential Innovations: Theory and Empirics By Jinyoung Kim
  10. Uncertainty, flexible labour relations and R&D expenditure By Marco Di Cintio; Emanuele Grassi
  11. Dynamic R&D and the Effectiveness of Policy Intervention in the Pharmaceutical Industry By Yaroslav Kryukov
  12. A Bitter Medicine? Short-term Employment Impact of Deregulation in Network Industries By Bassanini, Andrea
  13. Usage-Based Pricing and Demand for Residential Broadband By Aviv Nevo; John L. Turner; Jonathan W. Williams
  14. Price Distortion under Fixed-Mobile Substitution By Marc Bourreau; Carlo Cambini; Steffen Hoernig
  15. Competition among national football leagues. Does it exist ? Should we regulate ? By Yvon Rocaboy

  1. By: David Besanko; Ulrich Doraszelski; Yaroslav Kryukov
  2. By: Holger Herbst
    Abstract: This paper studies the role of exchange policies as a price discrimination device in a sequential screening model with heterogeneous goods. In the first period, agents are uncertain about their ordinal preferences over a set of horizontally differentiated goods, but have private information about their intensity of preferences. In the second period, each individual privately learns his preferences and consumption takes place. Revenue maximizing mechanisms are completely characterized. They partially restrict the flexibility between the goods in the second stage for consumers that care little about which variety they obtain while granting always the favorite good to consumers that care much. The optimal design of the partial restriction of flexibility can be implemented by offering Limited Exchange Contracts. A Limited Exchange Contract consists of an initial product choice and a subset of products to which free exchange is possible in the second period. The use of exchange fees in contracts is not optimal for the purpose of price discrimination.
    Keywords: Sequential screening, dynamic mechanism design,heterogeneous goods
    JEL: D42 D82 L12
  3. By: Steffen Hoernig
    Abstract: We show that three location models on the Salop circle, involving linear or quadratic transport cost, and asymmetric locations or fixed benefits, are equivalent: they lead to the same demand functions and consumer surplus. The only exception is the case of asymmetric lo- cations with an even number of firms, which has one less degree of freedom. These models are also fully equivalent to a normative rep- resentative consumer whose indirect utility is given by the standard Salop consumer surplus. This result provides a further unification of location and representative consumer models. JEL codes: D11, D43
    Keywords: Salop model, representative consumer
    Date: 2015
  4. By: Hiroaki Sandoh (Graduate School of Economics, Osaka University); Risa Suzuki (Yuki, Co., Ltd.)
    Abstract: In some local areas, we can occasionally observe a competition between a large-scaled chain store and a small-scaled local independent store. A large-scaled chain store usually attracts consumers by appealing its width and depth of products variety. A local independent store with limited assortments of products competes with the chain store by concentrating upon some specic kinds of products and by offering lower prices for them than the chain store. This is possible for the local store partly because of lower labor costs and for various other reasons. The present study deals with the pricing competition in a duopoly between a chain store and a local store. For the purpose of expressing the difference in product assortments between the two stores, a chain store is assumed to deal in two kinds of products, P 1 and P 2 , while a local store is assumed to sell only P 1 . Moreover, we assume all the consumers purchase P 1 at a chain store or a local store by referring to their prices, and P 2 at A . A Nash and a Stackelberg equilibrium are examined to show that the local store can possibly survive the competition with the chain store. The socially optimal welfare is also investigated to reveal it can be realized in a monopoly.
    Keywords: Chain store, Local independent store, Duopoly, Hotelling, Price competition
    JEL: D43 M21
    Date: 2015–06
  5. By: Jacques THÉPOT (EM Strasbourg Business School, LARGE)
    Abstract: This paper analyzes the impact of private benefit extraction on the value of oligopolistic firms. Private benefits are assumed to generate costs that are passed on through the organizational structure and create price distortions in the downstream market for products. We show that this may positively affect the profits (i.e., the market value) of firms because the intensity of the rivalry is curbed by the increase in cost. In an oligopoly situation, private benefit extraction may enhance profits while still generating a welfare loss. This suggests that corporate governance cannot be divorced from competition policy in industries where managerial opportunism generates expropriation costs.
    Keywords: Private benefits, Oligopoly, Agency Cost
    JEL: G38 D43
    Date: 2013–09–01
  6. By: Alex DICKINSON (University of Strathclyde)
    Abstract: Bilateral oligopoly is a simple model of exchange in which a finite set of sellers seek to exchange the goods they are endowed with for money with a finite set of buyers, and no price-taking assumptions are imposed. If trade takes place via a strategic market game bilateral oligopoly can be thought of as two linked proportional-sharing contests: in one the sellers share the aggregate bid from the buyers in proportion to their supply and in the other the buyers share the aggregate supply in proportion to their bids. The analysis can be separated into two ‘partial games’. First, fix the aggregate bid at B; in the first partial game the sellers contest this fixed prize in proportion to their supply and the aggregate supply in the equilibrium of this game is X(B) . Next, fix the aggregate supply at X; in the second partial game the buyers contest this fixed prize in proportion to their bids and the aggregate bid in the equilibrium of this game is . The analysis of these two partial games takes into account competition with ~b (X)in each side of the market. Equilibrium in bilateral oligopoly must take into account competition between sellers and buyers and requires, for example, ~B (~x(b)))=B. When all traders have Cobb-Douglas preference~X(B)s does not depend on B ~B (x) and does not depend on X: whilst there is competition within each side of the market there is no strategic interdependence between the sides of the market. The Cobb-Douglas assumption provides a tractable framework in which to explore the features of fully strategic trade but it misses perhaps the most interesting feature of bilateral oligopoly, the implications of which are investigated
    Keywords: Strategic market game, Bilateral oligopoly, Cobb-Douglas preferences, Aggregative games
    JEL: C72 D43 D50
    Date: 2013–12–01
  7. By: Hovav PERETS (Israel Institute of Technology, Faculty of Industrial Engineering and Management); Benyamin SHITOVITZ (University of Haifa, Department of Economics)
    Abstract: In this paper, we study Nash equilibrium in a smooth public goods economy, described as a noncooperative game, where the set of players is a mixed-measure space of consumers. We assume a finite number of private goods. We show that under certain conditions, there exists a unique Nash equilibrium in the economy, where the public goods are produced with a linear technology. Moreover, we discuss the difference in market power between an atomless sector and an atom with the same utility function and an atom with its split atomless sector in both a pure exchange economy and a public goods economy.
    Keywords: Public Goods, Private provision of public goods, Nash equilibrium, Mixed measure space of consumers, Linear technology
    JEL: C72 H41
    Date: 2013–12–01
  8. By: Giulio CODOGNATO (Università degli Studi di Udine, Dipartimento di Scienze Economiche e Statistiche); Ludovic A. JULIEN (Université de Dijon LEG)
    Abstract: In this paper, we revisit two models of noncooperative oligopoly in general equilibrium proposed by Busetto et al. (2008, 2011), a version of Shapley’s “window†model for mixed exchange economies following Shitovitz and its reformulation following Cournot-Walras. We introduce the assumption that the preferences of traders belonging to the atomless portion are represented by Cobb-Douglas utility functions. This assumption permits us to prove the existence of a Cournot-Nash equilibrium in Shapley’s window model, known as the Cobb-Douglas-Cournot-Nash equilibrium, without introducing further assumptions of atom endowments and preferences previously used by Busetto et al. (2011). We then show that the set of Cobb-Douglas-Cournot-Nash equilibrium allocations coincides with that of Cournot-Walras equilibrium.
    Keywords: Strategic market games, Noncooperative oligopoly, Atoms, Atomless part
    JEL: C72 D51
    Date: 2013–12–01
  9. By: Jinyoung Kim (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: This paper develops a model for understanding a firm¡¯s decisions regarding the maintenance (renewal) and patenting of sequential innovations and studies how these decisions are affected by the model¡¯s parameters such as maintenance fees and filing fees. The model offers a discriminating testable hypothesis, predicated on the cross-price effects, to identify complementarityor substitutability across sequential innovations. Our empirical results show that higher filingfees are associated with lower probability of patent renewal, which corroborates the case of complementarity in sequential innovations.
    Keywords: Renewal, Patenting, Sequential innovations, Patent portfolio, Patent maintenance fees, Application filing fees
    JEL: O32 O34
    Date: 2015
  10. By: Marco Di Cintio (Department of Management, Economics, Mathematics and Statistics; University of Salento); Emanuele Grassi (Department of Management, Economics, Mathematics and Statistics; University of Salento)
    Abstract: This paper examines the effects of uncertainty and flexible labour contracts on the Research and Development (R&D) expenditure. Using a panel of Italian manufacturing firms, we find a hump-shaped relationship between workforce flexibility and R&D outlays. Moreover, as predicted by the real options theory, our results suggest that product market uncertainty reduces R&D efforts and that flexible labour contracts countervail the adverse effect of uncertainty on R&D.
    Keywords: real options theory, R&D, uncertainty, temporary workers
    JEL: D22 D81 J41 O31
    Date: 2013–12
  11. By: Yaroslav Kryukov
  12. By: Bassanini, Andrea (OECD)
    Abstract: There is evidence that pro-competitive reforms in an industry with large incumbents induce the latter to re-organise and reduce prices in an attempt to deter entry of new competitors. Using data for three broadly-defined network industries in 23 OECD countries and covering over 30 years, I show that such re-organization has sizable negative short-term effects on industry employment. The employment losses, which last at least 3 years, are larger when reforms are implemented during downturns and insignificant when they take place in upturns. These findings contrast with previous evidence that deregulation in retail distribution has no (or even positive) short-term employment effects. This discrepancy is likely driven by the much larger employment share of small incumbents, with no margins of efficiency improvement, in retail than in network industries (as well as many other industries). Evidence on the immediate effect of removing entry barriers on industry prices and productivity is consistent with the hypothesis that the initial contraction of industry employment is the result of incumbents re-organising and downsizing before the entry of new competitors.
    Keywords: barriers to entry, structural reforms, job destruction, short-term costs, optimal timing of reforms
    JEL: J23 L11
    Date: 2015–07
  13. By: Aviv Nevo; John L. Turner; Jonathan W. Williams
    Abstract: We estimate demand for residential broadband using high-frequency data from subscribers facing a three-part tariff. The three-part tariff makes data usage during the billing cycle a dynamic problem; thus, generating variation in the (shadow) price of usage. We provide evidence that subscribers respond to this variation, and use their dynamic decisions to estimate a flexible distribution of willingness to pay for different plan characteristics. Using the estimates, we simulate demand under alternative pricing and find that usage-based pricing eliminates low-value traffic. Furthermore, we show that the costs associated with investment in fiber-optic networks are likely recoverable in some markets, but that there is a large gap between social and private incentives to invest.
    JEL: L1 L13 L96
    Date: 2015–07
  14. By: Marc Bourreau; Carlo Cambini; Steffen Hoernig
    Abstract: This paper analyses the impact of substitution between fixed and mobile tele- phony on call prices. We develop a model where consumers difer in the benefits of mobility and firms price discriminate between on-net and off-net calls. We find that call prices are distorted downwards due to substitution possibilities and customer heterogeneity, and that this distortion increases with the fixed-mobile termination mark-up. JEL codes: L51, L92
    Keywords: Network competition, fixed-mobile substitution, price discrimination
    Date: 2015
  15. By: Yvon Rocaboy (CREM, UMR CNRS 6211, University of Rennes 1, France)
    Abstract: It is often supposed that the stakeholders of a national football league draw more satisfaction from their sport if the league is balanced. This is the so-called Competitive balance hypothesis. If there exists an international competition like the European champions league, this hypothesis can be challenged however. The utility of national leagues’ stakeholders could be higher, the higher the probability of winning of their representative club at the international level. If it is correct, a league’s governing body intending to maximise the quality of the national league by making use of redistributive schemes would face a tradeoff between national competitive balance and international performance of the national representative club. We propose a simple microeconomic framework to model this tradeoff. If there exists a non-cooperative game among the national league governing bodies, whether it is a Nash or a Stackelberg one, this game would result in inefficient redistributive policies. We find "soft" empirical evidences suggesting that such a competition occurs among the big 5 football leagues in Europe. This result supports the idea of the creation of an international regulatory body. We derive the conditions under which the international regulatory body should ensure that the leagues’ governing bodies implement redistributive schemes guaranteeing the respect of the national competitive balance. We also emphasize the risk of experiencing a drop in the quality of leagues if one of them becomes too big relatively to the others, what we call the tragedy of the wealthy.
    Keywords: Sports economics, National football leagues, International football league, Interleague competition, Competitive balance, Regulation of sports, European football champions league
    JEL: J3 D3 L5 L83
    Date: 2015–07

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