nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒08‒25
nineteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Demand analysis with partially observed prices By Ian Crawford; Matthew Polisson
  2. A Cournot triopoly with two identical producers By Alina Szuz; Anna Agliari; Tonu Puu
  3. A partial characterization of the core in Bertrand oligopoly TU-games with transferable technologies By Aymeric Lardon
  4. A Reputational Theory of Firm Dynamics By Moritz Meyer-ter-Vehn; Simon Board
  5. Investment under uncertainty, competition and regulation By Adrien Nguyen Huu
  6. Spillovers, product substitution and R&D investment : theory and evidence By Thomas Grebel; Lionel Nesta
  7. Competition Law and Policy in Singapore By Burton ONG
  8. Patent Citations and the Size of the Inventive Step - Evidence from Hybrid Corn By Petra Moser; Joerg Ohmstedt; Paul W. Rhode
  9. Agricultural marketing cooperatives with direct selling: A cooperative–non-cooperative game By Maxime Agbo; Damien Rousselière; Julien Salanié
  10. Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers By Sandip Mitra; Dilip Mookherjee; Maximo Torero; Sujata Visaria
  11. Advertising Competition in the French Free-To-Air Television Broadcasting Industry By Ivaldi, Marc; Zhang, Jiekai
  12. Why airports can face price-elastic demands: margins, lumpiness and leveraged passenger losses By David Starkie; George YARROW
  13. Economic Features of the Internet and Network Neutrality By Nicholas Economides
  14. How Do Universities Compete for Students? Two Competing Strategies and Their Impact on Capacity and Tuition Fees By Marie-Laure Cabon-Dhersin; Jonas Didisse
  15. On Abatement Services: Market Power and Efficient Environmental Regulation By Damien Sans; Sonia Schwartz; Hubert Stahn
  16. Competition, financial intermediation and riskiness of banks: Evidence from the Asia-Pacific region By Wahyoe Soedarmono; A Tarazi
  17. Nonlinear pricing with competition: the market for settling payments By Copeland, Adam; Garratt, Rod
  18. What do we know about the role of bank competition in Africa? By Florian LEON
  19. Free-Riding and Luxury Brands on the Internet By Olivier Bomsel

  1. By: Ian Crawford (Institute for Fiscal Studies and University of Oxford); Matthew Polisson (Institute for Fiscal Studies and University of Leicester)
    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 identiï¬cation 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
  2. By: Alina Szuz (Independent researcher); Anna Agliari (Catholic University of Sacred Heart); Tonu Puu (Center for Regional Science, Umeå University, Umeå, Sweden)
    Abstract: In the present paper we analyze a Cournot oligopoly with three competitors, and we assume that two of them behave in the same way. Therefore the game reduces to a duopoly competition. We assume an iso-elastic demand function derived from a Cobb-Douglas utility function and linear costs. Furthermore the competitors adjust their moves giving a weight ߠ to the best calculated reply and another ሺ1 − ߠሻ for their own previous move. The adjustment process shows that the Cournot equilibrium point loses stability through a Neimark-Sacker bifurcation of subcritical type and this implies that diferent attractors may coexist. We show that the different attractors appear and/or disappear due to the occurrence of homoclinic and border collision bifurcations.
    Keywords: Cournot oligopoly; two-dimensional piecewise discrete map; subcritical Neimark-Sacker bifurcation; homoclinic bifurcation.
    Date: 2015–08
  3. By: Aymeric Lardon (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - UNS - Université Nice Sophia Antipolis)
    Abstract: In this article we study Bertrand oligopoly TU-games with transferable technologies under the α and β-approaches (Aumann 1959). Although the convexity property does not always hold, we show that it is satisfied when firms' marginal costs are not too heterogeneous. Furthermore, we prove that the core of any game can be partially characterized by associating a Bertrand oligopoly TU-game derived from the most efficient technology. Such a game turns to be an efficient convex cover (Rulnick and Shapley 1997) of the original one. This result implies that the core is non-empty and contains a subset of payoff vectors with a symmetric geometric structure easy to compute.
    Date: 2014–11–11
  4. By: Moritz Meyer-ter-Vehn (UCLA); Simon Board (University of California - Los Angeles)
    Abstract: We propose a firm lifecycle model in which the firm privately invests in its quality and thereby its reputation. Over time, both the firm and the market learn about the firm's evolving quality via infrequent breakthroughs. The firm can also exit if its value becomes negative, giving rise to selection effects. In a pure-strategy equilibrium, incentives are single-peaked: the firm shirks immediately following a breakthrough, works for intermediate levels of reputation and shirks again when it is about to exit. This investment behavior yields predictions for the distribution of firm productivity and the survival rate. Finally, we compare the model to two variants: one in which the firm's investment is publicly observed, and a second in which the firm has private information about its product quality.
    Date: 2015
  5. By: Adrien Nguyen Huu (IMPA - Instituto Nacional de Matemática Pura e Aplicada - Instituto Nacional de matematica pura e aplicada)
    Abstract: We investigate a randomization procedure undertaken in real option games which can serve as a basic model of regulation in a duopoly model of preemptive investment. We recall the rigorous framework of [M. Grasselli, V. Leclère and M. Ludkovsky, Priority Option: the value of being a leader, International Journal of Theoretical and Applied Finance, 16, 2013], and extend it to a random regulator. This model generalizes and unifies the different competitive frameworks proposed in the literature, and creates a new one similar to a Stackelberg leadership. We fully characterize strategic interactions in the several situations following from the parametrization of the regulator. Finally, we study the effect of the coordination game and uncertainty of outcome when agents are risk-averse, providing new intuitions for the standard case.
    Date: 2014–10–01
  6. By: Thomas Grebel (Economics department - Massachussetts Institute of Technology); Lionel Nesta (OFCE - OFCE - Sciences Po)
    Abstract: We investigate the conditions under which R&D investment by rival firms may be negatively or positively correlated. Using a two-stage game the influence of spillovers and product substitution is investigated. It is shown that under Cournot competition, the sign of the R&D reaction function depends on four types of environments in terms of the level of product substitution and of spillovers. We then test the prediction of the model on the world's largest manufacturing corporations. We assume that firms make oblivious R&D investments based on the R&D decision of the average rival company. We then develop a dynamic panel data model that accounts for the endogeneity of the decision of the mean rival firms. Results corroborate the validity of the theoretical model.
    Date: 2013–10
  7. By: Burton ONG (National University of Singapore)
    Abstract: This paper provides a bird’s eye view of developments in field of competition law and policy in Singapore over the past 10 years, highlighting the progress made in the areas of enforcement, regulatory policy and advocacy.
    Keywords: Competition Law, Antitrust, Singapore
    JEL: L10 L19
    Date: 2015–08
  8. By: Petra Moser; Joerg Ohmstedt; Paul W. Rhode
    Abstract: Patents are the main source of data on innovation, but there are persistent concerns that patents may be a noisy and biased measure. An important challenge arises from unobservable variation in the size of the inventive step that is covered by a patent. The count of later patents that cite a patent as relevant prior art – so called forward citations – have become the standard measure to control for such variation. Citations may, however, also be a noisy and biased measure for the size of the inventive step. To address this issue, this paper examines field trial data for patented improvements in hybrid corn. Field trials report objective measures for improvements in hybrid corn, which we use to quantify the size of the inventive step. These data show a robust correlation between citations and improvements in yields, as the bottom line measure for improvements in hybrid corn. This correlation is robust to alternative measures for improvements in hybrid corn, and a broad range of other tests.We also investigate the process, by which patents generate citations. This analysis reveals that hybrids that serve as an input for genetically-related follow-on inventions are more likely to receive self-citations (by the same firm), which suggests that self-citations are a good predictor for follow-on invention.
    JEL: O3 O31 O34 Q16 Q55
    Date: 2015–07
  9. By: Maxime Agbo (African School of Economics); Damien Rousselière (AGROCAMPUS OUEST [Le Rheu] - UR1 - Université de Rennes 1, Granem - Groupe de Recherche ANgevin en Economie et Management - UA - Université d'Angers - Agrocampus Ouest - Institut National de l'Horticulture et du Paysage); Julien Salanié (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)
    Abstract: We build a theoretical model to study a market structure of a marketing cooperative with direct selling, in which many farmers are members of an agricultural marketing cooperative. They can sell their production either to the cooperative or on an oligopolistic local market. We show that the decision to sell to the cooperative induces an anti-competitive effect on the direct selling market. The cooperative facilitates collusion on the local market by making farmers softer competitors on that market. Conversely, direct selling may create a "healthy emulation" among farmers, leading to more production benefiting the cooperative.
    Date: 2015
  10. By: Sandip Mitra (Sampling and Ocial Statistics Unit, Indian Statistical Institute); Dilip Mookherjee (Department of Economics, Boston University); Maximo Torero (International Food Policy Research Institute); Sujata Visaria (Department of Economics, Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: In the Indian state of West Bengal, potato farmers sell to local middlemen because they lack direct access to wholesale markets. In high-frequency farmer marketing surveys we find that farmers are poorly informed about wholesale and retail prices, and there is a large gap between wholesale and farmgate prices. To test alternative models of farmer-middlemen trades, we conduct a field experiment providing farmers in randomly chosen villages with market price information. Information provision had negligible average effects on farmgate sales and revenues, but increased pass-through from wholesale to farmgate prices. The results are inconsistent with models of risk-sharing via contracts between middlemen and farmers. They are consistent with a model of ex post bargaining and sequential price competition between a cartel of village middlemen and a cartel of external middlemen.
    Keywords: agricultural finance, agent based lending, group lending, selection, repayment
    JEL: O12 L14
    Date: 2015–08
  11. By: Ivaldi, Marc; Zhang, Jiekai
    Abstract: This paper investigates empirically the advertising competition in the French free TV broadcasting industry in a two-sided framework. We specify a structural model of oligopoly competition of free TVs, and identify the shape and magnitude of the feedback loop between the TV viewers and the advertisers using French market data from March 2008 to December 2013. We contribute to the literature by implementing a simple procedure to test the conduct of TV channels, and identify that the nature of competition is of Cournot type on the French TV advertising market. In line with a decision of French anti-trust authority in 2010 which authorized the acquisition of two free broadcasting TV channels by a big media group under behavioral remedies, a series of competitive analysis has been conducted: We find firstly that the surpls of TV viewers keep raising after the decision of acquisition, suggesting that the implemented policy has been efficient in protecting the consumer surplus; Then, we find, by counterfactual simulation, that the merger of advertising agencies would not affect importantly the equilibrium outcomes in this industry, due to the strong network externalities between the TV viewers and the advertisers.
    Keywords: advertising; behavioral remedies; competition; market conduct; media; TV; two-sided market
    JEL: D22 D43 K21 L11 L13 L22 L41 M37
    Date: 2015–08
  12. By: David Starkie; George YARROW
    Abstract: The extent to which firms face price-elastic demands for their products is important in the application of competition law and in judgments made as to whether they have significant market power. In the context of the airport industry, assessing price-elasticities is complicated by the fact that one major type of consumer of airport services, the air passenger, is not charged directly for use of terminals and airside infrastructure. Instead, the airport derives its revenues from charges to airlines and from the supply of non-aeronautical services. The charges to airlines then become one of many input costs that the airlines recoup from passenger fares, and this intermediation has significant implications for the demand analysis.
    Date: 2013–12–05
  13. By: Nicholas Economides (Stern School of Business, New York University. 44 West 4th Street, New York, NY 10012)
    Abstract: We discuss the issue of a possible abolition of network neutrality and the introduction of paid prioritization by residential broadband access networks.We show that, in short run analysis where bandwidth is fixed, and in the absence of congestion, network neutrality tends to maximize total surplus. When an ISP violates network neutrality and invests the extra profits to bandwidth expansion, the presence of more bandwidth alleviates the allocative distortion, and can even reverse it. We also discuss the network neutrality issue under the assumption of congestion, and characterize the set of utility functions for which network neutrality is optimal, as well as utility functions where it is optimal to prioritize. Finally, we review regulatory rules in the United States on network neutrality.
    Keywords: Internet, pricing, network neutrality, price discrimination, prioritization
    JEL: D43 L11 L1
    Date: 2015–04
  14. By: Marie-Laure Cabon-Dhersin (CREAM - CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - Université de Rouen); Jonas Didisse (CREAM - CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - Université de Rouen)
    Abstract: This paper analyzes the impact of two competing strategies (Cournot vs Bertrand competition) in a context where universities compete for students and can enroll beyond capacity at strictly convex costs. Universities interact in a two-stage game to decide on capacity and tuition fees/number of students enrolled. In Bertrand competition, when costs are sufficiently convex, universities adopt low capacities in the first stage in order to sustain high fees in the second stage. Conversely, Cournot competition leads to a higher capacity for each university and to a larger number of students enrolled. Under certain conditions, the equilibrium adopted in Bertrand competition may be more efficient in terms of cost minimization but it leads to a lower social welfare level.
    Date: 2015–07–07
  15. By: Damien Sans (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université); Sonia Schwartz (CERDI - Centre d'études et de recherches sur le developpement international - CNRS - Université d'Auvergne - Clermont-Ferrand I); Hubert Stahn (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)
    Abstract: In this paper, we study an eco-industry providing an environmental service to a competitive polluting sector. We show that even if this eco-industry is highly concentrated, a standard environmental policy based on a Pigouvian tax or a pollution permit market reaches the first-best outcome, challenging the Tinbergen rule. To illustrate this point, we first consider an upstream monopoly selling eco-services to a representative polluting firm. We progressively extend our result to heterogeneous downstream polluters and heterogeneous upstream Cournot competitors. Finally, we underline some limits of this result. It does not hold under the assumption of abatement goods or downstream market power. In this last case, we obtain Barnett's result.
    Date: 2015–07
  16. By: Wahyoe Soedarmono (Universitas Siswa Bangsa Internasional, Faculty of Business / Sampoerna School of Business); A Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - unilim - Université de Limoges - Institut Sciences de l'Homme et de la Société)
    Abstract: From a sample of commercial banks in the Asia-Pacific region over the 1994-2009 period, this study highlights that banks in less competitive markets exhibit lower loan growth and higher instability. Such instability is further followed by a decline in deposit growth, suggesting that Asian banks are also subject to indirect market discipline mechanisms through bank competition. This study therefore sheds light on the importance of enhancing bank competition to overcome bank risk and strengthen financial intermediation. Likewise, this study advocates the importance of strengthening market discipline to reduce bank riskiness regardless of the degree of competition in the banking industry.
    Date: 2015–02–02
  17. By: Copeland, Adam (Federal Reserve Bank of New York); Garratt, Rod (Federal Reserve Bank of New York)
    Abstract: The multiple payments settlement systems available in the United States differ on several dimensions. The Fedwire Funds Service, a utility that operates a U.S. large-value payments-settlement service, offers the fastest speed of settlement. Recognizing that payments differ in the urgency with which they need to be settled, Fedwire offers banks a decreasing block-price schedule. This approach allows Fedwire to price discriminate, charging high fees for urgent payments and low fees for less urgent ones. We analyze banks’ demand for Fedwire Funds given this nonlinear scheme, taking into account competing settlement systems. We show that how banks respond to Fedwire’s pricing depends crucially on the need to settle payments quickly. If the urgency for immediate settlement is great enough, banks will respond to marginal price; otherwise, they will respond to average price. We test whether banks respond to marginal or to average price. Our identification comes from exogenous variation in Fedwire’s pricing, which results in differential changes in marginal and average price for comparable banks. We find that banks respond to average price.
    Keywords: nonlinear pricing; marginal versus average pricing
    JEL: E42 L11 L51 L97
    Date: 2015–08–01
  18. By: Florian LEON (CERDI - Centre d'études et de recherches sur le developpement international - Université d'Auvergne - Clermont-Ferrand I - CNRS)
    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.
    Date: 2015–06–18
  19. By: Olivier Bomsel (CERNA - Centre d'économie industrielle - MINES ParisTech - École nationale supérieure des mines de Paris)
    Abstract: Luxury is a complex industrial activity whose products combine strong vertical differentiation and a meaning value for the consumer. Luxury offers experiences, the economy of which is based on signalling. This gives rise to intense intangible investment internalized by trademark law and vertical restraints in distribution. However, the extent of the added value and the power of externalities associated with communication generate many sources of free-riding. Using the tools of industrial economics, this article analyses how the digitization of information and transactions creates new forms of free-riding in relation to luxury brands. Identifying vertical disintegration as a major source of free-riding, it calls for improved internalization of the enforcement of trademark law by all players in the digital value chain.
    Date: 2014

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