nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒09‒18
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. A Unified Model of Spatial Price Discrimination By Eleftheriou, Konstantinos; Michelacakis, Nickolas
  2. Going to the Discounter: Consumer Search with Local Market Heterogeneities By Obradovits, Martin
  3. Competing with Asking Prices By Ronald Wolthoff; Ludo Visschers; Benjamin Lester
  4. Competition, product safety, and product liability By Chen, Yongmin; Hua, Xinyu
  5. Strategic Delegation of Indebted Firms in a Duopoly with Uncertain Demand By Tetsuya Shinkai; Takao Ohkawa; Makoto Okamura; Kozo Harimaya
  6. Too Much Attention on Low Prices? Loss Leading in a Model of Sales with Salient Thinkers By Inderst, Roman; Obradovits, Martin
  7. Essays on innovation and investment decisions under imperfect competition By Joachim Keller
  8. Wholesale Transactions under Economies and Diseconomies of Scope in Search Activities in a Model of Search and Match By Shigeru Makioka
  9. Does Foreign Entry Spur Innovation? By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
  10. Intrafirm Trade and Vertical Fragmentation in U.S. Multinational Corporations By Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
  11. Large-Scaled Chain Stores versus Small-Scaled Local Stores of the Local Production for Local Consumption By Hiroaki Sandoh; Risa Suzuki
  12. On the emergence of scale-free production networks By Stanislao Gualdi; Antoine Mandel
  13. Social competition in low-information Cournot markets By Enrique Fatas; Antonio J. Morales; Ainhoa Jaramillo-Gutierrez
  14. Balancing competition and cooperation: Evidence from transatlantic airline markets By Bilotkach, Volodymyr; Hüschelrath, Kai
  15. Bank bailouts and competition - Did TARP distort competition among sound banks? By Koetter, Michael; Noth, Felix
  16. A measure of spatial competition in residential brokerage By C. Hannum; K.Yavuz Arslanli
  17. Vertical integration and exclusivities in maritime freight transport By ALVAREZ-SANJAIME, Oscar; CANTOS-SANCHEZ, Pedro; MONER-COLONQUES, Rafael; SEMPERE-MONERRIS, José J.
  18. The Irish Electricity Market: New Regulation to Preserve Competition By Lynch, Muireann Á.; Di Cosmo, Valeria
  19. Have Indonesian Rubber Processors Formed a Cartel? Analysis of Intertemporal Marketing Margin Manipulation By Kopp, Thomas; Alamsyah, Zulkifli; Fatricia, Raja Sharah; Brümmer, Bernhard
  20. Towards a price for private information of mobile users: the Arcade apps in Google Play Store case By Alessandro De Carolis; Andrea Vitaletti

  1. By: Eleftheriou, Konstantinos; Michelacakis, Nickolas
    Abstract: We present a general model of mixed oligopoly, where competing firms exercise spatial price discrimination. Our findings indicate that the Nash equilibrium locations of firms are always socially optimal irrespective of the number of competitors, the level of privatization, the form of the transportation costs and the number and/or the varieties of the produced goods. An immediate implication of this result is that this form of competition is preferable from a welfare point of view.
    Keywords: Mixed oligopoly; Social optimality; Spatial competition; Differentiated goods
    JEL: L13 L32 L33 R32
    Date: 2015–09–10
  2. By: Obradovits, Martin
    Abstract: This article proposes a new rationale for consumer search and mixed-strategy pricing: the presence of local market heterogeneities. In the model, two spatially separated markets, each home to an identical local monopolist, differ in size and their consumers' willingness to pay (e.g., as caused by differences in local income). Consumers observe their native market's price and a flexible subset of them may travel to the other market at strictly positive cost, hoping for a bargain. I show that as long as the proportion of flexible consumers in the high-valuation market is not too large, directed search to the low-valuation market will occur in equilibrium. If the high-valuation market is relatively large in size, the opposed firm faces a commitment problem that induces non-trivial mixed-strategy pricing in equilibrium. In particular, low-valuation consumers are excluded from the product market with positive probability. Informative advertising with price-commitment may decrease market performance.
    Keywords: consumer search; directed search; mixed-strategy pricing; discounter; commitment problem; advertising; market heterogeneity
    JEL: D43 D83 L11 L13
    Date: 2015–09–03
  3. By: Ronald Wolthoff (University of Toronto); Ludo Visschers (The University of Edinburgh/Univ Carlos III Madrid); Benjamin Lester (Federal Reserve Bank of Philadelphia)
    Abstract: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the positive implications of this pricing mechanism for transaction prices and allocations.
    Date: 2015
  4. By: Chen, Yongmin; Hua, Xinyu
    Abstract: A firm's incentive to invest in product safety is affected by both the market environment and the liability when its product causes consumer harm. A long-standing question in law and economics is whether competition can (partially) substitute for product liability in motivating firms to improve product safety. We investigate this issue in a spatial model of oligopoly with product differentiation, where reputation provides a market incentive for product safety and higher product liability may distort consumers' incentive for proper product care. We find that partial liability, together with reputation concerns, can motivate firms to make socially desirable safety investment. Increased competition due to less product differentiation lowers equilibrium market price, which diminishes a firm's gain from maintaining reputation and raises the socially desirable product liability. On the other hand, an increase in the number of competitors reduces both the benefit from maintaining reputation and the potential cost savings from cutting back safety investment; consequently, the optimal liability may vary non-monotonically with the number of competitors in the market. In general, therefore, the relationship between competition and product liability is subtle, depending on how competition is measured.
    Keywords: product safety, product liabilty, competition
    JEL: K13 L13 L15
    Date: 2015–09–04
  5. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Takao Ohkawa (Faculty of Economics Ritsumeikan University); Makoto Okamura (Faculty of Economics, Hiroshima University); Kozo Harimaya (Faculty of Business Administration Ritsumeikan University)
    Abstract: We examine an effect of strategic delegation on the competition behavior of indebted …firms and welfare in a Cournot duopoly with demand uncertainty. We establish that the owners of each …firm delegate their tasks and decisions to a manager when the demand is sufficiently large but one …firm chooses no delegation and the other chooses delegation when the demand is small. This result is consistent with the duopoly competition example between the Mitsui Gomei Kaisya and Suzuki & Co. from the late Meiji era to Taisho era in Japan.
    Keywords: indebted …firms, delegation, managerial incentives, and Cournot duopoly
    JEL: G32 L13 L12
    Date: 2015–09
  6. By: Inderst, Roman; Obradovits, Martin
    Abstract: Loss leading is analyzed in a model of promotions (as in Varian 1980) with limited consumer attention: (i) Consumers only compare prices of a selected number of products and (ii) they may pay more attention either to price or quality, depending on the salience of the respective attributes. When consumers have standard preferences, which is our benchmark case, manufacturers benefit when one-stop shopping induces retailers to discount their products, as this expands demand. Results are strikingly different when consumers are salient thinkers. When one-stop shopping or retail competition increases the scope for loss leading, manufacturers' profits decline and there may be an inefficient substitution to lower-quality products. In particular, shoppers who compare products may end up with a choice that is strictly inferior to that of non-shoppers who are locked in to a (local) retailer. Our analysis has implications both for competition policy, as we analyze the implications of a ban on loss leading, and for marketing, as we also analyze how salience affects retailers' product and promotion strategies.
    Keywords: limited attention; loss leading; manufacturer profits; product choice; promotions; quality choice; retailing; sales; salience
    JEL: D21 D43 D83 L11 L13 L15
    Date: 2015–09
  7. By: Joachim Keller
    Abstract: Innovation incentives are imperfectly provided in market settings: When deciding on their innovation activity, firms tend to focus on the maximization of their private benefits, poorly internalizing social benefits. This thesis analyzes how policy intervention could be designed in order to align private and social incentives. <p><p>In the three papers of this thesis, I will consider three environments where firms' choices in a laissez-faire situation may be socially inefficient. The inefficiencies arise because of learning externalities, free riding when the innovation decision is made by a group of participants, or because firms are not willing to invest in a new activity that has a higher social than private value.<p><p>In the first thesis paper, I deal with the strategies of firms in innovative consumer product markets characterized by demand uncertainty. I analyze the timing and location decision of firms in that context.<p><p>In the second thesis paper, I consider the investment incentives of financial market infrastructures (FMIs). FMIs comprise the set of institutions that allow financial market participants to engage with each other. I assess the innovation incentives for different forms of ownership (user-owned versus third-party owned) and identify infrastructure service provision equilibria. <p><p>In the third thesis paper, I address the question of how a government should allocate a subsidy budget over time in order to maximize the innovation activity in an industry.
    Keywords: Competition; Production (Economic theory); Demand (Economic theory); Demand functions (Economic theory); Concurrence; Production; Demande (Théorie économique); Demande, fonctions de (Théorie économique); Demand Uncertainty; Information Spillovers; Ownership; Investment Incentives; Financial Service Providers; Innovation Incentives; Timing of Entry; Entry; Subsidies; Cooperatives
    Date: 2013–11–29
  8. By: Shigeru Makioka (Faculty of Economics, Keio University)
    Abstract: In a basic model of search and match, thanks to the assumption that producer-sellers and consumer-buyers pay constant search costs per one unit of a single type of goods, it suffices to consider the retail transactions between producer-sellers and consumer-buyers. We extend this model to allow for the possibilities of economies and diseconomies of scopes in search activities over two types goods. We show that producer-sellers make wholesale transactions with one another when the benefit of economies of scope is strong enough. But when the benefit of economies of scope in search activities for buyers compensates the loss of diseconomies of scope in search activities for sellers, there are multiple equilibria: Matched pairs of producer-sellers always make wholesale transactions in one equilibrium. But they never make those in another, so that there only are retail transactions.
    Keywords: search and match, economies of scope, wholesale transaction
    JEL: D83
    Date: 2015–03
  9. By: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
    Abstract: Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized.
    JEL: F2 M16 O16 P23
    Date: 2015–09
  10. By: Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl
    Abstract: Using firm-level data, we document two new facts regarding intrafirm trade and the activities of the foreign affiliates of U.S. multinational corporations. First, intrafirm trade is concentrated among a small number of large affiliates within large multinational corporations; the median affiliate ships nothing to the rest of the corporation. Second, we find that the input-output coefficient linking the parent's and affiliate's industries of operation—a characteristic commonly associated with production fragmentation— is not related to a corresponding intrafirm low of goods.
    Keywords: Intrafirm trade, multinational corporations, international value chains
    JEL: F12 F14 L11 L25
    Date: 2015–09
  11. By: Hiroaki Sandoh (Graduate School of Economics, Osaka University); Risa Suzuki (Yuki, Co., Ltd.)
    Abstract: In some localities, a large-scale chain retailer competes against a small-scale local independent retailer that specializes in, for instance, vegetables, fruits, and owers produced locally for local consumption. The former usually attracts consumers by emphasizing its width and depth of products variety, whereas the latter seeks to overcome its limited products assortment 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. This study employs the Hotelling unit interval to examine price competition in a duopoly featuring one large-scale chain retailer and one local retailer. To express differences in their product assortments, we assume that the large-scale retailer denoted by A sells two types of product, G 1 and G 2 , whereas the local retailer denoted by B sells only G 1 . Moreover, we assume that all consumers purchase G 1 at A or B after comparing prices and buy G 2 at A . We examine both Nash and Stackelberg equilibrium to indicate that the local retailer can survive competition with the large-scale chain retailer. We also reveal that a monopolistic market structure, not duopoly, optimize the social welfare if consumers always purchase both G 1 and G 2 .
    Keywords: Large-scale chain retailer, Small-scale local independent store, Duopoly, Hotelling, Price competition
    JEL: D43 M21
    Date: 2015–06
  12. By: Stanislao Gualdi; Antoine Mandel
    Abstract: Building upon the standard model of monopolistic competition on the market for intermediary goods, we propose a simple dynamical model of the formation of production networks. The model subsumes the standard general equilibrium approach and robustly reproduces key stylized facts of firms' demographics. Firms' growth rates are negatively correlated with size and follow a core double-exponential distribution followed by fat tails. Firms' size and production network are power-law distributed. These properties emerge because continuous inflow of new firms shifts away the model from a steady state to a disequilibrium regime in which firms get scaled according to their resistance to competitive forces.
    Date: 2015–09
  13. By: Enrique Fatas (University of East Anglia); Antonio J. Morales (University of Malaga); Ainhoa Jaramillo-Gutierrez (University Jaume I of Castellon)
    Abstract: We offer theoretical and experimental evidence suggesting that social competition has a first order effect in low-information Cournot markets. Using data from a stylized laboratory experiment, we show that firms use average market profits as a reference point to assess their relative performance following a simple but powerful logic: earnings above the market reinforces their current choice; scoring below the market prompts dissatisfaction and experimentation with new quantities. This "win-stay, lose-shift" heuristics converges to the competitive outcome because the Walrasian quantity is the unique action that never yields profits below the average profits in the market. This prediction is neatly confirmed in the lab. Social competition leads to Walrasian quantities even when firms do not receive information about the most successful rival, and imitation is not possible.
    Keywords: experiments, Cournot competition, Walrasian convergence, social comparison
    JEL: C9 L13
    Date: 2015–08
  14. By: Bilotkach, Volodymyr; Hüschelrath, Kai
    Abstract: In the last two decades, airline alliances were not only successful in extending the size of their networks, but also received approvals by public authorities to intensify their cooperation through to merger-like revenue-sharing joint ventures (JVs). We empirically investigate the impact of the implementation of such joint ventures on both the respective airlines' competitive strategies as well as productive efficiency. Using U.S. DOT T100 International Segment data and applying airline-market fixed effects models, we find that joint ventures - compared to services with a lower degree of cooperation - lead to a 3-5 percent increase in capacity between the respective partner airlines' hub airports; however, this is done at the expense of services elsewhere in the network. Productive efficiency, as measured by load factors, is found to be 0.5-5 percent lower for joint venture routes compared to routes operated under antitrust immunity only. We use our empirical results to discuss implications for the balancing of competition and cooperation in transatlantic airline markets.
    Keywords: air transportation,alliances,antitrust immunity,efficiencies,GMM estimator
    JEL: L41 L93 K21
    Date: 2015
  15. 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
  16. By: C. Hannum; K.Yavuz Arslanli
    Abstract: This project will build a theoretical model of real estate brokerage using assumptions based upon findings from the extensive brokerage literature. In this model differentiation in services and quality between brokerage firms combined with differentiation in preferences between sellers lead to measurable ranges of operation for brokerage firms. These ranges overlap, leading to the competitive nature of the industry. This theoretical model can be simulated in order to predict when ranges will grow or shrink and when competition within them will increase or decrease. Using MLS data for Northern Colorado we will measure the range of operation in ArcGIS for each brokerage firm and each agent in the sample by using actual geocoded data for listings and transactions. These ranges of operation will be used to calculate a market share of listings or transactions for the agent or brokerage firm within their own range of operation. For example, while a county might have 1200 listings a certain brokerage firm within that county may compete only within a smaller area of that county in which there are 120 listings. If the brokerage firm has 40 total listings our methodology would give them a market share of 33% within their operating range rather than 3% within the county. Market share measures for individual agents and brokerage firms will be combined to generate a market concentration measure for larger predefined areas such as cities or census blocks akin to the Herfindahl-Hirschman Index. This will be done using a weighted average, using conventional market share measures (the aforementioned 3%) for weights. Using panel data techniques we will test whether higher values for our market concentration measure are correlated with higher or lower sales prices. We will examine whether market shares and the size of operating ranges for individual agents and brokerage firms vary predictably with local market conditions. These tests will help to determine what value better measures of brokerage firm market share and market concentration will have to policy makers and real estate practitioners, potentially in identifying desirable locations for new entrants and in predicting future trends.
    Keywords: Brokerage; Spatial Analysis
    JEL: R3
    Date: 2015–07–01
  18. By: Lynch, Muireann Á.; Di Cosmo, Valeria
    Date: 2015–03
  19. By: Kopp, Thomas; Alamsyah, Zulkifli; Fatricia, Raja Sharah; Brümmer, Bernhard
    Abstract: In Indonesia the agricultural sector plays a key role for broad based economic development in rural areas. Rubber is one of the most important crops, and Indonesia is the second largest producer in the world. However, a high level of concentration in the processing industry limits the spread of the incoming wealth. In Jambi province on Sumatra, the strong market power of the crumb rubber factories is based on cartelization. This has tremendously negative welfare effects on the rural population, effects which are also likely to be relevant for many other provinces throughout Indonesia. For the society in general and policy makers specifically, it is essential to know about the extent of the whole issue. Thus we study the price transmission at these factories and assess their true market power. We make use of the non-parametric estimation technique of penalized splines in order to understand the error correcting process without having to make a priori assumptions about it. We then estimate an Auto-Regressive Asymmetric Threshold Error Correction Model to quantify both the extent of the threshold effect as well as the rents that are redistributed from the farmers to the factories. The analysis is based on daily price information from a period of four years (2009-2012). To the best of our knowledge, this is the first paper to quantify the additional distributional consequences of intertemporal marketing margin manipulation based on cartelistic market power.
    Keywords: intertemporal marketing margin manipulation,rubber cartel,Indonesia,asymmetric price transmission,threshold co-integration
    Date: 2014
  20. By: Alessandro De Carolis (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Andrea Vitaletti (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy; Department of Economics and School of Computing, Clemson University, Clemson, SC 29634)
    Abstract: In this paper we present a first attempt to provide an economic value to mobile users' private information. We claim that when users grant access to an application's required permissions, they disclose private information and data to third parties and let them possibly make revenues out of it. To put a monetary value to such information, we use the price of non-free applications. We use a linear model trained on the 5,187 non-free Arcade apps in Google Play Store that takes a set of permissions in input and estimates the corresponding price. Under the assumption that users "pay" free applications by providing access to more private information (i.e. permissions) and consequently the more permissions are required the less users pay the application, our research aim at showing that the estimated price provides a good proxy to attribute a quantitative value to private and sensitive information of mobile apps' users.
    Keywords: Privacy ; economic value of private information , application's required permissions ; machine learning ; Google Play Store dataset
    Date: 2015

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