nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒10‒17
35 papers chosen by
Russell Pittman
United States Department of Justice

  1. Price Competition in Product Variety Networks By Ushchev, Philip; Zenou, Yves
  2. Stability and Chaos in a Multi-Market Oligopoly with Economies of Scale By Marcelo J. Villena; Axel A. Araneda
  3. Identification and Estimation of Dynamic Games when Players' Beliefs Are Not in Equilibrium By Aguirregabiria, Victor; Magesan, Arvind
  4. Store Brands and the Role of Advertising By Griffith, Rachel; Krol, Michal; Smith, Kate
  5. On the Observational Equivalence of Unilateral Delegation Contracts in Duopoly By F. Delbono; L. Lambertini
  6. Heterogeneous consumers and market structure in a monopolistically competitive setting By Osharin Alexander; Verbus Valery
  7. On vertical relations and the timing of technology adoption By Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
  8. Equilibria for Multi–leader Multi–follower Games with Vertical Information: Existence Results By Maria Carmela Ceparano; Jacqueline Morgan
  9. Commitment and Costly Signalling in Decentralized Markets By Derek G. Stacey
  10. The Determinants of Dual Distribution Revisited By Philippe Cyrenne
  11. The welfare effects of endogenous quality choice in cable television markets By Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
  12. Competition policy as a lever for industrial policy: Some reflections on horizontal cartels prosecution in the post-war France By Claude Didry; Frédéric Marty
  14. Micro-evidence on product and labor market regime differences between Chile and France By Dobbelaere S.; Lauterbach R.; Mairesse J.
  15. Late-Stage Pharmaceutical R & D and Pricing Policies under Two-Stage Regulation By Sebastian Jobjornsson; Martin Forster; Paolo Pertile; Carl-Fredrik Burman
  16. Will a matchmaker invite her potential rival in? By Rupayan Pal; Vinay Ramani
  17. Politique tarifaire locale ou nationale : Quel impact pour le contrôle des concentrations dans le secteur de la distribution ? By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla
  18. Distorsiuni concurentiale si solutii optime: concentrari economice, abuz de pozitie dominanta, practici verticale si interventii ale statului By Prisecaru, Paul
  19. Leniency, Asymmetric Punishment and Corruption. Evidence from China By Perrotta Berlin, Maria; Spagnolo, Giancarlo
  20. Demand Reduction in Multi-Object Auctions with Resale: An Experimental Analysis By Marco Pagnozzi; Krista J. Saral
  21. Two faces of word-of-mouth: Understanding the impact of social interactions on demand curves for innovative products By Katarzyna Maciejowska; Arkadiusz Jedrzejewski; Anna Kowalska-Pyzalska; Katarzyna Sznajd-Weron; Rafal Weron
  22. Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market By Shanjun Li; Yiyi Zhou
  23. A Replicator Dynamic and Simulation Analysis of Network Externalities and Compatibility Among Standards By Heinrich, Torsten
  24. Retailer Price Image - An Introduction and Literature Review By Gunnarsson, Jonas
  25. The Economics of Universal Service: an Analysis of Entry Subsidies for Rural Broadband By Andre Boik
  26. Advertised Prices in Decentralized Markets By Derek G. Stacey
  27. Automation, Performance and International Competition: Firm-level Comparisons of Process Innovation By Kromann, Lene; Sørensen, Anders
  28. The Ethiopian Commodity Exchange and spatial price dispersion By Andersson, Camilla; Bezabih, Mintewab; Mannberg, Andrea
  29. How Does Bank Competition Affect Solvency, Liquidity and Credit Risk? Evidence from the MENA Countries By Raja Almarzoqi; Sami Ben Naceur; Alessandro Scopelliti
  30. Nash, el último fundador de la teoría de juegos, y la evolución del concepto de equilibrio desde Cournot By Jorge M. Streb
  31. The paradox of openness revisited : collaborative innovation and patenting by UK innovators By Arora A.; Athreye S.; Huang C.
  32. Domestic Market Integration and the Law of One Price in Brazil By Carlos Góes; Troy Matheson
  33. The ordoliberal concept of "abuse" of a dominant position and its impact on Article 102 TFEU By Behrens, Peter
  34. Relational Contracts and Supplier Turnover in the Global Economy By Fabrice Defever; Christian Fischer; Jens Suedekum
  35. Retail Sector Transformation in Russia By Komendrovskaya, Irina; Bobojonov, Ihtiyor; Glauben, Thomas

  1. By: Ushchev, Philip; Zenou, Yves
    Abstract: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degree of substituabilities (edges). In this network, we also locate consumers so that the location of each consumer (node) corresponds to her "ideal" variety. We show that there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by firms' weighted Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.
    Keywords: monopolistic competition; networks; product variety; spatial competition
    JEL: D43 L11 L13
    Date: 2015–10
  2. By: Marcelo J. Villena; Axel A. Araneda
    Abstract: In an oligopolistic setting under a Cournot scheme, the strategy of each economic player depends on its own quantity decision, but also on its rivals' reaction. Since Puu's seminal work, different oligopoly games have been studied in terms of their stability, as nonlinear discrete time varying systems. Most works in this line of research have concentrated on single markets with linear production structures (i.e. assuming constant returns to scale). Nevertheless, oligopolistic competition seems today to present multi-market phenomena, exhibiting, in some cases, important economies of scale, especially in the retail and service industry. In this paper, we study the stability of a multi-market Cournot-Nash equilibrium with global economies of scale. In other words, we look at the scale level that is related to the total production of firms, in all markets, as opposed to local economies of scale presented at each store individually. The modeling confirms the fact that economies and diseconomies of scale make the Cournot equilibrium very unstable for certain values of the scale of the producers. On the other hand, stability is achieved when the firm reaches absolute advantage with respect to its competition.
    Date: 2015–10
  3. By: Aguirregabiria, Victor; Magesan, Arvind
    Abstract: This paper deals with the identification and estimation of dynamic games when players' beliefs about other players' actions are biased, i.e., beliefs do not represent the probability distribution of the actual behavior of other players conditional on the information available. First, we show that a exclusion restriction, typically used to identify empirical games, provides testable nonparametric restrictions of the null hypothesis of equilibrium beliefs. Second, we prove that this exclusion restriction, together with consistent estimates of beliefs at several points in the support of the special state variable (i.e., the variable involved in the exclusion restriction), is sufficient for nonparametric point-identification of players' payoff and belief functions. The consistent estimates of beliefs at some points of support may come either from an assumption of unbiased beliefs at these points in the state space, or from available data on elicited beliefs for some values of the state variables. Third, we propose a simple two-step estimation method and a sequential generalization of the method that improves its asymptotic and finite sample properties. We illustrate our model and methods using both Monte Carlo experiments and an empirical application of a dynamic game of store location by retail chains. The key conditions for the identification of beliefs and payoffs in our application are the following: (a) the previous year's network of stores of the competitor does not have a direct effect on the profit of a firm, but the firm's own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs; and (b) firms' beliefs are unbiased in those markets that are close, in a geographic sense, to the opponent's network of stores, though beliefs are unrestricted, and potentially biased, for unexplored markets which are farther away from the competitors' network. Our estimates show significant evidence of biased beliefs. Furthermore, imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects.
    Keywords: dynamic games; estimation; identification; market entry-exit; rational behavior; rationalizability
    JEL: C73 L13
    Date: 2015–10
  4. By: Griffith, Rachel; Krol, Michal; Smith, Kate
    Abstract: Store brands are products over which a retailer (rather than a manufacturer) takes certain strategic decisions; we study the incentives of a retailer to advertise its store brands. We use detailed data on the British grocery market to document the considerable variation in store brand penetration across product categories and retailers. We develop a model that relates the pricing and advertising decisions of retailers and manufacturers to primitive characteristics of the category, and in particular the way that advertising affects consumer demand. We present empirical evidence that is consistent with several predictions from the model.
    Keywords: advertising; store brands
    JEL: D21 D22 M37
    Date: 2015–10
  5. By: F. Delbono; L. Lambertini
    Abstract: In a Cournot duopoly, if only one firm hires a manager while the other remains entrepreneurial, the Cournot-Stackelberg equilibrium emerges, with the managerial firm as the leader. This happens under at least three different delegation schemes. We illustrate the different meachanisms driving this outcome through the analysis of the map of best replies at the market stage.
    JEL: D43 L13 L21
    Date: 2015–10
  6. By: Osharin Alexander; Verbus Valery
    Abstract: The present paper extends the traditional Dixit and Stiglitz set-up by introducing consumers’/workers’ heterogeneity into a general equilibrium model of monopolistic competition. The model obtains a closed-form solution for a symmetric equilibrium and shows how the market outcome depends on the joint distribution of consumers’/workers’ taste and labor productivities. In contrast to the traditional framework, our model predicts that the short-run equilibrium price may vary with the number of firms, demonstrating both anti- and pro-competitive behavior, which is in accordance with economic intuition and empirical evidence. Proposed approach is also capable to explain variability of the long-run equilibrium markups, which is observed empirically. Unlike the standard CES model, where markups are constant, in our setting the equilibrium markups depend on the covariance of tastes and productivity.
    JEL: D43 L13
    Date: 2015–10–06
  7. By: Alipranti, Maria; Milliou, Chrysovalantou; Petrakis, Emmanuel
    Abstract: We study the timing of new technology adoption in markets with input outsourcing, and thus with vertical relations. We find that technology adoption can take place earlier when firms engage in input outsourcing than when they produce the input in-house. Hence, the presence of vertical relations can accelerate the adoption of a new technology. We also find that particular features of a vertically related market, such as the bargaining power distribution and the contract type through which trading is conducted, can crucially affect the speed of technology adoption.
    Keywords: technology adoption,vertical relations,outsourcing,two-part tariffs,wholesale price contracts,bargaining
    JEL: L13 O31 L22 L41
    Date: 2015
  8. By: Maria Carmela Ceparano (Università di Napoli Federico II); Jacqueline Morgan (Università di Napoli Federico II and CSEF)
    Abstract: We consider a two–stage multi–leader multi–follower game where the action chosen by any leader is observed by only one “exclusive” follower. Many real–world situations can be modeled as such a game, for example in Pagnozzi and Piccolo, Vertical Separation with Private Contracts, The Economic Journal (2012), where competing manufacturers (the leaders) delegate retail decisions to exclusive retailers (the followers) offering a private contract. This game, called with vertical information, may have an infinity of Nash equilibria but it is not possible to refine using the concept of subgame perfect Nash equilibrium since the associate extensive form has no proper subgames. This motivates the introduction of selections of Nash equilibria based on the beliefs that each follower has about the actions observed by the other followers. In this paper, focusing on the concept of equilibrium under passive beliefs for a general model, we show the effectiveness of the concept and we investigate the existence of such a selection for significative classes of problems satisfying conditions of minimal character on possibly discontinuous data.
    Keywords: multi–leader multi–follower games; selection of equilibria; passive beliefs; existence; discontinuous data; information; fixed points; set–valued map
    Date: 2015–10–13
  9. By: Derek G. Stacey (Department of Economics, Ryerson University, Toronto, Canada)
    Abstract: I propose a model of a decentralized market using a search framework with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signalling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable as long as the market is not already sufficiently active. The theoretical implications are qualitatively consistent with the empirical observations of real estate brokerage in housing markets: listing fees, platform differentiation, and endogenous sorting based on seller motivation.
    Keywords: Search, Costly Signalling, Efficiency, Housing
    JEL: C78 D40 D44 D83 R31
    Date: 2014–12
  10. By: Philippe Cyrenne
    Abstract: This paper examines the use of what has been called dual distribution by firms. Dual distribution involves a firm using both company owned stores and independently owned franchises to sell its product or service. Using panel data from 1048 companies for the years 2005 to 2009, I use a variety of estimators to determine the factors that influence the relative use of franchising by companies. A key focus of the paper is to control for the possible endogeneity of the franchise fee, royalty rate and franchise ratio for the companies in the respective industries. Using a panel date estimator and lagged values of the franchise fee and royalty rate as instruments, I find that one reason the franchise fee and royalty rate do not appear to influence the relative use of franchising by companies is due to industry and firm level fixed effects which capture the variation in royalty rates and franchise fees at the company level.
    Date: 2015–10
  11. By: Gregory S. Crawford; Oleksandr Shcherbakov; Matthew Shum
    Abstract: We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.
    Keywords: Industrial organization, endogenous quality, imperfect competition, monopoly, cable television, quality distortions, welfare, quality markup
    JEL: L15 L13 L82 L96 C51
    Date: 2015–08
  12. By: Claude Didry (IDHE - Institutions et Dynamiques Historiques de l'Economie - CNRS - Université Paris VIII - Vincennes Saint-Denis - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense - ENS Cachan - École normale supérieure - Cachan - UP1 - Université Panthéon-Sorbonne); Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - UNS - Université Nice Sophia Antipolis)
    Abstract: The Establishment of the cartels technical committee in 1953, which prefigured the contemporary French competition authority, seems to participate in the same movement than the German competition law and the Treaty of Rome four years later. However some differences have to be put into relief. First, it didn’t deal with individual abuses of dominance. Second, the collusive practices targeted mainly concerned bid-rigging in public procurement in the reconstruction and modernisation plan. Thus, if this competition policy experience contrasts with war experiences and the interwar period arguments for a regulated competition, it cannot be assimilated with West German one, inspired by the Ordoliberal School. Sanctioning horizontal collusion makes sense within an industrial policy model based on a close co-operation between Government and some national champions. In that sense, the French competition law beginnings may be analysed as a tool for ensuring the implementation of a vertically conceived industrial policy.
    Abstract: La création en 1953 du Comité Technique des Ententes, lointain prédécesseur de notre actuelle Autorité de la Concurrence, inscrit la politique de concurrence française dans un rapport de contemporanéité avec la loi sur la concurrence allemande et le Traité de Rome. Cependant, comme la dénomination même du Comité l’indique, le premier domaine d’intervention résidait en la répression des comportements collusifs horizontaux, il n’était pas alors question des abus de position dominante individuelle. Qui plus est, les pratiques collusives qui étaient particulièrement visées se nouaient autour de marchés publics liés aux plans de reconstruction, équipement et modernisation. Ainsi, si cette activation des règles de concurrence contrastait avec les traditions dirigistes héritées des expériences des économies de guerre ou l’influence des approches planistes qui étaient favorables aux ententes entre firmes au nom de l’efficience productive, elle ne saurait pour autant participer d’une logique comparable à celle alors à l’œuvre en Allemagne de l’Ouest sous l’influence des ordolibéraux. Cette lutte contre les cartels peut s’expliquer en regard d’une conception d’une politique industrielle fondée sur une étroite coopération entre les administrations et les grandes entreprises françaises considérées comme des champions nationaux. L’activation du levier concurrentiel a pu participer d’une politique industrielle de nature verticale passant par l’élimination des pratiques collusives entre firmes.
    Keywords: competition policy, cartel agreements, neoliberalism, utilities.,politiques de concurrence,cartels,néo-libéralisme,services publics
    Date: 2015–10–01
  13. By: Tifaoui, Said; Von Cramon-Taubadel, Stephan
    Abstract: We show how the measurement scale affects the results of the vertical price transmission analysis. We aim to answer the following question: how changes in wholesale prices (i.e. changes in the margin) affect the changes in the retail price of butter in Germany? We find that the average margin of the chains which change more frequently their prices is twofold the standard deviation of average margin in the German butter market, whereas, the chains characterized by less frequency in their price changes have an average margin which is a fold the standard deviation below this average margin.
    Keywords: Generalized Linear Mixed models, Vertical Price Transmission, Scanner data, German butter market, Demand and Price Analysis,
    Date: 2015
  14. By: Dobbelaere S.; Lauterbach R.; Mairesse J. (UNU-MERIT)
    Abstract: Institutions, social norms and the nature of industrial relations vary greatly between Latin American and Western European countries. Such institutional and organizational differences might shape firms operational environment in general and the type of competition in product and labor markets in particular. Contributing to the literature on estimating simultaneously product and labor market omperfections, this paper quantifies industry differences in both types of imperfections using firm-level data in Chile - a non-OECD member under the considered time period - and France. We rely on two extensions of Halls econometric framework for estimating price-cost margins by nesting three labor market settings perfect competition or right-to-manage bargaining, efficient bargaining and monopsony. Using an unbalanced panel of 1,737 firms over the period 1996-2003 in Chile containing unique data on firm-level output price indices and 14,270 firms over the period 1994-2001 in France, we first classify 20 comparable manufacturing industries in 6 distinct regimes that differ in the type of competition prevailing in product and labor markets. We then investigate industry differences in the estimated product and labor market imperfections. Consistent with differences in institutions and in the industrial relations system in the two countries, we find important regime differences across the two countries. In addition, we observe cross-country differences in the levels of product and labor market imperfections within regimes.
    Keywords: Single Equation Models; Single Variables: Models with Panel Data; Longitudinal Data; Spatial Time Series; Firm Behavior: Theory; Trade Unions: Objectives, Structure, and Effects; Oligopoly and Other Imperfect Markets;
    JEL: C23 D21 J51 L13
    Date: 2015
  15. By: Sebastian Jobjornsson; Martin Forster; Paolo Pertile; Carl-Fredrik Burman
    Abstract: We present a model combining the two regulatory stages relevant to the approval of a new health technology: the authorisation of its commercialisation and the insurer’s decision about whether to reimburse its cost. We show that the degree of uncertainty around the true value of the insurer’s maximum willingness to pay for a unit increase in effectiveness has a non-monotonic impact on the price of the innovation, the firm’s expected profit and the optimal sample size chosen for the clinical trial. A key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm, the insurer and patients. We consider how different policy parameters may be used as incentive mechanisms, and the incentives to invest in R&D for marginal projects such as those targeting rare diseases. The model is calibrated using data on a new treatment for cystic fibrosis.
    Keywords: Rare Diseases; Pharmaceutical Pricing and Reimbursement; Optimal Sample Size
    JEL: L5 H51 I11 I18
    Date: 2015–10
  16. By: Rupayan Pal (Indira Gandhi Institute of Development Research); Vinay Ramani (Indian Institute of Management Udaipur)
    Abstract: This paper analyzes optimal strategies of an incumbent intermediary, who matches agents on the two sides of a market, in the presence of entry threat under alternative scenarios. It shows that, when entry is free, strategic entry accommodation is the optimal choice of the incumbent - not entry deterrence, unless the variation in agents' types is small. Entry accommodation remains optimal for the incumbent for a wide range of parametric configurations even when there is a fixed cost of entry. These results are in sharp contrast to the predictions of existing models of entry.
    Keywords: Entry accommodation, Entry deterrence, Intermediation, Matching, Two-sided market
    JEL: L12 L13 D43
    Date: 2015–08
  17. By: Marie-Laure Allain; Claire Chambolle; Stéphane Turolla
    Abstract: [texte en français] The food retail sector is characterized by a competition among multi-market retailers that is highly localized. Multi-store retailers either price discriminate spatially or adopt a uniform pricing strategy among local markets. We analyze theoretically the effects of both pricing strategies (local or uniform) on merger control. We show that when one retailer adopts uniform pricing across stores, the anticompetitive effect of the merger on consumer welfare spreads on markets non directly affected by the merger. In addition, the effect of the merger on directly affected markets is enhanced when these markets are sufficiently more competitive than markets non directly affected by the merger. These results lead to reconsiderate the definition of relevant markets in merger control when one multi-market retailer uses local pricing.
    Keywords: mergers, retail grocery sector, pricing, competition policy
    JEL: L13 L42
    Date: 2015
  18. By: Prisecaru, Paul (Consiliului Concurentei)
    Abstract: In this paper, the best solutions available, in the author's opinion, to restore the competitive environment in the case of four competitive distortions, are selectively presented. First, two relatively recent case studies from US and EU, are presented. These cases, namely AT&T / T-Mobile (USA) and NYSE Euronext / Deutsche Börse (EU), are relevant for the latest approaches to measuring economic efficiency in relation to anti-competitive effects. Secondly, regarding the interaction between competition policy, namely abuse of dominant position, and intellectual property rights, the Magill and IMS Health, both EU cases, are summarized and a brief discussion of the European Commission's approach in Microsoft and Google cases is presented. Certainly, future developments in the abuse of dominant position are difficult to predict, but the intersection of competition law and intellectual property rights will generate further evolving jurisprudence. Thirdly, vertical restrictive practices (agreements between companies at different levels of the production and distribution chain) are approached from a new perspective, providing as a solution a decision matrix that combines both the American and European approaches. Finally, for evaluating and eliminating distortions of competition caused by public regulations, the paper describes the tools developed by the OECD and the relevant experience in applying these tools in other states. The OECD Checklist is currently the best instrument in the world for regulatory impact assessment, backed by outstanding practical results, particularly to Australia.
    Keywords: mergers, efficiencies, abuse of dominant position, intellectual property rights, vertical restraints, resale price maintenance, regulatory impact assessment, competition toolkit
    JEL: K2 L4
    Date: 2015–09
  19. By: Perrotta Berlin, Maria (Stockholm Institute of Transition Economics); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics)
    Abstract: One-sided leniency policies and asymmetric punishment are regarded as potentially powerful anti-corruption tools, also in the light of their success in busting price-fixing cartels. It has been argued, however, that the introduction of these policies in China in 1997 has not helped fighting corruption. Following up on this view, the Central Committee of the Chinese Communist Party passed on 23 October 2014 a Decision concerning Several Major Issues in Comprehensively Advancing Governance According to Law which stressed the current government’s strong commitment to fight corruption introducing heavier penalties but also severe restrictions of leniency offered to bribe-givers. Claims on the effects of the 1997 reform are not backed by data, to our knowledge, while evaluating the effects of a policy on crimes like corruption is difficult. These crimes are typically only observed if detected and convicted by the police, and an increase in observed convictions may as well be due to an increase in the total number of crimes rather than to a positive effect of the policy. We collect data on the investigations of bribery and public official corruption, available for most Chinese provinces for the period 1986-2010, and extend to corruption a method to identify deterrence effects from changes in detected cases, originally developed for cartels. The available evidence so far points to a substantial and stable reduction in the number of major corruption cases around the 1997 reform, a result per se ambiguous but clearly consistent with a positive deterrence effect of the 1997 reform. A case study analysis is under way to corroborate and help the interpretation of these preliminary findings.
    Keywords: Corruption; Leniency; China
    JEL: K14 N45 P37
    Date: 2015–10–01
  20. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Krista J. Saral (George Herbert Walker School of Business and Technology)
    Abstract: We analyze the effects of different resale mechanisms on bidders’ strategies in multi-object uniform-price auctions with asymmetric bidders. Our experimental design consists of four treatments: one without resale and three resale treatments that vary the information available and the bargaining mechanism in the resale market. The presence of a resale market induces demand reduction by high-value bidders and speculation by low-value bidders, thus affecting the allocation of the objects on sale. The magnitude of these effects, however, depends on the form of the resale market. Features of the resale market that tend to increase its efficiency result in lower auction efficiency and seller’s revenue. We also show that, without resale, asymmetry among bidders reduces demand reduction.
    Keywords: multi-object auctions, resale, asymmetric bidders, bargaining, economic experiments
    JEL: D44 C90
    Date: 2015–10–07
  21. By: Katarzyna Maciejowska; Arkadiusz Jedrzejewski; Anna Kowalska-Pyzalska; Katarzyna Sznajd-Weron; Rafal Weron
    Abstract: Word-of-mouth (WOM) is a puzzling phenomenon. It strongly influences the innovation diffusion process and is responsible for the 'S' shape of the adoption curve. However, it is not clear how WOM affects demand curves for innovative products and strategic decisions of producers. In this paper, we build an agent-based model of innovation diffusion, which links the opinions of potential consumers with their market behavior via the concept of reservation prices. We show that when reversibility of opinions is allowed, WOM may have either a positive or a negative effect on the adoption process, depending on the model parameters and the level of market prices. Our results suggest that a relatively strong WOM effect can lead to the creation of two separated price-quantity regimes, with a nonlinear transition between them. A small shift of the market price can result in a drastic change of the demanded quantity and, hence, the revenues of a firm. Using Monte Carlo simulations and mean-field (semi-)analytical treatment we demonstrate that WOM may have ambiguous consequences and should be taken into account when designing marketing strategies.
    Keywords: Word-of-mouth; Innovation diffusion; Agent-based model; Demand curve; Marketing strategy
    JEL: C63 O33 Q48 Q55
    Date: 2015–10–04
  22. By: Shanjun Li (Dyson School of Applied Economics and Management, Cornell University, Ithaca, NY 14853); Yiyi Zhou (Department of Economics, Stony Brook University, Stony Brook, NY 11794)
    Abstract: We examine the dynamics of technology adoption and critical mass in network industries with an application to the U.S. electric vehicle (EVs) market. This market exhibits indirect network effects in that consumer EV adoption and investor deployment of public charging stations are interdependent. In markets with positive indirect network effects, multiple equilibria with different level of technology adoption may exist. The diffuion and ultimately the success of technology depend on the equilibrium structure and property. Under certain market conditions, the issue of critical mass arises and the market needs to pass this critical mass in order to reach the high-adoption equilibrium. Using a data set of quarterly EV sales in 354 U.S. metro areas from 2011 to 2013, we quantify indirect network effects and simulate long-run market outcomes in each of the MSAs. Our analysis provides robust and significant evidence of indirect network effects in this market. Simulations show several different market equilibrium outcomes across the 354 MSAs in the long run with a significant number of them exhibiting multiple equilibria and critical mass. Policy suggestions are provided in order to push these markets to pass the critical mass and move towards the high-adoption equilibrium.
    Keywords: electric vehicles; indirect network effects; critical mass
    JEL: Q4 Q5 R4
    Date: 2015–10
  23. By: Heinrich, Torsten
    Abstract: In the presence of network externalities, compatibility and tying or bundling of standards may be employed as strategic tools. This has reportedly been done by, e.g., many competitors in ICT industries. It remains, however, less clear which mechanisms exactly are exploited and in what way. The present paper investigates the economic role of compatibility or incompatibility of tied standards for the dynamics of competition between standards. A replicator model operating on an aggregated level is complemented by an agent-based simulation that takes into account the network structure among users and by an empirical example from the information technology sector. A variety of effects and strategic options of vendors of the standards are studied, including the role of initial usage share distribution, controlling the inter-subsectoral compatibility, setting up new competitors, and utilizing properties of the network such as central or peripheral positioning of agents (Feld's friendship paradox). The agent-based model contrasts a complete network and a regular ring network with asymmetric network structures derived from Barabàsi and Albert's preferential attachment mechanism and triadic closure. Though this explores only a small subset of the theoretically possible effects, it may contribute to a better understanding of strategic interaction in the presence of network externalities.
    Keywords: network externalities \and platform competition \and standard tying; information and communication technology; agent-based modeling; replicator dynamics; preferential attachment networks
    JEL: C61 C63 D43 L81 L86 L96
    Date: 2015–10–12
  24. By: Gunnarsson, Jonas (Marketing and Strategy)
    Abstract: This working paper aims to give an introduction to what we know about what makes up and influences the retailer’s price image: “the general belief about the overall level of prices that consumers associate with a particular retailer” (R. Hamilton & Chernev, 2013). What have been the main themes in academic price image research? The focus is on what relevant empirical evidence has been published and what conclusions can be drawn. We also provide some illustrative new empirical data. The paper is written as a first stop for academic researchers, students and retail practitioners interested in the area. The paper begins by discussing the background and relevance of the topic. We continue the first section by introducing a number of key theoretical concepts that are frequently used in the behavioral pricing and price image literature. We conclude by discussing the crucial role of consumer memory and decision making biases in understanding how consumers process information about retailers, their stores and prices. The empirical section covers many of the issues which in different research streams have been found to be of relevance to understanding how consumers process price information and how they react to cues which retailers attempt to manage every day. The final section attempts to wrap up and visualize the research area.
    Keywords: Price image; price perception; retail prices; grocery; Sweden; pricing strategy; branding; positioning
    Date: 2015–08–01
  25. By: Andre Boik (Department of Economics, University of California (Davis), One Shields Avenue, Davis CA, 95616)
    Abstract: Universal service is a policy objective that all individuals or households have access to some service. Subsidy policies to accomplish universal service may arise when private provision is non-universal. In the context of rural high speed wired broadband subsidies, this paper exploits household-level cable and satellite broadband subscription data from North Carolina to examine household adoption and substitution patterns and to evaluate how many currently unserved regions warrant an entry subsidy. This paper has three main findings: (i) fewer than 47% of households adopt high speed broadband in areas currently served by a single broadband provider, (ii) there exists a significant elasticity of substitution between high speed wired broadband and the lower speed options of satellite broadband and DSL, and (iii) a generous upper bound on the number of regions that warrant an entry subsidy is 67%. These results suggest a policy of universal service in North Carolina would be unlikely to achieve universal adoption, would connect many households already with internet access and who would not substitute, and in many regions would be prohibitively costly even assuming very generous estimates of the consumer surplus generated. From the perspective of social welfare, to connect the 5% least dense areas of North Carolina would require each adopting household value broadband access at more than $1550 per month.
    Keywords: Universal service; entry subsidies; broadband; telecommunications
    JEL: L96 L97 L51 H71
    Date: 2015–09
  26. By: Derek G. Stacey (Department of Economics, Ryerson University, Toronto, Canada)
    Abstract: A model of a decentralized market is developed that features search frictions, advertised prices and bargaining. Sellers can post ask prices to attract buyers through a process of directed search, but ex post there is the possibility of renegotiation. Similarly, buyers can advertise negotiable bid prices to attract sellers. Even though transaction prices often differ from quoted prices, advertised bid and ask prices play a crucial role in directing search and reducing trading frictions. The features and predictions of the model align well with aspects of the secondary market for transferable taxicab license plates in Toronto. This provides a useful and unique context for studying the relationships between advertised and actual prices in a decentralized market.
    Keywords: Bid and Ask Prices, Search Frictions, Price Commitment
    JEL: D40 G12 L10
    Date: 2015–08
  27. By: Kromann, Lene (Department of Economics, Copenhagen Business School); Sørensen, Anders (Department of Economics, Copenhagen Business School)
    Abstract: This paper presents new evidence on tradeinduced automation in manufacturing firms using unique data combining a retrospective survey that we have assembled with register data for 2005-2010. In particular, we establish a causal effect where firms that have specialized in product types for which the Chinese exports to the world market has risen sharply invest more in automated capital compared to firms that have specialized in other product types. We also study the relationship between automation and firm performance and find that firms with high increases in scale and scope of automation have faster productivity growth than other firms. Moreover, automation improves the efficiency of all stages of the production process by reducing setup time, run time, and inspection time and increasing uptime and quantity produced per worker. The efficiency improvement varies by type of automation.  
    Keywords: automation; productivity; production theory; efficiency
    JEL: D24 L11 L22 O33
    Date: 2015–10–01
  28. By: Andersson, Camilla; Bezabih, Mintewab; Mannberg, Andrea
    Abstract: In this article, we study the impact of an institutional intervention on market efficiency in Ethiopia. More specifically, we study whether regional warehouses that are connected to a national commodity exchange reduce transaction cost and price dispersion between regions. In order to identify the causal effect we take advantage of the fact that the warehouses that are connected to the Ethiopian Commodity Exchange were sequentially rolled out. Using retail price data and information about warehouse operation from 2007-2012, we find that the average price spread between market pairs is reduced by 0.86-1.775 ETB when both markets have an operating warehouse. This is a substantial reduction considering that the average price spread over the full period is 3.33 ETB.
    Keywords: Coffee, Commodity Exchanges, Ethiopia, Price dispersion, Warehouses, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Marketing, D47, O10, Q11, Q13, Q18,
    Date: 2015–09
  29. By: Raja Almarzoqi; Sami Ben Naceur; Alessandro Scopelliti
    Abstract: The paper analyzes the relationship between bank competition and stability, with a specific focus on the Middle East and North Africa. Price competition has a positive effect on bank liquidity, as it induces self-discipline incentives on banks for the choice of bank funding sources and for the holding of liquid assets. On the other hand, price competition may have a potentially negative impact on bank solvency and on the credit quality of the loan portfolio. More competitive banks may be less solvent if the potential increase in the equity base—due to capital adjustments—is not large enough to compensate for the reduction in bank profitability. Also, banks subject to stronger competitive pressures may have a higher rate of nonperforming loans, if the increase in the risk-taking incentives from the lender’s side overcomes the decrease in the credit risk from the borrower’s side. In both cases, country-specific policies for market entry conditions—and for bank regulation and supervision—may significantly affect the sign and the size of the relationship. The paper suggests policy reforms designed to improve market contestability and to increase the quality and independence of prudential supervision.
    Keywords: Saudi Arabia;North Africa;Oman;Libyan Arab Jamahiriya;Bank liquidity;United Arab Emirates;Qatar;Financial stability;Competition;Middle East;Liquidity;Jordan;Kuwait;Lebanon;Egypt;Credit risk;Bahrain;Banking systems;Banks;Bank Competition, Solvency, Bank Regulation, Supervision, bank, risk, banking, credit, Government Policy and Regulation, Corporation and Securities Law, Bank Regulation and Supervision,
    Date: 2015–09–29
  30. By: Jorge M. Streb
    Abstract: Nash recibió el premio Nobel de economía por dos aportes fundamentales: la distinción entre juegos cooperativos y no cooperativos, y el concepto de solución básico para juegos no cooperativos. Myerson indica que este equilibrio es el concepto de solución básico de teoría de juegos dado que, como señala Nash, los juegos cooperativos se pueden reducir a un juego no cooperativo más amplio agregando la negociación previa. El equilibrio de Nash puede verse también como equilibrio de Cournot-Nash porque fue originalmente formulado por Cournot en un modelo de oligopolio, aunque al ser una aplicación específica esto es discutido. El problema fundamental, sin embargo, fue que el análisis de Cournot llevó a polémicas interminables sobre cómo se llega al equilibrio. Otro aporte fundamental de Nash, en mi opinión, es resolver esto con su interpretación racionalista, donde los jugadores conocen la estructura del juego y usan la solución para predecir el equilibrio. Nash introduce así las expectativas racionales. Alternativamente, ofrece una interpretación adaptativa cuando los jugadores no conocen la estructura de juego pero ajustan sus estrategias para maximizar sus pagos, algo anticipado por Cournot al analizar la elasticidad de demanda. La teoría de juegos evolutiva desarrolla esta segunda interpretación. En suma, Nash no solo fue extraordinario como matemático sino como economista.
    Date: 2015–10
  31. By: Arora A.; Athreye S.; Huang C. (UNU-MERIT)
    Abstract: We revisit the paradox of openness in the literature which consists of two conflicting views on the link between patenting and open innovation-the spillover prevention and the organisational openness views. We use the data from the Survey of Innovation and Patent Use and the Community Innovation Survey CIS6 in the UK to assess the empirical support for the distinct predictions of these theories. We argue that both patenting and external sourcing openness are jointly-determined decisions made by firms. Their relationship is contingent upon whether the firms are technically superior to their rivals and lead in the market or not. Leading firms are more vulnerable to unintended knowledge spillovers during collaboration as compared to followers, and consequently, the increase in patenting due to openness is higher for leaders than for followers. We develop a simple framework that allows us to formally derive the empirical implications of this hypothesis and test it by estimating whether the reduced form relationship between patenting and collaboration is stronger for leaders than for followers.
    Keywords: Management of Technological Innovation and R&D; Intellectual Property Rights;
    JEL: O32 O34
    Date: 2015
  32. By: Carlos Góes; Troy Matheson
    Abstract: This paper presents the first assessment domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law of one price holds for most tradable products and, not surprisingly, non-tradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.
    Keywords: Markets;Brazil;Products;Prices;Price indexes;Panel analysis;Law of One Price, Panel Cointegration, Domestic Market Integration.
    Date: 2015–09–29
  33. By: Behrens, Peter
    Abstract: This paper explores the impact of ordoliberal thinking on the drafting of the prohibition of "abuse" of a dominant position in the market that was included in the competition rules of the Rome Treaty establishing the European Economic Community as well as on its interpretation by the Commission and the Court of Justice of the European Union (CJEU). Firstly, it is shown that the ordoliberal school must not be regarded as a set of ideas frozen in its formative period of 1933 to 1950 or 1957 when the "Freiburg School" was established but rather as an approach that has been dynamically developed and refined over the last 75 years (i.e. over four generations of ordoliberals) up to the present day by integrating important new insights without, however, giving up its core tenets and convictions. Secondly, it is shown on the basis of the preparatory work which lead in the 1950ies to the Rome Treaty that the adoption of the concept of "abuse" for the control of dominant undertakings was due to the strong influence of the German negotiating team that consisted of (in the meantime second generation) ordoliberals. Thirdly, it is explained how ordoliberal thinking about the "system of undistorted competition" and the protection of "residual competition against exclusionary practices" has influenced the application of the "abuse" concept in the jurisprudence of the Commission and the CJEU from the Continental Can case to the recent Intel case. This approach has come under attack from welfare-economic approaches which emphasize efficiency instead of competition and which have accused the ordoliberal approach of formalism, lack of sufficient economic analysis, preoccupation with fairness, protection of competitors instead of competition, obsession with interventionist regulation etc. This paper demonstrates that all of these characterizations are based on fundamental misunderstandings of what ordoliberal thinking originally meant and what it stands for today.
    Keywords: EU competition law,Rome Treaty,preparatory work,travaux préparatoires,monopoly problem,competition rules,abuse of a dominant position,ordoliberalism,Freiburg School,system of undistorted competition,protection of residual competition,exclusionary practices,predatory pricing,refusal to deal,essential facility,exploitation,efficiency,fairness,effects on competition
    Date: 2015
  34. By: Fabrice Defever; Christian Fischer; Jens Suedekum
    Abstract: Headquarters and their specialized component suppliers have a vital interest in establishing long-term collaborations. When formal contracts are not enforceable, such efficiency enhancing cooperations can be established via informal agreements, but relational contracts have been largely ignored in the literature on the international organization of value chains. In this paper, we develop a dynamic property rights model of global sourcing. A domestic headquarter collaborates with a foreign input supplier and makes two decisions in every period: i) whether to engage in a costly search for a better partner, and ii) whether to make a non-binding offer to overcome hold-up problems. Our key result is that the possibility to switch partners crucially affects the contractual nature of buyer-supplier relationships. In particular, some patient firms do not immediately establish a relational contract, but only when they decide to stop searching and thus launch a long-term collaboration with their supplier. From our model, we develop an instrumental variable estimation strategy that we apply using transaction-level data of fresh Chinese exporters to the US. We obtain empirical evidence in line with the theoretical prediction of a positive causal effect of match durations on relational contracting.
    Keywords: Firm organization, input sourcing, relational contracts, supplier search, processing trade, China
    JEL: D23 L23 F23
    Date: 2015–10
  35. By: Komendrovskaya, Irina; Bobojonov, Ihtiyor; Glauben, Thomas
    Abstract: Russia’s agrifood industry, including processing, wholesale, and retail underwent tremendous changes since the collapse of the Soviet Union. In this transition from the planned to a market economy, supermarkets emerged as important players in Russia, affecting agrifood system via organizational and institutional changes including centralization of procurement from farmers and demanding private standards on product quality and safety.This study examines the penetration of supermarket chains and factors contributing to development of modern retailing in Russia. The panel data at regional level is used in order to investigate the factors influencing on modernization of retail sector in Russia.
    Keywords: Agrifood system, food supply chain, food security, sanctions, import, Agribusiness, Agricultural and Food Policy,
    Date: 2015

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