nep-com New Economics Papers
on Industrial Competition
Issue of 2015‒12‒01
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. A model of dynamic competition with sticky prices By Charalambos Christou
  2. Net Neutrality, Vertical Integration, and Competition Between Content Providers By Juliane Fudickar
  3. Vertical Mergers and Downstream Spatial Competition with Different Product Varieties, Revised and Corrected By Eleftheriou, Konstantinos; Michelacakis, Nickolas
  4. Information Provision and Consumer Search By Jay Lu; Simon Board
  5. Cross-Licensing and Competition By Jeon, Doh-Shin; Lefouili, Yassine
  6. A Model of Competition between Multinationals By Koska, Onur A.
  7. Dynamic Competition in Deceptive Markets By Johannes Johnen
  8. Corporate Social Responsibility and Strategic Relationships By Hino, Yoshifumi; Zennyo, Yusuke
  9. Resale price maintenance in two-sided markets By Gabrielsen, Tommy S.; Johansen, Bjørn Olav; Lømo, Teis L.
  10. Effective European Antitrust: Does EC Merger Policy Generate Deterrence By Joseph Clougherty; Tomaso Duso; Miyu Lee; Jo Seldeslachts
  11. Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74 By Bridgman, Benjamin; Qi, Shi; Schmitz, James A.
  12. Inverted-U relationship between innovation and survival: Evidence from firm-level UK data By Ugur, Mehmet; Trushin, Eshref; Solomon, Edna
  13. Do Firms Respond to Stronger Patent Protection by Doing More R&D? By Joel Blit; Mauricio Zelaya

  1. By: Charalambos Christou (Department of Economics, University of Macedonia)
    Abstract: This paper studies dynamic competition in a duopoly under the assumption that prices are sticky, that is, they do not adjust instantaneously to the level implied by the quantities produced by the two ?rms. Assuming that market de- mand is static, contrary to the traditional approach according to which demand evolves dynamically following the course of prices, the equilibrium prices are conjectured to be higher than the Cournot level since at that level the marginal direct bene?t of a quantity increase is strictly lower than the marginal indirect cost of a future price reduction. Therefore, sticky prices have an e¤ect similar to that of the fear of price wars that keeps prices high.
    Keywords: dynamic price competition, sticky prices.
    JEL: L11 L12 L13 L22 L42
    Date: 2015–11
  2. By: Juliane Fudickar (Freie Universität Berlin)
    Abstract: This paper investigates the effects of a net neutrality regulation on the competition between content providers and the investment incentives of the internet service provider. We consider a situation where the monopoly internet service provider is vertically integrated with one of the content providers, and content providers compete in prices. Without net neutrality the vertical integrated firm can prioritise the delivery of its own content. We find that, under prioritisation, the integrated internet service provider and consumers as a whole are unambiguously better off. The competing content providers might also be better off under prioritisation if the congestion intensity is high. From a social welfare perspective prioritisation is also desirable unless product differentiation and congestion intensity are low. Contrary to some claims by internet service providers, we find that investment incentives are not always higher under prioritisation.
    Keywords: Vertical integration, Network neutrality, Competition, Investment
    JEL: L13 L41 L42 L88
    Date: 2015–09–07
  3. By: Eleftheriou, Konstantinos; Michelacakis, Nickolas
    Abstract: The aim of this paper is to revise and correct the results obtained in Beladi et al. [Beladi, H., Chakrabarti, A., Marjit, S., 2008. Vertical mergers and downstream spatial competition with different product varieties. Economics Letters 101, 262-264]. Specifically, we prove that in the pre-merger case, Nash equilibrium locations are socially optimal, whereas a vertical merger will relocate downstream firms by making them move to the right of their socially optimal positions while keeping their in-between distance intact.
    Keywords: Price discrimination; Spatial competition; Merger
    JEL: D43 L13 L42
    Date: 2015–11–27
  4. By: Jay Lu (Cornell University); Simon Board (University of California - Los Angeles)
    Abstract: Buyers often search across multiple retailers or websites to learn which product best fits their needs. We study how sellers manage these search incentives through their disclosure policies (e.g. advertisements, product trials and reviews), and ask whether competition leads sellers to provide more information. We first show that if sellers can track buyers (e.g. they can observe buyers' search history via their cookies), then in a broad range of environments, there is a unique equilibrium in which all sellers provide the 'monopoly level' of information. However, if buyers are anonymous and the search cost is small, then all sellers provide full information about their products. Tracking software thus enables sellers to implicitly collude, providing a motivation for regulation.
    Date: 2015
  5. By: Jeon, Doh-Shin; Lefouili, Yassine
    Abstract: We study bilateral cross-licensing agreements among N (>2) competing firms. We find that the industry-profit-maximizing royalty can be sustained as the outcome of bilaterally efficient agreements. This holds regardless of whether agreements are public or private and whether firms compete in quantities or prices. We extend this monopolization result to a general class of two-stage games in which firms bilaterally agree in the first stage to make each other payments that depend on their second-stage non-cooperative actions. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived.
    Keywords: antitrust and intellectual property; collusion; cross-licensing; royalties
    JEL: D14 F13 L24 L41 O34
    Date: 2015–11
  6. By: Koska, Onur A.
    Abstract: This study models competition between multinationals, sequentially entering the same market, and analyzes how they choose their entry modes between trade, greenfield investment and acquisition, and how competition amongst them affects their choices. I discuss two important factors that lead a multinational whether or not to acquire a local firm: the intensity of pre- and post-acquisition competition. The former determines both the acquisition price and the profitability of the next best alternative entry mode, whereas the latter determines the extent of business stealing by the rival. The results point to a non-linear relationship between trade and investment liberalization and foreign direct investment.
    Keywords: Market Entry; Foreign Direct Investment; Acquisition; Trade
    JEL: D21 F23 L13
    Date: 2014–11–23
  7. By: Johannes Johnen (European School of Management and Technology)
    Abstract: This paper studies the impact of private customer data about consumer naiveté in markets for deceptive products in which firms use these data to distinguish their existing customers’ level of sophistication. To do so, I introduce a dynamic model in which competing firms can shroud hidden fees from naive customers, but not from sophisticated ones. Data on past usage is highly valuable to firms in competitive settings only if it identifies naive customers. Firms exploit private information on their existing customers’ types to make type-specific offers. Since naives believe to be sophisticated, consumers do not self-select when given type-specific offers, making it impossible for rivals to compete effectively. Privately informed firms make offers to induce sophisticated customers to switch already at higher prices. Thus, competitors cannot attract profitable naives without attracting unprofitable sophisticates as well. This adverse-attraction effect enables firms to keep positive margins on existing naives, while breaking even on sophisticates. Since this implies that margins of naive consumers decrease in the share of sophisticated ones, firms prefer a balanced customer base. Achieving positive continuation profits from exploiting naive consumers requires each firm to have a substantial customer base. Thus, even when firms compete before learning about customers’ types, firms have an incentive to coordinate on prices and competition is mitigated even more. I analyze the effects of a policy that discloses customer information to all firms and thereby increases consumer surplus, and illustrate the robustness of the results through several extensions.
    Keywords: Deceptive Products; Shrouded Attributes; History-based Price Discrimination; Industry Dynamics; Big Data
    JEL: D14 D18 D21 D99 D89
    Date: 2015–07–25
  8. By: Hino, Yoshifumi; Zennyo, Yusuke
    Abstract: We analyze a delegation game relevant to the conduct of corporate social responsibility (CSR) in which the firm's owner offers the manager a contract consisting of firm profit and social welfare. We derive three results that distinctly differ from existing findings. First, CSR decisions are strategic complements for firms. Second, with simultaneous CSR decisions, the equilibrium price is equal to marginal cost, despite the fact that firms compete in a Cournot duopoly. Finally, with sequential CSR decisions, unlike the follower firm, the leader firm never exhibits CSR. However, the follower firm can enjoy a profit equal to that derived by the leader in a Cournot-Stackelberg game.
    Keywords: Keywords Corporate social responsibility, Cournot, Strategic substitute, Strategic complement
    JEL: L13 L21 M14
    Date: 2015
  9. By: Gabrielsen, Tommy S. (Department of Economics, University of Bergen); Johansen, Bjørn Olav (Department of Economics, University of Bergen); Lømo, Teis L. (Department of Economics, University of Bergen)
    Abstract: In many two-sided markets, platforms use intermediary agents to reach consumers at one side of the market. In addition to the usual externalities in two-sided markets, the use of agents creates an additional externality for the platforms. We study if and how competing platforms can internalize the externalities by imposing resale price maintenance (RPM) on the agents. By the appropriate use of RPM, the platforms can induce the fully integrated outcome. Using a speci…c example, we show that consumers’surplus is reduced when the equilibrium involves the use of minimum RPM, and consumers benefi…t when maximum RPM is used.
    Keywords: Two-sided markets; resale price maintenance
    JEL: L13 L41 L42
    Date: 2015–11–25
  10. By: Joseph Clougherty; Tomaso Duso; Miyu Lee; Jo Seldeslachts
    Abstract: We estimate the deterrence effects of European Commission (EC) merger policy instruments over the 1990-2009 period. Our empirical results suggest that phase-1 remedies uniquely generate robust deterrence as – unlike phase-1 withdrawals, phase-2 remedies, and preventions – phase-1 remedies lead to fewer merger notifications in subsequent years. Furthermore, the deterrence effects of phase-1 remedies work best in high-concentration industries; i.e., industries where the HHI is above the 0.2 cut-off level employed by the EC. Additionally, we find that phase-1 remedies do not deter clearly pro-competitive mergers, but do deter potentially anti-competitive mergers in high-concentration industries.
    Keywords: Merger, deterrence, European Commission, merger policy, competition policy, antitrust
    JEL: K21 K40 L40
    Date: 2015
  11. By: Bridgman, Benjamin (Bureau of Economic Analysis); Qi, Shi (Florida State University); Schmitz, James A. (Federal Reserve Bank of Minneapolis)
    Abstract: The idea that cartels might reduce industry productivity by misallocating production from high to low productivity producers is as old as Adam. However, the study of the economic consequences of cartels has almost exclusively focused on the losses from higher prices (i.e., Harberger triangles). Yet, as the old idea suggests, we show that the rules for quotas and side payments in the New Deal sugar cartel led to significant misallocation of production. The resulting productivity declines essentially destroyed the entire cartel profit. The magnitude of the deadweight losses (relative to value added) was large: we estimate a lower bound for the losses equal to 25 percent and 42 percent in the beet and cane industries, respecttively.
    Keywords: Cartels; Quota; Monopoly
    JEL: L00 L43 L6
    Date: 2015–10–31
  12. By: Ugur, Mehmet; Trushin, Eshref; Solomon, Edna
    Abstract: Theoretical and empirical work on innovation and firm survival has produced varied and often conflicting findings. In this paper, we draw on Schumpeterian models of competition and innovation and stochastic models of firm dynamics to demonstrate that the conflicting findings may be due to linear specifications of the innovation-survival relationship. We demonstrate that a quadratic specification is appropriate theoretically and fits the data well. Our findings from an unbalanced panel of 39,705 UK firms from 1997-2012 indicate that an inverted-U relationship holds for different types of R&D expenditures and sources of funding. We also report that R&D intensity is more likely to increase survival when firms are in more concentrated industries and in Pavitt technology classes consisting of specialized suppliers of technology and scale-intensive industries. Finally, we report that the effects of firm and industry characteristics as well as macroeconomic environment indicators are all consistent with prior findings. The results are robust to step-wise modeling, controlling for left truncation and use of lagged values to address potential simultaneity bias.
    Keywords: Innovation, post-entry performance, R&D, survival analysis
    JEL: C41 D22 L1 O21 O3
    Date: 2015–10–19
  13. By: Joel Blit (Department of Economics, University of Waterloo); Mauricio Zelaya (Department of Economics, University of Waterloo)
    Abstract: We examine whether stronger intellectual property rights (IPR) promote firm R&D, using changes in the IPR of export-partner countries as an exogenous source of variation. Constructing an export-weighted index of trade partner IPR by country-industry-year, we find that R&D responds strongly to trade partner IPR, and this after including industry, year, country, and interacted fixed effects. We further find evidence of this relationship at the level of the establishment, using a unique Canadian dataset. Our results suggest a causal link between IPR and firm R&D investments.
    JEL: O34
    Date: 2015–08

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