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on Industrial Competition |
| By: | Gerasimou, Georgios; Papi, Mauro |
| Abstract: | A large body of experimental work has suggested the existence of a "choice overload" effect in consumer decision making: Faced with large menus of choice options, decision makers often defer or avoid choice. A suggested reason for the occurrence of this effect is that the agents attempt to avoid the cognitive effort that is associated with choosing from larger menus. Building on this explanation, we propose and analyse a model of duopolistic competition where firms compete in menu design in the presence of a consumer population with heterogeneous preferences and overload menu-size thresholds. The firms' strategic trade-off is between offering a large menu in order to match the preferences of as many consumers as possible, and offering a small menu in order to avoid losing choice-overloaded consumers to their rival. Assuming uniformly distributed preferences, we focus on symmetric pure-strategy equilibria under various assumptions on the overload distribution and product markups. We also propose and analyse a measure of consumer welfare that applies to this environment. Among other things, we provide conditions for "maximum-" and "minimum-variety equilibria" to be possible, whereby both firms either offer the entire set of available products or the same one product, respectively. |
| Keywords: | Choice overload; choice deferral; choice complexity; cognitive costs; oligopolistic competition |
| JEL: | D01 D03 D11 D18 D21 D60 |
| Date: | 2015–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68509&r=com |
| By: | Mobini, Z.; van den Heuvel, W.; Wagelmans, A.P.M. |
| Abstract: | We study a two-echelon supply chain consisting of a supplier and a retailer, where the supplier uses a simple and easily implementable incentive scheme - making a side payment - to influence the retailer’s ordering plan. The supplier makes a take-it-or-leave-it offer to the retailer in the form of a menu of contracts, each consisting of a procurement plan plus a side payment. The retailer, who possesses private information about customer demand and his cost parameters, either accepts one of the contracts or imposes his own optimal plan. We formulate the supplier’s problem of designing optimal contracts with the realistic assumption that the retailer’s outside option depends on his private information. Taking into account the retailer’s reaction to the proposed offer, the supplier faces a nested (bi-level) optimization problem, which we transform into a single-level mixed integer programming formulation. In our analysis, we use a network interpretation for the set of incentive constraints and show some properties of optimal contracts. This enables us to considerably reduce the number of incentive constraints and to find optimal values of the side payment quantities. Our findings regarding the possible behavior of the opportunistic retailer deviate from those of previous studies as a result of considering more realistic assumptions. |
| Keywords: | supply chain contracting, coordination mechanisms, lot-sizing, asymmetric information |
| Date: | 2014–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:79290&r=com |
| By: | Lømo, Teis Lunde (Department of Economics, University of Bergen) |
| Abstract: | I study one manufacturer that contracts secretly with two risk averse retailers that face uncertain demand. The need for risk sharing limits the manufacturer’s scope for opportunistic deviations. If retail competition is fierce, the manufacturer’s profit increases with the levels of risk aversion and uncertainty, i.e., there is no trade-off between risk sharing and industry efficiency. The results are consistent with stylized facts from empirical and experimental research on vertical relations, including the negative correlation between vertical integration and uncertainty. |
| Keywords: | Vertically related markets; contracting externalities; imperfect information; risk sharing |
| JEL: | D81 L14 L42 L60 L81 |
| Date: | 2015–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2015_010&r=com |
| By: | C. Benassi; A. Chirco; C. Colombo |
| Abstract: | The paper proves the existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the ’income share elasticity’ representation of the consumers’ density function, which ensures the analytical tractability of the firms’ optimality conditions at a high level of generality. Some illustrative examples of the solution are offered, in order to assess the impact of distributive shocks on the equilibrium market configuration. |
| JEL: | L13 L11 D43 C72 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1044&r=com |
| By: | Zhou, Wen (School of Computer Engineering and Science); Koptyug, Nikita (Research Institute of Industrial Economics (IFN)); Ye, Shutao (School of Computer Engineering and Science); Jia, Yifan (School of Computer Engineering and Science); Lu, Xiaolong (School of Computer Engineering and Science) |
| Abstract: | As computer science and complex network theory develop, non-cooperative games and their formation and application on complex networks have been important research topics. In the inter-firm innovation network, it is a typical game behavior for firms to invest in their alliance partners. Accounting for the possibility that firms can be resource constrained, this paper analyzes a coordination game using the Nash bargaining solution as allocation rules between firms in an inter-firm innovation network. We build an extended inter-firm n-player game based on nonidealized conditions, describe four investment strategies and simulate the strategies on an inter-firm innovation network in order to compare their performance. By analyzing the results of our experiments, we find that our proposed greedy strategy is the best-performing in most situations. We hope this study provides a theoretical insight into how firms make investment decisions. |
| Keywords: | Complex Networks; Game Theory; Innovation; Innovation Network; Nash Equilibrium |
| JEL: | C72 C81 C82 D81 L14 |
| Date: | 2015–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1097&r=com |
| By: | Wai-Ki Ching; Jia-Wen Gu; Qing-Qing Yang; Tak-Kuen Siu |
| Abstract: | In this paper, the optimal pricing strategy in Avellande-Stoikov's for a monopolistic dealer is extended to a general situation where multiple dealers are present in a competitive market. The dealers' trading intensities, their optimal bid and ask prices and therefore their spreads are derived when the dealers are informed the severity of the competition. The effects of various parameters on the bid-ask quotes and profits of the dealers in a competitive market are also discussed. This study gives some insights on the average spread, profit of the dealers in a competitive trading environment. |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1512.08866&r=com |
| By: | Pascal Billand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Christophe Bravard (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Institut national de la recherche agronomique (INRA) - Université Grenoble Alpes - Grenoble 2); Jacques Durieu (CREG - Centre de recherche en économie de Grenoble - Grenoble 2 UPMF - Université Pierre Mendès France); Sudipta Sarangi (DIW - Deutsches Institut fur Wirtschaftsforschung, LSU - Louisiana State University at Baton Rouge) |
| Abstract: | In this paper we examine efficient networks in network formation games with global spillovers that satisfy convexity and sub-modularity properties. Unlike the previous literature we impose these properties on individual payoff functions. We establish that efficient networks of this class of games are nested split graphs. This allows us to complete the work of Goyal and Joshi (2006) and Westbrock (2010) on collaborative oligopoly networks. |
| Keywords: | networks, effi ciency, convexity, sub - modularity, oligopolies |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01247683&r=com |
| By: | Grebe, Tim (InterVal GmbH); Ivanova-Stenzel, Radosveta (Technical University of Berlin); Kröger, Sabine (Université Laval) |
| Abstract: | We study experimentally the effect of bargaining power in two sequential mechanisms that offer the possibility to trade at a fixed price before an auction. In the "Buy-It-Now" format, the seller has the bargaining power and offers a price prior to the auction; whereas in the "Sell-It-Now" format, it is the buyer. Both formats are extensively used in online and offline markets. Despite very different strategic implications for buyers and sellers, results from our experiment suggest no effects of bargaining power on aggregate outcomes. There is, however, substantial heterogeneity within sellers. Sellers who ask for high prices not only benefit from having the bargaining power but also earn revenue above those expected in the auction. |
| Keywords: | Buy-It-Now price, Sell-It-Now price, private value auction, single item auction, sequential selling mechanism, fixed price |
| JEL: | C72 C91 D44 D82 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9566&r=com |
| By: | Ullberg, Eskil (The Ratio Institute and george Mason University) |
| Abstract: | This article examines coordination between inventors and innovators through prices in a market for contracts on patented technology, in a controlled laboratory experiment. Typically, a hierarchical approach is used to analyze such coordination, new technology being exogenous, and risk managed in separate markets. Price signals and search patterns are compared for three institutional mechanisms and two levels of patent validity in a 3 x 2 experimental design. “Willingness to search” in a technology map of 9 “technology areas”, each with private and uncertain values for agents, are used to characterize and differentiate institutional behavior with respect to investment decisions in new technology. The results indicate that coordination and that the willingness to search out the most valuable technology differs sharply between the mechanisms; low patent validity also results in poor coordination. Policy implications suggest facilitating a market in tradable contracts on patents is needed. This may entail lowering risk in using patent “assets” (access to quality patents and enforcements for SMEs) and new forms of legal associations for IP intensive firms. |
| Keywords: | patent markets; coordination; invention; innovation; patent licensing; experimental economics; intellectual property rights assets |
| JEL: | B00 C92 D83 O00 O30 |
| Date: | 2015–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0260&r=com |
| By: | Ullberg, Eskil (The Ratio Institute and George Mason University) |
| Abstract: | Performance and behavioural properties of markets in patents are studied using a contract with a two-part tariff (fixed fee and royalty) on patented technology with limited validity and random values, in an economic experiment. Performance doubles when demand side bidding is introduced for both tariffs, resulting in gains from trade, compared with supply side take-it-or-leave-it offers. This departs from the hierarchical view of (Arrow, 1962), where the invention and innovation takes place in the same firm, eliminating any gains from trade in the analysis. An informal theory is proposed, based on insurance of market access, and tested. The sustained prices support the hypothesis that fixed fee = blocking value, thus supports rational expectations according to Muth under conditions of demand-side bidding in both tariffs. Understanding nature then drives demand for science (North, 1981). What made productivity grow in Europe may therefore have been the patent system by increasing growth in economically useful technology through a producer market. |
| Keywords: | patent markets; two-part tariff contract; patent licensing; insurance; experimental economics; intellectual property rights assets |
| JEL: | B00 C92 L10 O00 O30 |
| Date: | 2015–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0261&r=com |
| By: | Peters, Bettina; Roberts, Mark J.; Vuong, Van Anh |
| Abstract: | This article investigates how a firm's financial strength affcts its dynamic decision to invest in R&D. We estimate a dynamic model of R&D choice using data for German firms in high-tech manufacturing industries. The model incorporates a measure of the firm's financial strength, derived from its credit rating, which is shown to lead to substantial differences in estimates of the costs and expected long-run benefits from R&D investment. Financially strong firms have a higher probability of generating innovations from their R&D investment, and the innovations have a larger impact on productivity and profits. Averaging across all firms, the long run benefit of investing in R&D equals 6.6 percent of firm value. It ranges from 11.6 percent for firms in a strong financial position to 2.3 percent for firms in a weaker financial position. |
| Keywords: | R&D choice,Financial strength,Innovation,Productivity,Dynamic structural model |
| JEL: | O31 O32 G30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:15083&r=com |
| By: | Konstantinos Charistos (Department of Economics, University of Macedonia) |
| Abstract: | Leniency Programs reduce sanctions against cartel members that either report spontaneously the existence of the infringement or cooperate during the investigation and facilitate prosecution. This paper investigates the impact of leniency programs on cartel stability when demand is uncertain and firms cannot perfectly observe their rival’s choices. We show that pre-investigation leniency may or may not be effective in destroying the cartel, but in neither case affects the duration of price wars. Postinvestigation leniency may have ambiguous welfare effects, in affecting both cartel stability and price wars duration. LPs applying in situations where leniency is not urgently needed may be not only ineffective, but also welfare reducing. Hence, in markets where negative demand shocks are sufficiently frequent, leniency policies may produce undesirable effects. |
| Keywords: | antitrust enforcement, collusion, leniency programs, price wars. |
| JEL: | K21 L12 L41 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2015_08&r=com |
| By: | Florent Venayre (GDI and Université de la Polynésie française; LAMETA and Université de Montpellier) |
| Keywords: | politique de concurrence, injonctions structurelles, outre-mer |
| JEL: | K21 L40 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2015-50&r=com |
| By: | Pär Holmberg and Frank Wolak |
| Abstract: | We analyse how the market design influences the bidding behaviour in multi-unit auctions, such as wholesale electricity markets. It is shown that competition improves for increased market transparency and we identify circumstances where the auctioneer prefers uniform to discriminatory pricing. We note that political risks could significantly worsen competition in hydro-dominated markets. It would be beneficial for such markets to have clearly defined contingency plans for extreme market situations. |
| Keywords: | cost uncertainty, asymmetric information, uniform-price auction, discriminatory pricing, Bertrand game, market transparency, wholesale electricity market, treasury auction, Bayesian Nash equilibria |
| JEL: | C72 D43 D44 L13 L94 |
| Date: | 2015–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1541&r=com |
| By: | Blázquez De Paz, Mario (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Electricity markets are becoming more integrated around the world. However, the knowledge of the effects of different auction formats on suppliers’ strategies in the presence of transmission constraints and transmission costs is still very limited. In this paper, I analyze the performance of uniform and discriminatory price auctions in the presence of transmission constraints and transmission costs. When the transmission capacity is binding, the discriminatory price auction could outperform the uniform price auction, minimizing the equilibrium price and the transmission costs. Moreover, when the transmission capacity is binding, an increase in transmission costs could be pro-competitive when the auction is discriminatory, but not when the auction is uniform. |
| Keywords: | Electricity auctions; Transmission constraint; Transmission costs; Market design |
| JEL: | D43 D44 L13 L94 |
| Date: | 2015–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1098&r=com |
| By: | Golombek, Rolf (Ragnar Frisch Centre for Economic Research.); Irarrazabal, Alfonso A. (BI Norwegian Business School); Ma, Lin (School of Economics and Business, Norwegian University of Life Sciences) |
| Abstract: | We estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986-2009 period. All estimated structural parameters have the expected sign and are significant. We find that OPEC exercised market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices, however, supply (depletion) factors have become more important in recent years. |
| Keywords: | Oil; dominant firm; market power; OPEC; Lerner index; oil demand elasticity; oil supply elasticity |
| JEL: | L13 L22 Q31 |
| Date: | 2015–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2015_021&r=com |
| By: | Chi-Kong Chyong |
| Abstract: | Abstract Different hydrocarbon producer sales strategies have widely divergent implications for the value of Gazprom’s gas exports to Europe. In particular, hydrocarbon producers have commonly pursued two alternative sales strategies: (i) pure commodity production (border sales) and (ii) integrated supply, trading and marketing (ISTM). The impact of these two strategies on Gazprom’s export profits are examined under three sets of scenarios: (a) the possible entry of low-cost producers, (b) oil price dynamics and (c) the future of LTCs (pricing and volume structure). We also analysed how Statoil shifted its sales strategy in light of structural changes in European gas markets and conclude that the company began employing an ISTM strategy when the market in North-west Europe became liquid. Thus, when a market is mature, with an increasing number of buyers, the best sales strategy for a large hydrocarbon producer should be based on flexibility and increasing its use of market trading to maximise the value of its commodity. We conclude that an optimal export strategy for Gazprom should involve both a substantial and increasing portion of uncommitted volumes that can be traded in markets (gas hubs) and, if needed, some form of bilateral forward contract with a minimum take-or-pay level to secure infrastructure finance. |
| Keywords: | Long-term contracts, vertical integration, market trading, gas, Gazprom, Statoil, gas pricing, equilibrium energy modelling |
| JEL: | L14 L13 Q47 Q48 Q41 P28 O13 |
| Date: | 2015–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1542&r=com |
| By: | H. Fraisse; J. Hombert; M. Le |
| Abstract: | This paper examines how the merger between two megabanks affects bank concentration and firms' access to credit. We find that in local markets in which the merger leads to a large increase in bank concentration, the merged bank decreases the supply of credit both to existing firms and to new firms. This reduction in credit supply is offset by non-merging banks which expand lending in markets in which the merging banks reduce lending. In some specifications, the substitution effect is strong enough to make the overall effect on credit supply statistically insignificant. Moreover, the substitution effect is at work even for small borrowers, risky borrowers, and new entrants. |
| Keywords: | Competition, Bank Lending. |
| JEL: | L40 G21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:18&r=com |
| By: | Sinha, Pankaj; Sharma, Sakshi; Ghosh, Sayan |
| Abstract: | Competition has been regarded as a positive phenomenon for banks; it is perceived that competition makes banks more efficient, stimulates financial innovation and open up new markets For empirical assessment of the nature of competitive conditions amongst scheduled Indian commercial banks over a period of 15 years, we use the ‘Panzar-Rosser educed form revenue model’ to compute the so-called H statistic by estimating the factor price elasticities. In this study alternative estimation techniques have been used for comparing the dynamic H-statistic with static H-statistic. The static H-statistic was found to have a downward bias. However, dynamic as well as static H-statistic, both pointed to the presence of monopolistic competition. The hypotheses of perfect collusion as well as of perfect competition can be rejected using dynamic as well as fixed panel-econometric model estimations using micro data of banks’ balance sheets and profit & loss accounts for the years 2000-2014. The division of the entire period into two sub-samples, i.e. before and after 2007 revealed a decrease in competition levels across the two periods. Although, empirical analysis supported the assertion that the nature of competition among the Indian Banks is monopolistic.But it showed a decrease in the level of competitionmay be due to consolidation exercises of top few large banks with smaller banks and also because of the shift from traditional financial business to off-balance sheet activities, which might have lead to the convergence of competitive levels in the second sub-sample period, i.e. after 2007.The second sub-period also corresponds to the global financial crisis of 2008, a possible reason for the lower H-statistic values. The low persistence of profit values (in the sub-periods) should be associated with higher competition, It is also found that the values of competitive conduct (H-statistic), does not coincide with the classical concentration approach (CR5, CR10), for the Indian Banking Industry. The unit cost of funds, capital, and labour were found to be positive and statistically significant. The unit cost of funds was the highest contributor to the overall H statistic. The control variables, such as size and risk were found to be positively affecting the revenue. The findings arrived in this study; highlight the possible links between Indian banking sector competitiveness, profitability, intermediation and regulatory scenario. |
| Keywords: | Competition, Competitive Structure, Dynamic Model, Indian Banking Sector, Monopolistic Competition, Panzar-Rosse H-statistic, Profitability |
| JEL: | D4 D40 D41 D42 D5 D50 G2 G21 |
| Date: | 2015–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:68556&r=com |