nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒01‒18
five papers chosen by
Russell Pittman
United States Department of Justice

  1. Multiproduct Pricing Made Simple By Armstrong, Mark; Vickers, John
  2. Measuring the Effectiveness of Anti-Cartel Interventions: A Conceptual Framework By Yannis Katsoulacos; Evgenia Motchenkova; David Ulph
  3. Optimal Monetary Provisions and Risk Aversion in Plural Form Franchise Network. A Model of Incentives with Heterogeneous Agents By Muriel Fadairo; Cyntia Lanchimba; Miguel Yangari
  4. Time Scarcity and the Market for News By Larbi Alaoui; Fabrizio Germano
  5. The impact of market structure and the business cycle on bank profitability: the role of foreign ownership. The case of Poland By Małgorzata Pawłowska

  1. By: Armstrong, Mark; Vickers, John
    Abstract: We study pricing by multiproduct firms in the context of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.
    Keywords: Multiproduct pricing, homothetic preferences, Cournot oligopoly, monopoly regulation, Ramsey pricing, cost passthrough, multidimensional screening
    JEL: D42 D43 D82 L12 L13 L51
    Date: 2016–01–08
  2. By: Yannis Katsoulacos (Athens University of Economics and Business, Athens, Greece); Evgenia Motchenkova (VU University Amsterdam, the Netherlands); David Ulph (University of St Andrews, St Andrews, Fife, Great Britain)
    Abstract: This paper develops a model of the birth and death of cartels in the presence of enforcement activities by a Competition Authority (CA). We distinguish three sets of interventions: (a) detecting, prosecuting and penalizing cartels; (b) actions that aim to stop cartel activity in the short-term, immediately following successful prosecution; (c) actions that aim to prevent the re-emergence of prosecuted cartels in the longer term. The last two intervention activities have not been analyzed in the existing literature. In addition we take account of the structure and toughness of penalties. In this framework the enforcement activity of a CA causes industries in which cartels form to oscillate between periods of competitive pricing and periods of cartel pricing. We determine the impact of CA activity on deterred, impeded, and suffered harm. We derive measures of both the total and the marginal effects on welfare resulting from competition authority interventions and show how these break down into measures of the Direct Effect of interventions (i.e. the effect due to cartel activity being impeded) and two Indirect/Behavioral Effects – on Deterrence and Pricing. Finally, we calibrate the model and estimate the fraction of the harm that CAs remove as well as the magnitude of total and marginal welfare effects of anti-cartel interventions.
    Keywords: Antitrust Enforcement; Antitrust Law; Cartel; Oligopoly; Repeated Games
    JEL: L4 K21 D43 C73
    Date: 2016–01–07
  3. By: Muriel Fadairo (Université de Lyon, Lyon F- 69007, France; CNRS, GATE L-SE, Ecully, F- 69130, France; Université J. Monnet, Saint-Etienne, F- 42000, France); Cyntia Lanchimba (National Polytechnic School, Quito, Ecuador; Université de Lyon, Lyon F- 69007, France; CNRS, GATE L-SE, Ecully, F- 69130, France; Université J. Monnet, Saint-Etienne, F- 42000, France); Miguel Yangari (National Polytechnic School, Quito, Ecuador)
    Abstract: Existing literature on franchising has extensively studied the presence of plural form distribution networks, where two types of vertical relationships - integration versus franchising - co-exist. However, despite the importance of monetary provisions in franchise contracts, their definition in the case of plural form networks had not been addressed. In this paper, we focus more precisely on the “share parameters” in integrated (company-owned retail outlet) and decentralized (franchised outlet) vertical contracts, respectively the commission rate and the royalty rate. We develop an agency model of payment mechanism in a two-sided moral hazard context, with one principal and two heterogenous agents distinguished by different levels of risk aversion. We define the optimal monetary provisions, and demonstrate that even in the case of segmented markets, with no correlation between demand shocks, the two rates (commission rate, royalty rate) are negatively interrelated.
    Keywords: Franchising, dual distribution, royalty rate, commission rate, moral hazard
    JEL: L14 D82
    Date: 2016
  4. By: Larbi Alaoui (Universitat Pompeu Fabra and Barcelona Graduate School of Economics); Fabrizio Germano (Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
    Abstract: We develop a theory of news coverage in environments of information abundance that include both new and traditional news media, from online and print newspapers to radio and television. News consumers are time-constrained and browse through news items that are available across competing outlets, choosing which outlets to access and which stories to read or skip. Media firms are aware of consumers’ preferences and constraints, and decide on rankings of news items that maximize their profits. We find that the news consumed in equilibrium is highly sensitive to the details of the environment. We show that even when readers and outlets are rational and unbiased, readers may consume more than they would like to, and the news items they consume may be significantly different from the ones they prefer. Important news items may be crowded out. Next, we derive implications on diverse aspects of current media, including a rationale for tabloid news, a rationale for why readers prefer like-minded news, and how advertising can contribute to crowding out news. We also analyze methods for restoring reader-efficient standards and discuss the political economy implications of the theory.
    Keywords: news markets, time constrained consumers, digital media, news coverage, public media.
    JEL: D80 H44 L82 L86
    Date: 2015–12–27
  5. By: Małgorzata Pawłowska
    Abstract: The aim of this study is to examine the impact of banking-sector structure and macroeconomic changes on bank profitability in the Polish banking sector over the past fifteen years (i.e., prior to and during the global financial crisis of 2008). The model developed in this paper incorporates the Structure-Conduct-Performance (SCP) hypothesis, as well as the Relative Market Power (RMP) hypothesis created by Smirlock (1985). Furthermore, this paper also examines the overall effect of financial structure and macroeconomic conditions to determine whether financial development and business cycles affect the profit of Polish banks. Finally, t his paper tests the impact of foreign capital on the profitability of Polish banks and attempts to determine if there is a link between the context of the parent banks and the profitability of their affiliates. Empirical results based on two panel data sets describing both micro-level and the macro-level data are ambiguous, and find evidence of the RMP hypothesis, as well as the traditional SCP, in the Polish banking sector. This paper also finds that increased foreign ownership and intermediation have a positive effect on bank profitability. Furthermore, this paper finds a positive correlation between the context of parent banks and the profitability of their affiliates. Also, the profitability of commercial banks in Poland are contingent upon the business cycle.
    Keywords: bank profitability, foreign–owned banks, concentration, market power, market structure, Lerner index, Polish banks, business cycle.
    JEL: F36 G2 G21 G34 L1
    Date: 2015

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