nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒02‒23
twenty papers chosen by
Russell Pittman
United States Department of Justice

  1. Contracting with Endogenous Entry By Marco Pagnozzi; Salvatore Piccolo
  2. Demand Heterogeneity and the Adoption of Platform Complements By Rietveld, J.; Eggers, J.P.
  3. Transaction costs and the sharing economy By Henten, Anders; Windekilde, Iwona
  4. Information Release in Second–Price Auctions By Cristián Troncoso-Valverde
  5. Relational contracts and supplier turnover in the global economy By Fabrice Defever; Christian Fischer; Jens Suedekum
  6. Competing Mechanisms in Markets for Lemons By Auster, Sarah; Gottardi, Piero
  7. Patent hold-up and royalty stacking: the case of multiple downstream firms By Karbowski, Adam; Prokop, Jacek
  8. On the timing of innovation and imitation By Billette de Villemeur, Etienne; Ruble, Richard; Versaevel, Bruno
  9. R&D investments and spillovers under endogenous technological opportunity By Mário Alexandre Patrício Martins da Silva
  10. Sequential decision making in merger control By Damien Neven; Vilen Lipatov; Gregor Langus
  11. Merger policy in a quantitative model of international trade By Holger Breinlich; Volker Nocke; Nicolas Schutz
  12. Structural remedies as a signalling device By Dertwinkel-Kalt, Markus; Wey, Christian
  13. Settlements and appeals in the European Commission's cartel cases: An empirical assessment By Hellwig, Michael; Hüschelrath, Kai; Laitenberger, Ulrich
  14. Enforcement spillovers: Lessons from strategic interactions in regulation and product markets By Mary F. Evans; Scott M. Gilpatric; Jay P. Shimshack
  15. The Impact of Entry and Merger on the Price of Mobile Telecommunications Services By Houngbonon, Georges Vivien
  16. Facility- and Service-based Competition and Investment in Fixed Broadband Networks: Lessons from a Decade of Access Regulations in the European Union Member States By Briglauer, Wolfgang; Gugler, Klaus; Haxhimusa, Adhurim
  17. Intermodal competition: studying the pricing strategy of the French rail monopoly By Patricia Perennes
  18. The challenge of market power under globalization By David Arie Mayer-Foulkes
  19. Эволюция институтов конкуренции, власти и сотрудничества By Polterovich, Victor
  20. Les droits et libertés fondamentaux à l'épreuve de L'efficacité économique: une application à La politique de la concurrence By Frédéric Marty

  1. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università Cattolica del Sacro Cuore di Milano and CSEF)
    Abstract: A principal contracts with an agent who is privately informed about his production cost. Before contracting, the agent learns his probability of having a low cost – his ex ante “type” – and decides whether to pay an entry fee. We show that the entry game has two equilibria that determine the possible types of the agent who contract with the principal. Contrasting with standard intuition, in the equilibrium that is “risk dominant” for the agent, an increase in the entry fee increases the mass of types who enter and the expected cost of the entrant. Public policies that increase entry barriers may be welfare improving.
    Keywords: Entry, Vertical Contracting, Asymmetric Information
    JEL: D43 D82 L13 L51
    Date: 2016–01–22
  2. By: Rietveld, J.; Eggers, J.P.
    Abstract: This paper offers a demand-based theory of how platform maturity affects the adoption of platform complements. We argue that differences between early and late adopters of the platform include willingness to pay for the platform-and-complement bundle, risk preferences, preference for novelty, and search behavior. These differences create heterogeneous demand conditions for complements that affect both average complement performance and variance in the types of complements that are more or less successful. Using a novel dataset of 2,921 sixth-generation console video games, we find that platform maturity has a negative relationship on video games’ unit sales. Furthermore, as the platform matures, we find that the sales disparity between new intellectual property (IP) games and games based on existing video game properties or media tie-ins grows to the detriment of new IP games. We find that the sales disparity between superstar games and flops also widens as the platform matures. These effects are accentuated by the introduction of a next generation platform, which further skews the complement’s customer pool as early adopters migrate away from the current generation platform. Robustness tests that control for unobserved heterogeneity help rule out alternative explanations and support our argument that these performance implications are truly driven by heterogeneity in demand.
    Keywords: platform markets, complementary goods, demand-perspective, industry evolution, video games
    Date: 2016–01–12
  3. By: Henten, Anders; Windekilde, Iwona
    Abstract: The paper discusses the so-called sharing economy from an industrial structure perspective. The illustrative cases examined are Airbnb and Uber. The research question raised is concerned with the extent to which transaction cost theory can be used to explain the changing industrial structures in the application areas that the Internet-based platforms are addressing and how other theoretical frameworks can be helpful in understanding these developments. The paper concludes by proposing a theoretical framework for analyzing the structural implications of the sharing economy based on theories on multi-sided platforms, transaction costs, and substitution and complementation.
    Date: 2015
  4. By: Cristián Troncoso-Valverde (School of Business and Economics, Universidad del Desarrollo)
    Abstract: This paper studies the incentives faced by competing auctioneers who can release information to prospective bidders before bidders choose trading partners. I provide sufficient conditions that ensure the existence of a unique equilibrium in which both sellers release all available information. Contrary to previous findings in the literature, the existence of this equilibrium holds true even if there are only two bidders in the market. Thus, the findings of this paper provides support to the idea that competition among sellers improves informational efficiency relatively to monopoly
    Keywords: Competing Auctions, Information Structures, Private Provision of Information
    Date: 2015–04
  5. 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 e ffi ciency enhancing cooperation’s 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 o ff er to overcome hold - up problems. Our key result is that the possibility to switch partners crucially a ff ects 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 collaborati on with their supplier. From our model, we develop an instrumen tal 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 e ff ect of match durations on relational contracting.
    Keywords: firm organization; input sourcing; relational contracts; supplier search; processing trade; China
    JEL: D23 F23 L23
    Date: 2015–10
  6. By: Auster, Sarah; Gottardi, Piero
    Abstract: We study the competitive equilibria in a market with adverse selection and search frictions. Uninformed buyers post general direct mechanisms and informed sellers choose where to direct their search. We demonstrate that there exists a unique equilibrium allocation and characterize its properties: all buyers post the same mechanism and a low quality object is traded whenever such object is present in a meeting. Sellers are thus pooled at the search stage and screened at the mechanism stage. If adverse selection is sufficiently severe, this equilibrium is constrained inefficient. Furthermore, the properties of the equilibrium differ starkly from the case where meetings are restricted to be bilateral, in which case in equilibrium sellers sort across different mechanisms at the search stage. Compared to such sorting equilibria, our equilibrium yields a higher surplus for most, but not all, parameter specifications.
    Keywords: Adverse Selection, Trade Mechanisms, Competitive Search, Welfare
    JEL: D82 D83 G14
    Date: 2016
  7. By: Karbowski, Adam; Prokop, Jacek
    Abstract: The objective of this paper is twofold. First, we study the patent hold-up problem in game-theoretic framework. We show that in subgame perfect equilibrium of the patent hold-up game the innovating manufacturer exerts reduced effort to develop the new product and the patent holder obtains the entire value of product innovation. Second, we show that royalty stacking, which is believed to magnify the patent hold-up, may cause less severe problems than the ones predicted by Lemley and Shapiro [11] when competition on the downstream product market is introduced.
    Keywords: patent hold-up,royalty stacking,downstream competition
    JEL: O32 O34
    Date: 2015
  8. By: Billette de Villemeur, Etienne; Ruble, Richard; Versaevel, Bruno
    Abstract: When fixed costs of innovation and imitation differ, strategic competition between duopolists involves either preemption or attrition, the latter being likelier with high uncertainty. We show that industry value is maximized when firms neither stall nor hasten entry, whereas social welfare has local optima in both the attrition and preemption ranges. The social optimum implies a positive imitation cost, and with static business-stealing and sufficient discounting it involves preemption. Finally we endogenize entry barriers and discuss contracting, showing that firms are more likely to rely on secrecy and patents at low imitation costs and that simple licensing schemes are welfare improving.
    Keywords: Dynamic oligopoly; Knowledge spillover; Real options
    JEL: G31 L13 O33
    Date: 2015–12–18
  9. By: Mário Alexandre Patrício Martins da Silva (Faculdade de Economia do Porto)
    Abstract: In this paper, we focus on endogenous technological opportunity and its effects upon R&D outcomes in the independent and cooperative cases. In light of the importance of spillovers in economic analysis of R&D incentives, we examine the relationship between R&D appropriability and R&D investment in the presence of an endogenous technological opportunity. In order to do this, we develop a three-stage game in which firms first choose their R&D orientations, then how much to invest in R&D, and finally their Cournot outputs. Contrary to the usual assumption made in oligopoly models that technological opportunity is external to the industry where firms operate, we fully endogenize technological possibilities through the firms’ choices of their R&D approaches. We find that competing firms invest more in R&D as spillovers increase (and R&D appropriability diminishes) but still less than cooperating firms no matter the degree of exogenous spillovers. This is a reversal of well-known results established in the literature on R&D and spillovers.
    Keywords: Technological opportunity, R&D spillovers, R&D investment, absorptive capacity
    JEL: O30
    Date: 2016–02
  10. By: Damien Neven (IHEID, The Graduate Institute of International and Development Studies, Geneva); Vilen Lipatov; Gregor Langus
    Abstract: We model merger control procedures as a process of sequential acquisition of information and compare US and EU procedures. In the US, the authorities do not have to justify their decision to require further information (issue a second request), whereas in the EU, the authorities face a di_erent (enforceable) standard of proof in phase I relative to phase II. We _nd that in the absence of remedies, the US procedure is always superior in terms of expected consumer welfare. When we allow for remedies, we _nd that, compared to the US, merging parties in the EU have more scope to propose remedies in phase I that will preempt the authorities from uncovering unfavorable information in phase II, and this might reduce expected consumer welfare. However, the higher standard of proof in phase I can also in some circumstances act as a commitment not to accept remedies below some threshold and yield a higher expected consumer welfare in the EU. Our model also shows that for global mergers that have the same effect in the two jurisdictions, a decision to trigger a Phase II in the EU yields the same expected consumer welfare as a clearance in Phase I with remedies in the US. However, the converse is not true.
    Keywords: merger procedure, competition policy
    JEL: K21 K40 L40
    Date: 2014–11
  11. By: Holger Breinlich; Volker Nocke; Nicolas Schutz
    Abstract: In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. Calibrating the model to match industry-level data in the U.S. and Canada, we show that at present levels of trade costs merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.
    Keywords: mergers and acquisitions; merger policy; trade policy; oligopoly; international trade
    JEL: F12 F13 L13 L44
    Date: 2015–10
  12. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We analyze the effects of structural remedies on merger activity in a Cournot oligopoly when the Antitrust Agency (AA) cannot observe a proposed merger's efficiency type. Provided the AA follows a consumer surplus standard, an efficient merger type is doomed to over-fix with its divestiture proposal in a pooling equilibrium, which is also possible under separation.
    Keywords: Remedies,Divestiture,Merger Control,Signalling
    JEL: L13 L41 K21
    Date: 2016
  13. By: Hellwig, Michael; Hüschelrath, Kai; Laitenberger, Ulrich
    Abstract: The introduction of the European Union (EU) Settlement Procedure in 2008 aimed at promoting the procedural efficiency of cartel investigations by the European Commission (EC). We use a data set consisting of 579 firms groups convicted by the EC for cartelization from 2000 to 2015 to investigate the impact of the settlement procedure on the probability to file an appeal. Based on the estimation of a model of the firm's decision to appeal in the presettlement era, we subsequently run out-of-sample predictions to estimate the number of hypothetical appeals cases in the settlement era absent the settlement procedure. Our findings of a settlement-induced reduction in the number of appeals of up to 55 percent allow the conclusion that the introduction of the settlement procedure generated substantial additional benefits to society beyond its undisputed key contribution of a faster and more efficient handling of cartel investigations by the EC.
    Keywords: antitrust policy,cartels,settlements,appeals,ex-post evaluation,European Union
    JEL: K21 L41
    Date: 2016
  14. By: Mary F. Evans (The Robert Day School of Economics and Finance, Claremont McKenna College); Scott M. Gilpatric (Department of Economics, University of Tennessee); Jay P. Shimshack (Frank Batten School of Leadership and Public Policy, University of Virginia)
    Abstract: We explore mechanisms driving enforcement spillovers - when sanctions at one entity influence behavior at other entities. Our model illustrates when spillovers arise from a regulatory channel and when they arise from a channel not emphasized in the existing literature: product markets. Using facility-by-month data from Clean Water Act manufacturers, we find that penalties generate strong positive spillovers for other facilities facing the same authority. We find suggestive evidence that penalties generate negative spillovers for facilities in the same industry but facing a different authority. Results are consistent with spillovers driven by strategic interactions in both regulation and product markets.
    Keywords: general deterrence, strategic substitutes, strategic complements, pollution policy
    JEL: E32 R10
    Date: 2015–08
  15. By: Houngbonon, Georges Vivien
    Abstract: According to static models of industrial organization, a rise in competition decreases prices. In this paper, I test whether this conclusion can be reversed in the mobile telecommunications markets where dynamic e ciency e ects might be signi cant. The empirical test relies on the change in the intensity of competition introduced by the entry of the fourth mobile operator in France and the merger between the third and the fourth mobile operators in Austria. Using a hedonic price model and a double-di erence matching identi cation strategy, I nd that the entry in the French market has raised the unit price of mobile data services by 4 dollars per Gigabyte; contrary to the merger in the Austrian market which lowers the unit price of mobile data by 6 dollars per Gigabyte. These results suggest that the dynamic e ciency e ects actually outweigh the static ones in the mobile telecommunications industry. Therefore, a merger from four to three mobile operators may be welfare enhancing.
    Keywords: Dynamic Efficieny Effects,Ex-post Merger Evaluation,Nolinear Pricing,Mobile Telecommunications
    JEL: D43 L11 L13
    Date: 2015
  16. By: Briglauer, Wolfgang; Gugler, Klaus; Haxhimusa, Adhurim
    Abstract: This paper employs firm-level panel data of 57 incumbent and entrant firms for 23 European countries in the decade from 2003 to 2012. We examine the impact of service- and facility-based competition on firm level investment as well as the strategic effects underlying infrastructure investment decisions. At the same time we explicitly model the structural dynamics of broadband investment using dynamic panel estimation techniques. We find that facility-based competition exerts a positive and significant impact on both incumbents and entrants implying that incumbents’ and entrants’ investment decisions are strategic complements. Moreover, this strategic complementarity is much more pronounced with respect to the entrants. Finally, we show that service-based competition appears to have no significant impact on the investment decision of incumbents and entrants and that there is no supportive evidence for the so-called “ladder of investment” hypothesis. With respect to the later phase of market regulation, service-based competition exerts a negative impact on entrants’ investment.
    JEL: L43 L52 L96
    Date: 2015
  17. By: Patricia Perennes (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In most countries, passengers' rail transportation is characterized by a monopoly. Nevertheless, it does not mean that the monopolist-usually the national company-does not face competition, in the form of intermodal competition (planes, cars). This article focuses on the French national rail company (SNCF) that still has a monopoly on national passenger traffic. It analyses SNCF's pricing behavior on most of the origin/destination pairs it operates with high speed trains to/from Paris. It takes into account the fact SNCF enjoys a limited leeway to set its prices because ticket prices are still regulated in France. The existence of such a price cap regulation is an opportunity for an economist to analyse how a transportation company facing intermodal competition sets its prices. Usually, such an analysis is hard to conduct since transport prices are set following yield management principles.
    Abstract: Dans de nombreux pays, l'industrie ferroviaire est organisée de façon monopolistique. Cela ne signifie toutefois pas que l'entreprise en monopole, généralement une entreprise d'Etat, ne soit pas soumise à une forme de pression concurrentielle du fait de la concurrence intermodale du transport aérien et des véhicules personnels. Cet article s'intéresse à l'opérateur national ferroviaire français, la SNCF, qui est aujourd'hui encore en monopole sur le segment du transport national de passagers. Il étudie le comportement tarifaire de la SNCF sur la plupart des dessertes grande vitesse qu'elle opère depuis/en direction de Paris. Il prend en compte le fait que la SNCF ne bénéficie que d'une liberté restreinte pour fixer ses tarifs, car les prix des billets de train sont toujours régulés en France. L'existence d'une telle régulation, qui prend la forme d'un plafonnement de prix, permet à l'économiste d'étudier comment une entreprise de transport qui fait face à une concurrence intermodale détermine ses prix. Habituellement, une telle étude est difficile à entreprendre car le prix des services de transport sont régis par les principes du yield management.
    Keywords: Railroad,pricing strategy,intermodal competition
    Date: 2014–04–14
  18. By: David Arie Mayer-Foulkes (Division of Economics, CIDE)
    Abstract: The legacy of Adam Smith leads to a false confidence on the optimality of laissez faire policies for the global market economy. Instead, the polarized character of current globalization deeply affects both developed and underdeveloped economies. Current globalization is characterized by factor exchange between economies of persistently unequal development. This implies the existence of persistent extraordinary market power in transnational corporations, reflected in their disproportionate participation in income and policy. These are shown to be steady state features of globalization in a convergence club model of development and underdevelopment including trade and FDI. Moreover, results in tax competition explain how the increased share of transnational profits under globalization leads to lower corporate taxes, more conservative policies, and weaker institutions for balancing market power. The increased level of market power under globalization poses a serious challenge for national and global governance that deeply impacts economic development, distribution, sustainability and democracy everywhere.
    Keywords: globalization, transnational corporations, underdevelopment, concentration, inequality, economic growth
    JEL: F02 F10 F23 O10
    Date: 2014–03
  19. By: Polterovich, Victor
    Abstract: It is shown that the evolution of modern developed societies leads to a decrease in the significance of both centralized governance and economic competition, while the role of collaboration mechanisms is being strengthened. This process is supported by cultural changes - by increasing trust, by internalization of the honesty norms, and thus free-rider problem is mitigated. Collectivism and individualism in their extreme forms are being replaced by the culture of constructive interactions and compromises. This cultural transformation creates new institutions and the same time supports them. Thus, both market and state failures are being overcome.
    Keywords: collaboration, competition, collectivism, individualism, bankruptcy laws, institutional evolution, antitrust laws
    JEL: B00 B4 B52 N00 P11
    Date: 2015–05–15
  20. By: Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis)
    Abstract: The increasing influence of economic analysis on case law, even in matters of constitutional litigation, raises the issue of its impacts on fundamental rights and liberties. Within the European Union competition law field, the implementation of the “more-economic approach” (named the effects-based approach) and the growing use of negotiated practices (often grounded on procedural efficiency concerns) provide us with a striking example of how the decisional practice may not only challenge property rights and economic freedoms but also impair the judicial control. This example leads us to interrogate the economic treatment of these two fundamental rights. We insist on the diversity of the theoretical approaches, confronting the economic analysis of law with old institutionalism and Austrian economics.
    Abstract: Les opinions exprimées dans la série des Documents de travail GREDEG sont celles des auteurs et ne reflèlent pas nécessairement celles de l'institution. Les documents n'ont pas été soumis à un rapport formel et sont donc inclus dans cette série pour obtenir des commentaires et encourager la discussion. Les droits sur les documents appartiennent aux auteurs. The views expressed in the GREDEG Working Paper Series are those of the author(s) and do not necessarily reflect those of the institution. The Working Papers have not undergone formal review and approval. Such papers are included in this series to elicit feedback and to encourage debate. Copyright belongs to the author(s).
    Keywords: fundamental rights,law and economics,old institutionalism,constitutional law,EU competition law,droits fondamentaux,économie du droit,vieil institutionnalisme,droit constitutionnel,droit de la concurrence de l’Union Européenne
    Date: 2016–02–08

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