nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒03‒10
sixteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Alliance Formation in a Vertically Differentiated Market By Gabszewicz, J.J.; Marini, M.; Tarola, O.
  2. On Noncooperative Oligopoly Equilibrium in the Multiple Leader-Follower Game By Ludovic Alexandre Julien
  3. Competition and corporate control in partial ownership acquisitions By Stühmeier, Torben
  4. Waiting in the queue on Hotelling’s Main Street By Peters H.J.M.; Schröder M.J.W.; Vermeulen A.J.
  5. Cournot, Bertrand or Chamberlin: Toward a reconciliation By Parenti, Mathieu; Sidorov, Alexander; Thisse, Jacques-Francois; Zhelobodko, Evgeny
  6. Replicator dynamics in value chains: Explaining some puzzles of market selection By Cantner, Uwe; Savin, Ivan; Vannuccini, Simone
  7. Asymmetric Information in Auctions: Are Resellers Better Appraisers? By Koptyug, Nikita
  8. The Organisation of Services of General Interest in Finland By Johan WILLNER; Sonja GRÖNBLOM
  9. The dynamics of leniency application and the knock-on effect of cartel enforcement By Eric van Damme; Jun Zhou
  10. "Competition Among Insurers and Consumer Welfare" By Matthew N. White
  11. Linear Prices Equilibria and Nonexclusive Insurance Market By Frédéric Loss; Gwenaël Piaser
  12. Wait a Minute: The Efficacy of Discounting versus Non-Pecuniary Payment Steering By Angelika Welte
  13. Patents and the global diffusion of new drugs By Iain Cockburn; Jean O. Lanjouw; Mark Schankerman
  14. Asymmetric information in the regulation of the access to markets By Simone Ghislandi; Michael Kuhn
  15. Competiton in the Market for Flexible Resources: an application to cloud computing By LAM, W.
  16. Overview of acquisitions and divestitures in semiconductor industry 2001-2014 By Masao Nakaya; Fumiaki Nakamura; Xiaodan Wei; Koichi Nakagawa

  1. By: Gabszewicz, J.J. (Université catholique de Louvain, CORE, Belgium); Marini, M. (University of Rome La Sapienza); Tarola, O. (University of Rome La Sapienza)
    Abstract: This paper studies how the possibility for firms to sign collusive agreements (as for instance being part of alliances, cartels and mergers) may affect their quality and price choice in a market with vertically differentiated goods. For this purpose we model the firm decisions as a three-stage game in which, at the first stage, firms can form an alliance via a sequential game of coalition formation and, at the second and third stage, they decide simultaneously their product qualities and prices, respectively. In such a setting we study whether there exist circumstances under which either full or partial collusion can be sustained as a subgame perfect Nash equilibrium of the coalition formation game. Also, we analyse the effects of different coalition structures on equilibrium qualities, prices and profits accruing to firms. It is shown that only intermediate coalition structures arise at the equilibrium, with the bottom quality firm always included. Moreover, all equilibrium price and quality configurations always coincide with that observed in the duopoly case, with only two quality variants on sale.
    Keywords: Vertically differentiated market, endogenous alliance formation, coalition structures, price collusion, grand coalition, coalition stability, sequential games of coalition formation
    JEL: D42 D43 L1 L12 L13 L41
    Date: 2015–04–01
  2. By: Ludovic Alexandre Julien
    Abstract: In this paper, we provide new proofs of existence and uniqueness of a Stackelberg market equilibrium for a multiple leader-follower noncooperative oligopoly model in which heterogeneous firms compete on quantities. To this end, we consider a two-step game of perfect and complete information in which many leaders interact strategically with many followers. The Stackelberg market equilibrium constitutes a pure strategy subgame perfect Nash equilibrium of this game. The existence (and uniqueness) problem is complexified in this framework since strategic interactions occur within each partial game but also between both partial games through sequential decisions. Then, to prove existence, we notably provide a new procedure to determine (the conditions under which) the optimal behavior of the followers (may be written) as functions of the leaders'strategy profile only. Some examples outline our procedure and discuss our assumptions.
    Keywords: Best response functions, existence, uniqueness.
    JEL: D43 L13
    Date: 2016
  3. By: Stühmeier, Torben
    Abstract: Competition authorities have a growing interest in assessing the effects of partial ownership arrangements. We show that the effects of such agreements on competition and welfare depend on the intensity of competition in the market and on the firms' governance structure. When assessing the effects of partial ownership, competition policy has to consider both the financial interest and level of control of the acquiring firm in the target firm.
    Keywords: corporate control,merger,partial acquisition
    JEL: L11 L13 L41
    Date: 2016
  4. By: Peters H.J.M.; Schröder M.J.W.; Vermeulen A.J. (GSBE)
    Abstract: We consider a variant of Hotellings location model that was proposed by Kohlberg 1983 when choosing a firm, consumers take travel time and also expected waiting time, which again depends on the number of consumers choosing that firm, into consideration. If we assume that firms are symmetric, then we show that a subgame perfect equilibrium exists if there is an even, but small, number of firms and no subgame perfect equilibrium exists if there is an odd, but small, number of firms. Further, we illustrate by means of examples what other subgame perfect equilibria exist if we allow for asymmetric firms.
    Keywords: Noncooperative Games; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Real Estate Markets, Production Analysis, and Firm Location: General;
    JEL: C72 D43 R30
    Date: 2015
  5. By: Parenti, Mathieu; Sidorov, Alexander; Thisse, Jacques-Francois; Zhelobodko, Evgeny
    Abstract: The purpose of this paper is to provide a comparison of three types of competition in a differentiated industry: Cournot, Bertrand, and monopolistic competition. This is accomplished in an economy involving one sector and a population of consumers endowed with separable preferences and a given number of labor units. When firms are free to enter the market, monopolistically competitive firms charge lower prices than oligopolistic firms, while the mass of varieties provided by the market is smaller under the former than the latter. If the economy is sufficiently large, Cournot, Bertrand and Chamberlin solutions converge toward the same market outcome, which may be a competitive or a monopolistically competitive equilibrium, depending on the nature of preferences
    Keywords: Cournot competition, Bertrand competition, monopolistic competition, free entry
    JEL: D41 D43 F12 L13
    Date: 2015
  6. By: Cantner, Uwe; Savin, Ivan; Vannuccini, Simone
    Abstract: The pure model of replicator dynamics though providing important insights in the evolution of markets has not found much of empirical support. This paper extends the model to the case of firms vertically integrated in value chains. We show that i) by taking value chains into account, the replicator dynamics may revert its effect. In these regressive developments of market selection, firms with low fitness expand because of being integrated with highly fit partners, and the other way around; ii) allowing partner's switching within a value chain illustrates that periods of instability in the early stage of industry life-cycle may be the result of an 'optimization' of partners within a value chain providing a novel and simple explanation to the evidence discussed by Mazzucato (1998); iii) there are distinct differences in the contribution to market selection between the layers of a value chain, causing strategic advantages to firms in partnering.
    Keywords: innovation,replicator dynamics,returns to scale,value chain
    JEL: C63 D24 L14 O32
    Date: 2016
  7. By: Koptyug, Nikita (Research Institute of Industrial Economics (IFN))
    Abstract: This paper shows that in online car auctions, resellers are better at appraising the value of the cars they are bidding on than are consumers. Using a unique data set of online car auctions, I show that differences in bidding behavior between resellers and consumers can be explained by heterogeneity in the accuracy of bidders’ private signals and heterogeneity in the dispersion of private value components. I use the asymmetric ascending auction model of Hong and Shum (2003) to quantify the differences between resellers and consumers, finding that the dispersion of reseller value signals is roughly half that of consumers and simulate three different counterfactual scenarios - one in which consumers are provided with more information, one in which consumers are subsidized and one in which consumers are allowed into all-reseller auctions. Finally, I argue that the asymmetry in signal precision stems not from asymmetric information regarding the technical characteristics of a car but rather from uncertainty about the car’s resale value.
    Keywords: Ascending (English) Auctions; Asymmetric Auctions; Experience; Learning; Winner’s Curse; Bid Shading; Signal Precision; Resellers
    JEL: C51 D44 D82 L62
    Date: 2016–02–16
  8. By: Johan WILLNER (Åbo Akademi University, Department of Economics, Turku, Finland); Sonja GRÖNBLOM
    Abstract: Like in most other European countries, services of general interest in Finland have in recent years been subject to competition, increased private provision, and in some cases privatisation. This development is motivated by expected cost reductions, by EUregulations, by ideology and fashion, and in some cases also by a desire to generate sales revenues. Empirical evaluations have provided mixed results, but the relatively successful history of Finland’s state enterprises makes it hard to believe that the public sector would be unable to organise SGI-services efficiently. A number of potential market failures suggest that renationalisation should be taken seriously as an alternative to regulation. This would not necessarily be a very radical policy, because public ownership is still fairly prominent among SGIs in Finland
    Keywords: public ownership, privatisation, cost efficiency, social objectives
    JEL: H11 H42 H44 L33 L90
    Date: 2015
  9. By: Eric van Damme; Jun Zhou
    Abstract: HIGHLIGHTS The authors study the timing of leniency applications using a novel application of multi-spell discrete-time survival analysis for a sample of cartels prosecuted by the European Commission between 1996 and 2014. The start of a Commission investigation does not affect the rate by which conspirators apply for leniency in the market investigated, but increases the rate of application in separate markets in which a conspirator in the investigated market also engaged in collusion. The revision of the Commission’s leniency programme in 2002 increased the rate of pre-investigation applications. Our results shed light on enforcement efforts against cartels and other forms of
    Date: 2016–02
  10. By: Matthew N. White (Department of Economics, University of Delaware)
    Abstract: This article presents a model to analyze consumer welfare, price, and competition in a three-way market among consumers, medical providers, and insurers. While insurers compete with each other for customers, they also act as collective bargaining agents on behalf of consumers in determining the equilibrium price of health care with providers. The entry of an additional insurer thus has contradictory effects on welfare, reducing premiums through competition but increasing price through reduced bargaining power of incumbent insurers. Moreover, the more favorable contracts allow consumers to purchase care more often, shifting out the demand curve for care and increasing price.
    Keywords: Medical insurance, consumer welfare, insurer competition, bargaining
    JEL: D43 I11 L13
    Date: 2016
  11. By: Frédéric Loss; Gwenaël Piaser
    Date: 2016–02–18
  12. By: Angelika Welte
    Abstract: Merchants who accept credit cards face payment processing fees. In most countries, the no-surcharge rule prohibits them from using surcharges to pass these fees on to customers. However, merchants are allowed to steer consumers toward less costly payment methods by offering discounts or using non-pecuniary incentives such as convenience and speed. Drawing upon micro data from a survey of Canadian households, I estimate a discrete choice model of consumers’ payment methods to establish merchant costs for both of these strategies. I find that, while discounts are unprofitable because they subsidize a large portion of consumers who are already using cash and debit cards, non-pecuniary steering can be an effective strategy for transactions above $25.
    Keywords: Bank notes, Market structure and pricing, Payment clearing and settlement systems
    JEL: D12 E58 G28
    Date: 2016
  13. By: Iain Cockburn; Jean O. Lanjouw; Mark Schankerman
    Abstract: Analysis of the timing of launches of 642 new drugs in 76 countries during 1983-2002 shows that patent and price regulation regimes strongly affect how quickly new drugs become commercially available in different countries. Price regulation delays launch, while longer and more extensive patent rights accelerate it. Health policy institutions and economic and demographic factors that make markets more profitable also speed up diffusion. The estimated effects are generally robust to controlling for endogeneity of policy regimes with country fixed effects and instrumental variables. The results highlight the important role of policy choices in driving the diffusion of new innovations.
    JEL: I18 L11 L51 L65 O31 O33 O34
    Date: 2016
  14. By: Simone Ghislandi (Department of Socioeconomics, Vienna University of Economics and Business); Michael Kuhn (Wittgenstein Centre, Vienna Institute of Demography)
    Abstract: It is frequently argued that the high costs of clinical trials prior to the admission of new pharmaceuticals are stifling innovation. At the same time, regulation of the access to markets is often justified on the basis of consumers’ inability to detect the true quality of a product. We examine these arguments from an information economic perspective by setting a framework where the incentives to invest in R&D are influenced by the information structure prevailing when the product is launched in the market at a later stage. In this setting, by changing the information structure, regulation (or the lack of) can thus indirectly affect R&D efforts. More formally, we construct a moral hazard – cum – adverse selection model in which a pharmaceutical firm exerts an unobservable effort towards developing an innovative (high quality) drug (moral hazard) and then announces the (unobservable) quality outcome to an uninformed regulator and/or consumers (adverse selection). We compare the outcomes in regard to innovation effort and expected welfare under two regimes: (i) regulation, where products undergo a clinical trial designed to ascertain product quality at the point of market access; and (ii) laissez-faire with free entry, where the revelation of quality is left to the market process. Results show that whether or not innovation is greater in the presence of entry regulation crucially depends on the efficacy of the trial in identifying (poor) quality, on the probability that unknown qualities are revealed in the market process, and on the preference and cost structure. The welfare ranking of the two regimes depends on the differential effort incentive and on the net welfare gain from implementing full information instantaneously. For example, in settings of vertical monopoly, vertical differentiation and horizontal differentiation with no variable cost of quality, entry regulation tends to be the preferred regime if the effort incentive under pooling is relatively low and profits do not count too much towards welfare. A complementary numerical analysis shows how the outcomes vary with the market and cost structure.
    Keywords: adverse selection, (entry) regulation, moral hazard, pharmaceutical industry, R&D incentives
    JEL: D82 I18 L15 L51 O31
    Date: 2016–02
  15. By: LAM, W. (University of Liege)
    Abstract: This paper considers firms’ incentives to invest in local and flexible resources when demand is uncertain and correlated. Before demand is realized, two firms invest in their local capacity, and provider(s) of flexible resources invest in their capacity. After demand is realized, firms make their investment decision in flexible resource. I find that market power of the monopolist providing flexible resources distorts investment incentives, while competition mitigates them. The extent of improvement depends critically on demand correlation and the cost of capacity: under social optimum and monopoly, if the flexible resource is cheap, the relationship between investment and correlation is positive, and if it is costly, the relationship becomes negative; under duopoly, the relationship is positive.
    Keywords: capacity investment, cloud computing, competition, demand correlation
    JEL: D4 L8
    Date: 2015–07–01
  16. By: Masao Nakaya (Graduate School of Economics, Osaka University); Fumiaki Nakamura (Graduate School of Economics, Osaka University); Xiaodan Wei (Graduate School of Economics, Osaka University); Koichi Nakagawa (Graduate School of Economics, Osaka University)
    Abstract: This study shows the overview of the utilizations of mergers, acquisitions and divestitures in semiconductor industry in 2001- 2014. Merger, Acquisition and divestiture were used as standard management tools by every company in the semiconductor industry in 21st century. They used those methods to overcome the risk of technological or market change. From the fundamental analysis of the panel data, we find that mergers, acquisitions and divestitures brought somewhat good impact on financial performance. Additionally we achieved some case analyses to get the in-depth understandings of the effect of acquisitions and divestitures by semiconductor companies.
    Keywords: Semiconductor industry, M&A, Divestiture, ROA, Restructuring
    JEL: M10
    Date: 2016–02

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