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on Industrial Competition |
| By: | De Francesco, Massimo A.; Salvadori, Neri |
| Abstract: | The paper is the second part of a trilogy in which we extend the analysis of price competition among capacity-constrained sellers beyond duopoly to triopoly. In the first part of the trilogy we provided some general results, highlighting features of a duopolistic mixed strategy equilibrium that generalize to triopoly and provided a first partition concerning the pure strategy equilibrium regions and the mixed strategies equilibrium region and then the partition of this region in a part in which the payoffs of the two smallest firm are proportional to their capacities and another in which the smallest firm obtains a payoff proportinally higher than that of the middle sized firm. In this paper we provide a complete characterization of the set of mixed strategy equilibria in the part in which the payoffs of the two smallest firms are proportional to their capacities. This part is partitioned according to equilibrium features and in each part it is determined whether equilibria are uniquely determined or not and in the latter case it is proved that the equilibria constitute a continuum. Further we determine the circustances in which supports of an equilibrium strategy may be disconnected and show how gaps are then determined. We also prove that the union of supports is indeed connected, a property which cannot be extended to the case in which the smallest firm obtains a payoff proportinally higher than that of the middle sized firm. The third part of the trilogy will be devoted to a complete characterization of the mixed strategy equilibria when the smallest firm obtains a payoff proportinally higher than that of the middle sized firm. This will allow also to determine the payoff of the smallest firm. |
| Keywords: | Bertrand-Edgeworth; Price game; Oligopoly; Triopoly; Mixed strategy equilibrium |
| JEL: | C72 D43 L13 |
| Date: | 2016–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69999&r=com |
| By: | Ivaldi, Marc; Lagos, Vicente |
| Abstract: | This paper aims to evaluate the coordinated effects of horizontal mergers by simulating its impact on firms’ critical discount factors. The simulation setting considers a model with a random coefficient discrete choice demand and heterogeneous price-setting firms on the supply side. The results suggest that mergers strengthen the incentives to collude among merging parties, but weaken the incentives of non-merging parties. In addition, while the magnitude of this impact is moderate for the latter, it can be substantial for merging parties. Finally, general policy lessons regarding the assessment of the magnitude of these effects can be drawn from the results. |
| Keywords: | Assessment - Collusion - Coordinated effects - Critical Discount Factor - Merger Simulation |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:30295&r=com |
| By: | Malischek, Raimund (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Tode, Christian (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) |
| Abstract: | Despite the central role of the Hotelling model within the theory of nonrenewable resources, tests of the model are rarely found. If existent, these tests tend to ignore two key features, namely market power and exploration. We therefore suggest an extension of the basic Hotelling framework to incorporate exploration activity and market power and propose an implicit price behavior test of the model to indicate whether firms undergo inter-temporal optimization. When applied to a newly constructed data set for the uranium mining industry, the null hypothesis of the firm optimizing inter-temporally is rejected in all settings. However, parameter estimates of the model still yield valuable information on cost structure, resource scarcity and market power. Our results suggest that the shadow price of the resource in situ is comparably small and may be overshadowed by market power, which may serve as an explanation for the firm failing to optimize inter-temporally. |
| Keywords: | hotelling rule; resource economics; resource scarcity; dynamic optimization; exploration; market power; Hausman Test; |
| JEL: | D92 L13 L72 Q31 |
| Date: | 2015–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2015_001&r=com |
| By: | Eric W Bond (Vanderbilt University); Kamal Saggi (Vanderbilt University) |
| Abstract: | We analyze bargaining between a developing country (South) and a multinational firm over the local price of its patented product. We use an alternating offers bargaining game in which the South can resort to compulsory licensing (CL) if the two parties fail to reach agreement by a certain deadline. The presence of international price spillovers introduces two novel features into the standard bargaining problem: (i) the surplus from entry prior to the CL deadline may be negative and (ii) CL can yield higher surplus than entry. We establish conditions under which equilibrium may exhibit immediate entry, preemptive entry just prior to the CL deadline, or the occurrence of CL. The South necessarily gains from the threat of CL if the joint payoff under entry is higher relative to CL but can lose if it is lower. |
| Keywords: | Patented Goods, Compulsory Licensing, Bargaining, Quality, Welfare. |
| JEL: | F1 C7 |
| Date: | 2016–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-16-00008&r=com |
| By: | Susan J. Méndez (Melbourne Institute of Applied Economics and Social Research, The University of Melbourne) |
| Abstract: | The goal of this paper is to investigate and quantify the impact of parallel trade in markets for pharmaceuticals. The paper develops a structural model of demand and supply using data on prices, sales and characteristics of statins, medicines used in the treatment for high cholesterol, in Denmark. The model provides a framework to simulate outcomes under a complete ban of parallel imports, keeping other regulatory schemes unchanged. There are two sets of key results from prohibiting parallel imports. The first set focuses on price effects, which differ substantially along two dimensions: the patent protection status of the molecule and the type of the firm. On average, prices increase more in markets where the molecule has lost patent protection. On the other dimension, both generic firms and original producers increase their pharmacy purchase prices when competition from parallel importers is removed. Given the prevailing reimbursement rules, most changes in pharmacy purchase prices are absorbed by the government. The final price paid by consumers after reimbursement increases more for original firms than for generic producers. The second set of empirical results reports the effects on market participants. My model takes into consideration consumers’ preferences allowing them to substitute between products. Prohibiting parallel imports induces consumers to substitute towards original products for which they have stronger preferences. In sum, banning parallel imports leads to (i) an increase in variable profits for original producers and a decrease for generic firms, (ii) an increase in governmental health care expenditures, and (iii) a decrease in consumers’ welfare. Classification- I18, H51 |
| Keywords: | Pharmaceutical markets, parallel trade, regulation, welfare analysis |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2016n08&r=com |
| By: | WAN, Yunyun |
| Abstract: | Facing generic competition, a brand-name drug company sometimes launches its own generic called an "authorized generic" (AG) through a third-party entity. If an authorized party transfers a substantial part of its profits to the brand-name drug company, the latter's total profit increases as a result and every branded drug that comes off the patent should have its AG version. However, in actual fact only a small proportion of branded drugs have AGs. To explain this puzzle, I develop a model that features switching costs due to the customer base a brand-name drug develops prior to generic entry. The model predicts that AGs are launched when switching costs to the generics are sufficiently low. I test this hypothess using prescription drug data and find strong support for it. |
| Keywords: | brand loyalty, authorized generics, generic entry, customer base, switching cost |
| JEL: | L13 L20 I11 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:iirwps:16-01&r=com |
| By: | Matthew Grennan; Ashley Swanson |
| Abstract: | We empirically examine the role of information in business-to-business bargaining between hospitals and suppliers of medical technologies. Using a new data set including all purchase orders issued by over sixteen percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals’ joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying high prices relative to other hospitals and for products purchased in relatively large volumes, and we demonstrate that they are consistent with hospitals resolving asymmetric information problems between themselves and their suppliers. We estimate that the achieved savings due to information provision amount to 26 percent of the savings we would observe if all hospitals paying above average prices for a given product at a point in time were to instead pay the average price. These results have implications for understanding the economic effects of introducing more information into relatively opaque business-to-business markets, including the emerging role of intermediaries offering benchmarking data and policymakers’ calls for transparency in medical device pricing. |
| JEL: | D40 D82 D83 I11 L14 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22039&r=com |
| By: | Gregory S. Crawford; Robin S. Lee; Michael D. Whinston; Ali Yurukoglu |
| Abstract: | We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and raising rivals' costs incentives. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and de-mergers of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry. |
| JEL: | L13 L42 L51 L82 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21832&r=com |
| By: | Mariotto, Carlotta; Verdier, Marianne |
| Abstract: | Over the recent years, the development of Internet banking and mobile banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several platforms or large retailers have started to offer innovative financial products to their customers. In this paper, we survey the issues related to innovation and competition in Internet banking and mobile banking and discuss some perspectives for future research. |
| Keywords: | bank competition, bank regulation, non-banks, payment systems, Internet banking, mobile banking, platform markets |
| JEL: | E42 G21 L96 |
| Date: | 2015–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:urn:nbn:fi:bof-201511261452&r=com |
| By: | Elsinger, Helmut; Schmidt-Dengler, Philipp; Zulehner, Christine |
| Abstract: | We investigate the role of competition on the outcome of Austrian Treasury auctions. Austria's EU accession led to an increase in the number of banks participating in treasury auctions. We use structural estimates of bidders' private values to examine the effect of increased competition on auction performance: We find that increased competition reduced bidder surplus substantially, but less than reduced form estimates would suggest. A significant component of the surplus reduction is due to more aggressive bidding. Counterfactuals establish that as competition increases, concerns regarding auction format play a smaller role. |
| Keywords: | treasury auctions,multi-unit auctions,independent private values,competition,bidder surplus,auction format |
| JEL: | D44 G12 G21 L10 L13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:127&r=com |
| By: | Jan De Loecker; Johannes Van Biesebroeck |
| Abstract: | We propose a framework to evaluate the potential impact of international competition on firm performance and highlight two points. First, it is important to consider effects on productive efficiency and market power in an integrated framework. The popular concept of (revenue) TFP combines both effects which can lead to problems of estimation and interpretation. Second, greater international competition enlarges the relevant market and can affect both the number and the type of competitors a firm faces, as well as the nature of competition. While it is possible that firms respond by adjusting their production operations, pricing adjustments are all but guaranteed. We contrast three estimation approaches that start, respectively, from the demand side, the product extensive margin, and the production side. We conclude with a few avenues for future research. |
| JEL: | F10 L1 O30 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21994&r=com |
| By: | Stefano Bianchini (BETA, University of Strasbourg); Federico Tamagni (Scuola Superiore San'Anna); Gabriele Pellegrino (WIPO & EPFL & IEB) |
| Abstract: | In this work, we explore the relations between sales growth and a set of innovation indicators that capture the different sources, modes and results of the innovative activity undertaken within firms. We exploit a rich panel on innovation activity of Spanish manufacturing firms, reporting detailed CIS-type information continuously over the period 2004-2011. Standard GMM-panel estimates of the average effect of innovation activities reveal significant and positive effect for internal R&D, while no effect is found for external sourcing of knowledge (external R&D, acquisition of embodied and disembodied technologies) as well as for output of innovation (process and product innovation). However, fixed-effects quantile regressions reveal that innovation activities, apart from process innovation and disembodied technical change, display a positive effect on high-growth performance. Finally, we find evidence of super-modularity of the growth function, revealing complementarities of internal R&D with product innovation, and between product and process innovation. |
| Keywords: | Firm growth, product and process innovation, internal and external R&D, embodied and disembodied technical change, fixed-effects quantile regressions, complementarity |
| JEL: | C21 D22 O31 O32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2016-10&r=com |
| By: | Bettina Peters; Mark J. Roberts; Van Anh Vuong |
| Abstract: | This article investigates how a firm's financial strength affects 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. |
| JEL: | O3 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22035&r=com |
| By: | Caterina Santi; Pietro Santoleri |
| Abstract: | We employ a balanced panel dataset representative of the entire Chilean productive structure in order to investigate the relation between the introduction of innovation and subsequent firm growth in terms of sales. Recent contributions examining the returns to innovation on firm performance have stressed the need of going beyond the analysis of the `average effect for the average firm'. However, previous studies in the case of Latin American economies have often overlooked the importance of analyzing which firms benefit more from the introduction of innovations. Our analysis consists of a series of parametric and non-parametric exercises which take into account the properties of the firm growth distribution. In particular, we adopt quantile treatment effects (QTE) which allow to estimate the effect of the introduction of innovation by comparing firms with a similar propensity to innovate for different quantiles of the firm growth distribution. On one hand, our results indicate that process innovation shows a positive and significant relation with firm growth for those firms located at the 75th and 90th percentiles. On the other, product innovation shows a negative association only for high-growth firms. |
| Keywords: | innovation, firm growth, Chile, quantile regression, quantile treatment effects |
| Date: | 2016–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2016/09&r=com |
| By: | Francesca Lotti (Banca d'Italia); Francesco Manaresi (Banca d'Italia) |
| Abstract: | In this paper we provide new evidence on the relationship between market concentration in the banking industry and firm dynamics. In Italy, in the case of a banking merger or acquisition, the antitrust authorities can require the sale of bank branches if the joint market share of the banks involved in the merger exceeds a specific threshold. We exploit this feature to carry out RDD estimates of (i) the effect of intervention by antitrust authorities on banking market concentration, and (ii) the effect of the level of bank concentration on various measures of firm dynamics. The results show that, in those areas where the authorities forced branch sales, firm's entry rates increase, reallocation of employees from incumbent to entrant firms is higher, and the survival rate of newly formed businesses increases. The overall allocative efficiency, as measured by an Olley-Pakes decomposition of labor productivity, is found to improve. |
| Keywords: | bank competition, firm dynamics, entry, exit, firm size, regression discontinuity |
| JEL: | G21 L11 M13 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_299_15&r=com |
| By: | Maria Luisa Petit (La Sapienza University of Rome); Francesca Sanna-Randaccio (Sapienza University of Rome) |
| Abstract: | This paper examines the impact of the firms'mode of foreign expansion on the incentive to innovate as well as the effects of R&D activities and technological spillovers on the firms' international strategy. We consider a two country imperfect competition model where the firms' face three different type of decisions: how to expand abroad, how much to spend in R&D and how much to sell in each market Market structure is therefore endogenously determined as the equilibrium solution of a three stage game. It is shown that the firm that invests more in research is the one which is a MNE while the rival is an exporter, whereas the firm that invests less is the one that exports while the rival is a MNE. The results indicate that there is a positive relationship between multinational expansion and R&D investment and that, in turn, investment in research leads oligopolistic firms'towards multinational expansion. The value of the spillover parameter too can be an important determinant of firms'international strategy. |
| Keywords: | Multinational firm. export, direct investment, R&D, innovation, intellectual property rights. |
| JEL: | F12 F23 L10 |
| URL: | http://d.repec.org/n?u=RePEc:rsp:wpaper:wp40&r=com |
| By: | Julien Berthoumieu (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4); Viola Lamani (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4) |
| Abstract: | This paper analyzes the impact of several trade policy instruments on product Research and Development (R&D) investment in a North-South duopoly where a Northern firm competes in prices with a Southern firm on both markets. The Northern firm invests in product R&D owing to a competitive disadvantage compared to the Southern firm which benefits from a lower labor cost. The outcome of the R&D activity is uncertain. If successful, vertical differentiation occurs in both markets. The Northern country’s government is the only one policy active and may implement the following trade policy instruments: an import tariff, a production subsidy, an R&D subsidy, a standard of quality, a minimum-price, and an import quota. The results show that the Northern firm’s R&D expenditures increase with each policy instrument except for the import quota. The paper also provides a welfare analysis in order to verify whether or not the Northern government is encouraged to implement these policy instruments. |
| Keywords: | Trade Policy Instruments, Product Research and Development, North-South Duopoly, Vertical Differentiation. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01285559&r=com |