nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒05‒14
nine papers chosen by
Russell Pittman
United States Department of Justice

  1. Sales and collusion in a market with storage By Francesco Nava; Pasquale Schiraldi
  2. Systematic bailout guarantees and tacit coordination By Bertsch, Christoph; Calcagno, Claudio; Le Quement, Mark
  3. Concorrenza e innovazione nei mercati retail dell energia elettrica. Le prospettive dopo il Ddl Concorrenza 2015 By Carlo Stagnaro
  4. Upward Pricing Pressure as a Predictor of Merger Price Effects By Nathan Miller; Marc Remer; Conor Ryan; Gloria Sheu
  5. An Exploration of a Strategic Competition Model for the European Union Natural Gas Market By Zaifu Yang; Rong Zhang; Zongyi Zhang
  6. Identification of Market Power in Bilateral Oligopoly: The Brazilian Wholesale Market of UHT Milk By Scalco, Paulo R.; Braga, Marcelo J.
  7. Could competition always raise the risk of bank failure? By Rodolphe Dos Santos Ferreira; Teresa Lloyd-Braga; Leonor Modesto
  8. Network Structure and Industrial Clustering Dynamics in the Aerospace Industry By Ekaterina Turkina; Ari Van Assche; Raja Kali
  9. Open Access as a Crude Solution to a Hold-up Problem in the Two-Sided Market for Academic Journals By Mark J. McCabe; Christopher M. Snyder

  1. By: Francesco Nava; Pasquale Schiraldi
    Abstract: Sales are a widespread and well-known phenomenon documented in several product markets. This paper presents a novel rationale for sales that does not rely on consumer heterogeneity, or on any form of randomness to explain such periodic price fluctuations. The analysis is carried out in the context of a simple repeated price competition model, and establishes that firms must periodically reduce prices in order to sustain collusion when goods are storable and the market is large. The largest equilibrium profits are characterized at any market size. A trade-off between the size of the industry and its profits arises. Sales foster collusion, by magnifying the inter-temporal links in consumers' decisions.
    Keywords: storage; sales; collusion; cartel size; repeated games
    JEL: L11 L12 L13 L41
    Date: 2014–06
  2. By: Bertsch, Christoph (Research Department, Central Bank of Sweden); Calcagno, Claudio (Department of Economics, European University Institute); Le Quement, Mark (Department of Economics, University of Bonn)
    Abstract: Both the academic literature and the policy debate on systematic bailout guarantees and Government subsidies have ignored an important effect: in industries where firms may go out of business due to idiosyncratic shocks, Governments may increase the likelihood of (tacit) coordination if they set up schemes that rescue failing firms. In a repeated-game setting, we show that a systematic bailout regime increases the expected profits from coordination and simultaneously raises the probability that competitors will remain in business and will thus be able to ’punish’ firms that deviate from coordinated behaviour. These effects make tacit coordination easier to sustain and have a detrimental impact on welfare. While the key insight holds across any industry, we study this question with an application to the banking sector, in light of the recent financial crisis and the extensive use of bailout schemes.
    Keywords: competition policy; systematic bailout guarantees; collusion; banking; State aid 2
    JEL: D43 G21 K21 L41
    Date: 2014–07–01
  3. By: Carlo Stagnaro
    Abstract: Il disegno di legge annuale per la concorrenza 2015 prevede il superamento della maggior tutela e la piena liberalizzazione dei prezzi retail dellenergia elettrica a partire dal 1 gennaio 2018. Questo passaggio e' importante sia come elemento di coerenza col piu' generale disegno di mercato sia perch la piena apertura dei mercati retail in tutti gli Stati membri funzionale allintegrazione dei mercati europei. La liberalizzazione dei mercati finali dellenergia rappresenta uno stimolo allinnovazione, sia dal lato della domanda sia dal lato dellofferta. Questo paper presenta le ragioni teoriche e le evidenze empiriche a supporto del nesso tra la concorrenza e linnovazione nei mercati retail dellenergia elettrica. Italys 2015 Annual Competition Law provides for phasing out electricity retail prices regulation, as well as the implementation of full retail liberalization, starting on January 1st, 2018. This is a significant reform not just for the sake of consistency with the broader market design for electricity. Indeed, retail liberalization is instrumental for the full integration of EU electricity market. In fact, the full opening of retail markets provides a great opportunity for innovation, both on the demand side and on the supply side. This paper investigates the theoretical reasons, and presents some empirical evidence, on the competition-innovation nexus in retail electricity markets.
    Keywords: competition, electricity, liberalization, regulation, deregulation, retail markets
    JEL: D47 L43 L81 L94
    Date: 2016–04–18
  4. By: Nathan Miller (Georgetown University, McDonough School of Business); Marc Remer (Swarthmore College, Department of Economics); Conor Ryan (University of Minnesota, Department of Economics); Gloria Sheu (Economic Analysis Group, U.S. Department of Justice)
    Abstract: We use Monte Carlo experiments to evaluate whether “upward pricing pressure” (UPP) accurately predicts the price effects of mergers, motivated by the observation that UPP is a restricted form of the first order approximation derived in Jaffe and Weyl (2013). Results indicate that UPP is quite accurate with standard log-concave demand systems, but understates price effects if demand exhibits greater convexity. Prediction error does not systematically exceed that of misspecifed simulation models, nor is it much greater than that of correctly-specifed models simulated with imprecise demand elasticities. The results also support that both UPP and the HHI change provide accurate screens for anticompetitive mergers.
    Date: 2016–03
  5. By: Zaifu Yang; Rong Zhang; Zongyi Zhang
    Abstract: Following Jansen et al. (2012), we examine an unconventional Cournot model of the European Union natural gas market with three major suppliers Russian Gazprom, Norwegian Statoil, and Algerian Sonatrach. To re ect Russia's other strategic consideration besides profit, we incorporate a relative market share into Gazprom's objective function. We prove that when Gazprom pursues the control of market share along with profit, it will be good news for consumers but bad news for its pure profit maximising rivals. We further show that by seeking a proper market share, Gazprom can achieve the same profit of a Stackelberg leader in a simultaneous move model as in the standard sequential move leader-follower model. Compared with Jansen et al.'s, our approach makes the analysis considerably simpler and more transparent.
    Keywords: Natural gas market, Cournot model, Stackelberg leader's advantage, Non-profit incentive, Relative market share, European Union
    JEL: C62 C72 L13 L95 Q41
    Date: 2016–05
  6. By: Scalco, Paulo R.; Braga, Marcelo J.
    Abstract: The aim of this study was to test the hypothesis of market power in the wholesale market for UHT milk. The structure of this market is an oligopoly characterized as bilateral and uses the model proposed by Schroeter et al. (2000), which allows testing the hypothesis of market power without assuming the restrictive hypothesis of price-taking behavior on one side of the market. The system of nonlinear simultaneous equations that determines quantity, wholesale and retail prices of UHT milk was estimated by nonlinear generalized method of moments. Estimation of conduct parameter was 0.638, rejecting the hypothesis of a perfectly competitive market. Evidences suggest that retailers exert oligopsony power on the dairy industry; however, the distortions caused by such market power could not be quantified.
    Keywords: Food Consumption/Nutrition/Food Safety, International Development, Marketing,
    Date: 2015
  7. By: Rodolphe Dos Santos Ferreira; Teresa Lloyd-Braga; Leonor Modesto
    Abstract: The debate between the 'competition-fragility' and 'competition-stability' views has been centered upon the risk of banks' loan portfolios. In this paper, we shift the focus of the debate from the riskiness of loan portfolios to the riskiness of operational costs net of the income of non-traditional banking activities, banks' default resulting from negative aggregate profits. We consider a simple model in which, due to purely idiosyncratic risks, portfolio diversification would eliminate the risk of banks' default if those net operational costs were negligible or were known with certainty. We show that more competition always raises the risk of bank default, non-monotonicity being excluded as an equilibrium outcome under free oligopolistic competition between profit maximizing banks. However, the same result obtains in fact under systemic risk, even under non-stochastic net operation costs, a situation which we explore in a slightly different model. We show further that, under liquidity shortness, a higher intensity of competition in the loan market can result in an increase of deposit rates, rather than a decrease of loan rates.
    Keywords: Bank failure, oligopolistic competition in the loan market.
    JEL: G21 D43 L13
    Date: 2016
  8. By: Ekaterina Turkina; Ari Van Assche; Raja Kali
    Abstract: We use a new firm level dataset to study the network of formal firm linkages within and across 52 aerospace clusters in North America and Europe over the period 2002-2014. Applying community structure detection techniques, we find that the structure of the overall network has changed over time. We organize sub-networks by linkage type and find two important trends in their evolution. First, new linkages in the vertical buyer-supplier sub-network are generally formed in a hierarchical hub-and-spoke fashion, whereas new links in the horizontal partnership sub-network are generated in a more decentralized and cohesive manner. Second, the geographical scope of new linkages is different, with vertical buyer-supplier and investment linkages moving increasingly trans-local and partnership linkages becoming more localized. Taken together, our findings suggest that the overall network is evolving from a geographically partitioned community structure to a hierarchical community structure that is stratified along value chain stages.
    Keywords: industrial clusters, local and trans-local linkages, community structure detection, small world analysis,
    JEL: L14 L62 F23
    Date: 2016–04–08
  9. By: Mark J. McCabe; Christopher M. Snyder
    Abstract: The move from traditional to open-access journals—which charge no subscription fees, only submission fees—is gaining support in academia. We analyze a two-sided-market model in which journals cannot commit to subscription fees when authors (who prefer low subscription fees because this boosts readership) make submission decisions. This leads to a hold-up problem, manifested as excessive subscription fees. Open access is a crude attempt to avoid hold up by eliminating subscription fees. We compare the efficiency and profitability of traditional versus open access under various market structures (monopoly, Bertrand competition) and extensions (non-profit journals, bundling, hybrid pricing), using our theoretical findings to understand the evolution of the market for academic journals in the Internet age.
    JEL: D40 L14 L31 L82
    Date: 2016–05

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