nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒07‒09
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Ordered Consumer Search By Armstrong, Mark
  2. R&D Cooperatives and Market Collusion: A Global Dynamic Approach By Jeroen Hinloopen; Grega Smrkolj; Florian Wagener
  3. A game model of competition for market share between a new good producer and a remanufacturer By Batabyal, Amitrajeet; Beladi, Hamid
  4. Repeated Games with Recursive Utility:Cournot Duopoly under Gain/Loss Asymmetry By Tadashi Sekiguchi; Katsutoshi Wakai
  5. The welfare impacts of discriminatory price tariffs By Nikolaos Danias; J Kim Swales
  6. Merger Policy in a Quantitative Model of International Trade By Holger Breinlich; Volker Nocke; Nicolas Schutz
  7. Incorporating innovation subsidies in the CDM framework: Empirical evidence from Belgium By Czarnitzki, Dirk; Delanote, Julie
  8. Financial constraints and moral hazard: The case of franchising By Fan, Ying; Kühn, Kai-Uwe; Lafontaine, Francine
  9. Relationship of financial stability and risk with market structure and competition: evidence from Indian banking sector By Sinha, Pankaj; Sharma, Sakshi
  10. Market power in interactive environmental and energy markets: The case of green certificates By Amundsen, Eirik Schrøder; Nese, Gjermund
  11. Agglomeration and Technological Spillovers: Firm-Level Evidence from China's Electric Apparatus Industry By He, Ming; Chen, Yang; Schramm, Ronald M.
  12. Is There Asymmetric Price Transmission in the U.S. Fluid Milk Market? By Zeng, Shuwei; Gould, Brian
  13. Entry in German Pharmacy Market By Oliver Arentz; Achim Wambach; Clemens Recker; Van Anh Vuong
  14. Firm-Level Evidence on the Cooperative Innovation Strategies in Russian Manufacturing By Vitaliy Roud; Valeriya Vlasova

  1. By: Armstrong, Mark
    Abstract: The paper discusses situations in which consumers search through their options in a deliberate order, in contrast to more familiar models with random search. Topics include: network effects (consumers may be better off following the same search order as other consumers); the use of price and non-price advertising to direct search; the impact of consumers starting a new search with their previous supplier; the incentive sellers have to merge or co-locate with other sellers; and the incentive a seller can have to raise its own search cost. I also show how ordered search can be reformulated as a simpler discrete choice problem without search frictions.
    Keywords: Consumer search, sequential search, ordered search, directed search, discrete choice, oligopoly, advertising, obfuscation.
    JEL: D21 D43 D83 L11 L15 M37
    Date: 2016–06–24
  2. By: Jeroen Hinloopen (Utrecht University, The Netherlands); Grega Smrkolj (Newcastle University, United Kingdom); Florian Wagener (University of Amsterdam, The Netherlands)
    Abstract: We present a continuous-time generalization of the seminal R&D model of d’Aspremont and Jacquemin (American Economic Review, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion. We consider all trajectories that are candidates for an optimal solution as well as initial marginal cost levels that exceed the choke price. Firms that collude develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.
    Keywords: Antitrust policy; Bifurcations; Collusion; R&D cooperatives; Spillovers
    JEL: D43 D92 L13 L41 O31 O38
    Date: 2016–06–28
  3. By: Batabyal, Amitrajeet; Beladi, Hamid
    Abstract: We analyze the hitherto unstudied duopolistic interaction between a new good producer and a remanufacturer who compete for a dominant share of the market for a particular product. Each firm i spends d_i ≥ 0 on product development to sway consumers and this expenditure increases the likelihood that firm i captures a dominant market share. The revenue to each firm from obtaining a dominant market share is r>0. Our analysis of this interaction leads to five results. First, given the two product development expenditures (d_1,d_2), we specify the expected profit for each firm i. Second, we describe the function that characterizes each firm’s best response function. Third, we compute the unique Nash equilibrium. Fourth, we show what happens to this Nash equilibrium when the revenue r increases. Finally, we study what happens to the Nash equilibrium when the remanufacturer’s revenue from capturing a dominant market share is still r but the new good producer’s revenue is θ r, where θ >1.
    Keywords: Duopoly, Market Share, Nash Equilibrium, New Good Producer, Remanufacturer
    JEL: D21 L13 L21
    Date: 2016–01–07
  4. By: Tadashi Sekiguchi; Katsutoshi Wakai
    Abstract: We study the repeated Cournot duopoly with recursive utility where the players discount gains more than losses. First, as in the standard model of discounted utility, we confirm that the optimal punishment equilibrium has a stick-and-carrot structure. Next, we explore its exact form in relation to the role of the asymmetry in discounting. We find that the discount factor used to evaluate losses controls the deterrence of a given punishment, while the discount factor used to evaluate gains influences the enforceability of the penalty. An increase in one of the two discount factors increases the most collusive equilibrium profit unless full collusion is already sustainable. However, the key to collusion is the loss discount factor: regardless of the level of the gain discount factor, full cooperation can be achieved if the loss discount factor is sufficiently high.
    Keywords: Cournot duopoly, gain/loss asymmetry, optimal penal code, repeated game, recursive utility, utility smoothing
    JEL: C73 D20 D90 L13
    Date: 2016–07
  5. By: Nikolaos Danias (Department of Economics, University of Strathclyde); J Kim Swales (Department of Economics, University of Strathclyde)
    Abstract: This paper looks at the use of asymmetric tariffs as a regulatory instrument. We use a monopolistic market setup with two markets and we introduce price controls in one of the two. The purpose of the regulator is to maximise consumer welfare through this price discriminatory practice. We consider cases where the welfare of the consumers in the two markets is weighted equally and cases where it is not. In some cases we allow for the two markets to be linked through a monopsonistic input market. The paper focuses on the welfare implications of this regulatory approach, with the firm operating under a profit restriction. Results suggest that having only one price-controlled market is in certain cases a good option from a welfare perspective.
    Keywords: D42,D61, I31, I38, L12, L51
    Date: 2016–06
  6. 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
    Date: 2016
  7. By: Czarnitzki, Dirk; Delanote, Julie
    Abstract: This paper integrates innovation input and output effects of R&D subsidies into a modified Crépon-Duguet-Mairesse (CDM) model. Our results largely confirm insights of the input additionality literature, i.e. public subsidies complement private R&D investment. In addition, results point to positive output effects of both purely privately funded and subsidy-induced R&D. Furthermore, we do not find evidence of a premium or discount of subsidy-induced R&D in terms of its marginal contribution on new product sales when compared to purely privately financed R&D.
    Keywords: CDM model,R&D,subsidies,innovation policy
    JEL: C14 C30 O38
    Date: 2016
  8. By: Fan, Ying; Kühn, Kai-Uwe; Lafontaine, Francine
    Abstract: Financial constraints are considered an important impediment to growth for small businesses. We study theoretically and empirically the relationship between the financial constraints of agents and the organizational decisions and growth of principals, in the context of franchising. We find that a 30 percent decrease in average collateralizable housing wealth in an area is associated with a delay in chains' entry into franchising by 0.33 years on average, or 10 percent of the average waiting time, and a reduction in chain growth and hence a reduction in franchised chain employment of about 9 percent.
    Keywords: contracting,incentives,principal-agent,empirical,collateralizable housing wealth,entry,growth
    JEL: L14 L22 D22 D82 L8
    Date: 2016
  9. By: Sinha, Pankaj; Sharma, Sakshi
    Abstract: Academic debate over the ‘competition-fragility view’ and ‘competition-stability view’, in context of the risk shift and franchise value paradigms has lead to study the concept and relationship of competition and riskiness of banks in detail. In this respect, Martinez-Miera Repullo 2010 (MMR model) has even propagated the existence of a non-linear relationship between stability and competition. We test these hypotheses on a sample of Indian banks using measures for stability and riskiness of banks. The paper investigates the impact of bank competition and impact of bank concentration on stability, as well as on the riskiness of their loan portfolios .We find evidence for the presence of non-linear relationship between stability index and competition. It may be pointed out that in case of Indian banks, both concentration and competition work simultaneously to support the competition-fragility view. Both increased concentration and decreased competition may lead to greater riskiness with greater instability. The study suggests that it is important to understand the tradeoff between competition and concentration, and their impact on riskiness of loan portfolios and stability of banks for formulating steps to foster competition within the industry.
    Keywords: Risk, Competition,Financial stability,PRH statistic,MMR model
    JEL: G1 G18 G21 G28 M00
    Date: 2016–02–19
  10. By: Amundsen, Eirik Schrøder (Department of Economics, University of Bergen); Nese, Gjermund (Norwegian Competition Authority.)
    Abstract: A market for Tradable Green Certificates (TGCs) is strongly interwoven in the electricity market as the producers of green electricity are also the suppliers of TGCs. Therefore, strategic interaction may result. We formulate an analytic equilibrium model for simultaneously functioning electricity and TGC markets, and focus on the role of market power (i.e. Stackelberg leadership). One result is that a certificate system faced with market power may collapse into a system of per unit subsidies. Also, the model shows that TGCs may be an imprecise instrument for regulating the generation of green electricity.
    Keywords: Renewable energy; Electricity; Green Certificates; Market power
    JEL: C70 Q28 Q42 Q48
    Date: 2016–06–27
  11. By: He, Ming (Division of Economics, Xi'an Jiaotong-Liverpool University); Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University); Schramm, Ronald M. (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: We use a spatial autoregressive model to study the determinants of firm-level productivity growth using longitudinal data on China's electric apparatus industry over the period of 1999-2007. Factors considered include technological spillover, R&D and export behavior, agglomeration economies, and public expenditure. We propose modifications to Kelejian and Prucha's (1998) FE-2SLS procedure and Mutl and Pfaffermayr's (2011) RE-FG2SLS procedure to cope with the technical difficulties with our unbalanced panel. Statistical evidence strongly favors the fixed effects model over the random effects model. According to our estimates, there are large and signiffcant technological spillovers among firms. Individually, firms benefit from their own R&D and export activities. Market competition and public expenditure in the local and neighboring jurisdictions are found to be important determinants to productivity. Our model also provides direct evidence that the technological spillover effects attenuate rapidly in spatial distance. Finally, the inter-regional spillover effects are found to be more pronounced and more significant on urban districts or jurisdictions with smaller geographical areas. Geographic proximity to neighbors and special administrative role jointly contribute to this observation.
    Date: 2016–03–03
  12. By: Zeng, Shuwei; Gould, Brian
    Abstract: This study is used to examine the characteristics of the retail price adjustment within the U.S. fluid whole milk market. We employ an error correction model (ECM) to test for asymmetry in the transmission of farm milk price changes to changes in the retail price. In this analysis we use monthly data of farm and retail whole milk prices encompassing the January 2001 to December 2011 period for 16 U.S. cities. Several cities were found to display asymmetric price transmission where retail prices tended to respond more quickly with farm price increases vs. decreases.
    Keywords: Retail Milk Price, Price Transmission, Price Asymmetry., Agribusiness, Agricultural Finance, Demand and Price Analysis, Industrial Organization, Livestock Production/Industries,
    Date: 2016
  13. By: Oliver Arentz; Achim Wambach; Clemens Recker; Van Anh Vuong
    Date: 2016–02
  14. By: Vitaliy Roud (National Research University Higher School of Economics); Valeriya Vlasova (National Research University Higher School of Economics)
    Abstract: This paper focuses on revealing the heterogeneous impact of firms’ specificities and the environment on the sophistication of the cooperative innovation strategies. We use the firm-level data on innovation strategies of over 1200 manufacturing enterprises in Russia to model the networking strategy as a simultaneous choice of the range of cooperative linkages (within and beyond the value chain and knowledge production sectors). The determinants comprise the internal factors (as absorptive capacity) and the external conditions (e.g. technological opportunities, appropriability and competition regimes). Revealed effects prove the initial heterogeneity hypothesis thus challenging the wide-spread simplified perception of ‘openness’ of the innovation strategy as a one-dimensional characteristic
    Keywords: Innovation cooperation; open innovation; firm-level; Russia; manufacturing; innovation strategy; multivariate probit.
    JEL: L2 O3
    Date: 2016

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