nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒09‒11
eighteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation By Jochen Manegold
  2. A Leverage Theory of Tying in Two-Sided Markets By Choi, Jay-Pil; Jeon, Doh-Shin
  3. Second-degree price discrimination by a two-sided monopoly platform By Jeon, Doh-Shin; Kim, Byung-Cheol; Menicucci, Domenico
  4. Equilibrium Type of Competition with Horizontal Product Innovation By Negriu, A.
  5. Compatibility Choices under Switching Costs By Jeon, Doh-Shin; Menicucci, Domenico; Nasr, Nikrooz
  6. License or entry in oligopoly By Hattori, Masahiko; Tanaka, Yasuhito
  7. Partial cross ownership and collusion By Samuel de Haas; Johannes Paha
  8. Antitrust: Where Did It Come from and What Did It Mean? By Richard N. Langlois
  9. A Comment on "Sequential Spatial Competition in Vertically Related Industries with Different Product Varieties" By Eleftheriou, Konstantinos; Michelacakis, Nickolas
  10. Pricing of delivery services and the emergence of marketplace platforms By Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
  11. Merger and Acquisitions in South African Banking: A Network DEA Model By Peter Wanke; Andrew Maredza; Rangan Gupta
  12. Banking Competition and Firm-Level Financial Constraints in Latin America By Roberto Álvarez; Mauricio Jara
  13. A stochastic production frontier estimator of the degree of oligopsony power in the U.S. cattle industry By Panagiotou, Dimitrios; Stavrakoudis, Athanassios
  14. Assessing the competition between high-speed rail and airlines - A critical perspective By Frédéric Dobruszkes; Moshe Givoni; Catherine Dehon
  15. Asymmetric Threshold Vertical Price Transmission in Wheat and Flour Markets in Dhaka (Bangladesh): Seemingly Unrelated Regression Analysis By Mohammad J. Alam; Raghbendra Jha
  16. The Impact of Product Market Reforms on Firm Productivity in Italy By Sergi Lanau; Petia Topalova
  17. Impact of Mergers and Acquisitions on European Insurers: Evidence from Equity Markets By Petr Jakubik; Dimitrios Zafeiris
  18. Persistence of innovation and patterns of firm growth By Dario Guarascio; Federico Tamagni

  1. By: Jochen Manegold (Paderborn University)
    Abstract: On an intermediate goods market we consider vertical and horizontal product differentiation and analyze the impact of simultaneous competition for resources and the demand of customers on the market outcome. Asymmetries between intermediaries may arise due to distinct product qualities as well as by reasons of different production technologies. The intermediaries compete on the output market by choosing production quantities sequentially and for the supplies of a monopolistic input supplier on the input market. It turns out that there exist differences in product quality and productivities such that an intermediary being the Stackelberg leader has no incentive to procure inputs, whereas in the role of the Stackelberg follower will participate in the market. Moreover, we find that given an intermediary is more competitive, his equilibrium output quantity is higher when being the leader than when being the follower. Interestingly, if the intermediary is less competitive and goods are complements, there may exist asymmetries such that an intermediary being in the position of the Stackelberg follower offers higher output quantities in equilibrium than when being in the position of the Stackelberg leader.
    Keywords: Input Market, Product Quality, Quantity Competition, Stackelberg Competition, Product Innovation
    JEL: L13 D43 C72
    Date: 2016–09
  2. By: Choi, Jay-Pil; Jeon, Doh-Shin
    Abstract: Partly motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. We analyze incentives for a monopolist to tie its monopolized product with another product in a two-sided market. Tying provides a mechanism to circumvent the non-negative price constraint in the tied product market without inviting an aggressive response as the rival firm faces the non-negative price constraint. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications. Our mechanism can be more widely applied to any markets in which sales to consumers in one market can generate additional revenues that cannot be competed away due to non-negative price constraints.
    Keywords: Leverage of monopoly power; Non-negative pricing constraint; Two-sided markets; Tying; Zero pricing
    JEL: D4 L1 L5
    Date: 2016–09
  3. By: Jeon, Doh-Shin; Kim, Byung-Cheol; Menicucci, Domenico
    Abstract: In this article we study second-degree price discrimination by a two-sided monopoly platform. We find novel distortions that arise due to the two-sidedness of the market. They make the standard result "no distortion at top and downward distortion at bottom" not holding. They generate a new type of non-responsiveness, different from the one found by Guesnerie and Laffont (1984). We also show that the platform may mitigate or remove non-responsiveness at one side by properly designing price discrimination on the other side. These findings help to address our central question, i.e., when price discrimination on one side substitutes for or complements price discrimination on the other side. As an application, we study the optimal mechanism design for an advertising platform mediating advertisers and consumers.
    Keywords: (second-degree) price discrimination; advertising; non-responsiveness; Two-sided markets; type reversal
    JEL: D4 D82 L5 M3
    Date: 2016–09
  4. By: Negriu, A. (University of Amsterdam)
    Abstract: Singh and Vives (1984) consider a game where duopolists first commit to a strategic variable, quantity or price, and then compete in selling horizontally differentiated products. Here product substitutability is endogenized by allowing firms to undertake R&D investments to increase differentiation. This has important consequences for the determination of the equilibrium type of competition. Whereas in the original model Cournot competition always ensued in equilibrium, horizontal product innovation allows all types of market competition to be an equilibrium, depending on model parameters. As market size increases, the game of choosing the strategic variable changes structure. For small market size it is a dominance solvable game with Cournot competition as unique outcome. For higher market size, the firms face a Prisoner's Dilemma where Bertrand competition would be Pareto optimal, but Cournot competition is the non-cooperative Nash Equilibrium. As market size further increases, the game of choosing market variables becomes a Hawk-Dove game where, in pure strategy equilibrium, one firm sets quantity and the other sets price. When market size increases even further, setting prices will be the strictly dominant strategy and Bertrand competition is the unique equilibrium outcome for a relatively small parameter-range. Finally, for suffciently high market size all equilibria corresponding to differentiated duopoly abruptly dissappear and the market separates into two monopolies.
    Date: 2015
  5. By: Jeon, Doh-Shin; Menicucci, Domenico; Nasr, Nikrooz
    Abstract: e study firms’ compatibility choices in the presence of consumers’ switching costs. We analyze both a model of once-and-for-all compatibility choices and that of dynamic choices. Contrary to what happens in a static setting in which firms embrace compatibility to soften the current competition (Matutes and Régibeau, 1988), when consumer lock-in arises due to a significant switching cost, firms make their products incompatible in order to soften future competition, regardless of the model we consider. This reduces consumer surplus and social welfare.
    Keywords: Compatibility, Incompatibility, Switching Cost, Lock-in
    JEL: D43 L13 L41
    Date: 2016–09
  6. By: Hattori, Masahiko; Tanaka, Yasuhito
    Abstract: We consider an incentive of a choice of options for an outside innovating firm to license its new cost reducing technology to incumbent firms, or to enter into the market with or without license in an oligopoly with three firms. We will show that under linear demand and cost functions the results depend on the size of the market. When the market size is large, license to two incumbent firms without entry strategy is the optimum strategy for the innovating firm. However, when the market size is not large, license to one incumbent firm with or without entry strategy may be optimum.
    Keywords: license, entry, oligopoly, innovating firm
    JEL: D43 L13
    Date: 2016–09–06
  7. By: Samuel de Haas (University of Giessen); Johannes Paha (University of Giessen)
    Abstract: This article finds that non-controlling minority shareholdings among competitors lower the sustainability of collusion. This is the case under an even greater variety of situations than was indicated by earlier literature. The collusion destabilizing effect of minority shareholdings is mainly caused by their unilateral effects, and it is particularly prevalent in the presence of an effective antitrust authority.
    Keywords: Collusion, Coordinated Effects, Minority Shareholdings, Merger Control, Unilateral Effects
    JEL: G34 K21 L41
    Date: 2016
  8. By: Richard N. Langlois (University of Connecticut)
    Abstract: This paper is a draft chapter from an ongoing book project I am calling The Corporation and the Twentieth Century. In The Visible Hand, Alfred Chandler explained the rise of the large vertically integrated corporation in the United States mostly in terms of forces of technology and economic geography. Institutions, including government policy, played a quite minor role. In my own attempt to explain the decline of the vertically integrated form in the late twentieth century, I stayed true to Chandler’s largely institution-free approach. This book will be an exercise in bringing institutions back in. It will argue that institutions, notably various forms of non-market controls imposed by the federal government, are a critical piece of the explanation of the rise and decline of the multi-unit enterprise in the U. S. Indeed, non-market controls, including those imposed in response to the dramatic events of the century, account in significant measure for the dominance of the Chandlerian corporation in the middle of the twentieth century. One important form of non-market control – though by no means the only form – has been antitrust policy. This chapter traces the history of antitrust and argues that, far from being a coherent attempt to address an actual economic problem of monopoly, the Sherman Antitrust Act emerged from the distributional political economy of the nineteenth century. More importantly, the chapter argues that the form in which antitrust emerged would prove significant for the corporation, as the Sherman Act and its successors outlawed virtually all types of inter-firm coordinating mechanisms, thus effectively evacuating the space between anonymous market transactions and full integration.
    Date: 2016–09
  9. By: Eleftheriou, Konstantinos; Michelacakis, Nickolas
    Abstract: The aim of this paper is to revise and correct the results obtained in Beladi et al. [Beladi, H., Chakrabarti, A., Marjit, S., 2010. Sequential spatial competition in vertically related industries with different product varieties. Economics Letters 106, 112-114]. Specifically, we prove that following a vertical merger, the downstream firms will locate away from the social optimum in the following manner: to the direction of the un-integrated follower or to a direction determined by the wholesale price charged to the un-integrated leader.
    Keywords: Product differentiation; Spatial price discrimination; Sequential competition; Merger
    JEL: D43 L13 L42 R32
    Date: 2016–09–02
  10. By: Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie
    Abstract: This paper studies the pricing of delivery services and its impact on the market structure in the-commerce sector. We focus on one of the ongoing trends, namely the development of marketplaces. A retailer may not just sell its own products; but also provide a marketplace for other sellers, offering a variety of services including delivery. Marketplaces create a "secondary" market which undermines the delivery operator's abilityto differentiate prices. We study the subgame perfect equilibrium of a sequential game with two operators where retailer 0 may potentially develop a marketplace. The delivery operator and retailer 0 bargain over the delivery rate. Then, retailer 0 chooses the per-unit rate and the fixed fee at which it is willing to sell its delivery service to the other retailer. Finally, retailer 1 chooses its delivery option: either it directly patronizes the independent delivery operator, or it uses the services o¤ered by the marketplace, and the corresponding subgame is played. Analytical results are completed by numerical simulations and lead to three main lessons. First the equilibrium nearly always implies a discount to the "leading" retailer, even when the profit maximizing operator has all the bargaining power. Second, the delivery operator cannot avoid the emergence of a marketplace even though this decreases its profits. Third, the market power of the delivery operator cannot be assessed solely by considering its market share.
    Keywords: E-commerce, parcel delivery, marketplace, pricing and market structure,price discrimination
    JEL: L1 L5 L81
    Date: 2016–08
  11. By: Peter Wanke (COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rio de Janeiro); Andrew Maredza (School of Economics and Decision Science, North West University, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria)
    Abstract: Banking in South Africa is known for its small number of companies that operate as an oligopoly. This paper presents a strategic fit assessment of mergers and acquisitions (M&A) in South African banks. A network DEA (Data Envelopment Analysis) approach is adopted to compute the impact of contextual variables on several types of efficiency scores of the resulting virtual merged banks: global (merger), technical (learning), harmony (scope), and scale (size) efficiencies. The impact of contextual variables related to the origin of the bank and its type is tested by means of a set of several robust regressions to handle dependent variables bounded in 0 and 1: Tobit, Simplex, and Beta. The results reveal that bank type and origin impact virtual efficiency levels. However, the findings also show that harmony and scale effects are negligible due to the oligopolistic structure of banking in South Africa
    Keywords: Banks, South Africa, Merger and Acquisitions, Network, DEA, Robust Regression Analysis
    JEL: C6 G21
    Date: 2016–09
  12. By: Roberto Álvarez; Mauricio Jara
    Abstract: Prior literature argues that, given the existence of information asymmetries and agency costs, higher competition may increase financial constraints by reducing banks’ incentives to build lending relationships. Using a sample of listed firms for six Latin American countries, we analyze the relation between banking competition and financial constraints. We find evidence in line with prior research that banking competition increases financial constraints. This result is robust and heterogeneous. We include other country-specific variables and check the robustness of our findings; the main results hold. Our results show that the effect of competition differs across firms and industries. Specifically, consistent with the information hypothesis, the negative impact of competition is higher for small quoted firms and for lowassets tangibility industries. Also, as expected, we find evidence that firms are more affected by financial constraints during the last crisis. This negative effect is larger for firms in more competitive banking industries.
    Date: 2016–08
  13. By: Panagiotou, Dimitrios; Stavrakoudis, Athanassios
    Abstract: The objective of this study is to estimate the degree of oligopsony power in the U.S. cattle industry with the use of the recently developed stochastic frontier estimator of market power. Unlike the seminal paper where estimation of the mark-up in an output market at firm level was the main objective, this work proposes a stochastic production frontier estimator in order to estimate the mark-down in an input market at aggregate level. Furthermore, with the help of the new estimator we derive and estimate the Lerner index of oligospony power for the U.S. cattle market. For the empirical part of the study we employed annual time series data from the U.S. cattle/beef industry for the time period 1970-2009. Our results suggest that beef packers exert market power when purchasing live cattle for slaughter.
    Keywords: cattle; stochastic frontier analysis; oligopsony; market power
    JEL: C13 L66 Q11
    Date: 2015
  14. By: Frédéric Dobruszkes; Moshe Givoni; Catherine Dehon
    Date: 2016
  15. By: Mohammad J. Alam; Raghbendra Jha
    Abstract: The analysis of price transmission for commodities requiring processing in vertical markets is challenged by fuzzy policy environments in the case of developing countries. However the analyses of threshold and asymmetries in price transmission at different levels of vertical markets provide a good indicator of market efficiency. The paper employs threshold cointegration that takes into account the asymmetric adjustment towards a long-run equilibrium and short-run price transmission. The paper investigates the non-linear price adjustment in short- and long-run in vertical markets of wheat and flour in Bangladesh. Using monthly wholesale and retail prices of wheat and flour for data from FAOStat for the period January 2008 to February 2016 we develop an asymmetry threshold error correction model for three vertical chains namely (i) wholesale and retail markets of flour, (ii) wholesale markets of wheat and flour, (iii) wholesale markets of wheat and retail markets of flour. We find evidence of threshold effects in vertical wheat-flour markets. The speed of adjustment towards the long-run equilibrium is different when the price deviations exceed the threshold value from when price deviations are below the threshold. Additionally, we find evidence of short-run price asymmetries implying that downstream price responds faster when upstream price increases than when the latter falls. This validates the hypothesis of `rocket and feature` principle in the wheat-to-flour markets in Bangladesh. Proximate reasons for these differences are discussed.
    Keywords: price transmission, vertical markets, wheat and flour, cointegration, asymmetry threshold error correction model
    JEL: C22 C51 Q13 Q18
    Date: 2016
  16. By: Sergi Lanau; Petia Topalova
    Abstract: This paper examines the role of removing obstacles to competition in product markets in raising growth and productivity. Using firm-level data from Italy during 2003–13 and OECD measures of product market regulation, we estimate the effect of deregulation in network sectors on value added and productivity of firms in these sectors, as well as firms using these intermediates in their production processes. We find evidence of a significant positive impact. These effects are more pronounced in Italian provinces with more efficient public administration, underscoring the complementarities of advancing public administration and product market reforms simultaneously.
    Keywords: Business enterprises;Italy;Industry;Services;Total factor productivity;Labor productivity;Markets;Fiscal reforms;Economic sectors;Time series;Econometric models;productivity, growth, structural reforms, product markets
    Date: 2016–06–15
  17. By: Petr Jakubik (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; European Insurance and Occupational Pensions Authority); Dimitrios Zafeiris (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; European Insurance and Occupational Pensions Authority)
    Abstract: The current macro-economic and financial conditions remain extremely challenging for the European insurance sector. Under the ongoing low yield environment insurers are changing their business models and looking for new investment and business opportunities to improve their profitability and the overall solvency positions. This is also reflected in an increasing interest in mergers and acquisitions to achieve sufficient returns. However, there is no clear answer in the literature whether this strategy brings the expected positive results. This study empirically tests the effects of mergers and acquisitions (M&A) on share prices of European insurers via an event study. Our results do not confirm the positive impact of such strategies on acquirers’ share prices delivering abnormal returns for shareholders.
    Date: 2016–07
  18. By: Dario Guarascio; Federico Tamagni
    Abstract: In this work we test if persistent innovators, defined according to different innovation activities (R&D, product and process innovation, patenting) grow more than other firms, and if innovation persistence can contribute to explain the so far little evidence in favor of persistence in growth itself. We exploit a somewhat uniquely long-in-time dataset tracing a representative sample of Spanish manufacturing firms over the period 1990-2012. This allows to overcome the difficulties in the definition of persistent innovators traditionally based on innovation surveys. Our findings, against the expectations, support that persistent innovators do not generally outperform the other firms. First, they do not grow more, and actually we find that, despite some variation across innovation persistence indicators, they even grow less than other firms in the top-quantiles of the growth rates distribution, that is among high-growth firms. Further, persistent innovators do not show higher growth persistence than other firms, in none of the quantiles of the growth rates distribution, independently from the innovation persistence indicator considered.
    Keywords: firm growth, innovation persistence, product and process innovation, R\&D, patents, quantile regressions
    Date: 2016–02–09

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