nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒09‒25
seventeen papers chosen by
Russell Pittman
United States Department of Justice

  1. Prizes versus Contracts as Incentives for Innovation By Che, Yeon-Koo; Iossa, Elisabetta; Rey, Patrick
  2. Maximin and minimax strategies in asymmetric duopoly: Cournot and Bertrand By Tanaka, Yasuhito; Satoh, Atsuhiro
  3. Does environmental regulation create merger incentives? By Anna CRETI; María-Eugenia SANIN
  4. Trade Policy and Market Power: Firm-level Evidence By Alan ASPRILLA; Nicolas BERMAN; Olivier CADOT; Melise JAUD
  6. Vertical Restraints in B2B Contracts: The Impact of Competition and Competitiveness By Avdasheva, Svetlana
  7. Spatial firm competition in two dimensions with linear transportation costs: simulations and analytical results By Alan Roncoroni; Matus Medo
  8. The impact of asymmetric regulation on product bundling: The case of fixed broadband and mobile communications in Japan By Kuroda, Toshifumi; Ida, Takanori; Koguchi, Teppei
  9. Coexistence of service- and facility-based competition: The relevance of access prices for "make-or-buy"-decisions By Bendery, Christian M.; Goetz, Georg
  10. Net neutrality principles and its impact on quality of experience based service differentiation in mobile networks By Martínez, Luis; Álvarez San-Jaime, Oscar; Markendahl, Jan
  11. Investigating the role of mobile network operators as platform providers in the internet of things By Karapantelakis, Athanasios; Markendahl, Jan
  12. Media market concentration and pluralism By Stühmeier, Torben
  13. Means and ends toward the broadband society: Net neutrality and over-the-top players By Jitsuzumi, Toshiya
  14. An Evaluation of the Degree of Competition in the French Life Insurance Industry By Gagnepain, Philippe; Ivaldi, Marc
  15. Reverse payments and generic entry competition By WAN, Jiangyun(Yunyun)
  16. Does competition in the out-patient sector improve quality of medical care? Evidence from administrative data By Stroka-Wetsch, Magdalena A.; Talmann, Anna; Linder, Roland
  17. Incentive Fees and Competition in Pension Funds: Evidence from a Regulatory Experiment By Assaf Hamdani; Eugene Kandel; Yevgeny Mugerman; Yishay Yafeh

  1. By: Che, Yeon-Koo; Iossa, Elisabetta; Rey, Patrick
    Abstract: Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unverifiable and implementation costs are private information, a trade-off arises between the two objectives. The optimal mechanism resolves the tradeoff via two instruments: a monetary prize and a contract to implement the project. The optimal mechanism favors the innovator in contract allocation when the value of innovation is above a certain threshold, and handicaps the innovator otherwise. A monetary prize is employed as an additional incentive but only when the value of innovation is suficiently high.
    Keywords: Contract rights, Inducement Prizes, Innovation, Procurement and R&D.
    JEL: D44 D82 H57 O31 O38 O39
    Date: 2016–09
  2. By: Tanaka, Yasuhito; Satoh, Atsuhiro
    Abstract: We examine maximin and minimax strategies for firms in asymmetric duopoly with differentiated goods. We consider two patterns of game; the Cournot game in which strategic variables of the firms are their outputs, and the Bertrand game in which strategic variables of the firms are the prices of their goods. We call two firms Firm A and B, and will show that the maximin strategy and the minimax strategy in the Cournot game, and the maximin strategy and the minimax strategy in the Bertrand game are all equivalent for each firm. However, the maximin strategy (or the minimax strategy) for Firm A and that for Firm B are not necessarily equivalent, and they are not necessarily equivalent to their Nash equilibrium strategies in the Cournot game nor the Bertrand game.. But, in a special case, where the objective function of Firm B is the opposite of the objective function of Firm A, the maximin strategy for Firm A and that for Firm B are equivalent, and they constitute the Nash equilibrium both in the Cournot game and the Bertrand game. This special case corresponds to relative profit maximization by the firms.
    Keywords: maximin strategy, minimax strategy, duopoly
    JEL: C72 D43
    Date: 2016–09–22
  3. By: Anna CRETI (Dauphine University and Ecole Polytechnique); María-Eugenia SANIN (EPEE, Evry-Val-d'Esssone University and Ecole Polytechnique)
    Abstract: This paper studies merger incentives for polluting Cournot firms under a competitive tradable emission permits market. Such setting is relevant to assess the observed mergers between power generators in the Regional Greenhause Gas Initiative (RGGI) allowing us to derive policy recommendations. We find that when firms are symmetric and marginal costs are constant, an horizontal merger that generates efficiency gains is welfare enhancing, but efficiency gains must be high enough with respect to the case without permits markets for the merger to take place. Secondly, the presence of a competitive (or monopolistic) outside market that also trades in the permits market makes profitable a merger that would not happen otherwise. When firms are vertically related in an input-output chain, an horizontal merger in one of the markets increases profits in that market and in the other market due to the decrease in permits price. Finally we consider an oligopoly-fringe model in which firms differ both in their marginal costs of production and in their pollution intensity. A merger between the oligopolistic firms decreases permits price and is always profitable as opposed to the symmetric Cournot case in which there is a critical size for profitability.
    Keywords: mergers, environmental externality, tradable emission permits, social welfare, Cournot competition
    JEL: L13 L41 Q51
    Date: 2016
  4. By: Alan ASPRILLA (FERDI); Nicolas BERMAN (FERDI); Olivier CADOT (Faculté des hautes études commerciales - Université de Lausanne); Melise JAUD (FERDI)
    Abstract: This paper identifies the effect of trade policy on market power through new data and a new identication strategy. We use a large dataset containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries over several years, merged with destination-product specific information on tariffs and non-tariff barriers. We identify market power by observing how exporting firms price discriminate across markets in reaction to variations in bilateral exchange rates. Pricing-to-market is prevalent in all regions of our sample, even among small firms, although it is increasing in firm size, in accordance with theory. More importantly, we find that the effect of non-tariff measures is not isomorphic to that of tariffs: the pricing-to-market behavior we observe suggests that, while tariffs reduce the market power of foreign firms through classic rent-shifting effects, non-tariff measures alter market structure and reinforce the market power of non-exiting firms, domestic and foreign ones alike. Keywords: Trade policy, non-tariff measures, tariffs, exchange rate, price discrimination
    Keywords: trade policy, non-tariff measures, tariffs, exchange rate, price discrimination
    JEL: F12 F13 F14 D40 F31
    Date: 2016–07
  5. By: Benjamin Eden (Vanderbilt University); Maya Eden (World Bank); Jonah Yuen (Vanderbilt University)
    Abstract: To characterize the cross sectional price distribution of supermarket prices, we divide the stores in each good-week combination (UPC-week cell) into bins according to their price. For example, in the 3 bins division case we have a high price bin, a medium price bin and a low price bin. Our main findings are: (a) The variations over weeks in the (cross sectional) average price and quantity sold is lower for higher price bins; (b) Temporary sales contribute substantially to variations over weeks in the average price of the typical good; (c) The elasticity of the quantity sold by stores in the high price bin with respect to the quantity sold by stores in a low price bin (the quantity elasticity) is less than unity; (d) The elasticity of the quantity sold by stores in the high price bin with respect to the price in a low price bin (the cross price elasticity) is positive but less than the absolute value of the own price elasticity. More generally, we provide results about elasticities within UPC-week cells, variations over weeks within UPC and the role of temporary sales.
    Keywords: Price Dispersion, Sequential Trade, Temporary Sales
    JEL: D4 E3
    Date: 2016–09–21
  6. By: Avdasheva, Svetlana (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The result of arduous development of the theory of vertical restraints has become seemingly trivial conclusion that their use may or may restrict competition, and encourage her. The main difference between the conditions of competition-restricting conditions vertical agreements from the horizontal - they ban could have a dramatically negative impact on competitiveness. That's why in the center of the global practice of antitrust prohibitions against vertical restraints is generally balanced approach. European competition law - as well as Russia - criticized for being too wide a range of prohibitions on the letter of the law (per se). However, the central problem of the use of bans in Russia is used as a sign of self-violation of the law infringement of interests of participants of the contractual relationship.
    Keywords: vertical restraints, antitrust, balanced approach, international comparisons
    Date: 2016–05–30
  7. By: Alan Roncoroni; Matus Medo
    Abstract: Models of spatial firm competition assume that customers are distributed in space and transportation costs are associated with their purchases of products from a small number of firms that are also placed at definite locations. It has been long known that the competition equilibrium is not guaranteed to exist if the most straightforward linear transportation costs are assumed. We show by simulations and also analytically that if periodic boundary conditions in two dimensions are assumed, the equilibrium exists for a pair of firms at any distance. When a larger number of firms is considered, we find that their total equilibrium profit is inversely proportional to the square root of the number of firms. We end with a numerical investigation of the system's behavior for a general transportation cost exponent.
    Date: 2016–09
  8. By: Kuroda, Toshifumi; Ida, Takanori; Koguchi, Teppei
    Abstract: Product bundling may benefit or harm consumers dependingon the correlation betweenconsumer willingness to pay for the bundledgoods and the levels of market dominance of firms. We develop astructural demand model that allows for correlatedconsumer's willingness to pay and flexible complementarities/substitutabilities. We estimate thismodel using data fromthree surveys conducted bythe JapanMinistry of Internal Affairs and Communications. The estimation results show that fixed broadband and mobile communications are complements for theJapanese telecommunication incumbentbut ambiguousfor competitors. To assess the effect of asymmetric regulation on product bundling by the incumbent, we conduct a counterfactual analysis of a two-stage game where firms choose whether to set bundle discount or not to set for fixed-broadband and mobile communications at stage one and set prices at stage two. The subgame perfect Nash equilibrium ofthetwo-stage game with/without asymmetric regulation shows that mixed-bundling is the dominant strategy for the incumbent. To avoid cannibalization, the incumbent set large discounts for bundle and set high prices for separate goods. Along with high market dominance of the incumbent, this strategy decreases the consumer surplus by 18.8%. Under subgame perfect Nash equilibrium, thediffusion ratesof fixed broadband decreases from 88.9% to 88.0% andthe diffusion rates of mobile communications increases from 95.25 to 95.71%.We also find that pure bundling,asa toolfor leverage,is not a subgame perfect Nash equilibrium.
    Keywords: Fixed-to-mobile substitution,Bundles,Leverage,Discrete-Choice Model
    JEL: L96 D43
    Date: 2015
  9. By: Bendery, Christian M.; Goetz, Georg
    Abstract: This paper models competition between two firms, which provide broadband In-ternet access in regional markets with different population densities. The firms, an incumbent and an entrant, differ in two ways. First, consumers bear costs when switching to the entrant. Second, the entrant faces a make-or-buy decision in each region and can choose between service-based and facility-based entry. The usual trade-off between static and dynamic efficiency does not apply in the sense that higher access fees might yield both, lower retail prices and higher total coverage. This holds despite a strategic effect in the entrant's investment decision. While investment lowers marginal costs in regions with facility-based entry, it intensifies competition in all regions. We show that the cost-reducing potential of investments dominates the strategic effect: Higher access fees increase facility-based competition, decrease retail prices and increase total demand.
    Keywords: Broadband access markets,facility- and service-based entry,investments,economies of density,switching costs
    JEL: D43 L13 L51 L96
    Date: 2015
  10. By: Martínez, Luis; Álvarez San-Jaime, Oscar; Markendahl, Jan
    Abstract: The overall goal of the incorporation of QoE in the mobile networks deployment is related to optimizing end-user QoE, while making efficient use of network resources and maintaining a satisfied customer base that guarantees the commercial success of the provider's business model. However, the implementation of a QoE-based approach at the service provision, with the potential deployment of fast lanes for premium users, the prioritization of traffic, or the creation of user's categories, may affect the Net Neutrality principles. This paper presents an analysis of how the net neutrality principles will impact the implementation of QoE-based differentiation in the service provision at technical, business and market levels. We introduce a business model framed in the QoE-based differentiation approach analysing the implications of Net Neutrality in the proposed models.
    Keywords: Quality of Experience,Net Neutrality,Mobile Networks
    Date: 2015
  11. By: Karapantelakis, Athanasios; Markendahl, Jan
    Abstract: Internet of Things (IoT) is generally understood to be a realisation of the vision of ubiquitous computing, wherein any type of device will be connected to the Internet and will be controlled by remote software. The transition of Information and Communication Technology (ICT) ecosystem towards IoT is set to happen gradually over the next decade, with multiple independent sources predicting at least an order of magnitude increase in data traffic to and from connected devices. In particular, Mobile Network Operators (MNOs) are set to play an instrumental role in the IoT economy of the future, with the emergence of fifth generation mobile networks (5G). The transition to IoT, however, poses multiple challenges for MNOs who have to serve a large market of many industry segments (e.g. utilities, transport, agriculture), while simultaneously face commoditisation of their core services (i.e. voice, messaging and mobile broadband). In order to survive and thrive in the IoT economy, MNOs need to reconsider their role by repositioning themselves in the value chain. This paper, inspired from platform economics and successful examples of multi-sided platforms in the Information Technology (IT) industry, suggests a role of MNOs as mediators in a multi-sided market, connecting billions of devices on one end of the market with software providers on another end. The value of this idea is discussed by presentation of several prototypes that utilise MNO as a service provider
    Date: 2015
  12. By: Stühmeier, Torben
    Abstract: Media market structures are changing constantly. Traditional media outlets such as newspapers are being hard-hit by the digitalization of content, causing market exit and long-term consolidation in many countries. Competition policy in media markets is not only concerned with this trend because of reduced economic competition, but also because of potentially reduced pluralism. Accordingly, this paper analyzes the relationship between media market concentration and pluralism. In particular, we distinguish between internal pluralism, namely the range of views o.ered by a single outlet, and external pluralism, which refers to the market supply of pluralism. We show that internal pluralism is high in concentrated markets, but external pluralism is not. Moreover, a monopoly market does not necessarily less pluralism than a competitive one.
    Keywords: Advertising,Concentration,Media market,Pluralism,Twosided market
    JEL: L13 L82
    Date: 2016
  13. By: Jitsuzumi, Toshiya
    Abstract: Because broadband is widely believed to be a precondition for economic prosperity and social progress, many governments have been improving the broadband environments in their respective countries. Net neutrality, which in its most basic form requires "equal" treatment for all Internet traffic, should be considered only as a means of improving broadband rather than as a stand-alone policy goal. Net neutrality has been a major topic of interest for telecom regulators in developed nations for nearly a decade. However, treating net neutrality as the ultimate target may prevent a more important goal from being achieved. Policy targets and priorities should be tailored to the broadband development stage of each market. In this study, the author argues that a strict net neutrality principle is not optimal and should be relaxed to accommodate the local needs of individual markets and reflect their development stages. In addition, discussion, especially in developed nations, should focus not on quality-of-service-based net neutrality but on quality-of-experience for optimal resource allocation.
    Keywords: broadband,net neutrality,QoS,QoE
    Date: 2015
  14. By: Gagnepain, Philippe; Ivaldi, Marc
    Abstract: This article focuses on the life insurance industry in France and attempts to shed light on whether the insurers behave in a competitive fashion, or whether, on the contrary, they take coordinated decisions. We propose several empirical tests, which entail the estimation of the Boone indicator, a tool which explores the relationship between firms’ relative costs and profits, the evaluation of the switching costs beard by consumers when they decide to change insurer, and the construction of a structural model, which is based on an oligopolistic framework where insurers propose differentiated products. Our results suggest unambiguously that firms do follow a competitive behavior.
    Date: 2016–09
  15. By: WAN, Jiangyun(Yunyun)
    Abstract: In the United States, brand-name drug manufacturers often pay generic companies to delay marketing of their generic products. In this paper we develop an analytical framework to examine the implications of banning reverse payment settlements. We first find that reverse payment settlements occur when generic firms face relatively high entry cost but do not when entry costs are sufficiently low. We next show cases in which reverse payment settlements are harmful to brands. We also consider the counterfactual case when 180-day marketing exclusivity rights are removed from Hatch-Waxman and find that the absence of marketing exclusivity rights encourages brands to proceed with reverse payment settlements.
    Keywords: reverse payment settlements, generic entry competition, Hatch-Waxman, marketing exclusivity
    JEL: I18 K23 L13
    Date: 2016–08
  16. By: Stroka-Wetsch, Magdalena A.; Talmann, Anna; Linder, Roland
    Abstract: We use administrative data from the largest sickness fund in Germany to analyze the relationship between the district density of general and medical practitioner and the quality of care provided to the frail elderly. The quality of care is studied considering prescriptions of potentially inappropriate drugs. We find evidence for a significant positive effect of the share of general and medical practitioners in the population on the provided outpatient health care services.
    Abstract: Im Allgemeinen gilt als eindeutig belegt, dass ein erhöhter Wettbewerb mit sinkenden Preisen und/oder steigender Qualität einhergeht. Da im deutschen Gesundheitssystem Preise für Ärztebehandlungen reguliert sind, kann Wettbewerb in diesem Bereich nur über Qualität ausgeübt werden. Um zu untersuchen ob geringer Wettbewerb, der sich im Extremfall in der Unterversorgung mit sowohl Allgemein- als auch Fachärzten in ländlichen Regionen bemerkbar macht, zu Qualitätsdefiziten führt, analysieren wir den Zusammenhang zwischen der jeweiligen Ärztedichte und der Verschreibung potenziell inadäquater Medikation. Hierzu werden Routinedaten von Deutschlands größter Krankenkasse (der Techniker Krankenkasse) mit über 10 Millionen Versicherten ausgewertet. Diese enthalten u .A. Informationen über die jährlich verschriebenen Tagesdosen von Medikamenten der Priscus-Liste, einer im Jahr 2010 veröffentlichten Aufstellung mit potenziell inadäquater Medikation für ältere Menschen. Die Ergebnisse zeigen signifikante und erhebliche Effekte der Ärztedichte auf die Menge verschriebener Tagesdosen potenziell inadäquater Präparate.
    Keywords: Priscus-list,inappropriate medication,drugs,fixed-effects,administrative data,elderly,competition,quality of medical supply
    JEL: I10
    Date: 2016
  17. By: Assaf Hamdani; Eugene Kandel; Yevgeny Mugerman; Yishay Yafeh
    Abstract: Concerned with excessive risk taking, regulators worldwide generally prohibit private pension funds from charging performance-based fees. Instead, the premise underlying the regulation of private pension schemes (and other retail-oriented funds) is that competition among fund managers should provide them with the adequate incentives to make investment decisions that would serve their clients’ long-term interests. Using a regulatory experiment from Israel, we compare the effects of incentive fees and competition on the performance of three exogenously-given types of long-term savings schemes operated by the same management companies: (i) funds with performance-based fees, facing no competition; (ii) funds with AUM-based fees, facing low competitive pressure; and (iii) funds with AUM-based fees, operating in a highly competitive environment. Our main result is that funds with performance-based fees exhibit significantly higher risk-adjusted returns than other funds, but are not necessarily riskier (that depends on the measure of risk used). By contrast, we find that competitive pressure leads to poor performance, and conclude that incentives and competition are not perfect substitutes in the retirement savings industry. Our analysis suggests that the pervasive regulatory restrictions on the use of performance-based fees in pension fund management may be costly for savers in the long-run.
    JEL: G22 G23 G3
    Date: 2016–09

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