nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒10‒02
ten papers chosen by
Russell Pittman
United States Department of Justice

  1. Merger Guidelines for Bidding Markets By Philippe Gagnepain; David Martimort
  2. Patent Pools in Input Markets By Reisinger, Markus; Tarantino, Emanuele
  3. Exclusive Contracts and Bargaining Power By Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
  4. The Impact of Consumer Multi-homing on Advertising Markets and Media Competition By Athey, Susan; Calvano, Emilio; Gans, Joshua S.
  5. Licensing under general demand and cost functions By Sen, Debapriya; Stamatopoulos, Giorgos
  6. Owning, Using and Renting: Some Simple Economics of the "Sharing Economy" By Horton, John J.; Zeckhauser, Richard J.
  7. Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music By Luis Aguiar; Joel Waldfogel
  8. Hamburg's port position: Hinterland competition in Central Europe from TEN-T corridor ports By Biermann, Franziska; Wedemeier, Jan
  9. Tort Law under Oligopolistic Competition By Gérard Mondello; Evens Salies
  10. Technological Progress and Sectoral Shares By Gamal Atallah; Aggey Semenov

  1. By: Philippe Gagnepain (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); David Martimort (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics)
    Abstract: We propose merger guidelines for bidding markets through the construction of a simple test. It is applied in the particular context of the French urban transport industry. It designs the optimal auction and captures two opposite forces at stake: on the one hand, the optimal auction is biased against a merger due to a loss of competition; on the other hand, potential efficiency gains bias the optimal allocation towards the merger firm. The two effects can be nested in a single equation condition which determines whether the merger improves the consumer net surplus. We suggest that the merger between Transdev and Veolia is consumer surplus improving if the efficiency gains from the merger allow both firms to decrease their initial costs inability by at least 17.9% and 17.8% respectively.
    Keywords: transports publics urbains
    Date: 2016
  2. By: Reisinger, Markus; Tarantino, Emanuele
    Abstract: We show that patent pools formed by owners of perfectly complementary patents are anticompetitive if one of the licensors is integrated with a manufacturer. With vertical integration, the pool serves as coordination device, allowing patent holders to restrict supplies to the product market and share the larger profits of the affiliated manufacturer. These results are robust to entry, the contractual and competitive environments. The imposition of an unbundling and pass-through requirement makes patent pools socially desirable. We also show that this requirement is more effective than a mandated non-discriminatory policy enforcing FRAND commitments in screening anticompetitive pools.
    Keywords: Antitrust Policy; Complementary Patents; FRAND; Patent Pools and Joint Marketing Agreements; Vertical Integration and Restraints
    JEL: K11 L41 M2
    Date: 2016–09
  3. By: Hiroshi Kitamura; Noriaki Matsushima; Misato Sato
    Abstract: This study constructs a simplest model to examine anticompetitive exclusive contracts that prevent a downstream buyer from buying input from a new upstream supplier. Incorporating Nash bargaining into the standard one-buyer-one-supplier framework in the Chicago School critique, we show a possibility that an inefficient incumbent supplier can deter a socially efficient entry through exclusive contracts.
    Date: 2016–09
  4. By: Athey, Susan (Stanford University); Calvano, Emilio (University of Bologna); Gans, Joshua S. (University of Toronto)
    Abstract: We develop a model of advertising markets in an environment where consumers may switch (or "multi-home") across publishers. Consumer switching generates inefficiency in the process of matching advertisers to consumers, because advertisers may not reach some consumers and may impress others too many times. We find that when advertisers are heterogeneous in their valuations for reaching consumers, the switching-induced inefficiency leads lower-value advertisers to advertise on a limited set of publishers, reducing the effective demand for advertising and thus depressing prices. As the share of switching consumers expands (e.g., when consumers adopt the internet for news or increase their use of aggregators), ad prices fall. We demonstrate that increased switching creates an incentive for publishers to invest in quality as well as extend the number of unique users, because larger publishers are favored by advertisers seeking broader "reach" (more unique users) while avoiding inefficient duplication.
    JEL: L11 L82
    Date: 2016–04
  5. By: Sen, Debapriya; Stamatopoulos, Giorgos
    Abstract: We consider a Cournot duopoly under general demand and cost functions, where an incumbent patentee has a cost reducing technology that it can license to its rival by using combinations of royalties and upfront fees (two-part tariffs). We show that for drastic technologies: (a) licensing occurs and both firms stay active if the cost function is superadditive and (b) licensing does not occur and the patentee monopolizes the market if the cost function is additive or subadditive. For non drastic technologies, licensing takes place provided the average efficiency gain from the cost reducing technology is higher than the marginal gain computed at the licensee's reservation output. Optimal licensing policies have both royalties and fees for significantly superior technologies if the cost function is superadditive. By contrast, for additive and certain subadditive cost functions, optimal licensing policies have only royalties and no fees.
    Keywords: Patent licensing; Superadditive function; Subadditive function; Royalties; Two-part tariff
    JEL: D43 D45 L13
    Date: 2016–02–14
  6. By: Horton, John J. (New York University); Zeckhauser, Richard J. (Harvard University)
    Abstract: New Internet-based markets enable consumer/owners to rent out their durable goods when not using them. Such markets are modeled to determine ownership, rental rates, quantities, and surplus generated. Both the short run, before consumers can revise their ownership decisions, and the long run, in which they can, are examined to assess how these markets change ownership and consumption. The analysis examines bringing-to-market costs, such as labor costs and transaction costs, and considers the operating platform's pricing problem. A survey of consumers broadly supports the modeling assumptions employed. For example, ownership is determined by individuals' forward-looking assessments of planned usage.
    JEL: D23 D47
    Date: 2016–02
  7. By: Luis Aguiar; Joel Waldfogel
    Abstract: We explore the consequence of quality unpredictability for the welfare benefit of new products, using recent developments in recorded music as our context. Digitization has expanded consumption opportunities by giving consumers access to the “long tail” of existing products, rather than simply the popular products that a retailer might stock with limited shelf space. While this is clearly beneficial to consumers, the benefits are somewhat limited: given the substitutability among differentiated products, the incremental benefit of obscure products - even lots of them - can be small. But digitization has also reduced the cost of bringing new products to market, giving rise to a different sort of long tail, in production. If the appeal of new products is unpredictable at the time of investment, as is the case for cultural products as well as many others, then creating new products can have substantial welfare benefits. Technological change in the recorded music industry tripled the number of new products between 2000 and 2008. We quantify the effects of new music on welfare using a simple illustrative, but explicitly structural, model of demand and entry with potentially unpredictable product quality. Based on a range of plausible forecasting models of expected appeal, a tripling of the choice set according to expected quality adds substantially more to consumer surplus and overall welfare than the usual long-tail benefits from a tripling of the choice set according to realized quality, perhaps by more than an order of magnitude.
    JEL: L15 L81
    Date: 2016–09
  8. By: Biermann, Franziska; Wedemeier, Jan
    Abstract: This paper aims at analyzing the hinterland position of the German port of Hamburg in Central Europe. As a first step, we identify Koper and Gdansk ports that could act as potential competitors to the German ports, since they exhibit a dynamic development in container throughput over the last five years. As a next step, we compute the contestable economic potential of the hinterland from Hamburg, and from their possible emerging competitors, respectively, by using simple travel time matrices for different transport modes. Afterwards, we analyze the planned infrastructure improvements based on the EU's TEN-T projects. We show how much the economic potential can be increased due to infrastructure improvements, and how this affects the competitive position in hinterland transport. However, besides the hinterland infrastructure there are other determinants relevant for port competition; inter alia the clustering of logistic activities, efficiency of port operations, and liners connectivity.
    Keywords: TEN-T corridor,transport infrastructure hinterland connections,liner shipping,port of Gdansk,Hamburg and Koper,travel time and connectivity
    JEL: R1 R41 O24
    Date: 2016
  9. By: Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS); Evens Salies (OFCE)
    Abstract: This article extends the unilateral accident standard model to allow for Cournot competition. Assuming risk-neutrality for the regulator and injurers, it analyzes three liability regimes: strict liability, negligence rule, and strict liability with administrative authorization or permits systems. Under competition the equivalence between negligence rule and strict liability no longer holds, and negligence insures a better level of social care. However, enforcing both a permit system and strict liability restores equivalence between liability regimes. However, whatever the current regime, competition leads to lower the global safety level of industry. Indeed, the stronger firm may benefit from safety rents, which they may use to increase production rather that maintaining a high level of safety.
    Keywords: Tort Law, Strict Liability, Negligence rule, Imperfect Competition, Oligopoly, Cournot Competition
    JEL: D43 L13 L52 K13
    Date: 2016–09
  10. By: Gamal Atallah (Department of Economics, University of Ottawa, Ottawa, ON); Aggey Semenov (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: This paper studies the effect of differences in the rate of technological progress between sectors on the relative sizes of those sectors in terms of revenues. There are two sectors: a stagnant sector, where productivity does not change over time, and a progressive sector, where costs decrease over time due to exogenous technological progress. We consider a conjectural variation approach to competition in the progressive sector which encompasses perfect competition, Cournot oligopoly and monopoly. The main result of the paper is that the share of the stagnant sector increases over time when demand in the progressive sector is inelastic. Under perfect competition, when initial production costs in the progressive sector are sufficiently low (so that demand is inelastic), the share of the stagnant sector rises over time. Whereas, when initial production costs are sufficiently high (so that demand is elastic), the relative size of the stagnant sector is U-shaped with respect to time. Under monopoly, the share of the stagnant sector always decreases over time. However, the decline in that share is much more rapid the higher are initial costs in the progressive sector. The interaction of market structure and price elasticity (or initial costs) determines how the relative sizes of sectors differing in productivity growth evolve over time. The relationship with the cost disease literature is discussed.
    Keywords: Cost decrease, productivity growth, sectoral shares, cost disease
    JEL: D24 D41 D42 L11 O33
    Date: 2016

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