nep-com New Economics Papers
on Industrial Competition
Issue of 2016‒12‒04
eleven papers chosen by
Russell Pittman
United States Department of Justice

  1. Contracting in a market with differential information By Rocha, M.; Greve, T.
  2. The Formation of Consumer Brand Preferences By Bronnenberg, Bart; Dube, Jean-Pierre
  3. Optimization of Customized Pricing with Multiple Overlapping Competing Bids By Dutta, Goutam; Natesan, Sumeetha R.
  4. Internal conflict, market uniformity, and transparency in price competition between teams By Michael Kurschilgen; Alexander Morell; Ori Weisel
  5. Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence By Tom Hamami
  6. Foreign Competition and Domestic Innovation: Evidence from U.S. Patents By Autor, David; Dorn, David; Hanson, Gordon; Pisano, Gary; Shu, Pian
  7. Drugs, Showrooms and Financial Products: Competition and Regulation when Sellers Provide Expert Advice By Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme
  8. Collusion in Vertical Relationships: The Case of Insurance Fraud in Taiwan By Pierre Picard; Kili Wang
  9. Adverse Selection and Moral Hazard in the Dynamic Model of Auto Insurance By Elena Krasnokutskaya; Przemyslaw Jeziorski
  10. Market structure, patient choice and hospital quality for elective patients By Giuseppe Moscelli; Hugh Gravelle; Luigi Siciliani
  11. Améliorer la compétitivité, le pouvoir d'achat et l'emploi en renforçant la concurrence en France By Antoine Goujard

  1. By: Rocha, M.; Greve, T.
    Abstract: This Consider an oligopolistic industry where two firms have access to the same technology and compete in prices, but one firm has access to better information about the customers in the market. We assume that better information allows the better informed firm to attract specific customers. The better informed firm obtains a first customer contact advantage, whereas the uninformed firm can only offer a menu of prices without being able to pre-identify the types of customers. We show that better information does not lead to higher profit.
    JEL: D43 D82 L13
    Date: 2016–12–01
  2. By: Bronnenberg, Bart; Dube, Jean-Pierre
    Abstract: Brands and brand capital have long been theorized to play an important role in the formation of the industrial market structure of consumer goods industries. We summarize several striking empirical regularities in the concentration, magnitude and persistence of brand market shares in consumer goods categories. We then survey the theoretical and empirical literatures on the formation of brand preferences and how brand preferences contribute to our understanding of these empirical regularities. We also review the literature on how brand capital creates strategic advantages to firms that own established brands.
    JEL: L11 L15 M31 M37
    Date: 2016–11
  3. By: Dutta, Goutam; Natesan, Sumeetha R.
    Abstract: In this paper, we consider the case of project procurement where there is a single buyer and multiple sellers who are bidding. We consider one seller having one or more competitors. We formulate the pricing problem from the point of view of one seller having one or multiple competitors (say n). We also assume that based on past experience, we have some idea about the distribution of bid prices of the competitors. We consider uniform distribution to describe the bid price of the competitors. The prices of the competitors are pairwise mutually independent and the price range are either identical or different and overlapping. We consider maximizing the expected contribution. Assuming the contribution as a linear function of price we compute the conditions for maximization of the expected contribution to profit in case of n bidders. Further, we also compare the optimization results with simulation results.
  4. By: Michael Kurschilgen (Max Planck Institute for Research on Collective Goods); Alexander Morell (Max Planck Institute for Research on Collective Goods); Ori Weisel (Coller School of Management, Tel Aviv University)
    Abstract: The way profits are divided within successful teams imposes different degrees of internal conflict. We experimentally examine how the level of internal conflict, and whether such conflict is transparent to other teams, affects teams' ability to compete vis-à-vis each other, and, consequently, market outcomes. Participants took part in a repeated Bertrand duopoly game between three-player teams which had either the same or different level of internal conflict (uniform vs. mixed). Profit division was either private-pay (high conflict; each member received her own asking price) or equal-pay (low conflict; profits were divided equally). We find that internal conflict leads to (tacit) coordination on high prices in uniform private-pay duopolies, but places private-pay teams at a competitive disadvantage in mixed duopolies. Competition is softened by transparency in uniform markets, but intensified in mixed markets. We propose an explanation of the results and discuss implications for managers and policy makers.
    Keywords: Organizations, Conflict, Sharing Rules, Competition, Heterogeneity, Transparency, Experiment
    JEL: D43 L22 C92
    Date: 2016–11
  5. By: Tom Hamami
    Abstract: I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre-existing game franchises. Additionally, I find that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.
    JEL: L14 L15 D21 D22
    Date: 2016–11–29
  6. By: Autor, David; Dorn, David; Hanson, Gordon; Pisano, Gary; Shu, Pian
    Abstract: Manufacturing is the locus of U.S. innovation, accounting for more than three quarters of U.S. corporate patents. The rise of import competition from China has represented a major competitive shock to the sector, which in theory could benefit or stifle innovation. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.
    Keywords: China; firms; import competition; innovation; patents; Trade
    Date: 2016–11
  7. By: Bardey, David; Gromb, Denis; Martimort, David; Pouyet, Jérôme
    Abstract: We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.
    Keywords: asymmetric information; Competition; Expertise; Mis-Selling; regulation; Retailing
    JEL: D82 G24 I11 L13 L15 L51
    Date: 2016–11
  8. By: Pierre Picard (Ecole Polytechnique [Palaiseau]); Kili Wang (Tamkang University)
    Abstract: The delegation of services from producers to retailers is frequently at the origin of transaction costs, associated with the discretion in the way retailers do their job. This is particularly the case when retailers and customers collude to exploit loopholes in the contracts between producers and customers. In this paper, we analyze how insurance distribution channels may affect such misbehaviors, when car repairers are joining policy holders to defraud insurers. We focus attention on the Taiwan automobile insurance market by using a database provided by the largest Taiwanese automobile insurer. The theoretical underpinning of our analysisis provided by a model of claims fraud with collusion and audit. Our econometric analysis con firms that fraud occurs through the postponing of claims to the end of the policy year, possibly by filing on single claim for several events. It highlights the role of car dealer owned insurance agents in the collusive fraud mechanism.
    Keywords: Insurance, Fraud, Audit, Insurance distribution
    Date: 2016–10–04
  9. By: Elena Krasnokutskaya (Johns Hopkins University); Przemyslaw Jeziorski (UC Berkeley)
    Abstract: We use the data on multiple years of contract choices and claims by customers of a major Portuguese car insurance company to investigate a possibility that agent’s risk is modifiable through costly (unobserved) effort. Using a model of contract choice and endogenous risk production we demonstrate the economic importance of moral hazard, measure the relative importance of agents’ private information on cost of reducing risk and risk aversion, and evaluate the relative effectiveness of dynamic versus static contract features in incentivizing effort and inducing sorting on unobserved risk.
    Date: 2016
  10. By: Giuseppe Moscelli (Centre for Health Economics, University of York, York, UK.); Hugh Gravelle (Centre for Health Economics, University of York, York, UK.); Luigi Siciliani (Department of Economics and Related Studies, University of York, York, UK.)
    Abstract: We examine the change in the effect of market structure on hospital quality for elective procedures (hip and knee replacements, and coronary artery bypass grafts) following the 2006 loosening of restrictions on patient choice of hospital in England. We allow for time-varying endogeneity due to the effect of unobserved patient characteristics on patient choice of hospital using Two Stage Residual Inclusion. We find that the change in the effect of market structure due to the 2006 choice reforms was to reduce quality by increasing the probability of a post-operative emergency readmission for hip and knee replacement patients. There was no effect of the choice reform on hospital quality for coronary bypass patients. We find no evidence of self-selection of patients into hospitals, suggesting that a rich set of patient-level covariates controls for differences in casemix.
    Keywords: competition, quality, hospital, choice, electives.
    JEL: H51 I11 I18 L32 L33
    Date: 2016–11
  11. By: Antoine Goujard (OCDE)
    Abstract: La France a considérablement diminué le poids des réglementations anticoncurrentielles et appliqué de façon efficace le droit de la concurrence dans le cas de pratiques anticoncurrentielles au cours des dix dernières années. Divers secteurs ont été ouverts plus largement à la concurrence et l’Autorité de la concurrence a été dotée de pouvoirs accrus. Toutefois, les procédures administratives lors des créations d’entreprises restent longues et le nombre de normes et réglementations pouvant être appliquées est substantiel alors que leur impact potentiel sur la concurrence n’est qu’imparfaitement pris en compte lors de leur élaboration et de leur mise en oeuvre. Les récents efforts de simplification sont bienvenus mais demeurent encore limités. Dans le même temps, les conditions d’attribution des marchés publics pâtissent, elles, du morcellement territorial de la commande publique qui devrait être réduit grâce à la réforme territoriale en cours, tandis que les conditions d’entrée et d’exercice de nombre de professions réglementées restent relativement restrictives, notamment dans les services juridiques et dans le domaine de la santé. Dans le secteur du commerce de détail, les réformes récentes ont permis d’assouplir significativement les conditions de négociations entre fournisseurs et distributeurs, et les conditions de l’ouverture dominicale sont en train d’être réformées. Cependant, le principe d’interdiction de la revente à perte n’a pas été remis en cause, tout comme le fort encadrement de l’urbanisme commercial. Les commerçants indépendants qui contractent avec de grandes enseignes peuvent difficilement changer d’enseigne. Parmi les industries de réseaux, c’est dans le secteur des télécommunications que la concurrence a le plus progressé, mais elle reste perfectible dans les transports et l’énergie. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la France 2015 ( ique-france.htm).
    Keywords: concurrence, croissance, France, productivité, réglementation
    JEL: L1 L3 L4 L5 L8 L9 O43
    Date: 2015–11–19

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