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on Industrial Competition |
| By: | Bonnet, Céline; Bouamra-Mechemache, Zohra; Richards, Timothy |
| Abstract: | Bargaining power in vertical channels depends critically on the "disagreement profit" or the opportunity cost to each player should negotiations fail. In a multiproduct context, disagreement profit depends on the degree of substitutability among the products offered by the downstream retailer. Horn and Wolinsky (1988) use this fact to argue for the clear importance of complementarity relationships on bargaining power. We develop an empirical framework that is able to estimate the effect of retail complementarity on bargaining power, and margins earned by manufacturers and retailers in the French soft drink industry. We show that complementarity increases the strength of retailers' bargaining position, so their share of the total margin increases by almost 28% relative to the no-complementarity case. |
| Keywords: | Bargaining power, complementary goods, Nash-in-Nash equilibrium, retailing, soft drinks, vertical relationships |
| JEL: | D43 L13 M31 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31531&r=com |
| By: | Caprice, Stéphane; Shekhar, Shiva |
| Abstract: | We consider a set-up with vertical contracting between a supplier and a retail industry where a large retailer competes with smaller retailers that carry a narrower range of products. Consumers are heterogeneous in their shopping costs; they will either be multistop shoppers or one-stop shoppers. The countervailing power of the large retailer is modeled as a threat of demand-side substitution. We show that retail prices are higher, and industry surplus and social welfare fall, when the large retailer possesses countervailing power. Increasing marginal wholesale prices discourages multistop shopping behavior of consumers, making demand substitution less attractive for the large retailer. |
| Keywords: | countervailing power, buyer power, polarization of the retail industry,shopping costs. |
| JEL: | D43 L13 L40 L81 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31527&r=com |
| By: | Helfrich, Magdalena; Herweg, Fabian |
| Abstract: | We investigate the effect of a ban on third-degree price discrimination on the sustainability of collusion. We build a model with two firms that may be able to discriminate between two consumer groups. Two cases are analyzed: (i) Best-response symmetries so that profits in the static Nash equilibrium are higher if price discrimination is allowed. (ii) Best-response asymmetries so that profits in the static Nash equilibrium are lower if price discrimination is allowed. In both cases, firms' discount factor has to be higher in order to sustain collusion in grim-trigger strategies under price discrimination than under uniform pricing. |
| JEL: | D43 K21 L13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145690&r=com |
| By: | Haraguchi, Junichi; Matsumura, Toshihiro |
| Abstract: | We discuss government-leading welfare-improving collusion in a mixed duopoly. We formulate an infinitely repeated game in which a welfare-maximizing firm and a profit-maximizing firm coexist. The government proposes welfare-improving collusion and this is sustainable if both firms have incentives to follow it. We compare two competition structures-Cournot and Bertrand-in this long-run context. We find that Cournot competition yields greater welfare when the discount factor is sufficiently large, whereas Bertrand competition is better when the discount factor is small. |
| Keywords: | repeated game, public collusion, Cournot-Bertrand welfare comparison |
| JEL: | L13 L41 |
| Date: | 2017–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77525&r=com |
| By: | Rasch, Alexander; Gössl, Florian |
| Abstract: | We analyze and compare the incentives to collude under different pricing schemes in a differentiated-products market where customers have elastic demand. We show that allowing firms to set two-part tariffs as opposed to linear prices facilitates collusion at maximum prices independent of the degree of differentiation. However, compared to a situation where firms can only set fixed fees that are independent of the quantity purchased, collusion at maximum prices is less sustainable with two-part tariffs. The results have important implications for competition policy where the perspective—static or dynamic—may be crucial. |
| JEL: | D43 L13 L41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145759&r=com |
| By: | Paha, Johannes; de Haas, Samuel |
| Abstract: | This article studies the unilateral and coordinated effects of non-controlling minority shareholdings (NCMS). It provides a comprehensive model by integrating the established models of Reynolds and Snapp (1986), Flath (1991), Malueg (1992), and Gilo et al. (2006). It is the first to add a competition authority. The model finds that NCMS lower the sustainability of collusion under a greater variety of situations than was indicated by earlier literature. The collusion destabilizing effect of NCMS is particularly prevalent in the presence of an effective antitrust authority. |
| JEL: | G34 K21 L41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145640&r=com |
| By: | Haraguchi, Junichi; Matsumura, Toshihiro |
| Abstract: | We revisit the relationship between the optimal privatization policy and market competition indexes such as the Hirschman--Herfindahl index, which is affected by the number of firms and asymmetry of size among these firms: the larger the number of firms (the less asymmetry among firms), the lower the market concentration index. The literature on mixed oligopolies suggests that the optimal degree of privatization is increasing with the number of private firms (and, thus, decreasing with the market competition index), assuming that all private firms are homogeneous. We investigate how the asymmetry among private firms affects the optimal degree of privatization. We propose the simplest and natural model formulation for discussing asymmetry among private firms. We find that the optimal degree of privatization is either nonmonotone or monopolistically increasing (and, thus, never monopolistically decreasing) in the asymmetry among private firms. |
| Keywords: | market concentration index, asymmetry of private firms, mixed oligopolies |
| JEL: | H44 L33 L44 |
| Date: | 2017–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77523&r=com |
| By: | Romahn, André; Friberg, Richard |
| Abstract: | How does cost pass-through to prices depend on the set of products a multiproduct firm owns? Using a structural demand model for the Swedish beer market, we simulate equilibrium cost pass-through for varying counterfactual ownership patterns. We find that a firm with a larger number of products in its portfolio and a higher degree of substitutability among these products adopts a lower pass-through of costs. While the direction of results is robust, our simulations show that the muting effect on pass-through is limited when comparing pass-through by stand-alone firms to pass-through under the actual, moderately concentrated, market structure. |
| JEL: | L11 L13 E31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145692&r=com |
| By: | Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | Cost pass-through to retail prices shows how changes in marginal costs are allocated between producers and consumers, and it is therefore closely related to market structure and competition. This paper uses Swedish data on coffee products at the barcode level to evaluate pass-through from the cost of green coffee beans, the main marginal cost, to the retail price of roasted and ground coffee. First long-run cost pass-through is estimated for each product, and then regression is used to analyse how pass-through varies across market shares, retailer-owned brands and other product characteristics. A general result is that pass-through is roughly complete for products with large market shares, while those with small market shares have low pass-through rates. There is no evidence that retailer-owned brands have higher pass-through than brand-name products with similar market shares, which would be the case if retailer-owned brands avoided double marginalization through vertical integration. Thus, although there is not perfect competition in the Swedish coffee market, a large part of it appears to be highly competitive. |
| Keywords: | Coffee market; Market power; Pass-through; Market shares |
| JEL: | L11 L13 L89 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0697&r=com |
| By: | Cathy Ge Bao (University of International Business and Economics); Maggie X. Chen (George Washington University) |
| Abstract: | This paper quantiÖes the threat of foreign competition by exploring news of foreign multinational investment appearing in over 35,000 newspapers, business presses, magazines, newswires, and other forms of media in 200 countries. Using unique time-variant firm-specic measures of foreign multinational threat, the analysis shows that domestic firms respond to the threats by upgrading productivity, raising innovation, investment and wage rate, and altering product composition. However, the responses exhibit substantial heterogeneity across firms: within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping products, leading to a U-shape relationship between initial productivity and productivity growth. Actual multinational competition, in contrast, leads to product dropping only. These previously unexplored responses to the threat of foreign competition constitute an economically important source of gains from globalization and convey new implications for the timing, evolvement, and form of industrial, trade and investment policies. |
| Keywords: | threat, foreign investment news, and domestic Örm responses |
| JEL: | F1 F2 L2 D2 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2016-22&r=com |
| By: | Rickert, Dennis |
| Abstract: | This study estimates a dynamic discrete choice model to analyze the effect of switching costs on firm market power. Given the presence of switching costs for consumers in the market for disposable diapers, I show how firms apply dynamic strategies to a market for differentiated products and in a context of vertical retailer-manufacturer relationships. My findings support the existence of state dependence in consumer demand. Furthermore, I show that the firm profits would be higher in a counterfactual scenario of no switching costs. |
| JEL: | L10 L20 L60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145672&r=com |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Holmås, Tor Helge (Uni Research Rokkan Centre); Monstad, Karin (Uni Research Rokkan Centre); Straume, Odd Rune (University of Minho) |
| Abstract: | Competition among physicians is widespread, but compelling empirical evidence on the impact on service provision is limited, mainly due to lack of exogenous variation in the degree of competition. In this paper we exploit that many GPs, in addition to own practice, work in local emergency centres, where the matching of patients to GPs is random. This allows us to observe the same GP in two different competitive environments; with competition (own practice) and without competition (emergency centre). Using rich administrative patient-level data from Norway for 2006-14, which allow us to estimate high-dimensional fi…xed-effect models to control for time-invariant patient and GP heterogeneity, we …nd that GPs with a fee-for-service (…fixed salary) contract are 11 (8) percentage points more likely to certify sick leave at own practice than at the emergency centre. Thus, competition has a positive impact on GPs’sick listing that is reinforced by …nancial incentives. |
| Keywords: | Physicians; Competition; Sickness certification |
| JEL: | I11 I18 L13 |
| Date: | 2017–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2017_003&r=com |
| By: | Francesco Longo (Department of Economics and Related Studies, University of York, York, UK); Luigi Siciliani (Department of Economics and Related Studies, University of York, York, UK); Hugh Gravelle (Centre for Health Economics, University of York, York, UK.); Rita Santos (Centre for Health Economics, University of York, York, UK.) |
| Abstract: | We investigate whether hospitals in the English National Health Service increase their quality (mortality, emergency readmissions, patient reported outcome, and patient satisfaction) or efficiency (bed occupancy rate, cancelled operations, and cost indicators) in response to an increase in quality or efficiency of neighbouring hospitals. We estimate spatial cross-sectional and panel data models, including spatial cross-sectional instrumental variables. Hospitals generally do not respond to neighbours’ quality and efficiency. This suggests the absence of spillovers across hospitals in quality and efficiency dimensions and has policy implications, for example, in relation to allowing hospital mergers. |
| Keywords: | quality, efficiency, hospitals, competition, spatial econometrics |
| JEL: | C21 C23 I11 L3 L11 |
| URL: | http://d.repec.org/n?u=RePEc:chy:respap:144cherp&r=com |
| By: | De Pinto, Marco; Goerke, Laszlo |
| Abstract: | If input markets are competitive and output per firm declines with the number of firms (business stealing effect), there will be excessive entry into a Cournot oligopoly for a homogeneous commodity. However, input markets are often imperfectly competitive and the price of labor is determined by collective bargaining. The resulting rise in wages reduces output and profits and can deter entry. We analyze under which conditions greater bargaining power by the trade union reduces entry and raises welfare. Furthermore, we show that collective bargaining loosens the linkage between business stealing and excessive entry. |
| JEL: | D43 J51 L13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145498&r=com |
| By: | Erwan Morellec (EPFL and Swiss Finance Institute); Alexei Zhdanov (Pennsylvania State University) |
| Abstract: | Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. We demonstrate that, through its effects on stock prices, product market competition also affects the prices of options on equity and naturally leads to an inverse relationship between equity returns and volatility, generating a negative volatility skew in option prices. Using a large sample of U.S. equity options, we provide empirical support for this finding and demonstrate the importance of accounting for product market competition when explaining the cross-sectional variation in option skew. |
| Keywords: | Product market competition, Investment, Leverage effect, Option skew |
| JEL: | G13 G31 G32 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1707&r=com |