|
on Industrial Competition |
| By: | Chongwoo Choe; Stephen King; Noriaki Matsushima |
| Abstract: | We study a two-period model of spatial competition with two symmetric firms where firms learn customers’ preferences from the first-period purchase, which they use for personalized pricing in the second period. With product choice exogenously fixed with maximal differentiation, we show that there exist two asymmetric equilibria and customer switching is only from one firm to the other unless firms discount future too much. Firms are worse off with such personalized pricing than when they use pricing at higher levels of aggregation. When product choice is also made optimally, there continue to exist two asymmetric equilibria given sufficiently small discounting, none of which features maximal differentiation. More customer information hurts firms, and more so when they make both product choice and pricing decisions. |
| Keywords: | Spatial competition, behavior-based price discrimination, personalized pricing, endogenous product choice |
| JEL: | D43 L13 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2017-07&r=com |
| By: | Mario Coccia (CNR-IRCRES, National Research Council, Research Institute on Sustainable Economic Growth, Turin, Italy ARIZONA STATE UNIVERSITY, Center for Social Dynamics & Complexity, Arizona) |
| Abstract: | A fundamental problem in the field of management of technology is how firms develop and sustain disruptive technologies for competitive advantage in markets. The vast literature has analyzed several characteristics of disruptive innovations. However, the determinants are hardly known. The study here seems to show, in a market with high intensity of R&D investments (anticancer drugs), that the emergence of disruptive technologies can be driven by the coevolution of consequential problems and their solution in R&D labs of firms. In general, incumbent and entrant firms have a strong incentive to find innovative solutions to unsolved, consequential and new problems in order to achieve and sustain the prospect of a (temporary) profit monopoly and competitive advantage in markets with technological dynamisms. Overall, then this study shows one of the general sources of disruptive technologies that seems to support industrial and corporate change in a Schumpeterian world of innovation-based competition. |
| Keywords: | Disruptive Technologies; Problem Solving; R&D Management, Industrial Change, Target Therapy, Anticancer Drugs. |
| JEL: | O11 P16 P51 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:csc:ircrwp:201704&r=com |
| By: | Kultti, Klaus |
| Abstract: | Delacroix and Shi (Pricing and signaling with frictions, Journal of Economics Theory 2013) study a model featuring buyers with unit demands and sellers with unit supplies. The sellers may produce a high- or a low-quality good. The buyers get a signal about quality but the signalling technology is quite specific; the signal is either completely revealing or uninformative. The author studies the same model with a symmetric signalling technology where high and low signals are always got with positive probability. As a consequence, whenever high-quality goods are produced also low-quality goods are produced. Instead of price posting the author studies trading by auctions. There are two equilibria, and the author quantifies the efficiency loss due to asymmetric information. |
| JEL: | D8 D82 D44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201719&r=com |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | We extend the analysis of a possibility of negative royalty in licensing under oligopoly with an outside or an incumbent innovator by Liao and Sen (2005) to a case of oligopoly with vertical product differentiation under general distribution function of consumer' taste parameter and general cost functions. We consider both outside innovator case and incumbent innovator case. When the non-licensee does not drop out of the market; in the outside innovator case, if the goods of the firms are strategic substitutes (or complements), the optimal royalty rate is negative (or may be negative or positive); in the incumbent innovator case, if the goods are strategic substitutes (or complements), the optimal royalty rate may be negative or positive (is positive). When the non-licensee drops out of the market with negative royalty; in both cases, 1) If the goods are strategic substitutes, the optimal royalty rate is negative, 2) If the goods are strategic complements, the optimal royalty rate is positive. |
| Keywords: | negative royalty, vertical differentiation, general distribution and cost functions |
| JEL: | D43 L13 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78857&r=com |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | We consider a choice of options for an innovating firm in duopoly under vertical differentiation to enter the market with or without licensing its technology for producing a higher quality good to the incumbent firm using a combination of a royalty per output and a fixed license fee, or to license its technology without entry. With general distribution function of consumers' taste parameter and cost function we will show that when the innovating firm licenses its technology to the incumbent firm without entry, the optimal royalty rate per output is zero with negative fixed fee, and when the innovating firm enters the market with a license to the incumbent firm, its optimal royalty rate is positive with positive or negative fixed fee. Also we show that when cost function is concave, the optimal royalty rate is one such that the incumbent firm drops out of the market; and when cost function is strictly convex, there is an internal solution of the optimal royalty rate under duopoly. |
| Keywords: | duopoly, royalty, fixed license fee, vertical differentiation |
| JEL: | D43 L13 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78856&r=com |
| By: | Hattori, Masahiko; Tanaka, Yasuhito |
| Abstract: | When an outside innovating firm has a technology to produce a higher quality good than the good produced at present, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fee in such a situation in an oligopoly with three firms under vertical product differentiation, one outside innovating firm and two incumbent firms, considering threat by entry of the innovating firm using a two-step auction. We also present an example of the optimal strategy for the innovating firm under the assumption of uniform distribution of consumers' taste parameter and zero cost. Also we suppose that the innovating firm sells its licenses using a combination of royalty per output and a fixed license fee. |
| Keywords: | royalty, license fee; entry; oligopoly; vertical differentiation; two-step auction |
| JEL: | D43 L13 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78859&r=com |
| By: | Hyungsik Roger Moon (Institute for Fiscal Studies and USC); Matthew Shum (Institute for Fiscal Studies); Martin Weidner (Institute for Fiscal Studies and cemmap and UCL) |
| Abstract: | We extend the Berry, Levinsohn and Pakes (BLP, 1995) random coeffcients discrete-choice demand model, which underlies much recent empirical work in IO. We add interactive fixed effects in the form of a factor structure on the unobserved product characteristics. The interactive fixed effects can be arbitrarily correlated with the observed product characteristics (including price), which accommodates endogeneity and, at the same time, captures strong persistence in market shares across products and markets. We propose a two-step least squares-minimum distance (LS-MD) procedure to calculate the estimator. Our estimator is easy to compute, and Monte Carlo simulations show that it performs well. We consider an empirical illustration to US automobile demand. |
| Keywords: | discrete-choice demand model, interactive xed e ects, factor analysis, panel data, random utility model. |
| JEL: | C23 C25 |
| Date: | 2017–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:12/17&r=com |
| By: | Raul V. Fabella (School of Economics, University of the Philippines Diliman; National Academy of Science and Technology) |
| Abstract: | Regulation and competition policy are two alternative modalities by which the state intervenes in the market. In order for either to deliver welfare gains, there must first be a pre-existing market failure. We first present different varieties of market failures and identify those for which regulation is best address (cooperation failures such as The Fishing Game and the Public Goods Game, scale economies-based failures such as a Natural Monopoly and Meta-Market Failures) and those where competition policy works better (market power-based failures such as an artificial monopoly or cartel). We also discuss those market failures which cannot be remedied by an imperfect state. We show graphically the welfare outcomes of various industrial organizations (monopoly, duopoly, Walrasian limit) under the symmetric Cournot competition. We also deal with the welfare implications of imperfect substitutability. We then discuss some welfare implications of the Bertrand competition, its effect on innovation and on the formation of "trusts". We present reasons why competition policy is better than regulation in jurisdictions where institutions are weak. The reasons are: information intensity and asymmetry being greater with regulation, the greater ease of capture of the organs of regulation and, finally, the presence of private players who serve as allies of the competition agency and help monitor abuse of market power. |
| Keywords: | competition policy; regulation; weak institutions; market failures; Cournot competition; Bertrand competition |
| JEL: | K21 L51 L41 L44 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:201701&r=com |
| By: | Alessandra Chirco; Marcella Scrimitore |
| Abstract: | By developing a linear model in a two-country framework of international price competition, we show how the degree of product differentiation and the cross-country distribution of private firms affect the strategic privatization choices made by governments concerned with their own country’s welfare. More particularly, the work points out that sufficiently low product differentiation may lead public ownership to be optimally chosen to restrict competition in the country with the larger number of firms, and privatization to be global welfare enhancing in this case. |
| Keywords: | Mixed oligopoly; price competition; strategic privatization; international markets. |
| JEL: | F23 L13 L32 |
| Date: | 2017–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2017_06&r=com |
| By: | Gian Luigi Albano (Consip S.p.A. e Luiss Guido Carli); Berardino Cesi (DEF, Università di Roma "Tor Vergata"); Alberto Iozzi (DEF and CEIS, Università di Roma "Tor Vergata",) |
| Abstract: | In procurement markets, unverifiable quality provision may be obtained either by direct negotiation or by competitive processes which discriminate firms on the basis of their past performance. However, discrimination is not allowed in many institutional contexts. We show that a non-discriminatory competitive process with a reserve price may allow the buyer to yield an efficient allocation of the contract and to implement the level of quality desired by the buyer. Quality enforcement arises out of a relational contract whereby the buyer threatens to set a `low' reserve price in future competitive tendering processes if any contractor fails to provide the required quality. We study an infinitely repeated procurement model with many firms and one buyer imperfectly informed on the firms' cost, in which, in each period, the buyer runs a standard low-price auction with reserve price. We study the cases of players using grim trigger strategies, analysing both the case of a committed and uncommitted buyer. We find that a competitive process with reserve price is able to elicit the desired level of unverifiable quality provided that the buyer's valuation of the project is not too high and the value of quality is not too low; under these conditions, the buyer can credibly threaten the firms to set, in case a contractor fails to deliver the required quality level, a reserve price so low that no firm is willing to participate to the tender. A committed buyer can elicit the desired quality level for a wider range of preference parameters. |
| Keywords: | public procurement, relational contracts, unverifiable quality, reserve price |
| JEL: | H57 D44 |
| Date: | 2017–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:404&r=com |
| By: | Wolfgang Briglauer (Zentrum für Europäische Wirtschaftsforschung GmbH (ZEW) Mannheim); Carlo Cambini, (Politecnico di Torino); Michał Grajek (ESMT European School of Management and Technology) |
| Abstract: | In this paper we study how the coexistence of access regulations for legacy (copper) and fiber networks shapes the incentives to invest in network infrastructure. To this end, we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 EU member states over the last decade. Our theoretical model extends the existing literature by, among other things, allowing for heterogeneous entrants in internet access markets, as we consider both other telecom and cable TV operators as entrants. In the empirical part, we use a novel data set including information on physical fiber network investments, legacy network access regulation and recently imposed fiber access regulations. Our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators, but, in line with our theoretical model, do not affect cable TV operators. |
| Keywords: | Internet access market, access regulation, investment, infrastructure, next generation networks, broadband, telecoms, cable operators and Europe |
| JEL: | L96 L51 |
| Date: | 2017–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:esm:wpaper:esmt-17-02&r=com |
| By: | Andrea Attar (DEF and CEIS, Università di Roma "Tor Vergata" and Toulouse School of Economics); Thomas Mariotti (Toulouse School of Economics, CNRS); François Salanié (Toulouse School of Economics, INRA) |
| Abstract: | We show that a necessary and sufficient condition for entry to be unprofitable in markets with adverse selection is that that no buyer type be willing to trade at a price above the expected unit cost of serving those types who are weakly more eager to trade than her. We provide two applications of this result. First, we characterize cases in which market breakdown occurs, thereby generalizing the main result of Hendren (2013). Second, we characterize entry-proof tariffs on nonexclusive active markets, thereby generalizing the main result of Glosten (1994). Our analysis paves the way to new tests of adverse selection, notably besides the case of inactive markets studied by Hendren (2013). |
| Keywords: | Adverse Selection, Entry Proofness, Market Breakdown, Nonexclusivity |
| JEL: | D43 D82 D86 |
| Date: | 2017–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:403&r=com |
| By: | Hviid, Morten; Izquierdo Sanchez, Sofia; Jacques, Sabine |
| Abstract: | Prior to digitalisation, the vertical structure of the market for recorded music could be described as a large number of artists [composers, lyricists and musicians] supplying creative expressions to a small number of larger record labels and publishers who funded, produced, and marketed the resulting recorded music to subsequently sell these works to consumers through a fragmented retail sector. We argue that digitalisation has led to a new structure in which the retail segment has also become concentrated. Such a structure, with successive oligopolistic segments, can lead to higher consumer prices through double marginalisation. We further question whether a combination of disintermediation of the record labels function combined with “self-publishing” by artists, will lead to the demise of powerful firms in the record label segment, thus shifting market power from the record label and publisher segment to the retail segment, rather than increasing the number of segments with market power. |
| Keywords: | Streaming; self publishing; music industry |
| JEL: | K0 K2 O34 |
| Date: | 2017–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79018&r=com |
| By: | Liski, M.; Vehviläinen, I. |
| Abstract: | Subsidies to renewable energy are costly and contentious. We estimate the reduction in prices that follows from the subsidized entry of wind power in the Nordic electricity market. A relatively small-scale entry of renewables leads to a large-scale transfer of surplus from the incumbent producers to the consumers: 10 % market share for wind generation eliminates one-half of the total electricity market expenditures. The subsidies generate net gains to consumers. We develop an approach to analyzing storage and renewable energy in equilibrium, and provide an anatomy of a market dominated by such technologies. |
| Keywords: | Electricity, renewables, storage, climate policies |
| JEL: | L51 L94 Q28 Q42 Q48 |
| Date: | 2017–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1701&r=com |
| By: | Dennis Epple (Carnegie Mellon University); Richard Romano (University of Florida); Sinan Sarpça (Koç University); Holger Sieg (University of Pennsylvania); Melanie Zaber (Carnegie Mellon University) |
| Abstract: | The main purpose of this paper is to estimate an equilibrium model of private and public school competition that can generate realistic pricing patterns for private universities in the U.S. We show that the parameters of the model are identified and can be estimated using a semi-parametric estimator given data from the NPSAS. We find substantial price discrimination within colleges. We estimate that a $10,000 increase in family income increases tuition at private schools by on average $210 to $510. A one standard deviation increase in ability decreases tuition by approximately $920 to $1,960 depending on the selectivity of the college. Discounts for minority students range between $110 and $5,750. |
| Keywords: | equilibrium model, competition, price discrimination, NPSAS, pricing patterns |
| JEL: | H52 I20 L30 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2017-037&r=com |
| By: | Roberto Alvarez; Aldo Gonzalez; Manuel Garcia |
| Abstract: | We investigate the determinants of open skies agreements among Latin-American countries, focusing on the impact of having a dominant airline on the willingness of countries to sign agreements with others. We find that, overall, the likelihood of signing agreements increases with trade volume, passenger traffic, and distance. In relation to our main question, we find that a having a dominant airline decreases the probability that third countries concede open skies agreement. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp443&r=com |
| By: | Casaburi, Lorenzo; Reed, Tristan |
| Abstract: | This paper presents an experimental approach to measure competition in agricultural markets, based on the random allocation of subsidies to competing traders. We compare prices of subsidized and unsubsidized crop traders to recover the key market structure parameter in a standard model of imperfect competition. By combining the experimental results with quasi-experimental estimates of the pass-through rate, we also estimate market size, or the effective number of traders competing for farmers' supply. In the context of the Sierra Leone cocoa industry, our results point to a competitive agricultural trading sector and suggest that the market size is substantially larger than the village. The methodology developed in this paper uses purely individual-level treatment to shed light on market structure. This approach may be useful for the many cases in which market-level randomization is not feasible. |
| Keywords: | Agricultural markets; Competition; field experiments.; interlinked transactions; intermediaries |
| JEL: | F14 O13 Q13 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11985&r=com |
| By: | Ashish Malik (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan, and Faculty of Business and Law, University of Newcastle, Australia); Ralf Bebenroth (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan) |
| Abstract: | This paper reviews the role of language in international business in general and specifically highlights the role in post-merger integration process. Based on our review and building on earlier works, this paper develops a conceptual model regarding the use of language in different merger and acquisitions integration scenarios and identifies the key resource mix that may be suited for an effective deployment of language strategies. We argue that the use of a language at the target depends on the strategic interdependence as well as the organizational autonomy at the target firm. The paper states testable propositions for future research in a post-merger integration context. |
| Keywords: | Language, Integration Structures, Cross-border, Target Autonomy, Post-Merger Integration, M&A Performance |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2017-15&r=com |