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on Industrial Competition |
| By: | Rochet, Jean-Charles; Thanassoulis, John |
| Abstract: | We study the multiproduct monopoly profit maximisation problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly-ordered then optimality for the seller requires intertemporal price discrimination and it can be implemented by dynamic pricing on the cross-sell to the bundle. If consumers are perfectly negatively correlated, reducing the cross-sell price at a single point in time is optimal. For general valuations we show that if the cross-partial derivative of the profit function is negative then dynamic pricing on the cross-sell is more profitable than fixing prices. So we show that the celebrated Stokey (1979) no-discrimination-across-time result does not extend to multiple good sellers when consumers' valuations are drawn from the tilted uniform, the shifted uniform, the exponential, or the normal distribution. We extend our results to welfare, to complementarities in demand, and to the determination of optimal discount schedules. |
| Keywords: | Multidimensional Mechanism Design; Second Degree Price Discrimination; Bundling; Time Discounting; Cross-sell. |
| JEL: | D42 L11 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12034&r=com |
| By: | Paul Belleflamme (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Wing Man Wynne Lam (Department of Economics, University of Liège); Wouter Vergote (CEREC, University Saint-Louis - Bruxelles) |
| Abstract: | Two duopolists compete in price on the market for a homogeneous product. They can use a 'profiling technology' that allows them to identify the willingness-to-pay of their consumers with some probability. If both firms have profiling technologies of the exact same precision, or if one firm cannot use any profiling technology, then the Bertrand paradox continues to prevail. Yet, if firms have technologies of different precisions, then the price equilibrium exhibits both price discrimination and price dispersion, with positive expected profits. Increasing the precision of both firms’ technologies does not necessarily harm consumers. |
| Keywords: | price discrimination,price dispersion,Bertrand competition |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01502452&r=com |
| By: | Fabra, Natalia; Montero, Juan Pablo |
| Abstract: | In a seminal paper, Champsaur and Rochet (1989) showed that competing firms choose non-overlapping qualities so as to soften price competition at the cost of giving up profitable opportunities to price discriminate. In this paper we show that an arbitrarily small amount of search costs is enough to give rise to an equilibrium with overlapping qualities. In markets with search costs, competing firms face the monopolist's incentive to price discriminate, which induces them to offer the full quality range even if this forces them to compete head-to-head. Hence, even though search costs increase prices and reduce consumers surplus for given quality choices, search costs can also lead to lower prices and higher consumer surplus whenever they induce firms to offer broader and overlapping product lines. Our analysis also provides predictions regarding pricing by multi-product firms in markets with search costs under various retail market structures. Product choices and pricing by online bookstores motivate our findings. |
| Keywords: | retail competition.; search; second degree price discrimination; vertical differentiation |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12046&r=com |
| By: | Alberto Cavaliere (Department of Economics and Management, University of Pavia); Giovanni Crea (Department of Economics and Management, University of Pavia) |
| Abstract: | We consider vertical differentiation with quality uncertainty and information disparities, in a duopoly where products have credence attributes and a minimum quality standard exists. Optimistic misperceptions further relax price competition but uninformed consumers may be cheated in equilibrium due to minimum product differentiation when informed consumers buy low quality goods. Optimistic misperceptions turn out to be an incentive for product differentiation when informed consumers buy high quality goods, even if the real quality differentiual is always lower than expected by uninformed consumers. Increasing the share of informed consumers may counterbalance the effect of optimism on equilibrium prices but in the meantime reduce the incentives for product differentiation. |
| Keywords: | asymmetric information, brand premium, quality uncertainty |
| JEL: | L15 L13 D82 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0137&r=com |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | We examine, in a vertical industry, the strategic role of horizontal subcontracting through option contracts by a downstream dominant firm competing with a competitive fringe. Downstream production requires an input from an upstream component-producing industry composed of imperfectly competitive suppliers. We characterize how the dominant firm may outsource downstream production from fringe firms in order to gain bargaining clout in the upstream input market. It is shown that option contracts are preferred to fixed-quantity forward contracts, because leverage against upstream suppliers is gained at lower contract prices. When there is no market uncertainty option contracts do not alter spot prices beyond that caused by unavoidable market power, whereas they increase price volatility whenever demand is subject to uncertainty. |
| Keywords: | Option contracts, forward contracts, vertical industry, demand uncertainty |
| JEL: | L10 L22 L23 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79241&r=com |
| By: | Lee, Sang-Ho; Matsumura, Toshihiro; Park, Chul-Hi |
| Abstract: | This article presents a model in which two downstream firms compete in a differentiat-ed product market and choose whether to adopt new advanced inputs supplied by the monopolist, while standard inputs are competitively supplied. When the monopoly sup-plier is independent, from the welfare viewpoint, the incentive to adopt the new inputs is insufficient (can be excessive) given that the rival does not adopt (adopts). When the monopoly supplier and one downstream firm merge, such integration increases the un-integrated downstream firm’s incentive to adopt the new input supplied by the rival and thus helps the spread of new inputs in the industry. However, because of the collusive effect of increasing the prices of the final products, vertical integration can be harmful for welfare despite the reduction in the welfare loss due to double marginalization and the increase in product quality. |
| Keywords: | demand-enhancing inputs; commitment to procure; make-or-buy decision; CSR pro-curement |
| JEL: | D43 L13 L41 |
| Date: | 2017–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79109&r=com |
| By: | Koessler, Frédéric; Skreta, Vasiliki |
| Abstract: | We study how to optimally sell a good in a bilateral asymmetric information monopoly setting with interdependent values when the informed seller can voluntarily and costlessly provide evidence about the good's characteristics. Equilibrium allocations are feasible and immune to deviations to any mechanism. We show that there is an ex-ante profit-maximizing selling procedure that is an equilibrium of the mechanism-proposal game. In contrast to posted price settings, information unravelling of product characteristics may fail even when all buyer types agree on the ranking of product quality. |
| Keywords: | Informed principal; consumer heterogeneity; interdependent valuations; product information disclosure; mechanism design; certification |
| JEL: | C72 D82 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12049&r=com |
| By: | Anton Bondarev; Frank C. Krysiak (University of Basel) |
| Abstract: | We consider a setting where strategic behavior of r&d rms can lead to di erent types of a technology lock-in, permanent or temporary, in an eventually inferior technology. The simple setting with one incumbent and one potential entrant may lead to a wide variety of possible strategic regimes. We study conditions on relative market strength of the incumbent and the entrant which lead to di erent strategic actions and demonstrate, that such a strategic behavior is not always socially suboptimal, since it may lead to faster development of the existing technology due to persistent threat of the potential entrant. We further elaborate on the selection of support tools which may induce the development of new technology in the secondbest world and establish criteria for these tools to be social welfare improving ones. |
| Keywords: | technology lock-in, technological change, strategic interaction, r&d policy, multiple regimes |
| JEL: | C61 O31 O38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2017/09&r=com |
| By: | Yu Wang (School of Economics, Nanjing University); Yu Chen (University of Graz); Bonwoo Koo (University of Waterloo) |
| Abstract: | This study analyzes a firm's decision to adopt an open source strategy in the development of a primary system product that has an indirect network effect on complementary accessory products, and evaluates its impact on market competition and social welfare. It shows that open source systems can drive proprietary systems out of the market if system development costs are high and the network effect is strong. This study also shows that the presence of open source systems can benefit proprietary firms due to consumers' higher willingness-to-pay for accessory products, and increase total industry profit and social welfare. |
| Keywords: | Hotelling model, packaged goods, network effect, horizontal product differentiation |
| JEL: | L14 L15 L17 L86 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2017-03&r=com |
| By: | Nicolás Figueroa; Carla Guadalupi |
| Abstract: | We study the optimal pricing strategy for a new product when consumers learn from both prices and early adopters’ purchase decisions. In our model, a long-lived monopolist faces a representative consumer each period. The monopolist is privately informed about his type, the probability of producing good-quality products. First-period consumers are early adopters, who learn quality before purchasing the product. Second-period consumers learn about product quality only after observing the public history, namely past price and early adopters’ purchase decisions. In this context, prices play a dual role, acting as signals of the firm’s type but also facilitating or impeding information transmission between early adopters and second-period consumers. Our main result is that separation might occur through either high or low prices (with respect to the full-information monopoly price), depending on the elasticity of demand. When demand for good-quality products is less elastic, high prices are less costly for high-type firms due to both a static (through demand) and dynamic (through information transmission) effects. On the one hand, high-type firms are marginally less affected by high prices, since they lose fewer consumers. On the other hand, early sales at higher prices carry good news about quality to second-period consumers, since such sales are more likely to come from a good than from a bad-quality product. The opposite happens occurs when demand for good-quality products is more elastic. We provide two market examples for each case and show that in the case of disruptive (incremental) innovations high (low) prices can be used as signals of quality. We finally discuss consumer welfare under the two resulting alternative equilibria, and show that the observability of early adopters’ purchase decisions improves consumer welfare when separation occurs through high prices. |
| JEL: | K10 K30 K40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:486&r=com |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | This paper examines why some customers may want to create a buyer group (BG), and why key account management (KAM) may be a tool for the seller to deal with BG members separately from customers that remain outside the BG. We find that both actions are related and explain each other. The implementation of a KAM program makes it advantageous for some customers to belong to a BG, eliminating the inherent instability that would otherwise plague the BG. Simultaneously the formation of a BG leads the seller to resort to a KAM approach so as to segment the market and charge higher prices to customers remaining outside the group. The seller’s commitment problem is then highlighted. |
| Keywords: | Buyer groups, key account management, market segmentation, cartel stability, commitment problem |
| JEL: | L20 L21 |
| Date: | 2015–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79197&r=com |
| By: | Pavlova, Natalia (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Meleshkina, Anna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | The work is based on the methodology of integrated economic analysis of the formation of effective state policy and on the developments in theory of corruption, theory of the organization of markets and economic analysis of law. The paper analyzes the range of issues related to the mutual influence of competition protection policies and anti-corruption policies. Considering that antimonopoly and anti-corruption enforcement can, within certain limits, complement or replace each other, close cooperation between antimonopoly and anti-corruption bodies plays an important role, both in terms of sharing information on identified signs of violation, and in terms of joint investigations and selecting the most effective tools for combating Violations. |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:041707&r=com |
| By: | AfDB AfDB |
| Date: | 2017–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2366&r=com |
| By: | Egorova, Maria (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Uvakina, Tatiyana (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | This work is devoted to the study of the legal regulation of transactions in economic concentration and the formation of basic approaches to reforming the legal regime for the antimonopoly regulation of the transactions. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:051711&r=com |
| By: | Genakos, Christos D.; Valletti, Tommaso; Verboven, Frank |
| Abstract: | We study the dual relationship between market structure and prices and between market structure and investment in mobile telecommunications. Using a uniquely constructed panel of mobile operators' prices and accounting information across 33 OECD countries between 2002 and 2014, we document that more concentrated markets lead to higher end user prices. Furthermore, they also lead to higher investment per mobile operator, though the impact on total investment is not conclusive. Our findings are not only relevant for the current consolidation wave in the telecommunications industry. More generally, they stress that competition and regulatory authorities should take seriously the potential trade-off between market power effects and efficiency gains stemming from agreements between firms. |
| Keywords: | Investments; market structure; mergers; Mobile telecommunications; prices |
| JEL: | K20 L10 L40 L96 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12054&r=com |
| By: | Congedo, Pierluigi |
| Abstract: | The paper tackles the discussion about vertical separation in the electronic communications sector, in its two main forms functional and structural. The author will argue how mandatory structural separation under certain conditions could be a possible option. The evidence is provided by the analysis of recent commitment decisions adopted by the European Commission in the energy sector, and by structural separation undertakings signed in Australia and New Zealand in the past few years. The paper considers the theoretical background, such as the various forms of separation identified by the OECD in 2001 and 2011, but also the current discussion around the Second Telecoms Review (2005-2015) in the United Kingdom. |
| Keywords: | vertical structural separation, functional separation, regulation, abuse, dominance, essential facilities, commitments, electronic communications |
| JEL: | K21 K23 L1 L12 L4 L43 L44 L9 L95 L96 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69619&r=com |
| By: | Elena Argentesi; Albert Banal-Estañol; Jo Seldeslachts; Meagan Andrews |
| Abstract: | We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006 created one of the world’s largest energy companies. We perform an econometric analysis, based on Difference-in-Difference techniques on the market for trading on the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analysis shows a price decline after the merger. This decline suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, the remedies may have done more than simply mitigate the potential anti-competitive effects of the merger; they may have effectively created competition. |
| Keywords: | Mergers, Ex-post Evaluation, Gas sector, Hub prices |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ete:msiper:582764&r=com |
| By: | Alexander Erler (Department of Business, Economics and Law, University of Bayreuth); Horst Gischer (Faculty of Economics and Management, Otto-von-Guericke-University Magdeburg); Bernhard Herz (Department of Business, Economics and Law, University of Bayreuth) |
| Abstract: | Competition in the US banking industry as measured by the Lerner Index has on average increased substantially during the last decade. At the same time, regional differences in competition on the state level have decreased considerably. Based on a dynamic panel framework we find that these developments are mainly driven by industry specific factors such as the costs to income ratio. The empirical evidence indicates that inefficiency and the Lerner index are significant negatively correlated. Macroeconomic conditions appear to have supported these trends in competition, however, to a somewhat lesser extent. |
| Keywords: | competition, US banking, efficiency, regional markets |
| JEL: | D40 G21 L19 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:mag:wpaper:170008&r=com |
| By: | Condorelli, Daniele; Galeotti, Andrea; Skreta, Vasiliki |
| Abstract: | We endogenize intermediaries' choice to operate as agents or merchants in a market where there are frictions due to asymmetric information about consumption values. A seller has an object for sale and can reach buyers only through intermediaries. Intermediaries can either mediate the transaction by buying and reselling - the merchant mode - or refer buyers to the seller for a fee - the agency mode. When the seller can condition the minimum selling price to the intermediaries' business model choice, all intermediaries specialize in agency. The seller's and intermediaries' joint profits equal the seller's profits when he has access to all buyers. When the seller's trading protocol does not depend on the business mode adopted by intermediaries, hybrid agency-merchant mode are adopted in equilibrium. Banning the agency mode can decrease welfare since the merchant mode is associated with additional allocative distortions due to asymmetric information compared to agency. |
| Keywords: | asymmetric information; intermediaries; referrals; resale |
| JEL: | C72 D44 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12048&r=com |
| By: | Olle Östensson; Anton Löf |
| Abstract: | The paper discusses the practical possibilities of achieving increased downstream processing and the policies that are commonly used for this purpose. It reviews the reasons why forward vertical integration is not always an optimal choice for extractive industry companies. It finds little support for the argument that differences in market power dictate the geography of downstream processing. Tariffs on processed products may also play only a limited role. The degree of vertical integration varies and appears to be mainly driven by production economics. Market determined processing margins fluctuate, which raises the risks of investing in downstream processing capacity. Policies for downstream processing are discussed based on experiences in four countries: India, Indonesia, Zambia, and Tanzania. In most of these cases, a very limited amount of analysis appears to have been undertaken to design the policies. Results so far seem to indicate that a number of unintended consequences dominate the outcomes. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2017-113&r=com |