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on Industrial Competition |
| By: | Schmitz, Patrick W. |
| Abstract: | In the Grossman-Hart-Moore property rights approach to the theory of the firm, it is usually assumed that information is symmetric. Ownership matters for investment incentives, provided that investments are partly relationship-specific. We study the case of completely relationship-specific investments (i.e., the disagreement payoffs do not depend on the investments). It turns out that if there is asymmetric information, then ownership matters for investment incentives and for the expected total surplus. Specifically, giving ownership to party B can be optimal, even when only party A has to make an investment decision and even when the owner's expected disagreement payoff is larger under A-ownership. |
| Keywords: | Incomplete Contracts; Investment incentives; private information; Property rights; relationship specificity |
| JEL: | D23 D82 D86 L23 L24 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12174&r=com |
| By: | Zingales, Luigi |
| Abstract: | Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a “Medici vicious circle, where money is used to get political power and political power is used to make money. |
| Keywords: | Concentration; Lobbying; Theory of the firm |
| JEL: | D21 G30 L20 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12158&r=com |
| By: | Ferrés, Daniel; Ormazabal, Gaizka; Povel, Paul; Sertsios, Giorgio |
| Abstract: | We study the financial leverage of firms that collude by forming a cartel. We find that cartel firms have lower leverage ratios during collusion periods, consistent with the idea that reductions in leverage help increase cartel stability. Cartel firms have a surprisingly large economic footprint (they represent more than 20% of the total market capitalization in the U.S.), so understanding their decisions is relevant. Our findings show that anti-competitive behavior has a significant effect on capital structure choices. They also shed new light on the relation between profitability and financial leverage. |
| Keywords: | Capital Structure; cartels; Collusion; Financial Leverage; Financial Policies; Trigger Strategies |
| JEL: | G32 L12 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12151&r=com |
| By: | Reisinger, Markus; Thomes, Tim Paul |
| Abstract: | We investigate how the structure of the distribution channel affects tacit collusion between manufacturers. When selling through a common retailer, we find - in contrast to the conventional understanding of tacit collusion that firms act to maximize industry profits - that colluding manufacturers strategically induce double marginalization so that retail prices are above the monopoly level. This lowers industry profits but increases the profit share that manufacturers appropriate from the retailer. Comparing common distribution with independent (exclusive) distribution, we show that the latter facilitates collusion. Despite this result, common retailing leads to lower welfare because a common retailer monopolizes the downstream market. For the case of independent retailing, we also demonstrate that contract offers that are observable to the rival retailer are not necessarily beneficial for collusive purposes. |
| Keywords: | tacit collusion,contract observability,common retailing,independent (exclusive) retailing,two-part tariffs,wholesale price contracts |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:261&r=com |
| By: | Imhof, David |
| Abstract: | The paper applies simple statistical screens to a bid-rigging cartel in Switzerland, and shows how well the screens detect it by capturing the impact of collusion on the discrete distribution of the bids. In case of bid rigging, the support for the distribution of the bids decreases involving a lower variance, illustrated by the coefficient of variance and the kurtosis statistic. Furthermore, when firms rig bids without side-payment, the difference between the first and the second lowest bids increases whereas the difference between the losing bids decreases, involving a negatively skewed distribution of the bids, highlighted by the relative distance and the skewness statistic. Finally, the collusive interaction screen shows that the behaviour of firms changed radically between the cartel and post-cartel periods. Therefore, the simple statistical screens proposed in this paper purpose to screen large dataset and to detect bidrigging cartels by using only information on bids. |
| Keywords: | bid rigging detection; screening methods; variance screen; cover bidding screen; structural and behavioural screens |
| JEL: | C00 C40 D22 D40 K40 L40 |
| Date: | 2017–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:fribow00484&r=com |
| By: | Geurts, Karen; Van Biesebroeck, Johannes |
| Abstract: | We use a comprehensive sample of takeovers in Belgium to show that they are remarkably common and an important part of many firms' growth process. They affect both small and large firms and, over a five-year period, 17 percent of private employment. We estimate the impact of takeovers on employment growth of the merged entity using an empirical framework that explicitly takes into account that mergers are formed by pairs of firms. It allows for post-merger employment outcomes that are heterogeneous and determined jointly by the characteristics of both partners. The average merger is estimated to reduce employment by 8% over a four-year period, but the contraction can be three times as large for some types of mergers, while employment expands for other types. |
| Keywords: | efficiency defense; Firm Dynamics; M&A; Matching; merger |
| JEL: | J23 L23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12167&r=com |
| By: | Takalo, Tuomas; Tanayama, Tanja; Toivanen, Otto |
| Abstract: | We build a structural model of the R&D subsidy process incorporating externalities, fixed costs of R&D, and financial market imperfections. We estimate the model using project level R&D and subsidy data from Finland. We conduct a counterfactual analysis of an optimal R&D tax credit policy, the first and second best policies, and laissez-faire with no support and compare them to the subsidy policy used in Finland. We find that the optimal R&D tax credit rate is 0.24, which is lower than the observed average R&D subsidy rate (0.36). R&D participation does not vary across regimes. The R&D investments and spillovers generated by the optimal R&D tax credit and subsidy policies are significantly higher than under laissez-faire but smaller than in the first and second best. Neither tax credits nor subsidies improve welfare compared to laissez-faire. |
| Keywords: | counterfactual; R&D subsidies; welfare |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12155&r=com |
| By: | Antonio Jiménez-Martínez (Division of Economics, CIDE); Óscar González-Guerra (Division of Economics, CIDE) |
| Abstract: | This paper proposes a framework of second-degree discrimination with two different versions of a service that are served in random networks with positive externalities. In the model, consumers must choose between purchasing a premium version of the service or a free version that comes with advertising about a certain good (unrelated to the service). The ads attached to the free version influence the free version adopters’ opinions and, given the induced effects on the good sales, they affect the optimal pricing of the premium version. We relate the optimal pricing strategy to the underlying hazard rate and degree distribution of the random network. Under increasing hazard rates, hazard rate dominance always implies higher prices for the service. In some applications of the model, decreasing hazard rates are often associated to extreme situations where only the free version of the service is provided. The model provides foundations for empirical analysis since key features of social networks can be related to their underlying hazard rate functions and degree distributions. |
| Keywords: | Social networks, second-degree discrimination, advertising, degree distributions, hazard rate |
| JEL: | D83 D85 L1 M3 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:emc:wpaper:dte600&r=com |
| By: | Lee, Sang-Ho; Xu, Lili |
| Abstract: | This paper examines an endogenous timing game in product differentiated duopolies under price competition when emission tax is imposed on environmental externality. We show that a simultaneous-move (sequential-move) outcome can be an equilibrium outcome in a private duopoly under significant (insignificant) environmental externality, but this result can be reversed in a mixed duopoly. We also show that when environmental externalities are significant, public leadership yields greater welfare than private leadership, and that public leadership is more robust than private leadership as an equilibrium outcome. Finally, we find that privatization can result in a public leader becoming a private leader, but this worsens welfare. |
| Keywords: | Emission tax; Endogenous timing; Mixed duopoly; Private duopoly |
| JEL: | D6 L5 Q28 |
| Date: | 2017–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80342&r=com |
| By: | Lange, Mirjam R. J. |
| Abstract: | While second-degree price discrimination is standard in commercial practice in many industries, consumer advocates and public interest groups have reacted with skepticism against tendencies to move away from flat rates and introduce greater tariff diversity. This paper provides an empirical analysis how the differentiation of broadband tariffs with respect to retail prices affects fixed broadband subscription using time-series data. The empirical analysis is based on a unique dataset of 10,200 retail broadband offers spanning the 2003-2011 period and including 23 EU member states. Results show that an increase in tariff diversity provides a significant impetus to broadband adoption, wherefore demands by some public interest groups to limit price discrimination in broadband markets should be viewed with some caution as reduced price discrimination may come at the cost of lower penetration rates. |
| Keywords: | Broadband demand,Tariff diversity,Price discrimination,Dynamic panel data analysis |
| JEL: | L86 L96 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:262&r=com |
| By: | Toshifumi Kuroda; Teppei Koguchi; Takanori Ida |
| Abstract: | Modern economic theory predicts that tying can serve as a tool for leveraging market power. In line with this economic theory, competition authorities regulate the tying of Microsoft Windows with its Media Player or Internet browser in the EU and Japan. The authorities also take note of the market power of mobile handset operating systems (OSs) over competition in the app and services markets. However, no empirical evidence has thus far been presented on the success of government intervention in the Microsoft case. To assess the effectiveness of government intervention on mobile handset OSs, we identify the extent to which complementarity and consumer preferences affect the correlation between mobile handset OSs and mobile service app markets (mail, search, and map). We find significant positive complementarity between the mail, search, and map services, and mobile handset OSs. However, the elasticities of the mobile handset OS–mobile service correlations are rather small. We conclude that taking action to restrict mobile handset OSs is less effective than acting on mobile services market directly. |
| Keywords: | Mobile phone, Handset, Internet service, Platform competition |
| JEL: | L12 L43 L96 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-17-004&r=com |
| By: | Schneider, Tim; Bizer, Kilian |
| Abstract: | We investigate a market in which experts have a moral hazard problem because they need to invest in costly but unobservable effort to identify consumer problems. Experts have either high or low qualification and can invest either high or low effort in their diagnosis. High skilled experts are able to identify problems with some probability even with low effort while low skilled experts here always give false recommendations. Experts compete for consumers by setting prices for diagnosis and service. Consumers can visit multiple experts, which enables an endogenous verifiability of diagnosis. We show that with a sufficient number of high skilled experts, stable second-best and perfectly non-degenerate equilibria are possible even with flexible prices, although they depend on transactions costs being relatively low. By contrast, with a small share of high skilled experts in the market, setting fixed prices can be beneficial for society. |
| Keywords: | credence goods,expert market,moral hazard,qualification,competition,second opinions,diagnostic effort |
| JEL: | L10 D82 D40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:317&r=com |