nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒08‒13
nine papers chosen by
Russell Pittman
United States Department of Justice

  1. The Strategic Industry Supply Curve By Flavio M. Menezes; John Quiggin
  2. Estimating a Demand System with Choke Prices By Golan, Amos; LaFrance, Jeffrey T; Perloff, Jeffrey M.; Seabold, Skipper
  3. Beyond Ces: Three Alternative Classes of Flexible Homothetic Demand Systems By Kiminori Matsuyama; Philip Ushchev
  4. On a strictly convex and strictly sub-additive cost function with positive fixed cost By Tanaka, Yasuhito; Hattori, Masahiko
  5. The phase space structure of the oligopoly dynamical system by means of Darboux integrability By Adam Krawiec; Tomasz Stachowiak; Marek Szydlowski
  6. Responsibility-based allocation of cartel damages By Stefan Napel; Dominik Welter
  7. The Generic Drug User Fee Amendments: An Economic Perspective By Ernst R. Berndt; Rena M. Conti; Stephen J. Murphy
  8. Media Competition, Information Provision and Political Participation: Evidence from French Local Newspapers and Elections, 1944-2014 By Cagé, Julia
  9. Firms’ responses to shocks by price, wage and employment in Macedonia By Gani Ramadani

  1. By: Flavio M. Menezes (School of Economics, The University of Queensland); John Quiggin (School of Economics, The University of Queensland)
    Abstract: In this paper we develop the concept of the strategic industry supply curve, representing the locus of Nash equilibrium outputs and prices arising from additive shocks to demand. We show that the standard analysis of partial equilibrium under perfect competition, including the graphical representa- tion of supply and demand due to Marshall, can be extended to encompass imperfectly competitive markets, including monopoly, Cournot and Bertrand oligopoly and competition in linear supply schedules. We then derive a uni- fied theory of cost pass-through and show that it satisfies the five principles of incidence set out by Weyl and Fabinger (2013).
    Keywords: industry supply; cost pass-through; oligopoly
    JEL: D4 L1
    Date: 2017–08–04
  2. By: Golan, Amos; LaFrance, Jeffrey T; Perloff, Jeffrey M.; Seabold, Skipper
    Abstract: We present a new, information-theoretic approach for estimating a system of many demand equations where the unobserved reservation or choke prices vary across consumers. We illustrate this method by estimating a nonlinear, almost ideal demand system (AIDS) for four types of meat using cross-sectional data from Mexico, where most households did not buy at least one type of meat during the survey week. The system of de­mand curves vary across demo­graphic groups.
    Keywords: Social and Behavioral Sciences, demand system, choke prices, generalized maximum entropy
    Date: 2017–08–04
  3. By: Kiminori Matsuyama (National Research University Higher School of Economics); Philip Ushchev (National Research University Higher School of Economics)
    Abstract: We characterize three classes of demand systems, all of which are defined non-parametrically: homothetic demand systems with a single aggregator (HSA), those with direct implicit additivity (HDIA), and those with indirect implicit additivity (HIIA). In HSA, all the cross-price effects are captured by one price aggregator, while in HDIA and in HIIA, they are captured by two price aggregators. Each of these three classes contains CES as a special case. Yet, they are pairwise disjoint with the sole exception of CES. Thus, these classes of homothetic demand systems offer us three alternative ways of departing from CES
    Keywords: Homothetic preferences, CRS production functions, Demand systems with a single aggregator, direct implicit additivity, indirect implicit additivity, CES, translog, gross complements and gross substitutes.
    JEL: D11 D21
    Date: 2017
  4. By: Tanaka, Yasuhito; Hattori, Masahiko
    Abstract: We investigate the existence of a strictly convex and strictly sub-additive cost function with positive fixed cost. If there is a positive fixed cost, any cost function can not be super-additive, and concavity (including linearity) of cost function implies strict sub-additivity. Then, does there exist a strictly convex and strictly sub-additive cost function? We will present such a cost function. It is close to a linear function although it is strictly convex.
    Keywords: cost function, strict convexity, strict sub-additivity
    JEL: D43 L13
    Date: 2017–08–03
  5. By: Adam Krawiec; Tomasz Stachowiak; Marek Szydlowski
    Abstract: We investigate the dynamical complexity of Cournot oligopoly dynamics of three firms by using the qualitative methods of dynamical systems to study the phase structure of this model. The phase space is organized with one-dimensional and two-dimensional invariant submanifolds (for the monopoly and duopoly) and unique stable node (global attractor) in the positive quadrant of the phase space (Cournot equilibrium). We also study the integrability of the system. We demonstrate the effectiveness of the method of the Darboux polynomials in searching for first integrals of the oligopoly. The general method as well as examples of adopting this method are presented. We study Darboux non-integrability of the oligopoly for linear demand functions and find first integrals of this system for special classes of the system, in particular, rational integrals can be found for a quite general set of model parameters. We show how first integral can be useful in lowering the dimension of the system using the example of $n$ almost identical firms. This first integral also gives information about the structure of the phase space and the behaviour of trajectories in the neighbourhood of a Nash equilibrium
    Date: 2017–08
  6. By: Stefan Napel; Dominik Welter
    Abstract: Anti-trust infringers are liable jointly and severally, i.e., any offender may be sued and forced to compensate a victim on behalf of all. EU law then grants the singled-out firm a right to internal redress: all infringers are obliged to contribute in proportion to their relative responsibility for the victim’s harm. We operationalize this for hardcore cartels. Responsibility is inferred from how much lower damages could have been, had one or more offenders refused to collaborate. This calls for applying the Shapley value to a model of overcharges. Resulting allocations are characterized for selected market environments and compared to ad hoc distributions based on market shares or profits. A new decomposition of the Shapley value helps to establish bounds on payment obligations.
    Keywords: cartel damages, damage allocation, Shapley value, joint liability, relative responsibility, rule of contribution
    JEL: L40 L13 D04 D43
    Date: 2017–08
  7. By: Ernst R. Berndt; Rena M. Conti; Stephen J. Murphy
    Abstract: Regulation can influence the structure, conduct and performance of consumer product markets and the structure of product markets can influence regulation. Since the vast majority of prescription drugs consumed by Americans are generic, the structure of the U.S. generic prescription drug market is of wide interest. The supply of prescription drugs in the U.S. is also heavily regulated by the U.S. Food and Drug Administration (FDA). We describe events leading up to the passage and implementation of the Generic Drug User Fee Amendments in 2012 (GDUFA I), and compare its FDA commitments, provisions, goals and fee structure to that of the 1992 Prescription Drug User Fee Act (PDUFA) for branded drugs. Although GDUFA I expires September 30, 2017, reauthorization for GDUFA II is currently underway and is likely to shift the user fee structure away from annual facility fees to annual program fees. We explain how the fee structure of GDUFA I, and that being considered for GDUFA II, erects barriers to entry and creates scale and scope economies for incumbent manufacturers of generic drugs. Furthermore, in order to implement fees under GDUFA I, FDA required the submission of self-reported data on generic manufacturing practices including domestic and foreign active pharmaceutical ingredient (API) and finished dosage form (FDF) facilities. These data provide an unprecedented window into the recent evolution of generic drug manufacturing markets. Our analyses of these data suggest that generic drug manufacturing in 2017 is quite concentrated: a very large portion of ANDA holders have small portfolios consisting of less than five ANDAs, while a small number of very large ANDA holders have portfolios consisting of hundreds or even thousands of ANDAs. The number of API and FDF facilities have each declined by approximately 10-11% between 2013 and 2017. Furthermore, in 2017, generic manufacturing is largely foreign and has become increasingly so since 2013. We discuss the implications of the current structure of the U.S. generic prescription drug market for GDUFA II ratification and implementation.
    JEL: I1 I11 I18
    Date: 2017–08
  8. By: Cagé, Julia
    Abstract: This paper investigates the impact of increased media competition on the quantity and quality of news provided and, ultimately, on political participation. Drawing upon existing literature on vertical product differentiation, I explore the conditions under which an increase in the number of newspapers can decrease both the quantity and quality of news provided. I build a new county-level panel dataset of local newspaper presence, newspapers' newsrooms, costs and revenues and political turnout in France, from 1944 to 2014. I estimate the effect of newspaper entry by comparing counties that experience entry to similar counties in the same years that do not. Both sets of counties exhibit similar trends prior to newspaper entry, but those with entry experience substantial declines in the average number of journalists (business-stealing effect). An increased number of newspapers is also associated with fewer articles and less hard news provision. These effects are stronger in counties with more homogeneous populations, as predicted by my simple theoretical framework, whereas there is little impact in counties with more heterogeneous populations. Newspaper entry, and the associated decline in information provision, is ultimately found to decrease voter turnout at local elections.
    Keywords: hard news; media competition; newspaper content; political participation; size of the newsroom; soft news
    JEL: D72 L11 L13 L82
    Date: 2017–08
  9. By: Gani Ramadani (National Bank of the Republic of Macedonia)
    Abstract: This paper analyses the role of the intensity of output market competition, firm’s technology and of the incidence of collective wage-bargaining on firm’s adjustment strategies to adverse shocks using firm-level data for Macedonia. We find that international character of product market competition reduces the relevance of firms’ price reactions to cost shocks, whereas firms’ exposure to domestic competition seems to have an opposite effect. The presence of collective wage agreements at national level makes a price increase less likely. The results suggest that labour intensity in production process makes firms more likely to increase prices after wage shock. The second part of the paper focuses on cost-cutting strategies and the factors that explain the choice of the strategy. The data indicate that market competition and wage agreements signed outside the firm increase the likelihood of cost-cutting strategies via labour costs, particularly through employment reduction, after cost shock. On the contrary, empirical results indicate that fluctuations in permanent employment to cost and wage shock are safeguarded by presence of temporary and part time employment.
    Keywords: survey data, product market competition, labour market institutions, firm’s technology, Macedonia
    JEL: C42 D21 E30 J38
    Date: 2017

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