nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒09‒03
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Product differentiation and entry timing in a continuous-time spatial competition model with vertical relations By Takeshi Ebina; Noriaki Matsushima
  2. Continuous Spatial Monopolistic Competition: Matching Goods With Consumers By Sergey Kokovin; Maxim Goryunov; Takatoshi Tabuchi
  3. Essays on Empirical Industrial Organization : Entry and Innovation By Fernandez Machado, Roxana
  4. Behavioral Antitrust By Steven Martin
  5. The Structure and Performance of U.S. Research Joint Ventures: Inferences and Implications from the Advanced Technology Program By James D. Adams; Albert N. Link
  6. The Collusive Effect of Multimarket Contact on Prices: Evidence from Retail Lumber Markets By Beomjoon Shim; Ahmed Khwaja
  7. Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior By Jorge Florez-Acosta; Daniel Herrera-Araujo
  8. Maintaing vs. Milking Good Reputation when Customer Feedback is Inaccurate By Behnud Djawadi; Rene Fahr; Claus-Jochen Haake; Sonja Recker
  9. Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets By Kate Ho; Robin S. Lee
  10. Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector? By John S. Howe; Thibaut G. Morillon
  11. The Relationship between Competition and Risk Taking Behavior of Indian Banks By Sarkar, Sanjukta; Sensarma, Rudra
  12. Corruption and Media Concentration: A Panel Data Analysis By Cherkaoui Malki, Sofiane
  13. Price competition in pharmaceuticals – evidence from 1303 Swedish markets By Granlund, David; Bergman, Mats A.
  14. An equilibrium search model of the French dual market for medical services By Damien Besancenot; Radu Vranceanu

  1. By: Takeshi Ebina; Noriaki Matsushima
    Abstract: We study the entry timing and location decisions of two exclusive buyer-supplier relationships in a continuous-time spatial competition model. In each relationship, the firms determine their entry timing and location, and negotiate a wholesale price through Nash bargaining. Then, the downstream firm immediately determines its retail price. Our findings are as follows. Ordinarily, if the supplier of the first entrant (called the leader pair) has strong bargaining power, the equilibrium location of the leader will be closer to the center, inducing a delay in entry by the second entrant (called the follower pair). This delay implies the stronger bargaining power of the supplier in the leader pair can also benefit the buyer of the pair. The location of the leader pair can change non-monotonically with an increase in the supplier's bargaining power, which has a substantial impact on the entry timing of the follower pair. However, the greater the bargaining power of the supplier in the follower pair, the closer the leader pair will be to the edge. This implies that having greater bargaining power will enhance the profitability of the supplier in the follower pair.
    Date: 2017–08
  2. By: Sergey Kokovin (National Research University Higher School of Economics); Maxim Goryunov (National Research University Higher School of Economics); Takatoshi Tabuchi (University of Tokyo - Faculty of Economics)
    Abstract: Our new approach enriches the general additive monopolistic competition model (AMCM) - with a space of product characteristics: consumers' "ideal varieties". Unlike Hotelling, such partially localized competition involves intersecting zones of service among (continuously distributed) producers. Then, the uniform equilibrium firms' density increases with growing population, as with the usual AMCM. However, now increasing/decreasing prices are determined by the increasing/decreasing elasticity of elementary utility (instead of demand elasticity in AMCM). A new characteristic - the firm's range of service - decreases. Such finer matching between buyers and sellers becomes a new source of welfare gain from a thicker market, unlike the variety benefit in AMCM. The free-entry competition remains socially excessive under some natural preferences.
    Keywords: monopolistic competition, spatial competition, optimal product diversity, gains from trade, finer matching.
    JEL: L11 L13
    Date: 2017
  3. By: Fernandez Machado, Roxana (Tilburg University, School of Economics and Management)
    Abstract: The dissertation contains three essays on empirical industrial organization devoted to studying firms' strategic interaction in different settings. The first essay develops an entry model to address an important matter in the area of urban economics: the development of cities. In particular, it focuses on the food and beverage service industry in the Netherlands and investigates to what extent the presence of urban amenities produces positive spillovers on other amenities in the market. For the case of take-out places and bars, the findings show evidence of unidirectional spillover effects upon entry. The two policy experiments conducted show that taking into account this asymmetry is relevant for both new entrant firms and policy makers. The second essay analyzes the competitive dynamics of firms in the presence of first- mover advantages. Using data of the U.S. digital mobile markets, the study quantifies the advantage early movers have relative to later entrants. In particular, it measures the impact of competitors' entry on the profits of incumbents and entrants. The findings show an asymmetric competitive effect in favor of incumbents. Finally, the third essay focuses on innovation and firms’ patent portfolio choices. Patent portfolios have become an important tool for firms to compete and secure their position in the market. The essay focuses on the U.S. semiconductor industry and shows how firms of different sizes choose their technologies in relation to other firms. The main findings suggest that small- and medium-size firms replicate large firms' choices while ignoring the giants in the market. While giants' portfolios are positively related to their previous investments, they are overall independent of other types' choices
    Date: 2017
  4. By: Steven Martin
    Abstract: In this chapter, I review the rational economic man model and con- trast it with evidence of bounded rationality that has emerged since the last quarter of the previous century. I discuss the implications of bounded rationality for research in industrial economics, with par- ticular attention to the analysis of predation, collusion, and entry. I conclude by drawing implications for the antitrust rules toward domi- nant ?rm behavior that come out of the Matsushita and Brooke Group decisions.
    Keywords: behavioral economics; antitrust; predation; collusion; entry.
    JEL: L1 L4 D9
    Date: 2017–08
  5. By: James D. Adams; Albert N. Link
    Abstract: Research Joint Ventures (RJVs) are projects that combine the research resources of different firms. A sample of RJVs supported by the U.S. Advanced Technology Program shows that the projects yield revenues that are far less than costs. Related to this point, the RJVs are subject to commercialization delays, loss of intellectual property, and product market competition. Partner firms undertake joint research, but if they commercialize at all, they do so separately, to avoid splitting of revenues from new products. Ultimately, difficulties with the RJVs occur because frequently, firms are potential competitors.
    JEL: D23 K21 L24 O31 O34 O38
    Date: 2017–08
  6. By: Beomjoon Shim (Yale University); Ahmed Khwaja (Yale University)
    Abstract: In this paper, we investigate whether multimarket contact leads to collusive pricing in the retail lumber market and assess the effect of potential regulation on consumer welfare. In particular, we focus on the competition between Home Depot and Lowe's since they are the main players in retail lumber market. For our analysis, we assemble an original data set of prices and sales in the pressure treated lumber category. We first provide reduced form evidence for the effect of multimarket contact on collusion in pricing strategies by showing a positive and significant correlation between price and multimarket contact. Guided by this evidence we estimate a model, using the Berry, Levinsohn and Pakes (1995) equilibrium framework, that includes both the demand and supply side with conduct parameters which capture the degree of collusion in setting prices. We specify the conduct parameters as a function of multimarket contact, following the framework developed by Sudhir (2001) and Ciliberto and Williams (2014). We find that the conduct parameter for capturing the effect of multimarket contact on collusion is significant and positive, implying that multimarket contact leads to higher prices than those from a competitive Bertrand-Nash equilibrium. Using the model estimates, we conduct a counterfactual analysis to measure the consumer welfare impact due to collusive pricing. We find that consumer surplus in January, 2016 increases by $57.7k and this amounts to $692.4k in a year. To the best of our knowledge, this is the first paper that shows state-level multimarket contact facilitates collusive pricing with implications for consumer welfare. The finding has important policy implications that might suggest the need for monitoring prices in states where retail firms have a greater degree of multimarket contact.
    Date: 2017
  7. By: Jorge Florez-Acosta (Universidad del Rosario - Universidad del Rosario); Daniel Herrera-Araujo (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 € on average. When we simulate the delisting of a product by one supermarket, we find that customers’probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong preferences for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers have strong preferences for the store such effects are lower, suggesting that inducing store loyalty in customers appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.
    Keywords: Grocery retailing, supermarket chains, buyer power, vertical,restraints, product delisting, shopping costs, one-and multistop shopping,Simulated Maximum likelihood
    Date: 2017–05
  8. By: Behnud Djawadi (Paderborn University); Rene Fahr (Paderborn University); Claus-Jochen Haake (Paderborn University); Sonja Recker (Paderborn University)
    Abstract: In Internet transactions, customers and service providers often interact once and anonymously. To prevent deceptive behavior a reputation system is particularly important to reduce information asymmetries about the quality of the o?ered product or service. In this study we examine the e?ectiveness of a reputation system to reduce information asymmetries when customers may make mistakes in judging the provided service quality. In our model, a service provider makes strategic quality choices and short-lived customers are asked to evaluate the observed quality by providing ratings to a reputation system. The customer is not able to always evaluate the service quality correctly and possibly submits an erroneous rating according to a prede?ned probability. Considering reputation pro?les of the last three sales, within the theoretical model we derive that the service provider’s dichotomous quality decisions are independent of the reputation pro?le and depend only on the probabilities of receiving positive and negative ratings when providing low or high quality. Thus, a service provider optimally either maintains a good reputation or completely refrains from any reputation building process. However, when mapping our theoretical model to an experimental design we ?nd that a signi?cant share of subjects in the role of the service provider deviates from optimal behavior and chooses actions which are conditional on the current reputation pro?le. With respect to these individual quality choices we see that subjects use milking strategies which means that they exploit a good reputation. In particular, if the sales price is high, low quality is delivered until the price drops below a certain threshold, and then high quality is chosen until the price increases again.
    Keywords: Service Quality, Reputation Systems, Online Markets, Experimental Economics, Markovian Decision Process
    JEL: C73 C91 L12 L15 L86
    Date: 2017–08
  9. By: Kate Ho; Robin S. Lee
    Abstract: Why do insurers choose to exclude medical providers, and when would this be socially desirable? We examine network design from the perspective of a profit-maximizing insurer and a social planner to evaluate the welfare effects of narrow networks and restrictions on their use. An insurer may engage in exclusion to steer patients to less expensive providers, cream-skim enrollees, and negotiate lower reimbursement rates. Private incentives for exclusion may diverge from social incentives: in addition to the standard quality distortion arising from market power, there is a "pecuniary" distortion introduced when insurers commit to restricted networks in order to negotiate lower rates. We introduce a new bargaining solution concept for bilateral oligopoly, Nash-in-Nash with Threat of Replacement, that captures such bargaining incentives and rationalizes observed levels of exclusion. Pairing our framework with hospital and insurance demand estimates from Ho and Lee (2017), we compare social, consumer, and insurer-optimal hospital networks for the largest non-integrated HMO carrier in California across several geographic markets. We find that both an insurer and consumers prefer narrower networks than the social planner in most markets. The insurer benefits from lower negotiated reimbursement rates (up to 30% in some markets), and consumers benefit when savings are passed along in the form of lower premiums. A social planner may prefer a broader network if it encourages the utilization of more efficient insurers or providers. We predict that, on average, network regulation prohibiting exclusion has no significant effect on social surplus but increases hospital prices and premiums and lowers consumer surplus. However, there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals.
    JEL: I11 L10 L14
    Date: 2017–08
  10. By: John S. Howe; Thibaut G. Morillon
    Abstract: We investigate the consequences of mergers and acquisitions (M&As) for information asymmetry in the banking sector. We test competing hypotheses about the effect of M&As on the information environment. M&As either increase information asymmetry (the opacity hypothesis) or diminishes it (the transparency hypothesis). We find evidence that information asymmetry increases following M&A announcements and decreases following deal completions. These findings are more pronounced for acquisitions involving a private target, and all-cash deals, as well as for mergers as opposed to acquisition of assets. Additionally, we find that the enactment of Dodd-Frank reduced the levels of information asymmetry. The results are important to regulators, policy makers, and investors.
    Keywords: mergers and acquisitions, opacity hypothesis, transparency hypothesis, information asymmetry
    JEL: G34
    Date: 2017–08
  11. By: Sarkar, Sanjukta; Sensarma, Rudra
    Abstract: Under the traditional franchise value paradigm, competition in banking markets is considered to be risk enhancing because of its tendency to raise interest rates on deposits. Taking a contrarian view, Boyd and De Nicolo (2005) have argued that competition in the loan market can lead to lower interest rates and hence, reduce bank risk taking. Following these theoretical results, the empirical evidence on the relationship between risk and competition in banking has also been mixed. This paper analyzes the competition-stability relationship for the Indian banking sector for the period 1999-2000 to 2012-2013. Banking competition is measured using structural measures of concentration viz. 5-bank concentration ratios and the Herfindahl-Hirschman Index as well as a non-structural measure of competition- the Panzar-Rosse H-Statistic. Our results show that while concentration leads to lower levels of default, market and asset risks, it exacerbates the levels of capital and liquidity risks. These results have interesting implications for banking sector policy in emerging economies.
    Keywords: Banks, Competition, Risk
    JEL: G21 G28
    Date: 2016–01
  12. By: Cherkaoui Malki, Sofiane
    Abstract: My master thesis studies the relationship between media concentration and corruption based on a panel data analysis, with a panel dataset which provides information about 29 countries over a span of 19 years. Based on a cross-section analysis Djankov, McLiesh, Nenova and Shleifer (2003, JLE) which focused on the relationship between corruption and media state-ownership, I enhance their results thanks to panel data fixed effects, to control for more unobservable effects, and several robustness checks. As Djankov et al did, we focus on two specific media markets: television (TV) and daily newspapers. Thanks to new data from the book “Who Owns the World‟s Media?” (Noam, 2016), I broaden the spectrum of their article to focus on the correlations between corruption and all types of media concentration (public, private and the industry). I confine their previous results: a positive correlation is found only for public TV with large shares of the market. In fact, I find a negative correlation between public TV shares and corruption for lower levels of state-ownership, especially in the case of developed countries. Contrary to daily newspapers, this result remains after many robustness checks. I provide evidence that low-levels of state-ownership limit concentration of private media, reducing the risk of media capture. Indeed, competition within the private sector is found to be negatively correlated with corruption. Finally, I find weak evidence for a positive correlation between corruption and media industry concentration in only two cases: when considering all types of media and when considering TV alone.
    Keywords: Bureaucratic Corruption, Media Concentration, Media Capture
    JEL: D72 D73 L82
    Date: 2017–08–24
  13. By: Granlund, David (Department of Economics, Umeå University); Bergman, Mats A. (Södertörn University)
    Abstract: We study the short- and long-term price effects of number of competing firms using panel-data on 1303 distinct pharmaceutical markets for 78 months. This is done using actual transaction prices in an institutional setting with little room for non-price competition and where simultaneity problem can be addressed effectively. In the long-term, the price of generics is found to decrease by 81% when the number of firms selling generics is increased from 1 to 10. Half of this reduction takes place immediately and 70% within three months. Also, prices of originals are found to react to competition, but far less and much slower; going from 1 to 10 firms reduces their price by 29% in the long term but by only 2% in the short term.
    Keywords: Price competition; dynamic; adjustment; pharmaceutical industry; generic drugs; brand-name drugs
    JEL: D40 I13 L13 L65
    Date: 2017–08–28
  14. By: Damien Besancenot (LIRAES - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UPD5 - Université Paris Descartes - Paris 5); Radu Vranceanu (Essec Business School, THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The French market for specialist physician care has a dual structure, including a sector 1 with regulated fees, and a sector 2 where physicians can freely choose fees. Patients who undergo a sequential search process for the best medical o¤er develop a reservation fee decision rule. We analyzed physicians decisions to work in sector 1 or in sector 2, and their choice of fee in sector 2. The model features several pure strategy equilibria that can be ordered with respect to patient welfare. Policy implications follow.
    Keywords: Regulation.,Equilibrium search,Medical fee dispersion,Dual market
    Date: 2017–06–06

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