nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒10‒01
seventeen papers chosen by
Russell Pittman
United States Department of Justice

  1. How Efficient is Dynamic Competition? The Case of Price as Investment By David Besanko; Ulrich Doraszelski; Yaroslav Kryukov
  2. Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model By Tsuyoshi Toshimitsu
  3. Handbook of Game Theory and Industrial Organization, Volume I: Theory. An Introduction By Corchon, Luis; Marini, Marco A.
  4. Handbook of Game Theory and Industrial Organization, Volume II: Applications. An Introduction By Corchon, Luis; Marini, Marco A.
  5. Value Creation and Appropriation following M&A By Mahabubur Rahman; Mary Lambkin; Dildar Hussain
  6. A Decomposition of the Herfindahl Index of Concentration By de Gioia, Giacomo
  7. The Role of Noise in Alliance Formation and Collusion in Conflicts By Boudreau, James W.; Sanders, Shane; Shunda, Nicholas
  8. Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment By Carlino, Gerald A.
  9. Search Engines and Data Retention: Implications for Privacy and Antitrust By Lesley Chiou; Catherine Tucker
  10. Abuse of Dominance and Antitrust Enforcement in the German Electricity Market By Tomaso Duso; Florian Szücs; Veit Böckers
  11. Dynamic Airline Pricing and Seat Availability By Kevin R. Williams
  12. 25 années de dérèglementation du transport ferroviaire en Europe : quel bilan ? By Yves Crozet
  13. High Speed Rail Competition in Italy. A Major Railway Reform with a “Win-Win Game”? By Christian Desmaris
  14. Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market By Pio Baake; Helene Naegele
  15. The market for scoops: A dynamic approach By Ascensión Andina-Díaz; José A. García-Martínez; Antonio Parravano
  16. Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period By Basant, Rakesh; Mishra, Pulak
  17. "FMCG Product Endorser Advertising Variable Affect the Purchase Decisions and Brand Loyalty in the Community in the Korwil Jember" By Nanik Hariyana

  1. By: David Besanko; Ulrich Doraszelski; Yaroslav Kryukov
    Abstract: We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria of a learning-by-doing model to the first-best planner solution. We show that dynamic competition leads to low deadweight loss. This cannot be attributed to similarity between the equilibria and the planner solution. Instead, we show how learning-by-doing causes the various contributions to deadweight loss to either be small or partly offset each other.
    JEL: D21 D43 L13 L41
    Date: 2017–09
  2. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises.
    Keywords: merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game
    JEL: D43 K21 L13 L14 L15
    Date: 2017–09
  3. By: Corchon, Luis; Marini, Marco A.
    Abstract: We introduce here the first volume of Handbook of Game Theory and Industrial Organization: Theory, by L. C. Corchón and M. A. Marini (eds.), Edward Elgar, Cheltenam, UK and Northampton, MA, by describing its main aim and its basic structure.
    Keywords: Industrial Organization, Game Theory
    JEL: A1 C4 C5 C6 C65 C7 C71 C72 C78 D6 L0 L1 L2
    Date: 2017–09–01
  4. By: Corchon, Luis; Marini, Marco A.
    Abstract: We introduce here the second volume of the Handbook of Game Theory and Industrial Organization, by L. C. Corchón and M. A. Marini (ed.), Edward Elgar, Cheltenam, UK and Northampton, MA, describing its main aim and its basic structure.
    Keywords: Industrial Organization, Game Theory.
    JEL: A1 C0 C5 C7 C70 C71 C72 C73 C78 C79 L0 L1 L13 L3 L30 L4 L40 L41
    Date: 2017–09–01
  5. By: Mahabubur Rahman (ESC Rennes School of Business - ESC Rennes School of Business); Mary Lambkin (UCD - University College Dublin [Dublin]); Dildar Hussain (ESC Rennes School of Business - ESC Rennes School of Business)
    Abstract: Mergers and acquisitions (M&A) are typically inspired by a desire for revenue growth and/or cost efficiency leading to an improvement in financial performance. Post-merger performance has received considerable research attention from scholars in finance and accounting, but the marketing dimension has remained largely unexplored. This research focuses on marketing efficiency as a measure of post-merger performance, and this is investigated via an empirical study of 20 M&A deals within the US commercial banking industry. Data Envelopment Analysis (DEA) is used to measure efficiency, employing two input and two output variables. The results demonstrate that M&A transactions do have a positive effect on the marketing efficiency of the combined firms, although the effect size is small.
    Keywords: Mergers and Acquisitions (M&A), Post-merger Marketing Performance, Data Envelopment Analysis (DEA), Marketing Efficiency
    Date: 2016
  6. By: de Gioia, Giacomo
    Abstract: The Herfindahl index is one of the most known indices used to measure the concentration of a variable distributed over a certain number of units, and tipically to measure the degree of concentration of business in a market. Its worth is the sensitivity both to the dimensional variability of these units and to their numerical consistency. In the this note a decomposition of the H-index into these two terms is offered.
    Keywords: Herfindahl; Decomposition of the Herfindahl index; Industrial concentration; Metric index of concentration.
    JEL: C43 C49 D40 L11
    Date: 2017–09–22
  7. By: Boudreau, James W.; Sanders, Shane; Shunda, Nicholas
    Abstract: Many real-world conflicts are to some extent determined randomly by noise. The way in which noise is modeled in contest success functions (CSFs) has has important implications both for the possibility of forming cooperative relationships as well as for the features of such relationships. In a one-shot conflict, we find that when noise is modeled as an exponential parameter in the CSF, there is a range of values for which an alliance between two parties can be beneficial, whereas that is not the case for an additive noise parameter. In an infinitely repeated conflict setting with additive noise, sustaining collusion via Nash reversion strategies is easier the more noise there is and more difficult the larger the contest's prize value, while an increase in the contest's number of players can make sustaining collusion either more or less difficult, all in marked contrast to the case of an exponential noise parameter. Which noise specification is appropriate is therefore an important consideration for modeling any conflict situation.
    Keywords: Contests; conflict; alliance paradox; collusion; noise
    JEL: C72 C73 D72 D74
    Date: 2017–09–22
  8. By: Carlino, Gerald A. (Federal Reserve Bank of Philadelphia)
    Abstract: This paper examines how the enforceability of employee non-compete agreements affects the entry of new establishments and jobs created by these new firms. We use a panel of startup activity for the U.S. states for the period 1977 to 2013. We exploit Michigan’s inadvertent policy reversal in 1985 that transformed the state from a non-enforcing to an enforcing state as a quasi-natural experiment to estimate the causal effect of enforcement on startup activity. Our findings offer little support for the widely held view that enforcement of non-compete agreements negatively affects the entry rate of new firms or the rate of jobs created by new firms. In a difference-in-difference analysis, we find that a 10 percent increase in enforcement led to an increase of about 1 percent to about 3 percent in the startup job creation rate in Michigan and, in general, to essentially no change in the startup entry rate. Extending our analysis to consider the effect of increased enforcement on patent activity, we find that enforcement had differential effects across technological classifications. Importantly, increased enforcement had a positive and significant effect on the number of quality-adjusted mechanical patents in Michigan, the most important patenting classification in that state.
    Keywords: Startup activity; non-compete agreements; regional economic growth
    JEL: O30 O38 R11
    Date: 2017–09–21
  9. By: Lesley Chiou; Catherine Tucker
    Abstract: This paper investigates whether larger quantities of historical data affect a firm's ability to maintain market share in Internet search. We study whether the length of time that search engines retained their server logs affected the apparent accuracy of subsequent searches. Our analysis exploits changes in these policies prompted by the actions of policymakers. We find little empirical evidence that reducing the length of storage of past search engine searches affected the accuracy of search. Our results suggest that the possession of historical data confers less of an advantage in market share than is sometimes supposed. Our results also suggest that limits on data retention may impose fewer costs in instances where overly long data retention leads to privacy concerns such as an individual's ``right to be forgotten."
    JEL: K21 K40
    Date: 2017–09
  10. By: Tomaso Duso; Florian Szücs; Veit Böckers
    Abstract: In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity. The case was settled after E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on German wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices. Using daily electricity prices for the 2006 - 2012 period and controlling for cost and demand drivers, we find economically and statistically significant convergence effects after the implementation of the Commission’s decision. Furthermore, the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Placebo regressions support a causal interpretation of our results.
    Keywords: Electricity, wholesale prices, EU Commission, abuse of dominance, ex post evaluation, E.ON
    JEL: K21 L41 L94
    Date: 2017
  11. By: Kevin R. Williams (Cowles Foundation, Yale University)
    Abstract: Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticities.
    Keywords: Dynamic pricing, Intertemporal price discrimination, Price discrimination, Stochastic demand, Pricing, Airlines, Dynamic discrete choice
    JEL: L11 L12 L93
    Date: 2017–08
  12. By: Yves Crozet (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - École Nationale des Travaux Publics de l'État [ENTPE] - CNRS - Centre National de la Recherche Scientifique)
    Abstract: En juillet 1991, après de longues négociations entre pays européens, était publiée la directive 91-440, amorce du processus de déréglementation du transport ferroviaire. Comme dans les autres industries de réseau (énergie, télécommunications...), l’Union européenne (UE) s’engageait dans une nouvelle logique : la séparation, au moins comptable, entre l’infrastructure et l’exploitation. L’objectif affiché était, là aussi, de permettre l’accès des tiers au réseau. Comme dans le transport routier quelques années auparavant, il s’agissait de faire de la concurrence un levier clé de la revitalisation du secteur. 25 années plus tard, et alors que va être officialisé un quatrième « paquet ferroviaire » dont le contenu est désormais connu, quel bilan peut-on tirer? Les résultats sont-ils à la hauteur des ambitions ferroviaires de l’UE ?
    Keywords: dérèglementation,transport ferroviaire,Europe,stratégie européenne,pratiques nationales
    Date: 2016
  13. By: Christian Desmaris (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - École Nationale des Travaux Publics de l'État [ENTPE] - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon)
    Abstract: The European railway industry continues to undergo reform and liberalization due to European law incentives. Recent events in Italy give the country a special place in this process: a new competitor has commenced operations in the high-speed rail (HSR) market based on a private initiative. This paper aims to investigate this rail transport innovation looking for the driving forces and obstacles and to identify the main impacts for the Italian consumers. We also try to provide some interesting results helpful for other countries regarding passenger rail reforms. Based on the Italian case, it seems that open access competition in the HSR market is able to produce significant improvements in favour of passengers and also a ‘win-win’ game between all railway actors.
    Keywords: high-speed rail (HSR),Competition,Italy,Railway Reform,impacts for the Italian consumers
    Date: 2016
  14. By: Pio Baake; Helene Naegele
    Abstract: We model strategic interaction on a market where two labeling organizations compete and firms in duopoly decide which labels to offer. The incumbent label maximizes its own profit, and is challenged by an industry standard which maximizes industry profit. Using a nested logit, the result of this multi-stage game depends crucially on the degree of horizontal differentiation. Joint firm profit always increases with the introduction of the industry standard. The industry standard wants to segment the market and strategically distorts its label quality downwards, such that each firm specializes in a different label. Social welfare however increases with the number of labeled products. A policy imposing a minimum label quality is only binding in the case of strategic quality distortion by the industry standard.
    Keywords: Product differentiation, certification, nested logit
    JEL: L15 D43 L13
    Date: 2017
  15. By: Ascensión Andina-Díaz (Department of Economics, University of Málaga); José A. García-Martínez (Department of Economics, University of Málaga); Antonio Parravano (Department of Economics, University of Málaga)
    Abstract: We present a dynamic model of competition and reputation in the media industry, in which firms compete for the publication of scoops and both the publication of scoops and their veracity determine a firm's future reputation. We study the dynamics of firms' reputations and how it relates to two issues: The consumers' preferences for information and the dispersion of the firms' editorial standards for quality. We obtain that in the case of a duopoly, there is only one stable steady state. In this equilibrium the two firms coexist and the identity of the firm that leads the market (i.e., whether it is the firm with the high editorial standard or with the low standard) depends on a combination of the two issues above. We then use numerical simulations to analyze the stochastic dynamics for a larger number of firms. We obtain that most of the insights gained for the duopoly case are robust to the consideration of a higher number of firms. We also draw predictions on the number of firms surviving in the long run, showing that the more severe consumers are with the publication of false stories and/or the more similar the firms' standards for quality are, the higher the number of firms in the stationary state.
    Keywords: Media industry; Competition; Reputation; Stochastic dynamics; Deterministic dynamics
    JEL: L10 L82
    Date: 2017–09
  16. By: Basant, Rakesh; Mishra, Pulak
    Abstract: In the context of declining degrees of vertical integration in major industries of Indian manufacturing sector during the post-reform period, the present paper is an attempt to examine how such ‘vertical disintegration’ has affected firms’ market power and its implications for competition policy. Using panel dataset of 49 majors industries of Indian manufacturing sector for the period 2003-04 to 2010-11 and applying the system GMM approach to estimate of dynamic panel data models, the paper finds that vertical integration does not cause any significant impact on average market power of firms in an industry. Instead, it is influenced by market size, and selling and technology related efforts. While selling intensity has a positive impact on market power, the impact of market size and technology intensity is found to be negative. Notably, like vertical integration, market concentration, import to export ratio, and capital intensity also do not have any significant impact on market power. The findings of this paper, therefore, have important implications for competition law and policy in general and policies and regulation relating to technology development and international trade in particular.
    Date: 2017–09–26
  17. By: Nanik Hariyana (Faculty Economy and Business, University of Jember, Indonesia. Author-2-Name: Raden Andi Sularso Author-2-Workplace-Name: Faculty of Economic & Bussiness University of Jember, Indonesia Author-3-Name: Diana Sulianti K Tobing Author-3-Workplace-Name: Faculty of Economic & Bussiness University of Jember, Indonesia)
    Abstract: "Objective – The purpose of this study to determine Endorsers of FMCG effect on Buying Decision and Brand Loyalty in Society in Korwil Jember. Phenomena of this study is the purchasing power of people in the district of Korwil Jember decisions. The purchase and brand loyalty FMCG products with their advertising endorser in television. Methodology/Technique – This study used purposive sampling to gather information in the district of Situbondo, with a sample of 126 respondents and data measured with SEM (Structural Equation Modelling). Findings – By knowing the quality of the product, usually bring an attitude like the product so that brand loyalty will be achieved. If a customer has made a purchase decision, and loyal to a brand, it is likely that consumers would recommend the product to others. Novelty – The study tests the Endorser effect in the context of Indonesia with original data."
    Keywords: Advertising Endorser; FMCG Products; Purchase Decisions and Brand Loyalty
    JEL: M31 M37
    Date: 2017–06–19

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