nep-com New Economics Papers
on Industrial Competition
Issue of 2017‒10‒08
thirteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Merger effects on innovation: A rationale for stricter merger control? By Haucap, Justus
  2. The Relationship between R&D and Competition: Reconciling Theory and Evidence By Nikolay Chernyshev
  3. R&D Output Sharing in a Mixed Duopoly and Incentive Subsidy Policy By Lee, Sang-Ho; Muminov, Timur
  4. Competition, Selection, and Productivity Growth in the Chilean Manufacturing Industry By Roberto Álvarez; Aldo González
  5. Product Market Competition and Employer Provided Training in Germany By John S. Heywood; Uwe Jirjahn; Annika Pfister
  6. Freemium as Optimal Menu Pricing By Sato, Susumu
  7. Spatial non-price competition in port infrastructure services By Hidalgo-Gallego, Soraya; Núñez-Sánchez, Ramón; Coto-Millán, Pablo
  8. Umbrella Branding in Pharmaceutical Markets By Suppliet, Moritz
  9. Merger Effects with Product Complementarity: Evidence from Colombia’s Telecommunications By Juan Vélez
  10. Quality competition in healthcare services with regional regulators: A differential game approach By Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
  11. Public Private Competition By Klumpp, Tilman; Su, Xuejuan
  12. Competition and Regulation as a Means of Reducing CO2 Emissions: Experience from U.S. Fossil Fuel Power Plants By Growitsch, Christian; Paulus, Simon; Wetzel, Heike
  13. Концентрација и конкуренција у банковном сектору Србије By Bukvić, Rajko

  1. By: Haucap, Justus
    Abstract: The question how mergers affect innovation has gained prominence in a number of recent merger cases. Accounting for the likely effects of mergers on innovation is difficult for a number of reasons though. First of all, the relationship between market concentration and innovation is far from clear and not unambiguous. While it is an empirical regularity and, hence, a useful presumption that an increase in market concentration also leads to an increase in price, the case for a similarly general presumption with respect to mergers and innovation is relatively weak. Secondly, while mergers may result in innovation efficiencies, these may be difficult to demonstrate, given that the European Commission requires the efficiencies to accrue in a timely fashion, i.e., within two to four years after the merger. This contrasts with the timespan applied to the theories of harm which the Commission itself employs. This structural asymmetry tends to bias the framework against innovation efficiencies. Thirdly, remedies are notoriously difficult to design, and this is even more valid for innovation markets. In addition, competitors may choose to strategically not disclose part of their research ideas and pipelines in order to sabotage a competing merger if that merger would be procompetitive. Hence, the market test for remedies, which is already difficult in other merger cases, given market participants' strategic interests, will be even more difficult for innovation markets where competing firms can easily hide their intentions, research ides and pipelines.
    Date: 2017
  2. By: Nikolay Chernyshev (University of St Andrews)
    Abstract: The hypothesis of a hump-shaped relationship between innovation and competition due to Aghion, Bloom, Blundell, Griffith, and Howitt (2005), has been tested for different data sets without garnering conclusive support. In this paper we argue that this lack of agreement is because of a difference in approaches to measuring innovation (either in terms of R&D outcomes or by R&D effort). We develop a unified tractable general-equilibrium framework, in which, while R&D outcomes are a hump-shaped function of competition, R&D effort can be observed to be either increasing, decreasing, or hump-shaped. This enables our paper, first, to reconcile the conclusions by Aghion et al. (2005) with more recent results and, second, to inform further attempts to identify the hump-shaped relationship in data.
    Keywords: Inverted-U (hump-shaped) relationship, research and development, vertical innovation, Cournot-competition
    JEL: L13 O31 O41
    Date: 2017–09–27
  3. By: Lee, Sang-Ho; Muminov, Timur
    Abstract: This study investigates the incentives for R&D output sharing in a mixed duopoly and shows that public firm chooses full sharing of their R&D output, whereas private firm enjoys free-riding. We then devise an agreement-based incentive R&D subsidy scheme, which can internalize R&D spillovers and induce both firms to earn higher payoffs through full sharing of their R&D output. We also show that an R&D subsidy policy is welfare-superior to a production subsidy policy.
    Keywords: Agreement-based R&D subsidy; Mixed duopoly; Production output subsidy; R&D output sharing
    JEL: H21 L13 L32
    Date: 2017–10–02
  4. By: Roberto Álvarez; Aldo González
    Abstract: Recent evidence for several countries shows a decline in TFP growth. However, there is not much evidence for developing countries and much less regarding the impact of competition in product markets. In this paper, we analyze the impact of competition on selection and productivity growth in Chile. Our results indicate that competition has a positive effect on TFP growth and the probability of exit for lagging firms. Our results are robust to alternative methodologies for calculating TFP and to the inclusion of other variables that may affect firms’ TFP growth.
    Date: 2017–09
  5. By: John S. Heywood; Uwe Jirjahn; Annika Pfister
    Abstract: Using German establishment data, this paper examines the relationship between product market competition and the extent of employer provided training. We demonstrate that high product market competition is associated with increased training except when the competition is so severe as to threaten liquidation to a firm. We take this as evidence of an inverted U-shaped relationship. We also make clear that while this relationship is very evident for the service sector it is largely missing for manufacturing where we confirm earlier results of no relationship.
    Keywords: Competition, Employer Provided Training, Manufacturing, Services
    JEL: J24 L00 M53
    Date: 2017
  6. By: Sato, Susumu
    Abstract: In online contents markets, content providers collect revenues from both consumers and advertisers by segmenting consumers who are willing to avoid advertisements and who are not. To analyze such situations, I construct a model of menu pricing by advertising platforms in two-sided markets. I find that, under certain condition, although a monopolistic platform can choose any menu of price-advertisement pairs, the optimal menu consists of only two services: ad-supported basic service and ad-free premium service. In addition, if the willingness to pay of advertisers is sufficiently high, the basic service is offered for free. This menu pricing is well known as freemium. Furthermore, this binary structure remains to hold an equilibrium menu pricing even under duopoly.
    Keywords: Freemium, menu pricing, two-sided markets
    JEL: D42 D43 D85 L86 M21 M37
    Date: 2017–09–22
  7. By: Hidalgo-Gallego, Soraya; Núñez-Sánchez, Ramón; Coto-Millán, Pablo
    Abstract: This study analyses the possible existence of spatial non-price competition in the port industry. We propose a dynamic two-stage model that allows: (1) to estimate the sensitivity of generation and diversion of traffic caused by port capacity expansions; (2) to quantify the degree of capacity competition; (3) to simulate a hypothetical scenario of cooperation agreements among different port authorities. The econometric specification is based on a structural model of demand, cost and market equilibrium. The empirical results suggest that non-price competition exists in port infrastructure services. Furthermore, using a simulation analysis, we show that incentives to invest in port capacity decrease under a cooperative setting.
    Keywords: Strategic interdepence; imperfect competition; port capacity; port alliances
    JEL: D24 D4 L1 L9
    Date: 2017–05–07
  8. By: Suppliet, Moritz
    Abstract: Umbrella branding is a marketing practice whereby multi-product firms leverage their reputation across different product categories. This paper investigates how advertising in the market of over-the-counter (OTC) drugs affects the decision to buy prescription drugs from a promoted brand name. I exploit specific charac- teristics of market regulation in Germany to identify the effect of advertising and find positive effects of umbrella branding on sales of prescription drugs. Umbrella branding results in market expansion, particularly for generic firms which invest in OTC drug advertising. If the effect leads to more consumers of generic substitutes or to more patients in undertreated therapeutic areas, market expansion can have a positive effect on welfare.
    Keywords: umbrella branding; regulation; empirical io; pharmaceuticals ; marketing
    JEL: I3 L51 I1 M37 D22 C18
    Date: 2017
  9. By: Juan Vélez (Banco de la República de Colombia)
    Abstract: Mergers of firms producing complementary products have ambiguous effects on consumer welfare. Consumers benefit if the firm, motivated by the internalized profits created by the complementarity, lowers prices. Consumers are hurt if the firm uses bundles to exert price discrimination, making standalone products more expensive. To assess which effect dominates, I use an administrative dataset, which records prices, market shares, and plan attributes of the universe of Colombia’s telecom carriers. I estimate a random coefficients discrete choice model of demand for bundled and standalone telecom products, in which the degree of substitutability or complementarity among products is an essential parameter of interest. I find that major telecom products display a mix of substitutability and complementarity, but in general hardwired and mobile services are complements. Counterfactual experiments using the estimated model indicate positive net effects of mergers with complements: despite a small increase in the price of standalone goods, consumer surplus increased by around 11 million dollars per quarter after the Claro merger. On the other hand I find evidence that mergers between ISPs and mobile carriers reduce the likelihood of poorer households adopting faster broadband. Classification JEL: L22, L13, G34, L96.
    Keywords: Market Structure, Imperfect Competition, Mergers, Telecommunications
    Date: 2017–10
  10. By: Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
    Abstract: This article proposes a differential-game model, in order to analyze markets in which regional regulation is operative and competition is based on quality. The case we have in mind is healthcare public service, where consumers (patients) choose the provider mainly basing on the providers' location and the quality of services, while prices play a more limited role. In most European countries, within the same State, regional (or local) providers compete on quality to attract demand. Market regulation is set at national and/or regional level. Our model highlights the features of equilibrium in such a framework, and specifically investigates how the differences in product quality evolve among regions, and how inter-regional demand flows behave. Differently from some available similar models (that do not take into account the regional dimension of the decision process), we find that quality differentials among regions may persist in equilibrium.
    Keywords: Healthcare Services; Diffrential Game; Quality Competition;� Regional Regulators.
    JEL: C72 C73 I11 I18 L13 R38
    Date: 2017–10–02
  11. By: Klumpp, Tilman (University of Alberta, Department of Economics); Su, Xuejuan (University of Alberta, Department of Economics)
    Abstract: We examine competition between a private and a public provider in markets for "merit goods" such as education, healthcare, housing, recreation, or culture. The private firm provides a high-price/high-quality variety of the good and serves richer individuals, while the public firm provides a low-price/low-quality variety and serves poorer individuals. We derive the private competitor's best response to changes in the public firm's price and quality level. This enables us to examine the distributional effects of government policies aimed at making publicly provided goods more affordable or increase their quality, and of changes to the government budget constraint that make publicly provided goods more expensive or decrease their quality. Our results have implications for the financing of the public supply of such goods, and for whether additional resources, if available, should be spent on reducing the price or enhancing the quality of publicly provided goods.
    Keywords: Mixed duopoly; quality differentiation; public provision of private goods; private responses to public policy; crowding-out/in; funding of public services
    JEL: D21 D43 H11 H42 H44 I00 L38
    Date: 2017–09–26
  12. By: Growitsch, Christian; Paulus, Simon; Wetzel, Heike
    Abstract: In this article, we analyze the relative CO2 emission performance across 48 states in the U.S. using a two-stage empirical approach. In the first stage, we identify the states that followed best practice by applying benchmarking techniques. In the second stage, we regress our CO2 emission performance indicators on the state-specific national gas prices, the states’ CO2 regulatory policies and a number of other state-specific factors in order to identify the main drivers of the developments.
    JEL: C61 D24 L94 Q58
    Date: 2017
  13. By: Bukvić, Rajko
    Abstract: English. The paper analyzes the degree of concentration and competition in Serbian banking sector on the basis of bank financial statements for year 2016. It uses the traditional concentration indicators (CRn and HH indices), as well as the relatively rarely used Linda indices. The concentration degree is calculated based on three variables: total assets, capital and bank operating income. It was demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is low, which provides suitable conditions for the development of healthy competition among them. Serbian. У чланку се анализирају степен концентрације и конкуренција у банковном сектору у Србији, на основу финансијских извештаја банака за 2016. годину. Коришћени су како традиционални показатељи концентрације (CRn и HH индекси), тако и релативно мало коришћени индекси Линда. Степен концентрације провераван је на основу три величине: укупни активи, капитал и оперативни приходи банака. Показано је да је међу релативно великим бројем банака у Србији постојећи степен концентрације низак, што ствара услове за развој здраве конкуренције међу њима.
    Keywords: Concentration, competition, banking sector, Serbia, indices Linda Концентрација, конкуренција, банковни сектор, Србија, индекси Линда
    JEL: C18 D40 G21 L13 L40
    Date: 2017

This nep-com issue is ©2017 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.