nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒01‒01
seventeen papers chosen by
Russell Pittman
United States Department of Justice

  1. Patent licensing in the presence of a differentiated good By Jiyun Cao; Uday Bhanu Sinha
  2. Exploitative abuse and abuse of economic dependence: What can we learn from the industrial organization approach? By Bougette, Patrice; Budzinski, Oliver; Marty, Frédéric
  3. The Rise of Economics in Competition Policy: A Canadian Perspective By Marcel Boyer; Thomas W. Ross; Ralph A. Winter
  4. Umbrella Branding in Pharmaceutical Markets By Suppliet, Moritz
  5. Benefits and costs of vertical agreements between airlines and high-speed rail operators By Avenali, Alessandro; Bracaglia, Valentina; D’Alfonso, Tiziana; Reverberi, Pierfrancesco
  6. Introducing competition in the European rail sector. Insights for a holistic regulatory assessment By Yves Crozet
  7. What's in a Name? Information, Heterogeneity, and Quality in a Theory of Nested Names By Bouamra-Mechemache, Zohra; Yu, Jianyu; Zago, Angelo
  8. Oligopoly Equilibrium with differentiated commodities: a computation of two models By Bio-Akanni ELEGBEDE
  9. Spatial competition with demand uncertainty: A laboratory experiment By Aurélie Bonein; Stéphane Turolla
  10. Governing innovation projects in firms: The role of competition between innovation projects and interdepartmental collaboration By Iferd, Younes; Schubert, Torben
  11. Quantifying the emergence of modularity trap Case of Hard Disc Drive industry. By Imane Bouamama; Tomoatsu Shibata
  12. Does Import Competition Induce R&D Reallocation? Evidence from the U.S. By Rui Xu; Kaiji Gong
  13. The multiplier effect in two-sided markets with bilateral investments By Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
  14. Predation and Network Based Price Discrimination in Chile By Claudio Agostini; Raul Lazcano; Eduardo Saavedra; Manuel Willington
  15. Memory and Markets By Sergei Kovbasyuk; Giancarlo Spagnolo
  16. Price Differentiation between On-Net and Off-Net Calls: An Application to the Chilean Telephony Market By Claudio Agostini; Raul Lazcano; Eduardo Saavedra; Manuel Willington
  17. Penalising on the basis of the severity of the offence: A sophisticated revenue-based cartel penalty By Yannis Katsoulacos; Evgenia (E.) Motchenkova; David Ulph

  1. By: Jiyun Cao (The School of Economics, Nankai University and Collaborative Innovation Center for China Economy, Tianjin, China); Uday Bhanu Sinha (Department of Economics, Delhi School of Economics)
    Abstract: The existing literature has considered licensing of a patented innovation either in a homogenous good industry or in a differentiated goods industry. We consider the licensing problem between two firms i.e., licensor and licensee producing the homogenous goods when there is a third firm producing a differentiated good in the market. We find that when the costs of non-innovators are not high, the optimal licensing contract depends on the degree of product differentiation and the innovator has more incentive for innovation when it is an insider than when it is an outsider of this market.
    Keywords: licensing, two-part tariff, Cournot oligopoly, homogenous and differentiated goods, incentive for innovation.
    JEL: D43 D45 L13
    Date: 2017–12
  2. By: Bougette, Patrice; Budzinski, Oliver; Marty, Frédéric
    Abstract: This article aims to provide a detailed analysis of the concept of economic dependence and exploitative abuse through their evolution in competition law and economics and in European case law. First, while the theoretical roots of these concepts may be found in economic theory, we show that the issue has long been ignored or only reluctantly considered in competition law enforcement, mainly because of a lack of available and reliable economic criteria. Second, although its primary objective was to measure market power in an oligopoly context, we examine how current empirical industrial organization methodology allows a sophisticated measure of the economic dependence among suppliers and distributors. Third, we discuss the possibility of relying on the industrial organization approach to address these issues.
    Keywords: exploitative abuse,abuse of economic dependence,competition law,European Commission,effects-based approach
    JEL: K21 L12 L40 L42
    Date: 2017
  3. By: Marcel Boyer; Thomas W. Ross; Ralph A. Winter
    Abstract: Competition policy in Canada and elsewhere has changed remarkably over the last fifty years – in large measure due to advances in economics. In this article we trace the impact of developments in industrial organization on the three central areas of competition policy: cartels, single firm conduct and mergers. We focus on Canadian competition policy, but draw comparisons with developments in the United States and Europe. La politique de concurrence s’est remarquablement transformée au cours des derniers 50 ans au Canada, en grande partie à cause des avancées en science économique. Dans ce texte, nous retraçons l’impact des développements en organisation industrielle sur les trois zones centrales de la politique de concurrence : les cartels, la conduite de la firme, et les fusions. Nous mettons l’accent sur la politique de concurrence canadienne, mais en référant aux développements aux États-Unis et en Europe.
    JEL: L40 L41 K21
    Date: 2017–12–11
  4. 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
  5. By: Avenali, Alessandro; Bracaglia, Valentina; D’Alfonso, Tiziana; Reverberi, Pierfrancesco
    Abstract: There are many examples of airline-high speed rail vertical agreements, where the airline buys train seats to sell the multimodal product. We discuss the formation of such agreements, depending on the sunk costs of cooperation and firms’ bargaining power, and their welfare effects, depending on hub airport capacity and mode substitution. We argue that, contrary to mergers, vertical agreements largely benefit passengers. We propose a simple test as a ‘safe harbor’, which provides a sufficient condition for consumer surplus to be higher under vertical agreements. It may be optimal to subsidize desirable agreements when they are not incentive-compatible for firms.
    Date: 2017
  6. By: Yves Crozet (IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon, LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In July 1991, after lengthy negotiations between European countries, EU Directive 91-440 was published, setting in motion the process of deregulating rail transport. As with other networked industries (power, telecommunications), the European Union (EU) was embarking on a new approach, separating infrastructure and operation, at least from an accounting perspective. Once again, the clear objective was to allow third parties access to the network and to make competition a key lever in the revitalisation of the sector. This initial ambition had been pursued for 25 years, as demonstrated by the successive “Railway Packages” or the creation of the European Railway Agency (ERA), which plays an important role in questions of security and interoperability. Development of the role of the ERA is at the heart of the ‘technical’ pillar of the Fourth Railway Package approved at the end of 2015. This fourth package contains a ‘market’ pillar, which seeks to open up national passenger services to competition, from 2020 for on-track competition and 2023 for public service, off-track contracts. The European Commission underlines the fact that the earlier rail packages have already substantially transformed the European rail transport sector. With this fourth package, the generalisation of competition should lead to a single European railway area, which needed if this mode of transport is to achieve the objectives set out in the 2011 White Paper. Given the success of the reforms of the last 25 years, this direction should be pursued. Presented in this way, the matter seems simple, but is it really? What has been the impact of introducing competition and notably on-track competition into rail transport?
    Keywords: EU Directive 91-440,deregulating rail transport,competition,European rail transport sector
    Date: 2016–10–06
  7. By: Bouamra-Mechemache, Zohra; Yu, Jianyu; Zago, Angelo
    Abstract: Collective labels are widespread in food markets, either separated or nested with private brands; the latter known as nested names. We propose a model to explain the rationale of nested names, with collective labels being effective in reaching unaware consumers while individual brands help firms to reach aware consumers. We also incorporate the decision-making within the group of producers joining collective labels, taking into account their heterogeneity in providing quality. We show that nested names emerge when consumers become more aware of information on the label's quality and when producers become more heterogeneous. Welfare may decrease, however, when the group switches to nested names, because nested names may lead to lower quality incentives for the majority producers. The results also provide insights into the historical and recent trends in food industries, such as within-label differentiation and label fragmentation, and their welfare implications.
    Keywords: nested names; individual brands; collective labels; consumers' awareness; producer heterogeneity; quality provision
    JEL: D71 D83 L15 L66 Q13
    Date: 2017–11
  8. By: Bio-Akanni ELEGBEDE (IAE DIJON - Université de Bourgogne (CREGO))
    Abstract: In this paper, we define the concept of symmetric Cournot-Walras equilibrium (SCWE thereafter) in a pure exchange economy with differentiated commodities based on Julien and Tricou (2005). We compute this concept of equilibrium to two economies where the oligopolists offer their differentiated goods on the market in order to obtain the competitive good. We obtain three main results. First, we find that, under certain conditions, SCWE-DP allocations and price converge to Walrasian ones. Second, we also find that whether the SCWE-DP is Pareto-dominated or not by Walrasian equilibrium depends on the type of economic agent (oligopolist or competitive). Third, the two economies are linked.
    Keywords: Di erentiated commodity; General equilibrium; Cournot-Walras Equilibrium
    JEL: C72 D43 D51 L13 L38
    Date: 2017–12
  9. By: Aurélie Bonein; Stéphane Turolla
    Abstract: Motivated by recent research on product differentiation, we conduct laboratory experiments to study how (aggregate) demand uncertainty influences location choices and price competition in the original Hotelling (1929)’s model. We provide new predictions on the effect of risk attitudes on both decisions under demand uncertainty and confront them with the data. Our experimental results support the predictions that demand uncertainty acts as a differentiation force for risk-neutral and risk-lover subjects. By contrast, we do not verify that demand uncertainty leads risk-averse subjects to agglomerate. This is explained primarily by learning effects and heterogeneous behaviors within this risk profile. Finally, we observe various price-setting behaviors, ranging from an attempt to collude to a price war, depending on the level of differentiation.
    Keywords: product differentiation, demand uncertainty, price competition, experiment
    JEL: C72 C91 D43 L13 R30
    Date: 2017
  10. By: Iferd, Younes; Schubert, Torben
    Abstract: The existing literature shows that interdepartmental collaboration within companies en-hances innovativeness due to easier access to and integration of knowledge spread over dispersed actors. As companies are well aware of these benefits they also use competi-tion between innovation projects to organize their innovation projects. Such competitive mechanisms have often been regarded as problematic because of their adverse effects on collaboration and knowledge sharing. At the same time, they have the power to expe-dite innovation processes. Based on German CIS data, we use a stochastic frontier ap-proach to show that competition across innovation projects tends to increase innovation efficiency for firms faced by predatory product market competition, while interdepartmental collaboration is efficiency increasing when competition is low. Furthermore, we were also able to show that with increasing innovation radicalness interdepartmental collaboration enhances the innovation process and that with increasing innovation incrementality com-petition across innovation projects becomes beneficial.
    Date: 2017
  11. By: Imane Bouamama; Tomoatsu Shibata
    Abstract: With increasingly competitive markets and technological advances driving the world towards a "converging commonality", adopting "modularity" seems to be more and more appealing for companies and businesses wishing to adapt to various market conditions and to benefit from decentralized innovations. However, the decision to adopt a modular product architecture often comes with a need to deeply analyze the current market state and to predict the future technological shifts. Thus, minimizing the risk of falling into the "organizational traps" that comes in as a reason to a "misalignment" between the product architecture and the organizational structure of a firm. This paper proposes a way to quantify the modularity trap, using the `coupling index' as a measure to the interdependencies and inter-connections between product's components, and applying the hypothesis to the Hard Disc Drive industry.
    Date: 2017–09
  12. By: Rui Xu; Kaiji Gong
    Abstract: We analyze the impact of rising import competition from China on U.S. innovative activities. Using Compustat data, we find that import competition induces R&D expenditures to be reallocated towards more productive and more profitable firms within each industry. Such reallocation effect has the potential to offset the average drop in firm-level R&D identified in the previous literature. Indeed, our quantitative analysis shows no adverse impact of import competition on aggregate R&D expenditures. Taking the analysis beyond manufacturing, we find that import competition has led to reallocation of researchers towards booming service industries, including business and repairs, personal services, and financial services.
    Keywords: Western Hemisphere;Asia and Pacific;United States;Chinese Import Competition, R&D Expenditures, Reallocation, R&D Expenditures, Country and Industry Studies of Trade, Trade and Labor Market Interactions
    Date: 2017–11–16
  13. By: Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
    Abstract: Agents in a finite two-sided market make costly investments and are then matched assortatively based on these investments. Besides signaling complementary types, investments also generate benefits for partners. We shed light on quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents' uncertainty about their rank within their own market side and on their uncertainty about the types and investments of potential partners. We study how the multiplier effect depends on market size and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition for more desirable partners. We use our results to characterize equilibrium utilities in large markets. For small markets, our results lead to bounds on the hold-up problem.
    Keywords: matching,signaling,investment,multiplier effect
    JEL: C78 D44 D82
    Date: 2017
  14. By: Claudio Agostini (Escuela de Gobierno, Universidad Adolfo Ibáñez); Raul Lazcano; Eduardo Saavedra; Manuel Willington
    Date: 2016–01
  15. By: Sergei Kovbasyuk (Einaudi Institute for Economics and Finance); Giancarlo Spagnolo (SITE-Stockholm School of Economics, EIEF, Tor Vergata & CEPR)
    Abstract: In many environments, including credit and online markets, past records about participants are collected, published, and erased after some time. We study the effects of erasing past records on trade and welfare in a dynamic market where each seller's quality follows a Markov process and buyers leave feedback about sellers. When the average quality of sellers is low, unlimited records always lead to a market breakdown. Appropriately deleting records, instead, can sustain trade in the long run. Positive and negative records play very different roles, and welfare is maximized for short positive records and long but bounded negative records.
    Keywords: Limited records, rating systems, credit registers, privacy, data retention, online reputation mechanisms, market experimentation
    JEL: D82 D53 G20 G28 K35 L14 L15
    Date: 2017–12–07
  16. By: Claudio Agostini (Escuela de Gobierno, Universidad Adolfo Ibáñez); Raul Lazcano; Eduardo Saavedra; Manuel Willington
    Date: 2016–06
  17. By: Yannis Katsoulacos (Athens University of Economics and Business, Greece); Evgenia (E.) Motchenkova (Vrije Universiteit Amsterdam, The Netherlands, TILEC, The Netherlands; Tinbergen Institute, The Netherlands); David Ulph (University of St Andrews, Scotland)
    Abstract: In Katsoulacos et al. (2015) we examined the welfare properties of a number of monetary penalty regimes for tackling cartels, including revenue-based penalties, the most widely used regime. We showed that for a typical industry overcharge–based penalties welfare-dominate the others. However these penalties are subject to criticisms on the grounds of high implementation costs and lack of transparency/uncertainty. In this paper we propose a new sophisticated revenue-based penalty regime in which the penalty base is the revenue of the cartel but the penalty rate increases in a systematic way with the cartel overcharge. Thus, the proposed regime formalises how revenue can be used as the base while taking into account the severity of the offence. We show that this hybrid regime can replicate the desirable welfare properties of overcharge-based penalties while having relatively low levels of implementation costs and of uncertainty, concluding that the proposed penalty regime deserves very serious attention from Competition Authorities.
    Keywords: Antitrust Penalties; Antitrust Enforcement; Antitrust Law; Cartels
    JEL: L4 K21 D43
    Date: 2017–12–22

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