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on Industrial Competition |
| By: | Naylor, Robin (University of Warwick); Soegaard, Christian Author-workplace-Name University of Warwick |
| Abstract: | Firms which face the threat of import competition from foreign rivals are conventionally seen as favouring import protection. We show that this is not necessarily the case when domestic firms' input prices are determined endogenously. In a framework where the input price is determined through bargaining with an (upstream) input supplier, the relationship between a domestic (downstream) firm's profits and the number of foreign competitors depends on trade costs. If trade costs are sufficiently high, then an increase in the number of foreign entrants can raise the profits of a downstream firm in a home market characterised by Cournot competition. The intuition for this result is that increased product market competition through the entry of foreign firms is mirrored by profit-enhancing moderation of the bargained input price. We examine a number of tariff and non-tariff barriers to international trade and identify conditions under which import-competing firms will favour the removal of barriers to foreign competition. |
| Keywords: | Oligopoly ; international trade ; profits ; entry ; vertical markets |
| JEL: | F13 F16 L13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1148&r=com |
| By: | Bourreau, Marc; Jullien, Bruno |
| Abstract: | In this paper, we study the impact of a merger to monopoly on prices and investments. Two single-product firms compete in prices and coverage for a new technology. In equilibrium, one firm covers a larger territory than its competitor with the new technology, leading to singleproduct and multi-product zones, and sets a higher uniform price. If the firms merge, the merged entity can set different prices and coverage for the two products. We find that the merger raises prices and total coverage, but reduces the coverage of the multi-product zone. We also show that the merger can increase total welfare and consumer welfare. |
| Keywords: | horizontal mergers; investments; competition |
| JEL: | D43 L13 L40 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32350&r=com |
| By: | Andreea Cosnita-Langlais; Bjørn Olav Johansen; Lars Sorgard |
| Abstract: | In two-sided markets it is important to consider feedback effects following a merger, i.e. how a price change on one side of the market affects the price change on the other side of the market. Affeldt et al. (2013) introduced the Upward Pricing Pressure (UPP) for two-sided markets, and we extend their approach to take into account such feedback effects. We then discuss the implications of our results for the assessment of two-sided mergers. |
| Keywords: | merger assessment, two-sided markets, Upward Pricing Pressure |
| JEL: | L13 L40 L82 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2018-3&r=com |
| By: | Gutiérrez-Hita, Carlos; Vicente-Pérez, José |
| Abstract: | In this paper we present a mixed duopoly model of supply function competition under uncertainty with product differentiation. We find that, regardless the nature of product heterogeneity, the best response of the private firm always arises as strategic complement. Contrary to this, state-owned firm's best response arises either as strategic complement or substitute depending on the product heterogeneity. As a result of the ex post realization of the demand uncertainty, different equilibria are reached. |
| Keywords: | Supply Function Equilibria; Mixed oligopoly; Differentiated products. |
| JEL: | D43 H42 L13 |
| Date: | 2018–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:83792&r=com |
| By: | Saglam, Ismail |
| Abstract: | In this paper, we formalize a prediction of Klemperer and Meyer (1989) as to the possibility that in the presence of demand uncertainty the expected profits under the supply function competition may result in higher expected oligopoly profits than under the stochastic Cournot competition and investigate how this possibility is affected by certain attributes of the oligopolistic industry, such as the number of firms, the cost of producing a unit output, and the slope of the demand curve. |
| Keywords: | Supply function competition; oligopoly; uncertainty; Cournot competition |
| JEL: | D43 L13 |
| Date: | 2017–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82995&r=com |
| By: | Dawid, H.; Keoula, M.Y.; Kort, Peter (Tilburg University, School of Economics and Management) |
| Abstract: | This paper presents a numerical method for the characterization of Markov-perfect equilibria of symmetric differential games exhibiting coexisting stable steady states. The method relying on the calculation of ‘local value functions’ through collocation in overlapping parts of the state space, is applicable for games with multiple state variables. It is applied to analyze a piecewise deterministic game capturing the dynamic competition between two oligopolistic firms, which are active in an established market and invest in R&D. Both R&D investment and an evolving public knowledge stock positively influence a breakthrough probability, where the breakthrough generates the option to introduce an innovative product on the market. Additionally, firms engage in activities influencing the appeal of the established and new product to consumers. Markov-perfect equilibrium profiles are numerically determined for different parameter settings and it is shown that for certain constellations the new product is introduced with probability one if the initial strength of the established market is below a threshold, which depends on the initial level of public knowledge. In case, the initial strength of the established market is above this threshold, and the R&D effort of both firms quickly goes to zero and with a high probability the new product is never introduced. Furthermore, it is shown that after the introduction of the new product the innovator engages in activities weakening the established market, although it is still producing positive quantities of that product. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:ba11d072-0d31-4447-b313-d3473966f680&r=com |
| By: | Nuria Boot (KU Leuven, DIW Berlin); Timo Klein (Amsterdam School of Economics, University of Amsterdam); Maarten Pieter Schinkel (Amsterdam School of Economics and ACLE, University of Amsterdam) |
| Abstract: | The fixing of the Libor and Euribor benchmark rates has proven vulnerable to manipulation. Individual rate-setters may have incentives to fraudulently distort their submissions. For the contributing banks to collectively agree on the direction in which to rig the rate, however, their interests need to be sufficiently aligned. In this paper we develop cartel theory to show how an interbank lending rates cartel can be sustained by preemptive portfolio changes. Exchange of information facilitates front running that allows members to reduce conflicts in their trading books. Designated banks then engage in eligible transactions rigging to justify their submissions. As the cartel is not able to always find stable cooperative submissions against occasional extreme exposure values, there is episodic recourse to non-cooperative quoting. Periods of heightened volatility in the rates may be indicative of cartelization. Recent reforms to broaden the class of transactions eligible for submission may reduce the level of manipulation, but can lead to more frequent collusive quoting. |
| Keywords: | Libor; Euribor; IRD; banking; cartel; insider trading |
| JEL: | E43 G14 G21 K21 L41 |
| Date: | 2017–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170122&r=com |
| By: | Suzuki, Keishun |
| Abstract: | How does patent policy affect innovation when patent licensing is crucial for firms? To address this question, the present paper incorporates voluntary patent licensing between an innovator and followers, which has been discussed in the literature of industrial organization, into a dynamic general equilibrium model. Unlike in existing studies, both the licensing fee and the number of licensees are endogenously determined by the innovator’s maximization and the free-entry condition. Using this model, we show that strong patent protection does not enhance innovation, economic growth, and welfare. Furthermore, the extended analysis provides a policy implication that the effect of patent policy depends on how difficult further innovation is without patent licensing of the current leading technology. |
| Keywords: | innovation, patent protection, optimal patent licensing, endogenous market structure. |
| JEL: | L24 O31 O34 |
| Date: | 2017–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82712&r=com |
| By: | Josh Lerner; Amit Seru |
| Abstract: | Patents and citations are powerful tools for understanding innovative activity inside the firm, and are increasingly use in corporate finance research. But due to the complexities of patent data collection and the changing spatial and industry composition of innovative firms, biases may be introduced. We highlight several patent-level biases induced by truncation of reported patent awards and citations, affecting estimates of time trends and patterns across technology classes and regions. We then introduce measures of patent and citation biases. When aggregated at the firm level, these survive popular methods of adjustment and are correlated with firm-level characteristics. We show that these issues can lead to problematic – and ex ante predictable – inferences, using several examples from prominent streams of finance literature that use patent data. We suggest a number of concrete steps that researchers can employ to avoid biased inferences. |
| JEL: | G30 O34 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24053&r=com |
| By: | Rickert, Dennis; Schain, Jan Philip; Stiebale, Joel |
| Abstract: | This paper analyzes the effects of a merger between a German supermarket chain and a soft discounter on consumer prices. We exploit geographic variation in prices within retail chains and brands and use a difference-in-differences estimator to compare regional markets with a change in market structure to a control group in unaffected markets. Our results indicate that both insiders and outsiders raised average prices after the merger, particularly in regions with high expected change in retail concentration. In contrast, we estimate price declines in regions that did not experience a rise in concentration but were potentially affected by cost savings within the merged entity. We also provide evidence that remedies imposed by competition authorities were not sufficient to o set anti-competitive effects. |
| Keywords: | Mergers and Acquisitions,Ex-post Merger Evaluation,Retail Markets,RetailPrices,Competition |
| JEL: | D22 L11 L81 L66 K21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:280&r=com |
| By: | David Ronayne; Greg Taylor |
| Abstract: | Abstract We study strategic interactions in a market where producers sell to consumers directly as well as via a competitive channel (CC) such as an online marketplace or price comparison website. We show how the size of the competitive channel can influence market outcomes. Equilibrium falls into one of two regimes: either the CC charges low commission and accommodates producers, or it charges high commission and faces strong competition from producers' direct sales channel. Seemingly procompetitive developments that increase the number of prices consumers check can raise prices and reduce consumer surplus. We also use the model to study an active policy issue concerning which channels should be allowed to utilize data about consumers' past purchases. |
| JEL: | D43 D83 L11 M3 |
| Date: | 2018–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:843&r=com |
| By: | Dubois, Pierre; Saethre, Morten |
| Abstract: | Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can use through parallel imports. For prescription drugs under patent, such provision decisions affect the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. We develop a structural model of demand and supply in which retailers can choose the set of goods to sell to consumers, thus foreclosing the consumers’ access to some less-profitable drugs, which allows retailers to bargain and obtain lower wholesale prices with the manufacturer and parallel trader. With detailed transaction data, we identify a demand model with unobserved choice sets using supply-side conditions for optimal assortment decisions of pharmacies. Estimating our model, we find that retailer incentives play a significant role in fostering parallel trade penetration. Our counterfactual simulations show that parallel imports of drugs allows retailers to gain profits at the expense of the manufacturer, whereas parallel traders also gain but earn more modest profits. Finally, a policy preventing pharmacies from foreclosing the manufacturer’s product is demonstrated to partially shift profits from pharmacists to both the parallel trader and the manufacturer, and a reduction in the regulated retail price favors the manufacturer even more. |
| Keywords: | Parallel trade; pharmaceuticals; vertical contracts; demand estimation; foreclosure |
| JEL: | I11 L22 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32393&r=com |
| By: | Martin B. Hackmann |
| Abstract: | This paper develops a model of the nursing home industry to investigate the quality effects of policies that either raise regulated reimbursement rates or increase local competition. Using data from Pennsylvania, I estimate the parameters of the model. The findings indicate that nursing homes increase the quality of care, measured by the number of skilled nurses per resident, by 8.8% following a universal 10% increase in Medicaid reimbursement rates. In contrast, I find that pro-competitive policies lead to only small increases in skilled nurse staffing ratios, suggesting that Medicaid increases are more cost effective in raising the quality of care. |
| JEL: | I11 I18 L13 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24133&r=com |
| By: | Léa Toulemon (Hospinnomics (PSE - AP-HP), PSE - Paris School of Economics, Assistance Publique - Hôpitaux de Paris - Assistance publique - Hôpitaux de Paris (AP-HP)) |
| Abstract: | This paper estimates the impact of group purchasing on medicine prices in French hospitals, taking advantage of the entry of hospitals into regional purchasing groups between 2009 and 2014. This paper uses a new database providing the average annual prices paid for all innovative and costly medicines in public hospitals. Using a fixed effects model that controls for hospitals' medicine-specific bargaining abilities and medicine-specific price trends, I find that group purchasing reduces prices of medicines in oligopoly markets, but has no impact on the prices of medicines with no competitors. |
| Keywords: | hospital medicine prices,purchasing groups,bargaining ability |
| Date: | 2017–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01659176&r=com |
| By: | Morais, Joanna; Thomas-Agnan, Christine; Simioni, Michel |
| Abstract: | This article presents a new approach to measure the impact of multi-channel advertising investments on brands’ market shares in the main segment of the French automobile market. We propose a multi-channel attraction model with adstock, in order to take into account the advertising carryover effect and the competition. This model allows to distinguish between short term and long term effect of the advertising. As, from a mathematical point of view, a vector of market shares is a composition belonging to the simplex space, i.e. subject to positivity and summing up to one contraints, we take benefit from the compositional data analysis (CODA) literature to estimate properly this model. We show how to determine the carryover parameters for each channel (outdoor, press, radio and television) in a multivariate way. We consider several model specifications with more or less complexity (cross effects between brands), including Dirichlet models, and we compare them using goodness-of-fit and prediction accuracy measures. We explain how to built confidence and prediction ellipsoids in the space of market shares. The impact of each channel on market shares is measured in terms of direct and cross elasticities. We conclude that in this market, radio only has a contemporaneous impact whereas outdoor, press and television have a large decay effect. Moreover, the advertising elasticities vary across brands and channels, and can be negative. It also turns out that positive interactions do exist between certain brands for certain media. |
| Keywords: | Market response model; fully extended multiplicative competitive interaction model; carryover effect; adstock; Koyck model; compositional data analysis; automobile market; multi channel advertising |
| JEL: | C10 C25 C35 C46 D12 M31 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32347&r=com |
| By: | Llobet, Gerard; Padilla, Atilano Jorge |
| Abstract: | This paper examines the optimal capacity choices of conventional power generators after the introduction of renewable production. We start with a basic and generally accepted model of the liberalized wholesale electricity market in which firms have insufficient incentives to invest and we illustrate how the entry of renewable generation tends to aggravate that problem. We show that the incentives to invest in firm capacity (e.g. conventional thermal plants) may be restored by means of a capacity auction mechanism. That mechanism is vulnerable and, hence, may prove ineffective unless governments can credibly commit not to sponsor the entry of new capacity outside the auction mechanism. We explain that such commitment may be particularly difficult in the current political context where energy policy is conditioned by environmental and industrial-policy goals. We finally propose a way to enhance the credibility of capacity auctions by committing to optimally retire idle (conventional) power plants in response to entry outside the auction. |
| Keywords: | Capacity Payments; Conventional Generation; Environmental Goals; Missing-Money Problem; Renewable Energy; Security of Supply |
| JEL: | L51 L94 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12556&r=com |
| By: | Kenji Fujiwara (School of Economics, Kwansei Gakuin University) |
| Abstract: | We develop a two-country general equilibrium model where monopolistically competitive and oligopolistic industries coexist, and intrafirm division of labor involves economies of scale. If market size increases, the productivity of all industries and welfare improve. However, as the proportion of trading sectors rises, the productivity of trading industries increases, but that of non-trading industries decreases. Although the welfare effect of expansion of trading sectors is analytically unclear, a numerical simulation tells that it is positive. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:170&r=com |
| By: | Fabio Pieri; Le Manh-Duc; Enrico Zaninotto |
| Abstract: | This paper examines the role of ownership and market competition in Vietnamese firms’ total factor productivity (TFP) from 2001 to 2011. Making use of a large panel dataset of Vietnamese manufacturing firms, we find that, on average, both foreign-owned enterprises(FOEs) and state-owned enterprises (SOEs) have performed better than privately owned enterprises (POEs) in terms of their TFP levels. However, while FOEs ranked the highest in terms of TFP in the period 2001-2006, SOEs "closed the gap" with FOEs in the period 2007–2011. SOEs’ good performance may be the result of the state-led development policies undertaken during the 2000s. We also find that market competition has been effective in enhancing average firm productivity and reducing the gaps in efficiency across firms of different ownership types. Based on these results, we compare Vietnam’s transition path with those followed by other countries. |
| Keywords: | Ownership, market competition, TFP, Vietnamese manufacturing, transition economies |
| JEL: | D24 L33 O53 N60 P27 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwprg:2018/01&r=com |