nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒03‒05
nine papers chosen by
Russell Pittman
United States Department of Justice

  1. Technology Polarization By Koki Oikawa; Minoru Kitahara
  2. Supplier Encroachment and Consumer Welfare: Upstream Firm’s Opportunism and Multichannel Distribution By Cong Pan;
  3. Threatening to Buy: Private Equity Buyouts and Antitrust Policy By Norbäck, Pehr-Johan; Persson, Lars; Tåg, Joacim
  4. Strategic Complements in Two Stage, 2 × 2 Games By Yue Feng; Tarun Sabarwal
  5. Stackelberg equilibrium in duopoly: strategic use of corporate social responsibility By Sharma, Ajay
  6. Strategic delegation in procurement By Alonso-Pauli, Eduard; Bru, Lluís
  7. Merger Simulations in the American Airline Industry By Tonnerre, Antoine
  8. Opening Hours Decision and Competition in the Motor Vehicle Inspection Market By Habte, Osmis
  9. Competition Makes Inspectors More Lenient: Evidence from the Motor Vehicle Inspection Market By Habte, Osmis; Holm, Håkan J.

  1. By: Koki Oikawa; Minoru Kitahara
    Abstract: We construct a new method to describe firm distributions within technology fields and investigate the relationship between those distributions and aggregate innovation. To locate firms on a technology space, we apply multidimensional scaling for the inter-firm technological dissimilarity matrices that are computed from patent citation overlaps among firms using the NBER US patent dataset. Our estimated firm distributions show increasing trends in technological distance and polarization on average, where we follow Duclos, Esteban and Ray (2004) to measure polarization. We construct a model of inter-group competition in which polarization stimulates aggregate R&D. The model fits data before 1990 but the impact of polarization is reversed after that. We attribute the structural change to the major patent reform in the United States in 1980s.
  2. By: Cong Pan;
    Abstract: I revisit supplier encroachment under the framework of a two-part tariff contract. When a monopoly manufacturer supplies competing retailers and each retailer’s contracting process is unobservable to the rival, the retailer’s lack of knowledge vis-à-vis its rival’s contract may undermine the manufacturer’s commitment power, which prevents the manufacturer from achieving optimal profit. I demonstrate that when the manufacturer directly supplies the resale market, it can use the direct channel as a commitment tool and thus restore its market power. Even though the manufacturer’s encroachment creates more competitors in the resale market, the resultant higher wholesale prices aggravate double marginalization, which may reduce consumer welfare. This result holds even when the manufacturer is very efficient in direct selling.
    Date: 2018–02
  3. By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN))
    Abstract: Private equity firms (PE firms) have become common owners of established firms in concentrated markets. We show that the threat of a PE acquisition can trigger incumbent mergers in an otherwise mergerstable industry. This can help antitrust authorities maximize consumer surplus because previously privately unprofitable – but consumer surplus-enhancing – mergers now take place. We thus predict that merger waves among incumbents should follow the development of a local PE industry.
    Keywords: Antitrust policy; Mergers and acquisitions; Private equity; Temporary ownership
    JEL: G32 G34 L13 L22 L40
    Date: 2018–02–06
  4. By: Yue Feng (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: Echenique (2004) concludes that extensive form games with strategic complementarities are a very restrictive class of games. In the context of two stage, 2 × 2 games, we find that the restrictiveness imposed by quasisupermodularity and single crossing property is particularly severe, in the sense that the set of games in which payoffs satisfy these conditions has measure zero. In contrast, the set of such games that exhibit strategic complements (in the sense of increasing best responses) has infinite measure. Our characterization allows one to write uncountably many examples of two stage, 2 × 2 games with strategic complements. The results show a need to go beyond a direct application of quasisupermodularity and single crossing property to define strategic complements in extensive form games.
    Keywords: Strategic complements, extensive form game, two stage game
    JEL: C61 C70
    Date: 2018–02
  5. By: Sharma, Ajay
    Abstract: This paper demonstrates that in a duopoly model with firms being concerned about profit as well as corporate social responsibility (CSR), the outcome of game may coincide with the Stackelberg outcome. We argue that owner of the firm may use CSR orientation as a strategy to become Stackelberg leader in the quantity competition game.
    Keywords: Stackelberg outcome; Corporate social responsibility; Cournot game; Duopoly; Non-profit orientation
    JEL: D21 D43 L10 L20
    Date: 2017–09
  6. By: Alonso-Pauli, Eduard; Bru, Lluís
    Abstract: In a firm organized into business units, we show when profitability increases if procurement is delegated to the division in charge of production. We highlight that our results are driven by the business unit having a different objective function than Headquarters. The profitability of procurement delegation is affected by the essentiality of production facilities to the activities of the firm, and by strategic distortions in both transfer and input prices. We also look at vertical separation of activities as an alternative to procurement delegation.
    Keywords: strategic delegation, transfer pricing, procurement
    JEL: D24 D43 M11
    Date: 2018–01–30
  7. By: Tonnerre, Antoine
    Abstract: There has been a long history of mergers in the airline industry in the U.S.A., even more after the Airline Deregulation Act in 1978. Besides, merger simulations are an increasingly popular exercise that allow for well-motivated predictions regarding the outcome of the mergers. This is of great use for competition authorities. There has already been some work on this topic, from Peters (2006). This paper will differ in the following: the most recent data will be used, merger simulations will be performed at the market level, marginal costs will be directly estimated, and Cournot conduct will be assumed. Moreover, almost twenty years from now, researchers already predicted the reduction of the number of airlines in this industry in the U.S.A., because of its network nature. This reduction lead to increased market power, but also to increased efficiencies (see for instance Borenstein, 1990, 1992, and Kim & Singal 1993). In the end, do mergers in this industry automatically raise prices and reduce volumes? Are they still desirable today and if so, under which conditions ?
    Keywords: merger simulations; airlines; cournot; econometrics; industrial organization; cost estimation; demand estimation
    JEL: C53 L41 L44
    Date: 2017–10–02
  8. By: Habte, Osmis (Department of Economics, Lund University)
    Abstract: This paper examines the effect of competition on a firm's choice of opening hours in the motor vehicle inspection market. Competition affects the incentive inspection firms face when choosing opening hours, which influences the probability that consumers find service time that best matches their preferred time. We use 2SLS analyses to resolve the potential endogeneity of market entry decisions. Using a detailed monthly firm-level panel data for all inspection firms in Sweden, we find that increased competition, measured using both the number of firms in a geographic market and average distance to nearby competitors, leads to expanded opening hours. The probability that inspection firms offer services on weekends also increases with local competition.
    Keywords: opening hours; competition; non-price competition; entry; motor vehicle inspection market
    JEL: D22 L11 L84
    Date: 2017–12–22
  9. By: Habte, Osmis (Department of Economics, Lund University); Holm, Håkan J. (Department of Economics, Lund University)
    Abstract: We examine the impact of competition on firms' leniency towards their customers in a heavily regulated market, which is consciously designed to mitigate incentives to deviate from the regulation. Using a panel data set representing 22.5 million periodic vehicle roadworthiness tests during the period 2010-2015, we show that inspection stations operating in more competitive markets are more lenient to their customers than stations operating in less competitive markets. We present both fixed effects and instrumental variable estimates of the effect of competition on firms' incentive to be lenient to their customers.
    Keywords: leniency; pass rate; inspection behavior; competition; deregulation; inspection market
    JEL: D22 L11 L84
    Date: 2017–12–22

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