nep-com New Economics Papers
on Industrial Competition
Issue of 2018‒04‒09
fourteen papers chosen by
Russell Pittman
United States Department of Justice

  1. Horizontal Mergers and Product Innovation By Federico, Giulio; Langus, Gregor; Valletti, Tommaso
  2. Asymmetric price adjustments: A supply side approach By Antoniou, Fabio; Fiocco, Raffaele; Guo, Dongyu
  3. Strategic inventories under limited commitment By Antoniou, Fabio; Fiocco, Raffaele
  4. IO in I-O: Competition and Volatility in Input-Output Networks By Basile Grassi
  5. Machine Learning with Screens for Detecting Bid-Rigging Cartels By Huber, Martin; Imhof, David
  6. Imperfect competition in a network industry: The case of the European rail freight market By Florent Laroche; Christa Sys; Thierry Vanelslander; Eddy Van de Voorde
  7. An analysis of the impact of larger aircraft (A-380) on flight frequency By Aliya Ussinova; Isabelle Laplace; Chantal Latgé-Roucolle
  8. Mixed Duopoly in Education with Vouchers By Tomori, Françeska
  9. Innovation strategies of firms: Identification, dynamics and intra-industry heterogeneity By Hollenstein, Heinz
  10. The International Organization of Production in the Regulatory Void By Philipp Herkenhoff; Sebastian Krautheim
  11. Innovative products and services with environmental benefits: design of search strategies for external knowledge and absorptive capacity By Caroline Mothe; Uyen Nguyen-Thi; Angela Triguero-Cano
  12. Firm Survival and Innovation: Knowledge Context Matters! By Fernanda Mazzotta; Ornella Wanda Maietta
  13. How Transport Costs Affect the Decision to Purchase a New or a Remanufactured Good By Batabyal, Amitrajeet; Beladi, Hamid
  14. The Effect of Advertising Strategies for Lux Soap on Consumer's Decision to Purchase in East Java By Nanik Hariyana

  1. By: Federico, Giulio; Langus, Gregor; Valletti, Tommaso
    Abstract: We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the "price coordination" channel and the internalization of the "innovation externality". We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.
    Keywords: Innovation; mergers; R&D
    JEL: D43 G34 L40 O30
    Date: 2018–02
  2. By: Antoniou, Fabio; Fiocco, Raffaele; Guo, Dongyu
    Abstract: Using a model of dynamic price competition, we provide an explanation from the supply side for the well-established observation that output prices react faster in response to input cost increases than to decreases. When costs decline, the opportunity of pro table storing in anticipation of higher future costs allows competitive fi rms to coordinate on prices above current marginal costs. The initial price response is only partial and pro table storing relaxes competition. Conversely, when costs rise, storing is not benefi cial in anticipation of lower future costs and fi rms immediately adjust their prices to current marginal costs, which entails the standard Bertrand outcome. Our results shed new light on the empirical evidence about asymmetric pricing and can stimulate further empirical investigation on this puzzle. Keywords: Asymmetric price adjustments, Bertrand-Edgeworth competition, Storage, Gasoline market. JEL Classifi cation: D4, L1.
    Keywords: Preus -- Fixació, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2017
  3. By: Antoniou, Fabio; Fiocco, Raffaele
    Abstract: In a dynamic storable good market where demand changes over time, we investigate the producer's strategic incentives to hold inventories in response to the possibility of buyer stockpiling. The literature on storable goods has demonstrated that buyer stockpiling in anticipation of higher future prices harms the producer's profi tability, particularly when the producer cannot commit to future prices. We show that the producer's inventories act as a strategic device to mitigate the loss from the lack of commitment. Our results provide a rationale for the producer's inventory behavior that sheds new light on the well-documented empirical evidence about inventories. Keywords: buyer stockpiling, commitment, storable goods, strategic inventories. JEL Classifi cation: D21, D42, L12.
    Keywords: Conducta organitzacional, Monopolis, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus,
    Date: 2017
  4. By: Basile Grassi (University of Oxford)
    Abstract: There is a growing literature suggesting that firm level productivity shocks can help understandmacroeconomic level outcomes. However, existingmodels are very restrictive regarding the nature of competition within sector and its implication for the propagation of shocks across the input-output (I-O) network. The goal of this paper is to offer amore comprehensive understanding of how firm level shocks can shape aggregate dynamics. To this end, I build a tractablemulti-sector heterogeneous firm general equilibrium model featuring oligopolistic competition and an I-O network. It is shown that a positive shock to a large firm increases both the average productivity and the Herfindahl Index in its sector. By reducing the sector price, the change in average productivity propagates only to downstream sectors. Conversely, the change in the Herfindahl Index, by increasing price and reducing demand for intermediate inputs, propagates both to downstream and upstream sectors. The sensitivity of aggregate volatility to firms’ shocks is determined by the sector’s (i) Herfindahl Index, which measures the volatility of the sector, (ii) position in the input-output network, which measures the direct and indirect importance of this sector for the household, and (iii) relativemarket power in the supply chain, which relates to the changes in demand to upstreamsectors.
    Date: 2017
  5. By: Huber, Martin; Imhof, David
    Abstract: We combine machine learning techniques with statistical screens computed from the distribution of bids in tenders within the Swiss construction sector to predict collusion through bid-rigging cartels. We assess the out of sample performance of this approach and find it to correctly classify more than 80% of the total of bidding processes as collusive or non-collusive. As the correct classification rate, however, differs across truly non-collusive and collusive processes, we also investigate tradeoffs in reducing false positive vs. false negative predictions. Finally, we discuss policy implications of our method for competition agencies aiming at detecting bid-rigging cartels.
    Keywords: Bid rigging detection; screening methods; variance screen; cover bidding screen; structural and behavioural screens; machine learning; lasso; ensemble methods
    JEL: C21 C45 C52 D22 D40 K40
    Date: 2018–03–29
  6. By: Florent Laroche (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); Christa Sys (BNP Paribas Fortis chair on transport, logistics and ports); Thierry Vanelslander (Department of Transport and Regional Economics - UA - University of Antwerp); Eddy Van de Voorde (Department of Transport and Regional Economics - UA - University of Antwerp)
    Abstract: Purpose: This paper opts for a time varying approach to measure the competition on the European rail freight sector according to two questions: what is the current level of competition and how is this expected to evolve in the long run? Approach: A firm-level dynamic panel estimates the persistence of profit in the European rail freight sector. Main findings: The persistence of profits shows a high degree of competition in the short run but imperfect in the long run due to the existence of barriers on the market. Secondly, the ratio between capital and labour cost is calculated. It indicates moderate economies of scale. Originality:Knowledge about this new market and the dynamics are limited in the academic literature. The research is relevant for the policy makers to monitor the rail freight market and to harmonise the practices between network managers to improve the European single market.
    Keywords: Single market,Persistence of profits,Rail freight,barriers,competition,persistence of profit
    Date: 2017
  7. By: Aliya Ussinova (Toulouse School of Economics); Isabelle Laplace (ENAC - Ecole Nationale de l'Aviation Civile); Chantal Latgé-Roucolle (ENAC - Ecole Nationale de l'Aviation Civile)
    Abstract: Innovations in the airline industry can have a significant impact on the behavior of air transport stakeholders: airline companies, airports and passengers. In this paper, we consider the introduction of a double-deck plane, the A-380, which is currently the largest aircraft available. Due to its size, it is able to carry at once approximately twice as many passengers as any other medium-sized aircraft. When associated with a reduction in flight frequencies , the operation of such aircraft is expected to lower the environmental impact. However, flight frequency depends on factors others than the aircraft size, such as airport fees, demand and strategic decisions of companies to maximize their profits under competition. Using a monthly panel data set on airlines' supply over 10 years, on 118 routes, we test if the use of the A-380 impacts airlines' flight frequency at a route-level. Results suggest that heavy use of the A-380 leads airlines to reduce their own flight frequency. We also find that when facing the introduction of the A-380 on a route, airlines will tend to react by increasing their own flight frequency.
    Keywords: airline innovation,flight frequency,A-380,airline competition Acknowledgements
    Date: 2018
  8. By: Tomori, Françeska
    Abstract: In a mixed duopoly environment, I study under which conditions the introduction of a voucher system for private schools can increase competition and as a result, social welfare. My model considers a market in which schools compete in qualities to attract students. Speci cally, I consider two settings: one with two private pro t-maximizing schools and one with a mixed duopoly, in which one of the schools maximizes social welfare. In the two situations, the quality level offered by the schools plays a crucial role in the students' enrollment decision. I nd that in both private and mixed duopoly, the voucher reduces the tuition fee and the quality of the high quality school. It also increases own pro ts and decreases the ones of its competitor. Thus, the voucher reduces the incentives of the high-quality school to invest on its quality, and this weakens the competition in the market. In the mixed duopoly scenario, particularly for having an increasing consumer surplus and social welfare, the social planner needs to implement a low voucher. The contrary needs to be implemented in the private duopoly. Finally, the low voucher policy can be successful as a high voucher is costly. Keywords: Mixed Duopoly, Voucher Programs, Educational System, Vertical and Horizontal Differentiation. JEL classi fications: D21, H52, I2, L13.
    Keywords: Despeses públiques, Política educativa, 338 - Situació econòmica. Política econòmica. Gestió, control i planificació de l'economia. Producció. Serveis. Turisme. Preus, 37 - Educació. Ensenyament. Formació. Temps lliure,
    Date: 2018
  9. By: Hollenstein, Heinz
    Abstract: The study aims at providing new evidence with respect to the still unresolved question, whether the innovation behaviour of firms reflects industry-specific characteristics ("technological regime approach"), or whether it is the outcome of firm-specific strategies to gaining a competitive edge ("strategic management view"). To this end, the author firstly identifies a set of innovation strategies (cluster analysis), whose adequacy he evaluates using the "economics of innovation" as reference. Secondly, the author investigates the dynamics of innovation strategies to get some insights into structural changes of the economy. Thirdly, he examines, based on a large number of 4-digit branches, the intra-industry heterogeneity of innovation strategies. Finally, the author analyses in a production function framework the relative importance of a company's innovation strategy and its industry affiliation as determinants of firm performance. The third part of the paper tends to support the "strategic management view" (high intraindustry heterogeneity), while the final one is rather in line with the "technological regime approach" (industry affiliation is the more important factor determining firm performance). These opposite findings indicate that a company has a certain room of manoeuvre to choose an innovation strategy in line with its specific capabilities, but some structural characteristics at industry level restrict the strategic options.
    Keywords: innovation,firm-level taxonomy of innovation strategies,dynamics of innovation strategies,intra-industry heterogeneity of innovation behaviour,impact of firm strategies and industry affiliation on performance
    JEL: O30 O31 O32 O33
    Date: 2018
  10. By: Philipp Herkenhoff; Sebastian Krautheim
    Abstract: Over the last decades, the internationalization of the value chain has allowed firms to exploit cross-country differences in environmental and labor regulation (and enforcement) in ways that have led to a large number of NGO campaigns and consumer boycotts criticizing ‘unethical’ practices. How do potential ‘unethical’ cost savings on the one hand and the threat to reputation and sales on the other interact with the international organization of production? In this paper we introduce North-South differences in regulation, a cost-saving ‘unethical’ technology and consumer boycotts into a standard property rights model of international production. Contracts are incomplete, so that a firm has limited control over both investments and (un)ethical technology choices of both foreign affiliates and suppliers along the value chain. We show that international outsourcing and ‘unethical’ production are linked through a novel unethical outsourcing incentive, for which we also provide empirical support: a high cost advantage of ‘unethical’ production in an industry and a low regulatory stringency in the supplier's country favor international outsourcing (as opposed to vertical FDI). We also provide a microfounded model of investment and pricing under incomplete contracts when the production technology is a credence characteristic of the final good and an NGO investigates firms and may initiate a consumer boycott.
    Keywords: multinational firms, international outsourcing, property rights theory of the firm, ethical production, labor standards, pollution, consumer boycotts, credence goods, NGOs
    JEL: D21 D23 F12 F23 J81 L22 L23 L31 L50 Q53
    Date: 2018
  11. By: Caroline Mothe (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Uyen Nguyen-Thi (LISER - Luxembourg Institute of Socio-Economic Research); Angela Triguero-Cano (Department of International Economics - University of Castilla-La Mancha)
    Abstract: Although the antecedents of environmental innovation and open innovation strategies have been well studied separately, the relationship between a firm's openness and environmental technological innovation still remains an interesting topic to research, especially in terms of the various modes of openness on the one hand and the product–process distinction on the other. This study relies on data from the French Community Innovation Survey to differentiate the association of three dimensions of open inbound innovation search strategies—acquiring, sharing, and information sourcing—with environmental product (ecoproduct) and process (ecoprocess) innovations. Inbound innovation, attained through the acquisition of machinery, equipment, and software, is more likely to be associated with ecoprocess than ecoproduct innovations; external R&D only drives ecoproducts. Inbound sharing through R&D cooperation seems associated with the introduction of both ecoproducts and ecoprocesses. For inbound innovation sourcing, external market sources of information are positively associated with firms' involvement in all types of environmental innovation.
    Keywords: R&D cooperation,Sourcing,R&D acquisition,Environmental innovation,Inbound innovation
    Date: 2018
  12. By: Fernanda Mazzotta (Università di Salerno); Ornella Wanda Maietta (Università di Napoli Federico II and CSEF)
    Abstract: The aim of this paper is to explore the differential effect of innovation on firm survival. We consider the effect of product, process and organisational innovations controlling for the role of the knowledge context and of firm absorptive capacity. At the end of the 1990s, an ad hoc survey was performed on a representative sample of manufacturing firms located in a NUTS3 area of southern Italy, and information on firm survival has been collected for 15 years. A multivariate endogenous probit model is applied to simultaneously analyse the determinants of innovation and of subsequent firm survival. Our estimates confirm that process innovation is a determinant of firm survival followed by product innovation, whereas evidence of a more novel type suggests that organisational innovation plays only a weak role. Entrepreneurial general and specific human capital exerts no direct beneficial effect on firm duration. The requirement of proper technological knowledge from the local university has been the driver of firm duration with the highest marginal effect.
    Keywords: Firm survival, Information network, Human capital, Italian SMEs
    JEL: L20 O3 D22 I2
    Date: 2017–04–02
  13. By: Batabyal, Amitrajeet; Beladi, Hamid
    Abstract: We provide the first strategic analysis of the interaction between a continuum of potentially green consumers and two firms in regional science. Firm 1 (2) sells new (remanufactured) toner cartridges. Each firm selects its price and a consumer purchases from the firm that offers her the highest utility. Utility is given by a surplus measure, the price, and by the transport cost incurred in traveling to a firm’s location. We first derive the best response functions of the two firms. Second, we stipulate a numerical value for the surplus measure and show that when the two firms select their “monopoly” prices, the Nash equilibrium is unique. Third, we specify a linear transport cost function with a constant coefficient and show that the costlier it is for consumers to get to the locations of the two firms, the higher is the price charged by these two firms. Finally, our analysis shows that there is a need to study models in which the two toner cartridges are dissimilar, the interaction between consumers and firms is repeated, and behavioral factors are taken into account.
    Keywords: Bertrand Model, New Good, Purchase, Remanufactured Good, Transport Cost
    JEL: Q57 R41
    Date: 2017–12–09
  14. By: Nanik Hariyana (Faculty of Economic and Bussiness University of Jember, Indonesia Author-2-Name: Raden Andi Sularso Author-2-Workplace-Name: Faculty of Economic and Bussiness University of Jember, Indonesia Author-3-Name: Diana Sulianti K Tobing Author-3-Workplace-Name: Faculty of Economic and Bussiness University of Jember, Indonesia Author-4-Name: Imam Suroso Author-4-Workplace-Name: Faculty of Economic and Bussiness University of Jember, Indonesia)
    Abstract: Objective - The purpose of this study is to determine the effect of advertising of FMCG products on the decision to purchase those products, and brand loyalty, in East Java. Methodology/Technique - This study examines the effect of television advertising on the decision to purchase and brand loyalty with respect to FMCG products. The study uses purposive sampling to gather information in the district of East Java, with a sample of 140 respondents. The study also uses SEM (Structural Equation Modelling) to measure the results. Findings - The SEM analysis shows that product advertising has a significant effect on the decision to purchase and brand loyalty on FMCG products in East Java, which tends to increase at a rate of 5% alpha. Novelty - This study examines the purchasing power of people in the district of East Java.
    Keywords: Strategy; Advertising; Messages; Advertising Products; Lux Soap; Purchasing Decisions.
    JEL: M37 M31
    Date: 2018–02–08

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