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on Industrial Competition |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We explore patterns of price competition in an oligopoly where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of interaction between pairs of firms. We show how entry, merger and market expansion can affect patterns of price competition in novel ways. |
| Keywords: | Bertrand competition, price dispersion, consideration sets, mixed strategies |
| JEL: | C72 D43 D83 L13 L15 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98346&r=all |
| By: | Joachim Heinzel (Paderborn University); Simon Hoof (Paderborn University) |
| Abstract: | We consider a vertical supply chain that consists of a downstream final good producer and n >= 2 upstream intermediate good producers. The final good producer transforms the n differentiated inputs into an output good via a CES production function and sells the composed good to the final consumers. We study the impact of upstream price and upstream quantity competition on the supply chain. We find that the intermediate good producers prefer price over quantity competition when the inputs are complements and vice versa when they are substitutes. However, the final good producer and the consumers prefer price over quantity competition for all degrees of input differentiation. We additionally observe that the welfare optimal solution materializes when a horizontally integrated upstream market merges vertically with the downstream producer. |
| Keywords: | CES production function; Input competition; Product differentiation |
| JEL: | L00 L13 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:ciepap:129&r=all |
| By: | Ryoma KITAMURA (Faculty of Economics, Otemon Gakuin University); Tsuyoshi TOSHIMITSU (School of Economics, Kwansei Gakuin University) |
| Abstract: | We develop a model of horizontally differentiated oligopolies with network externalities and reconsider a Stackelberg leader's incentive to invite entry, a problem previously examined by Economides (1996) and Kim (2002). We demonstrate that a Stackelberg leader has (does not have) an incentive to invite entry if the degree of network externalities is larger (smaller) than that of the product substitutability, such that a follower's profit increases (decreases). |
| Keywords: | Network externality; Horizontally differentiated oligopoly; Stackelberg competition; Entry; Passive expectation; Responsive expectation |
| JEL: | D21 D43 D62 L13 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:203&r=all |
| By: | Sarah Auster; Nenad Kos; Salvatore Piccolo |
| Abstract: | We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We show that higher types get to propose a mechanism more often, enabling the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where the seller's profit is shown to be non-monotonic in the share of high-value buyers. |
| Keywords: | Optimal Pricing, Bargaining Power |
| JEL: | D82 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_151&r=all |
| By: | Ga\"etan Fournier; Karine Van Der Straeten; J\"orgen Weibull |
| Abstract: | This paper studies a spatial competition game between two firms that sell a homogeneous good at some pre-determined fixed price. A population of consumers is spread out over the real line, and the two firms simultaneously choose location in this same space. When buying from one of the firms, consumers incur the fixed price plus some transportation costs, which are increasing with their distance to the firm. Under the assumption that each consumer is ready to buy one unit of the good whatever the locations of the firms, firms converge to the median location: there is "minimal differentiation". In this article, we relax this assumption and assume that there is an upper limit to the distance a consumer is ready to cover to buy the good. We show that the game always has at least one Nash equilibrium in pure strategy. Under this more general assumption, the "minimal differentiation principle" no longer holds in general. At equilibrium, firms choose "minimal", "intermediate" or "full" differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2001.11422&r=all |
| By: | Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho |
| Abstract: | This paper considers a multiproduct corporation that adopts consumer-friendly activities and cooperates with single plant firms for improving welfare. Comparing competition and (full or partial) cooperation, we show that full cooperation is socially beneficial if products are strong complements, whereas partial cooperation with a higher consumer-friendly activities is beneficial if products are substitutes. We also examine a sequential choice game of endogenous cooperation in which the multiproduct corporation can induce cooperation and show that our findings are supportive at equilibrium. We finally compare different ownerships of the single plant firms and find that foreign ownership decreases the benefits of cooperation. Therefore, a cooperation with multiproduct corporation should be accompanied with active governmental guideline for promoting consumer friendly activities. |
| Keywords: | consumer-friendly activities; full cooperation; partial cooperation; multiproduct corporation; welfare-improving cooperation; |
| JEL: | D43 L13 L21 L44 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98420&r=all |
| By: | Alex Dickson (Department of Economics, University of Strathclyde, Glasgow, UK, G4 0QU.); Ian A. MacKenzie (School of Economics, University of Queensland; http://www.uq.edu.au/economics/) |
| Abstract: | This article investigates the cost effectiveness of cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the subgame-perfect equilibrium and show the interaction of these two distortions has consequences for the resulting allocative efficiency of the market. We find that if the dominant rent-seeking firms are all permit buyers (or a composition of buyers and sellers) then allocative efficiency is improved relative to the case without rent seeking; by contrast, if the dominant rent-seeking firms are all permit sellers then allocative efficiency reduces. |
| Keywords: | Pollution market, Market power, rent seeking. |
| JEL: | D43 D72 Q58 |
| Date: | 2020–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:615&r=all |
| By: | Olga Gorelkina |
| Abstract: | This paper studies collusion via information sharing in the context of auctions. The model of collusion via information sharing builds on Aumann’s (1976) description of knowledge. Robustness of auction mechanisms to collusion via information sharing is defined as the impossibility of an agreement to collude. A cartel can agree to collude on a contract if it is common knowledge within that cartel that the contract is incentive compatible and individually rational. Robust mechanisms are characterized in a number of settings where some, all, or no bidders are bound by limited liability. Finally, the characterization is used in a simple IPV setting to design a mechanism that is both optimal and robust to collusion. |
| Keywords: | Bidder collusion, mechanism design, communication design, no-trade theorem |
| JEL: | D82 D44 C72 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:20182&r=all |
| By: | Tveito, Andreas (University of Bergen, Department of Economics) |
| Abstract: | This paper studies price leadership and coordination in the retail gasoline market. Its main contribution is to show how firms use price leadership to both agree on and sustain a new margin-increasing equilibrium in a market free of price regulations. A unique dataset spanning 13.5 years with exact timing of price changes for almost all Norwegian gasoline stations is employed to study a transition led by the largest chain from irregular price jumps to weekly Monday price jumps, and later a transition led by the second largest chain to weekly additional Thursday price jumps. The transition to regular Thursday price jumps occurred a few months after a merger that increased the second-largest chain’s market share, indicating that the merger contributed to the transition. The transition to Monday price jumps shows no substantial effect on margins, while the additional Thursday price jump has an economically large positive effect. |
| Keywords: | price leadership; coordination; retail gasoline; price cycles; equilibrium transition; competition policy |
| JEL: | K21 L13 L41 L81 |
| Date: | 2019–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2019_004&r=all |
| By: | Kesler, Reinhold; Kummer, Michael E.; Schulte, Patrick |
| Abstract: | Policy makers are increasingly concerned about the combination of market power and massive data collection in digital markets. This concern is fueled by the theoretical prediction that more market power causes firms to collect ever more data from their users. We investigate the relationship between market power and data collection empirically. We analyze data about more than 1.5 million mobile applications in several thousand submarkets of Google's Play Store. We observe these data for over two years and combine information on an app's data collection with information about its competitive environment. Our analysis highlights a robust positive relationship between market power and data collection. We find that more data are being collected in concentrated markets, and apps with higher market shares collect more data. This pattern robustly emerges across a series of cross-sectional and panel regressions as well as a series of specifications that exploit exogenous variation. |
| Keywords: | Competition,Market Power,Privacy,User Data,Apps |
| JEL: | L17 D4 D85 D29 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:19064&r=all |
| By: | Han, Johann; Kairies-Schwarz, Nadja; Vomhof, Markus |
| Abstract: | We investigate the quality provision behavior and its implications for the occurrence of collusion in competitive health care markets where providers are assumed to be altruistic towards patients. For this, we employ a laboratory experiment with a health care market framing where subjects decide on the quality levels for one of three competing hospitals respectively. We vary whether quality decisions within hospitals are made by individuals or teams. Realized monetary patient benefits go to real patients outside the lab. We find that degrees of cooperation quickly converge towards negative values implying absence of collusion and patient centered quality choices. Moreover, hospitals treat qualities as strategic complements and adjust their quality choice in the same direction as their competitors. The response magnitude for team markets is weaker. This is driven by the non-cooperative, or altruistic teams which tend to set qualities strategically independent. |
| Keywords: | quality competition,health care markets,team decisions,altruism,laboratory experiment |
| JEL: | C92 D03 D43 D64 I11 L13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:839&r=all |
| By: | P. CHONÉ (Crest-Ensae); L. WILNER (Insee - Crest) |
| Abstract: | To assess strategic interactions in industries where endogenous product characteristics are unobserved to the researcher, we propose an empirical method that brings a competition-in-utility-space framework to the data. We apply the method to the French hospital industry. The utilities offered to patients are inferred from local market shares under AKM exclusion restrictions. The hospitals' objective functions are identified thanks to the gradual introduction of stronger financial incentives over the period of study. Offering more utility to each patient entails incurring higher costs per patient, implying that utilities are mostly strategic complements. Counterfactual simulations show that stronger incentives affect market shares but have little impact on the total number of patient admissions. We quantify the resulting gains for patients and losses for hospitals. |
| Keywords: | Competition in utility space; financial incentives; payment reform; hospital choice |
| JEL: | D22 D43 I11 L13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nse:doctra:g2019-0&r=all |
| By: | Bukvić, Rajko |
| Abstract: | This paper analyzes the degree of concentration and competition in the Serbian banking sector during the 2010-2017 period and in its current state, by considering the financial statements of banks for the years 2016 and 2017. For this purpose, both traditional concentration indicators (concentration ratio CRn and the Herfindahl-Hirschman index), and the relatively rarely used Linda indices have been used. The degree of concentration has been calculated based on five variables: total assets, deposits, capital, operating income of banks, and loans. The degree to which these indicators are compliant with the basic antitrust regulations has been illustrated. It has been demonstrated that in the current case of a relatively large number of banks operating in Serbia, the existing degree of concentration is relatively low. This provides suitable conditions for the development of healthy competition among them. However, the approximation of the indices to moderate concentration within the period analyzed warns of the appearance of oligopoly. |
| Keywords: | concentration, competition, banking sector, Serbia, Linda indices, Herfindahl-Hirschman index, concentration ratio, antitrust policy |
| JEL: | C38 G21 L10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98341&r=all |
| By: | Intini, Mario; Waterson, Michael |
| Abstract: | In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings. |
| Keywords: | Interconnector ; Electricity Market ; Wind forecasting ; Wind Generators ; Pricing Strategies. |
| JEL: | D22 D47 H54 L22 Q41 Q47 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1242&r=all |
| By: | Malakhov, Sergey |
| Abstract: | The study of the marginal scenario of the theorem of lemons under the total failure of the market of used cars – nobody buys, but everybody gets taxi – shifts the analysis of the equilibrium down from the level of cars to the level of mileage, because the market of used cars stays under the pressure of options whether to buy or to lease and whether to rent a car or to get taxi. The buying of a car with regard to the demand for mileage represents the purchase of input for home production where driving like gardening and pets’ care can provide a direct utility but is also something one can purchase on the market. The equilibrium price of a mile equalizes the willingness to pay of shoppers, consumers with zero search&maintenance costs, and the willingness to accept or to sell of searchers, consumers with positive search&maintenance costs. The practice to sell rights for queue jumping and illegal taxicab operations illustrate the arbitrage between shoppers’ willingness to pay and searchers’ willingness to accept. The analysis of choice between a good high-mileage car and a bad aged low-mileage car goes beyond the traditional considerations on status purchases and describes the phenomenon of the consumers’ willingness to take care of good cars. The willingness to take care increases after-the-purchase costs of ownership above the level of standard technological maintenance costs. As a result, after-the-purchase costs of ownership per mile for high-mileage cars become greater than for aged low-mileage cars. The willingness to take care of big-ticket items supports the demand and sellers of good cars do not quit the market. The willingness to take care redistributes used cars, i.e., assets for the home production of miles, for its more efficient use and cleans up the way to the Coase theorem. |
| Keywords: | theorem of lemons, Coase theorem, equilibrium price dispersion, optimal consumption-leisure choce, willingness to take care, endowment effect |
| JEL: | D11 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98380&r=all |
| By: | Loukas Balafoutas; Rudolf Kerschbamer |
| Abstract: | We review the literature on credence goods since Dulleck and Kerschbamer (Journal of Economic Literature 44(1), 5-42, 2006). We consider various markets for credence goods and briefly discuss evidence on the extent of fraud. We then review theoretical and empirical contributions on the determinants of seller and consumer behavior in markets for credence goods. The topics include informational asymmetries, pro-social motivations and seller characteristics, as well as several features of the market structure and institutional environment (separation of diagnosis and treatment, liability, verifiability, reputational concerns, competition between experts and second opinions). We also describe recent developments in this area of research (such as the role of investing in more precise diagnostic technologies) and offer an outlook on future questions. |
| Keywords: | Credence Goods, Expert Services, Fraud, Undertreatment, Overtreatment, Overcharging |
| JEL: | D82 D83 D21 D22 D18 I11 L15 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2020-01&r=all |
| By: | André Le Roux (IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - Université de Poitiers); Marinette Thébault (CE.RE.GE - CEntre de REcherche en GEstion - IAE Poitiers - Institut d'Administration des Entreprises (IAE) - Poitiers - Université de Poitiers - Université de Poitiers - ULR - Université de La Rochelle); Yves Roy |
| Date: | 2019–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02396977&r=all |
| By: | Rémy Guichardaz (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Laurent Bach (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Julien Penin (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The digital revolution has significantly impacted the music industry by lowering barriers to entry. This change is usually depicted as endangering the big incumbent firms, the so-called ‘Majors' (Universal, Sony, and Warner). Yet, market indicators show that the majors' leadership has not declined. In part thanks to the application of a 360° business model made possible by digitization, they have been able to sustain their position. However, there is still a lack of theoretical account as well as empirical evidence for understanding how this model has been implemented by the Majors. This paper uses the concept of transactional capabilities in order to explain this switch towards 360° business model : majors have relied on a new type of competences, more oriented towards the completion of multiple transactions in parallel with heterogeneous actors. We illustrate this point with the case study of the French arm of Sony Music Entertainment. |
| Keywords: | dynamic capabilities,business model,transactional capability,Music industry,disintermediation |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02182067&r=all |
| By: | Luo, James L. |
| Abstract: | This paper develops a non-equilibrium concept to deal with the competition process in the free market and designs time-featured models to analyze the cases of Rockefeller’s monopolization rather than the oligarch models based on Nash equilibrium. It derives some results that are quite different from popular perception of monopoly and reject all accusations of antitrust laws. The conclusion applies to a wide class of markets and extends its application to the field of lawmaking. |
| Date: | 2020–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:utrx6&r=all |
| By: | Hallward-Driemeier,Mary C.; Kochanova,Anna; Rijkers,Bob |
| Abstract: | Does democratization promote economic competition? This paper documents that the disruption of political connections associated with Suharto's fall had a modest pro-competitive effect on Indonesian manufacturing industries in which his family had extensive business interests. Firms with connections to Suharto lost substantial market share following his resignation. Industries in which Suharto family firms had larger market share during his tenure exhibited weak improvements in broader measures of competition in the post-Suharto era relative to industries in which Suharto firms had not been important players. |
| Keywords: | General Manufacturing,Construction Industry,Common Carriers Industry,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Plastics&Rubber Industry,Food&Beverage Industry,Business Cycles and Stabilization Policies,Finance and Development,Financial Economics,Health Care Services Industry,International Trade and Trade Rules,Energy and Mining |
| Date: | 2020–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9112&r=all |
| By: | Horn, Henrik (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Standards often require the use of patented technologies. Holders of standard-essential patents (SEPs) typically commit to make their patents available on "fair, reasonable and non-discriminatory" (FRAND) terms. National competition authorities increasingly intervene against perceived FRAND violations. But which competition authority should regulate SEPs that affect more than one country? The paper uses a very simple economic framework to assess the impact of three main legal bases for allocating jurisdiction: territoriality, nationality, and cross-border e¤ects. The findings are negative: neither base will implement a jointly efficient outcome, and the relative performance of the bases depends on the particular circumstances at hand. |
| Keywords: | Standard-essential patents; International jurisdiction; Default rules |
| JEL: | F15 K21 K33 L40 O38 |
| Date: | 2020–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1314&r=all |