nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒01‒23
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  2. Competition and Profit: Varian\'s \"Intermediate Microeconomics\" in the Light of Classi. By Kepa Mirena Ormazabal Sanchez
  3. On Modelling the Persistence of Profits in the Long Run: An Analysis of 156 US Companies, 1950-1999 By Adelina Gschwandtner; John R. Cable
  4. The Effects of Market Structure on Industry Growth: Rivalrous Non-excludable Capital By Christos Koulovatianos; Leonard J. Mirman

  1. By: Zulima Fernández; María J. Nieto
    Abstract: Many advantages have been ascribed to the Internet. Although it lacks the necessary elements to be regarded as a strategic resource, the Internet seems to be a useful tool to provide support for business strategies.In this work we discuss how the Internet can be used to support the development of capabilities and define firm boundaries. Using a sample of Spanish firms, empirically analysed, we find positive relationships between the use of the Internet and product differentiation, as well as the introduction of organizational changes. In addition, we present evidence that the Internet reduces both internal coordination costs and transaction costs as a result of the positive relationships found between the use of the Internet, the degree of vertical integration and the establishment of technological agreements with suppliers and customers.
    Date: 2005–01
  2. By: Kepa Mirena Ormazabal Sanchez (UPV/EHU)
    Abstract: This papel es a critique of the standard conception of the relation between competition and profit and takes Varian as a representative case. Varian starts defining profit as the surplus of revenues over cost: profit is made by buying cheap and selling dear. But the he stumbles on the fact that selling-price cannot be different from cost-price under competition. As Varian views it, competition annihilates the profit margin. This means that, in the general competitive equilibrium, all the goods must be bought and sold at their value, wich Varian takes it to mean that profit cannot exist in competition. This carries the implication that the notion of competitive profit is a contradiction in terms, for, to the extent that competition prevails, there can be no surplus of selling-price over cost-price and, as long as there is susch a divergence, competition does not prevail. I contrast this standard conception of Varian with Classical Economics, where competition equalizes the profit rate. In Classical Economics, profit is not originated in exchange, but in production and the contradictions that plague Varian treatment do not arise. Standard Micro Theory should have not ignored this way.
    Date: 2005–01–18
  3. By: Adelina Gschwandtner; John R. Cable
    Abstract: Long run persistence in company profits is analyzed for 156 US companies over a fifty-year period using AR1 and structural time series tests. A statistically significant degree of consitstency is found between them in identifying firms persistently above or below the competitive norm. However, the structural time series method detects a higher overall incidence of persistence, with nearly 70% of firms classed as not having converged on Zero, compared with 46% under AR1 estimation. The recently proposed structural approach is seen as a useful additional tool in analysing earnings dynamics, in particular where are complex trends and other dynamic complexities.
    JEL: L12 C32
    Date: 2004–07
  4. By: Christos Koulovatianos; Leonard J. Mirman
    Abstract: We analyze imperfect competition in dynamic environments where firms use rivalrous but nonexcludable industry-specific capital that is provided exogenously. Capital depreciation depends on utilization, so firms influence the evolution of the capital equipment through more or less intensive supply in the final-goods market. Strategic incentives stem from, (i) a dynamic externality, arising due to the non-excludability of the capital stock, leading firms to compete for its use (rivalry), and, (ii) a market externality, leading to the classic Cournot-type supply competition. Comparing alternative market structures, we isolate the effect of these externalities on strategies and industry growth.
    JEL: D43 D92 L13 O12 Q20
    Date: 2005–01

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