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on Industrial Organization |
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Issue of 2006‒04‒29
eleven papers chosen by |
| By: | Paul A.Grout; Anna Zalewska |
| Abstract: | The paper outlines various measures of profitability and considers what role they can play in competition law. We argue that profitability measures can provide a good answer to the wrong question and a much less good answer to the question we really want to answer. Using appropriate definitions of asset value it is possible to identify whether a firm earns more than the absolute minimum needed to cover cost and compensate for risk, i.e., whether profitability measures such as the internal rate of return and the accounting rate of return are above the cost of capital. However, both the empirical evidence we present and theory indicates that this does not really help in most cases. Knowing that a firm is earning say, half a percent more than the cost of capital is not really much help in almost all competition law cases. But we show that once the rate of return deviates from the cost of capital it becomes hard to measure. Using simple examples we show that shifts in cash flows that preserve the net present value of a project can have dramatic effects on profitability measures. Hence, it is hard to assess the quantity of the “excessive” return. Furthermore, this problem is likely to be far more prevalent today than in the past given the growth in outsourcing (since outsourcing has exactly this type of effect on cash flows). Despite such problems, we argue that the measurement of profit has a role to play in competition law but that the analysis is far more of an art form and far less of a simple statistical procedure. |
| Keywords: | profitability measures, excess return, competition |
| JEL: | K21 L43 G38 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:bri:cmpowp:06/144&r=ind |
| By: | Vives, Xavier (IESE Business School) |
| Abstract: | We provide sufficient conditions in finite-horizon multi-stage games for the value function of each player, associated to extremal Markov perfect equilibria, to display strategic complementarities and for the contemporaneous equilibrium to be increasing in the state variables. |
| Keywords: | Markov game; supermodularity; two-stage game; adjustment costs; learning curve; network effects; |
| Date: | 2006–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0619&r=ind |
| By: | Paula Sarmento (CETE, Faculdade de Economia, Universidade do Porto); António Brandão (CETE, Faculdade de Economia, Universidade do Porto) |
| Abstract: | In this paper we study the way a multiproduct firm, regulated through a dynamic price cap, can develop a price strategy that uses the regulatory policy to deter entry. We consider a firm that initially operates as a monopolist in two markets but faces potential entry in one of the markets. We conclude that the regulated firm can have the incentive to block the entry. This strategy leads to the reduction of the price in both markets. However, the final effect of the entry deterrence strategy on total consumer surplus is not always positive. |
| Keywords: | price cap regulation, entry |
| JEL: | L11 L51 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:0502&r=ind |
| By: | A. Mantovani |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:416&r=ind |
| By: | Lesley Chiou (Department of Economics, Occidental College) |
| Abstract: | This paper quantifies the degree of competition and spatial differentiation across retail channels by exploiting a unique dataset that describes a consumer's choice of store. I estimate a consumer's choice of retailer in the sales market for DVDs among online, mass merchant, electronics, video specialty, and music stores. Using a discrete choice model, I allow for unobserved heterogeneity in preferences for store types and disutility of travel. A consumer's traveling cost varies by income, and substitution occurs proportionately more among stores of the same type. Conditional on price and distance, the average consumer still prefers Wal-Mart over most other stores. |
| Keywords: | discrete choice, retail, spatial differentiation |
| JEL: | C25 L81 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:occ:wpaper:3&r=ind |
| By: | R. Cellini; L. Lambertini |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:369&r=ind |
| By: | L. Lambertini; C. Schultz |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:379&r=ind |
| By: | R. Cellini; L. Lambertini |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:449&r=ind |
| By: | L. Lambertini |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:442&r=ind |
| By: | R. Cellini; L. Lambertini |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:372&r=ind |
| By: | R. Cellini; L. Lambertini |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:440&r=ind |