nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒03‒10
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Are Sunk Costs a Barrier to Entry? By Cabral, Luís M B; Ross, Thomas
  2. Downstream Competition, Bargaining and Welfare By George Symeonidis
  3. Deregulation of Business By Evgeny Yakovlev; Ekaterina Zhuravskaya
  4. Entry barriers in Italian retail trade By Fabiano Schivardi; Eliana Viviano
  5. The Argentine Competition Law and its Enforcement By Germán coloma

  1. By: Cabral, Luís M B; Ross, Thomas
    Abstract: The received wisdom is that sunk costs create a barrier to entry - if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.
    Keywords: barriers to entry; sunk costs
    JEL: L13
    Date: 2007–03
  2. By: George Symeonidis
    Abstract: I analyse the effects of downstream competition when there is bargaining between downstream firms and upstream agents (firms or unions). When bargaining is over a uniform input price, a decrease in the intensity of competition (or a merger) between downstream firms may raise consumer surplus and overall welfare. When bargaining is over a two-part tariff, a decrease in the intensity of competition reduces downstream profits and upstream utility and raises consumer surplus and overall welfare. In both cases, standard welfare results of oligopoly theory can be reversed: less competition can be unprofitable for firms and/or beneficial for consumers and society as a whole.
    Date: 2007–03–02
  3. By: Evgeny Yakovlev (UC Berkeley); Ekaterina Zhuravskaya (NES, CEFIR. CERP)
    Abstract: What determines the enforcement of deregulation reform of business activities? What are the outcomes of deregulation? We address these questions using an episode of a drastic reform in Russia between 2001 and 2004 which liberalized registration, licensing, and inspections. Based on the analysis of micro-level panel data on regulatory burden, we find that: 1) The reform reduced administrative costs of firms, on average; but, the progress of reform had substantial geographical variation. 2) The enforcement of deregulation reform was better in regions with a transparent government,low corruption, strong fiscal incentives (i.e., reliance of local budgets on local taxes rather than fiscal transfers) and a powerful industrial lobby. 3) Using the exogenous variation in regulation generated by the interaction of reform and its institutional determinants, we find a substantial positive effect of deregulation on entry and small business employment and no effect on pollution and morbidity. The results support the “tollbooth” theory of the nature of regulation and are inconsistent with either the public interest theory or the regulatory capture theory.
    Date: 2007–02
  4. By: Fabiano Schivardi (Universita' di Cagliari); Eliana Viviano (Banca d’Italia)
    Abstract: The 1998 reform of the Italian retail trade sector delegated to the regional governments the regulation of entry of large retail shops. We use the local variation in regulation to determine the effects of entry barriers on firm performance for a representative sample of medium and large retail outlets. Using a diff-in-diff approach, we find that entry barriers are associated with substantially higher profit margins and substantially lower productivity of incumbent firms. We also find that liberalizing entry has a positive effect on investment in ICT, which the recent literature has shown to be the main driver of the remarkable sectoral productivity growth in the US. Finally, in the most liberal regions yearly inflation in the CPI component “food and beverages” was approximately half a percentage point lower than in the other regions: higher productivity coupled with lower margins resulted in lower consumer prices.
    Keywords: entry barriers, productivity growth, technology adoption, retail trade
    JEL: L5 L11 L81
  5. By: Germán coloma
    Abstract: This article analyzes the basic characteristics of the Argentine competition law and the way in which it has been enforced in several important antitrust cases. We begin with a section that introduces the evolution of the law, followed by another section about the basic economic and legal principles underlying that law. The rest of the article describes the enforcement of the law, in a number of cases that involve collusive practices, exclusionary practices, vertical restraints, abuses of dominant position, and mergers.
    Keywords: Competition law, antitrust, Argentina
    JEL: K21 L40
    Date: 2007–02

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