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on Industrial Organization |
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Issue of 2008‒11‒25
eleven papers chosen by |
| By: | Fabio Tramontana (Università Politecnica delle Marche & Dipartimento di Economia e Metodi Quantitativi, Università di Urbino); Laura Gardini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Tönu Puu (CERUM, Umeå University, SE-90187 Umeå, Sweden) |
| Abstract: | This article considers a Cournot duopoly under an isoelastic demand function and cost functions with built-in capacity limits. The special feature is that each fi rm is assumed to operate multiple plants, which can be run alone or in combination. Each firm has two plants with different capacity limits, so each has three cost options, the third being to run both plants, dividing the load according to the principle of equal marginal costs. As a consequence, the marginal costs functions come in three disjoint pieces, so the reaction functions, derived on basis of global pro fit maximization, may also consist of disjoint pieces. This is reflected in a particular bifurcation structure, due to border collision bifurcations, and to particular basin boundaries, related to the discontinuities. It is shown that stable cycles may coexist, and the non-existence of unstable cycles constitutes a new property. We also compare the coexistent short periodic solutions in terms of the resulting real pro fits. |
| Keywords: | Cournot duopoly, isoelastic demand function, cost functions with built-in capacity limits, bifurcation structure. |
| JEL: | C15 C62 D24 D43 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:08_09&r=ind |
| By: | GABSZEWICZ, Jean (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); LAUSSEL, Didier; TAROLA, Ornella |
| Abstract: | In this paper we address the following question: is it more profitable, for an entrant in a differentiated market, to acquire an existing firm than to compete? We illustrate the answer by considering competition in the banking sector. |
| Keywords: | Vertical differentiation, entry, banking competition |
| JEL: | G34 L13 L22 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2008027&r=ind |
| By: | Noriaki Matsushima (Kobe University); Yasuhiro Sato (Osaka University); Kazuhiro Yamamoto (Osaka University) |
| Abstract: | We investigate the role of firm heterogeneity in considering profitability and desirability of mergers in the international economy. Analysis shows that higher trade costs make only crossborder mergers profitable whereas larger firm heterogeneity is likely to increase both domestic and cross-border mergers. Furthermore, it is shown that whether or not a merger leads to merger waves depends on the types of firms involved in it. It is also demonstrated that larger firm heterogeneity can reduce the discrepancy between profitability and desirability of mergers when the trade cost is sufficiently low. |
| Keywords: | M&As, trade, firm heterogeneity, Cournot competition |
| JEL: | F12 G34 L13 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0835&r=ind |
| By: | GABSZEWICZ, Jean J. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); ZANAJ, Skerdilajda |
| Abstract: | In this paper, we propose an example of successive oligopolies where the downstream firms share the same decreasing returns technology of the Cobb-Douglas type. We stress the differences between the conclusions obtained under this assumption and those resulting from the traditional example considered in the literature, namely, a constant returns technology. |
| Keywords: | successive oligopolies, vertical integration, technology. |
| JEL: | D43 L1 L22 L42 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2008050&r=ind |
| By: | CAPUANO, Carlo (University of Naples Federico II); DE FEO, Giuseppe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | The purpose of this paper is to investigate the effect of privatization in a mixed duopoly, where a private firm competes in quantities with a welfare-maximizing public firm. We consider two inefficiencies of the public sector: a possible cost inefficiency, and an allocative inefficiency due to the distortionary effect of taxation (shadow cost of public funds). Furthermore, we analyze the effect of privatization on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the model developed by Hamilton and Slutsky (1990). The latter is especially relevant for the analysis of privatization, given that results and policy prescription emerged in the literature crucially rely on the type of competition assumed. We show that privatization has generally the effect of shifting from Stackelberg to Cournot equilibrium and that, absent efficiency gains privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred. |
| Keywords: | mixed oligopoly, privatization, endogenous timing, distortionary taxes. |
| JEL: | H2 H42 L13 L32 L33 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2008019&r=ind |
| By: | Simon Loertscher; Gerd Muehlheusser |
| Abstract: | We study a location game where consumers are distributed according to some density f and where market entry is costly and occurs sequentially. This permits an endogenous determination of the number of active ¯rms, their locations and the sequence in which these locations are occupied. While in general the analysis of such games is complicated by the fact that equilibrium locations and the sequence of settlement must be determined simul-taneously, we show that they can be independently derived for certain classes of densities including monotone and, under some additional restrictions, hump-shaped and U-shaped ones. For these classes we characterize the subgame perfect equilibrium outcome. More-over, when f is monotone and concave the equilibrium locations in areas where the density is larger tend to be more pro¯table. When f is uniform the number of ¯rms entering in equilibrium is minimal. |
| Keywords: | Spatial competition product differentiation dynamic games entry deterrence |
| JEL: | D43 L13 D21 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1042&r=ind |
| By: | Werner Bönte (Schumpeter School of Business and Economics, University of Wuppertal); Lars Wiethaus (ESMT Competition Analysis) |
| Abstract: | It is a common concern that pricing pressure by powerful buyers discourages suppliers' R&D investments. Employing a simple monopsonist - competitive upstream industry - framework, this paper qualifies this view in two respects. First, the monopsonist has an incentive to subsidize upstream R&D which yields more upstream R&D and higher profits in both industries than the monopsonist's commitment to higher prices. Secondly, in the presence of intra-industry R&D spillovers between upstream firms, the monopsonist has an even stronger incentive to finance upstream R&D. If the monopsonist finances more than fifty percent of suppliers R&D efforts, R&D investments in upstream industry will be higher than in the case of buyer competition. |
| Keywords: | Vertical Relationships, Monopsony, Buyer Power, R&D, Knowledge Spillovers |
| JEL: | O31 O32 L13 L20 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:schdps:sdp08004&r=ind |
| By: | Gautier Duflos (Centre d'Economie de la Sorbonne - Paris School of Economics); Etienne Pfister (BETA-Règles - Université de Nancy II) |
| Abstract: | This article analyzes the individual determinants of acquisition activity and target choices in the pharmaceutical industry over the period 1978-2002. The "innovation gap" hypothesis states that acquiring firms lack promising drug compounds and acquire firms with more promising drug prospects. A duration model implemented over a panel of more than 400 firms relates the probabilities of being an purchaser or a target to financial, R&D ant patent data to investigate this explanation more deeply. Results show that purchasers are firms with a lower Tobin's Q and decreasing sales, which could indicate that acquisitions are used to compensate for low internal growth prospects. Firms with a higher proportion of radical patents in their portfolio, especially in pharmaceutical and biothechnological patent classes, face a higher probability of being targeted, indicating that acquiring firms are indeed searching for innovative competencies. However, acquiring firms also present a significant absorptive capacity : their R&D investment increases in the year preceding the operation and their patent stock is larger and more diversified than for non-acquiring firms. Finally, we observe that over the last ten years of the sample period, firms have paid a greater attention to the size of the target's portfolio. |
| Keywords: | M&A, pharmaceutical, innovations, patent citations. |
| JEL: | G34 L15 L21 O3 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:bla08057&r=ind |
| By: | LAUSSEL, Didier; RESENDE, Joana (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)) |
| Abstract: | In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers. |
| Keywords: | dynamic competition, differential games, Linear Markov Perfect Equilibrium, aftermarkets, network effects. |
| JEL: | C61 L11 L13 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2008033&r=ind |
| By: | Monterio, G.F.A.; Farina, E.M.M.Q.; Nunes, R. |
| Abstract: | The paper analyzes competition among supermarkets in Brazil. In contrast to part of the economic literature which suggests that the fast growth of big supermarket chains would destroy independent, medium and small supermarkets, the paper argues that big supermarket chains can coexist with different formats of independent food retailing. As a result, competition in food retail is complex and cannot be described as a simple Darwinian process of market concentration. The analysis is divided in two parts. In the first part, the competition between hypermarkets and supermarkets is examined. Evidences for the district of Sao Paulo, Brazil, suggest that these retailers form separate markets. The second part is focused on neighborhood supermarkets. The results differ from the general belief that independent supermarkets establish higher prices in comparison to big chain supermarkets. The analysis brings to light the heterogeneity of the competitive fringe in the oligopoly model of Brazilian retailing. |
| Keywords: | Food retail, Supermarkets, Differentiation, Agribusiness, Industrial Organization, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae08:44199&r=ind |
| By: | Hadj Djelloul, Mohammed; Requillart, Vincent; Simioni, Michel |
| Abstract: | In this paper, we analyse the market power of the retail industry in the French tomato market. Following the methods developed in the New Empirical Industrial Organization, we develop a structural model of this industry. The analysis is based on detailed data on final consumption and prices at both shipper and consumer levels for two types of tomatoes in France. The structural model is composed of a system of demand equation and supply equation. Supply equation includes a term that represents the market power of the retail sector. We use different models of demand in order to test the robustness of our results. We show that i) elasticity of demand varies during the year ii) the retail sector exercise only a "moderate" market power iii) the estimated mark-up of the retail sector varies from 0 to about 0.13 ‚̯kg depending on the period iv) the mark-up is thus small (3% in average) as compared to the consumer price which is mainly explained by cost of production. We conclude to a moderate exercise of market power of the retail sector in this sector. |
| Keywords: | Market power, Imperfect competition, Fresh products, Crop Production/Industries, Demand and Price Analysis, Marketing, L13, Q13, L66, L81, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaa107:6682&r=ind |