nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒11‒28
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price disclosure rules and consumer price comparison By Stühmeier, Torben
  2. Endogenous timing decisions for product R&D investment competition with demand spillovers in a horizontally differentiated duopoly By Tsuyoshi Toshimitsu
  3. International R&D alliances by firms: Origins and development By Narula R.; Martinez-Noya A.
  4. Patent Collateral, Investor Commitment, and the Market for Venture Lending By Yael V. Hochberg; Carlos J. Serrano; Rosemarie H. Ziedonis
  5. Do buyer groups facilitate collusion? By Normann, Hans-Theo; Rösch, Jürgen; Schultz, Luis Manuel
  6. European High-End Products in International Competition By Lionel Fontagné; Sophie Hatte
  7. Import Competition, Domestic Regulation and Firm-Level Productivity Growth in the OECD By Sarah Ben Yahmed; Sean Dougherty
  8. Efficiency and competition in the Dutch non-life insurance industry: Effects of the 2006 health care reform By Jacob Bikker; Adelina Popescu
  9. The impact of regulation and competition on the migration from old to new communications infrastructure: Recent evidence from EU27 member states By Briglauer, Wolfgang
  10. The Market Structure of Shale Gas Drilling in the United States By Wang, Zhongmin; Xue, Qing
  11. The Impact of Intermittent Renewable Production and Market Coupling on the Convergence of French and German Electricity Prices By Boureau, Charlotte; Le Pen, Yannick; PHAN, Sébastien; Keppler, Jan Horst

  1. By: Stühmeier, Torben
    Abstract: Search frictions are regarded as a major impediment to active competition in many markets. In some markets, such as financial and retail gasoline, governments and consumer protection agencies call for compulsory price reporting. Consumers could then more easily compare the firms' offers. We showthat for a given level of price comparison, mandatory price reporting indeed generally benefits consumers. Such regulation, however, feeds back into firms' strategies, resulting in lower levels of price comparison in equilibrium. This effect may dominate so that the regulation lead to higher expected market prices.
    Keywords: Mixed Strategies,Price Comparison,Regulation
    JEL: D83 L13 L51
    Date: 2014
  2. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: By focusing on the constructive and combative spillover effects of the firms’ investment in research and development (R&D), we develop a horizontally differentiated duopoly model in which R&D investment used to improve product quality influences consumer preferences and the choice of consumption goods. Applying the framework of endogenous timing decisions to the model, we examine the mutually beneficial timing of product R&D investment and demonstrate that, if there are asymmetric demand spillovers between the firms, a natural Stackelberg equilibrium persists in noncooperative product R&D investment competition in which the firm producing the product with weaker (stronger) demand spillovers moves first (second) to commit to the investment, regardless of the mode of competition. We consider the outcome of the endogenous timing decisions, based on the view of “endogenous sunk costs (i.e., The Sutton Approach)”. Furthermore, we address process R&D investment competition with technology spillovers under endogenous timing.
    Keywords: endogenous timing, natural Stackelberg equilibrium, product R&D investment, demand spillovers, horizontally differentiated Cournot duopoly, endogenous sunk cost
    JEL: L13 L15
    Date: 2014–10
  3. By: Narula R.; Martinez-Noya A. (UNU-MERIT)
    Abstract: There has been a dramatic increase in all forms of international cooperation in science, technology and innovation over the last three decades. This chapter focuses on a specific subset of such cooperative agreements those that primarily but not exclusively involve firms that seek some commercial benefit from the outputs of inter-firm collaboration, known as strategic technology partnering STP. Special attention is given to clearly define the unique nature of these collaborative agreements, as well as the reasons and theories behind their growth. We focus on their international dimension, identifying international STP trends, and how the cross-border aspect of these alliances impinges on their formation and success. Finally, managerial challenges and policy implications related to STP are also discussed.
    Keywords: Contracting Out; Joint Ventures; Technology Licensing; Management of Technological Innovation and R&D;
    JEL: O32 L24
    Date: 2014
  4. By: Yael V. Hochberg; Carlos J. Serrano; Rosemarie H. Ziedonis
    Abstract: The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent market is too illiquid to shape debt financing, we find that intensified patent trading increases the annual rate of startup lending, particularly for startups with more redeployable (less firm-specific) patent assets. Exploiting differences in venture capital (VC) fundraising cycles and a negative capital-supply shock in early 2000, we also find that the credibility of VC commitments to refinance and grow fledgling companies is vital for such lending. Our study illuminates friction-reducing mechanisms in the market for venture lending, a surprisingly active but opaque arena for innovation financing, and tests central tenets of contract theory.
    JEL: G24 L14 L26 O16 O3
    Date: 2014–10
  5. By: Normann, Hans-Theo; Rösch, Jürgen; Schultz, Luis Manuel
    Abstract: We explore whether lawful cooperation in buyer groups facilitates collusion in the product market. Buyer groups purchase inputs more economically. In a repeated game, abandoning the buyer group altogether or excluding single firms constitute credible threats. Hence, in theory, buyer groups facilitate collusion. We run several experimental treatments using three-firm Cournot markets to test these predictions and other effects like how buyer groups affect outcomes when group members can communicate. The experimental results show that buyer groups lead to lower outputs when groups can exclude single firms. Communication is often abused for explicit agreements and this strongly reduces competition.
    Keywords: buyer groups,cartels,collusion,communication,experiments,repeated games
    JEL: C7 C9 L4 L41
    Date: 2014
  6. By: Lionel Fontagné (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Sophie Hatte (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université de Rouen - Université de Rouen)
    Abstract: We study international competition in high-end products for 416 detailed HS6 product categories marketed by leading French luxury brands. We construct a world database of trade flows for these products in the period 1994-2009, computing unit values of related bilateral trade flows and analyzing competition among the main exporters. We use the observed distribution of unit values to define a high-end market segment. In 2009, Europe's market share (EU27 plus Switzerland) despite suffering some erosion since 1994, represented three-quarters of the world market. Exports of high-end products are shown to be less sensitive to distance than other products, and found more sensitive to destination country wealth than other products, but only in relation to countries already producing a large range of luxury brands.
    Keywords: Product differentiation ; Market shares ; Unit values
    Date: 2013–11
  7. By: Sarah Ben Yahmed (IEP Aix-en-Provence - Sciences Po Aix - Institut d'études politiques d'Aix-en-Provence - Institut d'Études Politiques [IEP] - Aix-en-Provence - Aix Marseille Université - Fondation Nationale des Sciences Politiques [FNSP], GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR7316); Sean Dougherty (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, OCDE - Organisation de coopération et de développement économiques - OCDE)
    Abstract: This paper examines how import penetration affects firms' productivity growth taking into account the heterogeneity in firms' distance to the efficiency frontier and country differences in product market regulation.
    Keywords: Firm productivity growth ; Behind-the-border regulatory barriers ; Product market regulation ; Import competition, international trade
    Date: 2014–03–14
  8. By: Jacob Bikker; Adelina Popescu
    Abstract: This paper investigates the cost efficiency and competitive behaviour of the non-life - or property and casualty - insurance market in the Netherlands over the period 1995-2012. We focus on the 2006 health care reform, where public health care insurance has been included in the non-life insurance sector. We start with estimating unused scale economies and find that after the health care reform in 2006, unused scale economies are, at 21%, much higher than before the reform (4%), pointing to a relative increase of fixed costs. Scale inefficiencies are generally higher for smaller insurance and lower for large insurance companies. As a benchmark, we also estimate scale economies for non-health lines of business (LOB), which range from 5% to 10%. To measure competition directly, we apply a novel approach that estimates the impact of marginal costs as indicator of inefficiency on either market shares or profits. Over time, competition in health insurance has increased significantly, but the inclusion of the (non-competitive) public health care funds in the health insurance sector in 2006 caused a fall in the average level of competitive pressure. After the reform, competition continued to improve. In the non-health LOB non-life insurance, we find similar significant effects of efficiency on both market shares. The non-life effects are weaker than in life insurance, banking and non-financial sectors, suggesting less heavy competition.
    Keywords: competition; concentration; efficiency; non-life insurance; health care insurance; performance-conduct-structure model; scale economies; scope economies
    JEL: G22 H51 L11 L12 L13
    Date: 2014–09
  9. By: Briglauer, Wolfgang
    Abstract: Fibre-deployment of next-generation communications networks is currently a major challenge for investing firms as well as for national regulators and is also subject to hot debates at EU level. This work examines the role of regulatory policies and competition controlling for relevant supply and demand side factors. Our econometric model employs dynamic panel data methods that take into account potential endogeneity due to omitted heterogeneity, reverse causality and the dynamic investment specification. Our results indicate that relevant forms of previous broadband access regulations have had a negative impact on investment in new infrastructure. Furthermore, infrastructure-based competition from mobile operators and the replacement effect stemming from the incumbents' existing infrastructure exert a negative impact on ex ante investment incentives. As regards the dynamics of the adjustment process, we find that there are both short-term and long-term effects towards the desired infrastructure level.
    Keywords: next-generation communications networks,sector-specific regulation,infrastructure competition,investment conditions,adjustment process,EU27 panel data
    JEL: H5 L38 L43 L52
    Date: 2014
  10. By: Wang, Zhongmin (Resources for the Future); Xue, Qing
    Abstract: This paper provides the first empirical study of the market structure of the shale gas drilling industry in the United States. Modern shale gas drilling, which is a major revolution in the energy industry, was highly concentrated during its experimental stage, roughly from the early 1980s to the early 2000s, and has since become less concentrated, exhibiting a long tail of infrequent drillers. Nevertheless, even during the latter stage, the vast majority of shale gas wells have been drilled by a limited number of large independent oil and gas producers.
    Keywords: shale gas, market structure, concentration, entry
    JEL: L11 L71 Q4
    Date: 2014–09–12
  11. By: Boureau, Charlotte; Le Pen, Yannick; PHAN, Sébastien; Keppler, Jan Horst
    Abstract: Interconnecting two adjacent areas of electricity production generates benefits in combined consumer surplus and welfare by allowing electricity to flow from the low cost area to the high cost area. It will lower prices in the high cost area, raise them in the low cost area and will thus have prices in the two areas converge. With unconstrained interconnection capacity, price convergence is, of course, complete and the two areas are merged into a single area. With constrained interconnection capacity, the challenge for transport system operators (TSOs) and market operators is using the available capacity in an optimal manner. This was the logic behind the “market coupling” mechanism installed by European power market operators in November 2009 in the Central Western Europe (CWE) electricity market, of which France and Germany constitute by far the two largest members. Market coupling aims at optimising welfare by ensuring that buyers and sellers exchange electricity at the best possible price taking into account the combined order books all power exchanges involved as well as the available transfer capacities between different bidding zones. By doing so, interconnection capacity is allocated to those who value it most.
    Keywords: Electricity market;
    JEL: L11 L94
    Date: 2014–10

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