nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒12‒03
seventeen papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price-sensitive demand and market entry By Gu, Yiquan; Rasch, Alexander; Wenzel, Tobias
  2. Entry with Two Correlated Signals By Alex Barrachina; Yair Tauman; Amparo Urbano Salvador
  3. Product market regulation, innovation and productivity By Bruno Amable; Ivan Ledezma; Stéphane Robin
  4. First-Mover Advantage in Best-Of-Series: An Experiment Comparison of Role-Assignment Rules By Bradley J. Ruffle, Oscar Volij
  5. R&D LEADERSHIP AND RESEARCH JOINT VENTURES By Paul O'Sullivan;
  6. Bridging the gap between horizontal and vertical merger simulation: Modifications and extensions of PCAID By Bush, C. Anthony
  7. Innovation and horizontal mergers in a vertically related industry By Ibáñez Zarate, Guiomar
  8. Fight Cartels or Control Mergers? On the Optimal Allocation of enforcement Efforts within Competition Policy By Andreea Cosnita; Jean-Philippe Tropeano
  9. Cross-border M&As and innovative activity of acquiring and target firms By Stiebale, Joel
  10. Competition for access provision: Infrastructure upgrades with spillovers By Matsushima, Noriaki; Mizuno, Keizo
  11. R&D investment, productivity and rates of return: A meta-analysis of the evidence on OECD firms and industries By Ugur, Mehmet; Guidi, Francesco; Solomon, Edna; Trushin, Eshref
  12. Competition between Private Labels and National Brands: a Simple Econometric Test and Application to Dairy Markets By Balagtas, Joseph Valdes; Binkley, James K.; Volpe, Richard; Young, Jeffrey S.
  13. The Efficiency of Real-World Bargaining: Evidence from Wholesale Used-Auto Auctions By Bradley Larsen
  14. Coexistence of copper and fiber unbundling: Access charges and investment incentives By Tselekounis, Markos; Orfanou, Georgia; Varoutas, Dimitris
  15. Market Structure and Competition: Assessment of Malaysian Pharmaceutical Industry based on the Modified Structure-Conduct-Performance Paradigm By Chong, Hooi Ying; Chan, Tze-Haw
  16. Is there a level of competition intensity that maximizes investment in the mobile telecommunications industry? By Houngbonon, Georges Vivien; Jeanjean, Francois
  17. Adoption of Information and Communication Technologies and New Organizational Practices in the Tunisian Manufacturing Sector By Adel Ben Youssef; Walid Hadhri; Hatem Mhenni

  1. By: Gu, Yiquan; Rasch, Alexander; Wenzel, Tobias
    Abstract: This paper revisits the optimal entry decision in a differentiated product market where customer demand is price-sensitive and depends on a per-unit transport cost. We show that too few firms may enter for high entry cost and high transport cost compared to the socially optimal outcome.
    Keywords: Circular city,Horizontal product differentiation,Market entry,Price-sensitive demand
    JEL: L11 L13
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:165&r=ind
  2. By: Alex Barrachina (University Carlos III, Madrid, Spain); Yair Tauman (IDC Herzliya, Israel, and Stony Brook University, USA); Amparo Urbano Salvador (ERI-CES, University of Valencia)
    Abstract: We analyze the effect of industrial espionage on limit-pricing models. We consider an incumbent monopolist engaged in R&D trying to reduce his cost of production and deter a potential entrant from entering the market. The R&D project may be successful or not and its outcome is a private information of the incumbent. The entrant has an access to an Intelligence System (IS hereafter) of a certain precision that generates a noisy signal on the outcome of the R&D project, and she decides whether to enter the market based on two signals: the price charged by the incumbent and the signal sent by the IS. It is assumed that the precision of the IS is exogenous and common knowledge. Our fundamental result is that for intermediate values of the IS precision, the set of pooling equilibria is non-empty even with profitable entry and the entrant enters if the IS tells her the R&D project was not successful. Since in the classical limit-pricing models the entrant never enters in a pooling equilibrium, the use of the IS by the entrant increases competition in pooling equilibrium with high probability. Moreover, the incumbent can deter profitable entry with positive probability.
    Keywords: Espionage, Entry deterrence, Asymmetric information, Pooling equilibria.
    JEL: C72 D82 L10 L12
    Date: 2014–11
    URL: http://d.repec.org/n?u=RePEc:dbe:wpaper:0714&r=ind
  3. By: Bruno Amable (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Ivan Ledezma (LEDa - Université Paris-Dauphine, IRD - DIAL - UMR 225); Stéphane Robin (PRISM - Pôle de recherche interdisciplinaire en sciences du management - Université Paris I - Panthéon-Sorbonne : EA4101)
    Abstract: Several recent policy and academic contributions consider that liberalising product markets would foster innovation and growth. This paper analyses the innovation-productivity relationship at the industry-level for a sample of OECD manufacturing industries. We pay particular attention to the vertically-induced influence of product market regulation (PMR) of key input sectors of the economy on the innovative process of manufacturing and its consequences on productivity. We test for a differentiated effect of this type of PMR depending on whether countries are technological leaders or laggards in a given industry and for a given time period. Contrary to the most widespread policy claims, the innovation-boosting effects of liberalisation policies at the leading edge are systematically not supported by the data. These findings question the relevance of a research and innovation policy based on liberalisation.
    Keywords: Product market regulation; innovation; productivity; growth
    Date: 2014–03
    URL: http://d.repec.org/n?u=RePEc:hal:journl:halshs-00973947&r=ind
  4. By: Bradley J. Ruffle, Oscar Volij (Wilfrid Laurier University)
    Abstract: Kingston (1976) and Anderson (1977) show that the probability that a given contestant wins a best-of-2k+1 series of asymmetric, zero-sum, binary-outcome games is, for a large class of assignment rules, independent of which contestant is assigned the advantageous role in each component game. We design a laboratory experiment to test this hypothesis for four simple role-assignment rules. Despite significant differences in the frequency of equilibrium play across the four assignment rules, our results show that the four rules are observationally equivalent at the series level: the fraction of series won by a given contestant and all other series outcomes do not differ across rules.
    Keywords: experimental economics, two-sided competitions, best-of series, asymmetric game, psychological pressure
    JEL: C90 D02 L83
    Date: 2014–09–30
    URL: http://d.repec.org/n?u=RePEc:wlu:lcerpa:0081&r=ind
  5. By: Paul O'Sullivan (Economics, National University of Ireland, Maynooth);
    Abstract: This paper examines the effect of R&D leadership on Research Joint Venture formation. If firms compete in R&D, there is a first (second)-mover advantage, when spillovers are relatively low (high). RJV profits exceed those of R&D leadership, except for a very narrow range of low unit R&D costs and spillovers. For a leader, preventing follower activity is only profitable if unit R&D costs and spillovers are relatively low. If unit R&D costs are sufficiently low, preventing the follower from becoming active may be welfare dominant but not profit maximizing, possibly justifying a role for government policy to subsidise R&D investment
    JEL: D21 L13
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:may:mayecw:n251-14.pdf&r=ind
  6. By: Bush, C. Anthony
    Abstract: A general theoretical and empirical framework is developed for assessing the potential of a vertically integrated firm to foreclose downstream competitors. Using this framework a policymaker may also evaluate the empirical welfare effects from a vertically integrated firm raising rivals' costs. The framework is developed within the context of a vertically integrated multichannel video programming distributor ("MVPD"), and this framework extends the applicability of PCAIDS to vertical mergers. Using public data from the Comcast-Time Warner-Adelphia Merger Order of the Federal Communications Commission, price effects from the threat and action of foreclosure in several designated marketing areas were simulated. Empirical results suggest that the Commission Staff Model substantially underestimated price increases to end users as a result of the threat and action of foreclosure. Empirical results suggest that Commission's Program Access Rules were essential for MVPD competition.
    Keywords: Mergers,merger simulation,vertical merger,horizontal merger,telecommunications,PCAIDS,foreclosure,raising rival's cost,two-sided markets
    JEL: C15 C01 C02 C53 C61 D4 K2 L1 L96
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:ifwedp:201433&r=ind
  7. By: Ibáñez Zarate, Guiomar
    Abstract: This paper analyzes the effects of horizontal mergers on innovation and consumer welfare in a vertically related industry context, in which downstream firms compete for customers with a differentiated final good and can undertake R&D activities to reduce their unit costs. Upstream and downstream horizontal mergers can take place. The results suggest that competition authorities aiming to promote innovation and consumer welfare should treat upstream and downstream mergers differently, since horizontal mergers between upstream firms are detrimental to innovation and consumer welfare. By contrast, policy makers should evaluate the market characteristics under downstream integration. We show that downstream horizontal mergers can be both innovation and consumer welfare enhancing in the short run, when the markets are sufficiently small. Keywords: Horizontal Mergers. Innovation. Vertical Relations. JEL Classification Numbers: L22, L41, O32
    Keywords: Empreses, Direcció general d', Monopolis, Innovacions tecnològiques -- Direcció i administració, 33 - Economia,
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:urv:wpaper:2072/242274&r=ind
  8. By: Andreea Cosnita (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Jean-Philippe Tropeano (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)
    Abstract: This paper deals with the optimal enforcement of competition law between merger and anti-cartel policies. We examine the interaction between these two branches of antitrust, given the budget constraint of the public agency, and taking into account the ensuing incentives for firms in terms of choice between cartels and mergers. To the extent that a tougher anti-cartel action triggers more mergers and vice-versa, we show that the two antitrust branches are complementary. However, if the merger's coordinated effect is taken into account, then for a sufficiently large such effect the agency may optimally have to refrain from controlling mergers and instead spend all resources on fighting cartels.
    Date: 2013–06–01
    URL: http://d.repec.org/n?u=RePEc:hal:journl:hal-00977619&r=ind
  9. By: Stiebale, Joel
    Abstract: This paper analyzes the effects of cross-border mergers and acquisitions (M&As) on the innovation of European firms. The results indicate a considerable increase in post-acquisition innovation in the merged entity. This is mainly driven by inventors based in the acquirer's country, while innovation in the target's country tends to decline. The asymmetry of effects between acquiring and target firms increases with pre-acquisition differences in knowledge stocks, indicating a relocation of innovative activities towards more efficient usage within multinational firms. Instrumental variable techniques as well as a propensity-score matching approach indicate that the effect of cross-border M&As on innovation is causal.
    Keywords: Multinational Enterprises,Mergers and Acquisitions,Innovation
    JEL: F23 D22 G34 O31
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:dicedp:158&r=ind
  10. By: Matsushima, Noriaki; Mizuno, Keizo
    Abstract: We examine a game of competition with access provision in which service quality is endogenously determined through infrastructure upgrades with spillovers. There are two types of equilibria in the free competition regime. In particular, voluntary access provision with an access charge higher than access cost occurs in equilibrium, irrespective of the degree of spillover and the investment cost. However, foreclosure also occurs in equilibrium when the degree of spillover is small and the investment cost is low. We also show that, when voluntary access provision occurs in equilibrium, access regulation is socially desirable only if the degree of spillover is small and the investment cost is high. On the contrary, access regulation is socially desirable in the broader range of investment cost under foreclosure than under voluntary access provision.
    Keywords: access provision,infrastructure upgrades,foreclosure
    JEL: L43 L51 L96
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:itse14:101419&r=ind
  11. By: Ugur, Mehmet; Guidi, Francesco; Solomon, Edna; Trushin, Eshref
    Abstract: The volume of work on productivity effects of research and development (R&D) investment has expanded significantly following the contributions of Zvi Griliches and others to microeconometric work in late 1970s and early 1980s. This study aims to meta-analyse the research findings based on OECD firm and industry data, with a view to establish where the balance of the evidence lies and what factors may explain the variation in reported evidence. Drawing on 1,262 estimates from 64 primary studies, we report that the average effect of R&D capital on productivity and the average rate of return on R&D investment are both positive, but smaller than the summary measures reported in previous narrative reviews and meta-analysis studies. We also report that a range of moderating factors have significant effects on the variation among productivity and rates-of-return estimates reported in primary studies. Moderating factors with significant effects include: (i) measurement of inputs and output; (ii) model specifications; (iii) estimation methods; (iv) levels of analysis; (v) countries covered; and (vi) publication type among others.
    Keywords: Research and Development (R&D), Innovation, Productivity, Firm, Industry, OECD, Meta-Analysis
    JEL: C49 C80 D24 O30 O32 O33
    Date: 2014–08–10
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59686&r=ind
  12. By: Balagtas, Joseph Valdes; Binkley, James K.; Volpe, Richard; Young, Jeffrey S.
    Keywords: Industrial Organization,
    Date: 2014–05–28
    URL: http://d.repec.org/n?u=RePEc:ags:aaea14:170544&r=ind
  13. By: Bradley Larsen
    Abstract: This study quantifies the efficiency of a real-world bargaining game with two-sided incomplete information. Myerson and Satterthwaite (1983) and Williams (1987) derived the theoretical efficient frontier for bilateral trade under two-sided uncertainty, but little is known about how well real-world bargaining performs relative to the frontier. The setting is wholesale used-auto auctions, an $80 billion industry where buyers and sellers participate in alternating-offer bargaining when the auction price fails to reach a secret reserve price. Using 270,000 auction/bargaining sequences, this study nonparametrically estimates bounds on the distributions of buyer and seller valuations and then estimates where bargaining outcomes lie relative to the efficient frontier. Findings indicate that the dynamic mechanism attains 80-91% of the surplus which can be achieved on the efficient frontier.
    JEL: C78 D44 D82 L1
    Date: 2014–08
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20431&r=ind
  14. By: Tselekounis, Markos; Orfanou, Georgia; Varoutas, Dimitris
    Abstract: We study the impact of the access charges of copper and fiber unbundling on an incumbent's incentives to invest in fiber access networks. Once the fiber deployment is in place, the incumbent and the entrant compete for consumers in both copper and fiber markets. We show that when the regulator can freely set either the copper or the fiber access charge, there is a positive correlation between the fixed fiber (respectively, copper) access charge and the copper (respectively, fiber) access charge that maximizes the incumbent's profit after the investment. On the contrary, when the regulator is free to set both access charges, the incumbent's profit is an increasing function of both access charges. However, the decision of the incumbent to undertake the investment in fiber deployment is not only affected by its profit after the investment, but also by the opportunity cost of the investment. This cost is reflected by the profits that the incumbent earns when it does not invest in fiber access networks, and hence, the two firms compete for the provision of only copper-based services. We find that the optimal regulatory policy in terms of investment incentives is to set the copper access charge at the cost of providing the access to the copper access network and the fiber access charge at the level that maximizes the incumbent's profit after the investment. It should be noted that the proposed regulatory policy confirms the methodology of the EC Recommendation (2013/466/EU) for setting the copper and fiber access charges in order to promote competition and enhance the broadband investment environment.
    Keywords: Access regulation,Copper unbundling,Fiber unbundling,Investment incentives,Telecommunications
    JEL: L51 L96
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:itse14:101400&r=ind
  15. By: Chong, Hooi Ying; Chan, Tze-Haw
    Abstract: This study assesses the market structure and competitiveness of Malaysian pharmaceutical industry. A panel analysis of 41 pharmaceutical manufacturing firms over 2004-2012 is conducted founded on the modified Structure-Conduct-Performance (SCP) framework. Our study reveals that the Malaysian pharmaceutical industry is highly concentrated (oligopoly) and the major findings are threefold. First, anti-competitive practices subsist among the pharmaceutical firms. Major players may have greater control over the markets and potentially colluded to gain better profits. Second, selling intensity is evident to raise the firms’ business performance, suggesting that advertisement, marketing campaigns, product differentiations and distribution efforts could be effective in building competencies over the rivals. Third, the study has tackled the endogeneity problem of traditional SCP with dual causal effects found between business conduct and business performance. Firms and authorities should consider the interactive mutual influences of structure-conduct-performance when formulating their respective management decisions and regulatory rules.
    Keywords: Modified Structure-Conduct-Performance, Pharmaceutical Industry, Competition, Panel Regression, Panel Causality
    JEL: D2 I15 L1
    Date: 2014–08–14
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59537&r=ind
  16. By: Houngbonon, Georges Vivien; Jeanjean, Francois
    Abstract: This paper empirically assesses the impact of the intensity of competition on investment in new technologies within the mobile telecommunications industry. Using firm level panel data and an instrumental variable estimation it finds an inverted-U relationship between competition intensity and investment. The intermediate level of competition intensity that maximizes investment stands at 62 percent, whereby competition intensity is measured by 1-Lerner index at the firm level. This means that the maximal level of investment is reached, on average, when the operating pro t represents 38 percent of total revenue. This result is rationalized through a theoretical model that yields an inverted-U relationship between competition and investment. It shows that the potential technological progress, measured by the impact of investment on the reduction of marginal cost, is the main determinant of the investment maximizing intermediate level of competition. The higher the potential technological progress, the lower the level of competition intensity that maximizes investment
    Keywords: Competition,Investment,Mobile Telecommunications
    JEL: D21 D22 L13 L40
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:zbw:itse14:101384&r=ind
  17. By: Adel Ben Youssef (University of Nice Sophia Antipolis, France; GREDEG CNRS); Walid Hadhri (Université de Tunis); Hatem Mhenni (Ecole Supérieure de Commerce de Tunis; Université de la Manouba)
    Abstract: The aim of this paper is to explore the relationship between the adoption of Information Technologies (IT) and the adoption of New Organizational Practices (NOP) in the context of an emerging country (Tunisia). Based on face-to-face questionnaire, to a random sample of 175 Tunisian manufactures, and using an ordered logit model, our empirical results show a significant link between IT adoption and NOP. We show that the complementarity is strengthened when the technology evolves. Adoption and usage of latest technologies are pushed by the prior adoption of NOP.
    Keywords: ICT adoption, ICT usage, Ordred Logit Model, New Organizational Practices
    JEL: L21 O31 O33
    Date: 2014–10
    URL: http://d.repec.org/n?u=RePEc:gre:wpaper:2014-31&r=ind

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