nep-ind New Economics Papers
on Industrial Organization
Issue of 2018‒02‒12
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A general model of price competition with soft capacity constraints By Cabon-Dhersin Marie-Laure; Drouhin Nicolas
  2. Times are a changin'? The emergence of new firms and rank persistence By Schneck, Stefan
  3. Market Structure and Investment in the Mobile Industry By François Jeanjean; Georges Vivien Houngbonon
  4. Declining Competition and Investment in the U.S. By Gutierrez, German; Philippon, Thomas
  5. The fall and rise of market power in Europe By John P. Weche; Achim Wambach
  6. Why are so many African companies uncompetitive on the global stage? Insights from the global airline industry By Amankwah-Amoah, Joseph
  7. Product diversification in Indian manufacturing By Boehm, Johannes; Dhingra, Swati; Morrow, John

  1. By: Cabon-Dhersin Marie-Laure (Université de Rouen Normandie ; CREAM); Drouhin Nicolas (Ecole Normale Supérieure Paris-Saclay)
    Abstract: We propose a general model of oligopoly with firms relying on a two factor production function. In a first stage, firms choose a certain fixed factor level (capacity). In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is "soft", implying a convex cost function in the second stage. We show that there is a unique equilibrium prediction in pure strategies, whatever the returns to scale, characterized by a price that increases with the number of firms up to a threshold. The main propositions are established under the general assumption that the production function is quasi-concave but the paper provides a general methodology allowing the model to be solved numerically for special parametrical forms.
    Keywords: price competition, tacit collusion, convex cost, capacity constraint, limit pricing strategy, returns to scale
    JEL: L13 D43
    Date: 2017–12–13
  2. By: Schneck, Stefan
    Abstract: Young firms are known to grow at a faster rate than incumbents. With administrative firm data from Germany, we show that the higher growth rates indeed translate into upward mobility within the firm size distribution. Young firms are therefore not only able to catch up, but also to grow larger in absolute values. Recentered influence function regression results reveal that young firms cause significant rank mobility within the stock of firms, which even holds when the local skewness of the firm size distribution is accounted for. The results clearly indicate a Schumpeterian growth process where young firms challenge established ones.
    Keywords: competition,entrepreneurship,firm entry,firm growth,sales mobility
    JEL: L10 L25 L26
    Date: 2018
  3. By: François Jeanjean (Orange Labs - Orange Labs [Belfort] - France Télécom); Georges Vivien Houngbonon (LGI - Laboratoire de Genie Industriel - CentraleSupélec)
    Abstract: The impact of market structure, that is the number of firms and asymmetry , on investment is an important topic in the mobile industry. However, previous literature remains ambiguous about the direction of the relationship. This paper provides an empirical evidence of the impact of market structure on investment in the European mobile industry. The empirical assessment is based on a Salop model with vertical differentiation. Consistently with the prediction of this model, we find that both the number of operators and market share asymmetry have significant effects on investment. In symmetric markets, investment per operator falls with the number of operators, with larger effects for operators that lose market share more than the average. The industry investment rises with the number of operators in the short run, but eventually falls in the long run due to significant adjustment costs of investment in the mobile industry. These findings suggest that investment should be taken into account when analysing the welfare effects of market structure in the mobile industry.
    Keywords: Mobile Telecommunications,Market structure,Investment
    Date: 2017
  4. By: Gutierrez, German; Philippon, Thomas
    Abstract: We argue that the increasing concentration of US industries is not an efficient response to changes in technology and reflects instead decreasing domestic competition. Concentration has risen in the U.S. but not in Europe; concentration and productivity are negatively related; and industry leaders cut investment when concentration increases. We then establish the causal impact of competition on investment using Chinese competition in manufacturing, noisy entry in the late 1990s, and discrete jumps in concentration following large M&As. We find that more (less) competition causes more (less) investment, particularly in intangible assets and by industry leaders.
    Keywords: Concentration; investment; Markups
    Date: 2017–12
  5. By: John P. Weche (Leuphana University Lueneburg, Germany; Monopolies Commission, Bonn, Germany); Achim Wambach (Monopolies Commission, Bonn, Germany; Centre for European Economic Research (ZEW), Mannheim, Germany)
    Abstract: This paper presents an analysis of the recent developments of average market power in Europe by using a broad firm-level database for EU member states. To indicate competitive pressure at the firm-level, markups are estimated following De Loecker (2011), and De Loecker and Warzynski (2012). The analysis reveals a sharp drop in markups during the crisis, followed by a post-crisis increase. The European average has not yet reached its pre-crisis level, which is in contrast to results for the US, where average markups have climbed to pre-crisis levels already in 2011. There is significant heterogeneity among European economies and the pre-crisis levels do have been exceeded in some countries.
    Keywords: Market Power, Markups, Europe, Crisis
    JEL: E2 D2 D4 L1
    Date: 2018–01
  6. By: Amankwah-Amoah, Joseph
    Abstract: This paper examines the question of why so many African firms are uncompetitive on the global stage. An integrated framework of firm-level and external factors was developed. This paper focuses primarily on the global airline industry and offers an array of external factors including slow implementation of the Yamoussoukro Declaration and protection of state-owned airlines, which have historically distorted the nature of competition and hampered the exposure of many airlines to “genuine” or fair competition. When shielded from competition, such firms’ ability to transition to the global stage and outwit rivals is hampered. Furthermore, the study indicates that internal factors such as limited economies of scale and poor quality of services have affected some of the firms’ ability to compete. With the notable of exception of airlines such as Ethiopian Airlines, South African Airways and Kenya Airways, the preponderance of airlines have struggled to compete. These factors help to account for the fact that African airlines equate to only 20% of all air traffic on inter-African routes. The implications of the findings are examined.
    Keywords: Airlines; Africa; Africa’s Competitiveness
    JEL: L1 L2 L5
    Date: 2018
  7. By: Boehm, Johannes; Dhingra, Swati; Morrow, John
    Abstract: The presence of global value chains challenges the neoclassical idea of the firm since it implies firms are not monolithic but are rather interdependent on the larger economic environment. Examining establishments, the smallest units of production within firms, sheds light on the microeconomic incentives determining the location of production and whether a firm produces a good or sources it. Most work on multiproduct firms looks at developed countries, but constraints on firm growth are greater in developing economies. We examine multiproduct establishments in India during a high growth period. Multiproduct establishments made up the bulk of manufacturing production, and their product turnover contributed 28 per cent to net sales growth. Unlike the nineties which witnessed drastic liberalization, establishments in the two-thousands dropped products at rates similar to those for the US. Sales dispersion across products also predicts product addition
    Keywords: multiproduct firms; product adoption; product diversity
    JEL: L1 L2 M2 O3
    Date: 2017–11–01

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