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on Industrial Competition |
| By: | Maarten C.W. Janssen (Erasmus University Rotterdam); Santanu Roy (Southern Methodist University, Dallas, Texas) |
| Abstract: | Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more “competitive”. Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium. |
| Keywords: | Signaling; Quality; Oligopoly; Incomplete Information |
| JEL: | L13 L15 D82 D43 |
| Date: | 2007–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070081&r=com |
| By: | Argenton, C. (Tilburg University, Center for Economic Research) |
| Abstract: | In the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent?s inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent?s monopoly rents. Thus, in equilibrium, the incumbent can offer high enough an upfront payment to induce all retailers to sign on the contract and achieve exclusion. |
| Keywords: | vertical differentiation;exclusive dealing;contracts;naked exclusion;monopolization. |
| JEL: | L12 L42 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200820&r=com |
| By: | B. Curtis Eaton; Ian MacDonald; Laura Meriluoto |
| Abstract: | We examine a duopoly pricing game where some customers know of no firms, others know of only one firm, and some know of both firms. Firms have constant and identical marginal costs, sell homogenous goods and choose prices simultaneously. Customers observe the prices of the firms that are known to them. We show that there is no equilibrium in pure price strategies for this game. We find a mixed strategy equilibrium, and show that it has intuitively appealing comparative static properties. We then examine the two stage game in which firms advertise their existence in stage 1 to create their customer bases, and in stage 2 play the pricing game described above. The equilibrium to the two stage game is asymmetric, and far from the Bertrand equilibrium. |
| Keywords: | Existence advertising, price dispersion, Bertrand paradox, information, duopoly |
| JEL: | D43 D80 |
| Date: | 2008–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2008-10&r=com |
| By: | Claude d’Aspremont; Rodolphe Dos Santos Ferreira; Jacques Thépot (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur) |
| Abstract: | Competitive aggressiveness is analyzed in a simple spatial oligopolistic competition model, where each one of two firms supplies two connected market segments, one captive the other contested. To begin with, firms are simply assumed to maximize profit subject to two constraints, one related to competitiveness, the other to market feasibility. The competitive aggressiveness of each firm, measured by the relative implicit price of the former constraint, is then endogenous and may be taken as a parameter to characterize the set of equilibria. A further step consists in supposing that competitive aggressiveness is controlled by each firm through its manager hiring decision, in a preliminary stage of a delegation game. When competition is exogenously intensified, through higher product substitutability or through larger relative size of the contested market segment, competitive aggressiveness is decreased at the subgame perfect equilibrium. This decrease partially compensates for the negative effect on profitability of more intense competition. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2007-04&r=com |
| By: | Jeroen Hinloopen (Universiteit van Amsterdam, and Katholieke Universiteit Leuven); Jan Vandekerckhove (Kath. Universiteit Leuven) |
| Abstract: | We consider the efficiency of Cournot and Bertrand equilibria in a duopoly with substitutable goods where firms invest in process R&D. Under Cournot competition firms always invest more in R&D than under Bertrand competition. More importantly, Cournot competition yields lower prices than Bertrand competition when the R&D production process is efficient, when spillovers are substantial, and when goods are not too differentiated. The range of cases for which total surplus under Cournot competition exceeds that under Bertrand competition is even larger as competition over quantities always yields the largest producers' surplus. |
| Keywords: | Bertrand competition; Cournot competition; process R&D; efficiency |
| JEL: | L13 |
| Date: | 2007–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070097&r=com |
| By: | Chaudhuri, A.R. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper uses a dynamic dominant-firm model with an endogenous merger process to examine the effects of trade liberalization on industry structure. Domestic and cross-border mergers and demergers are allowed for. When firms are myopic and the dominant firm has a sufficiently high pre-merger capital share in any one country, trade liberalization causes the industry to become significantly more concentrated. When firms are forward-looking, this anti-competitive effect of trade liberalization is mitigated. Tariff reduction from a prohibitive to a non-prohibitive level aligns merger patterns across countries and initiates merger (or demerger) waves simultaneously across countries, provided all firms are equally forward-looking. When the dominant firm is more forward-looking than the fringe, however, this result may be reversed. These results, thus, highlight the importance of taking into consideration existing industry structure and firms' discount rates whilst formulating competition policy in the face of trade liberalization. |
| Keywords: | endogenous market structure;horizontal mergers;trade liberalization |
| JEL: | L41 F13 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200822&r=com |
| By: | Chaudhuri, A.R.; Benchekroun, H. (Tilburg University, Center for Economic Research) |
| Abstract: | In a two-country model where firms behave a la Cournot, we show that marginal and non-marginal trade liberalization have different effects on the social desirability of horizontal mergers. Marginal tariff reductions increase (decrease) the desirability of merger at sufficiently low (high) tariff levels. In the neighborhood of free trade, for sufficiently low cost savings from merger, trade liberalization increases the desirability of merger whilst decreasing the profitability, implying that mergers should be actively encouraged by competition authorities. Furthermore, we identify ranges of tariff levels for which, if trade liberalization increases (decreases) the desirability of merger, it necessarily increases (decreases) its profitability. |
| JEL: | L41 F13 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200819&r=com |
| By: | Jacob Bikker en Laura Spierdijk |
| Abstract: | This paper is the first detailed and world-wide investigation of the developments in banking competition during the past fifteen years. Using the Panzar-Rosse approach, we establish significant changes over time in the competitiveness of the banking industry. The changes in competition over time are small on average, but substantial for several countries and regions. Various Western economies faced a significant decline in banking competition during recent years. In particular, the competitive climate in the euro area was subject to a major break around 2001 - 2002, initiating a period of less competition. Also for the United States and Japan we establish a break during this period. The part of Eastern Europe that now belongs to the European Union experienced a significant but modest decrease in competition during the past ten years. Furthermore, the banking industry in emerging markets became more competitive during the last decade. We attribute the predominantly downward trend in competition to increased bank size and the shift from traditional intermediation to off-balance sheet activities. |
| Keywords: | competition; banking industry; Panzar-Rosse model; structural breaks. |
| JEL: | C52 G21 L11 L13 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:167&r=com |
| By: | Armstrong, Mark |
| Abstract: | This paper discusses complementarities and tensions between competition policies and consumer protection policies. The paper argues that markets will often supply adequate customer protection without the need for extra public intervention. Special areas where intervention might be needed are discussed, including the need to combat deceptive marketing and the need to provide additional market transparency (about both headline prices and shrouded product attributes). A few instances are presented of how more intense competition can worsen the outcomes for (some) consumers. Situations in which poorly designed consumer policies can harm consumers are discussed, including how they can be used to protect incumbent suppliers, how they can relax competition between oligopolists, how they can reduce consumer choice, how they can focus on one aspect of market performance at the expense of others, and how they can lead consumers to take insufficient care in the market. |
| Keywords: | Competition policy; consumer protection; fraud; market transparency; add-on pricing |
| JEL: | D18 M30 L15 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7258&r=com |
| By: | Migiwa Tanaka (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: migiwa.tanaka@boj.or.jp)) |
| Abstract: | Throughout the 1990s, the supply of new condominiums in Tokyo significantly increased while prices persistently fell. This paper investigates whether the market power of condominium developers is a factor in explaining the outcome in this market and whether there is a relationship between production cost trend and the degree of market power that the developers were able to exercise. In order to respond to these questions, a dynamic durable goods oligopoly model of the condominium market-one incorporating time-variant costs and a secondary market-is constructed and structurally estimated using a nested GMM procedure. |
| Keywords: | Durable Goods, Dynamic Oligopoly, Housing Market |
| JEL: | L11 L13 R31 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:08-e-02&r=com |
| By: | Reynald-Alexandre Laurent |
| Abstract: | This paper considers a probabilistic duopoly in which products are described by their specific attributes, this form of differentiation embodying the horizontal and vertical dimensions. Consumers make discrete choices and follow a random decision rule based on these attributes. A three-stage game is studied in which firms develop new attributes for their products (innovation), then may imitate the attributes of the competing product and finally compete in price. At the equilibrium, the firm selling the less appreciated product is generally incited to imitate its rival. Confronted to a threat of imitation, the benchmark firm sometimes decreases strategically its attribute index in order to diminish its unit cost of innovation and the differentiation on the market, deterring the imitation in this way. This strategy is efficient when imitation costs are sufficiently concave. In the opposite case, it is preferable for the benchmark firm to accept the imitation. Thus, according to the shape of imitation costs, equilibria with "deterrence" or with "accommodation" occur, completing the current typology of strategic responses to a threat of imitation. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2008-04&r=com |
| By: | Amin, Mohammad |
| Abstract: | Mainstream economics views demographic changes in the structure of households as of little relevance for the behavior of firms or the functioning of markets. The present paper dispels this view by arguing that changes in the number of non-workers could affect the intensity with which consumers search for best prices and therefore the level of competition. The author also analyzes the relationship between income and competition, which some studies suggest is negative. The author argues that the negative relationship is most likely due to the demographic factors discussed. |
| Keywords: | Markets and Market Access,Education for Development (superceded),Economic Theory & Research,Labor Policies,Emerging Markets |
| Date: | 2008–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4514&r=com |
| By: | Brigitte GAY (LEREPS-GRES & Toulouse Business School) |
| Abstract: | In many industries, networks, rather than firms, have become the organizing level at which firms compete with each other. One role of competitive intelligence is to help firms understand their global environment as well as master their position in a number of industrial sectors. The pertinence of a firm strategy and position in the different segments it is involved in, can be analyzed by mapping the complex alliance networks that characterize industries today. These tools enable also a tech watch of individual, highly innovative, sectors as well as understand the links between countries and the positions of the nations themselves in the global environment. |
| Keywords: | Alliance, network, mapping, biotechnology, competition |
| JEL: | L14 O3 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:grs:wpegrs:2008-05&r=com |
| By: | Alexia Gaudeul (School of Economics and Centre for Competition Policy, University of East Anglia) |
| Abstract: | The rivalry between developers of open source and proprietary software encourages open source developers to court users and respond to their needs. The open source developer who wants to promote her code (intrinsic motivations) may choose liberal license terms such as those of the Berkeley Software Distribution as they allow the proprietary developer to use her code in his product and thus broaden its appeal. If she wants to promote her own implementation of her software (extrinsic motivations), she may use more restrictive license terms such as the General Public License to discourage proprietary exploitation of her code. An open source developer who is a latecomer to the market will be less likely than an early entrant to make her product compatible with that of the proprietary developer, but she is also more likely to orient her software towards the end user. |
| Keywords: | open source, software, standards, compatibility, network effects, duopoly, mixed markets, production systems, non profits, volunteer organizations, information goods, intellectual property, copyright, licensing |
| JEL: | D23 H41 L13 L22 L31 L86 O34 O38 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-02&r=com |
| By: | Kristof De Witte (University of Leuven); Elbert Dijkgraaf (Erasmus University Rotterdam) |
| Abstract: | The Dutch drinking water sector experienced two drastic changes over the last 10 years. Firstly, in 1997, the sector association started with a voluntary benchmarking aimed to increase the efficiency and effectiveness of the sector. Secondly, merger activity arose. This paper develops a tailored nonparametric model to dissect and distinguish the effects on efficiency of these two evolutions. In particular, we adapt Free Disposal Hull (FDH) to estimate robust and conditional non-oriented efficiency estimates. Parametric COLS (Fourier) tests show the robustness of the model with respect to the specification and its variables. We classify the merger economies into scale economies and increased incentives to fight inefficiencies. Although we detect a significant efficiency enhancing effect of benchmarking, we find insignificant merger economies due to the absence of scale economies and the absence of increased incentives to fight inefficiencies. |
| Keywords: | Mergers and acquisitions; efficiency; scale economies; water sector; non-parametric and parametric estimation |
| JEL: | C13 C14 D20 G34 L95 |
| Date: | 2007–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070092&r=com |
| By: | Martynova, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research) |
| Abstract: | In cross-border acquisitions, the differences between the bidder and target corporate governance have an important impact on the takeover returns. Our country-level corporate governance indices capture the changes in the quality of the national corporate governance regulations over the past 15 years. When the bidder is from a country with a strong shareholder orientation (relative to the target), part of the total synergy value of the takeover may result from the improvement in the governance of the target assets. In full takeovers, the corporate governance regulation of the bidder is imposed on the target (the positive spillover by law hypothesis). In partial takeovers, the improvement in the target corporate governance may occur on voluntary basis (the spillover by control hypothesis). Our empirical analysis corroborates both spillover effects. In contrast, when the bidder is from a country with poorer shareholder protection, the negative spillover by law hypothesis states that the anticipated takeover gains will be lower as the poorer corporate governance regime of the bidder will be imposed on the target. The alternative bootstrapping hypothesis argues that poor-governance bidders voluntarily bootstrap to the better-governance regime of the target. We do find support for this bootstrapping effect. |
| Keywords: | takeovers;mergers and acquisitions;cross-border;takeover synergies;corporate governance regulation;contractual convergence;shareholder protection;creditor protection;minority shareholder protection;takeover regulation |
| JEL: | G30 G34 G38 G18 G14 G15 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200818&r=com |
| By: | Bourjade, Sylvain |
| Abstract: | Uniform price auctions admit a continuum of collusive seeming equilibria due to bidders' market power. In this paper, I modify the auction rules in allowing the seller to ration strategic bidders in order to ensure small bidders' participation. I show that many of these "bad" equilibria disappear when strategic bidders do not know small bidders' willingness to pay. Moreover, when the seller is unconstrained in the quantity she can allocate to small bidders, the unique equilibrium price is the highest that the seller could get. |
| Keywords: | Uniform price Auctions, Treasury Auctions, IPO, Rationing |
| JEL: | D44 G32 |
| Date: | 2003–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7250&r=com |
| By: | Damian S. Damianov (Department of Economics and Finance, University of Texas - Pan American); Johannes Gerd Becker (CER-ETH Center of Economic Research at ETH Zurich, Switzerland) |
| Abstract: | We examine an auction in which the seller determines the supply after observing the bids. We compare the uniform price and the discriminatory auction in a setting of supply uncertainty. Uncertainty is caused by the interplay of two factors: the seller's private information about marginal cost, and the seller's incentive to sell the profit-maximizing quantity given the received bids. In every symmetric mixed strategy equilibrium, bidders submit higher bids in the uniform price auction than in the discriminatory auction. In the two-bidder case this result extends to the set of rationalizable strategies. As a consequence, we find that the uniform price auction generates higher expected revenue for the seller and higher trade volume. |
| Keywords: | sealed bid multi-unit auctions, variable supply auctions, discriminatory and uniform price auctions, subgame perfect equilibria, rationalizable strategies |
| JEL: | D44 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:08-80&r=com |
| By: | Said, Maher |
| Abstract: | We examine a model in which multiple buyers with single-unit demand are faced with an infinite sequence of auctions. New buyers arrive on the market probabilistically, and are each endowed with a constant private value. Moreover, objects also arrive on the market at random times, so the number of competitors and the degree of informational asymmetry among them may vary across from one auction to the next. We demonstrate by way of a simple example the inefficiency of the second-price sealed-bid auction in this setting, and therefore assume that each object is sold via ascending auction. We then characterize an efficient and fully revealing equilibrium for the game in which the objects are sold via ascending auctions. We show that each buyer's bids and payoffs depend only upon their rank amongst their competitors and the (revealed) values of those with lower values. Furthermore, strategies are memoryless---bids depend only upon the information revealed in the current auction, and not on any information that may have been revealed in earlier periods. We then demonstrate that the sequential ascending auction serves as an indirect mechanism that is equivalent---in our setting---to the dynamic marginal contribution mechanism introduced by Bergemann and Välimäki (2007) and generalized in Cavallo et al. (2007). |
| Keywords: | Sequential auctions; Ascending auctions; Random arrivals; Information revelation; Dynamic Vickrey-Clarke-Groves mechanism; Marginal contribution |
| JEL: | D44 D83 C73 |
| Date: | 2008–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7160&r=com |