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on Industrial Competition |
| By: | Chioveanu, Ioana |
| Abstract: | This study considers an oligopoly model with simultaneous price and quality choice. Ex-ante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium firms use mixed strategies that randomize both price and quality, and obtain strictly positive profits. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards. |
| Keywords: | Oligopoly; Price and quality competition; Quality standards |
| JEL: | L5 L13 L15 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21647&r=com |
| By: | Kalyan Talluri; Víctor Martínez de Albéniz |
| Abstract: | Many revenue management (RM) industries are characterized by (a) fixed capacities in the short term (e.g., hotel rooms, seats on an airline flight), (b) homogeneous products (e.g., two airline flights between the same cities at similar times), and (c) customer purchasing decisions largely influenced by price. Competition in these industries is also very high even with just two or three direct competitors in a market. However, RM competition is not well understood and practically all known implementations of RM software and most published models of RM do not explicitly model competition. For this reason, there has been considerable recent interest and research activity to understand RM competition. In this paper we study price competition for an oligopoly in a dynamic setting, where each of the sellers has a fixed number of units available for sale over a fixed number of periods. Demand is stochastic, and depending on how it evolves, sellers may change their prices at any time. This reflects the fact that firms constantly, and almost costlessly, change their prices (alternately, allocations at a price in quantity-based RM), reacting either to updates in their estimates of market demand, competitor prices, or inventory levels. We first prove existence of a unique subgame-perfect equilibrium for a duopoly. In equilibrium, in each state sellers engage in Bertrand competition, so that the seller with the lowest reservation value ends up selling a unit at a price that is equal to the equilibrium reservation value of the competitor. This structure hence extends the marginal-value concept of bid-price control, used in many RM implementations, to a competitive model. In addition, we show that the seller with the lowest capacity sells all its units first. Furthermore, we extend the results transparently to n firms and perform a number of numerical comparative statics exploiting the uniqueness of the subgame-perfect equilibrium. |
| Keywords: | revenue management, bid-prices, subgame-perfect equilibrium. |
| JEL: | C73 D43 M11 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1205&r=com |
| By: | Michele Boldrin; David K Levine |
| Date: | 2010–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:661465000000000028&r=com |
| By: | E. Bacchiega; E. Randon; L. Zirulia |
| Abstract: | We analyze the effect of competition in market-accessibility enhancement among quality-differentiated firms. Firms are located in regions with different ex-ante transport costs to reach the final market. We characterize the equilibrium of the two-stage game in which firms first invest to improve market accessibility and then compete in prices. Efforts in accessibility improvement crucially depend on the interplay between the willingness to pay for the quality premium of the median consumer and the ex-ante difference in accessibility between regions. From the social standpoint, all the accessibility investment should be carried out by the high-quality firm. Finally quality choice is endogenized. |
| JEL: | L13 R42 L90 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:696&r=com |
| By: | Singh , Nirvikar |
| Abstract: | This essay provides an elementary, unified introduction to the models of market institutions that go beyond the competitive model of price-taking behavior on both sides of the market. Several models of market institutions that govern price determination are explored and compared, including contracting, posted prices, bilateral bargaining, middlemen, and auctions. While equilibrium models still do not capture the full possibilities for market behavior, modeling specific market institutions reduces the level of abstraction inherent in the standard competitive model. |
| Keywords: | market institutions; contracting; posted prices; bilateral bargaining; middlemen; auctions |
| JEL: | D02 D40 |
| Date: | 2010–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21559&r=com |
| By: | Pierre Blanchard; Carl Gaigné; Claude Mathieu |
| Abstract: | We study the impact of trade liberalization on the international strategy of firms (to export and/or invest abroad as well as the number of products to be produced and exported) when product differentiation is endogenous. By considering product differentiation as a strategic variable, our analysis sheds new light on the impact of trade barriers on the decision to produce abroad and on the choice of product range, in accordance with recent empirical evidence. Indeed, we show that, even though technology exhibits the same productivity for each variety, firms drop some varieties with trade integration. In addition, our results reveal that, contrary to the standard theoretical literature, the relationship between the decision to export and trade costs is non-linear. When trade costs are relatively high, each firm export and is multi-product. Then, when trade costs take intermediate values, firms may invest abroad and the choice of producing abroad results from a prisoner's dilemma game. Finally, when trade costs are low, firms export but become single-product. |
| Keywords: | Foreign direct investment, exports, multi-product competition, endogenous differentiation product, trade integration |
| JEL: | F12 F23 L11 L25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:rae:wpaper:201002&r=com |
| By: | Belloc, Filippo |
| Abstract: | Traditional economic studies of innovation, built on the contribution of Schumpeter, cannot explain why firms of the same size and market power can show largely different innovation performances. Contrastingly, the literature on corporate governance provides some useful insights for understanding corporate innovation activity, to the extent that such literature examines the economic consequences of different modes of coordination between firm participants. The process through which individuals integrate their human and physical resources within the firm is indeed central to the dynamic of corporate innovation. This paper provides the first survey of the literature on this issue. We start by discussing why a theory of the firm must be put at the base of an economic analysis of corporate innovation. We then describe three main channels – corporate ownership, corporate finance and labour – through which a system of corporate governance shapes firm innovation activity. Finally, we examine the recent literature on national structures of governance. |
| Keywords: | corporate governance; innovation; theory of the firm; specific investments |
| JEL: | D23 O16 G30 O31 |
| Date: | 2010–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21495&r=com |
| By: | Degner, Harald |
| Abstract: | Many papers have been written about the effect of firm size on innovativeness, revealing a positive, a negative or a mixed impact. To this day, the so-called Schumpeterian hypothesis of the above-average innovativeness of large firms has been neither confirmed nor rejected, often because of insufficient data or a too-short observation period. Many studies concentrate only on a specific region or a specific sector, or they analyze a very short time period. Windows of technological opportunities, providing technological booms for both firms and sectors, have not yet been investigated. An analysis of Germany’s chemical, metal and electronic-engineering sectors between 1877 and 1932 reveals that the sector-specific long-term relationship between firm size and innovativeness is negative, except during times of specific technological booms. In combination with firm-specific characteristics, this new aspect can contribute to a better understanding of the long-term relationship between firm size and innovativeness. -- |
| Keywords: | Effect of firm size on innovativeness,technological boom,Schumpeterian hypothesis |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:152010&r=com |
| By: | Joel Stiebale |
| Abstract: | This paper provides empirical evidence on the relationship between cross-border acquisitions and innovation activities at the fi rm level. In contrast to previous studies that analyze the eff ects on innovation in target fi rms, this paper investigates the eff ects on the investing fi rms. For the empirical analysis a unique fi rm-level data set is constructed that combines survey data for German fi rms with a merger and acquisition database. After a cross-border acquisition, investing fi rms display a higher rate of domestic expenditures for research and development. After controlling for endogeneity of foreign acquisitions by estimating a two-equation system with limited dependent variables and applying instrument variable techniques it is found that part of this correlation stems from a causal eff ect. The estimated eff ects are robust towards alternative identifi cation strategies and are higher in industries with high knowledge intensity. The analysis is complemented by an investigation of the eff ects on tangible investment spending and by a comparison of the eff ects of cross-border acquisitions to those of Greenfi eld foreign direct investments and domestic M&As. |
| Keywords: | Multinational enterprises; mergers and acquisitions; innovation |
| JEL: | D21 F23 G34 C31 O31 O33 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0161&r=com |
| By: | Joel Stiebale; Michaela Trax |
| Abstract: | This paper provides empirical evidence on the eff ects of cross-border M&As on investing fi rms’ domestic performance in the U.K. and France. We build a new fi rm-level dataset that combines a global M&A database with balance sheet data for the years 2000–2007. Combining matching techniques with a diff erence-in-diff erences estimator, we fi nd that cross-border deals boost on average domestic employment, sales, and investment, and they are not accompanied by a downsizing of the domestic labor force in neither of both countries. Further, acquisitions in knowledge-intensive industries lead to improvements in domestic productivity. Our results display some heterogeneity across industries and types of acquisitions, suggesting a connection between the motives for international acquisitions and their resulting effects. |
| Keywords: | Multinational fi rms; cross-border M&A; productivity; employment growth; investment |
| JEL: | F23 G34 L23 D24 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0159&r=com |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT Sloan School of Management) |
| Abstract: | We develop a model with many heterogeneous advertisers (products) and advertising markets (media). Each advertiser has a different consumer segment for its product, and each medium has a different ability to target advertisement messages. We characterize the competitive equilibrium in the media markets and investigate the role of targeting for the price and allocation of advertisements across media markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertisements. Yet, an improved targeting ability also increases the concentration of advertising firms in each market. Surprisingly, we find that the equilibrium price for advertisements is decreasing in the targeting ability over a large range of parameter values. We trace out the implications of targeting for competing media markets. We distinguish offline and online media by their targeting ability: low versus high. We show that competition by an online medium lowers the revenue of the offline medium more than competition by another offline medium of the same size. |
| Keywords: | Targeting, Advertising, Online advertising, Sponsored search, Media markets |
| JEL: | D44 D82 D83 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1758&r=com |
| By: | Fungacova, Zuzana (BOFIT); Solanko, Laura (BOFIT); Weill, Laurent (BOFIT) |
| Abstract: | The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2007 with the Lerner index. Earlier studies on bank competition have focused on developed countries whereas this paper contributes to the analysis of bank competition in emerging markets. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. We would consequently qualify the procompetitive role of foreign bank entry and privatization. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size. |
| Keywords: | market power; bank competition; Russia |
| JEL: | G21 P34 |
| Date: | 2010–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2010_003&r=com |
| By: | Alfredo Martín-Oliver (Banco de España) |
| Abstract: | This paper examines the nature of competition in the Spanish banking industry during the years before and after Spain joined the European Monetary Union (EMU). The paper models competition in a product-differentiated market where banks choose from a list of price (interest rates of loans and deposits) and non-price variables (branches, advertising, IT capital). The empirically estimated demand and cost functions are used to simulate the values of the endogenous variables of the representative bank in response to the historically low official interest rates of the post Euro period. The results show that there has been a convergence in the levels of price competition in the loans and deposits markets during the post Euro period. Additionally, the paper finds that branches have lost weight in the mix of competition variables in benefit of advertising and IT capital. This is interpreted as evidence that traditional proximity banking is evolving towards distant banking. Finally, the simulation results highlight the high imbalances between loans and deposits for the representative bank in the regime of low official interest rates of the Euro zone. |
| Keywords: | banking competition, product differentiation, intangibles, simulation |
| JEL: | G21 D24 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1008&r=com |
| By: | Weill, Laurent (BOFIT) |
| Abstract: | The aim of this paper is to investigate whether Islamic banks have greater market power than con-ventional banks. An Islamic bank, for example, might enjoy enhanced market power if a captive clientele adhering to religious principles permits it to charge higher prices. To measure market power, we compute Lerner indices for a sample of banks from 17 countries where Islamic and conventional banks coexist. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks over the period 2000-2007. When including control variables, regression of Lerner indices even suggests that Islamic banks have less market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are no less competitive than conventional banks. Thus, any reduced market power of Islamic banks can be attributed to differences in norms and incentives. |
| Keywords: | Islamic banks; Lerner index; bank competition |
| JEL: | D43 D82 G21 |
| Date: | 2010–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2010_002&r=com |
| By: | Harbord, David; Hoernig, Steffen |
| Abstract: | This paper presents results from a calibrated welfare model of the UK mobile telephony market which includes many mobile networks; calls to and from the fixed network; networkbased price discrimination; and call externalities. The analysis focuses on the short-run effects of adopting lower mobile termination rates (MTRs) on total welfare, consumer surplus and profits. Our simulations show that reducing MTRs broadly in line with the recent European Commission Recommendation to either “long-run incremental cost”; reciprocal termination charges with fixed networks; or “bill-and-keep” (i.e. zero termination rates), increases social welfare, consumer surplus and networks’ profits. Depending on the strength of call externalities, social welfare may increase by as much as £360 million to £2.5 billion per year. The analysis thus lends support to a move away from fully-allocated cost pricing and towards much lower MTRs, with bill-and-keep frequently leading to the highest increase in welfare when call externalities matter. We also apply the model to estimate the welfare effects of the recently-approved merger between Orange and T-Mobile under two different scenarios concerning MTRs. |
| Keywords: | telecommunications; regulation; mobile termination rates; network effects; welfare; simulations welfare; simulations |
| JEL: | L96 L51 L13 D43 |
| Date: | 2010–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21515&r=com |