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on Industrial Competition |
| By: | Smirnov, Vladimir; Wait, Andrew; Xu, Rong |
| Abstract: | We examine entry in a market-entry timing model. Early entry allows a firm to enjoy a higher instantaneous post-entry pro t, while later entry has the benefi t of lower entry costs. In our model, firms can be asymmetric in terms of costs. Specifically, a more efficient rm enters with lower present value of costs. First, we show that entry order is always efficient in the duopoly game while in the triopoly model an efficient entry order could be violated. Moreover, one of the most notable results is that in the triopoly model we generate the necessary condition for an efficient order of entry. In addition, we explore how the rents earned by duopolists relative to a monopolist (the structure of pro ts in the market) impact the order of entry. These results would be useful for future empirical studies of market entry. Furthermore, our paper investigates the welfare implications of the entry in equilibrium by exploring the dynamics of the initial entry time in duopoly and triopoly markets. Previous studies found that the leader's time of entry is typically inefficiently too late. Our results show that unlike in the symmetric case, in the presence of asymmetric fi rms, fi rst entry is not necessarily inefficiently delayed, especially in markets with higher duopoly effects (which capture duopoly rents relative to those for a monopolist) and with fi rms that are more differentiated. This result implies that encouraging an extra fi rm to enter in an oligopolistic market could shorten the period consumers have to wait for new products, and potentially increase social welfare. |
| Keywords: | timing games; entry, leader; follower; process innovation; product innovation. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2018-11&r=all |
| By: | Hollenbeck, Brett |
| Abstract: | The relationship between mergers and the long run rate of innovation is an open question in antitrust economics. I develop a framework to examine this in a dynamic oligopoly model with endogenous investment, entry, exit and horizontal mergers. Firms produce vertically differentiated goods and may merge with rival firms to gain market power and potentially increase the quality of their product. I extend previous work on dynamic mergers by allowing for products differentiated on quality with competition in prices and an endogenous long run rate of innovation. In equilibrium, horizontal mergers are almost entirely harmful to consumers in the short run, but the prospect of a buyout creates a powerful incentive for firms to preemptively enter the industry and invest to make themselves an attractive merger partner. The result is significantly higher rate of innovation with mergers than without and significantly higher long-run consumer welfare as well. Further results explore the circumstances under which this result is likely to hold. In order for the long run increase in innovation to outweigh the short run harm to consumers caused by mergers, entry costs must be low, entrants and incumbents must both have the ability to innovate rapidly, and the degree of horizontal product differentiation must be low. Alternatively, when mergers can generate innovation directly by allowing firms to combine their products they typically benefit consumers in both the short run and long run. |
| Keywords: | Mergers, Antitrust, innovation, dynamic oligopoly |
| JEL: | L13 L40 O3 |
| Date: | 2018–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90764&r=all |
| By: | Donna, Javier D.; Pereira, Pedro; Pires, Tiago; Trindade, Andre |
| Abstract: | We empirically investigate the welfare of intermediaries in oligopolistic markets, where intermediaries offer additional services. We exploit the unique circumstance that, in our empirical setting, consumers can purchase from manufacturers or intermediaries. We specify an equilibrium model, and estimate it using product-level data. The demand includes consumers with costly search and channel-specific preferences. The supply includes two distribution channels. One features bargaining about wholesale prices between manufacturers and intermediaries, and price competition among intermediaries. The other is vertically integrated. The model is used to simulate counterfactuals, where intermediaries do not offer additional services. We find that intermediaries increase welfare. |
| Keywords: | Intermediaries, vertical markets, search frictions, bargaining, outdoor advertising |
| JEL: | D83 L42 L81 M37 |
| Date: | 2018–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90465&r=all |
| By: | Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Center for Advanced Studies in Management and Economics); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance) |
| Abstract: | In this paper we investigate the anti-competitive e¤ects of partial horizontal ownership in a setting where: (i) two cost-asymmetric ?rms compete à la Cournot; (ii) managers deal with eventual con?icting interests of the di¤erent shareholders by maximizing a weighted sum of rms?operating pro?ts; and (iii) weights result from the corporate control structure of the ?rm they run. Within this theoretical structure, we ?nd that if the manager of the more e¢ cient rm weights the operating pro?t of the (ine¢ cient) rival more than its own pro?t, then partial ownership can lessen competition more than a monopoly. |
| Keywords: | Partial Horizontal Ownership, Common-Ownership, Cross-Ownership, Full Joint Ownership, Duopoly, Cost Asymmetry |
| JEL: | L11 L12 L13 L41 L50 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:022018&r=all |
| By: | Taschdjian, Martin; Alleman, James |
| Abstract: | There can be no doubt that the FANG companies – Facebook, Amazon, Netflix and Google, as well as Twitter – have transformed society since their emergence. Like all social transformations, the changes wrought by their services have had ripple effects that are both positive and negative. On the positive side, soaring consumer access to information, news, social networks, and entertainment has been stimulated by the ever-more ubiquitous and falling prices of broadband fixed and mobile bandwidth. E-government has transformed the delivery of public services. However, negative effects have likewise been stark. Certainly, there have been huge disruptions caused by e-commerce. Retail industries, industrial supply chains, banking and publishing are just a few obvious examples. State tax collectors are fighting the loss of sales tax collections. These problems tend to get highlighted by the losers from the process of "creative destruction." Because Facebook and Google are two-sided markets, their economic rents are "hidden" from the public . On the user side of the market, prices are zero – "free." The other side, advertising rate are "hidden." Facebook's and Google's revenues are derived from advertising which appear when you go to their sites. They can extract exorbitant prices for ads, since they are virtually the only source that can target ads directly to potential clients. Because these companies can identify you, the ads can be targeted to your specific wants and needs, even creating "wants and needs" based on your profile. So, what the "customer" – you – perceived as free is not. Indeed, you are the commodity being sold to the advertisers. While Facebook and Google Herfindahl-Hirschman indices (HHI) are high, indicating a concentrated market or highly concentrated market by several different definitions of their markets. For example, Google has 93 percent of the search market. Combined Google and Facebook currently control over half of digital advertising and one-third of total advertising. Nevertheless, no serious antitrust case or legislation has addressed this monopoly power. This paper examines the antitrust cases against Facebook and Google. In this paper, we attempt to go back to first principles to discern whether there is a more appropriate approach to examine the underlying economics of these industries in the hopes that tools can be applied that more directly address the problems. |
| Keywords: | Advertising,antitrust,competition,internet,media,regulation,pricing |
| JEL: | D4 K2 L1 L2 L5 L9 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsb18:190343&r=all |
| By: | Dominik Boddin; Frank Stähler |
| Abstract: | This paper discusses how international trade is organized from export to trans-boundary transport to import. All evidence suggests that the transport sector is independent, may exercise market power and features strong economies of scale. We develop a model of a transport industry that operates under imperfect competition and economies of scale and two generic trade models in which export and import activities are either organized at arm’s length or in a vertical partnership. Using a large dataset of maritime transport costs, tariffs and export prices, we test the model predictions and find that economies of scale beat market power: a decline in the tariff implies a decline in freight rates. Furthermore, our results are consistent only with international trade being organized in vertical partnerships because a tariff increase does not lead to a decrease in export prices. |
| Keywords: | trade costs, transport costs, export prices, vertical integration |
| JEL: | F12 F14 R40 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7378&r=all |
| By: | Alan Asprilla (UNIL - Université de Lausanne); Nicolas Berman (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Olivier Cadot (UNIL - Université de Lausanne, CEPR - Center for Economic Policy Research - CEPR, FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Melise Jaud (UNIL - Université de Lausanne, The World Bank - The World Bank) |
| Abstract: | This paper identifies the effect of trade policy on market power through new data and a new identification strategy. We use a large dataset containing export values and quantities by product and destination for all exporting firms in 12 developing and emerging countries over several years, merged with destination-product specific information on tariffs and non-tariff barriers. We identify market power by observing how exporting firms price discriminate across markets in reaction to variations in bilateral exchange rates. Pricing-to-market is prevalent in all regions of our sample, even among small firms, although it is increasing in firm size, in accordance with theory. More importantly, we find that the effect of non-tariff measures is not isomorphic to that of tariffs: the pricing-to-market behavior we observe suggests that, while tariffs reduce the market power of foreign firms through classic rent-shifting effects, non-tariff measures alter market structure and reinforce the market power of non-exiting firms, domestic and foreign ones alike. |
| Keywords: | trade policy,non-tariff measures,tariffs,exchange rate,price discrimination |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01945660&r=all |
| By: | Güth, Werner; Stadler, Manfred; Zaby, Alexandra |
| Abstract: | In a capacity-then-price-setting game we experimentally identify capacity precommitment, the possibility to communicate before price choices, and prior competition experience as crucial factors for collusive pricing. The theoretical analysis determines the capacity thresholds above which firms have an incentive to coordinate on higher prices. The experimental data reveals that such intra-play communication after capacity but before price choices has a collusive effect only for capacity levels exceeding these thresholds. Subjects with high capacities generally choose higher prices when they have the possibility to communicate. Asymmetry in capacity choices decreases the truthfulness of price messages as well as the probability to coordinate on the same price. |
| Keywords: | capacity-then-price competition,excessive capacities,cheap talk,intra-play communication,collusion,experimental economics |
| JEL: | C72 C91 L1 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:114&r=all |
| By: | Hashmat Khan (Department of Economics, Carleton University); Matthew Strathearn (Department of Economics, Carleton University) |
| Abstract: | We develop and test a novel prediction of the theory of collusion over the business cycle. Building on Haltiwanger and Harrington (1991), we present a model of collusive behaviour in the presence of persistent demand and an Antitrust Authority (AA) in a Cournot framework. The level of collusion is higher during a boom relative to a recession as collusion occurs more frequently when demand is increasing (entering into a collusive arrangement is more profitable and deviating from an existing cartel is less profitable). The model predicts that the number of discovered cartels and hence an- titrust filings should be procyclical because the level of collusion is procyclical. Using a unique data set of United States Antitrust filings, we present robust evidence con- sistent with the model's prediction. We find that antitrust filings are procyclical even after controlling for AA's monitoring intensity. The evidence suggests that procyclical competition policies may be a cost minimizing solution to asymmetries in collusive behaviour over the business cycle. |
| Keywords: | Collusion; Cournot Competition; Antitrust Filings; Business Cycle |
| JEL: | C73 L13 E32 |
| Date: | 2018–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:18-13&r=all |
| By: | Giovanni Immordino (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Paolo Roberti (Università di Bergamo) |
| Abstract: | We analyze the relationship between competition and self-reporting incentives within a criminal network formed by a supplier of an illegal good and two dealers distributing the good to final consumers. The Legislator designs a leniency program to deter crime. We show that the comparison between the optimal amnesty with competition and monopoly in the dealership market depends on the strength of the externalities between dealers at the reporting stage. While in monopoly a leniency program is al- ways feasible, the opposite may happen with competition. This impossibility result is more relevant when the demand for the illegal product is large, when the market is neither too competitive nor too concentrated and when dealers know too much about each other. Moreover, in contrast to monopoly, the policy does not necessarily increase welfare in a competitive environment. |
| Keywords: | Accomplice-witnesses, Criminal Organizations, Leniency, Whistle-Blower |
| Date: | 2018–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:519&r=all |
| By: | Marc Bourreau; Germain Gaudin |
| Abstract: | We consider a streaming platform which carries content from various upstream content providers. Participating customers face personalized recommendations from the platform and consume a mix of content originating from each provider. We analyze when the platform uses its personalized recommendation system to steer consumers from one content provider to another. We establish the conditions under which the recommendation system allows the platform to credibly threaten upstream providers to steer consumers away from their content in order to reduce their market power. We find that the streaming platform can increase its profit by reducing the royalty rate it pays to content providers through the use of a recommendation system which is strategically biased in favor of the cheaper content. |
| Keywords: | streaming platform, recommendation system, personalization, bias |
| JEL: | D40 L10 L50 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7390&r=all |
| By: | Diego d'Andria (European Commission - JRC) |
| Abstract: | We extend the theory of tax incidence under Cournot-Nash oligopolistic competition to study the effects of an ad valorem sales tax on Web services (so-called Web Tax) that are provided free of charge to users, and produce advertising space sold to businesses. Ads are more valuable to advertisers the more users are served by a Web service. Users have ads-neutral preferences and Web companies compete in a Cournot-Nash fashion on the advertising market but enjoy monopolistic power in the service market they serve. We demonstrate that, contrary to standard theoretical results, the equilibrium market price might be reduced by a Web Tax. The conditions for such a decrease depend upon the elasticity of ads demand. |
| Keywords: | Web tax, digital advertising, Cournot competition, tax incidence… |
| JEL: | D43 H2 L13 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:201809&r=all |
| By: | Wang, Wei; Liu, Xiujuan; Ding, Lili; Li, Chen; Zhang, Wensi |
| Abstract: | The authors examine a mixed duopoly market with Cournot or Bertrand competition between a purely private port (port 1) and a partial public port (port 2). Considering both horizontal and vertical differentiation between the two ports, they analytically derive the welfare effect of privatization of port 2 and determine the optimal degree of privatization. Under Cournot or Bertrand competition, it is demonstrated that the social desirable private level of port 2 varies among full privatization, partial privatization and full nationalization, which hinges mainly upon the market size, both horizontal and vertical differentiation between the two ports and the marginal operation cost of each port. As a result, there is not necessarily a one-size-fits-all strategy for port privatization, and it is important for policymakers to consider the effects of market demand, port competition factors in port privatization. |
| Keywords: | port,competition,privatization,horizontal and vertical differentiation |
| JEL: | D43 L33 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201884&r=all |
| By: | Jonathan E. Hughes; Ian A. Lange |
| Abstract: | The movement to deregulate major industries over the past 40 years has produced large efficiency gains. However, distributional effects have been more difficult to assess. In the electricity sector, deregulation has vastly increased information available to market participants through the formation of wholesale markets. We test whether upstream suppliers, specifically railroads that transport coal from mines to power plants, use this information to capture economic rents that would otherwise accrue to electricity generators. Using natural gas prices as a proxy for generators’ surplus, we find railroads charge higher markups when rents are larger. This effect is larger for deregulated plants, high-lighting an important distributional impact of deregulation. This also means policies that change fuel prices can have substantially different effects on downstream consumers in regulated and deregulated markets. |
| Keywords: | deregulation, price discrimination, electricity markets, procurement contracts |
| JEL: | L11 L51 Q48 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7374&r=all |
| By: | Mahir Sarfati (Royal Institute of Technology, Sweden); Mohammad Reza Hesamzadeh (Royal Institute of Technology, Sweden); Par Holmberg (Research Institute of Industrial Economics, Sweden) |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:1838&r=all |
| By: | Mahir Sarfati (Royal Institute of Technology, Sweden); Mohammad Reza Hesamzadeh (Royal Institute of Technology, Sweden); Par Holmberg (Research Institute of Industrial Economics, Sweden) |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:1837&r=all |
| By: | Robles-Rovalo, Arturo; Díaz-Goti, Emiliano; Guarneros-Gutiérrez, Rodrigo |
| Abstract: | In theory, network profits are independent of the reciprocal termination rates when operators charge nondiscriminatory call prices (Laffont, Rey and Tirole, 1998). Additionally, termination rates can be used to subsidize subscriber acquisition cost. This issue is typically known as a "waterbed effect", where a reduction (increase) in termination rates leads to corresponding increase (reduction) in subscription fees to consumers. We are using a practical case for testing the effects in the final prices for regulatory policy with several changes in mobile termination rates based on an asymmetric price access regulation. In our example, the termination rates have been part of a vertical restriction strategy. The observed network-base price discrimination implemented by the major network (Telcel) resulted in deadweight efficiencies lost and created barriers to new entrance and blocked growth for the small networks OECD (2012). Historically, profits margins and mobile prices comes down whenever regulator have reduced termination rates; following the income effects in subscription (Tangeras, 2014). Having in mind this fact, regulators would diminish termination rates in order to pushdown mobile prices and stimulate competition, rest on a cost-based asymmetric price regulation. The further research allows a statistical assessment of the asymmetric price regulation implemented by the Mexican regulatory authority during January 2013 to June 2017. This paper evaluates if asymmetric regulation brings a better impact in the Mexican consumer welfare, driving the retail prices of mobile services down, also the effectivity of this policy for the next years, taking in to account that there is not significant change in the market share among all mobile networks. |
| Keywords: | Mexico,Mobile Telecommunications,Termination Rates,Structural Change,Asymmetric Regulation,Convergence,Time Series Analysis |
| JEL: | L38 L51 L59 L96 O54 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsb18:190426&r=all |
| By: | Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Canta, Chiara (Toulouse Business School); Straume, Odd Rune (University of Bergen, Department of Economics and University of Minho, Department of Economics/NIPE); Siciliani, Luigi (University of York) |
| Abstract: | We study the impact of exposing hospitals in a National Health Service (NHS) to non-price competition by exploiting a patient choice reform in Norway in 2001. The reform facilitates a difference-in-difference research design due to geographical variation in the scope for competition. Using rich administrative data covering the universe of NHS hospital admissions from 1998 to 2005, we find that hospitals in more competitive areas have a sharper reduction in AMI mortality, readmissions, and length of stay than hospitals in less competitive areas. These results indicate that competition improves patient health outcomes and hospital cost efficiency, even in the Norwegian NHS with large distances, low fixed treatment prices, and mainly public hospitals. |
| Keywords: | Patient Choice; Hospital Competition; Quality; Cost-efficiency |
| JEL: | I11 I18 L13 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2018_028&r=all |
| By: | Huayta, Katia (Superintendencia de Banca, Segurosy AFP); Garcia, Antonella (Superintendencia de Banca, Segurosy AFP); Sotomayor, Narda (Superintendencia de Banca, Segurosy AFP) |
| Abstract: | This paper examines the relationship between competition and financial stability for Peruvian microfinance institutions, during the 2002-2016 period. Using the Panzar and Rosse H-statistic as well as the Boone indicator for the evaluation of competition, and the Roy Z-score as a proxy for financial stability, we find a non-linear relationship (inverted U-shaped) between competition and financial stability, which validates the Martínez-Miera and Repullo approach. Furthermore, we find that competition in the Peruvian microfinance system might increase even when market concentration increases; and, according to the H-statistic, the market structure that best fits this system is monopolistic competition. |
| Keywords: | SVARs, Competition, Panzar and Rosse H-statistic, Boone indicator, relevant market, financial stability, Z-score, microfinance |
| JEL: | L11 L22 L25 G21 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2018-005&r=all |
| By: | Phillipe Aghion; Emmanuel Farhi; Enisse Kharroubi |
| Abstract: | In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector). |
| Keywords: | growth, financial conditions, firm leverage, competition |
| JEL: | E32 E43 E52 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1590&r=all |
| By: | Grzybowski, Lukasz; Nicolle, Ambre |
| Abstract: | In this paper, we use a unique database on switching between mobile handsets in a sample of about 5,000 subscribers using tariffs without commitment from a single mobile operator on monthly basis between March 2012 and December 2014. We estimate discrete choice model in which we account for disutility from switching to a different operating systems and handset brands and for unobserved time-persistent preferences for operating systems and brands. Our estimation results indicate presence of significant state-dependency in the choices of operating systems and brands. We find that it is harder for consumers to switch from iOS to Android and other operating systems than from Android and other operating systems to iOS. Moreover, we find that there is significant time-persistent heterogeneity in preferences for different operating systems and brands, which also leads to state-dependent choices. We use our model to simulate market shares in the absence of switching costs and conclude that the market share of Android and smaller operating systems would increase at the expense of the market share of iOS. |
| Keywords: | Smartphones,Consumer Inertia,Switching Costs,Mixed Logit,iOS,Android |
| JEL: | L13 L50 L96 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsb18:190389&r=all |
| By: | Giammario Impullitti (University of Nottingham & CESifo); Omar Licandro (University of Nottingham, IAE-CSIC & Barcelona GSE); Pontus Rendahl (University of Cambridge, Center for Macroeconomics (CFM) & CEPR) |
| Abstract: | We study the gains from trade in a new model with oligopolistic competition, firm heterogeneity, and innovation. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Trade liberalisation can also reduce the number of firms competing in each market, thereby increasing markups on both domestic and export sales. For the majority of exporters, however, the pro- competitive effect prevails and their average markups decline. The incomplete pass-though and the reduction in the number of competitors instead dominate for top-exporters – the top 0.1% of firms – which end up increasing their markup. In a quantitative exercise we find that the aggregate effect of trade-induced markup changes is pro-competitive and accounts for the majority of the welfare gains from trade. Trade-induced changes in competition affect survival on domestic and export markets and firms’ decision to innovate. All exporters, and especially the top exporters, increase their market size after liberalisation which, in turn, encourages them to innovate more. Hence, top exporters contribute negatively to welfare gains by increasing their markups but positively by increasing innovation and productivity. Firms’ innovation response accounts for a small but non-negligible share of the welfare gains while the contribution of selection is U-shaped, being negative for small liberalisations and positive otherwise. A more globalised economy is therefore populated by larger, fewer and more innovative firms, each feature representing an important source of the gains from trade. |
| Keywords: | gains from trade, heterogeneous firms, oligopoly, innovation, endogenous markups, endogenous market structure |
| JEL: | F12 F13 O31 O41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1839&r=all |
| By: | Pazhanisamy, R. |
| Abstract: | There are number of markets discussed in the economic theory seems only as imaginative and lacks proper investigation on the existence in the real world situation and their validity. The kinked demand curve hypothesis is a famous one among them which is under crux among the economic researcher. In the past few decades the existence of this market in the real world economies and its impact is continue to be a puzzle and a very few attempts were made in this areas with a few oscillating conclusions. With this backdrop this attempt is made to fill this gap in economics literature of re examining the existence and the impact of the kinked demand theory hypothesis with a special reference to Lakshadweep islands of India. |
| Keywords: | Kinked demand hypothesis: kinked Demand theory Evidence and Consequences, Sticky prices, Coordination failure, real rigidities, micro economic impact |
| JEL: | A1 A2 A23 D4 D43 D6 D61 E6 E61 H4 H41 H5 H52 R1 |
| Date: | 2018–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:91176&r=all |
| By: | Didier Laussel (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Joana Resende (Economics Department, University of Porto) |
| Abstract: | We investigate how asymmetric information on final demand affects strategic interaction between a downstream monopolist and a set of up-stream monopolists, who independently produce complementary inputs. We study an intrinsic private common agency game in which each supplier i independently proposes a pricing schedule contract to the assembler, specifying the supplier's payment as a function of the assembler's purchase of input i. We provide a necessary and sufficient equilibrium condition. A lot of equilibria satisfy this condition but there is a unique Pareto-undominated Nash equilibrium from the suppliers' point of view. In this equilibrium there are unavoidable efficiency losses due to excessively low sales of the good. However, suppliers may be able to limit these distortions by implicitly coordinating on an equilibrium with a rigid (positive) output in bad demand circumstances. |
| Keywords: | complementary inputs, asymmetric information, private common agency games |
| JEL: | D82 L22 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1842&r=all |
| By: | Hamamura, Jumpei |
| Abstract: | This study analytically investigates the choice of a cost accounting system based on the cost-based transfer price by a divisionalized firm that has a direct channel through electronic commerce (EC). The findings show that the optimal choice between direct and absorption costing affects the increase of overhead allocation for the retail division through the cost-based transfer price. While traditional strategic transfer pricing literature shows that absorption costing is optimal in specific economic environments, this study demonstrates that direct costing is also optimal in a specific economic environment by considering dual channel competition. This research thus contributes to the extant strategic transfer pricing literature, which considers the choice of a cost accounting system in management accounting. |
| Keywords: | Economics; Game theory; Cost-based transfer pricing; Cost accounting; Direct channel |
| JEL: | D43 M41 |
| Date: | 2018–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90836&r=all |
| By: | Michael Pollitt (University of Cambridge); Lewis Dale (National Grid) |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:1839&r=all |
| By: | Giammario Impullitti; Omar Licandro; Pontus Rendahl |
| Abstract: | We study the gains from trade in a new model with oligopolistic competition, firm heterogeneity, and innovation. Lowering trade costs reduces markups on domestic sales but increases markups on export sales, as firms do not pass the entire reduction in trade costs onto foreign consumers. Trade liberalisation can also reduce the number of firms competing in each market, thereby increasing markups on both domestic and export sales. For the majority of exporters, however, the pro- competitive effect prevails and their average markups decline. The incomplete pass-though and the reduction in the number of competitors instead dominate for top-exporters - the top 0.1% of firms - which end up increasing their markup. In a quantitative exercise we find that the aggregate effect of trade-induced markup changes is pro-competitive and accounts for the majority of the welfare gains from trade. Trade-induced changes in competition affect survival on domestic and export markets and firms' decision to innovate. All exporters, and especially the top exporters, increase their market size after liberalisation which, in turn, encourages them to innovate more. Hence, top exporters contribute negatively to welfare gains by increasing their markups but positively by increasing innovation and productivity. Firms' innovation response accounts for a small but non-negligible share of the welfare gains while the contribution of selection is U-shaped, being negative for small liberalisations and positive otherwise. A more globalised economy is therefore populated by larger, fewer and more innovative firms, each feature representing an important source of the gains from trade. |
| Keywords: | Gains from trade, heterogeneous firms, oligopoly, innovation, endogenous markups, endogenous market structure |
| JEL: | F12 F13 O31 O41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1587&r=all |
| By: | Robert M. Adams; John C. Driscoll |
| Abstract: | In this note, we decompose growth into that related to mergers and acquisitions (M&A) and to all other sources; discuss factors that have affected growth and consolidation; describe our data sources and methodology; and present results. |
| Date: | 2018–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2018-12-21-4&r=all |
| By: | Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Economics Department, University of Porto) |
| Abstract: | We investigate how asymmetric information on final demand affects strategic interaction between a downstream monopolist and a set of up-stream monopolists, who independently produce complementary inputs. We study an intrinsic private common agency game in which each supplier i independently proposes a pricing schedule contract to the assembler, specifying the supplier's payment as a function of the assembler's purchase of input i. We provide a necessary and sufficient equilibrium condition. A lot of equilibria satisfy this condition but there is a unique Pareto-undominated Nash equilibrium from the suppliers' point of view. In this equilibrium there are unavoidable efficiency losses due to excessively low sales of the good. However, suppliers may be able to limit these distortions by implicitly coordinating on an equilibrium with a rigid (positive) output in bad demand circumstances. |
| Keywords: | complementary inputs,asymmetric information,private common agency games |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01944314&r=all |
| By: | Viehmann, Johannes (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Lorenczik, Stefan (IEA); Malischek, Raimund (IEA) |
| Abstract: | There is an ongoing debate on the appropriate auction design for competitive electricity balancing markets. Uniform (UPA)and discriminatory price auctions (DPA), the prevalent designs in use today, are assumed to have different properties with regard to prices and effciencies. These properties cannot be thoroughly described using analytical methods due to the complex strategy space in repeated multi-unit multiple bid auctions. Therefore, using an agent-based Q-learning model, we simulate the strategic bidding behaviour in these auctions under a variety of market conditions. We find that UPAs lead to higher prices in all analysed market settings. This is mainly due to the fact that players engage in bid shading more aggressively. Moreover, small players in UPAs learn to free ride on the price setting of large players and learn higher profits per unit of capacity owned, while they are disadvantaged in DPAs. UPAs also generally feature higher effciencies, but there are exceptions to this observation. If demand is varying and players are provided with additional information about scarcity in the market, market prices increase only in case asymmetric players are present. |
| Keywords: | Agent-based computational economics; Auction design; Electricity markets |
| JEL: | C63 D43 D44 L94 |
| Date: | 2018–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2018_003&r=all |
| By: | Bergantino, Angela Stefania; Capozza, Claudia; Intini, Mario |
| Abstract: | This paper explores the nature of price variation in the retail gasoline sector with a novel approach. An empirical model is proposed that jointly analyses: i) the spatial interaction between stations in price setting; ii) the direct and the indirect effect of local competition on prices; iii) the role of territorial factors, generally neglected in the studies on gasoline prices. For all these purposes, variables at sub-municipal level are constructed. The results of the empirical model, tested on the city of Rome, confirm the spatial price interaction across stations. Moreover, evidence of direct and indirect effects of local competition on prices is found: the competitive forces acting in the gasoline sector are not bounded within a local market but they spill over across local markets. Micro-territorial variables turn out to have a sizeable influence on prices, particularly the real estate value. When these variables are added to the model, the strength of spatial interaction weakens. This suggests that including micro-territorial variables in the empirical specification strongly contributes to explain the variation of gasoline prices and to accurately detect the spatial dependence. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:sit:wpaper:18_5&r=all |
| By: | Erhao Xie |
| Abstract: | This paper relaxes the Bayesian Nash equilibrium (BNE) assumption commonly imposed in empirical discrete choice games with incomplete information. Instead of assuming that players have unbiased/correct expectations, my model treats a player’s belief about the behavior of other players as an unrestricted unknown function. I study the joint identification of belief and payoff functions. I show that in games where one player has more actions than the other player, the payoff function is partially identified with neither equilibrium restrictions nor the usual exclusion restrictions. Furthermore, if the cardinality of players’ action sets varies across games, then the payoff and belief functions are point identified up to scale normalizations and the restriction of equilibrium beliefs is testable. For games where action sets are constant across players and observations, I obtain very similar identification results without imposing restrictions on beliefs, as long as the payoff function satisfies a condition of multiplicative separability. I apply this model and its identification results to study the store hours competition between McDonald’s and Kentucky Fried Chicken (KFC) in China. The null hypothesis that KFC has unbiased beliefs is rejected. Failing to account for KFC’s biased beliefs generates an attenuation bias on estimated strategic effects. Finally, the estimation results of the payoff functions indicate that the decision about store hours is a type of vertical differentiation. By operating through the night, a firm not only attracts night-time consumers but also can steal competitors’ day-time customers. This result has implications on the optimal regulation of stores’ opening hours. |
| Keywords: | Econometric and statistical methods, Market structure and pricing |
| JEL: | L13 L85 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-60&r=all |
| By: | Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Xavier Venel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | There exists a wide gap between the predictions of strategic models of network formation and empirical observations of the characteristics of socio-economic networks. Empirical observations underline a complex structure characterized by fat-tailed degree distribution, short average distance, large clustering coefficient and positive assortativity. Game theoretic models offer a detailed representation of individuals' incentives but they predict the emergence of much simpler structures than these observed empirically. Random network formation processes, such as preferential attachment, provide a much better fit to empirical observations but generally lack micro-foundations. in order to bridge this gap, we propose to model network formation as extensive games and investigate under which conditions equilibria of these games are observationally equivalent with random network formation process. In particular, we introduce a class of games in which players compete with their predecessors and their successors for the utility induced by the links they form with another node in the network. Such sequential competition games can represent a number of strategic economic interactions such as oligopolistic competition in supply networks or diffusion of influence in opinion networks. we show that the focal equilibrium that emerge in this setting is one where players use probability distributions with full support and target the whole network with probabilities inversely proportional to the utility of each node. Notably, when the utility of a node is inversely proportional to its degree, equilibrium play induces a preferential attachment process. |
| Abstract: | Les modèles stratégiques de formation de réseaux existants peinent à expliquer un certain nombre de propriétés empiriques. Pour combler ce manque, nous proposons de modéliser la formation de réseau comme un jeu extensif et caractérisons les conditions sous lesquelles les équilibres de ces jeux sont consistants avec des dynamiques aléatoires de formation de réseau dont les bonnes propriétés empiriques sont connues. En particulier, nous introduisons une classe de jeux où les joueurs sont en compétition avec leurs successeurs et à leurs prédécesseurs pour les bénéfices induits par des relations avec d'autres noeuds du réseau. Nous montrons que la stratégie d'équilibre focale dans ce jeu est de se lier aux nœuds existants du réseau avec une probabilité inversement proportionnelle à l'utilité qu'ils génèrent. Notamment, lorsque l'utilité générée par un nœud est inversement proportionnelle à son degré, la stratégie d'équilibre coïncide avec le processus "d'attachement préférentiel" de Barabasi-Albert. |
| Keywords: | Socio-economic networks,endogenous networks formation,game theory,Réseaux socio-économiques,formation endogène des réseaux,théorie des jeux,attachement préférentiel |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01960682&r=all |