We investigate the imposition of a horizontal technical barrier to trade (HTBT) in a symmetric, cross-hauling duopoly. Tariffs and subsidies are ruled out, but, in the absence of a mutual recognition agreement, it is possible for governments to impose HTBTs, so long as firms apply different technologies. If firms are first movers, this possibility may induce them to avoid technical collaboration, in order to tempt governments into creating national monopolies, except where spillovers and R&D effects are high. This exacerbates the costs of regulatory protection, compared to standard models without R&D or spillovers.
{"title":"Regulatory Protection When Firms Decide First on Technical Collaboration and R&D","authors":"Huw Edwards, Joanna Poyago-Theotoky","doi":"10.1111/roie.12068","DOIUrl":"https://doi.org/10.1111/roie.12068","url":null,"abstract":"We investigate the imposition of a horizontal technical barrier to trade (HTBT) in a symmetric, cross-hauling duopoly. Tariffs and subsidies are ruled out, but, in the absence of a mutual recognition agreement, it is possible for governments to impose HTBTs, so long as firms apply different technologies. If firms are first movers, this possibility may induce them to avoid technical collaboration, in order to tempt governments into creating national monopolies, except where spillovers and R&D effects are high. This exacerbates the costs of regulatory protection, compared to standard models without R&D or spillovers.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"154 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121484239","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper evaluates how different lengths of entry regulation impact market structure and market performance using a dynamic structural model. We formulate an oligopoly model in the tradition of Ericson and Pakes (1995) and allow entry costs to vary over time. Firms have the opportunity to produce multiple products, and decide when to enter a market, followed by production and exit decisions. Using quarterly firm-level data on the static random access memory industry from 1974 to 2003, we find that entry costs decline by more than 90% within the first three years. Our policy experiments provide evidence that the duration of entry regulation has a negative impact on consumer surplus. We also find that entry protection increases total surplus if the protection duration is either sufficiently short or sufficiently long. If entry protection duration is short, the increase in monopolist’s profits and entry cost saving dominate the reduction in consumer welfare, which affects total welfare positively. If protection duration is long, dynamic efficiency gains, i.e., the delay of subsequent entry and savings on entry costs impact total welfare positively.
{"title":"The Impact of Entry Regulation on Total Welfare: A Policy Experiment","authors":"An-Hsiang Liu, R. Siebert, Christine Zulehner","doi":"10.2139/ssrn.2286053","DOIUrl":"https://doi.org/10.2139/ssrn.2286053","url":null,"abstract":"This paper evaluates how different lengths of entry regulation impact market structure and market performance using a dynamic structural model. We formulate an oligopoly model in the tradition of Ericson and Pakes (1995) and allow entry costs to vary over time. Firms have the opportunity to produce multiple products, and decide when to enter a market, followed by production and exit decisions. Using quarterly firm-level data on the static random access memory industry from 1974 to 2003, we find that entry costs decline by more than 90% within the first three years. Our policy experiments provide evidence that the duration of entry regulation has a negative impact on consumer surplus. We also find that entry protection increases total surplus if the protection duration is either sufficiently short or sufficiently long. If entry protection duration is short, the increase in monopolist’s profits and entry cost saving dominate the reduction in consumer welfare, which affects total welfare positively. If protection duration is long, dynamic efficiency gains, i.e., the delay of subsequent entry and savings on entry costs impact total welfare positively.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126494975","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
An impatient, risk-neutral monopolist must sell one unit of an indivisible good within a fixed number of periods and privately informed myopic buyers with independent values enter the market over time. In each period, the seller can either run a reserve price auction incurring a cost or post a price without the cost. We characterize the optimal sequence of mechanisms that maximizes the seller's expected profits. When there is an infinite number of periods, repeatedly running auctions with the same reserve price or posting a constant price is optimal. When there is a finite number of periods, the optimal sequence is a sequence of declining prices, a sequence of auctions with declining reserve prices converging to the static optimal monopoly reserve price, or the combination of the two. Most interestingly, a sequence of auctions before a sequence of posted prices is never optimal. The mechanism sequence of posted prices followed by auctions remains optimal under various extensions of the basic setting and resembles a Buy-It-Now option.
{"title":"The Optimal Sequence of Costly Mechanisms","authors":"Hanzhe Zhang","doi":"10.2139/SSRN.2408012","DOIUrl":"https://doi.org/10.2139/SSRN.2408012","url":null,"abstract":"An impatient, risk-neutral monopolist must sell one unit of an indivisible good within a fixed number of periods and privately informed myopic buyers with independent values enter the market over time. In each period, the seller can either run a reserve price auction incurring a cost or post a price without the cost. We characterize the optimal sequence of mechanisms that maximizes the seller's expected profits. When there is an infinite number of periods, repeatedly running auctions with the same reserve price or posting a constant price is optimal. When there is a finite number of periods, the optimal sequence is a sequence of declining prices, a sequence of auctions with declining reserve prices converging to the static optimal monopoly reserve price, or the combination of the two. Most interestingly, a sequence of auctions before a sequence of posted prices is never optimal. The mechanism sequence of posted prices followed by auctions remains optimal under various extensions of the basic setting and resembles a Buy-It-Now option.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"29 3","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132737412","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and where M&As as well as the overall market structure are endogenously determined. The model is tested on data on Bank Groups, collected in 2007 when several mergers occurred in Italy. The estimates of the empirical model yield measures of the degree of competition in local markets in Italy, as well as measures of the implicit value of a branch traded in M&A operations both by bank involved in the merger and by local market. The paper finds that competition did decrease following two mergers among the biggest Italian Banks, but that with later mergers competition was more or less returned to the 2006 degree of toughness. In addition it results that the acquisition cost of a traded branch tends to be lower than the profit it can generate. These measures may be relevant in antitrust analyses and for competition policy purposes, and they are extremely parsimonious in terms of data requirements.
{"title":"Mergers in Banking from an Antitrust Perspective","authors":"Barbara Chizzolini","doi":"10.2139/ssrn.2352971","DOIUrl":"https://doi.org/10.2139/ssrn.2352971","url":null,"abstract":"This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and where M&As as well as the overall market structure are endogenously determined. The model is tested on data on Bank Groups, collected in 2007 when several mergers occurred in Italy. The estimates of the empirical model yield measures of the degree of competition in local markets in Italy, as well as measures of the implicit value of a branch traded in M&A operations both by bank involved in the merger and by local market. The paper finds that competition did decrease following two mergers among the biggest Italian Banks, but that with later mergers competition was more or less returned to the 2006 degree of toughness. In addition it results that the acquisition cost of a traded branch tends to be lower than the profit it can generate. These measures may be relevant in antitrust analyses and for competition policy purposes, and they are extremely parsimonious in terms of data requirements.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"97 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121083560","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract: We analyze a two-stage game of strategic firms facing uncertain demand and exerting market power in decentralized electricity markets. These firms choose their generation capacities at the first stage while anticipating a perfectly competitive future electricity spot market outcome at the second stage; thus it is a closed loop game. In general, such games can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and examples have been posed in the literature that have multiple or no equilibria. Therefore, it is of interest to define general sets of conditions under which solutions exist and are unique, which would enhance the value of such models for policy andmarket intelligence purposes. In this paper, we consider various types of such a closed loop model regarding the underlying price-demand relations (elastic and inelastic demand), the assumed demand uncertainty with a broad class of continuous distributions, and any finite number of players with symmetric or asymmetric costs. We establish sufficient conditions for the random demand’s probability distribution which guarantee existence and uniqueness of equilibria in most of the cases of this closed loop model. We identify a broad class of commonly used continuous probability distributions satisfying these conditions.
{"title":"Strategic Generation Capacity Choice Under Demand Uncertainty: Analysis of Nash Equilibria in Electricity Markets","authors":"G. Gürkan, O. Ozdemir, Y. Smeers","doi":"10.2139/ssrn.2314777","DOIUrl":"https://doi.org/10.2139/ssrn.2314777","url":null,"abstract":"Abstract: We analyze a two-stage game of strategic firms facing uncertain demand and exerting market power in decentralized electricity markets. These firms choose their generation capacities at the first stage while anticipating a perfectly competitive future electricity spot market outcome at the second stage; thus it is a closed loop game. In general, such games can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and examples have been posed in the literature that have multiple or no equilibria. Therefore, it is of interest to define general sets of conditions under which solutions exist and are unique, which would enhance the value of such models for policy andmarket intelligence purposes. In this paper, we consider various types of such a closed loop model regarding the underlying price-demand relations (elastic and inelastic demand), the assumed demand uncertainty with a broad class of continuous distributions, and any finite number of players with symmetric or asymmetric costs. We establish sufficient conditions for the random demand’s probability distribution which guarantee existence and uniqueness of equilibria in most of the cases of this closed loop model. We identify a broad class of commonly used continuous probability distributions satisfying these conditions.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125860455","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-03-01DOI: 10.1111/j.1467-629X.2011.00457.x
P. Cheng, P. Man, Cheong H. Yi
The objective of this paper is to examine the impact of product market competition on earnings quality. Based on a sample from the US manufacturing sector for the period 1996–2005, we find consistent evidence showing a positive relation between product market competition and earnings quality. Additional tests also confirm a positive relation between product market competition and the precision of public and private information held by investors and analysts. We also provide evidence that firms competing in concentrated and heterogeneous industries are associated with a number of earnings attributes and information quality not shared by those competing in concentrated but homogeneous industries. These findings are consistent with the intuition that firms enjoying a monopolistic advantage tend to avoid the attention of their competitors and politicians by creating a more opaque information environment.
{"title":"The Impact of Product Market Competition on Earnings Quality","authors":"P. Cheng, P. Man, Cheong H. Yi","doi":"10.1111/j.1467-629X.2011.00457.x","DOIUrl":"https://doi.org/10.1111/j.1467-629X.2011.00457.x","url":null,"abstract":"The objective of this paper is to examine the impact of product market competition on earnings quality. Based on a sample from the US manufacturing sector for the period 1996–2005, we find consistent evidence showing a positive relation between product market competition and earnings quality. Additional tests also confirm a positive relation between product market competition and the precision of public and private information held by investors and analysts. We also provide evidence that firms competing in concentrated and heterogeneous industries are associated with a number of earnings attributes and information quality not shared by those competing in concentrated but homogeneous industries. These findings are consistent with the intuition that firms enjoying a monopolistic advantage tend to avoid the attention of their competitors and politicians by creating a more opaque information environment.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134157755","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper theoretically and empirically explores how firms' heterogeneous characteristics, in particular their competitiveness in the product market and their productivity, affect their domestic and cross-border corporate asset transactions. I find that firms participate in the domestic and overseas corporate asset markets through endogenous self-selection. Specifically, firms with strong competitiveness, measured by high excess price cost margin, are more likely to sell corporate assets in the domestic market, and they are more likely to purchase assets in the overseas markets. This finding indicates that in the increasingly integrated world economy, highly competitive firms tend to use asset purchases as an entry mode when utilizing production synergies to exploit their competitiveness in the product market worldwide. Firms with high productivity are more likely to buy assets in both the domestic and overseas markets, and they are less likely to sell assets in the domestic market.
{"title":"Product Market Competition, Heterogeneous Firms, and the World Market for Corporate Assets","authors":"Xinli Wang","doi":"10.2139/ssrn.2155297","DOIUrl":"https://doi.org/10.2139/ssrn.2155297","url":null,"abstract":"This paper theoretically and empirically explores how firms' heterogeneous characteristics, in particular their competitiveness in the product market and their productivity, affect their domestic and cross-border corporate asset transactions. I find that firms participate in the domestic and overseas corporate asset markets through endogenous self-selection. Specifically, firms with strong competitiveness, measured by high excess price cost margin, are more likely to sell corporate assets in the domestic market, and they are more likely to purchase assets in the overseas markets. This finding indicates that in the increasingly integrated world economy, highly competitive firms tend to use asset purchases as an entry mode when utilizing production synergies to exploit their competitiveness in the product market worldwide. Firms with high productivity are more likely to buy assets in both the domestic and overseas markets, and they are less likely to sell assets in the domestic market.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129136742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider the Nash equilibrium existence problem for Cournotian games and we provide two results for it. The first is compatible with utility functions that are discontinuous at the origin, but requires the nonemptiness of best-replies at the origin (and in some sense is known); the second requires the discontinuity of utility functions at the origin and the emptiness of best-replies at the origin (and to the best of our knowledge is not known). Both results are proved by reducing the Nash equilibrium existence problem to a simple fixpoint existence problem for a real function defined on a real interval. The results are then applied to Cournot oligopolies and winner-take-all contest games; various examples illustrate the novelty of the results obtained.
{"title":"Existence of Equilibria in Cournotian Games with Utility Functions that are Discontinuous at the Origin","authors":"P. Mouche, F. Quartieri","doi":"10.2139/ssrn.2528435","DOIUrl":"https://doi.org/10.2139/ssrn.2528435","url":null,"abstract":"We consider the Nash equilibrium existence problem for Cournotian games and we provide two results for it. The first is compatible with utility functions that are discontinuous at the origin, but requires the nonemptiness of best-replies at the origin (and in some sense is known); the second requires the discontinuity of utility functions at the origin and the emptiness of best-replies at the origin (and to the best of our knowledge is not known). Both results are proved by reducing the Nash equilibrium existence problem to a simple fixpoint existence problem for a real function defined on a real interval. The results are then applied to Cournot oligopolies and winner-take-all contest games; various examples illustrate the novelty of the results obtained.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125423789","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies how boundedly rational default expectations affect the credit cycle. I propose a simple model of oligopolistic bank competition which serves to compare situations with just a portion of boundedly rational banks to situations where either all banks are rational or all banks are boundedly rational. When all banks are boundedly rational, the credit cycle is most amplified relative to the situation where all banks are rational. However, the amplifying effect of bounded rationality on the side of banks largely remains even when only a portion of banks are boundedly rational. Hence, the interest rate decisions of a minority of boundedly rational banks induce the more rational competitors to aggravate the credit cycle.
{"title":"Oligopolistic Banks, Bounded Rationality, and the Credit Cycle","authors":"Tobias F. Rötheli","doi":"10.2139/ssrn.2034994","DOIUrl":"https://doi.org/10.2139/ssrn.2034994","url":null,"abstract":"This paper studies how boundedly rational default expectations affect the credit cycle. I propose a simple model of oligopolistic bank competition which serves to compare situations with just a portion of boundedly rational banks to situations where either all banks are rational or all banks are boundedly rational. When all banks are boundedly rational, the credit cycle is most amplified relative to the situation where all banks are rational. However, the amplifying effect of bounded rationality on the side of banks largely remains even when only a portion of banks are boundedly rational. Hence, the interest rate decisions of a minority of boundedly rational banks induce the more rational competitors to aggravate the credit cycle.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132893727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
H. Bergh, Hans Jarle Kind, Bjørn-Atle Reme, Lars Sørgard
We analyze strategic interactions between two competing distributors of an independent TV channel. Consistent with most of the relevant markets, we assume that the distributors set end-user prices while the TV channel sets advertising prices. Within this framework we show that the distributors have incentives to internalize the fact that viewers dislike ads on TV, but no incentives to internalize how the TV-channel’s profits from the advertising market are affected by end-user prices. This leads to some surprising results. First, we show that even undifferentiated distributors might make positive profits. Second, a TV channel might find it optimal to commit to not raising advertising revenue. Third, regulation of the advertising volume might be welfare improving even if the unregulated advertising level is too low from a social point of view.
{"title":"Competition between Content Distributors in Two-Sided Markets","authors":"H. Bergh, Hans Jarle Kind, Bjørn-Atle Reme, Lars Sørgard","doi":"10.2139/ssrn.2112950","DOIUrl":"https://doi.org/10.2139/ssrn.2112950","url":null,"abstract":"We analyze strategic interactions between two competing distributors of an independent TV channel. Consistent with most of the relevant markets, we assume that the distributors set end-user prices while the TV channel sets advertising prices. Within this framework we show that the distributors have incentives to internalize the fact that viewers dislike ads on TV, but no incentives to internalize how the TV-channel’s profits from the advertising market are affected by end-user prices. This leads to some surprising results. First, we show that even undifferentiated distributors might make positive profits. Second, a TV channel might find it optimal to commit to not raising advertising revenue. Third, regulation of the advertising volume might be welfare improving even if the unregulated advertising level is too low from a social point of view.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122197189","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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