We show that the prediction of strategic connectivity breakdowns under a receiving-party-pays system and discrimination between on- and off-net prices does not hold up once more than two mobile networks are considered. Indeed, if there are at least three competing networks and enough utility is obtained from receiving calls, no strategic connectivity breakdowns occur. Private negotiations over access charges then achieve the efficient outcome. Bill & keep (zero access charges) and free outgoing and incoming calls are efficient if and only marginal costs of calls are zero.
{"title":"Going Beyond Duopoly: Connectivity Breakdowns Under Receiving Party Pays","authors":"Steffen Hoernig","doi":"10.2139/ssrn.2441126","DOIUrl":"https://doi.org/10.2139/ssrn.2441126","url":null,"abstract":"We show that the prediction of strategic connectivity breakdowns under a receiving-party-pays system and discrimination between on- and off-net prices does not hold up once more than two mobile networks are considered. Indeed, if there are at least three competing networks and enough utility is obtained from receiving calls, no strategic connectivity breakdowns occur. Private negotiations over access charges then achieve the efficient outcome. Bill & keep (zero access charges) and free outgoing and incoming calls are efficient if and only marginal costs of calls are zero.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114214204","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 analyze a general model in which, at each echelon of the supply process, an arbitrary number of firms compete, offering one or multiple products to some or all of the firms at the next or possibly subsequent echelons or directly to the end consumer. At each echelon, the offered products are differentiated and the firms belonging to this echelon engage in price competition. The model assumes a general set of piece-wise linear consumer demand functions for all products (potentially) brought to the consumer market, where each product's demand volume may depend on the retail prices charged for all products; consumers' preferences over the various product/retailer combinations are general and asymmetric. Similarly the cost rates incurred by the firms at the most upstream echelon are general as well. We initially study a two-echelon sequential oligopoly with competing suppliers, each selling multiple products indirectly through a pool of multiple competing retailers or directly to end consumers. In some cases, a supplier may choose to sell some or all of its products simultaneously via its direct sales channel and indirectly via some or all of the retailers. We characterize the equilibrium behavior under linear price-only contracts. In the second stage, given wholesale prices and prices of direct sales channels selected in the first stage, all retailers simultaneously decide on their retail prices to maximize their total profits among all products of all suppliers they choose to do business with. In the first stage, the suppliers anticipate the retailers' responses and all suppliers simultaneously maximize their total pro ts from all channels direct or indirect channels by selecting the wholesale prices and direct sales channel prices. We show that in this two-stage competition model, a subgame perfect Nash equilibrium always exists. Multiple subgame perfect equilibria may arise but, if so, all equilibria are equivalent in the sense of generating unique demands and profits for all firms. We subsequently generalize our results to supply chain models with an arbitrary set of echelons, and show how all equilibrium performance measures can be computed with an efficient recursive scheme. The model may, also be used to evaluate the impact of various structural changes in the supply chain network.
{"title":"Price Competition in Sequential Multi-Product Oligopolies","authors":"A. Federgruen, Ming Hu","doi":"10.2139/ssrn.2437032","DOIUrl":"https://doi.org/10.2139/ssrn.2437032","url":null,"abstract":"We analyze a general model in which, at each echelon of the supply process, an arbitrary number of firms compete, offering one or multiple products to some or all of the firms at the next or possibly subsequent echelons or directly to the end consumer. At each echelon, the offered products are differentiated and the firms belonging to this echelon engage in price competition. The model assumes a general set of piece-wise linear consumer demand functions for all products (potentially) brought to the consumer market, where each product's demand volume may depend on the retail prices charged for all products; consumers' preferences over the various product/retailer combinations are general and asymmetric. Similarly the cost rates incurred by the firms at the most upstream echelon are general as well. We initially study a two-echelon sequential oligopoly with competing suppliers, each selling multiple products indirectly through a pool of multiple competing retailers or directly to end consumers. In some cases, a supplier may choose to sell some or all of its products simultaneously via its direct sales channel and indirectly via some or all of the retailers. We characterize the equilibrium behavior under linear price-only contracts. In the second stage, given wholesale prices and prices of direct sales channels selected in the first stage, all retailers simultaneously decide on their retail prices to maximize their total profits among all products of all suppliers they choose to do business with. In the first stage, the suppliers anticipate the retailers' responses and all suppliers simultaneously maximize their total pro ts from all channels direct or indirect channels by selecting the wholesale prices and direct sales channel prices. We show that in this two-stage competition model, a subgame perfect Nash equilibrium always exists. Multiple subgame perfect equilibria may arise but, if so, all equilibria are equivalent in the sense of generating unique demands and profits for all firms. We subsequently generalize our results to supply chain models with an arbitrary set of echelons, and show how all equilibrium performance measures can be computed with an efficient recursive scheme. The model may, also be used to evaluate the impact of various structural changes in the supply chain network.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133700688","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}
J. Abbring, Jeffrey R. Campbell, J. Tilly, N. Yang
This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical application with ten years of County Business Patterns data from the Motion Picture Theaters industry in 573 Micropolitan Statistical Areas. The results are suggestive of fierce competition between theaters in the market for film exhibition rights.
{"title":"Very Simple Markov-Perfect Industry Dynamics","authors":"J. Abbring, Jeffrey R. Campbell, J. Tilly, N. Yang","doi":"10.2139/ssrn.2631509","DOIUrl":"https://doi.org/10.2139/ssrn.2631509","url":null,"abstract":"This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical application with ten years of County Business Patterns data from the Motion Picture Theaters industry in 573 Micropolitan Statistical Areas. The results are suggestive of fierce competition between theaters in the market for film exhibition rights.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126794128","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 optimal taxation in a general equilibrium model with endogenous entry. We compare the constant elasticity of substitution (CES) model to three alternative demand structures: oligopolistic competition in prices, oligopolistic competition in quantities, and translog preferences. Our economy is characterized by two distortions: a labor distortion due to the misalignment of markups on goods and leisure, and an entry distortion due to the misalignment of the consumer surplus effect and the profit destruction effect of entry. The two distortions interact in determining the wedge between the market-driven and optimal level of product diversity. We show how optimal labor and entry taxes depend upon the prevailing demand structure, the nature and size of entry costs, and the degree of substitutability between goods.
{"title":"Product Diversity, Demand Structures and Optimal Taxation","authors":"V. Lewis, R. Winkler","doi":"10.2139/ssrn.2381524","DOIUrl":"https://doi.org/10.2139/ssrn.2381524","url":null,"abstract":"This paper studies optimal taxation in a general equilibrium model with endogenous entry. We compare the constant elasticity of substitution (CES) model to three alternative demand structures: oligopolistic competition in prices, oligopolistic competition in quantities, and translog preferences. Our economy is characterized by two distortions: a labor distortion due to the misalignment of markups on goods and leisure, and an entry distortion due to the misalignment of the consumer surplus effect and the profit destruction effect of entry. The two distortions interact in determining the wedge between the market-driven and optimal level of product diversity. We show how optimal labor and entry taxes depend upon the prevailing demand structure, the nature and size of entry costs, and the degree of substitutability between goods.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"73 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114388737","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}
Jun and Kim (2008) consider the optimal pricing and referral strategy of a monopoly that uses a consumer communication network to spread product information. They show that for any finite referral chain, the optimal policy involves a referral fee that provides strictly positive referral incentives and effective price discrimination among consumers based on their positions in the chain. We revisit this problem to strengthen Jun and Kim's results by weakening their referral condition. Moreover, we characterize the first-best policy when individual-specific referral fees are available and show that it is qualitatively similar to the second-best solution of Jun and Kim (2008).
{"title":"A Theory of Consumer Referral: Revisited","authors":"Maria N. Arbatskaya, Hideo Konishi","doi":"10.2139/ssrn.2345288","DOIUrl":"https://doi.org/10.2139/ssrn.2345288","url":null,"abstract":"Jun and Kim (2008) consider the optimal pricing and referral strategy of a monopoly that uses a consumer communication network to spread product information. They show that for any finite referral chain, the optimal policy involves a referral fee that provides strictly positive referral incentives and effective price discrimination among consumers based on their positions in the chain. We revisit this problem to strengthen Jun and Kim's results by weakening their referral condition. Moreover, we characterize the first-best policy when individual-specific referral fees are available and show that it is qualitatively similar to the second-best solution of Jun and Kim (2008).","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"117 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-10-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124085750","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 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}
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}
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