type="main"> Consumers commonly face purchasing costs, for example, travel or wait time, that are fixed to quantity but increase with variety. This article investigates the impact of such costs on the demand and supply of variety. Purchasing costs limit demand for variety like prices limit demand for quantity. When demand for variety is low, manufacturers generally invest substantially in lowering purchasing costs, to attract consumers. In the monopolistic competition free-entry equilibrium, providing convenience increases the demand for variety, but its costs reduce supply. The desirability of nonprice competition in convenience and its implications for variety and market concentration are discussed.
{"title":"The Provision of Convenience and Variety by the Market","authors":"Bart J. Bronnenberg","doi":"10.2139/ssrn.2326363","DOIUrl":"https://doi.org/10.2139/ssrn.2326363","url":null,"abstract":"type=\"main\"> Consumers commonly face purchasing costs, for example, travel or wait time, that are fixed to quantity but increase with variety. This article investigates the impact of such costs on the demand and supply of variety. Purchasing costs limit demand for variety like prices limit demand for quantity. When demand for variety is low, manufacturers generally invest substantially in lowering purchasing costs, to attract consumers. In the monopolistic competition free-entry equilibrium, providing convenience increases the demand for variety, but its costs reduce supply. The desirability of nonprice competition in convenience and its implications for variety and market concentration are discussed.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114790450","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}
In the paper, I examine free entry in homogeneous product markets and its social efficiency. Previous research on free entry in homogeneous product markets has shown that under Cournot oligopoly with fixed setup costs the free entry equilibrium always delivers excessive entry. In contrast, I demonstrate in this paper that free entry along with excessive entry might also lead to a socially insufficient number of firms when a demand parameter uncertainty is considered. My findings support the validity of the traditional wisdom in industrial organization that free entry is desirable for social efficiency and call for revision of restrictive entry regulation practices which been based on previous research findings.
{"title":"Free Entry and Social Efficiency Under Unknown Demand Parameters","authors":"Batlome Janjgava","doi":"10.2139/ssrn.2347123","DOIUrl":"https://doi.org/10.2139/ssrn.2347123","url":null,"abstract":"In the paper, I examine free entry in homogeneous product markets and its social efficiency. Previous research on free entry in homogeneous product markets has shown that under Cournot oligopoly with fixed setup costs the free entry equilibrium always delivers excessive entry. In contrast, I demonstrate in this paper that free entry along with excessive entry might also lead to a socially insufficient number of firms when a demand parameter uncertainty is considered. My findings support the validity of the traditional wisdom in industrial organization that free entry is desirable for social efficiency and call for revision of restrictive entry regulation practices which been based on previous research findings.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130901569","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}
In this paper we consider a two good general equilibrium model with one good being produced from the other and being sold in an oligopolistic market. We assume that the representative consumer has a Cobb-Douglas utility function and the firms face constant unit cost of production. We show that an equilibrium with self fulfilling expectations for the oligopolists exists. We study the effect of entry of firms in the oligopoly. We observe that as more firms enter the market price of the produced good decreases, its total output increases and the total profit of this sector decreases. Further with the arrival of new firms the consumption of the non-produced good decreases. In addition we show that as more firms enter the representative consumer is better off than before. As the number of firms goes to infinity, the equilibrium outcomes for the economy converge to the competitive equilibrium for the two good economy.
{"title":"A Two Good GE Model with Imperfect Competition and Perfect-Foresight: An Example","authors":"S. Lahiri","doi":"10.2139/ssrn.2208967","DOIUrl":"https://doi.org/10.2139/ssrn.2208967","url":null,"abstract":"In this paper we consider a two good general equilibrium model with one good being produced from the other and being sold in an oligopolistic market. We assume that the representative consumer has a Cobb-Douglas utility function and the firms face constant unit cost of production. We show that an equilibrium with self fulfilling expectations for the oligopolists exists. We study the effect of entry of firms in the oligopoly. We observe that as more firms enter the market price of the produced good decreases, its total output increases and the total profit of this sector decreases. Further with the arrival of new firms the consumption of the non-produced good decreases. In addition we show that as more firms enter the representative consumer is better off than before. As the number of firms goes to infinity, the equilibrium outcomes for the economy converge to the competitive equilibrium for the two good economy.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"71 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123567338","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}
In this paper, I analyze the incentives of a monopolistic platform to open its infrastructure to an entrant on the buyer side of the market. If buyer and seller demands are linear and identical, and if the entrant operates on a separate market, I show that entry distorts the price structure in favor of sellers. I also show that the entrant's profits may increase with the access charge if seller demand is very elastic to prices, because the entrant values the presence of sellers on the platform. If the entrant competes with the platform, its profits may also increase with the access charge if prices are strategic complements and if the degree of product differentiation is sufficiently low.
{"title":"One Sided Access in Two-Sided Markets","authors":"Marianne Verdier","doi":"10.2139/ssrn.2209379","DOIUrl":"https://doi.org/10.2139/ssrn.2209379","url":null,"abstract":"In this paper, I analyze the incentives of a monopolistic platform to open its infrastructure to an entrant on the buyer side of the market. If buyer and seller demands are linear and identical, and if the entrant operates on a separate market, I show that entry distorts the price structure in favor of sellers. I also show that the entrant's profits may increase with the access charge if seller demand is very elastic to prices, because the entrant values the presence of sellers on the platform. If the entrant competes with the platform, its profits may also increase with the access charge if prices are strategic complements and if the degree of product differentiation is sufficiently low.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"235 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-02-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132000390","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 develops a technique to decompose price distributions into contributions from markups and marginal cost. The estimators are then used as a laboratory to measure the relationship between increasing Chinese competition and the components of U.S. import prices. The estimates suggest that the intensification of Chinese exports in the 2000s corresponded to substantial changes in the distributions of both the markups and marginal cost of U.S. imports. The entry of a Chinese exporter in an industry corresponded to rest-of-world exporters shrinking their markup (lowering prices by up to 30 percent) and increasing their marginal cost (raising prices by up to 50 percent). The fact that marginal cost increased as competition stiffened strongly suggests that the composition of non-Chinese exports shifted toward higher-quality varieties. The estimates also imply a pattern in the acquisition of market share by Chinese exporters: They enter at relatively low cost/quality and then subsequently undertake quality improvements and markup reductions. These results provide some of the first measures of the dual nature of trade’s procompetitive effects; exporters respond to tougher competition by simultaneously adjusting both markups and quality.
{"title":"Chinese Exports and U.S. Import Prices","authors":"Benjamin R. Mandel","doi":"10.2139/ssrn.2197780","DOIUrl":"https://doi.org/10.2139/ssrn.2197780","url":null,"abstract":"This paper develops a technique to decompose price distributions into contributions from markups and marginal cost. The estimators are then used as a laboratory to measure the relationship between increasing Chinese competition and the components of U.S. import prices. The estimates suggest that the intensification of Chinese exports in the 2000s corresponded to substantial changes in the distributions of both the markups and marginal cost of U.S. imports. The entry of a Chinese exporter in an industry corresponded to rest-of-world exporters shrinking their markup (lowering prices by up to 30 percent) and increasing their marginal cost (raising prices by up to 50 percent). The fact that marginal cost increased as competition stiffened strongly suggests that the composition of non-Chinese exports shifted toward higher-quality varieties. The estimates also imply a pattern in the acquisition of market share by Chinese exporters: They enter at relatively low cost/quality and then subsequently undertake quality improvements and markup reductions. These results provide some of the first measures of the dual nature of trade’s procompetitive effects; exporters respond to tougher competition by simultaneously adjusting both markups and quality.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121892011","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}
In this paper we compare static and dynamic features of trade in goods and trade in services at the micro level. By using data from the same country, Belgium, and by making use of a common definition of transaction, we are able to enrich the existing qualitative comparisons with quantitative insights and to fill the existing gap in the literature. First, we analyze static features of trade such as participation rates, firms characteristics, heterogeneity, concentration and trade variation. Then, we explore dynamic aspects focusing on entry, exit, survival and growth strategy in foreign markets. From a static perspective, our results reveal that there are limited qualitative differences between trade in goods and trade in services and even the quantitative ones do not justify the need of different theoretical models. In the time dimension instead, some key peculiarities of services offer new insights for differentiating between the two.
{"title":"Services Versus Goods Trade: Are they the Same?","authors":"A. Ariu","doi":"10.2139/ssrn.2185851","DOIUrl":"https://doi.org/10.2139/ssrn.2185851","url":null,"abstract":"In this paper we compare static and dynamic features of trade in goods and trade in services at the micro level. By using data from the same country, Belgium, and by making use of a common definition of transaction, we are able to enrich the existing qualitative comparisons with quantitative insights and to fill the existing gap in the literature. First, we analyze static features of trade such as participation rates, firms characteristics, heterogeneity, concentration and trade variation. Then, we explore dynamic aspects focusing on entry, exit, survival and growth strategy in foreign markets. From a static perspective, our results reveal that there are limited qualitative differences between trade in goods and trade in services and even the quantitative ones do not justify the need of different theoretical models. In the time dimension instead, some key peculiarities of services offer new insights for differentiating between the two.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"1242 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120989607","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}
In a preemption game, players decide when to take an irreversible action. Delaying the action exogenously increases payoffs, but there is an early mover advantage. Riordan (1992) shows that in a preemption game with two asymmetric players, players act in decreasing order of efficiency. This provides a microfoundation to the assumption that entry in a market occurs in the order of profitability, commonly used in the empirical analysis of market entry. We provide a counterexample showing that with more than two players this intuitive result can be reversed. We present a preemption game of entry into a new market. The potential entrants are three asymmetric firms: one “efficient” firm with high post-entry profits, and two “inefficient firms”. We show that the set of parameters such that the equilibrium entry order does not reflect the efficiency ranking is nonempty, and analyse which changes in post-entry profits preserve this entry order.
{"title":"Inefficient Entry Order in Preemption Games","authors":"Rossella Argenziano, Philipp Schmidt-Dengler","doi":"10.2139/ssrn.2159392","DOIUrl":"https://doi.org/10.2139/ssrn.2159392","url":null,"abstract":"In a preemption game, players decide when to take an irreversible action. Delaying the action exogenously increases payoffs, but there is an early mover advantage. Riordan (1992) shows that in a preemption game with two asymmetric players, players act in decreasing order of efficiency. This provides a microfoundation to the assumption that entry in a market occurs in the order of profitability, commonly used in the empirical analysis of market entry. We provide a counterexample showing that with more than two players this intuitive result can be reversed. We present a preemption game of entry into a new market. The potential entrants are three asymmetric firms: one “efficient” firm with high post-entry profits, and two “inefficient firms”. We show that the set of parameters such that the equilibrium entry order does not reflect the efficiency ranking is nonempty, and analyse which changes in post-entry profits preserve this entry order.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125837330","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}
In this paper we study the effects of reforms to corporate and personal income taxation on the rate of firm entry and exit using industry data for 19 OECD countries from 1998 to 2005. Using a difference-in-differences approach to correct for endogeneity bias we find that increases in corporate taxation affect entry but not exit. The effects of personal taxation depend upon the marginal tax rate that is altered. Increases in marginal tax rates applied at low income levels negatively affect entry and positively affect exit, whereas marginal tax reforms at higher income levels have the opposite effect.
{"title":"Tax Policy and Firm Entry and Exit Dynamics: Evidence from OECD Countries","authors":"Danny McGowan, R. Kneller","doi":"10.2139/ssrn.2103056","DOIUrl":"https://doi.org/10.2139/ssrn.2103056","url":null,"abstract":"In this paper we study the effects of reforms to corporate and personal income taxation on the rate of firm entry and exit using industry data for 19 OECD countries from 1998 to 2005. Using a difference-in-differences approach to correct for endogeneity bias we find that increases in corporate taxation affect entry but not exit. The effects of personal taxation depend upon the marginal tax rate that is altered. Increases in marginal tax rates applied at low income levels negatively affect entry and positively affect exit, whereas marginal tax reforms at higher income levels have the opposite effect.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"69 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114689035","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}
When firms set prices and face entry costs, efficiency in production and in entry are not simultaneously achieved, generating the possibility that regulatory interventions can lead to efficiency enhancements. We show through the Bertrand model that in markets with public entry and regular downward-sloping demand, if firms are symmetric and engage in symmetric behaviour in equilibrium, a low price floor, close to the marginal cost, can induce a Pareto improvement, leaving firms at least indifferent, while enhancing consumers’ surplus. The effect may leave a trace when entry costs are low. The optimal floor-ceiling combination fixes the price, equating the two.
{"title":"Price Interventions in Bertrand Oligopoly with Costly Entry","authors":"Priyodorshi Banerjee","doi":"10.2139/ssrn.1722939","DOIUrl":"https://doi.org/10.2139/ssrn.1722939","url":null,"abstract":"When firms set prices and face entry costs, efficiency in production and in entry are not simultaneously achieved, generating the possibility that regulatory interventions can lead to efficiency enhancements. We show through the Bertrand model that in markets with public entry and regular downward-sloping demand, if firms are symmetric and engage in symmetric behaviour in equilibrium, a low price floor, close to the marginal cost, can induce a Pareto improvement, leaving firms at least indifferent, while enhancing consumers’ surplus. The effect may leave a trace when entry costs are low. The optimal floor-ceiling combination fixes the price, equating the two.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121410810","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}
Strategy theory suggests that firms can impede mean reversion of economic rents by employing competitive efforts, thereby impacting profitability, forecasting, and valuation. We use realized operating performance to establish which competitive effort proxies effectively protect rents. The inclusion of competitive advantage proxies improves future accounting return forecasts and several efforts generalize across industries including power over suppliers and the credible threat of expected retaliation (Porter, 1980). Traditional barriers-to-entry proxies (product differentiation, innovation, and capital requirements) do not result in higher profitability once risk- and industry-adjusted. Finally, competitive efforts are not fully impounded into stock price, resulting in abnormal future returns.
{"title":"Which Competitive Efforts Lead to Future Abnormal Economic Rents? Using Accounting Ratios to Assess Competitive Advantage","authors":"Victoria Dickinson, G. A. Sommers","doi":"10.2139/ssrn.1012856","DOIUrl":"https://doi.org/10.2139/ssrn.1012856","url":null,"abstract":"Strategy theory suggests that firms can impede mean reversion of economic rents by employing competitive efforts, thereby impacting profitability, forecasting, and valuation. We use realized operating performance to establish which competitive effort proxies effectively protect rents. The inclusion of competitive advantage proxies improves future accounting return forecasts and several efforts generalize across industries including power over suppliers and the credible threat of expected retaliation (Porter, 1980). Traditional barriers-to-entry proxies (product differentiation, innovation, and capital requirements) do not result in higher profitability once risk- and industry-adjusted. Finally, competitive efforts are not fully impounded into stock price, resulting in abnormal future returns.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-02-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125454868","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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