Vertical separation with location–price competition

While the literature has generally found that vertical separation helps buffer competition and harm consumers in a duopolistic market, we find the exact opposite. To induce the retailers to locate closer to consumers and earn a larger market share, the manufacturers set wholesale prices below marginal cost. This market share effect dominates the previously focused coordination effect under which a higher wholesale price helps coordinate the retailers’ pricing decisions. For each manufacturer, vertical separation is a dominant strategy so the endogenous determination of vertical separation versus vertical integration is a prisoner’s dilemma game.     

电信企业的兼并、分拆和接入的规制

电信企业在不同的纵向结构和接入规制制度下表现出不同的行为和效率。在强制接入但接入费率不受规制的情况下,市话长话兼营结构下的长话资费比分离结构下的资费高。但在接入全面规制或完全市场化的情况下,兼营结构的效率较分离结构为高。在三种规制制度下,生产者的利润在分离结构下都比较高,而消费者却在兼营结构下得利较多。这些结论表明接入的规制应该跟产业政策和竞争政策结合起来考虑。本文还发现如果互联费率高于边际成本,那么网络经营者越多,市话资费可能会越高。     

Strategic Trade Policy and Vertical Structure

We introduce intermediaries into the Brander-Spencer model of strategic trade policy. A key finding is that in regimes involving independent retailers, output competition and linear pricing (and two-part tariffs under certain restrictions), the optimal policy involves an export tax instead of a subsidy. If firms commit to vertical structure before governments commit to policy then under output competition firms choose integration, whereas if policy precedes structure then at least one firm chooses separation. Under price competition separation is a dominant strategy regardless of whether the structure decision is made before or after the policy decision.     

Incentives for input foreclosure

We analyze the incentives of a vertically integrated firm to foreclose downstream rivals in a model of upstream price competition between suppliers of only imperfectly substitutable inputs. Our main motivation is a critical assessment of common assertions that draw inferences from pre-merger observable variables to post-merger incentives to foreclose. In particular, we find that, contrary to some commonly expressed views, high margins on the downstream and low margins on the upstream market are not good predictors for the incentives of a newly integrated firm to foreclose rivals. Besides this contribution to policy, our model also extends existing results in the literature on vertical foreclosure through allowing for the interaction of product differentiation on the upstream and on the downstream market.     

Price response,information, and asymmetry of price dispersion

In this study, we examine how differently gasoline prices in 25 regions of Seoul, Korea respond to asymmetric information between retailers and consumers. We estimate the region-specific likelihood that retailers engage in price undercutting under asymmetric information and investigate inter-regional differences. We find that in response to increases in wholesale price, regions with a high likelihood of price undercutting experience intensified gas station price competition while dispersions of price and markups tend to decrease more in response to cost shocks. Understanding the geographical dispersion of retailers’ price responses to information frictions and search intensity is crucial to lowering information barriers across regions and redistributing profit among market participants.     

Cartel sustainability with vertical product differentiation: Price versus quantity competition

In the context of a vertically differentiated duopoly, we analyse the influence of the degree of differentiation on cartel sustainability, under both price and quantity competition. We find that, under both Bertrand and Cournot competition, the effect of vertical product differentiation on sustainability of the collusive equilibrium is unclear. It is shown that, given a degree of differentiation, price collusion is more sustainable than quantity collusion.     

Price competition between big and small supermarkets: evidence from Seoul

This article empirically investigates the level of competition between superstores and smaller retailers in the Korean retail industry where market entry and operational hours of the former are restricted in order to protect the latter. Applying spatial econometric methods to store-level price data from Seoul, we find that while spatial price correlations among same-size stores exist, product prices across different-size stores are spatially uncorrelated. This result implies that consumers may not view superstores’ and smaller retailers’ products as close substitutes, and thus their markets are likely to be segmented from each other.     

EFFICIENCY AND PRICES OF REGULATION‐EXEMPT CONSUMER‐OWNED NATURAL MONOPOLIES: A FIRST LOOK AT ELECTRICITY DISTRIBUTORS IN NEW ZEALAND

Following the New Zealand Electricity Industry Reform Act in 1998 integrated electricity distribution and retail companies were forced to unbundle at ownership level, creating line companies and retailers. Electricity line companies that meet the ‘consumer‐owned’ criteria as set out in the Commerce Act are exempt from price‐quality regulation as of 2009. In this study, we examine the effects on variable costs and unit prices of the exemption by comparing exempt line companies and line companies that fall under the price‐quality regulation. The findings suggest that exempt line companies did not charge higher prices than non‐exempt line companies, and that they experienced a larger decline in their variable costs compared to non‐exempt line companies, following the exemption.     

Local monopsony and free riders

In an industry with upstream economies of scale in the distribution of differentiated products to retailers which have monopoly power within separate local market areas, the retailers have an incentive to exert monopsony power due to the divergence between average and marginal costs in the distribution of those inputs. The retailers increase their ability to exert monopsony power by forming coalitions (that is, chains) across local markets. Sufficiently large retail chains may force input price below the seller's average cost, thus ‘free riding’ on the level of product variety supported by other retailers. Vertical integration, cartels, or other cooperative behavior, however, can be means to control the level of product variety, and may increase both industry profits and economic welfare. Policy applications to the cable television, motion picture, and pharmaceutical industries are discussed.     

Nonexclusionary input prices under quantity competition: vertical integration,foreclosure and sabotage

A vertically integrated provider is a monopoly supplier of an input essential for its rival to produce downstream output. Market exclusion in the form of inefficient foreclosure or sabotage can arise when input prices are, respectively, ‘too high’ or ‘too low’ relative to the downstream price. The range of nonexclusionary input prices within which neither form of market exclusion arises is determined by displacement ratios. The safe harbour range of downstream-to-upstream ‘price-cost’ margin ratios is decreasing in the degree of product homogeneity and approaches a single ratio in the limit as the products become perfectly homogeneous. The bounds of nonexclusionary input prices are markedly wider under Bertrand–Nash competition than they are under Stackelberg competition.     

Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies

Gasoline divorcement regulations restrict the integration of gasoline refiners and retailers. Theoretically, vertical integration can harm competition, making it possible that divorcement policies could increase welfare; alternatively, these policies may reduce welfare by sacrificing efficiencies. This paper attempts to differentiate between these possibilities by estimating a reduced form equation for the real retail price of unleaded regular gasoline. I find that divorcement regulations raise the price of gasoline by about 2.6¢ per gallon, reducing consumers surplus by over $100 million annually. This finding suggests that current proposals to further separate gasoline retailing from refining will be harmful to gasoline consumers.     

企业纵向一体化问题研究--以中国上市公司为例

在一定条件下,纵向一体化能够节约企业间的交易费用,稳定上下游企业之间的产品供销关系,提高企业的市场绩效和竞争力,因而成为较为流行的一种企业组织形式.在证券市场的支撑下,希望通过纵向一体化方式来提升竞争力的上市公司越来越多,目前我国上市公司的纵向一体化经营模式已涉及到较多的行业和领域,对企业的经营和行业竞争环境产生了较大影响.     

BERTRAND Vs. COURNOT COMPETITION WITH UPSTREAM FIRM INVESTMENT

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of inducing a lower incentive for the upstream firm to invest. On the other hand, Bertrand competition has the advantage of providing a greater incentive for the upstream firm to invest but has the disadvantage of a more competitive effect, leading to the setting of a lower price. Our main findings are as follows. First, R&D investment level is greater under Bertrand competition than under Cournot competition. Second, from the standpoint of the upstream firm and industry, Bertrand competition is more efficient than Cournot competition. Third, from the standpoint of the downstream firms, Bertrand competition is more efficient than Cournot when investment is sufficiently efficient and products are sufficiently differentiated.     

Vertical separation versus vertical integration in a macroeconomic model with imperfect competition

This paper develops a monopolistic competition macroeconomic model, and uses it to discuss the determination of relevant macro variables under both vertical separation and vertical integration regimes. Several main findings emerge from the analysis. First, in the market equilibrium aggregate output and consumption under the vertical integration regime are greater than under the vertical separation regime, while the product price index under the vertical integration regime is lower than that under the vertical separation regime. Secondly, the level of real aggregate profits under the vertical integration regime will be higher (lower) than that under the vertical separation regime if the degree of monopoly power is relatively large (small). Third, the welfare level under the vertical integration regime will be higher than that under the vertical separation regime regardless of the degree of monopoly power.     

When does tiered wholesale pricing create an incentive to reduce retail prices?

Wholesale ‘ladder pricing’ involves setting the wholesale price retailers face as a nonlinear (generally increasing) function of price chosen by retailers. This form of wholesale pricing occurred recently in UK Telecoms, and the issue became extensively debated in the law courts. A major concern in deciding the merits of the case lay with the question of whether or not the introduction of tiered wholesale pricing created incentives for retailers to actually reduce their prices. This paper examines the incentive for the case where the wholesale tariff is a non-linear continuous differentiable function. It is shown that so long as the tariff is strictly increasing, convex, and positive only for retail prices greater than the maximum retailer marginal cost, then there is indeed an incentive to reduce price, whatever the actual gradient of the tariff schedule.     

ARE CONSUMERS MORE LOYAL TO NATIONAL BRANDS THAN TO PRIVATE LABELS?

The evolution of private labels (PLs) can be understood in terms of a strategy adopted by the retail industry with the aim of competing with national brands (NBs). In the 1990s, this strategy led to the development of ‘me too’ products, which currently represent the largest share of store brand products. Since the early 2000s, retailers have widened the range of their store brands by introducing high‐quality products. The aim of this study was to estimate consumers’ attachment to ‘me‐too’ and niche PLs respectively, as compared to NBs. We captured the degree of maturity of these PLs through their price‐elasticities, computed for three staple goods offered by three mass retail companies. It was found that price sensitivity does not differ much between the ‘me‐too’ PLs and the corresponding NBs. This result confirms that ‘me‐too’ products are now considered reliable quality brands. However, in the high quality segment, consumers remain more sensitive to the price of PLs than to that of NBs, a characteristic which may relate to their recent introduction on the market.     

Australian beer wars and pub demand: how vertical restraints improved the drinking experience

Recently, Australia's two largest brewers, Carlton and United Breweries and Lion Nathan, have been aggressively competing for market share in the state of Victoria. Among other strategies, the two breweries have implemented vertical restraints in the form of?‘extensive’?agreements with retailers and the outright purchase of pubs. A key outcome of these purchases and agreements is the renovation of many pubs as brewers attempt to attract increasingly sophisticated drinkers. This paper attempts to quantify the value of these renovations and measure their associated impact on consumers, relying on insights from the hedonic literature. A simple, but novel approach, is used to estimate the implicit price of the pub environment and the effects of renovations on that price.     

'Industrial demonopolization and competition policy in Poland and Hungary': a comment'

Protestations that ‘neither neoclassical economics nor Western experience offers clear guidelines concerning optimal competition policies towards state-owned firms in a transition economy’ are overly pessimistic. Both sources suggest the importance of attacking barriers to entry into markets, especially when those barriers are associated with vertical integration or exclusive vertical contracts by already dominant enterprises. Beyond this, they demonstrate that different priorities of enforcement are appropriate in transition economies and that competition advocacy is especially important in this context.     

Effects of horizontal consolidation under bilateral imperfect competition between processors and retailers

This article considers bilateral imperfect competition between processors and retailers to estimate the trade off between market power and cost efficiency. The model is based on pricing rules from a firm's profit maximization and nests both oligopoly and oligopsony models. An empirical analysis for US beef processors and retailers suggests that processors tend to exercise oligopsony market power in procuring cattle, but they are unlikely to exercise market power on retailers. When retailers and processors are considered as one integrated sector, efficiency effects from the increased concentration in the US beef packing industry are slightly larger than market power effects. When processors’ market power is considered separately from retailers’ market power, the difference between cost saving and market power effects becomes greater. The cost elasticity estimate, 0.99, indicates that a further merger would result in little economies of scale in the future. Therefore, although we find that efficiency effects are currently larger than market power effects, a further increase in concentration in the US beef processing industry could narrow the gap between the two effects.     

规制权力配置、下游垄断与中国电力产业的接入歧视-理论分析与初步的实证检验

本文构建了一个"上游竞争、下游垄断"结构下接入歧视的简化模型,分析了部分纵向一体化的买方垄断者对独立发电企业实施接入价格和数量歧视的动机和条件。在揭示歧视行为与规制重建滞后之间的特征性事实的基础上,我们利用500多家发电企业和区域电网的相关数据,从统计描述和回归分析两个方面对理论假设进行了初步的检验,结果证明了两类接入歧视,特别是价格歧视的存在。