Supply function competition in a mixed electric power market

In this paper, we present a mixed oligopoly model where electric power generators compete in supply functions in a liberalized market. A former monopolist, the state‐owned generator, is assumed to be (partially) privatized. First, we obtain that there is a relationship between privatization and the number of electric power generators concerning the level of consumer surplus and total welfare. Indeed, a fully state‐owned generator is socially optimal, lowering private generators' profits and enhancing consumer surplus; that is, if the degree of privatization decreases, consumer surplus increases compensating the damage imposed on generators' profits. Second, as the number of generators increases, full privatization may provide similar levels of consumer surplus and social welfare than those observed in a mixed oligopoly. Moreover, it is also obtained that price‐cost margins increase as marginal cost increases. Overall, our results suggest that the state‐owned generator should be privatized when entry barriers are low enough, and competitiveness is enhanced. Otherwise, a state‐owned generator may protect consumers, enhancing consumer surplus.     

New products and market competition

Using a novel data set on new product introductions in U.S. manufacturing, the paper studies the relationship between new product introductions and the intensity of market competition as it is measured by industry-specific price-cost margins. New product introductions intensify market competition and depress price-cost margins. These results draw significant empirical support from a sample of five U.S. manufacturing industries. A 10 percent increase in the number of new product introductions causes price-cost margins to drop by approximately 0.5 percent. Although price-cost margins appear procyclical with respect to fluctuations in industry sales, new products make price-cost margins less procyclical and therefore, the intensity of market competition more procyclical.The author would like to thank the Board of Research at Babson College for their generous financial support. The author would also like to thank Jane Cloran for assisting with some of the data. All of the remaining errors are the responsibility of the author.     

Quality competition and entry: a media market case

In this paper, we study the optimal tax policy in a differential oligopoly game where the competing firms share the access to a productive renewable resource. We show that, in a Feedback Nash Equilibrium of the game, a linear Markov tax, imposed on the output, and specified as an affine function of the available resource stock, leads the competing firms to produce the socially optimal quantities over time, thus overcoming the dynamic interplay between the tragedy of the commons and the firms’ market power. The optimal tax turns out to be independent from the resource stock in a monopoly, and it cannot be defined in a duopoly.     

Price effects of the euro cash changeover: the role of product market competition

The euro cash changeover that took place in 2002 in 12 countries of the European Economic and Monetary Union was associated with abnormal price increases in most member countries. This paper investigates the influence of product market competition on the size of the changeover-related prices hikes, showing that the price hikes were less prevalent in countries with a higher level of competition. For the countries that are to join the euro area in coming years, this means that fostering competition can help contain changeover-related price increases. This aspect is of particular importance for the most recent and next wave of euro adopters, because of their rather heavy product market regulation as measured by the OECD, which are likely to restrain competition. The results indicate that comprehensive reform efforts can be more beneficial in containing changeover-related price hikes than a selective easing of product market regulation in a subset of areas.     

Workable competition and the barrier market

To decide on interventions in a market economy politicians have to consider the temporary and intertemporal coordination achievements of market behaviour, as reflected in static and dynamic economies respectively. In this respect the barrier market concept might serve for guidance. The barrier market amounts to a formal elaboration of the workable competition concept. In this paper a model is presented of decision making of an individual supplier in a barrier market. Moreover, results are offered of analyses of competitive processes in which heterogeneous suppliers interact over time.     

Product market competition and productivity shocks

I investigate the interaction effects of competition and productivity shocks on stocks’ earnings and returns. I find that the sensitivities of earnings and returns to productivity shocks are negatively associated with competition intensity. I also find that the excess returns of productivity shocks-sorted portfolios are lower when competition intensity is high, even after controlling for known return predictors. Overall, the empirical evidence shows firms are less exposed to productivity shocks when competition is high. As such, this study provides a possible mechanism through which the structure of product markets affects stock returns.     

Competing eco-labels and product market competition

I examine the impact of competition between eco-labeling programs in a market where eco-labels that communicate information about product's environmental quality (a credence attribute) are also strategic variables for competing firms. Specifically, I consider a dynamic setting where an industry-sponsored eco-labeling program and a program sponsored by environmental NGOs compete strategically in setting the labeling standards, before price-setting firms make strategic choices of which eco-label (if any) to adopt; adopting firms not presently meeting the labeling standards undertake costly quality improvement to comply with them. I find that the competition between eco-labeling programs may lead to the same high environmental benefit as when there exists only the NGO program. I also find that the competition may yield higher social welfare.     

Unemployment and product market competition in a Cournot model with efficiency wages

This paper analyzes the impact of product market competition on unemployment, wage and welfare in a model where unemployment is caused by the efficiency wage consideration and oligopolistic firms compete in quantity. It is shown that while more intense competition in the product market increases output and reduces price, it does not necessarily lead to a lower unemployment rate or a higher wage for workers. Depending on the technologies, the relationship between the intensity of competition and the level of employment (respectively, wage, welfare) is not always monotonic, and, in some instances, has an inverted U‐shape.     

Corporate governance structure and product market competition

This article assesses the effects of the competitive structure of a product market on a firm’s corporate governance structure. Our model demonstrates that shareholders strategically determine the corporate governance structure, including the manager’s stock ownership and his controlling power over the firm, in order to maximize their utility in the product market competition. We find that the manager’s stock ownership is lower and his controlling power over the firm is higher when the firm’s product is more profitable or when competition within the product market is more severe. The inefficiency of the wealth transfer from shareholders to the manager also affects the corporate governance structure.     

International capital market and repeated tax competition

We propose an infinitely repeated game of tax competition with an endogenous capital supply. Our results show that the larger the capital supply elasticity to interest rates, the easier it is for interregional tax coordination within a country to be achieved. The capital supply elasticity is lower when countries are less integrated into the international capital market, and vice versa. Thus, our finding suggests that the regions in the country with a lower (higher) degree of integration in the global market are less (more) likely to achieve tax coordination.     

Horizontal innovation-based growth and product market competition

The influence of the intensity of competition in the product market on economic growth is analyzed by developing an endogenous growth model with horizontal innovation. Product market competition is measured by (1 − Lerner index) and depends on both the share of factor inputs in total income and the degree of substitutability across goods. We find that the shape of the relationship between competition and growth can change dramatically according to which proxy of competition is used. We explain our results in terms of the interplay between the resource allocation and the profit incentive effects.     

Pay discrimination and imperfect competition in the labor market

Recent work has shown the prevalence of monopsony power in labor markets characterized by low pay. Monopsony has long been offered as a potential explanation of labor market discrimination. Yet, in the case of gender discrimination, most studies suggest that female labor supply is more elastic than that of males which, in a standard monopsony model, would imply higher pay for females. In the current paper we develop a theoretical framework capable of reconciling these empirical phenomena. We also attempt to explain: (i) the puzzle regarding the apparent trade-off between profits and discrimination in the standard neoclassical treatment of discrimination associated with the work of Becker (1957) and Arrow (1973) and (ii) the apparently paradoxical increase in female relative employment at a time of a significant rise in the relative price of female labor.     

Price competition in the market for business telecommunications services

We estimate a two-step control-function model that relates incumbent prices for small-business telecommunications services to the number of facilities-based entrants, cost, demand, regulatory conditions, and a correction for endogenous market structure. Results show that the price effects from entry are understated in ordinary least squares regressions. When controlling for endogeneity, prices are negatively related to the number of entrants, indicating that markets without a competitive presence could exhibit market power. These findings should prove helpful to the Federal Communications Commission and other State regulators determining the conditions under which price and other forms of regulation may be relaxed.     

Product market competition and boundaries of the firm

Abstract .  This paper studies the effects of product market competition on firm boundaries. In a duopoly setting, each retailer is associated with a manufacturer who must decide how to allocate property rights over a retail asset. Delegating property rights over the retail asset to an indepedent retailer ('disintegration') transfers incentives from the manufacturer to the retailer and has the benefit of increasing product quality and profits, owing to the retailer's superior efficiency. However, it also forces the manufacturer to forfeit part of the profits. Competition increases the net benefit from delegation and leads to more efficient, vertically disintegrated structures.     

Segmentation or competition in China's urban labour market?

In China, urban residents have traditionally been protectedagainst labour market competition from rural–urban migrants.Over the period of urban economic reform, rural–urbanmigration was allowed to increase in order to fill the employmentgap as growth of labour demand outstripped that of the residentlabour force in urban areas. However, as reforms gained paceand controls were lifted, it is plausible that competition forwork between migrants and urban residents would have increased.The paper examines whether the relationship is one of segmentationor competition in the labour market. It uses attitudinal responsesfrom two urban surveys. The urban workers who perceive competitionfrom migrants are those who are most vulnerable. The findingsare consistent with the presence of continued labour marketsegmentation, but suggest also that competition between thetwo groups is increasing.     

Downstream mode of competition with upstream market power

In a two-tier oligopoly, where the downstream firms are locked in pair-wise exclusive relationships with their upstream input suppliers, the equilibrium mode of competition in the downstream market is endogenously determined as a renegotiation-proof contract signed between each downstream firm and its exclusive upstream input supplier. We find that the upstream–downstream exclusive relationships credibly sustain the Cournot (Bertrand) mode of competition in the downstream market, when the goods are substitutes (complements). In contrast to previous studies, this result holds irrespectively of the degree of product differentiation and the distribution of bargaining power between the upstream and the downstream firm, over the pair-specific input price.     

Bribery and firm survival in Vietnam: Moderating effects of market competition,credit, and institutional constraints

This paper examines the relationship between bribery and firm survival when facing different levels of market competition, credit constraints, and other institutional limitations. Using panel data from surveys of small- and medium-sized enterprises in Vietnam over a 10-year period and a semi-parametric Cox proportional hazards model approach, we provide empirical support for the “greasing-the-wheels” hypothesis of firm survival. Effects are found to be more pronounced for formally registered and larger firms, explained by their greater bargaining power vis-à-vis public officials. Moreover, bribery as a “risk-of-exit” reducing strategy is found only for firms not institutionally or financially constrained and for firms operating in sectors with low levels of competition.