Market Share Inequality,the Number of Competitors,and the HHI: An Examination of Bank Pricing

This paper seeks to determine whether the Herfindahl--Hirschman index (HHI) adequately accounts for the roles of market share inequality and the number of competitors in explaining bank deposit and loan rates. This is been done by estimating deposit-rate and loan-rate equations in which the HHI is decomposed into components that reflect share inequality and number of competitors and, alternatively, by adding measures of share inequality and the number of competitors as additional explanatory variables. Results are inconclusive in the case of deposit rates but suggest that the HHI does not give sufficient weight to the number of competitors in explaining loan rates.     

Toward a general theory of competitive dominance: comments and extensions on Powell (2003)

In a recent paper, Powell ( 2003 ) studied 20‐year performance in 21 industries, using an ordinal performance measure (‘wins’), and the Gini coefficient as a measure of competitive dominance. The findings suggest that firm performance is statistically indistinguishable from performance in non‐business domains such as politics, games, sports, and pageants. This paper extends these findings, developing the statistical foundations for a general theory of competitive dominance. The paper presents a Gibrat‐based null hypothesis, develops a decomposable index of competitive dominance, and suggests statistical procedures and empirical methods for future research. Copyright © 2004 John Wiley & Sons, Ltd.     

Market share inequality,the HHI,and other measures of the firm-composition of a market

Data for individual markets suggest that the Herfindahl- Hirschman Index does not fully account for the inequality of market shares and the number of firms in a market. An empirical investigation is conducted to determine whether share inequality, number of firms, and major firm presence affect market profit rates independent of the HHI. The analysis controls for efficiency, among other things. Test results based on 1,684 banking markets during 1990–1992 indicate that the HHI, market share inequality, and the importance of major firms are positively related and the number of firms is negatively related to profit rates. Results on several other variables also suggest that market imperfections exist in local banking markets.     

Free-Agency and the Competitiveness of Major League Baseball

I investigate whether the removal of the reserve clause in professional baseball affected the competitive nature of the industry in the context of whether the distribution of team wins has been affected by free-agency. Unlike previous studies which use the standard deviation of winning percentage, I use a more sensitive measure of parity. I calculate the deviations of the Herfindahl-Hirschman Index of team wins from the competitive ideal during 1920 to 1996 and relate them to player-talent distribution and structural changes in the industry. I isolate the structural effect of free-agency and find that it has adversely affected the parity of the American League but that it has had no statistical influence on the parity of the National League.     

Durable goods and horizontal merger analysis

Merger analysis based on standard HHI calculations generally may not fully consider the impact of product durability and hence may significantly bias enforcement efforts. Using an inverse demand equation modified to include a shift parameter linked to the installed base, this paper develops a Durability Adjusted HHI (DAHHI) measure of concentration. DAHHI analysis exposes two potential biases in standard HHI analysis: excessive enforcement in durable goods industries is likely using standard HHI analysis, and Merger Guidelines' thresholds are set too high for non-durable goods industries and too low for durable goods industries. Using the DAHHI methodology, the paper proposes corrections to both biases.I wish to thank Miriam Culjak, John de Figueiredo, Greg Rosston, Brian Silverman, Pablo Spiller, David Teece, Oliver Williamson, and two anonymous referees for their helpful comments. Also, I wish to thank the Law and Economics Consulting Group for providing the opportunity to investigate this subject. All opinions and errors are the sole responsibility of the author.     

The Relationship Between Outcome Uncertainties and Match Attendance: New Evidence in the National Basketball Association

This paper investigates the determinants of game-day attendance for the National Basketball Association for the 2009/2010–2011/2012 seasons. Six different measures of short-run league-level competitive balance and game uncertainty for two rivals are incorporated at the same time in a Tobit model. The results for the effect of league-level uncertainty support the hypotheses of outcome uncertainty, but the effect of game-level uncertainty does not. Closer wins by the competing teams within a league and a larger gap in terms of the point spread between two teams in the betting market lead to higher attendance.     

How does income inequality affect market outcomes in vertically differentiated markets?

The distribution of consumer incomes is a key factor in determining the structure of a vertically differentiated industry when consumer's willingness to pay depends on her income. This paper computes the Shaked and Sutton (1982) model for a lognormal distribution of consumer incomes to investigate the effect of inequality on firms' entry, product quality, and pricing decisions. The main findings are that greater inequality in consumer incomes leads to the entry of more firms and results in more intense quality competition among the entrants. More intense quality competition raises the average quality of products in the market as firms compete for the shrinking share of higher-income consumers. With zero costs of quality improvements and an upper bound on the top quality or when costs of quality are fixed and rise sufficiently fast, greater heterogeneity of consumer incomes also reduces firms' incentives to differentiate their products. Competition between more similar products tends to reduce their prices. However, when income inequality is very high, the top quality producer chooses to serve only the rich segment of the market and charges a higher price. The conclusion is that income inequality has important implications for the degree of product differentiation, price level, industry concentration, and consumer welfare.     

The 1992 Horizontal Merger Guidelines: A brief critique

The 1992 Horizontal Merger Guidelines of the United States Department of Justice and the Federal Trade Commission represent an improvement over previous horizontal merger guidelines in certain respects especially in the treatment of entry. However, the 1992 Guidelines continue to suffer from problems with market definition methodology. Also, the softening of HHI presumptions and burdens and the incorporation of an increased competitive effects section seem to reduce the effectiveness of the Guidelines.The views expressed in this article are solely those of the authors and not of any state or federal agency.     

The Increasing Competitive Balance in Major League Baseball

This paper explores the changing competitive balance in Major League Baseball through the relative-entropy measure of information theory. It is shown that while competitive balance in both leagues has been on an upward path during the 20th century, the path has had numerous detours that resulted from some on-the-field and some off-the-field changes that Major League Baseball has undergone during the past 75 years. The most important detours occurred in the wake of the Black Sox scandal of 1919, Jackie Robinson's breaking the color barrier and the concurrent spread of television and erosion of the minor leagues, franchise moves and major league expansion, and free agency.     

Theory of the Perfect Game: Competitive Balance in Monopoly Sports Leagues

Based on the limiting assumption that sports owners are profit maximizers the invariance proposition holds that revenue sharing has no impact on competitive balance in sports leagues. If owners are win-maximizing sportsmen instead, then revenue sharing can lead to increased competitive balance and higher payrolls. Evidence of the sportsman effect is provided by erosion of monopsonistic exploitation in the four major American sports leagues where players now share about 60% of revenues. Monopsony power erosion forces sports-league cartels to exploit statutory monopoly power in monster deals for media rights fees and public venue subsidies. New evidence on competitive balance suggests that revenue sharing leads to increased balance with or without team salary caps. Optimum competitive balance is an empirical question, and the answer lies between random competition of the NFL and deterministic dynasties of the NBA.      

Dynamic capabilities and strategic management

The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm’s (specific) asset positions (such as the firm’s portfolio of difficult-to-trade knowledge assets and complementary assets), and the evolution path(s) it has adopted or inherited. The importance of path dependencies is amplified where conditions of increasing returns exist. Whether and how a firm’s competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding internally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing internal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival’s costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.     

Athlete Pay and Competitive Balance in College Athletics

In this paper we analyze the argument—which has been used by both the National Labor Relations Board and the National Collegiate Athletic Association—that unionization and/or player pay will hurt competitive balance in college sports. We present a theoretical analysis of universities that recruit athletes and examine the assumptions that are needed for player compensation to decrease competitive balance. We also empirically illustrate the differences in balance between professional and college sports. Given the theoretical and empirical analysis, we argue that unionization and/or player pay is unlikely to hurt competitive balance.     

Competitive Balance and Market Size in Major League Baseball: A Response to Baseball's Blue Ribbon Panel

Major League Baseball's recently convened Blue Ribbon Panel concluded that competitive balance had been reduced in the latter half of the 1990s. Specifically, the Blue Ribbon Panel argues that smaller-marketteams now know before theseason begins that there is little chance for post-season success. Such a finding is contrary to the findings of numerous economists who contend that Major League Baseball at the close of the twentieth century has never been more competitively balanced. The purpose of this work is to reconcile these disparate viewpoints via an analysis of the link between various definitions of market size and competitive balance. In general, our analysis of the 1990s reveals that market size, however it is defined, is not consistently related to the level of competitive balance in Major League Baseball.     

Personalized pricing and advertising: Who are the winners?

This paper investigates who wins and who loses when firms depart from a mass advertising/uniform pricing strategy (benchmark model) to a targeted advertising/price discrimination one. Considering a duopoly market in which firms simultaneously compete in prices and advertising decisions, we examine the competitive and welfare effects of personalized pricing with targeted advertising by comparing equilibrium outcomes under customized advertising/ pricing decisions to the results arising under mass advertising and uniform pricing. We show that, when both firms compete in both market segments, all segment consumers are expected to pay higher average prices under the personalized advertising/pricing strategy. We also show that, in the context of our simultaneous game, targeted advertising with price discrimination might boost firms’ profits in comparison to the case of mass advertising and uniform prices. The overall welfare effects of the personalized strategy are ambiguous. However, even when the personalized strategy boosts overall welfare, consumers might all be worse-off. Thus the paper gives support to concerns that have been raised regarding the firms’ ability to adopt personalized strategies to boost profits at the expense of consumers.     

Impact of demand uncertainty on supply chain cooperation of single-period products

Cooperation is an approach of improving competitive advantages of a supply chain. A two-echelon supply chain consisting of a manufacturer and a retailer for a single-period product is studied, and retail-market demand uncertainty is described by coefficient of variation. We develop a cooperation mechanism to address the cooperation and its implementation between the manufacturer and the retailer, two market situations are considered: (i) the wholesale price and the order quantity are decision variables, (ii) the wholesale and the retail prices as well as the order quantity are decision variables. In both market situations, our research shows that: (1) the cooperation mechanism can improve the overall channel profits and the supply chain members’ allocated profits, (2) the described cooperation is conditional on retail-market demand uncertainty: it can be implemented if, and only if, the fluctuation of retail-market demand is relatively small and coefficient of variation of retail-market demand does not exceed an upper bound. Impacts of retail-market demand uncertainty on wholesale price, order quantity and/or retail price have also been investigated through analytical and numerical analyses. Although our research is based on the assumption that the manufacturer dominates the supply chain in the non-cooperative situation, which is not the case for most retailer-driven supply chains, this research is still significant on providing guidelines for practitioners in current China mid-level car market that is similar to situations described in the paper.     

Revenue Sharing and Competitive Balance When Teams are not Wage Takers

Recent papers have enriched the conventional modeling of teams’ behavior through a game theoretic background at the competition level (introducing a contest success function). We take a step forward and consider contest on the talent market as well. Each team takes into account the fact that the price to be paid recruiting talent is a function that depends on both its own demand and the demands from the rival teams. For the two-team model, we show that the removal of the assumption that teams are price takers implies that the invariance proposition only survives if the price-function for talent is linear increasing. The extension to the n-team model shows that this result no longer holds; in fact, revenue sharing improves the competitive balance. More generally, an improvement in competitive balance is the most likely if one rules out the possibility of a very convex price-function. In addition revenue sharing can reduce the economic inefficiency of teams’ behavior, and so profits may increase.     

Top management team functional diversity and organizational innovation in China: The moderating effects of environment

While conflicts (cognitive and affective) have been considered as important process variables to better understand the mixed findings on the relationship between top management team functional diversity and organizational innovation, such an input‐process‐outcome model is still incomplete without considering the environmental factors. This study was formulated to assess the importance of both competitive and institutional environments in moderating such upper echelon effects within a transition economy. The chief executive officers and chief technology officers of 122 Chinese firms were surveyed and both competitive uncertainty and institutional support were found to shape top management team decision making processes and their outcomes. Copyright © 2012 John Wiley & Sons, Ltd.     

A review of: “CAPITAL BUDGETING: PLANNING AND CONTROL OF CAPITAL EXPENDITURES” by John J. Clark,Thomas J. Hindenlang,and Robert E. Pritchard,Prentice-Hall,Englewook Cliffs,New Jersey, 1979, ix + 468 pages, $22.00 list.

If one wants to Identify the IRR's of a project, it is always helpful to know the interval within which they occur. In his recent paper de Faro presented two approaches to the determination of an upper bound to the IRR's. In the present contribution it is shown how an approach providing an upper bound can readily be applied to establish a corresponding lower bound, and vice versa. Also four powerful new approaches to the formulation of the bounds to a project's IRR's are introduced and evaluated, as well as some interesting “by-products” of the main-stream considerations are discussed. Finally, it is shown that the presented approaches can easily be applied to the determination of bounds for the real zeros of a polynomial.     

Quantitative Methods for Evaluating the Unilateral Effects of Mergers

We describe the quantitative modeling techniques that are used in horizontal merger review for the evaluation of unilateral effects, and discuss how the 2010 Horizontal Merger Guidelines helped legitimize these methods and motivate scholarly research. We cover markets that feature differentiated products pricing, auctions and negotiations, and homogeneous products, in turn. We also develop connections between quantitative modeling and market concentration screens that are based on the Herfindahl-Hirschman Index (HHI).

     

Competitive balance and gate revenue sharing in team sports

This paper shows that under reasonable conditions, increasing gate revenue sharing among teams in a sports league will produce a more uneven contest, i.e. reduce competitive balance. This result has significant implications for antitrust authorities and legislators, who have tended to assume that revenue sharing arrangements will necessarily promote competitive balance.