Volume 17, Issue 7:

Neven, Damien and Röller, Lars-Hendrik

"An aggregate structural model of competition in the European banking industry"

JEL codes: L1; L5
Keywords: Banking; Oligopoly; Aggregation

Abstract: The objective of this study is to analyze competition in the European banking industry in light of the changing regulatory frameworks to which banks are exposed. We focus on the provision of mortgages to households and loans to the corporate sectors in seven European countries. We develop and estimate an aggregate model for the European banking industry which controls for asymmetries in market structure. We reject non-cooperative Nash behavior in favor of more collusive cartel-like conduct. In addition, we provide some evidence that the degree of coordination among banks in the household market has fallen over the period. Such evolution can presumably be associated with the widespread deregulation that took place during the 1980s.

Ratnayake, Ravi

"Industry concentration and competition: New Zealand experience"

JEL codes: L11
Keywords: Antitrust policy; Competition; Firms; Industry structure; Market power

Abstract: This paper analyses the changes in industry concentration and their determinants using a sample of 109 New Zealand manufacturing industries. The analysis shows that New Zealand manufacturing industries are more concentrated than those of most other countries. However, there has been a clearly declining trend in industry concentration over time indicating that the efforts taken in the past to enhance domestic competition have produced some favorable results. The analysis supports the hypothesis that economies of scale are a major source of concentration. The other determinants of industry concentration are entry barriers, the size of industry, import competition and foreign ownership of industry.

Bughin, Jacques

"The strategic choice of union-oligopoly bargaining agenda"

JEL codes:

Abstract: This article analyzes the optimal choice of union-oligopoly bargaining agenda (i.e., Right-to-Manage versus Efficient Bargaining), under possible market entry. It is shown that agreement by both the union and the incumbent firm about Efficient Bargaining emerges as an equilibrium in Nash strategies, even more so under non-blockaded entry for deterrence motives. This is consistent with the common empirical finidngs that unionized firms do not behave according to the prediction of the Right-to-Manage model that employment will be on the labor demand curve. The entry deterrence effect highlighted in this paper also suggests that labor market organization should not be overlooked as a component of the welfare analysis of product market competition.

Frascatore, Mark R.

"The grouping of stars: An application to professional sports"

JEL codes: L15; L83
Keywords: Vertical product differentiation; Worker synergy; Market structure; Professional sports

Abstract: This paper uses a two-period model to analyze competition for high-quality labor in a professional sports market. Leagues vertically differentiate their products by competing for the services of a small number of stars, thereby endogenizing the cost of product quality. If utility is linear or convex in the number of stars, one league successfully employs all of them. This grouping of stars results in an equilibrium market structure of either a monopoly or a duopoly, depending on the opportunity costs of players and the number of consumer. Market efficiency of the resulting equilibrium is then discussed.

Carree, M.A. and Thurik, A.R.

"The carrying capacity and entry and exit flows in retailing"

JEL codes:
Keywords: Carrying capacity; Entry rate; Exit rate

Abstract: This paper introduces a new theory explaining entry and exit rates. According to our model emphasizing the carrying capacity of a market, net entry is a reaction to a disequilibrium situation. This is a situation in which the number of firms in the market is unequal to the carrying capacity of that market. We derive an expression for the carrying capacity and also some testable implications. We investigate the speed of adjustment towards equilibrium, the effect of changes in consumer demand on the carrying capacity and the relative importance of entry and exit in the adjustment process. The theoretical model is tested using a panel data set of 22 retail industries for the 1981-1988 period.

Audretsch, David B. and Santarelli, Enrico and Vivarelli, Marco

"Start-up size and industrial dynamics: some evidence from Italian manufacturing"

JEL codes: L11; L60
Keywords: Entry; Growth; Survival; Industry evolution

Abstract: The aim of this paper is to shed some light on industry dynamics in Italy. For this purpose we use a large and comprehensive longitudinal data base, identifying the start-up of new manufacturing firms and their subsequent post-entry performance. This enables us to link the survival and growth of firms in each manufacturing industry specifically to their start-up size. While in a tobit regression (at the two-digit level) we find no evidence to link start-up size with survival, the growth rates are negatively and significantly correlated with initial size. As in previous studies dealing with other countries, this evidence suggests that Gibrat's Law fails to hold, at least for small, new-born manufacturing firms.

Vickrey, William S. (with a foreword by Anderson, Simon P. and Braid, Ralph)

"Spatial competition, monopolistic competition, and optimum product diversity"

JEL codes: D43, L13, R32
Keywords: sequential entry, pure profits, circle model, sophisticated entry

Abstract: This is a replication of a passage from William Vickrey's (1964) book Microstatics, which presents important results in spatial competition and monopolistic competition.

Wambach, Achim

"Bertrand Competition under Cost Uncertainty"

JEL codes:
Keywords: Bertrand competition, risk-averse firms, oligopoly, uncertainty

Abstract: The Bertrand paradox states that two firms are sufficient for perfect comeptiton. By introducing risk-averse firms under cost uncertainty we show that this result no longer holds. If firms are required to meet demand, a price above the competitive price can be sustained even if the number of firms gets large. Furthermore, in contrast to standard oligopoly models, increasing the market size and increasing the number of firms by the same proportion will lead to an increase in price.
A numberical example illustrates the results.

Bac, Mehmet and Saglam, Ismail

"Managerial defections, promotion criteria and firm growth"

JEL codes: M12; L14
Keywords: Sunk growth; Bayesian equilibrium; Ability acquisition; Promotion

Abstract: Junior managers' learning decisions and career expectations, promotion criteria, and parent firms' growth strategies are interdependent. We study this interdependence in a two-stage game where a junior manager invests in   unobservable industry-specific learning in response to the firm's growth strategy. In the absence of a credible promotion criterion the firm is unable to insure itself fully against defections, growth is low and ex-post regrettable managerial promotions may occur. Hicher growth relaxes promotion decisions and erodes managers' learning incentives, whereas lower growth generates the opposite effect but increases the likelihood of defections.