The merger incentives between profitable firms differ fundamentally from the incentives of a prof... more The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are suffi ciently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail-out increases total welfare when the number of firms is suffi ciently low.
Deze bijdrage behandelt een aantal recente inzichten over de competitie in de telecommunicatiesec... more Deze bijdrage behandelt een aantal recente inzichten over de competitie in de telecommunicatiesector vanuit industrieel economische hoek. We hechten hierbij veel belang aan het strategisch prijszettinggedrag van telecomoperatoren in een geliberaliseerde context. Het strategisch belang van interconnectieprijzen op de consumentenprijs toont aan dat een ongenuanceerde herregulering nefaste effecten kan hebben op de optimale werking van de industrie. De vooren nadelen van het houden van een schoonheidswedstrijd of het veilen van frequenties voor mobilofoonlicenties komen eveneens aan bod. We verdedigen de stelling dat een op maat gesneden veilingsvorm leidt tot de beste toewijzing van de schaarse frequenties. Tenslotte bespreken we de organisatie van de universele dienstverlening in een geliberaliseerde context.
Competing firms often have the possibility to jointly determine the magnitude of consumers’ switc... more Competing firms often have the possibility to jointly determine the magnitude of consumers’ switching costs. Examples include compatibility decisions and the option of introducing number portability in telecom and banking. We put forward a model where firms jointly decide to reduce switching costs before competing in prices during two periods. We demonstrate that the outcome hinges crucially on how the joint action reduces consumers’ switching costs. In particular, firms will enhance their market power if they implement measures that reduce consumers’ switching costs by a lump sum. Conversely, they will preserve market power by not implementing actions that reduce switching costs proportionally. Hence, when policy makers design consumer protection policies, they should not always adopt a favorable attitude towards efforts by firms to reduce switching costs. ∗We gratefully acknowledge the comments made by Sue Mialon, as well as seminar participants at the 6th International Industrial...
A public debate exists whether the flow of consumer information should be restricted, and whether... more A public debate exists whether the flow of consumer information should be restricted, and whether privacy laws-such as the Gramm-Leach-Bliley Act for financial institutionsshould be amended. We offer a welfare comparison of the three main current policies towards consumer privacy-anonymity, opt in, and opt out-within a two-period address model. These privacy policies shape a firm's ability to collect and use customer information, and affect its pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy regime while opt in socially underperforms anonymity.
We show that competing firms relax overall competition by lowering future barriers to entry. We i... more We show that competing firms relax overall competition by lowering future barriers to entry. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information. By doing this, they invite rivals to enter their market. Disclosure of borrower information increases an entrant's second-period profits. This dampens competition for serving the first-period market.
This paper investigates joint bidding when firms, after competing in the main market, can sign su... more This paper investigates joint bidding when firms, after competing in the main market, can sign subcontracts with each other. We analyze how joint bidding changes the terms of trade on the horizontal subcontracting market. When the subcontracting market is uncompetitive, the changes in terms of trade increase competition in the main market. Consequently, it is too restrictive to always prohibit joint bidding arrangements between parties that could bid solo. Our results also show that joint bidding through a consortium permits more leniency if the consortium dissolves after losing in the main market.
ABSTRACT The merger incentives between profitable firms differ fundamentally from the incentives ... more ABSTRACT The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are sufficiently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail-out increases total welfare when the number of firms is sufficiently low.
Bouckaert, Jan; Cayseele, van, Patrick; Degryse, Hans-Credit market structure and information sha... more Bouckaert, Jan; Cayseele, van, Patrick; Degryse, Hans-Credit market structure and information sharing mechanisms-In: Market evolution: competition and cooperation across markets and over time/Witteloostuijn, van, A.[edit.].-Deventer: Kluwer, 1994.-p. 129-143.
The Economic and Business Consequences of the EMU, 2000
The start of the Economic and Monetary Union (EMU) at the beginning of 1999 is generally presente... more The start of the Economic and Monetary Union (EMU) at the beginning of 1999 is generally presented as the cherry on the cake of the European financial integration process. This view sees the EMU as a catalyst towards more intense competition. The remaining price differences for the comparable financial products within the European Union would diminish or totally disappear (EC Commission (1990)). Banking in one currency would be a synonym for banking in one uniform and integrated market, without remaining barriers. Recent evidence, however, points at existing price differences across and within European countries (Economic Research Europe (ERE) report ‘Credit Institutions and Banking’). This contribution offers a review of competitive forces between financial institutions in the EMU-context. In particular, we analyse how the EMU affects market imperfections and other forces of change in the financial sector. We investigate whether the above reasoning of financial integration applies, or whether certain market imperfections are persistently determining banking competition.
The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiative... more The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiatives to stimulate financial integration. These initiatives allow new entrants to "poach" the incumbents' clients by offering them attractive loan offers. We show that these deregulations may be insufficient since asymmetric information seriously hampers the integration of credit markets. Moreover, banks may strategically display some information hindering the scale of entry when asymmetric information is moderate. We also show that voluntary information sharing emerges only when asymmetric information is low.
Many organizations compete for customers while at the same time receiving substantial subsidies f... more Many organizations compete for customers while at the same time receiving substantial subsidies from e.g. the government. In this paper, we study the effects of two commonly observed subsidy systems on price-competing firms. First, we show that, for a given total budget available for subsidies, an open-ended per-unit subsidy results in fiercer price competition (lower prices and higher output) than a closed-ended subsidy allocated according to the firms' market shares. Second, which system generates the highest profits depends on the size of the subsidy. Moreover, welfare is higher under the open system for all but very high subsidy levels. Third, a market-share based subsidy makes collusive behavior between firms much harder. Our results, therefore, suggest a potential trade-off between short-run and long-run objectives. They may have important policy implications for the design of subsidy systems in, among others, education and the arts, where an important goal of the government is to widen the degree of participation.
This paper compares two regimes in a market where suppliers 'wait at stand' for customers to arri... more This paper compares two regimes in a market where suppliers 'wait at stand' for customers to arrive. In the first regime suppliers simultaneously offer their good for sale. Customers randomly select a supplier. In the second regime suppliers queue and sequentially offer their good for sale. Customers must select the supplier ranking in front of the queue. Prices are the result of bilateral negotiation and both parties face switching costs when agreement is not reached. The Nash bargaining solution is used to determine the outcome of the negotiation. The second regime yields a higher negotiated outcome to the supplier. When customers cannot choose regime, the market equilibrium always has the property that there are suppliers in both regimes.
International journal of industrial organization, 2000
This paper characterizes price competition between an expert and s non-expert. In contrast ivith ... more This paper characterizes price competition between an expert and s non-expert. In contrast ivith thc r.xpert, the non-expert's reperir technology is not always succe.}sful. C'onsumers visit the expert after experiencing an crosuccessful match at the non-expert. This re-entry affects the behavior of both sellers. For low enough prohabilitv of successful repair at the non-expert, all consurners first risit tho non-e~7~ert, and a "timid-pricing" equilibrium results. If the non-expert's repair teclmology performs well enough, it pays for some consumers to disregard the nonexpert a visit. They directly go to the expert's shop, and an "aggressive-pricing" erluihbrium pops ap. Pór intermediate i~lues of the non-expert's surcrssful repair a "mised-pricing" equilibrium emerges u~hcre the c;~pert randomizes over the monopoly price and some Inwer price.
The merger incentives between profitable firms differ fundamentally from the incentives of a prof... more The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are suffi ciently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail-out increases total welfare when the number of firms is suffi ciently low.
Deze bijdrage behandelt een aantal recente inzichten over de competitie in de telecommunicatiesec... more Deze bijdrage behandelt een aantal recente inzichten over de competitie in de telecommunicatiesector vanuit industrieel economische hoek. We hechten hierbij veel belang aan het strategisch prijszettinggedrag van telecomoperatoren in een geliberaliseerde context. Het strategisch belang van interconnectieprijzen op de consumentenprijs toont aan dat een ongenuanceerde herregulering nefaste effecten kan hebben op de optimale werking van de industrie. De vooren nadelen van het houden van een schoonheidswedstrijd of het veilen van frequenties voor mobilofoonlicenties komen eveneens aan bod. We verdedigen de stelling dat een op maat gesneden veilingsvorm leidt tot de beste toewijzing van de schaarse frequenties. Tenslotte bespreken we de organisatie van de universele dienstverlening in een geliberaliseerde context.
Competing firms often have the possibility to jointly determine the magnitude of consumers’ switc... more Competing firms often have the possibility to jointly determine the magnitude of consumers’ switching costs. Examples include compatibility decisions and the option of introducing number portability in telecom and banking. We put forward a model where firms jointly decide to reduce switching costs before competing in prices during two periods. We demonstrate that the outcome hinges crucially on how the joint action reduces consumers’ switching costs. In particular, firms will enhance their market power if they implement measures that reduce consumers’ switching costs by a lump sum. Conversely, they will preserve market power by not implementing actions that reduce switching costs proportionally. Hence, when policy makers design consumer protection policies, they should not always adopt a favorable attitude towards efforts by firms to reduce switching costs. ∗We gratefully acknowledge the comments made by Sue Mialon, as well as seminar participants at the 6th International Industrial...
A public debate exists whether the flow of consumer information should be restricted, and whether... more A public debate exists whether the flow of consumer information should be restricted, and whether privacy laws-such as the Gramm-Leach-Bliley Act for financial institutionsshould be amended. We offer a welfare comparison of the three main current policies towards consumer privacy-anonymity, opt in, and opt out-within a two-period address model. These privacy policies shape a firm's ability to collect and use customer information, and affect its pricing strategy and entry decision differently. The free-entry analysis reveals that social welfare is non-monotonic in the degree of privacy protection. Opt out is the socially preferred privacy regime while opt in socially underperforms anonymity.
We show that competing firms relax overall competition by lowering future barriers to entry. We i... more We show that competing firms relax overall competition by lowering future barriers to entry. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information. By doing this, they invite rivals to enter their market. Disclosure of borrower information increases an entrant's second-period profits. This dampens competition for serving the first-period market.
This paper investigates joint bidding when firms, after competing in the main market, can sign su... more This paper investigates joint bidding when firms, after competing in the main market, can sign subcontracts with each other. We analyze how joint bidding changes the terms of trade on the horizontal subcontracting market. When the subcontracting market is uncompetitive, the changes in terms of trade increase competition in the main market. Consequently, it is too restrictive to always prohibit joint bidding arrangements between parties that could bid solo. Our results also show that joint bidding through a consortium permits more leniency if the consortium dissolves after losing in the main market.
ABSTRACT The merger incentives between profitable firms differ fundamentally from the incentives ... more ABSTRACT The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are sufficiently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail-out increases total welfare when the number of firms is sufficiently low.
Bouckaert, Jan; Cayseele, van, Patrick; Degryse, Hans-Credit market structure and information sha... more Bouckaert, Jan; Cayseele, van, Patrick; Degryse, Hans-Credit market structure and information sharing mechanisms-In: Market evolution: competition and cooperation across markets and over time/Witteloostuijn, van, A.[edit.].-Deventer: Kluwer, 1994.-p. 129-143.
The Economic and Business Consequences of the EMU, 2000
The start of the Economic and Monetary Union (EMU) at the beginning of 1999 is generally presente... more The start of the Economic and Monetary Union (EMU) at the beginning of 1999 is generally presented as the cherry on the cake of the European financial integration process. This view sees the EMU as a catalyst towards more intense competition. The remaining price differences for the comparable financial products within the European Union would diminish or totally disappear (EC Commission (1990)). Banking in one currency would be a synonym for banking in one uniform and integrated market, without remaining barriers. Recent evidence, however, points at existing price differences across and within European countries (Economic Research Europe (ERE) report ‘Credit Institutions and Banking’). This contribution offers a review of competitive forces between financial institutions in the EMU-context. In particular, we analyse how the EMU affects market imperfections and other forces of change in the financial sector. We investigate whether the above reasoning of financial integration applies, or whether certain market imperfections are persistently determining banking competition.
The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiative... more The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiatives to stimulate financial integration. These initiatives allow new entrants to "poach" the incumbents' clients by offering them attractive loan offers. We show that these deregulations may be insufficient since asymmetric information seriously hampers the integration of credit markets. Moreover, banks may strategically display some information hindering the scale of entry when asymmetric information is moderate. We also show that voluntary information sharing emerges only when asymmetric information is low.
Many organizations compete for customers while at the same time receiving substantial subsidies f... more Many organizations compete for customers while at the same time receiving substantial subsidies from e.g. the government. In this paper, we study the effects of two commonly observed subsidy systems on price-competing firms. First, we show that, for a given total budget available for subsidies, an open-ended per-unit subsidy results in fiercer price competition (lower prices and higher output) than a closed-ended subsidy allocated according to the firms' market shares. Second, which system generates the highest profits depends on the size of the subsidy. Moreover, welfare is higher under the open system for all but very high subsidy levels. Third, a market-share based subsidy makes collusive behavior between firms much harder. Our results, therefore, suggest a potential trade-off between short-run and long-run objectives. They may have important policy implications for the design of subsidy systems in, among others, education and the arts, where an important goal of the government is to widen the degree of participation.
This paper compares two regimes in a market where suppliers 'wait at stand' for customers to arri... more This paper compares two regimes in a market where suppliers 'wait at stand' for customers to arrive. In the first regime suppliers simultaneously offer their good for sale. Customers randomly select a supplier. In the second regime suppliers queue and sequentially offer their good for sale. Customers must select the supplier ranking in front of the queue. Prices are the result of bilateral negotiation and both parties face switching costs when agreement is not reached. The Nash bargaining solution is used to determine the outcome of the negotiation. The second regime yields a higher negotiated outcome to the supplier. When customers cannot choose regime, the market equilibrium always has the property that there are suppliers in both regimes.
International journal of industrial organization, 2000
This paper characterizes price competition between an expert and s non-expert. In contrast ivith ... more This paper characterizes price competition between an expert and s non-expert. In contrast ivith thc r.xpert, the non-expert's reperir technology is not always succe.}sful. C'onsumers visit the expert after experiencing an crosuccessful match at the non-expert. This re-entry affects the behavior of both sellers. For low enough prohabilitv of successful repair at the non-expert, all consurners first risit tho non-e~7~ert, and a "timid-pricing" equilibrium results. If the non-expert's repair teclmology performs well enough, it pays for some consumers to disregard the nonexpert a visit. They directly go to the expert's shop, and an "aggressive-pricing" erluihbrium pops ap. Pór intermediate i~lues of the non-expert's surcrssful repair a "mised-pricing" equilibrium emerges u~hcre the c;~pert randomizes over the monopoly price and some Inwer price.
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Papers by jan Bouckaert