scholarly journals When Demand Increases Cause Shakeouts

2019 ◽  
Vol 11 (4) ◽  
pp. 216-249
Author(s):  
Thomas N. Hubbard ◽  
Michael J. Mazzeo
Keyword(s):  
Competition Policy ◽  
Price Competition ◽  
Quality Competition ◽  
Swimming Pools ◽  
Standard Models ◽  
The 1960S

Standard models that guide competition policy imply that demand increases should lead to more, not fewer firms. However, Sutton’s (1991) model shows that demand increases instead can lead to shakeouts if non-price competition takes the form of fixed investments. We investigate this effect in the 1960s–1980s hotel and motel industry, where quality competition arose through investments in swimming pools. We show that demand increases associated with highway openings led to fewer firms, particularly in warm places. We do not find this effect in other industries that serve travelers, gasoline retailing, and restaurants, where quality competition does not involve fixed investments. (JEL G34, K21, L13, L15, L40, L83)

Modelling offline expansion strategies of online companies

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Heng Xu ◽  
Xuliang Wu ◽  
Yatian Liu
Keyword(s):  
Social Welfare ◽  
Competition Policy ◽  
Price Competition ◽  
Consumer Surplus ◽  
Optimal Decision ◽  
Content Type ◽  
Expansion Strategy ◽  
Online Retailers ◽  
Fixed Proportion ◽  
Expansion Strategies

Purpose This paper aims to theoretically investigate an online company’s optimal decision on its offline expansion strategy. In the past five years, many large online retailers and internet-based companies such as Amazon, Google, Alibaba, Tencent and JD.com have expanded their offline market but it was observed that they adopted different expansion strategies. Specifically, some of them expand the offline market by acquiring offline retailers, while some do so by purchasing a portion of offline retailer’s stake. This difference leads to a quite different structure in post-expansion market, having an impact on profit, consumer surplus and social welfare. The goal of this paper is to model such expansion strategies in a general way and complete studies on profits and welfare. Design/methodology/approach By constructing a Salop model with two offline retailers and one online company, this paper analyzes the case where the online company can expand its offline market by either acquiring or jointing (e.g. stakeholding) with one offline retailer. The former strategy (named Strategy A) allows the online company to fully control and capture residual claims of the offline retailer. With the adoption of the latter strategy (named Strategy C), on the other hand, the online company can obtain a fixed proportion of its offline partner’s quasi rent. In the price competition, the online company chooses its optimal offline expansion strategy by predicting its profit in the post-expansion market. Findings This paper found that the equilibrium crucially depends on the synergy effect due to online–offline integration, and such synergy also influences both consumer and social welfare. This study shows the various conditions on the synergy that affect an online company moves toward offline markets. Accordingly, this finding can assist online companies with or without retailing business to choose an optimal strategy when expanding offline markets. Moreover, by doing some necessary welfare analysis, this study shows that the online company’s offline expansion is not always benefiting consumers nor be socially desirable, which may shed some lights on the possible competition policy in the case where online companies practice in offline expansion. Originality/value Different from conventional wisdom in online-offline integration, the theory indicates that the offline expectation of online company may not always benefit consumers nor be socially desirable. Moreover, the findings also shed some lights on the possible competition policy in the case where online companies practice in offline expansion.

Preempting the Entry of Near Perfect Substitutes

2020 ◽  
Author(s):  
Vilen Lipatov ◽  
Damien Neven ◽  
Georges Siotis
Keyword(s):  
Price Competition ◽  
Generic Version ◽  
Differentiated Products ◽  
Quality Competition ◽  
Pharmaceutical Drug ◽  
Market Shares ◽  
Number Of Firms

Abstract When firms compete on price and quality-enhancing promotion in a market for differentiated products, entry of a nearly perfect substitute to one of such products, for example, a generic version of a pharmaceutical drug, intensifies price competition but softens quality competition. We show that consumers are likely to gain from entry when quality is relatively unimportant for them, when business stealing generated by promotion is substantial, and when products are poor substitutes. We also show that entry may be more attractive for consumers in less concentrated markets, as a smaller number of firms and asymmetric market shares may be associated with higher quality.

scholarly journals Understanding Price Controls and Nonprice Competition with Matching Theory

2012 ◽  
Vol 102 (3) ◽  
pp. 371-375 ◽  
Author(s):  
John William Hatfield ◽  
Charles R Plott ◽  
Tomomi Tanaka
Keyword(s):  
Price Competition ◽  
Competition Model ◽  
Matching Theory ◽  
Quality Competition ◽  
High Quality ◽  
Market Outcomes ◽  
Price Controls ◽  
Nonprice Competition ◽  
Competitive Equilibria

We develop a quality competition model to understand how price controls affect market outcomes in buyer-seller markets with discrete goods of varying quality. While competitive equilibria do not necessarily exist in such markets when price controls are imposed, we show that stable outcomes do exist and characterize the set of stable outcomes in the presence of price restrictions. In particular, we show that price controls induce non-price competition: price floors induce the trade of inefficiently high quality goods, while price ceilings induce the trade of inefficiently low quality goods.

scholarly journals Competition and Price Wars in the U.S. Brewing Industry

2012 ◽  
Vol 7 (2) ◽  
pp. 226-240 ◽  
Author(s):  
Jayendra Gokhale ◽  
Victor J. Tremblay
Keyword(s):  
Market Power ◽  
Price Competition ◽  
Jel Classification ◽  
Brewing Industry ◽  
War Of Attrition ◽  
Price Wars ◽  
Production Technologies ◽  
The 1960S ◽  
Fierce Competition ◽  
The U.S

AbstractThe behavior of the macro or mass-production segment of the U.S. brewing industry appears to be paradoxical. Since the end of Prohibition in 1934, the number of independent brewers has continuously declined while the major national brewers, such as Anheuser-Busch, Miller, and Coors, have gained market share. In spite of this decline in the number of competitors, profits and market power have remained low in brewing. Iwasaki et al. (2008) explain this result by providing evidence that changes in marketing and production technologies favored larger brewers and forced the industry into a war of attrition, in which only a handful of firms could survive. This led to fierce competition, especially from the 1960s through the mid 1980s. Since the late 1990s, the war appears to have subsided. Thus, the purpose of this study is to determine whether price competition diminished after the mid-1990s. We find evidence that competition has diminished but not enough to substantially increase market power. (JEL Classification: D22, L11, L66)

Price competition vs. quality competition: The role of one-way trade

2008 ◽  
Vol 58 (1) ◽  
pp. 61-89 ◽  
Author(s):  
Š. Bojnec ◽  
I. Fertő
Keyword(s):  
Public Policy ◽  
Price Competition ◽  
Trade Flows ◽  
Quality Competition ◽  
Private Business ◽  
Significant Component ◽  
Policy Makers ◽  
Food Trade ◽  
Small Countries

This paper investigates trade balances and unit values focusing on Hungarian-Slovenian bilateral agri-food trade flows to distinguish types of one-way and two-way trade flows, categories of price competition and categories of quality competition. We combine Gehlhar — Pick’s (GP) (2002) procedure of four trade categories with knowledge from literature on intra-industry trade (IIT) to disentangle one-way trade, which can be significant when trade between two countries is imbalanced, from two-way matched trade flows with unit values as proxies for price. By comparing the empirical results obtained using the additional categories of one-way trade and disentangled IIT types in two-way matched trade by product was found that GP’s two price and two quality competition categories and IIT types complement each other. The decomposition of GP non-price competition categories on quality competition and one-way trade illustrates that one-way trade is the most significant component of agri-food trade between Hungary and Slovenia, a finding relevant for agri-food trade of several small countries. One-way trade cannot be associated by the simultaneous export and import unit values by the product, but by some other factors of trade specialisation and comparative trade advantages of relevance for public policy makers and private business.

Relative quality-related (dis)utility in a vertically differentiated oligopoly with an environmental externality

2014 ◽  
Vol 20 (3) ◽  
pp. 354-379 ◽  
Author(s):  
Nada Ben Elhadj ◽  
Ornella Tarola
Keyword(s):  
Price Competition ◽  
Quality Competition ◽  
Standard Case ◽  
Green Consumerism ◽  
Second Stage ◽  
Pollution Damage ◽  
Configuration Changes ◽  
Relative Preferences ◽  
Relative Quality ◽  
Country Specific

AbstractIn a vertically differentiated setting, we consider a two-stage game between a clean firm and a dirty producer with quality competition at the first stage and price competition at the second stage under the assumption that consumers have relative preferences for quality. The equilibrium configuration changes depending on the consumers' dispersion and the relative preferences: either both producers are active at equilibrium, or the green producer is the only firm active in the market, the brown competitor being out. We analyze how the equilibrium changes when preferences are country specific (developed vs. developing countries). Finally, we show that whatever the market configuration at equilibrium, there can be a pollution damage reduction compared to the standard case without relative preferences. To the best of our knowledge, we are the first to introduce in the literature of green consumerism the notion of (possibly country-specific) relative preferences.

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