High Market Concentration Research Articles

Transaction costs, market structure and efficient coverage of emissions trading scheme: A microlevel study from the pilots in China

Regulators need to pay attention to the negative effects of the transaction costs when they define the reasonable coverage of the emissions trading scheme (ETS). In addition, the market structure in the ETS also needs to be considered in the market efficiency evaluation, as most covered firms come from industries with high market concentration. This paper incorporates transaction costs (monitoring, reporting and verification (MRV) costs and trading costs) and market structure into a partial equilibrium model to study their effect on the reasonable coverage of the ETS. A database of the 1867 industrial firms included in the ETS pilots in China is established for the case study. It is found that the MRV costs become the main factor of the breakdown in efficiency of the ETS. However, there seems to be no inherent relationship between the market structure and the efficient coverage of the allowance market. The policy implications derived from the case study can provide useful references for the upcoming national ETS in China.

Efectos de cambios regulatorios sobre el desempeño del pool eléctrico español entre 2004 y 2006

Este trabajo examina la relación entre el Gap del precio marginal del sistema y otras variables típicas del mercado, organización industrial y cambios regulatorios en el pool eléctrico español. Se estima un modelo de panel de datos largo, en el cual la dimensión temporal es mayor al número de empresas consideradas. Los resultados indican que tanto la alta concentración del mercado como la posibilidad de que las empresas más grandes sean pivotes generaron distorsiones sobre la determinación del precio. Además, los cambiosregulatorios implementados por las autoridades no indujeron los efectos esperados, lo que crea distorsión e incentivos incorrectos en este mercado.

Overlapping Ownership, R&D Spillovers, and Antitrust Policy

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with minority shareholdings. We find that, with high market concentration and sufficiently convex demand, there is no scope for cross-ownership to improve welfare regardless of spillover levels. Otherwise, there is scope for cross-ownership provided that spillovers are sufficiently large. The socially optimal degree of cross-ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the scope for cross-ownership is greatly reduced even under low market concentration.

Branchenspezialisierung und Marktkonzentration auf dem Abschlussprüfungsmarkt von kommunalen Unternehmen

ZögU Zeitschrift für öffentliche und gemeinwirtschaftliche Unternehmen , Seite 199 - 216

Cross-Ownership, R&D Spillovers, and Antitrust Policy

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with minority shareholdings. We find that, with high market concentration and sufficiently convex demand, there is no scope for cross-ownership to improve welfare regardless of spillover levels. Otherwise, there is scope for cross-ownership provided that spillovers are sufficiently large. The socially optimal degree of cross-ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the scope for cross-ownership is greatly reduced even under low market concentration.

Markets, Monopolies and Moguls: The Relationship between Inequality and Competition

AbstractAnalysing private market research data, we estimate the degree of market concentration across 481 industries in the Australian economy. On average, the largest four firms control 36 per cent of the market. Some industries are considerably more concentrated. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, Internet service providers, baby food and beer, the biggest four firms control more than 80 per cent of the market. We suggest ways in which high market concentration may increase inequality and discuss some policy ideas to address the problem.

Reimbursing Consumers' Switching Costs in Network Industries

This paper investigates firms’ decisions to reimburse consumers’ switching costs in network industries. Prior literature finds that switching costs incentivize firms to harvest their locked-in consumers rather than price aggressively for market dominance, resulting in a lower market concentration. Using a dynamic duopoly model, we show that this result is reversed if firms have the option to reimburse consumers’ switching costs. In that case the larger firm offers a bigger reimbursement to switching consumers than the smaller firm does, as an additional instrument to propel itself to market dominance. Consequently, an increase in switching cost increases market concentration. Compared to the case without reimbursements, allowing firms the option to reimburse results in greater consumer welfare despite having a much higher market concentration. Consumers’ benefits from a larger network and switching cost reimbursement outweigh the higher price charged by a dominant firm.

Nursing home report card and performance gap.

With the aging of our society, concerns about the quality of nursing homes have been increasing. The Nursing Home Compare (NHC) report card is believed to reduce information asymmetry between the facility and potential residents and, consequently, improve nursing home quality. However, there is limited evidence about how nursing homes use this publicly disseminated performance information. The aim of this study was to analyze the performance gap between nursing home administrators' self-assessment and the NHC report card performance ratings and explore the factors contributing to the gap. All 515 Medicare- and Medicaid-certified nursing homes in Indiana were surveyed between August and December 2013. The response rate was approximately 45%. The survey data were compared with the NHC data to identify the gap. Ordered logistic regression analysis was conducted. Despite voluntary participation, a reasonably high response rate, and anonymity, this study found that 62% of respondents either under- or overrated their facilities' performance, with the majority overrating their performance. The following factors were associated with a smaller performance gap: nonprofit or government-owned status, higher staffing levels, a higher percentage of hours worked by registered nurses, and a higher market concentration. Longer work experience and greater county occupancy rates were associated with a larger performance gap. The significant gap implies that administrators either do not regularly review the NHC report card or do not concur with the NHC ratings. To reduce the gap and thereby improve performance, it is necessary to stabilize the administrators' position so that administrators know how they stand in the market and are consequently better equipped to successfully respond to the market. Facilities may also need to provide regular training on current technologies and facilitate use of the NHC report card, targeting administrators who are old and have many years of work experience.

What Drives the Expansion of the Peer-to-Peer Lending?

We use data from the two leading P2P lending platforms on the US consumer credit market, Prosper and Lending Club, to explore the main drivers of the expansion of consumer demand for P2P credit. We exploit the heterogeneity in local credit markets at the county level to test three hypotheses: 1) global financial crisis; 2) competition and barriers to entry; and 3) learning costs. Disentangling between these hypotheses is difficult because the financial crisis has triggered an increase in market concentration and the closure of bank branches. Our findings suggest that P2P lending platforms have partly substituted for banks in counties that were more affected by banks’ deleveraging in the wake of the financial crisis. High market concentration and high branch density appear to deter the entry and expansion of the P2P lending. Finally, we find a positive impact of variables that are correlated with lower learning costs, such as education, population density, high share of young population, as well as important spatial interactions.

Trademark or patent? The effects of market concentration, customer type and venture capital financing on start-ups’ initial IP applications

We analyse the initial IP applications of 4,703 start-ups in the U.S., distinguishing between trademark and patent applications. Our empirical results show that start-ups are more likely to file for trademarks instead of patents when entering markets with a higher market concentration. Furthermore, we find that start-ups that are primarily active in business-to-consumer markets instead of business-to-business markets are more likely to file trademarks. Finally, the involvement of a venture capitalist (VC) affects the initial IP application. VC-backed start-ups are more likely than other start-ups to file initial IP in the form of trademarks rather than patents. This paper contributes to research on the use of IP rights in start-ups and to the literature on new venture strategy.

Cross-Ownership, R&D Spillovers, and Antitrust Policy

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with minority shareholdings. We find that, with high market concentration and sufficiently convex demand, there is no scope for cross-ownership to improve welfare regardless of spillover levels. Otherwise, there is scope for cross-ownership provided that spillovers are sufficiently large. The socially optimal degree of cross-ownership increases with the number of firms, with the elasticity of demand and of the innovation function, and with the extent of spillover effects. In terms of consumer surplus standard, the scope for cross-ownership is greatly reduced even under low market concentration.

Performances of the defense industrial base in France: the role of small and medium enterprises

This paper employs an economic and statistical approach to get an overview of the defense industrial base (DIB) in France. It allows us to identify its main characteristics and to measure the role of small and medium enterprises (SMEs). An original data-set was built, thanks to the information from the Ministry of Defense (MOD), the French Customs Central and National Administration, the Organization for Joint Armament Cooperation (OCCAR), the North Atlantic Treaty Organization (NATO), and all the most relevant organizations specialized in the development, production or maintenance, repair, and overhaul of military goods in France. Overall, the DIB turns out as being composed of about 1800 enterprises in France (subcontractors included), of which three-third are SMEs. Along with high market concentration ratios, these enterprises are characterized by a significant military/civil duality, high labor productivity rates, and intensity in Research and Development.

How Do Switching Costs Affect Market Concentration and Prices in Network Industries?

I investigate the effects of switching costs on the market outcome in network industries using a dynamic duopoly model of price competition in the presence of an outside option. I find that the role of switching costs depends on network effects and the outside option. Without a viable outside option, high switching costs can neutralize the tendency towards high market concentration associated with network effects, but with a viable outside option, switching costs increase market concentration. Furthermore, switching costs lower prices if network effects are modest and there exists a viable outside option, but generally raise prices otherwise.

What Can Merger Retrospectives Tell Us? An Assessment of European Mergers

In this review of retrospective European merger studies we provide a discussion of the price effect of analysed mergers and examine whether the antitrust agency made the right decisions. We find that remedied mergers, on average, were not followed by a price-increase, suggesting that, in our sample, merger interventions were effective at eliminating problems. High market concentration was more likely to lead to higher post-merger prices, although remedies were able to reduce post-merger price-increases, even in concentrated markets. We look at a number of reasons why prices may increase post-merger and find little evidence of genuine agency errors.

Corporate Bond Trading on a Limit Order Book Exchange

Is corporate bond (c-bond) trading fundamentally different from stock trading when both these security types are traded on an exchange? We investigate a sample of firms with c-bonds and stocks on the Tel Aviv Stock Exchange (TASE), where c-bonds are traded like stocks in a limit order book, and find no fundamental difference between the two types. Compared with stocks, c-bonds have lower average bid-ask spreads (0.077% vs. 0.087%) and lower off-exchange trading (9.47% vs. 25.45%), higher retail participation (7.28% vs. 6.38%), lower short-term trader participation (34.18% vs. 43.70%) with higher market concentration, lower trading costs of retail investors (0.068% vs. 0.087%) and higher trading profits of short-term traders (0.014% vs. 0.002%). However, these small differences arise mainly from the security's characteristics (STD and SIZE) and not from the security type (c-bond vs. stock). The characteristics of the TASE c-bond market are in contrast to findings from the US c-bond OTC markets where c-bond spreads are higher, retail participation is very low and retail trading costs are very high. These findings provide evidence confirming the feasibility of successful c-bond trading on a limit order book exchange.

Is the Active Fund Management Industry Concentrated Enough?

We study the effects of market concentration levels on the active fund management industry (AFMI). We introduce a model of an AFMI equilibria in which size, performance, and effort are endogenously determined under a continuum of exogenous market concentration levels. Higher market concentration (for a given number of funds) leaves more unexplored investment opportunities and allows managers to more efficiently use industry resources, making marginal managerial effort more productive in creating alphas. However, with higher market concentration, managers can get higher compensation for their effort, causing a higher opportunity cost of effort. We find that in equilibrium, higher market concentration levels induce higher net alphas and AFMI size (the ratio of assets under active management to total wealth) if and only if gains from better investment opportunities exceed the consequences of higher managerial costs. We specialize the model to allow endogenous concentration levels and, using the Herfindahl-Hirschman and other indices, empirically study its key predictions in the United States equity AFMI in the last four decades. We find that, on average, AFMI net alphas and AFMI size increase with market concentration. Given the current low market concentration in the U.S. AFMI and with no change in managerial productivity/effort opportunity costs, an increasing market concentration is likely to increase both AFMI net alphas and size. We also look at equilibria with colluding fund managers and examine AFMI’s direct benefits.

Are 'Big Four audits' really better? - Some remarks on the 'Big Four dichotomy' in the German audit market

In the green paper 'Audit policy: lessons from the crisis' of 2010, the European Commission discussed a break up of Big Four audit firms, since high market concentration was considered as a threat to independency. Our results suggest that concentration in the market for audits of German listed companies is persistently high. Regarding audit quality, clients of Big Four auditors show significantly lower amounts of discretionary accruals and lower likelihoods of error findings by the German enforcement system than clients of non-Big Four firms. When controlling for firm-specific characteristics, the difference remains observable only for the enforcement-error-proxy. The results suggest that differences in discretionary accruals might not primarily be influenced by auditor choice, but by different firm-characteristics between Big Four and non-Big Four clients. Nevertheless, while Big Four auditors might not be able to better constrain earnings management than non-Big Four auditors, they seem to be more successful in preventing 'real' accounting mistreatments, indicating higher audit quality.

The Impact of Micro Finance Institutions on Economic Growth of Morocco

The Moroccan banking system is characterized by great diversity and is largely modeled on the French banking system. It includes banks and other institutions working in specialized areas such as, agriculture. At the end of 2011, the banking sector comprised eighty five institutions, with the Bank Al Maghrib (BAM) as its central state institution. This system includes nineteen banks, thirty five finance companies, six offshore banks, thirteen Micro Finance Institutions and twelve other institutions. The total number of banks has not changed since 2009, whereas the number of finance companies has declined. In contrast, the area of microcredit was reinforced. After several years of growth, the microfinance sector in Morocco began to experience some problems in 2008. The crisis in Morocco started with the crash of one of the largest MFIs and jeopardized the whole system. Reasons given for the crisis were mainly the unsustainable growth of the sector, but also the high market concentration of MFIs, multiple indebtedness, the lack of controls and monitoring systems, nonperforming loans and delinquency problems. The microfinance market is very concentrated, and clients are mainly allocated among the four biggest MFIs accounting for over 90% of client outreach. From 2003 the amount of active clients rose from almost 308,000 clients to 1,353,000 clients in 2007.

AN INVESTIGATIONOF MARKET CONCENTRATIONAND FINANCIAL STABILITYIN PROPERTY–LIABILITY INSURANCE INDUSTRY

AbstractThe article investigates whether the market concentration is associated with an insurer's financial stability in the U.S. property–liability insurance industry over the period 1992–2010. We employ two‐stage least squares techniques with instrumental variables to address likely endogeneity problems. The results show that higher market concentration is associated with lower financial stability of insurance firms, consistent with the “concentration‐fragility” view. Our results indicate that firm‐specific characteristics including firm size, underwriting leverage, organizational form, product and geographical diversification, along with the exposure to natural catastrophes and macroeconomic conditions are important determinants in ensuring a safe and sound insurance system. Robustness tests using various estimation methods and alternative measures of financial stability present consistent results.

국내 수송용 석유제품 시장의 시장구조와 가격행태

본 논문에서는 경제이론과 실증분석을 통하여 이명박 정부가 석유제품 시장에 개입한 논거를 평가하였다. 한국을 포함하여 세계적으로 정제산업은 과점이 보편적이며, 역차별적인 수준의 대외 시장개방에도 불구하고 석유제품 시장에서 국내 정유4사의 시장점유율이 높게 지속되는 이유는 정유4사가 국제적인 가격경쟁력을 보유하고 있고 MOPS 가격을 기준으로 경쟁적인 가격책정을 하고 있기 때문이다. 국내 세전 소비자가격은 일본의 가격과 '27개 EU권 국가의 가격들을 가중평균한 값'보다 통계적으로 유의하게 현저히 낮았다. 한국, 일본, 14개 EU권 국가들을 대상으로 가격 비대칭성의 존재여부와 상세내역을 분석한 결과, 휘발유의 경우 한국과 11개 EU권 국가, 경유의 경우 한국과 8개 EU권 국가에서 비대칭성이 있는 것으로 판별되었다. 가격 비대칭성은 다양한 경제 경영적 원인에 의해 다양한 제품과 시장구조에서 발생한다. 소비자 복지의 관점에서는 한국의 세전 소비자가격이 현저히 낮다는 점이 제일 중요하다. We evaluate two main rationales of massive policy intervention of Lee Administration in the Korean transportation fuel market: high market share of domestic refineries, perceived by the Administration as the result of high market concentration, and asymmetry in price adjustment, perceived as the result of collusion. Domestic refineries, huge in capacity and located at seaports, maintain international competitiveness in price. Considering market openness offering preferential treatment to importers, they set domestic prices competitively on the basis of MOPS prices. Yet, the price competitiveness of domestic refineries is so high that they are able to sustain high market share. We confirm that the Korean before-tax consumer prices of gasoline and diesel are lower than Japan's and the weighted averages of 27 EU countries by as much as 159KRW and 21KRW per liter in the case of gasoline and 170KRW and 63KRW in the case of diesel. Price asymmetry is caused by diverse economic and managerial reasons and, as FTC (2005) states, price asymmetry does not immediately imply exercise of market power or collusion. We analyzed price asymmetry in Korea, Japan and 14 EU countries, and found asymmetry in Korea and 11 EU countries in the case of gasoline and in Korea and 8 EU countries in the case of diesel.