Entry deterrence through cooperative R&D over-investment

In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price. --Competition policy,Research and Development Agreements,Collusion,Entry deterrence

Equilibrium strategic overbuying

We consider two firms competing both to sell their output and purchase their input from an upstream firm, to which they offer non-linear contracts. Firms may engage in strategic overbuying, purchasing more of the input when the supplier is capacity constrained than when it is not in order to exclude their competitor from the final market. Warehousing is a special case in which a downstream firm purchases more input than it uses and disposes of the rest. We show that both types of overbuying happen in equilibrium. The welfare analysis leads to ambiguous conclusions.entry deterrence, overbuying, vertical contracting

Entry deterrence through cooperative R&D over-investment

In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price

The role of abatement technologies for allocating free allowances

The issue of how to allocate pollution permits is critical for the political sustainability of any cap-and-trade system. Under the objective of offsetting firms' losses resulting from the environmental regulation, we argue that the criteria for allocating free allowances must account for the type of abatement technology: industries that use process integrated technologies should receive some free allowances, whereas those using end-of-pipe abatement should not. In the long run, we analyze the interaction between the environmental policy and the evolution of the market structure. In particular, a reserve of pollution permits for new entrants may be justified when the industry uses a process integrated abatement technology. --Cap-and-trade system,profit-neutral allocations,abatement technologies

The role of abatement technologies for allocating free allowances

The issue of how to allocate pollution permits is critical for the political sustainability of any cap-and-trade system. Under the objective of offsetting firms' losses resulting from the environmental regulation, we argue that the criteria for allocating free allowances must account for the type of abatement technology: industries that use process integrated technologies should receive some free allowances, whereas those using end-of-pipe abatement should not. In the long run, we analyze the interaction between the environmental policy and the evolution of the market structure. In particular, a reserve of pollution permits for new entrants may be justified when the industry uses a process integrated abatement technology

Equilibrium strategic overbuying

Abstract We consider two firms competing both to sell their output and purchase their input from an upstream firm, to which they offer non-linear contracts. Firms may engage in strategic overbuying, purchasing more of the input when the supplier is capacity constrained than when it is not in order to exclude their competitor from the final market. Warehousing is a special case in which a downstream firm purchases more input than it uses and disposes of the rest. We show that both types of overbuying happen in equilibrium. The welfare analysis leads to ambiguous conclusions

Accords de recherche et développement, sur-investissement et barrières à l'entrée

International audienceWe highlight conditions under which R&D agreements may harm consumers by increasing final prices. This occurs although members of the R&D agreement increase their R&D efforts. We focus on cases where firms compete both on the final market and to buy an input necessary for R&D. The market is composed of a competitive fringe and two strategic firms that enjoy a first mover advantage on both markets. By increasing its R&D input purchase, a strategic firm increases the cost of all its rivals and in particular deters entry in the fringe. This reduces downstream competition and increases the final price. Therefore, an R&D agreement may induce strategic overbuying of R&D input by members of the agreement at the expense of rival firms and consumers.Nous mettons en évidence des conditions sous lesquelles un accord de recherche et développement (R&D) peut augmenter les prix finaux et ainsi être néfaste aux consommateurs, bien qu’il conduise les entreprises membres de l’accord à augmenter leurs efforts de recherche et développement. Nous nous intéressons à un cas dans lequel les entreprises se font concurrence à la fois sur le marché aval et sur le marché amont, où elles achètent toutes le même facteur de production nécessaire pour faire de la R&D. Le secteur est composé d’une frange concurrentielle et de deux entreprises stratégiques, qui prennent leurs décisions avant la frange sur les deux marchés. Quand une entreprise stratégique augmente sa demande pour l’input nécessaire aux activités de recherche et développement, cela augmente le coût de toutes ses concurrentes, et rend ainsi plus difficile l’entrée de nouvelles entreprises dans la frange concurrentielle. Ceci conduit à une baisse de la concurrence sur le marché aval, et augmente le prix final. Par conséquent, un accord de recherche et développement peut permettre aux entreprises membres de l’accord de mettre en place une stratégie de sur-achat de l’input nécessaire aux activités de recherche et développement, aux dépens des entreprises concurrentes et des consommateurs

New Product Introduction and Slotting Fees

The availability of a new product in a store creates, through word-of-mouth ad- vertising, an informative spillover that may go beyond the store itself. We show that, because of this spillover, each retailer is able to extract a slotting fee from the manu- facturer at product introduction. Slotting fees may discourage innovation and in turn harm consumer surplus and welfare. We further show that the spillover may facilitate the use of pay-to-stay fees by an incumbent to deter entry. Finally, a manufacturer is likely to pay lower slotting fees when it can heavily advertize or when it faces larger buyers

Equilibrium strategic overbuying

We consider two firms competing both to sell their output and purchase their input from an upstream firm, to which they offer non-linear contracts. Firms may engage in strategic overbuying, purchasing more of the input when the supplier is capacity constrained than when it is not in order to exclude their competitor from the final market. Warehousing is a special case in which a downstream firm purchases more input than it uses and disposes of the rest. We show that both types of overbuying happen in equilibrium. The welfare analysis leads to ambiguous conclusions

New product introduction and slotting fees*

International audienceThe availability of a new product in a store creates an informative spillover that extends past the store itself through word-of-mouth advertising. Because of this spillover, each retailer is able to extract a slotting fee from the manufacturer at product introduction. Slotting fees may discourage innovation by the manufacturer and, in turn, reduce consumer surplus and social welfare. A manufacturer is more likely to pay lower slotting fees when it can advertise more heavily, or when it faces a larger buyer. These results are robust to variations in retail competition, firms' discount factors, and the identity of the innovating firm