Dynamic entry deterrence in the UK pathology services market

This paper describes work on a dynamic model of entry deterrence applied to the UK National Health Service (NHS) market for pathology services. The model, based on a game theoretical framework, is concerned with decision support applications. Presented in this paper is a case study analysis of a geographical region in which a provider of pathology services is concerned at the prospect of being exposed to competition from a new entrant. The incumbent provider may undertake strategic investments to create a stock of knowledge and goodwill with the intention of dissuading others from entering the market. The effect of a new entrant is modelled as perturbation of a pre-existing stable Nash-Cournot equilibrium in an oligopolistic market, and is influenced by market forces subject to Government regulation. The original contribution of this study is to identify the nature of these potential strategic investments and their interaction with cash flows. Recent historical data and managerial analysis are used to characterise market growth. An estimate of the incumbent provider's market share which is at risk can be found by examining the local geographical distribution of providers and purchasers of pathology services. On the basis of this analysis we propose a method for obtaining the strategic investment profile which minimises the total investment required to deter entry.     

Limit pricing under third-degree price discrimination

This paper shows how a multimarket incumbent can use low pre-entry prices for entry deterrence. We consider an incumbent who operates in two independent markets and has private information about his production cost. In one of the markets, there is a potential entrant offering a differentiated product. The most reasonable perfect Bayesian equilibrium is either the least-cost separating equilibrium or the pooling equilibrium where both types of incumbents set the low-cost monopoly prices. This equilibrium may involve a downward distortion in the pre-entry prices of both markets. Our model has interesting implications for antitrust regulation as well as for international trade policy. First, predatory tests based on a single market are inadequate for a multimarket incumbent. Second, a lower price in a foreign market is neither a necessary nor a sufficient condition for the existence of entry deterrence in a foreign market.     

基于电子优惠券投放和服务创新的线上线下渠道竞争分析

基于豪泰林模型分析具有渠道偏好的线上网络渠道和线下实体渠道市场竞争格局及其博弈关系,构建线上网络渠道投放电子优惠券、线下实体渠道服务创新的渠道竞争模型,剖析优惠券和服务创新对市场份额、定价及利润的影响,并给出具有市场进入时序的渠道退出边界。研究发现:市场缺额情形凭借高价获得较小市场份额下的较高利润,而市场重叠情形的低价策略在较大市场份额下获得较小利润。当服务创新足以支撑实体渠道要价时,其可获得较高利润,守住混合偏好市场;投放电子优惠券的让价方式可增大网络渠道的调价空间,且存在最优电子优惠券面值使网络渠道获得期望收益,夺得混合偏好市场。     

A competitive hub location and pricing problem

We formulate and solve a new hub location and pricing problem, describing a situation in which an existing transportation company operates a hub and spoke network, and a new company wants to enter into the same market, using an incomplete hub and spoke network. The entrant maximizes its profit by choosing the best hub locations and network topology and applying optimal pricing, considering that the existing company applies mill pricing. Customers’ behavior is modeled using a logit discrete choice model. We solve instances derived from the CAB dataset using a genetic algorithm and a closed expression for the optimal pricing. Our model confirms that, in competitive settings, seeking the largest market share is dominated by profit maximization. We also describe some conditions under which it is not convenient for the entrant to enter the market.     

“Costless” regulation of monopolies with large entry cost: A game theoretic approach

A major issue within the realm of Antitrust policy is the regulation of existing monopolies. We describe a new potential indirect scheme for regulating a natural monopoly that arises from high entry cost. The approach involves minimal government intervention, and it is based on encouraging entry by offering to subsidize entry cost for potential competitors. We pose this issue as a four-stage non-cooperative game. Analysis of sub-game perfect Nash equilibria of the game reveals that the first best outcome is achieved as the unique equilibrium in which the monopolist prices at marginal cost and there is no entry. The regulation is “costless,” since no entry will occur and hence no subsidy will be paid. Received June 1995     

Quality and entry deterrence

We analyze the role of quality, which we define as an attribute of a product that increases consumers’ willingness to buy, as a competitive tool in a quality-price setting. We consider an incumbent’s entry-deterrence strategies using quality as a deterrent when faced by a potential entrant. We investigate settings motivating the incumbent to blockade the entrant (i.e., prevent entry without extra effort), deter the entrant (i.e., prevent entry with extra effort), or accommodate the entrant (i.e., allow the entry to take place). We identify conditions under which the incumbent may actually over-invest in quality to deter entrance. More interestingly, we also identify conditions under which the incumbent may decrease his quality investment to make it easier for the entrant to penetrate the market. Our model sheds light on entry scenarios of particular platform product markets such as the entry of Xbox to the video game console market.     

The value of entrant manufacturers: A study of competition and risk for donor-funded procurement of essential medicines

Global-health purchasing organizations (POs) want to increase access to essential medicines in low-income countries. One way to purchase more medicines with limited funds is to contract with generics manufacturers, thereby increasing competition and lowering prices. However, many POs fear that these entrants are less reliable than others and increase supply risks: failure to adhere to lead times and supplier defaults may cause disruptions that result in unsuccessful medical treatments. The problem can be remedied or at least reduced if POs have a sound basis for assessing manufacturers. To this end, we develop a mathematical framework that supports decision-makers in an integrated evaluation of an entrant’s effect on purchasing costs and supply risks. Our approach accounts for the characteristics of donor-funded global-health markets and the particular tasks and specific challenges of POs in these markets. More specifically, our approach enables a PO to quantify a potential entrant’s value depending on important characteristics of the incumbent and the entrant manufacturer. We use data from a project for donor-funded procurement of Depot Medroxyprogesterone Acetate (DMPA) of two large POs. Our results show the feasibility of our approach for POs, manufacturers, and philanthropic investors in the global-health domain, and we explore the trade-off between competition and supply risks and provide insights into how the entrant’s value is affected by parameters like production costs, capacity, lead time and default risk, and in-country registration.     

A cover-based competitive location model

In this paper we propose a new approach to estimating market share captured by competing facilities. The approach is based on cover location models. Each competing facility has a ‘sphere of influence’ determined by its attractiveness level. More attractive facilities have a larger radius of the sphere of influence. The buying power of a customer within the sphere of influence of several facilities is equally divided among the competing facilities. The buying power of a customer within the sphere of influence of no facility is lost. Assuming the presence of competition in the area, the objective is to add a number of new facilities to a chain of existing facilities in such a way that the increase of market share captured by the chain is maximized. The model is formulated and analysed. Optimal and heuristic solution algorithms are designed. Computational experiments demonstrate the effectiveness of the proposed algorithms.     

普遍服务、市场竞争与消费者福利

通过构建一个简单的模型分析了普遍服务约束下的垄断产业在引入竞争后的市场竞争,模型很好地展现了垄断产业引入竞争后所出现的“撇脂现象”.通过分析得出:引入竞争后,在位者的盈利和亏损同时减少,但盈利减少得更多;竞争对消费者总体上是有利的,但竞争的好处更多地被低成本的城市消费者所获得,高成本的农村消费者则没有分享到改革的成果;...     

Competitive advantage through take-back of used products

Motivated by a recent antitrust ruling against Hill–Rom, one of the two dominant American suppliers of hospital beds, we develop a stylized model to investigate the consequences of used product take-back on firms, industry and customers. Our findings suggest that by taking back and reselling refurbished products, a manufacturer can increase both profit margins and sales––to the detriment of a non-interfering competitor. In our model, customers are always better off under product take-back, but it depends on the degree of competition, whether firms use the benefits of take-back primarily to increase their margins or to pass them on to the customers by lowering their prices. The first firm to offer take-back, in some cases, can deter its competitors from following this profitable strategy, especially if it has an existing advantage in terms of lower production cost or higher market share. Contrary to the claim of Hill–Rom's competitor, we find a “legitimate business justification” for Hill–Rom's reduction of new product prices.     

Technological progress and productivity growth in the U.S. mobile telecommunications industry

The fast growing U.S. mobile wireless industry has been experiencing dramatic technological change and substantial competition. As a result of these catalysts, we argue that wireless firms have experienced significant productivity improvement and provide new evidence that technological progress almost exclusively contributed to productivity improvements in the wireless industry by significantly expanding the production possibilities set. We employ nonparametric estimation procedures based on Data Envelopment Analysis (DEA) that utilize input-output data from a representative sample of 16 firms in the mobile wireless industry to estimate productivity change, technological change, and relative efficiency change for the period spanning the years from 2000 to 2002. Our findings show that the industry experienced a significant growth of 13% in productivity, which was primarily due to an average technological progress of 9.9% in the industry. Additionally, we find that national wireless operators experienced significantly higher productivity growth and contributed more to technological progress than regional providers. Firms that were industry pioneers as evidenced by high market share at the beginning of our sample period experienced higher productivity growth and greater technological progress compared to firms with lower initial market share. Moreover, the industry experienced significantly higher productivity growth and technical progress in the later sample period between 2001 and 2002 than in the early period between 2000 and 2001.     

Capacity switching options under rivalry and uncertainty

Deregulated infrastructure industries exhibit stiff competition for market share. Firms may be able to limit the effects of competition by launching new projects in stages. Using a two-stage real options model, we explore the value of such flexibility. We first demonstrate that the value of investing in a sequential manner for a monopolist is positive but decreases with uncertainty. Next, we find that a typical duopoly firm’s value relative to a monopolist’s decreases with uncertainty as long as the loss in market share is high. Intriguingly, this result is reversed for a low loss in market share. We finally show that this loss in value is reduced if a firm invests in a sequential manner and specify the conditions under which sequential capacity expansion is more valuable for a duopolist firm than for a monopolist.     

中国螺纹钢期货市场价格发现功能研究

螺纹钢期货价格发现功能研究对我国钢铁行业提高竞争力,争取钢铁成品和铁矿石定价权,引导螺纹钢期货市场健康发展具有重要作用。本文在向量误差修正模型(VEC)中引入剔除残差相关性的最小二乘算法,构建了用于测度期现货市场价格发现功能的永久短暂PT和信息份额IS共同因子模型,弥补了现有VEC模型由于求得的期现货残差序列相关性较大,导致PT和IS模型测算的信息贡献度存在较大差异的不足。在此基础上,利用2011年1月至2014年11月中国螺纹钢期现货市场933个日交易数据,验证了模型的有效性。     

店中店还是转卖？促销努力下制造商入侵策略选择

本文在双寡头市场环境下,利用Hotelling模型,研究了新进入制造商的最优入侵模式以及产品促销的决策。其中在位者以店中店模式存在于市场中,入侵者首先决定以传统的转卖模式还是以店中店模式进入市场,其次还需要决定是否进行产品促销。研究结果表明,不同的入侵模式影响新进入者的促销策略。店中店模式中零售商要求的收益共享比例是影响入侵者模式选择的主要因素。当该比例较低时,入侵者倾向于店中店模式。最后,利用数值实验,分析了收益共享比例和产品差异化程度对供应链成员利润的影响。     

Strategic upfront marketing channel integration as an entry barrier

This paper investigates an organizational design problem concerning whether duopolistic firms competing in a product market should vertically integrate or separate their marketing channels in a dynamic noncooperative game setting. Previous operational research models have shown that the separation of the marketing channel with the adoption of a two-part tariff contract is the dominant strategy compared with integration for each firm if the two firms face retail price competition, and thereby constitutes the subgame perfect Nash equilibrium (SPNE). Contrary to this previous insight, this paper demonstrates that if exogenous parameters that characterize fixed costs, product substitutability, and a demand function fall into a specific region, marketing channel integration dominates the separation strategy when one of the two firms is the incumbent firm while the other is a potential entrant. In other words, the well-known result in the price-setting game can be reversed when we take entry threats into consideration. Specifically, we show that upfront vertical integration of the marketing channel enables the incumbent to deter the entry of the potential competitor and to monopolize the market in the SPNE. This result has operational implications for a firm confronting the threat of potential rivals entering the market, in that the firm can use this apparently inferior strategy as a commitment device, which creates a virtual entry barrier.     

A duopoly model with heterogeneous congestion-sensitive customers

This paper analyzes a model with two firms (providers), and two classes of customers. These customers classes are characterized by their attitude towards ‘congestion’ (caused by other customers using the same resources); a firm is selected on the basis of both the prices charged by the firms, and the ‘congestion levels’. The model can be represented by a two-stage game: in the first providers set their prices, whereas in the second the customers choose the provider (or to not use any service at all) for given prices. We explicitly allow the providers to split their resources, in order to serve more than just one market segment. This enables us to further analyze the Paris metro pricing (Pmp) proposal for service differentiation in the Internet.     

Strategic investment timing under asymmetric access charge regulation in telecommunications

In a liberalized telecommunications market, an incumbent has several advantages over any entrant. An asymmetric access charge regulation for two such asymmetric firms stimulates competitive investment. We show that an entrant with a cost disadvantage has an incentive to invest as a leader under an asymmetric access charge regulation. These results fit well with the findings of previous empirical work. Moreover, we also investigate the effects of an asymmetric access charge regulation on competitive investment strategies.     

Deregulation and welfare in airline markets: An analysis of frequency equilibria

This paper models airline competition as a two-stage game in frequency and prices, allowing for asymmetric frequency equilibria. The approach follows the spatial multiproduct oligopoly literature. The dynamic structure gives airlines an incentive to choose asymmetric frequency equilibria such that price competition is reduced. This feature is most pronounced in the case of inelastic demand, for which a maximum differentiation result is derived. We apply the model in a simulation study of airline deregulation of the Amsterdam—Maastricht market in The Netherlands, calculating welfare effects for various types of post-deregulation entry.     

Competition for cores in remanufacturing

We study competition between an original equipment manufacturer (OEM) and an independently operating remanufacturer (IO). Different from the existing literature, the OEM and IO compete not only for selling their products but also for collecting returned products (cores) through their acquisition prices. We consider a two-period model with manufacturing by the OEM in the first period, and manufacturing as well as remanufacturing in the second period. We find the optimal policies for both players by establishing a Nash equilibrium in the second period, and then determine the optimal manufacturing decision for the OEM in the first period. This leads to a number of managerial insights. One interesting result is that the acquisition price of the OEM only depends on its own cost structure, and not on the acquisition price of the IO. Further insights are obtained from a numerical investigation. We find that when the cost benefits of remanufacturing diminishes and the IO has more chance to collect the available cores, the OEM manufactures less in the first period as the market in the second period gets larger to protect its market share. Finally, we consider the case where consumers have lower willingness to pay for the remanufactured products and find that in that case remanufacturing becomes less profitable overall.     

Competition among providers in loss networks

Communication networks are becoming ubiquitous and more and more competitive among revenue-maximizing providers, operating on potentially different technologies. In this paper, we propose to analyze thanks to game theory the competition of providers playing with access prices and fighting for customers. Considering a slotted-time model, the part of demand exceeding capacity is lost and has to be resent. We consider an access price for submitted packets, thus inducing a congestion pricing through losses. Customers therefore choose the provider with the cheapest average price per correctly transmitted unit of traffic. The model is a two-level game, the lower level for the distribution of customers among providers, and the upper level for the competition on prices among providers, taking into account what the subsequent repartition at the lower level will be. We prove that the upper level has a unique Nash equilibrium, for which the user repartition among different available providers is also unique, and, remarkably, efficient in the sense of social welfare (with a so-called price of anarchy equal to one). Moreover, even when adding a higher level game on capacity disclosure with a possibility of lying for providers, providers are better off being truthful, and the unique Nash equilibrium is thus unchanged.