Market power | EPFL Graph Search

In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. To make it simple, companies with strong market power can decide whether higher the price above competition levels or lower their quality produced but no need to worry about losing any customers, the strong market power for a company prevents they are involving competition. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing revenue. This indicates that the magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output. The size of the gap, which encapsula

The link between innovation and finance

Cristiano Zazzara

This thesis comprises three essays on the relationship between innovation and finance. Although previous research has acknowledged the multi-faceted nature of innovation, this thesis unpacks its constituent elements, compares alternative drivers of innovation — focusing on the role of financial variables —, and explores when each of these drivers is important relative to the others. Evidence is based on survey data on Italian manufacturing firms over the years 1995-2003. The main contribution of this dissertation is to show how innovation at the firm level varies across different dimensions, documenting several robust empirical regularities, which must be accounted for. The first essay explores the determinants of various characteristics on the propensity to innovate in the Italian manufacturing sector. First, we concentrate on firms characteristics, and include in the study age of firm, size of firm, export shares of revenues and group membership. Second, we examine industry characteristics, such as type of industry in terms of technology level and market concentration. We also test the impact of characteristics of the firm's geographical area, including an indicator of financial development for the firm region. We finally extend our model including financial variables at the firm level in order to evaluate the association between profitability & risk and innovation. The second essay further examines the determinants of innovation, focusing on why firms develop product innovations rather than process innovation, or product and process innovations simultaneously. Empirical studies have highlighted the different impact of product and process innovation on various factors (such as, for example, international competitiveness, the level of employment and the types of skills used, and on the profit rate of firms). However, little is known from either a theoretical or an empirical point of view about the determinants of these different types of innovation. The third essay examines the question of whether access to credit is empirically more difficult for innovative firms than for those undertaking traditional investment projects. The idea that market financing of innovative projects is likely to encounter severe obstacles is not new. Indeed, it dates back at least to Schumpeter's defence of monopoly power since it not only guarantees that innovative firms can internalise the benefits of their innovations, but also provides funding for future innovative projects. Testing this proposition requires information on the innovative content of a given firm and on the limits to borrowing it encounters. Using the above mentioned survey data, we are able to identify credit constrained firms and use this information to make inferences on bank's lending strategies towards firms whose investment projects differ according to expected return and riskiness.

EPFL2008

Hybrid organizations influence on market competitive dynamics: the Azorean case

Joana Rodrigues Pereira

Hybrid organizations are an increasing phenomenon in pluralistic environments of modern societies. As this phenomenon grows, it has become more and more common that hybrids and non-hybrids compete and interact in the same market. This paper aims at investigating how hybrid organizations influence market competitive dynamics and institutions. The methodology follows a multi-case study qualitative design in the context of the São Miguel dairy market, where hybrids and non-hybrids have been competing side-by-side for more than 60 years. The results reveal that hybrids, due to the logics they endorse, tend to display competitive behaviors that deviate from the ones of incumbent organizations, which leads to a competitive microcosm. A competitive microcosm tends to emerge when hybrids' atypical behavior increases competition in the market more than would be expected in markets with similar characteristics and where incumbents display all similar behaviors. The higher the degree of incompatibility between hybrids’ endorsed logics and incumbents' logics, the higher the hybrids' influence is on competition. This effect may be mediated by hybrids' market power. The results also suggest that hybrids have a higher incentive to defy and change market institutions, when those are misaligned with hybrids’ endorsed logics. In these situations, market power functions as a mechanism to trigger institutional change.

MTEI – CSI Working Paper2017

Innovation and Market Structure in Pharmaceuticals: An Econometric Analysis on Simulated Data

Michele Pezzoni

The contribution of this paper is twofold. First, it presents the results of a "history-friendly" simulation model of evolution of the pharmaceutical industry. Second, it aims at contributing to a more general methodological discussion about agent-based models by proposing an econometric analysis of the results of the simulations. The case of the pharmaceutical industry has been studied extensively by scholars because, despite the high level of R&D intensity, the industry has been characterized by a relatively low levels of concentration. The model is able to reproduce the main stylized facts of the industry in an evolutionary perspective. In this paper we extend the analysis conducted in two previous works (Garavaglia et al. 2012, 2013) by further qualifying the findings with an extensive econometric investigation of the model outputs. The paper focuses the attention on the determinants of market structure, the innovative performance of the industry, the diversification in multiple submarkets and the level of prices. We find that the properties of the technological and demand regimes are key determinants of the patterns of industry evolution and that the main mechanisms driving the model are the random processes of search, the discovery of new submarkets as well as the interactions between patent protection, imitation and price competition. In addition, this paper emphasizes how the emerging leaders in the industry are those innovative early entrants which entered in large submarkets, showing the importance of the first mover advantage and of the size of the "prize" accruing to innovators when they discover a new rich submarket.

Lucius Lucius Verlag Mbh2014

The link between innovation and finance

Cristiano Zazzara

EPFL2008