Perfect competition | EPFL Graph Search

In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In theoretical models where conditions of perfect competition hold, it has been demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum. Perfect competition provides both allocative efficiency and productive efficiency:

Such markets are allocatively efficient, as output will always occur where marginal cost is equal to average revenue i.e. price (MC = AR). In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC). This implies that a factor's price equals the factor's marginal revenue product. It allows for derivation of the supply curve on which

Essays on the Economics of Innovation: Incentives, Diffusion, and Disparity

Ling Zhou

As an important policy instrument for guiding innovation, the patent system involves a long-standing tension between creating economic rewards for the original innovators and stifling subsequent R&D activities. The availability of new data allows us to provide unique sights into understanding how effective patents are in providing incentives for innovation and how firms' disclosure of proprietary assets affects the dissemination of knowledge. On the other hand, innovation per se is the fruit of human intellect. The knowledge workforce is, therefore, a crucial component of a country's innovative capacity. The persistent gap in the participation in innovative activities between men and women reflects a misallocation of talented human capital and leaves opportunities for policy implementation. This dissertation ties the questions mentioned above and presents novel evidence on the incentives, diffusion, and disparity in innovative activities. The first essay (chapter 2), in collaboration with Gaétan de Rassenfosse, provides empirical evidence on the real effect of patent expiration on monopoly prices and explores how this effect varies with product market competition. We compile a novel dataset that links patents to consumer products and retail prices for these products from Amazon.com. We find that patent expiration leads to a 7--8 percent drop in product prices. This effect is heterogeneous by patent type and importance and starts one year in advance. We also find a more substantial decline in prices in product markets where competition is intense, consistent with evidence from the pharmaceutical industry. We argue that incumbent innovators lower prices preemptively in the face of generic competition. The second essay (chapter 3), in collaboration with Gaétan de Rassenfosse, studies how firms' disclosure of innovative assets affects the diffusion of inventions. We focus the empirical setting on firms' provision of constructive notice through virtual patent marking (VPM) and exploit patent-level variation in the marking dates. With data collected on marked patents from the VPM web documents of 16 firms, we find an overall effect of VPM is small. However, conditional firms' strong reliance on patents as an appropriability regime, our findings suggest that while VPM induces firms to build subsequent internal inventions on the ones that are commercially valuable, it fends off diffusion to external firms and reduces similarity between inventions. Last but not least, in the third essay (chapter 4), collaborated with Mary Kaltenberg, we explore the role of family policies in closing the innovation gender gap. By matching inventor data to web-scraped inventor age information, we exploit the staggered passage of maternity leave policies across the U.S. and evaluate its impact on the retention and productivity of female inventors. Our findings suggest that maternity leave policy supports women of reproductive ages stay longer in patenting but has little impact on their productivity.

EPFL2021

Corporate Finance, Asset Returns, and Credit Risk

Philip Valta

This dissertation consists of three chapters. The first chapter empirically investigates how the intensity of product market competition affects the cost of debt. Using a large sample of loans to publicly traded US manufacturing firms, the chapter provides evidence that an intensification of product market competition among firms significantly increases the cost of bank loans. The analysis reveals that the effect is strongest in industries with high illiquidity and specificity of assets. This finding indicates that the liquidation value of assets is an important channel through which competition affects the cost of debt. Moreover, loans to firms that operate in more competitive industries contain more covenants restricting the firms' financing and dividend policies. Overall, the results suggest that banks explicitly take into account the risk arising from product market competition when pricing and designing debt contracts. The second chapter tests whether equity risk reflects the shareholders' incentives to default strategically on the firm's debt obligations. The chapter develops a model that relates shareholders' incentives to default strategically with the likelihood that debt renegotiations fail. Using an international cross-section of stocks to exploit the exogenous variation of insolvency procedures across countries and to test the model's predictions, the analysis reveals that the equity beta increases with the degree of creditor protection. Moreover, the equity beta decreases with the costs of liquidation and shareholders' bargaining power, and the sensitivity of this relationship weakens as country's creditor protection toughens. The results are economically important, and robust to various specifications and estimation techniques. The third chapter investigates how the debt structure and the strategic interaction between shareholders and creditors in the event of default affect expected stock returns. By endogenizing shareholders' decision to default, the model generates new predictions linking firm characteristics to expected stock returns through an intuitive economic mechanism. In particular, the model predicts that expected stock returns are higher for firms that face high debt renegotiation difficulties, and that have a large fraction of secured or convertible debt. Expected stock returns are lower for firms whose shareholders maintain strong bargaining power, and for firms subject to high liquidation costs. Using a large sample of publicly traded US firms between 1985 and 2005, the third chapter presents new evidence on the link between debt structure, renegotiation frictions, and stock returns, which is supportive of the model's predictions.

EPFL2010

Product platform development

Ali Saffarpour

Companies are valued by their market competitiveness. To be competitive in the market, companies have to respond to their customer requirements as best as possible. To this end, companies introduce new products to the market to better capture customer requirements. The use and employment of market data have been widely studied in academia and industry. The trend in customer can be determined from market data and can bring useful and interesting knowledge of the true customer requirements. In this thesis, a systematic methodology of "Product Platform development" is proposed which uses market sales data. The proposed methodology is composed of several steps. The steps each take advantage of one or several algorithms. The theoretical background of each step of the methodology and the algorithms are presented in the thesis. The first step of the proposed methodology is to normalize the input data and perform robust fuzzy clustering of normalized data. The second step is the extraction of both positive and negative association rules. The positive association rule concept is employed to find the relationships between customer requirements and functional requirements. Some of the general early stage design constraints can be identified by using the negative association rules concept is used to identify which can facilitate the product concept generation and selection procedure. An algorithm is developed to find the positive and negative association rules and to select the correct set of association rules. The extracted association rules are developed in a way which makes it possible to have minimum length antecedents and maximum length consequents. To this end, some modified algorithms have been proposed which not only consider the job of finding frequent itemsets from the fuzzy clusters of functional requirements but also extract the non-redundant association rules. During the third step, trends in customer requirements are identified by tracking the changes of association rules over several consecutive time periods. These trends are identified by extracting meta-rules. Finally, a new algorithm to aggregate the extracted association rules helps the product development engineers in making decisions about the desirability of possible product platforms. Given the different extracted association rules and the meta-rules, rules that show the trend of changes in the customer requirements and the products that are bought, the possible future product platforms are proposed as the stable part of a product family which can meet customer requirements. Modular software to investigate the performance of methodology was designed which allows the user to accomplish the whole proposed methodology without the need for any other software. This software allows future methodology extensions to be easily implemented.

EPFL2009