Asymmetric firms and market-share rivalry

Sioli, Lucilla (1999) Asymmetric firms and market-share rivalry. University of Southampton, Doctoral Thesis.

Abstract

This thesis analyses the way market-share rivalry in the output market affects and is affected by previous stages of competition. In particular, it links asymmetries in the final-market structure to cost differences in input markets and in R&D through firms' incentives to integrate and to innovate.

The first model examines the equilibrium arising in vertical markets where oligopolistic upstream and downstream firms bargain over the gains from trade and suppliers' costs differ. The choice between vertical integration and nonintegration for the more efficient industry depends on the cost advantage and on the degree of competition in the final market. Sufficient condition for vertical foreclosure to occur is that final goods are perfect substitutes. Vertical supply may be stimulated by a tariff on the exports of the final good, but the effects of the tariff depend on whether firms have an incentive to foreclose the intermediate market under free trade.

The second model focuses on stochastic technological races, and it analyses the evolution of market structure when asymmetric players race for the introduction of a sequence of nondrastic cost-reducing innovations. When the interest rate is low enough, it is the firm ahead to be the likely winner at each stage, reducing competition as the sequence of races evolves. The same result obtains when innovations are fairly efficient relatively to the technology adopted at the start of the race.

The third model analyses the impact of different labour institutions on innovation. Asymmetric firms in terms of productivity are assumed to compete in the same product market, while unions differ in the degree of risk aversion and/or in their bargaining strength. Contracts may be struck in the short or in the long run. The analysis shows how these features of the labour market affect the relationship between the union/firm bargain and the likely outcome of the R&D race.

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