The Effects of Competition
Policies to promote competition are high on the political agenda worldwide. But in a constantly changing marketplace, the effects of more intense competition on firm conduct, market structure, and industry performance are often hard to distinguish. This study combines game-theoretic models with empirical evidence from a "natural experiment" of policy reform. The introduction in the United Kingdom of the 1956 Restrictive Trade Practices Act led to the registration and subsequent abolition of explicit restrictive agreements between firms and the intensification of price competition across a range of manufacturing industries. An equally large number of industries were not affected by the legislation.
Using data from before and after the 1956 act, this book compares the two groups of industries to determine the effect of price competition on concentration, firm and plant numbers, profitability, advertising intensity, and innovation. The book avoids two problems common to empirical studies of competition: how to measure the intensity of competition and how to unravel the links between competition and other variables. Because the change in the intensity of competition had an external cause, there is no need to measure the intensity of competition directly, and it is possible to identify one-way causal effects when estimating the impact of competition.
The book also examines issues such as the industries in which collusion is more likely to occur; the effect of cartels and cartel laws on market structure and profitability; the links between competition, advertising, and innovation; and the constraints on the exercise of merger and antitrust policies.
About the Author
George Symeonidis is a lecturer in the Department of Economics at the University of Essex and a Research Affiliate at the Centre for Economic Policy Research in London.
"A combination of data and theoretical reasoning leads Symeonidis to focus his study of the impacts of the change in collusive possibilities in Britain on their effect on market structure and non-price aspects of competition, rather than on prices per se. The evidence is compelling, and the insights are important. This book ought to change the way we analyze collusion."
—Ariel Pakes, Professor of Economics, Harvard University
"Symeonidis's book is based on a unique dataset that allows for a natural experiment on the nature of oligopoly competition. The results of this study are of great importance for both empirical and theoretical industrial-organization economists."
—Luis M. B. Cabral, Stern School of Business, New York University