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Three Essays in Industrial Organization, Market Structures and Investment Incentives

Petropoulos, Georgios (2017) Three Essays in Industrial Organization, Market Structures and Investment Incentives. Toulouse School of Economics (Toulouse).

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Official URL: http://www.theses.fr/2017TOU10032

Abstract

Le résumé en français n'a pas été communiqué par l'auteur.

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Markets and their operation is of vital importance for economic efficiency and growth. In this thesis I analyse market strategies underlying the important factors that guarantee the optimality of firms' investments for three different market environments. The first chapter refers on how we can use state-of-art instruments by the transmission network of the electricity market to induce the generators to adopt optimal investment planning. Coordinating the timing and location of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition, and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, two technologies, and a single transmission bottleneck and compare dynamic efficiency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions as firms will pre-empt competitors by investing early. Compensating early investors for future network congestion, as is the case in the E.U., only exacerbates this problem. Dynamic efficiency is restored with long-term transmission rights that can be resold on a secondary market. As early investment lowers the resale value of the transmission rights, firms will invest optimally. We show that dynamic efficiency does not require firms to trade physical rights for accessing the transmission line, but financial rights on receiving the scarcity revenues generated by the transmission line suffice. The second chapter focuses on investments on innovation and the way they are particularly affected for different types of industries by product market competition and the existence of financial constraints. It illustrates that, besides its well-studied impact on the incentives to innovate, product market competition also affects the financial capacity to innovate. As innovation projects are by definition risky and external financing is subject to moral hazard concerns, lenders may be reluctant to finance the projects of firms that are not considered credible borrowers. I develop a step-by-step innovation model and show how product market competition may restrict the ability of firms to be credible borrowers. This effect can become the main driver of R&D activities when firms are financial constrained and market competition fierce. It is the follower firms in sectors with high technology dispersion that are mostly affected. Moreover, for intermediate levels of competition, financial constraints induce firms in industries with low technology dispersion to invest more in R&D and move toward the technological frontier as they reduce the ability of their competitors that left behind to innovate. The last chapter focuses on competition for prominence in the organic results of a search engine which account for more than 80-90% of online traffic. Firms decide about how to allocate their investments between search engine optimization strategy and improvement of their products and services' quality. Using a monopolistic competition model with consumer search we evaluate the impact of the search engine algorithm on firms' optimal allocation of investments, estimating how quality is affected by the presence of search engine optimization techniques. We find that despite the additional investment cost, search engine optimization helps search engines to rank more efficiently firms and consequently it induces firms to invest more in the quality of their products. Consumer surplus also increases as consumers find easier good matches to their queries at minimum search cost. Under particular conditions total welfare also increases.

Item Type: Thesis (UNSPECIFIED)
Other titles: Trois essais sur l'organisation industrielle, les structures de marché et les incitations à l'investissement
Language: English
Date: 30 August 2017
Keywords (French): Organisation industrielle - Thèses et écrits académiques, Microéconomie - Thèses et écrits académiques, Marchés (économie politique) - Thèses et écrits académiques, Investissements - Thèses et écrits académiques
Subjects: C- GESTION > C6- Stratégie
Divisions: TSE-R (Toulouse)
Ecole doctorale: Toulouse School of Economics (Toulouse)
Site: UT1
Date Deposited: 09 Mar 2018 15:44
Last Modified: 14 Mar 2018 11:27
OAI ID: 2017TOU10032
URI: http://publications.ut-capitole.fr/id/eprint/25091

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