Helder Vasconcelos

Interfirm Bundling and Vertical Product Differentiation

In this paper, we study the competitive effects of bundled discounts offered by pairs of independent firms. In a setting with vertically differentiated goods, where firms decide whether to participate in a discounting scheme before prices are set, it is shown that, in equilibrium, all pairs of firms producing goods of the same quality level offer bundled discounts. Relative to the no-bundling benchmark, we find that (i) all headline prices rise, (ii) all bundle prices, net of the respective discount, decrease, and (iii) only high-quality sellers will obtain higher profits. Furthermore, this equilibrium corresponds to the worst scenario in terms of consumer welfare, and it and decreases social welfare.

Determinants of customer price sensitivity: an empirical analysis

Purpose Consumer price sensitivity has become a major issue over the past few decades. This paper aims to investigate the importance that insurance customers give to premiums, insurers, intermediary recommendations and bundling strategies. The relationship between attributes and consumer price sensitivity is also studied. Design/methodology/approach To calculate the importance of attributes and part-worth utilities, a Conjoint Analysis with Full Profile was performed. To segment the market, a two-stage cluster analysis was performed. The traditional formula for estimating price elasticity of demand was also used. Findings Price sensitivity is affected by the level of purchase involvement, bundled discounts and brand loyalty. Also, brand loyalty has a strong influence on customer acceptance of bundled discounts. Price bundling increases a firm’s revenues and profits. Research limitations/implications The size of the sample of the second stage of the research could be higher. It would also be interesting to have the collaboration of an actuary to carry out more precise analysis of premium estimation of bundling strategies and to study the ideal number of products that would compose the bundling strategy. Moreover, it could be relevant to consider life insurance products as part of the bundling strategy. It would also be interesting to study whether there is any benefit in applying the bundle discount to the anchor product instead of applying it to the accessory product. Practical implications Insurers and intermediaries can benefit from price bundling strategies to increase sales and profit. Originality/value The study contributes to the service marketing literature and marketing of the insurance sector by providing empirical evidence of the impact of price bundling on insurance customer sensitivity, with the use of a methodological and experimental approach.

Quantifying the Coordinated Effects of Partial Horizontal Acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology, which can deal with settings involving all types of owners and ownership rights, to quantify the coordinated effects of partial horizontal acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. We also provide an empirical application of the methodology to several acquisitions in the wet shaving industry that give rise to cross- and common-ownership structures. The results are as follows (i) the incentives to coordinate of the firms that the acquiring party is - pre-acquisition - able to influence are non-decreasing with any acquisition; (ii) the incentives to coordinate of the acquired firm are non-decreasing with acquisitions involving full or partial both financial and corporate control rights, but non-increasing with acquisitions involving full or partial solely financial rights; and (iii) the incentives to coordinate of the remaining firms in the industry are non-increasing with any acquisition. This implies that the coordinated effects of partial horizontal acquisitions are, in general, ambiguous, which illustrates the importance of an empirical structural methodology.

Reference pricing in the presence of pseudo-generics

This paper looks at producers of branded and generic pharmaceuticals’ pricing decisions under two possible reimbursement schemes—reference pricing and fixed percentage reimbursement—and under two settings—one where the branded producer only sells the (off-patent) branded pharmaceutical and another where, in addition, it may also sell its own generic version, a so called pseudo-generic. We find different pricing responses from firms under the two reimbursement schemes and across the two settings analysed (with or without a pseudo-generic), and show that pseudo-generics may have an anticompetitive effect. Our results have important policy implications such as showing that the presence of pseudo-generics reinforces reference pricing’s advantages over alternative reimbursement schemes.

How Should Cartels React to Entry Triggered by Demand Growth

Abstract We study the sustainability of collusion with optimal penal codes in markets where demand growth triggers the entry of a new firm. In contrast to grim trigger strategies, optimal penal codes make collusion easier to sustain before entry than after. This conclusion is robust to changes in the number of entrants and to the consideration of price-setting instead of quantity-setting. A comparison is given between different reactions of the incumbents to entry in terms of sustainability of collusion, incumbents’ profits, entrant’s profits, consumer surplus and social welfare. One of our findings is that the incumbent firms may prefer competition to collusion.

Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose a generalization of the two most traditional indicators used to screen unilateral anti-competitive effects - the Herfindahl-Hirschman Index and the Gross Upward Price Pressure Index - to partial horizontal acquisition settings. The proposed generalized indicators are endogenously derived under a probabilistic voting model in which the manager of each firm is elected in a shareholder assembly between two potential candidates who seek to obtain utility from an exogenous rent associated with corporate office. The model (i) can cope with settings involving all types of owners and rights: owners that can be internal to the industry (rival firms) and external to the industry; and rights that can capture financial and corporate control interests, can be direct and indirect, can be partial or full, (ii) yields an endogenous measure of the owners ultimate corporate control rights, and (iii) can also be used - in case the potential acquisition is inferred to likely enhance market power - to devise divestiture structural remedies. We also provide an empirical application of the two proposed generalized indicators to several acquisitions in the wet shaving industry, with the objective of providing practitioners with a step-by-step illustration of how to compute them in antitrust cases.

Why Entrepreneurs Choose Risky R&D Projects ‒ But Still Not Risky Enough

Entrepreneurs face higher commercialization costs than incumbents. We show that this implies that entrepreneurs will choose more risky projects than incumbents, aiming to reduce their high expected marginal commercialization cost. However, entrepreneurs may select too safe projects from a social point of view, since they do not internalize the business stealing effect. We also show that commercialization support induces entrepreneurship but may lead to mediocre entrepreneurship by inducing entrepreneurs to choose less risky projects, whereas R&D support encourages entrepreneurship without affecting the type of entrepreneurship. Using Swedish patent citation data, we find empirical support for predictions of the model.

Measuring Unilateral Effects in Partial Acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial acquisitions involving pure financial interests and/or effective corporate control on prices, market shares,firm profits and consumer welfare. The proposed methodology can deal with differentiated products industries, with both direct and indirect partial ownership interests and nests full mergers (100% financial and control acquisitions) as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.