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Session Overview
CFGE-4: Determinants and consequences of competition
Thursday, 22/Aug/2019:
15:30 - 17:00

Session Chair: Rui Albuquerque, Boston College
Location: D -107

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Incentives and Competition in the Airline Industry

Rajesh Aggarwal1, Carola Schenone2

1Northeastern University, United States of America; 2University of Virginia, United States of America

Discussant: Dong Yan (Stockholm School of Economics)

We examine how performance changes at airlines in response to a change in executive incentives. Airlines with executive bonuses contingent on on-time arrival do improve on-time performance. We find evidence of strategic gaming of the incentive as some carriers increase scheduled flight times, making it easier for flights to arrive on-time. Carriers also do not decrease the frequency of flights or the number of passengers to make it easier to be on-time, but they do slightly decrease fares. Competitors on the same routes also improve their on-time performance, even when their executive bonuses are not contingent on on-time performance, consistent with competition in strategic complements.

efa2019-CFGE-4-216-Incentives and Competition in the Airline Industry.pdf

U.S. Innovation and Chinese Competition for Innovation Production

Gerard Hoberg3, Bruce Li3, Gordon Phillips1,2

1Tuck School of Business at Dartmouth College; 2National Bureau of Economic Research; 3Marshall School of Business, University of Southern California

Discussant: Philip Valta (University of Bern)

We examine how competitive shocks from China impact U.S. innovation through two margins: the markets for innovation and for existing products. Using Chinese data, we map each industry to province Internet penetration levels using geographic agglomeration data. The resulting industry-year database indicates the ability of Chinese firms to acquire knowledge globally and compete in the market for intellectual property production. Increases in provincial Chinese Internet penetration are followed by sharp reductions in R&D investment and subsequent patents for U.S. firms, and increased patenting by Chinese firms. The new Chinese patents also cite the patents of treated U.S. firms at a high rate, consistent with increased intellectual property competition. In contrast, U.S. firms with fewer growth options and more tangible assets tend to increase R&D and patenting activity. Overall, both competition in intellectual property by Chinese firms and the asset competition of U.S. firms influence U.S. firm innovation.

efa2019-CFGE-4-227-US Innovation and Chinese Competition for Innovation Production.pdf

Common Ownership and Market Entry: Evidence from the Pharmaceutical Industry

Melissa Newham1, Jo Seldeslachts1, Albert Banal-Estanol2

1DIW Berlin; 2Universitat Pompeu Fabra, Spain

Discussant: Laurent Fresard (University of Lugano)

Common ownership - where two firms are partially owned by the same investor - and its impact on product markets has recently drawn attention. This paper focuses on implications for entry. We consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We provide a framework that shows that greater common ownership between the brand firm and a potential generic entrant reduces the likelihood that the generic enters. We find robust evidence for this prediction: a one-standard-deviation increase in common ownership decreases the probability of entry by 9-13%.

efa2019-CFGE-4-1363-Common Ownership and Market Entry.pdf