Kolesnik G.V. Competition modeling in hierarchical socioeconomic systems

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INTRODUCTION				6
Chapter 1 METHODOLOGICAL FOUNDATIONS OF THE ANALYSIS OF COMPETITION IN HIERARCHICAL MESOECONOMIC SYSTEMS				9
1.1. The principles of agents’ interaction in hierarchical mesoeconomic systems				9
1.2. Analysis of competition in a hierarchical mesoeconomic systems				14
1.2.1. Market competition				14
1.2.2. Regulatory competition				20
1.2.3. Stakeholders’ competition in the production systems				27
1.3. Conceptual model of competition in hierarchical mesoeconomic systems				39
1.4. The use of the competition acuity indicators for the study of hierarchical markets				46
1.4.1. Vertical effects of firms’ competition on hierarchical markets				46
1.4.2. Market structuring as an instrument of competition regulation				59
Summary				71
Chapter 2 MANAGEMENT OF PRODUCTION SYSTEMS WITH DISTRIBUTED OWNERSHIP				73
2.1. Ownership rights in the firm’s theory				73
2.2. The basic model of a production system with distributed ownership				81
2.3. Horizontal integration in the systems with distributed ownership				90
2.3.1. Cournot Duopoly				90
2.3.2. The simplest model: unlimited firms’ production capacities				100
2.3.3. Constrained production capacities				104
2.3.4. Information asymmetry under distributed ownership				110
2.4. Vertically integrated structures formation under distributed ownership				115
2.4.1. A model of vertical integration of firms under distributed ownership				117
2.4.2. “Forward” vertical integration				119
2.4.3. “Backward” vertical integration				129
2.5. Economics of the public-private ownership objects management				136
2.5.1. Efficiency criteria of the state as the firm’s owner				136
2.5.2. The basic model of public-private property management				138
2.5.3. A public-private monopoly				144
2.5.4. A public-private duopoly				148
Summary				151
Chapter 3 VERTICAL EFFECTS IN THE MODELS OF TAX COMPETITION				153
3.1. The basic model of mutual influence of the jurisdictions’ tax competition and the taxpayers’ competition				153
3.1.1. Principles of modeling the interaction “government – taxpayers”				153
3.1.2. The model				155
3.2. Vertical effects of tax competition in partial equilibrium models of oligopolistic markets				159
3.2.1. Cournot taxpayers’ competition				159
3.2.2. Monopolistic competition of the firms				165
3.3. Vertical effects of tax competition in a general equilibrium model				177
3.4. Evaluation of the federated system structure’s influence on the severity of regional tax competition				189
3.4.1. The features of tax competition at the subnational level				189
3.4.2. The model of regional tax competition with federal transfers				192
3.4.3. A misuse of federal transfers in the regional tax competition model				205
Summary				212
Chapter 4 SELF-REGULATORY ORGANIZATIONS’ COMPETITION AND THE MARKETS’ EFFICIENCY				214
4.1. The features of regulatory competition in self-regulating markets				214
4.2. A model of a self-regulated market with competing SROs				218
4.3. The model of a self-regulated market with alternative state supervision				232
4.4. Recommendations for the improvement of self-regulation mechanism				243
Summary				246
CONCLUSION				248
REFERENCES				250

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The world economy of the present day is evolving in ways characterized by the dynamism of business processes and their globalization and diversification as well as by a relentless struggle for competitive advantages, including institutional ones. The increasing complexity of socioeconomic systems entails, as a rule, an increase in the scope of transaction operations and their associated risks.

In this regard, the structural measures of the efficiency of agents’ interactions play an increasingly important role in ensuring the quality of business processes, along with financial, economic, and technological means. The business ability to adapt to the changes in environmental conditions and requirements reveals itself in the improvement of a company’s organizational structure and institutional framework. Hence, the methodology of the decision-making process should be enhanced to take these effects into account.

The use of economic-mathematical methods for the analysis of hierarchical socioeconomic systems, including the modeling of the competition among economic agents within such systems, is one possible solution to ensure such enhancement.

Whereas the structure of modern economic interactions is growing more and more complicated, the classical micro- and macroeconomic models do not always adequately describe the ways in which these systems function. The microeconomic models lack this ability because they neglect the external relationships between economic agents, and the macroeconomic models fail because of the high degree of aggregation when the individual characteristics of the agents’ behavior are leveled.

Therefore, the most suitable approach to the study of contemporary socioeconomic systems appears to be a mesoeconomic one. This approach integrates methodological tools of both micro- and macroeconomics, considering both individual characteristics of the economic agents in the system and the laws of their group behavior. As it is noted in [194], such structures intervening between the micro and macro levels currently play a key role in the development of economic systems.

One particular feature of mesoeconomic systems that needs to be studied carefully is the effect of their structure and the agents’ interactions on the flow and outcome of the various economic processes in these systems.

The system of agents’ interactions has a heterogeneous structure, including both formal and informal hierarchical relations as well as a wide range of competitive and cooperative relations and combinations thereof. The properties of this structure have a significant impact on the efficiency of mesoeconomic systems.

The mutual influence of these relationships forms in a mesoeconomic system a complex multilevel interaction of agents, whose properties should be taken into account when building mathematical models. Therefore, developing a generalized approach to the analysis of complex multilevel agents’ interaction in mesoeconomic systems proves to be an important scientific issue.

In this book, a set of instruments is developed on the basis of mesoeconomics, institutional theory, game theory, and the theory of active systems, allowing for an investigation into the impact of the structure of agents’ relations in mesoeconomic systems on the processes and the results of their activities. Many applications of this instrumentation for the analysis of socioeconomic systems of different natures are also considered.

The book is organized in the following way.

The first chapter gives the conceptual framework of and methodological approach to the analysis of the impact of mesoeconomic systems’ organizational structure on the characteristics of agents’ competition. A generalized mathematical model of competition in such systems is outlined. The indicators of the quantitative estimation of the acuity of the agents’ intragroup and intergroup competition are also introduced.

Studying the mathematical model reveals a number of regularities in the competition in hierarchical systems. The mutual influence of hierarchical and competitive relations gives birth to specific effects not described by classical, unstructured models. Here we investigate the effects of vertical competition transfer, which refers to the change in the competition acuity among agents at a particular level of the hierarchy stimulating or suppressing competition processes at other levels.

The advantages of the suggested approach are demonstrated in several examples of hierarchical socioeconomic systems.

The second chapter examines the impact of distributed property rights on the efficiency of production system management (enterprises and their groups as well as integrated structures such as corporations and holding companies). It has been shown that the classical models of such systems significantly change their characteristics with distributed property rights. In particular, this effect offers an explanation to the observed inefficiency of the management of horizontally and vertically integrated corporations as well as of enterprises owned by the state or under state-private ownership.

The third chapter reflects on the relationship between the jurisdictions’ tax competition and taxpayers’ competition. The joint effect of these processes of competition on the resulting tax policy is evaluated at both the interstate and subnational levels.

The fourth chapter deals with the impact of the competition of self-regulatory organizations on the efficiency of corresponding markets for goods and services. It has been shown that, under certain conditions, the competition of self-regulatory organizations might be accompanied by deterioration in the quality of customer service in the market. In order to reduce the negative effects of such competition, special approaches have been formulated to change the structure and mode of operation of self-regulating markets.

Naturally, the areas where the developed tools can be applied are not limited to the cases mentioned above. The models and methods formulated here can be used for the analysis of the interaction of agents in a wide range of socioeconomic systems as well as for the performance assessment and optimization of their organizational structures in order to suppress or stimulate competition processes.

The author expresses deep gratitude to Dr. M.A. Bendikov, whose scientific advice formed the basis of this book, and to those who have provided support during the writing process.

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