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on Industrial Competition |
| By: | Tomaso Duso; Klaus Gugler; Burçin Yurtoglu |
| Abstract: | This paper applies a novel methodology to a unique dataset of large concentrations during the period 1990-2002 to assess merger control’s effectiveness. By using data gathered from several sources and employing different evaluation techniques, we analyze the economic effects of the European Commission’s (EC) merger control decisions and distinguish between blockings, clearances with commitments (either behavioral or structural), and outright clearances. We run an event study on merging and rival firms’ stocks to quantify the profitability effects of mergers and merger control decisions. We back up our results and methodology by using alternative measures for the merger’s profitability effects based on balance-sheet data and obtain consistent results. Our findings suggest that outright blockings solve the competitive problems generated by the merger. Remedies are not always effective in solving the market power concerns, at least not on average. Nevertheless, both structural (divestitures) and behavioral remedies do help restore effective competition when correctly applied to anticompetitive mergers during the first investigation phase. Yet, they are on the whole ineffective or even detrimental when applied after the second investigation phase. Finally, remedies - especially behavioral ones - seem to constitute a rent transfer from merging firms to rivals when mistakenly applied to pro-competitive mergers. <br> <br> <i>ZUSAMMENFASSUNG - (Wie wirksam ist die Europäische Fusionskontrolle?) <br> In diesem Beitrag wenden wir eine neue Methodologie auf einen einzigartigen Datensatz von großen Unternehmenskonzentrationen während der Jahre 1990- 2002 an, um die Wirksamkeit der Fusionskontrolle zu untersuchen. Wir benutzen Daten, welche von unterschiedlichen Quellen erfasst worden sind und setzen unterschiedliche Auswertungsmethoden ein, um die ökonomischen Effekte der Fusionskontrollentscheidungen der Europäischen Kommission zu analysieren. Wir unterscheiden zwischen Untersagungen, Genehmigung mit Auflagen (entweder Verhaltensauflagen oder strukturelle) und sofortige Genehmigung. Wir verwenden eine "event study" - Methodologie und untersuchen, wie die Aktienpreise sowohl der fusionierenden Unternehmen als auch der Wettbewerber auf die Ankündigung einer Fusion oder einer besonderen wettbewerbspolitischen Entscheidung reagieren, um die Rentabilitätseffekte von Fusionen und von Fusionskontrollentscheidungen quantitativ zu bestimmen. Wir stützen unsere Resultate und Methodologie, indem wir alternative Maße für die Rentabilitätseffekte der Fusion verwenden, die auf Bilanzdaten basieren und erreichen gleich bleibende Resultate. Unsere Analyse ergibt, dass sofortige Untersagungen das von der Fusion verursachte Wettbewerbsproblem lösen können. Dagegen sind Auflagen nicht immer wirkungsvoll - mindestens nicht im Durchschnitt - um die durch die Fusion erzeugte Markmacht zu begrenzen. Dennoch helfen strukturelle Auflagen wie Abstoßungen von Kapitalvermögen und Verhaltensauflagen, einen "effektiven" Wettbewerb wieder herzustellen, wenn sie richtig auf wettbewerbswidrige Fusionen während der ersten Untersuchungsphase des Fusionskontrollverfahren angewendet werden. Jedoch sind sie im Durchschnitt erfolglos - wenn nicht sogar schädlich - wenn sie nach der zweiten Untersuchungsphase angewendet werden. Schließlich scheinen Abhilfemaßnahmen - besonders Verhaltensauflagen -, ein Rententransfer von den fusionierenden Unternehmen auf ihre Rivalen zu sein, wenn sie irrtümlich Wettbewerb steigernden Fusionen auferlegt werden.</i> |
| Keywords: | Mergers, Merger Control, Remedies, European Commission, Event Studies, Ex-post Evaluation |
| JEL: | L4 K21 G34 C2 L2 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:spii2006-12&r=com |
| By: | Philippe Choné; Laurent Linnemer |
| Abstract: | The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. The article examines the role of uncertainty (on the efficiency gains) in this tradeoff. Common wisdom is that the antitrust authorities should be very cautious about random gains. Our results show that dismissing efficiency gains on the sole ground that they are uncertain would not be theoretically founded. Indeed, the attitude towards uncertainty depends on the curvature of the social objective function. We exhibit a number of situations where the objective is convex in the efficiency gains, implying that competition authorities should welcome the risk for a given expectation of efficiency gains. Implications for empirical merger analysis are exposed. |
| Keywords: | merger analysis, antitrust, efficiency gains, uncertainty |
| JEL: | K21 L12 L41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1726&r=com |
| By: | Bläsi, Albrecht; Requate, Till |
| Abstract: | We study the impact of learning-by-doing with spillovers in competitive markets with free market entry. Within a two period model, we consider first the case where fixed costs are incurred only once, and entry is once and for all. In the second case fixed costs are incurred in each period, and both market exit after the first period and late entry in the second period is possible. For the first case first best allocations can only be decentralized by subsidizing output in the first period and additionally paying an entry premium. If exit and late entry are possible and if market exit by some firms is socially optimal, the optimal policy scheme requires a nonlinear output subsidy which serves to discriminate between exiting and staying firms. We further investigate the comparative statics effects of the different policy instruments. |
| Keywords: | learning-by-doing, spillovers, regulatory policy |
| JEL: | H23 L11 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3195&r=com |
| By: | Lin, Ping; Saggi, Kamal |
| Abstract: | This paper develops a two-tier oligopoly model in which the entry of a multinational firm results in technology transfer to its local suppliers and also impacts the degree of backward linkages in the local industry. The model endogenizes the multinational’s choice between anonymous market interaction with its suppliers and contractual relationships with them under which the multinational transfer technology to its suppliers who in turn agree to serve the multinational exclusively. The multinational’s entry under an exclusive contract has a de-linking effect that can reduce the degree of competition among suppliers thereby leading to a decline in the level of backward linkages and local welfare. With its emphasis on the supply-side effects of the multinational’s entry on local industry, this paper complements existing studies of backward linkages that focus more on demand-side effects. |
| Keywords: | Multinational Firms, Backward Li es, Vertical Technology Transfer, Exclusivity |
| JEL: | F12 F23 L13 O14 O19 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:2943&r=com |
| By: | Sougata Poddar (Department of Economics, National University of Singapore); Ruby Toh |
| Abstract: | This paper considers price and location decisions of competing duopolists through an approach that integrates the traditional inside location and outside location model. One firm locates inside a linear city along with consumers while the other locates outside it. We analyze a location-price simultaneous game as well as a location-then price sequential game and characterize the equilibria in pure strategies. The transport cost are assumed to be linear-quadratic and borne by the consumers. We find the results are contrasting to the traditional inside and outside location models and the stability of the proposed model is intermediate between the two. |
| Keywords: | Inside-outside location model, spatial competition, product differentiation, transportation costs, cross-border shopping |
| JEL: | C72 D43 L13 |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0604&r=com |
| By: | Peter C. Reiss; Matthew W. White |
| Abstract: | This paper examines how to evaluate consumer welfare when consumers face nonlinear prices. This problem arises in many settings, such as devising optimal pricing strategies for firms, assessing how price discrimination affects consumers, and evaluating the efficiency costs of many transfer programs in the public sector. We extend prior methods to accommodate a broad range of modern pricing practices, including menus of pricing plans. This analysis yields a simpler and more general technique for evaluating exact consumer surplus changes in settings where consumers face nonlinear prices. We illustrate our method using recent changes in mobile phone service plans. |
| JEL: | D12 D40 H20 L10 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12370&r=com |
| By: | Evens Salies (Observatoire Français des Conjonctures Économiques) |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0608&r=com |
| By: | Sun, Junjie; Tesfatsion, Leigh S. |
| Abstract: | In April 2003 the U.S. Federal Energy Regulatory Commission proposed a complicated mar- ket design - the Wholesale Power Market Platform (WPMP) – for common adoption by all U.S. wholesale power markets. Versions of the WPMP have been implemented in New Eng- land, New York, the mid-Atlantic states, the Midwest, and the Southwest, and adopted for implementation in California. Strong opposition to the WPMP persists among some indus- try stakeholders, however, due largely to a perceived lack of adequate performance testing. This study reports on the development and open-source implementation (in Java) of a com- putational wholesale power market organized in accordance with core WPMP features and operating over a realistically rendered transmission grid. The traders within this market model are strategic profit-seeking agents whose learning behaviors are based on data from human-subject experiments. Our key experimental focus is the complex interplay among structural conditions, market protocols, and learning behaviors in relation to short-term and longer-term market performance. Findings for a dynamic 5-node transmission grid test case are presented for concrete illustration. |
| Keywords: | Wholesale power market restructuring; Empirical input validation; Market design; Behavioral economics; Learning; Market power; Agent-based modeling; AMES wholesale power market framework; Java; RepastJ. |
| JEL: | C6 D8 L1 L9 |
| Date: | 2006–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12649&r=com |
| By: | Koetter, Michael |
| Abstract: | German banks experienced a merger wave throughout the 1990s. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for three important policy issues. Our main conclusions are twofold. First, approximately every second merger is a success. Second, the margin of success is narrow, as the CE differential between merging and non-merging banks is one percentage point. |
| Keywords: | Banks mergers, regulation, distress, cost efficiency, Germany |
| JEL: | G21 G28 G33 G34 L44 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4267&r=com |
| By: | Koetter, Michael; Bos, Jaap W. B.; Heid, Frank; Kool, Clemens J. M.; Kolari, James W.; Porath, Daniel |
| Abstract: | The inability of most bank merger studies to control for hidden bailouts may lead to biased results. In this study, we employ a unique data set of approximately 1,000 mergers to analyze the determinants of bank mergers. We use data on the regulatory intervention history to distinguish between distressed and non-distressed mergers. We find that, among merging banks, distressed banks had the worst profiles and acquirers perform somewhat better than targets. However, both distressed and non-distressed mergers have worse CAMEL profiles than our control group. In fact, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention. |
| Keywords: | Mergers, bailout, X-efficiency, multinomial logit |
| JEL: | G14 G21 G34 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4264&r=com |
| By: | Rajdeep Sengupta |
| Abstract: | Foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals: the entrant uses collateral as a screening device to contest the incumbent's informational advantage. Both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low-cost outside competitors into credit markets. The entrant's success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency (cost) advantage. This paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises. The results also explain why this observed "bias" is stronger in emerging markets. |
| Keywords: | Bank competition ; Credit control |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-043&r=com |
| By: | Fecht, Falko; Martin, Antoine |
| Abstract: | Following Diamond (1997) and Fecht (2004) we use a model in which financial market access of households restrains the efficiency of the liquidity insurance that banks' deposit contracts provide to households that are subject to idiosyncratic liquidity shocks. But in contrast to these approaches we assume spacial monopolistic competition among banks. Since monopoly rents are assumed to bring about inefficiencies, improved financial market access that limits monopoly rents also entails a positive effect. But this beneficial effect is only relevant if competition among banks does not sufficiently restrain monopoly rents already. Thus our results suggest that in the bank-dominated financial system of Germany, in which banks intensely compete for households' deposits, improved financial market access might reduce welfare because it only reduces risk sharing. In contrast, in the banking system of the U.S., with less competition for households' deposits, a high level of households' financial market participation might be beneficial. |
| Keywords: | Financial Intermediaries, Risk Sharing, Banking Competition, Comparing Financial Systems |
| JEL: | E44 G10 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4259&r=com |
| By: | Martin Cihák; Klaus Schaeck; Simon Wolfe |
| Abstract: | This paper provides the first empirical analysis of the cross-country relationship between a direct measure of competitive conduct of financial institutions and banking system fragility. Using the Panzar and Rosse H-Statistic as a measure for competition in 38 countries during 1980-2003, we present evidence that more competitive banking systems are less prone to systemic crises and that time to crisis is longer in a competitive environment. Our results hold when concentration and the regulatory environment are controlled for and are robust to different methodologies, different sampling periods, and alternative samples. |
| Keywords: | Banking systems , Bank regulations , Bank supervision , Financial crisis , |
| Date: | 2006–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/143&r=com |
| By: | Chantapong, Saovanee; Menkhoff, Lukas |
| Abstract: | The paper estimates and compares cost efficiency of domestic and foreign banks in Thailand by using bank-panel data between 1995 and 2003. It also examines the effect of foreign bank entry on banking efficiency in Thailand since the significant acquisitions by foreign banks after the 1997 financial crisis. The widely used translog functional form specification is statistically tested by pooled regressions. The estimated results suggest that the unit costs of production of domestic and foreign banks are indistinguishable, although the two types of banks focus on different areas of the banking business. The findings suggest that based on bank operating efficiency, if foreign banks represent the best-practice banks in the industry, to a large extent, domestic banks in Thailand have caught up to the best-practice standards throughout 1995-2003, significantly after the 1997 financial crisis . This may be due to greater foreign participation through acquisitions, which increases the competitive pressure in the banking industry, and also to financial restructuring of domestic banks, which increases the cost efficiency of domestic banks, thereby benefiting banking customers. |
| Keywords: | Banks, Financial Policy, Capital and Ownership Structure, Cost Efficiency |
| JEL: | D24 G21 G32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3482&r=com |
| By: | Jan K. Brueckner; Ricardo Flores-Fillol |
| Abstract: | This paper presents a simple model of airline schedule competition that circumvents the complexities of the spatial approach used in earlier papers. Consumers choose between two duopoly carriers, each of which has evenly spaced flights, by comparing the combinations of fare and expected schedule delay that they offer. In contrast to the spatial approach, the particular departure times of individual flights are thus not relevant. The model generates a number of useful comparative-static predictions, while welfare analysis shows that equilibrium flight frequencies tend to be inefficiently low. |
| JEL: | L00 L90 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1731&r=com |
| By: | Christa Hainz |
| Abstract: | Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate. |
| Keywords: | business groups, self-enforcing contract, institutions, internal capital market |
| JEL: | G31 G32 G34 K49 L22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1763&r=com |
| By: | Emmanuelle Auriol; Pierre M. Picard |
| Abstract: | The paper studies the impact of government budget constraint in a pure adverse selection problem of monopoly regulation. The government maximizes total surplus but incurs some cost of public funds. An alternative to regulation is proposed in which firms are free to enter the market and to choose their price and output levels. However the government can contract ex-post with the private firms. This ex-post contracting set-up allows more flexibility than traditional regulation where government commits to both investment and operation cash-flows. This is especially relevant in case of high technological uncertainties. |
| Keywords: | privatization, soft-budget constraint, adverse selection, regulation, natural monopoly |
| JEL: | D82 L33 L43 L51 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1733&r=com |
| By: | Requate, Till |
| Abstract: | In this article I survey the theoretical literature on environmental policy in the presence of imperfect competition, ranging from early contributions in the 1960s to the present. I cover the following market structures when polluting firms have market power in the output market: monopoly, Cournot oligopoly, Bertrand duopoly with homogeneous products, pricesetting duopoly with differentiating commodities, and models of monopolistic competition. Among the latter I consider Cournot oligopoly with free entry, the Dixit-Stiglitz model, and Salop’s model of the circular city with polluting firms. The regulation instruments I concentrate on are emission taxes, tradable permits, and both absolute and relative standards. I also discuss taxation when firms have market power in the input market, and I study models where firms exercise market power in the market of tradable permits. In the latter case I also survey some recent results from the literature on experimental economics. Finally, I briefly discuss environmental policy in open economies when firms have market power in international markets. Here I suggest different decompositions of the unilateral second-best optimal tax rate, thus attempting to unify alternative interpretations of these decompositions in the literature. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3198&r=com |
| By: | Raff, Horst; Ryan, Michael; Stähler, Frank |
| Abstract: | This paper examines the link between a firm’s owership of productive assets and its choice of foreign-market entry strategy. We find that, controlling for industry- and country-specific characteristics, the most productive firms (i.e., those owning the most assets) will enter through greenfield investment, less productive ones will choose M&A, and the least productive ones will export. In addition, the most productive firms are shown to prefer whole ownership to a joint venture. These predictions are confirmed in an econometric analysis of Japanese firm-level data. |
| Keywords: | Foreign direct investment, merger and acquisition, joint venture, greenfield investment, firm heterogeneity, productivity |
| JEL: | F12 F15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3875&r=com |
| By: | Mario Pianta; Andrea Vaona |
| Abstract: | The paper investigates the differences between small, medium-sized and large firms regarding their performance in the introduction of new products and processes. After a review of the relevant literature, two models are proposed and tested in search for different business strategies and innovation inputs connected to product and process innovations. The empirical analysis uses innovation survey (CIS 2) data at the industry level for 22 manufacturing sectors, broken down in three firm size classes, for eight European countries. Special attention is devoted to tackling the issues of possible endogeneity of the regressors and of unobserved sectoral heterogeneity. The results - strengthening the findings of previous studies - show that product and process innovations, though having some complementarities, are associated to different innovative inputs and strategies pursued by firms. Systematic differences also emerge between the behaviour of large firms and SMEs. |
| Keywords: | Product innovation; Process innovation; Firm size; Determinants of innovation; European industries |
| JEL: | L11 O31 O33 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1284&r=com |
| By: | Walker, Eduardo |
| Abstract: | The author studies annuity rates in Chile and relates them with industry competition. He finds (1) that annuity insurance companies paying higher broker commissions paid lower annuity rates; and (2) a structural break of the long-run elasticity of annuity rates to the risk-free rate in 2001. Moreover, this structural break coincided with the submission of a new draft pension law proposing greater transparency in annuity markets and a generalized drop in broker commissions. The high commissions charged in the 1990s were partly returned to annuitants as informal (and illegal) cash rebates. Myopic pensioners preferred cash rebates over present values. Thus, the legal threat caused the drop in broker commissions, reduced the illegal practice of cash rebates, increased competition by way of annuity rates, and raised the long-run elasticity to one. |
| Keywords: | Insurance&Risk Mitigation,Economic Theory&Research,Pensions&Retirement Systems,Investment and Investment Climate,Non Bank Financial Institutions |
| Date: | 2006–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3972&r=com |