nep-com New Economics Papers
on Industrial Competition
Issue of 2007‒08‒27
thirty papers chosen by
Russell Pittman
US Department of Justice

  1. Merger Policy, Entry, and Entrepreneurship By Robin Mason; Helen Weeds
  2. Entry Strategies, Welfare Analysis and Firms’ Behaviors By Wang Xun; Luo Ting
  3. Mergers as Auctions By IVALDI, Marc; MOTIS, Jrissy
  4. Why Tie A Product Consumers Do Not Use? By Dennis W. Carlton; Joshua S. Gans; Michael Waldman
  5. On the Design of Leniency Programs By CHEN, Zhijun; REY, Patrick
  6. Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus By Catherine ROUX; Thomas VON UNGERN-STERNBERG
  7. Partial Regulation in Vertically Differentiated Industries By BERGANTINO, Angela Stefania; DE VILLEMEUR, Etienne; VINELLA, Annalisa
  8. Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare By Anette Boom; Stefan Buehler
  9. Effects of 'Authorized-Generics' on Canadian Drug Prices By Paul Grootendorst
  10. Mergers & Acquisitions and Innovation Performance in the Telecommunications Equipment Industry By Tseveen Gantumur; Andreas Stephan
  11. Price Competition in the Intercity Passenger Transport Market : A Simulation Model By IVALDI, Marc; VIBES, Catherine
  12. A new approach to measuring competition in the loan markets of the euro area By Michiel van Leuvensteijn; Jacob Bikker; Adrian van Rixtel; Christoffer Kok-Sorensen
  13. Who fears competition from informal firms ? evidence from Latin America By Lamanna, Francesca; Gonzalez, Alvaro S.
  14. The Pricing of Academic Journals: A Two-Sided Market Perspective By JEON, Doh-Shin; ROCHET, Jean-Charles
  15. Die Übernahme von Denner durch Migros verstösst gegen das Kartellgesetz By Thomas VON UNGERN-STERNBERG; Mario JAMETTI
  16. Municipal aggregation and retail competition in the Ohio energy sector By Littlechild, S.
  17. The Operation of the Moratorium on New Bank Licenses on the Hong Kong banking system 1965-81 By Catherine R. Schenk
  18. Product Innovation, Export Entrepreneurship and Regional Characteristics - an analysis of innovation ideas in regions By Andersson, Martin; Johansson, Börje
  19. Regulation of a Monopoly Generating Externalities By DE VILLEMEUR, Etienne; GUI, Benedetto
  20. Strategic Interaction amongst Australia’s East Coast Ports By Marcin Pracz; Rod Tyers
  21. Gambling Policy in the European Union: Monopolies, Market Access, Economic Rents, and Competitive Pressures among Gaming Sectors in the Member States By William R. Eadington
  22. Market access asymmetry in food trade By Alessandro Olper; Valentina Raimondi
  23. The Anatomy of the Firm Size Distribution: The Evolution of its Variance and Skewness By Peter Huber; Michael Pfaffermayr
  24. Social costs and benefits of the universal service obligation in the postal market By BOLDRON, François; CREMER, Helmuth; DE DONDER, Philippe; JORAM, Denis; ROY, Bernard
  25. Entry regulation and business start-ups : evidence from Mexico By Seira, Enrique; Piedra, Eduardo; Kaplan, David S.
  26. Leveraging Resistance to Change and the Skunk Works Model of Innovation By Andrea Fosfuri; Thomas Rønde
  27. So You Want To Buy A Brand? By Swaminathan Vanitha; Dawar Niraj; Hulland John
  28. Anticompetitive Litigation and Antitrust Liability. By Christopher C. Klein
  29. The Impact of Patenting on New Product Introductions in the Pharmaceutical Industry By Stuart, Graham; Matthew, Higgins
  30. Behavioral industrial organization, firm strategy, and consumer economics By Azar, Ofer H.

  1. By: Robin Mason; Helen Weeds
    Abstract: We assess the impact of merger policy on entry and entrepreneurship. Facing uncertainty about its prospects and foreseeing that it may wish to quit should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition subsequently, lowering welfare in the short run, but also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which a merger is permitted despite its adverse impact on post-merger competition. This may be viewed as an extension of the "failing firm defence" to include ailing, low profitability firms as well as imminently failing ones. The implications of strategic firm behaviour for the optimal policy are examined, and merger policy is compared with an entry subsidy.
    Date: 2007–08–17
  2. By: Wang Xun; Luo Ting
    Abstract: Before serving a new market, a multinational enterprise (MNE) has several entry strategies, which include foreign direct investment (FDI), joint venture (JV) and exclusive licensing (EL). Entry cost, market size of the host country, and the discount rate are the main determinants when the MNE chooses its optimal entry strategy. At a certain level of ownership share that the MNE holds, JV will generate the highest social welfare. If firms can choose between competition and collusion, at different levels of the discount rate under FDI and EL, collusive and cheating behavior will happen.
    Keywords: Entry strategies, Multinational enterprise, Welfare, Collusion, Cheating
    JEL: D21 F23 I31 L11 L13
    Date: 2007–06
  3. By: IVALDI, Marc; MOTIS, Jrissy
    JEL: C14 G14 G34 L10 L20
    Date: 2007–04
  4. By: Dennis W. Carlton; Joshua S. Gans; Michael Waldman
    Abstract: This paper provides a new explanation for tying that is not based on any of the standard explanations -- efficiency, price discrimination, and exclusion. Our analysis shows how a monopolist sometimes has an incentive to tie a complementary good to its monopolized good in order to transfer profits from a rival producer of the complementary product to the monopolist. This occurs even when consumers -- who have the option to use the monopolist's complementary good -- do not use it. The tie is profitable because it alters the subsequent pricing game between the monopolist and the rival in a manner favorable to the monopolist. We show that this form of tying is socially inefficient, but interestingly can arise only when the tie is socially efficient in the absence of the rival producer. We relate this inefficient form of tying to several actual examples and explore its antitrust implications.
    JEL: L10 L12 L4 L40 L41 L42
    Date: 2007–08
  5. By: CHEN, Zhijun; REY, Patrick
    Date: 2007–04
  6. By: Catherine ROUX; Thomas VON UNGERN-STERNBERG
    Abstract: We examine the effect of Amnesty Plus and Penalty Plus on firms' initial selfreporting decision, in one market, by altering their whistle-blowing incentives in another market. Amnesty Plus and Penalty Plus are proactive US strategies which aim at triggering multiple confessions by increasing the incentives of already convicted firms to report in a second market where they collude. Predictably, conditional on the conviction of one cartel, Amnesty Plus and Penalty Plus strengthen firms' incentives to report the remaining cartel. However, Amnesty Plus and Penalty Plus have an ambiguous impact on firms' incentives to apply for amnesty in the first place: On the one hand, Amnesty Plus and Penalty Plus may help to sustain a cartel, otherwise reported under the EC Leniency Program. On the other hand, Amnesty Plus and Penalty Plus may induce immediate reporting of both cartels whereas only one of them would have been reported under the EC Leniency Program.
    Keywords: Amnesty Plus; Leniency Program; Multimarket Contact; Self-reporting
    JEL: K21 K42 L41
    Date: 2007–03
  7. By: BERGANTINO, Angela Stefania; DE VILLEMEUR, Etienne; VINELLA, Annalisa
    JEL: L11 L13 L51 L9
    Date: 2007–07
  8. By: Anette Boom (Copenhagen Business School); Stefan Buehler (University of Zurich)
    Abstract: We examine the effects of restructuring electricity markets on capacity investments, retail prices and welfare when demand is uncertain. We study the following market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. Assuming that wholesale prices can react to changes in retail prices (but not vice versa), we find that generators install sufficient capacity to serve retail demand in each market configuration, thus avoiding blackouts. Furthermore, aggregate capacity levels and retail prices are such that the separated (integrated) duopoly with wholesale trade performs best (worst) in terms of welfare.
    Keywords: electricity; investments; generating capacities; vertical integration; monopoly and competition
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2007–08
  9. By: Paul Grootendorst
    Abstract: This paper examines how the use of ‘authorized-generics’ (AGs) influences Canadian prescription drug prices. An authorized-generic is the actual brand name drug product, manufactured by the brand firm, but sold as a generic by a licensee or subsidiary of the brand, competing with independent generics (IGs), which operate independently from the brand firm. In theory, AGs have offsetting effects on drug prices. On the one hand, AGs compete against IGs and increases in the number of generic competitors should lower prices. On the other hand, the threat of AG entry into a therapeutic market might deter entry by IGs and this would lessen competition. Moreover, brand firms might increase prices of their brand drugs to increase demand for their AG. I find that when AGs are first to enter a drug market, average drug prices drop by about 12%; average prices drop by smaller amounts, the larger the AG share of the generic market. I could not directly assess whether the threat of AG entry into a market might deter entry by IGs. IG executives, however, state that the threat of AG entry has decreased their incentive to challenge ‘marginal’ drug markets. In particular the threat of AG entry has increased from $5m to $10m the threshold market size – the value of brand drug sales in the 10th year that it has been on the market, below which the IG firm will not attempt to enter. IG executives also stated that AGs have seriously reduced IG retained earnings. The reduction in retained earnings has hampered their ability to challenge brand drugs with annual sales well above $10m, but which have particularly high entry costs. Finally, the IG executives claimed that brand firms have attempted to use the threat of AG entry to negotiate agreements with the IG to delay entry (or not enter at all). A comprehensive evaluation of the competitive effects of AGs would need to verify and quantify these costs and compare these to the benefits of AG competition.
    Keywords: authorized-generic drugs, independent generic drugs, drug prices, Canada
    JEL: I11 I18 L65
    Date: 2007–06
  10. By: Tseveen Gantumur; Andreas Stephan
    Abstract: In response to global market forces such as deregulation and globalization, technological change and digital convergence, the telecommunications in the 1990s witnessed an enormous worldwide round of Mergers & Acquisitions (M&A). Given both M&A and Innovation a major means of today’s competitive strategy development, this paper examines the innovation determinants of M&A activity and the consequences of M&A transactions on the technological potential and the innovation performance. We examine the telecommunications equipment industry over the period 1988-2002 using a newly constructed data set with firm-level data on M&A and innovation activity as well as financial characteristics. By implementing a counterfactual technique based on a matching propensity score procedure, the analysis not only controls for merger endogeneity and ex-ante observable firms characteristics but also takes account of unobserved heterogeneity. The study provides evidence that M&A realize significantly positive changes to the firm’s post-merger innovation performance. The effects of M&A on innovation performance are in turn driven by both the success in Research and Development (R&D) activity and the deterioration in internal technological capabilities at acquiring firms prior to a merger.
    Keywords: Mergers & Acquisitions, Innovation Performance, Telecommunications Equipment Industry.
    JEL: L63 O30 L10
    Date: 2007–08
  11. By: IVALDI, Marc; VIBES, Catherine
    Date: 2007–01
  12. By: Michiel van Leuvensteijn; Jacob Bikker; Adrian van Rixtel; Christoffer Kok-Sorensen
    Abstract: This paper is the first that applies a new measure of competition, the Boone indicator, to the banking industry. This approach is able to measure competition of bank market segments, such as the loan market, whereas many well-known measures of competition can consider the entire banking market only. Like most other model-based measures, this approach ignores differences in bank product quality and design, as well as the attractiveness of innovations. We measure competition on the lending markets in the five major EU countries as well as, for comparison, the UK, the US and Japan. Our findings indicate that over the period 1994-2004 the US had the most competitive loan market, whereas overall loan markets in Germany and Spain were among the best competitive in the EU. The Netherlands occupied a more intermediate position, whereas in Italy competition declined significantly over time. The French, Japanese and UK loan markets were generally less competitive. Turning to competition among specific types of banks, commercial banks tend to be more competitive, particularly in Germany and the US, than savings and cooperative banks.
    Keywords: Banking industry; competition; loan markets; marginal costs; market shares.
    JEL: C33 G3
    Date: 2007–08
  13. By: Lamanna, Francesca; Gonzalez, Alvaro S.
    Abstract: This paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries in Latin America, the authors show that formal firms affected by head-to-head competition with informal firms largely resemble them. They are small credit constrained, underutilize their productive capacity, serve smaller customers, and are in markets with low entry costs. In countries where the government is effective and business regulations onerous, formal firms in industries characterized by low costs to entry feel the sting of informal competition more than in other business environments. Finally, the analysis finds that in an economy with relatively onerous tax regulations and a government that poorly enforces its tax code, the percentage of firms adversely affected by informal competition will be reduced from 38.8 to 37.7 percent when the government increases enforcement to cover all firms.
    Keywords: Microfinance,Economic Theory & Research,Emerging Markets,E-Business,Banks & Banking Reform
    Date: 2007–08–01
  14. By: JEON, Doh-Shin; ROCHET, Jean-Charles
    JEL: D42 L42 L82
    Date: 2007–06–21
    Abstract: We investigate whether it is likely that the Swiss competition authority (WEKO) will approve the acquisition of Denner (the number 3 retailer in Switzerland) by Migros (the number 1 retailer). We argue that the decisions made by the European competition authorities are helpful guidelines in this case. We find it likely that the merger will not be approved. Both concentration and barriers to entry in the Swiss retail market are already very high. The takeover of the "third force" by the market leader would eliminate effective competition, both from the perspective of clients and suppliers. It is conceivable that the WEKO might not be willing to fully apply the law, and merely ask Migros to sell a port of Denner's retail network to a foreign competitor.
    Keywords: merger, retail; market concentration; barriers to entry
    JEL: L12 L41 L81
    Date: 2007–02
  16. By: Littlechild, S.
    Abstract: Ohio allows communities to vote to aggregate the loads of individual consumers (unless they opt out) in order to seek a competitive energy supplier. Over 200 communities have voted to do this for electricity. By 2004 residential switching reached 69% in Cleveland territory (95% from municipal aggregation) but by 2006 had fallen to 8%. Savings are now small, but customer acquisition costs are low and the cost to consumers is negligible. Aggregation and retail competition have been thwarted by Rate Stabilization Plans holding incumbent utility prices below cost since 2006. In the Ohio gas sector, rate regulation has not discouraged aggregation and competition, but market prices falling below municipally negotiated rates can be politically embarrassing. How municipal aggregation would fare against individual choice in a market conducive to retail competition is an open question, but the policy deserves consideration elsewhere. Key words: Municipal aggregation, retail competition, electricity, gas, Ohio, regulation.
    JEL: L33 L43 L51 L94 L98
    Date: 2007–08
  17. By: Catherine R. Schenk (University of Glasgow)
    Abstract: In the mid-1960s two major institutional changes decreased the freedom for competition among banks in Hong Kong. In 1964, in response to a supposed ¡¥interest rate war¡¦ the Exchange Banks Association (the precursor to the Hong Kong Association of Banks) was able to negotiate an Interest Rate Agreement that applied to all banks operating in the colony. Secondly, in May 1965, after two waves of banking crisis in February and April of that year, the government imposed a moratorium on new bank licenses. Both restrictions were retained (in amended form) until 2001. The longevity of both of these anticompetitive regulations in Hong Kong had a profound impact on the development of the banking system in the 36 years they were in force. This paper investigates the operation and impact of the moratorium on the banking system of Hong Kong. It will first show how the regulation of price competition in Hong Kong led to calls from banks for further protection from non-price competition and how this became specifically aimed at foreign banks. Secondly, the paper will discuss the changes in the operation of the moratorium and how it influenced foreign acquisition. This turned out to be an inadequate solution to poor governance partly because the barriers to entry increased the bargaining power of local banks in the acquisition process. Finally, the paper assesses the moratorium¡¦s impact on the expansion of deposit taking finance companies outside the prudential regulations of the banking system, and how the regulation of these new institutions was only reluctantly introduced by the government. The general conclusions are that the moratorium and the interest rate agreement together decreased the regulatory breadth of the government, and reduced the incentives for mergers and acquisitions that might have improved governance. Evidence of fraud and poor governance immediately after the lifting of the moratorium show that it was not an effective cure for the governance problems of the Hong Kong banking system. Barriers to entry were not a substitute for effective prudential supervision.
    Date: 2006–10
  18. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper focuses on how characteristics of regions pertaining to local information about product varieties and markets as well as networks for the transmission of information about innovation opportunities influence the arrival of innovation ideas to existing and potential entrepreneurs. We formulate a model where entrepreneurs or innovating firms introduce new products in a quasi-temporal setting. Market conditions are characterized by monopolistic competition between varieties belonging to the same product group, in which there is entry and exit of varieties. Firms innovate in response to the arrival of innovation ideas. To realize these ideas firms have to make an R&D investment and a firm’s decision to export a variety to a new market is associated with a market channel investment. The theoretical model is used as a reference when formulating two regression models, with which we estimate factors that can explain the introduction of new export varieties by firms in different regional milieus. In one model we examine the emergence of new export firms, and in the second model we investigate the appearance of new export varieties. Results are consistent with the assumption that knowledge and information flows have a positive influence on the frequency of arrival of innovation ideas to firms.
    Keywords: innovation ideas; exports; entrepreneurship; location; knowledge spillovers
    JEL: O31 R11 R12
    Date: 2007–08–08
  19. By: DE VILLEMEUR, Etienne; GUI, Benedetto
    JEL: D42 D62 H21 H23 L51
    Date: 2007–07
  20. By: Marcin Pracz; Rod Tyers
    Abstract: Australia’s principal container ports, located in its state capitals, are owned and operated by state authorities that largely return profits from port operations to state governments. Since they govern the volumes of trade in most merchandise, they command immense influence over the openness and flexibility of the national economy. In this study, we estimate the elasticities of substitution between services of ports in Brisbane, Sydney and Melbourne. We also examine the pricing of port services to estimate the extent of their interaction, from which we derive conjectural variations parameters to assess the actual and potential levels of price collusion. The results confirm that there is considerable potential for destructive oligopoly behaviour and that pricing by the apparently isolated Port of Melbourne has been effectively controlled by price-cap regulation. The services of the ports of Sydney and Brisbane are comparatively substitutable, however. Although their regulation appears to be less restrictive, this substitutability appears to result in some level of competition, which aids in the control of pricing.
    JEL: L92 L51 C51 D21
    Date: 2006–08
  21. By: William R. Eadington (Department of Economics, University of Nevada, Reno)
    Abstract: This study examines the conflicts within the European Union regarding protected status accorded to legal commercial gaming industries and the principles of harmonization that direct EU economic policy. Member States are permitted to constrain competition for gambling services as long as the primary purpose is to protect citizens from unintended negative consequences associated with the activities. Also, because of monopoly status, high tax rates, or government ownership, many EU gaming industries have become major contributors to government coffers or for funding for “good causes.” Legal challenges by private companies trying to participate in these protected markets have led to decisions by the European Court of Justice that have questioned such protected status. A number of key economic metrics for European gaming industries are presented, and competitive dimensions of EU casino industries are examined in comparisons to trends elsewhere.
    Keywords: regulation, gambling, European Union, harmonization
    JEL: K23 L43 L83
    Date: 2007–08
  22. By: Alessandro Olper; Valentina Raimondi
    Abstract: Using a bilateral trade equation derived from a monopolistic competition model, we investigated market access reciprocity in food trade among the US, Canada, the EU and Japan. We explore country and industry–specific market access asymmetry through the border effect approach, re-challenging the underlying main explanations. Our findings reveal marked asymmetry in reciprocal trade openness; indeed, access to the food markets of the US and Japan appears significantly easier than reciprocal access to both Canada and, especially, the EU. Policy trade barriers, firstly in the forms of NTBs, the degree of product differentiation and ‘home bias’ in preferences, are all important factors in explaining border effects. Moreover, several stylized facts suggest that border effect interpretation should also be based on political economy arguments.
    Keywords: gravity, market access, asymmetry, food trade, NTBs
    JEL: F13 F14 Q17
    Date: 2007
  23. By: Peter Huber (WIFO); Michael Pfaffermayr (WIFO)
    Abstract: The evolution of higher moments of the firm size distribution so far seems to be neglected in the empirical firm growth literature. Based on GMM estimates, this paper introduces simple Wald tests to investigate whether the firm size distribution converges in both the second and third central moment. Using a comprehensive sample of Austrian firms, the estimation results indicate a substantial reduction in both the second and third central moment for the younger age cohorts. This effect is much less pronounced for older firms. Across age cohorts one observes an increase in variance, while the third central moment tends to vanish.
    Keywords: Growth of firms, market concentration, moments of the firm size distribution, GMM estimation, Wald test
    Date: 2007–06–20
  24. By: BOLDRON, François; CREMER, Helmuth; DE DONDER, Philippe; JORAM, Denis; ROY, Bernard
    Date: 2007–05
  25. By: Seira, Enrique; Piedra, Eduardo; Kaplan, David S.
    Abstract: The authors estimate the effect on business start-ups of a program that significantly speeds up firm registration procedures. The program was implemented in Mexico in different municipalities at different dates. Authors estimates suggest that new start-ups increased by about 4 percent in eligible industries, and the authors present evidence that this is a causal effect. Most of the effect is temporary, concent rated in the first 10 months after implementation. The effect is robust to several specifications of the benchmark control group time trends. The authors find that the program was more effective in municipalities with less corruption and cheaper additional procedures.
    Keywords: Corporate Law,Microfinance,Regional Governance,Urban Governance and Management,Urban Partnerships & Poverty
    Date: 2007–08–01
  26. By: Andrea Fosfuri (Universidad Carlos III de Madrid); Thomas Rønde (Department of Economics, University of Copenhagen)
    Abstract: We study a situation in which an R&D department promotes the introduction of an innovation that results in costly re-adjustments for a production department. In response, the production department tries to resist change by improving the existing technology. We show that firms balancing the strengths of the two departments perform better. As a negative effect, resistance to change might distort the R&D department’s effort away from radical innovations. The firm can solve this problem by implementing the so-called skunk works model of innovation where the R&D department is isolated from the rest of the organization. Several implications for managing resistance to change and for the optimal design of R&D activities are derived.
    Keywords: resistance to change; innovation; skunk works model; contest
    JEL: L2 M12 M54 O31 O32
    Date: 2005–04
  27. By: Swaminathan Vanitha; Dawar Niraj; Hulland John (METEOR)
    Abstract: A company’s brand portfolio serves as its link to customers and markets, protects it from competitors, and provides it with a degree of channel power. Historically, brand portfolios were built, brand by brand. But in today’s fast-paced and highly competitive marketplace, companies cannot afford to rely solely on brands built from scratch. Consumer preferences change, yesterday’s star brands are today’s dogs, new segments emerge, and established competitors and nimble start-ups are quick to spot and respond to new opportunities. A brand portfolio that does not continually evolve to meet the changing strategic needs of the market risks becoming obsolete. At the same time, building brands has never been more costly, nor more fraught with risk. In response to these challenges, firms are increasingly choosing to acquire brands from other companies. Acquisitions of brands allow firms to respond far more quickly to the needs of an emerging market segment or to a competitive move. Furthermore, buying an established brand is considerably less risky than undertaking the launch of an entirely new brand. But acquiring brands presents its own set of challenges. Not only must the purchased brand have the potential to fulfill the strategic objectives for which it is purchased, but it must also be integrated into the existing portfolio of brands and brand management structures of the acquiring company, and be properly deployed to capture market opportunities. Strategic match, portfolio fit, and effective deployment can mean the difference between success and failure of a brand acquisition. Yet managers tend to underestimate the effort and risk associated with brand acquisition. Brand acquisitions may have a lower rate of failure than new products, but they are not risk- free. We develop a framework to guide managers in assessing potential acquisitions against key success factors. To develop the framework, we have assembled and examined a comprehensive set of brand acquisitions in the food and health and beauty sectors that took place over the past 25 years. We studied key variables that helped us understand how and why brands change hands, as well as the financial consequences of acquisitions that were ultimately deemed to be either successes or failures. We supplement the statistical results with in-depth case studies of brand acquisitions that help illustrate the key lessons.
    Keywords: marketing ;
    Date: 2007
  28. By: Christopher C. Klein
    Abstract: The U.S. Supreme Court held that litigation for anticompetitive ends (“sham litigation”) must be “baseless” in order to face antitrust liability. The filing of such suits continues apace, as does the legal commentators’ debate, but economic analysis has lagged. Here, a game theoretic model is constructed in which plaintiffs file suit to achieve collateral gains and defendants may countersue for damages under the Sherman Act. In equilibrium, settlement fails and all suits are litigated, but the threat of countersuit deters low-expected-value plaintiffs. As the legal standard for sham litigation approaches “baselessness,” this deterrence effect is weakened and litigation may increase.
    Keywords: antitrust, sham litigation, countersuit
    JEL: K21 L41
    Date: 2007–08
  29. By: Stuart, Graham; Matthew, Higgins
    Abstract: Since Comanor and Scherer (1969), researchers have been using patents as a proxy for new product development. In this paper, we reevaluate this relationship by using novel new data. We demonstrate that the relationship between patenting and new FDA-approved product introductions has diminished considerably since the 1950s, and in fact no longer holds. Moreover, we also find that the relationship between R&D expenditures and new product introductions is considerably smaller than previously reported. While measures of patenting remain important in predicting the arrival of product introductions, the most important predictor is the loss of exclusivity protection on a current product. Our evidence suggests that pharmaceutical firms are acting strategically with respect to new product introductions. Finally, we find no relationship between firm size and new product introductions.
    Keywords: Patenting; Pharmaceutical industry; New product management; Research productivity
    JEL: O30
    Date: 2007–08–08
  30. By: Azar, Ofer H.
    Abstract: The field of behavioral economics is one of the fastest-growing fields in economics in recent years. Not long ago this was a small field, but over the last decade or so, the field gained more recognition, and today it seems clear that psychological motivations and biases affect economic behavior in many important ways. Insights from psychology were incorporated in several areas of economics. This paper offers a short review of the application of behavioral economics to industrial organization, which can be denoted “behavioral industrial organization,” and on the relationship between behavioral industrial organization, firm strategy, and consumer economics.
    Keywords: industrial organization; behavioral economics; strategy; firm strategy; business strategy; economic psychology; behavioral industrial organization; consumer behavior; consumer economics
    JEL: D40 L10 M20 A12 M30 D10
    Date: 2006

This nep-com issue is ©2007 by Russell Pittman. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.