nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒05‒10
nine papers chosen by
Russell Pittman
US Department of Justice

  1. Mixed Bundling and Mergers By Laurent Granier; Marion Podesta
  2. Costly Buyer Search in Laboratory Markets with Seller Advertising By Timothy N. Cason; Shakun Datta
  3. A Dynamic Analysis of Growth via Acquisition By Worawat Margsiri; Antonio S. Melloy; Martin E. Ruckesz
  4. Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare By Ian McCarthy
  5. The Emergence of Information Sharing in Credit Markets By Brown, Martin; Zehnder, Christian
  6. Volatility-price relationships in power exchanges: A demand-supply analysis By Sandro Sapio
  7. Product Market Competition, Regulation and Dividend Payout Policy of Malaysian Banks By Ameer, Rashid/R
  8. Collection sales: good or bad for journals? By Armstrong, Mark
  9. Competition and Commitment: the Supply and Enforcement of Rights to Improve Roads and Rivers in England, 1600-1750 By Dan Bogart

  1. By: Laurent Granier; Marion Podesta
    Abstract: Does bundling trigger mergers? We observe mergers between firms belonging to independent industries. These mergers enable firms to bundle. Indeed, many telephone firms, internet access providers or cable TV operators merge. Thus, the merged firms can provide bundles. Therefore, the question is the following: can bundling strategies allowed by a two-market merger create an incentive to merge? We consider two horizontally differentiated markets. The correlation of reservation prices is the sole link between these two markets. In this framework, we show that bundling strategies create incentives to form multi-markets firms. Merger decisions are endogenous in our model.
    Keywords: Product Bundling, Endogenous Mergers, Multi-Market Contacts
    Date: 2008
  2. By: Timothy N. Cason; Shakun Datta
    Abstract: In this laboratory experiment sellers simultaneously post prices and choose whether to advertise. Buyers then decide whether to buy from a seller whose advertisement they have received, or engage in costly sequential search to obtain price quotes from other sellers. In the unique symmetric equilibrium, sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices. Increases in either search or advertising costs raise equilibrium prices, and equilibrium advertising intensity decreases with lower search costs and higher advertising costs. Our results are consistent with most of these comparative static predictions, and sellers also post lower advertised than unadvertised prices as predicted. In all treatments, however, sellers price much lower than the equilibrium interval and earn very low profits. Although buyers’ search decisions are approximately optimal, sellers advertise more intensely than predicted. Consequently, market outcomes more closely resemble a perfect information, Bertrand-like equilibrium than the imperfect information, mixed strategy equilibrium that features significant seller market power.
    Keywords: Experiment, Posted offer, Market power, Mixed strategy, Uncertainty, Shopping
    JEL: D43 D83 L13
    Date: 2008–04
  3. By: Worawat Margsiri; Antonio S. Melloy; Martin E. Ruckesz
    Abstract: Firms have a choice: grow through internal investment, or grow through acquisition. While internal growth takes time, an acquisition provides cash .ows immediately, as the acquirer bene.ts from the investments of previous owners. The opportunity to grow internally a¤ects the price of an acquisition as it is a fall-back option for the acquirer should negotiations break down. Thus, internal growth opportunities speed up acquisitions when integration costs are signi.cant or synergies not too great. Because investors do not have full information about the time a .rm requires to grow internally, acquirers earn positive returns before announcement of an acquisition, and there are negative stock price reactions to acquisition announcements for a wide range of parameter values. This research provides novel predictions about how pre-announcement price run-up and negative announcement returns relate to high integration costs and low synergies from acquisition, without requiring learning about these variables. The model also predicts that buyer-initiated acquisitions result in more pronounced negative acquirer announcement returns than seller-initiated acquisitions.
    Keywords: Corporate Investment, Acquisitions
    JEL: G31 G34
    Date: 2008–03
  4. By: Ian McCarthy (Indiana University Bloomington)
    Abstract: This paper studies advertising, price ceilings and taxes in a sequential search model with bilateral heterogeneities in production and search costs. We estimate equilibria using a genetic algorithm (GA) applied to over 100 market scenarios, each differing based on the number of firms, number of consumers, existence of price ceilings or taxes, costs of production, costs of advertising, consumers' susceptibility to advertising and consumers' search costs. We compare our equilibrium results to those of the standard theoretical consumer search literature and analyze the welfare effects of advertising, price ceilings and sales taxes. We find that price ceilings and uninformative advertising can improve welfare, especially if search costs are sufficiently high.
    Keywords: Sequential Search Models, Genetic Algorithms, Price Ceilings, Taxes, Advertising, Welfare
    JEL: C63 D21 D43 D73 D83 M37
    Date: 2008–04
  5. By: Brown, Martin (Swiss National Bank); Zehnder, Christian (Harvard Business School)
    Abstract: We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, ecause borrowers may exogenously switch locations. Lenders are, however, engaged in spatial competition, and thus may lose market power by sharing information with competitors. Our results suggest that asymmetric information in the credit market increases the frequency of information sharing between lenders significantly. Competition between lenders reduces information sharing, but the impact of competition seems to be only of second order importance.
    Keywords: information sharing; credit; competition; asymmetric information
    JEL: D82 G21 G28
    Date: 2008–04–30
  6. By: Sandro Sapio
    Abstract: The evidence of volatility-price dependence observed in previous works (Karakatsani and Bunn 2004; Bottazzi, Sapio and Secchi 2005; Simonsen 2005) suggests that there is more to volatility than simply spikes. Volatility is found to be positively correlated with the lagged price level in settings where market power is likely to be particularly strong (UK on-peak sessions, the CalPX). Negative correlation is instead observed in markets considered to be fairly competitive, such as the NordPool. Prompted by these observations, this paper aims to understand whether volatility-price patterns can be mapped into different degrees of market competition, as the evidence seems to suggest. Price fluctuations are modelled as outcomes of dynamics in both sides of the market - demand and supply, which in turn respond to shocks to the underlying preference and technology fundamentals. Negative volatility-price dependence arises if the market dynamics is accounted for by common shocks which affect valuations uniformly. Positive dependence is related to the impact of asymmetric shocks. The paper shows that under certain conditions, these volatility-price patterns can be used to identify the exercise of market power. Identification is however ruled out if all shocks affect valuations uniformly.
    Keywords: Electricity, Market, Volatility, Supply Curve, Demand Curve, Fundamentals, Shocks
    Date: 2008–04–11
  7. By: Ameer, Rashid/R
    Abstract: This paper investigates the impact of the product market competition, regulations on the dividend policies of We find significant differences in the payout of the banks categorized as selling a non-interest based banking products and mix of both interest and non-interest based banking products. We find that the decision to increase dividends is significantly related to earnings, and the decision to cut dividend is significantly related to the changes in the non-performing loans, corporate and real estate sectors loans ratio and earnings loses. Research findings have implication for the regulators of the banks. The research provides a clear link between banks' portfolio choice and earnings that have implications for the dividends in the emerging markets.
    Keywords: Dividends; Banks; Non-performing loans; Ordered Probit Model; Malaysia
    JEL: D21
    Date: 2007
  8. By: Armstrong, Mark
    Abstract: This note discusses the impact of collection sales (i.e., the bundling of several journals for sale by publishers to libraries) on journals. The advent of electronic journal distribution implies that bundling is an efficient sales strategy, and can act to extend the reach of a journal. Current arrangements are discussed and shown to lead to tensions between commercial publishers and non-profit journals. The note argues that non-profit journals should not abandon their participation in collection sales programmes. Rather, non-profit journals may benefit from withdrawing from commercial publishers which distribute their own for-profit journals, and from joining together to be distributed by less commercial publishers who set relatively low prices for their collections.
    Keywords: Journal pricing; bundling; price discrimination
    JEL: L0 L82 L42
    Date: 2008–05–06
  9. By: Dan Bogart (Department of Economics, University of California-Irvine)
    Abstract: Prominent theories link political changes in seventeenth century England with greater security of property rights and less regulation. This paper informs these theories by studying the supply and enforcement of monopoly rights to improve roads and rivers between 1600 and 1750. The evidence shows that the King, Commons, and Lords all supplied improvement rights before the Glorious Revolution of 1688. Afterwards the Commons gained a monopoly over the initiation of rights and became increasingly effective. Lastly the evidence shows that Parliament and the King voided or diminished improvement rights, but such instances were less frequent and less arbitrary after 1688.
    Keywords: Property rights; Commitment; Competition; Infrastructure Investment; Pre-Industrial England
    JEL: K23 N43 O43
    Date: 2008–05

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