nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒08‒21
seven papers chosen by
Russell Pittman
US Department of Justice

  1. Takeovers after "Takeovers" By Andy Cosh; Alan Hughes
  2. Technology sourcing by large incumbents through acquisition of small firms By Marcus Wagner
  3. The Impact of FDI on Innovation in Target Firms By Joel Stiebale; Frank Reize
  4. Joint Dominance and Tacit Collusion - An Analysis of the Irish Vodafone/O2 Case and the Implications for Competition and Regulatory Policy By Patrick Massey; Moore McDowell
  5. Network Structure and Design in the Deregulated U.S. Airline Industry: an Argument for Re-Regulation? By Sayed Ajaz Hussain; Serkan Bahceci
  6. Modeling of Suppliers Learning Behaviors in an Electricity Market Environment By Yu, Nanpeng; Liu, Chen-Ching; Tesfatsion, Leigh S.
  7. Dynamic LMP Response Under Alternative Price-Cap and Price-Sensitive Demand Scenarios By Li, Hongyan; Sun, Junjie; Tesfatsion, Leigh S.

  1. By: Andy Cosh; Alan Hughes
    Abstract: We review five decades of takeover actively in the UK. We assess the relative characteristics of acquiring and acquired companies and the performance impacts of merger using both accounting and share price based measures. We conclude that the fundamental conclusions reached by Ajit Singh about takeovers and the market for corporate control in his seminal contributions of the 1970s remain true in the light of subsequent work.
    Keywords: Takeovers, Natural Selection, Market for Corporate Control
    JEL: G34
    Date: 2008–06
  2. By: Marcus Wagner
    Abstract: Innovation activities in high technology industries provide considerable challenges for technology and innovation management. In particular, since these industries have a long history of radical innovations taking place through distinct industry cycles of higher and lower demand, firms frequently consider the option to use acquisitions as a means for technology sourcing. The paper investigates this behaviour for three high technology industries, namely semiconductor manufacturing, biotechnology and electronic design automation which is a specific sub-segment of the semiconductor industry. It analyses the association of firm characteristics with different aspects of acquisition behaviour with a particular focus being put on innovation-related firm characteristics. The paper confirms a substitutive relationship between acquisitions and own research activities as well as between own and acquired firm patenting, but also finds that firm size, financial conditions and geographical origin of the firm matter for acquisition behaviour.
    Keywords: Acquisition, innovation, high technology, quantitative methods, research, R&D
    JEL: L10 L86 M20
    Date: 2008
  3. By: Joel Stiebale; Frank Reize
    Abstract: This paper contributes to the ongoing debate on the welfare effects of foreign direct investment by investigating the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and mediumsized German firms. After controlling for endogeneity and selection bias, it is found that foreign takeovers have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as the share of sales from product innovations is not significantly affected by a foreign takeover for a given amount of innovation efforts. Hence, the estimation results do not show any evidence of significant technology spillovers through foreign direct investment in form of a higher innovation success.
    Keywords: Multinational enterprises, mergers and acquisitions, innovation
    JEL: D21 F23 G34 C31 O31 O33
    Date: 2008–07
  4. By: Patrick Massey (Compecon Limited); Moore McDowell (University College Dublin)
    Abstract: The paper takes as its starting point the Irish telecom regulator ComReg’s finding of joint dominance by two firms in the mobile phone market in Ireland. The paper argues that the regulator’s decision was inconsistent with the facts in the case. However, it argues that the case raises wider questions about the whole concept of joint dominance as it has evolved under EU competition law which in our view is confused. We regard the approach of the ECJ in trying to use a single approach to joint dominance in merger analysis and in competition analysis as unjustified, misguided and at odds with economic analysis.
    Date: 2008–03–15
  5. By: Sayed Ajaz Hussain; Serkan Bahceci
    Abstract: This paper develops a model to explain and analyze the evolution of network structure (connectivity)and design (flight frequency, aircraft size, prices) in the post-deregulation U.S. airline industry. We show that legacy carriers choice of Hub-and-Spoke networks and the emergence of low cost carriers (LCCs) operating Point-to-Point networks were optimal choices. We demonstrate that LCCs need not necessarily charge lower prices, and their entry impacted legacy carriers’ prices in all markets, even those where there is no direct competition. We show that in response to entry, legacy carriers optimally lower flight frequency, leading to longer wait times between flights for which passengers are compensated by lower prices; conversely, if the entrant later exits, legacy carriers raise flight frequency and therefore prices, which may erroneously appear to be predatory pricing when in fact it is the consequence of optimal network redesign. Finally, we demonstrate that even though low cost carriers lower prices, total social welfare with competing network structures can also be lowered. In other words, the poor financial performance of legacy carriers is not due to their inefficiency per se but due to an efficient Hub-and-Spoke network undermined by competition from inefficient Point-to-Point networks. We argue that social welfare may have been, and still can be, higher if entry and exit in air passenger travel industry is regulated.
    Keywords: Networks, Airlines, Regulation
    JEL: L4 L5 L9 C6 M2
    Date: 2008–08–08
  6. By: Yu, Nanpeng; Liu, Chen-Ching; Tesfatsion, Leigh S.
    Abstract: The day-ahead electricity market is modeled as a multi-agent system with interacting agents including supplier agents, load-serving entities, and a market operator. Simulation of the market clearing results under the scenario in which agents have learning capabilities is compared with the scenario where agents report true marginal costs. It is shown that, with Q-learning, electricity suppliers are making more profits compared to the scenario without learning due to strategic gaming. As a result, the LMP at each bus is substantially higher.
    Keywords: Electricity market; Supplier modeling; Competitive Markov decision process; Q-learning
    JEL: B4 C0 C6 C7 D4 D43 D8 L1 L13 Q4
    Date: 2008–08–19
  7. By: Li, Hongyan; Sun, Junjie; Tesfatsion, Leigh S.
    Abstract: This study investigates the complicated nonlinear effects of demand-bid price sensitivity and supply-offer price caps on Locational Marginal Prices (LMPs) for bulk electric power when profit-seeking generators can learn over time how to strategize their supply offers. Systematic computational experiments are conducted using AMES, an open-source agent-based test bed developed by the authors. AMES models a restructured wholesale power market operating through time over an AC transmission grid subject to line constraints, generation capacity constraints, and strategic trader behaviors.
    Keywords: Restructured wholesale power markets; Agent-based test bed; Locational marginal prices; demand-bid price sensitivity; supply-offer price caps
    JEL: B4 C0 C6 C7 C9 D4 D43 D8 L1 L13 Q4
    Date: 2008–08–19

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