nep-com New Economics Papers
on Industrial Competition
Issue of 2008‒12‒01
sixteen papers chosen by
Russell Pittman
US Department of Justice

  1. The Effect of Mergers on Consumer Prices: Evidence from Five Selected Case Studies By Orley Ashenfelter; Daniel Hosken
  2. Competition, Innovation and Distance to Frontier By Bruno Amable; Lilas Demmou; Ivan Ledezma
  3. Endogenous Technical Change, Spillovers, and Market Structure By Behringer, Stefan
  4. Markets for Information: Of Inefficient Firewalls and Efficient Monopolies By Antonio Cabrales; Piero Gottardi
  5. Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...") By Nicolas Gruyer
  6. Competitive Markets without Commitment By Nick Netzer; Florian Scheuer
  7. The bargaining set in strategic market games By Nicholas Ziros
  8. Asymmetric Equilibria and Non-Cooperative Access Pricing in Telecommunications By Behringer, Stefan
  9. Competition Policy Issues in the Consumer Payments Industry By Nicholas Economides
  10. The Quiet Life Hypothesis in Banking - Evidence from German Savings Banks By Oliver Vins; Michael Koetter
  11. The Effects of Bank Mergers on Small Business Lending in Germany By Thomas Bloch
  12. Dissynergies of Mergers among Local Banks By Thomas Bloch
  13. Mandatory Livestock Price Reporting, Market Transparency and Grid Price Dispersion By Fausti, Scott W.; Qasmi, Bashir A.; Li, Jing; Diersen, Matthew A.
  14. Preferential Cattle and Hog Pricing by Packers: Evidence from Mandatory Price Reports By Ward, Clement E.
  15. Modelling smoothly the joint effect of several advertising media on sales in a homogeneous market By Annamaria Sorato; Bruno Viscolani
  16. When Necessity Becomes a Virtue: The Effect of Product Market Competition on CSR By DANIEL FERNANDEZ; JUAN SANTALO

  1. By: Orley Ashenfelter (Princeton University); Daniel Hosken (Federal Trade Commission)
    Abstract: In this paper we propose a method to evaluate the effectiveness of U.S. horizontal merger policy and apply it to the study of five recent consumer product mergers. We selected the mergers from those that, from the public record, seemed to be most problematic for the antitrust agencies. Thus we estimate an upper bound on the likely price effect of completed mergers. Our study employs retail scanner data and uses familiar panel data program evaluation procedures to measure price changes. Our results indicate that four of the five mergers resulted in some increases in consumer prices, while the fifth merger had little effect.
    Keywords: Horizontal Mergers, Merger Retrospectives, Antitrust, Consumer Products, Program Evaluation
    JEL: L1 L41 L66 L71 L73
    Date: 2008–02
  2. By: Bruno Amable (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Lilas Demmou (DGTPE - Direction Générale du Trésor et de la Politique Economique); Ivan Ledezma (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: According to a recent literature, the positive effect of competition is supposed to be growing with the proximity to the technological frontier. Using a variety of indicators, the paper tests the effect of competition and regulation on innovative activity measured by patenting. The sample consists of a panel of 15 industries for 17 OECD countries over the period 1979-2003. Results show no evidence of a positive effect of competition growing with the proximity to the frontier. Two main configurations emerge. First, regulation has a positive effect whatever the distance to the frontier and the magnitude of its impact is higher the closer the industry is to the frontier. Second, the effect of regulation is negative far from the frontier and becomes positive (or non significant) when the technology gap decreases. These results contradict the belief in the innovation-boosting effect of product market deregulation such as taken into account in the Lisbon Strategy.
    Keywords: Innovation, competition, distance to frontier.
    Date: 2008–07
  3. By: Behringer, Stefan
    Abstract: This paper investigates the effect of spillovers in a model of endogenous technical change resulting from learning or network effects on the existence of a lower bound to market concentration.
    Keywords: Market Structure; Endogenous Technical Change; Learning; Spillovers; Research and Development
    JEL: O32 D4 L1
    Date: 2008–01–14
  4. By: Antonio Cabrales (Universidad Carlos III, Madrid); Piero Gottardi (European University Institute and Ca’ Foscari University of Venice)
    Abstract: In this paper we study, within a formal model, market environments where information is costly to acquire and is of use also to potential competitors. Agents may then sell, or buy, reports - of unverifiable quality - over the information acquired and choose the trades in the market on the basis of what they learnt. We find that, in equilibrium, information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. Also, the market for information tends to be a monopoly, and there is inefficiency given by underinvestment in information acquisition. Regulatory interventions in the form of firewalls, limiting the access to the sale of information to agents uninterested in trading the underlying object, only make the inefficiency worse. Efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked. The above findings hold when information has a prevalent horizontal differentiation component. When the vertical differentiation element is more important firewalls can in fact be beneficial.
    Keywords: Information sale, Cheap talk, Conflicts of interest, Information Acquisition, Firewalls, Market efficiency
    JEL: D83 C72 G14
    Date: 2008
  5. By: Nicolas Gruyer (LEEA (air transport economics laboratory), ENAC)
    Abstract: I consider optimal auctions for a seller who is bound to sell a single item to one of two potential buyers, organized in a `well-coordinated' cartel. I show that, even though the seller cannot deter collusion, he can optimally accommodate it by employing a simple mechanism which imposes an inefficient allocation on the bidders unless they pay a sufficiently high amount to avoid it.
    Keywords: auctions; optimal auctions; collusion; cartel; mechanism design; auction theory
    JEL: D44
    Date: 2008–06–01
  6. By: Nick Netzer (Socioeconomic Institute, University of Zurich); Florian Scheuer (Massachusetts Institute of Technology)
    Abstract: In the presence of a time-inconsistency problem with optimal agency contracts, we show that competitive markets implement allocations that Pareto dominate those achieved by a benevolent planner, they induce strictly more e?ort, and they sometimes make the commitment problem disappear entirely. In particular, we analyze a model with moral hazard and two-sided lack of commitment. After agents have chosen a hidden e?ort and the need to provide incentives has vanished, ?rms can modify their contracts and agents can switch ?rms. As long as the ex-post market outcome satis?es a weak notion of competitiveness and su?ciently separates individuals who choose di?erent e?ort levels, the market allocation is Pareto superior to a social planner’s allocation. We construct a speci?c market game that naturally generates robust equilibria with these properties. In addition, we show that equilibrium contracts without commitment are identical to those with full commitment if the latter involve no cross-subsidization between individuals who choose di?erent e?ort levels.
    Keywords: Time-Inconsistency, Moral Hazard, Competitive Markets, Adverse Selection
    JEL: D02 D82 C73 E61 H11 P51
    Date: 2008–11
  7. By: Nicholas Ziros
    Abstract: We present the bargaining set of an economy, where trades among groups of individuals are conducted via the Shapley-Shubik mechanism. Then we prove that in atomless economies the allocations resulting from this equilibrium notion are competitive.
    Keywords: Strategic market games, Bargaining set, Competition
    Date: 2008–11
  8. By: Behringer, Stefan
    Abstract: This paper looks at competition in the Telecommunications industry with non-linear tariffs and network based price discrimination. Allowing for asymmetric networks and non-cooperatively chosen access prices simultaneously allows to explicitly derive non-reciprocal equilibrium access price choices that are above the efficient level.
    Keywords: Asymmetric Networks; Access Pricing; Interconnection; Competition Policy; Telecommunications.
    JEL: L96 L51 L41 K21 D40
    Date: 2008–11–27
  9. By: Nicholas Economides
    Date: 2008
  10. By: Oliver Vins; Michael Koetter
    Abstract: The "quiet life hypothesis (QLH)" posits that banks enjoy the advantages of market power in terms of foregone revenues or cost savings. We suggest a unied approach to measure competition and efficiency simultaneously to test this hypothesis. We estimate bank-specific Lerner indices as measures of competition and test if cost and profitt efficiency are negatively related to market power in the case of German savings banks. We find that both market power and average revenues declined among these banks between 1996 and 2006. While we find clear evidence supporting the QLH, estimated effects of the QLH are small from an economical perspective.
    JEL: E42 E52 E58 G21 G28
    Date: 2008–11
  11. By: Thomas Bloch
    Abstract: In this paper, we examine the impact of mergers among German savings banks on the extent to which these savings banks engage in small business lending. The ongoing consolidation in the banking industry has sparked concerns about the continuous availability of credit to small businesses which has been further fueled by empirical studies that partly confirm a reduction in small business lending in the aftermath of mergers. However, using a proprietary data set of German savings banks we find strong evidence that in Germany merging savings banks do not significantly change the extent to which they lend to small businesses compared to prior to the merger or compared to the contemporaneous lending by non-merging banks. We investigate the merger related effects on small business lending in Germany from a bank-level perspective. Furthermore, we estimate small business lending and its continuous adjustment process simultaneously using recent General Method of Moments (GMM) techniques for panel data as proposed by Arellano and Bond (1991).
    JEL: G21 G28 G34 C23
    Date: 2008–11
  12. By: Thomas Bloch
    Abstract: In this paper, we investigate how bank mergers affect bank revenues and present empirical evidence that mergers among banks have a substantial and persistent negative impact on merging banks’ revenues. We refer to merger related negative effects on banks’ revenues as dissynergies and suggest that they are a result of organizational diseconomies, the loss of customers and the temporary distraction of management from day-to-day operations by effecting the merger. For our analyses we draw on a proprietary data set with detailed financials of all 457 regional savings banks in Germany, which have been involved in 212 mergers between 1994 and 2006. We find that the negative impact of a merger on net operating revenues amounts to 3% of pro-forma consolidated banks’ operating profits and persists not only for the year of the merger but for up to four years post-merger. Only thereafter mergers exhibit a significantly superior performance compared to their respective pre-merger performance or the performance of their non-merging peers. The magnitude and persistence of merger related revenue dissynergies highlight their economic relevance. Previous research on post-merger performance mainly focuses on the effects from mergers on banks’ (cost) efficiency and profitability but fails to provide clear and consistent results. We are the first, to our knowledge, to examine the post-merger performance of banks’ net operating revenues and to empirically verify significant negative implications of mergers for banks’ net operating revenues. We propose that our finding of negative merger related effects on banks’ operating revenues is the reason why previous research fails to show merger related gains.
    JEL: G21 G34 L25 C23
    Date: 2008–11
  13. By: Fausti, Scott W.; Qasmi, Bashir A.; Li, Jing; Diersen, Matthew A.
    Abstract: Mandatory livestock price reporting (MPR) was implemented in April 2001. Empirical evidence indicates a significant change in the weekly variability of publicly reported fed cattle grid premiums and discounts occurred after MPR implementation. We evaluated the effect of increased market transparency resulting from implementation of MPR on grid premium and discount dispersion lelvels. Empirical results suggest that increased trransparency is compatible with either an increase or a decrease in dispersion. These results suggest that during the pre-MPR periods, the weekly premium and discount point estimators were derived from a non-representative sample.
    Keywords: fed cattle, grid pricing, market transparency, price dispersion, Demand and Price Analysis, Livestock Production/Industries,
    Date: 2008–06
  14. By: Ward, Clement E.
    Abstract: Preferential pricing was one of several concerns leading to mandatory price reporting. Seven years of €ܮew€ݠdata from mandatory reports are examined to determine if evidence exists of preferential pricing by packers for fed cattle and slaughter hogs. Weekly data show some alternative marketing methods track closer to cash market prices than others. Some differences can be explained, while others are not as clear. Evidence was found that cash prices lead prices for alternative marketing methods on rising markets but trail them on declining markets.
    Keywords: Alternative marketing arrangements, Cattle, Hogs, Marketing, Meatpacking procurement, Price discovery, Pricing, Livestock Production/Industries, Marketing,
    Date: 2008–06
  15. By: Annamaria Sorato (Department of Applied Mathematics, University of Venice); Bruno Viscolani (Department of Pure and Applied Mathematics, University of Padua)
    Abstract: Decision on the use of different advertising media is a critical issue in marketing. Drawing on some literature related to the dynamic Nerlove-Arrow model, we propose a nonlinear programming framework for discussing how different advertising media may jointly affect the demand for a good. Starting from the idea that different advertising efforts may not simply add (linearly) to produce the demand result, we examine a few special media combination mechanisms which can be represented by smooth functions.
    Keywords: Marketing, Advertising, Production, Nonlinear programming
    JEL: M37 M31 C61
    Date: 2008–11
  16. By: DANIEL FERNANDEZ (Instituto de Empresa); JUAN SANTALO (Instituto de Empresa)
    Abstract: We report evidence that Product Market Competition is positively associated to widely-used Corporate Social Responsibility ratings. In particular we show that different market concentration measures are negatively associated to social impact ratings. We also provide evidence that changes in import penetration rates instrumented by import tariffs are positively associated to these social ratings. Finally we report that firm pollution levels are negatively associated to market concentration measures. Our results suggest that -all else constant- doubling competition in the marketplace would increase CSR ratings of an average company between 184% and 800%.
    Keywords: Strategy , Corporate social responsibility, Product market competition
    Date: 2008–07

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