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on Industrial Competition |
| By: | Rosanna Nisticò (Dipartimento di Economia e Statistica, Università della Calabria) |
| Abstract: | The aim of this paper is to discuss the state-of-the art and the directions for research on the make-orbuy problem. After thirty years of research efforts, we now have numerous contributions explaining different aspects of the nature and existence of the firm. The search for a unified theory, however, still remains, at a theoretical level, a challenge. The task is not easy, perhaps because the theory of the firm develops along two different strands, one analyzing the factors influencing the boundaries, and the other one relating to the internal structure; or because, even inside the same research strand, it is not really easy to grasp the similarities and differences between contributions that have followed one another in rapid succession over the last few years. This paper examines the theories concerning the make-or-buy problem, focusing on recent contributions that have tried to develop a unified framework and emphasizes the role of incomplete contracts as a common and significant trait of the theories discussed |
| JEL: | D23 D83 L14 L21 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:clb:wpaper:200802&r=com |
| By: | Grimpe, Christoph; Hussinger, Katrin |
| Abstract: | Gaining access to technological assets and patents, in particular, has long been a major motive and objective for firm acquisitions. On the one hand, patents are used as a building instrument for the acquirer’s technology portfolio. On the other hand, patents can be attractive because of their strategic value as a bargaining chip, e.g. in licensing negotiations. This is especially the case if patents have the potential to block competitors. Drawing on transaction cost economics and the resource-based view of the firm, we analyze the importance of these two faces of technology acquisition for the valuation of a target firm. Empirical evidence for European firm acquisitions in the period from 1996 to 2003 indicates that the price paid by an acquirer for a target increases with the building and blocking potential of the target’s patents, especially if building and blocking patents are in technology fields related to the acquiring firm’s patent portfolio. Our results have implications for the technology strategy of the firm, in that M&A transactions may considerably impact technology markets, increasing the concentration of key technologies. |
| Keywords: | Firm acquisitions, technology, building patents, blocking patents |
| JEL: | G34 L20 O34 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7495&r=com |
| By: | Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Isabel Ruhmer (CDSE,University of Mannheim, Germany) |
| Abstract: | Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its ‘technical’ potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects. The authors thank Ulrich Schwalbe, Wolfgang Kerber, Arndt Christiansen and Niels Vestergaard for valuable comments on earlier versions of the paper, the participants of the 30th Hohenheimer Oberseminar (Nuernberg, April 2008) for helpful discussion, and Barbara Güldenring for valuable editorial assistance. |
| Keywords: | Merger simulation, merger control, antitrust, oligopoly theory, auction models, mergers & acquisitions |
| JEL: | L40 C15 K21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:82&r=com |
| By: | Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark); Jürgen-Peter Kretschmer (Economic Policy Unit, Philipps-University of Marburg, Germany) |
| Abstract: | We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. We thank all participants of the 29th HOS Conference (Marburg, November 2007), the 35th EARIE Conference (Toulouse, September 2008) and the Annual Meeting of the Verein für Socialpolitik (Graz, September 2008) for a valuable and helpful discussion of this paper. Furthermore, we thank Barbara Güldenring for editorial assistance. |
| Keywords: | Oligopoly theory, horizontal merger policy, profitability of mergers, antitrust |
| JEL: | L13 L41 K21 D43 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:84&r=com |
| By: | Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark) |
| Abstract: | This paper develops a proposal for an international multilevel competition policy system, which draws on the insights of the analysis of multilevel systems of institutions. In doing so, it targets to contribute bridging a gap in the current world economic order, i.e. the lack of supranational governance of private international restrictions to market competition. Such governance can effectively be designed against the background of a combination of the well-known nondiscrimination principle and a lead jurisdiction model. Put very briefly, competition policy on the global level restricts itself to the selection and appointment of appropriate lead jurisdictions for concrete cross-border antitrust cases, while the substantive treatment remains within the competence of the existing national and regional antitrust regimes. This contribution is part of the refereed research project International Competition Policy - A Decentralised System of International Merger Control funded by the Volkswagen Foundation, priority area Global Structures and Governance. |
| Keywords: | International competition policy; multilevel systems; international governance; economics of federalism; international economic order; international antitrust |
| JEL: | F02 K21 L40 F53 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:sdk:wpaper:83&r=com |
| By: | Altomonte, C.; Pennings, H.P.G. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the incremental entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms’ TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region crosses a specific threshold. These changing marginal effects can explain the lack of horizontal spillovers arising in traditional model designs. We also find these effects to vary between manufacturing and service, suggesting as a possible explanation a strategic change in technology transfer decisions by multinational firms as the market structure evolves. |
| Keywords: | transition economies;productivity;multinational firms |
| Date: | 2009–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765015143&r=com |
| By: | Marco Meireles (Faculdade de Economia, Universidade do Porto); Paula Sarmento (CEF.UP, Faculdade de Economia, Universidade do Porto) |
| Abstract: | In an incomplete regulation framework the Regulator cannot replicate all the possible outcomes by himself since he has no influence on some firms present in the market. When facing asymmetric information regarding the regulated firm’s costs, it may be better for the Regulator to allow the other competitors to extract a truthful report from her through side-payments in a collusion and therefore the “Collusion-Proofness Principle” may not hold. In fact, by introducing an exogenous number of unregulated competitors, Social Welfare differences seem to favour a Collusion-Allowing equilibrium. However, such result will strongly depend on the relative importance given by the Regulator to the Consumer Surplus. |
| Keywords: | Incomplete Regulation, Asymmetric Information, Collusion, Market Competition |
| JEL: | L41 L51 D82 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:320&r=com |
| By: | Maude Roucan-Kane (Iñaki Pena; Michael Boehlje; Jay Akridge) |
| Abstract: | The objective of this study is to identify factors determining a business investment strategy (i.e., the choice of investment commitment and form of organizational structure) in the food manufacturing, chemical, agricultural wholesaling and biotechnology industries. Propositions regarding strategic alliance theories are tested on over 400 inter-firm collaborative agreements using secondary data from major US and European companies for the 1994-97 period. Results suggest that transactions with lower technological and resource uncertainty levels are more likely to result in investments with a higher commitment level (i.e., acquisitions or majority equity-based controlling investments). The investment commitment level embedded in a single business transaction seems to be affected not only by a goal of cost minimization, but also by strategic motives and firm and industry factors. |
| Keywords: | Transaction costs, strategic alliances, food manufacturing, chemical, agricultural wholesaling, ag-biotechnology, investment strategy, innovation |
| JEL: | L10 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pae:wpaper:09-01&r=com |
| By: | Pollock, R. |
| Abstract: | (In)direct network effects arise frequently in economic models but, for reasons of analytical tractability, are often assumed to be linear. Here, we examine the general non-linear case with two platforms. We establish the conditions characterising equilibria and show that welfare changes can be related in a simple, intuitive way to the degree of diminishing returns of the network effects function. |
| Keywords: | Network Effects; Indirect Network Effects; Platforms; Welfare |
| JEL: | L13 |
| Date: | 2009–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0915&r=com |
| By: | Joan-Ramon Borrell (PPRE-IREA, Universitat de Barcelona); Laura Fernández-Villadangos (PPRE-IREA, Universitat de Barcelona) |
| Abstract: | Entry regulations affecting professional services such as pharmacies are common practice in many European countries. We assess the impact of entry regulations on profits estimating a structural model of entry using the information provided by a policy experiment. We use the case of different regional policies governing the opening of new pharmacies in Spain to show that structural models of entry ought to be estimated with data from policy experiments to pin down how entry regulations change payoffs functions of the incumbents. Contrary to the public interest rationales, regulations are not boosting only small town pharmacies payoffs nor increasing all pharmacies payoffs alike. The gains from regulations are very unevenly distributed,suggesting that private interests are shaping the current mix of entry and markup regulations. |
| Keywords: | Entry, regulation, professional services |
| JEL: | L51 H51 L84 I18 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:xrp:wpaper:xreap2009-3&r=com |
| By: | Mary T. Kelly (Department of Economics and Statistics, Villanova School of Business, Villanova University); John S. Ying (Department of Economics,University of Delaware) |
| Abstract: | Regulation of the cable television industry was marked by remarkable periods of deregulation, re-regulation, and re-deregulation during the 1980s and 1990s. Using FCC firm-level survey data spanning 1993 to 2001, we model and econometrically estimate the effect of regulation and competition on cable rates. Our calculations indicate that while regulation lowered rates for small system operators, it raised them for medium and large systems. Meanwhile, competition consistently decreased rates from 5.6 to 8.8 percent, with even larger declines during periods of regulation. Our results suggest that competition is more effective than regulation in containing cable prices. |
| Keywords: | cable rates, regulation, competition |
| JEL: | L51 L96 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:vil:papers:3&r=com |
| By: | Pollock, R. |
| Abstract: | In 2003, the UK `liberalised' its telephone directory enquiries service with the aim of introducing competition so as to improve quality and lower costs. Unfortunately the results did not match expectations. Proliferation of numbers led to consumer confusion and high price firms with no discernible quality advantages but which employed heavy advertising came to dominate the market. Consumer and total welfare appear to have declined. This example raises important questions for regulators. In particular, with limits on information and rationality, it may sometimes be better to limit choice but increase competition to supply that choice. |
| Keywords: | Competition, Deregulation, Advertising, Bounded Rationality |
| JEL: | L51 L43 |
| Date: | 2009–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0916&r=com |
| By: | Luca Fiorito |
| Abstract: | Edwin Chamberlin's The Theory of Monopolistic competition is often described as containing omportant traces of institutionalist influence. This is also confimred by Chamberlin himself who, repeadetly, referred to the work of Veblen, and John Maurice Clark among his inspirational sources. The aim of this paper is to analyse the institutionalist rection to the publication of the Theory of Monopolistic Competition. What will be argued is that the institutionalist response to Chamberlin was a mixed one, and involved some substantial criticisms of his analysis of market structures both on methodological and theoretical grounds. The paper is organized as follows. The first section presents a sketch of the main theoretical implications contained in The Theory of Monopolistic Competition. The second section analyses the general aspects of the institutionalist reaction to Chamberlin. The third and fourth sections deal with the more theoretical aspects of the institutionalist criticism of Chamberlin. The final section presents a conclusion |
| JEL: | B25 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:560&r=com |