nep-com New Economics Papers
on Industrial Competition
Issue of 2009‒08‒30
seven papers chosen by
Russell Pittman
US Department of Justice

  1. Firm entry, product repositioning and welfare By Eleftherios Zacharias
  2. Screening and Merger Activity By Albert Banal-Estanol; Paul Heidhues; Rainer Nitsche; Jo Seldeslachts
  3. A Simple Model of Foreign Brand Penetration under Monopolistic Competition By Toru Kikuchi
  4. Do Foreign Mergers & Acquisitions Boost Firm Productivity? By Schiffbauer, Marc; Siedschlag, Iulia; Ruane, Frances
  5. Ricardian selection By Finicelli, Andrea; Pagano, Patrizio; Sbracia, Massimo
  6. The Global-Local Interplay of MNE and Non-MNE Firms By Johansson, Börje; Lööf, Hans
  7. Entrepreneurial Innovations, Entrepreneurship Policy and Globalization By Douhan, Robin; Norbäck, Pehr-Johan; Persson, Lars

  1. By: Eleftherios Zacharias
    Abstract: We show that the entry of a second firm in a horizontally differentiated market (ala Hotelling) may harm consumers as prices increase and consumer's surplus possibly decrease. We first derive the price and the consumer's surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer's surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.
    Keywords: Horizontal di¤erentiation, welfare analysis, product repositioning.
    JEL: L13 D43 D60
    Date: 2009–08–17
  2. By: Albert Banal-Estanol; Paul Heidhues; Rainer Nitsche; Jo Seldeslachts
    Abstract: In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-speci?c synergies. Both empirical evidence and many common merger models suggest that the di?erence between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out rel- atively less ?tting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.
    Keywords: Takeovers, Merger Waves, Defense Tactics, Screening
    JEL: D21 D80 L11
    Date: 2009–08
  3. By: Toru Kikuchi
    Abstract: The main purpose of this study is to illustrate, with a simple monopo¬listic competition trade model, how trade liberalization (i.e., a decline in trade costs) can affect domestic entrepreneurs’ decisions between domestic brands and foreign brands, and thus the degree of foreign brand penetration. It is shown that, as trade costs decrease, more entrepreneurs choose to provide foreign brands. However, the impact of trade liberalization (in terms of changes in profit levels) becomes smaller as more entrepreneurs switch to foreign brands.
    Keywords: Foreign brand penetration, trade liberalization, monopolistic competition.
    JEL: F12
    Date: 2009–08–14
  4. By: Schiffbauer, Marc (ESRI); Siedschlag, Iulia (ESRI); Ruane, Frances (ESRI)
    Abstract: This paper examines the causal relationship between foreign mergers and acquisitions and firm productivity in the UK over the period 1999-2007. Our results raise questions about the existence of aggregate effects of foreign ownership on TFP in the longer-run. However, we find significant heterogeneity in the TFP effects of foreign M&A at the industry level. Overall, we uncover a systematic pattern of post-acquisition TFP effects that is consistent with the most recent theoretical models of firm heterogeneity and cross-border mergers and acquisitions as mode of foreign entry. Furthermore, we find positive aggregate effects on labor productivity due to capital deepening but not due to changes in TFP.
    Keywords: Cross-border mergers and acquisitions; Productivity; Firm heterogeneity
    Date: 2009
  5. By: Finicelli, Andrea; Pagano, Patrizio; Sbracia, Massimo
    Abstract: We analyze the foundations of the relationship between trade and TFP in the Ricardian model. Under general assumptions about the autarky distributions of industry productivities, trade openness raises TFP. This is due to the selection effect of international competition --- driven by comparative advantages --- which makes "some" high- and "many" low-productivity industries exit the market. We derive a model-based measure of this effect that requires only production and trade data. For a sample of 41 countries, we find that Ricardian selection raised manufacturing TFP by 11% above the autarky level in 2005 (6% in 1985), with a neat positive time trend and large cross-country differences.
    Keywords: selection effect; Eaton-Kortum model; international competition
    JEL: F1 D24 O4
    Date: 2009–08
  6. By: Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: During a sequence of decades we can observe a co-evolution of globalization through network formation of multinational (MNE) firms and concentration in specific places due to agglomerative forces. First, innovation ideas arrive at a faster speed to firms with past experience of innovation activities and with established export market contacts. Second, innovativeness is strongly dependent on corporate and ownership structure. Third, the returns to innovation efforts are positively influenced by firms’ capability to exploit extended markets. All these phenomena can be theoretically explained by MNE’s capacity to coordinate global supply chains and orchestrate localized R&D activities and knowledge flows. The paper illuminates how attributes of MNEs and non-MNEs differ, and how these differences affect the productivity and export intensity. It also shows how agglomeration economies affect MNEs and non-MNEs.
    Keywords: globalization; agglomeration; corporate ownership structure; innovation; exports; productivity
    JEL: C16 F14 L25 O33 R12 R30
    Date: 2009–08–26
  7. By: Douhan, Robin (Research Institute of Industrial Economics (IFN)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: What explains the world-wide trend of pro-entrepreneurial policies in the last few decades? We study entrepreneurial policy in a lobbying model taking into account the con.ict of interest between entrepreneurs and incumbents. It is shown that international market integration leads to more pro-entrepreneurial policies. It becomes more difficult to protect the profits of incumbent firms from entrepreneurial entry and pro-entrepreneurial policies make foreign entrepreneurs less aggressive. Making use of the Doing Business database, we find, consistent with our theory, evidence that international openness reduces barriers to entry for new entrepreneurs and that the effect is stronger in countries with more rent-seeking governments.
    Keywords: Entrepreneurship; Regulation; Innovation; Market Integration; Lobbying
    JEL: D73 F15 L26 L51 O31
    Date: 2009–08–24

This nep-com issue is ©2009 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.