nep-com New Economics Papers
on Industrial Competition
Issue of 2010‒11‒06
eleven papers chosen by
Russell Pittman
US Department of Justice

  1. Imperfect Platform Competition: A General Framework By Alexander White; E. Glen Weyl
  2. Using Rival Effects to Identify Synergies and Improve Merger Typologies By Joseph A. Clougherty, Tomaso Duso
  3. Cross–Sectoral Variation in Firm–Level Idiosyncratic Risk By Rui Castro; Gian Luca Clementi; Yoonsoo Lee
  4. Divide and Privatize : Firms Break-up and Performance By Evžen Kočenda; Jan Hanousek
  5. Antitrust in two-sided markets: Is competition always desirable? By Fiedler, Ingo C
  6. Spying in Multi-market Oligopolies By Pascal Billand; Christophe Bravard; Subhadip Chakrabarti; Sudipta Sarangi
  7. Non-Price Competition in Credit Card Markets Through Bundling and Bank Level Benefits By G. Gulsun Akin; Ahmet Faruk Aysan; Gazi Ishak Kara; Levent Yildiran
  8. Demand as a source of entry and the survival of new semiconductor firms By Roberto Fontana; Franco Malerba
  9. Competition and Innovation: ICT- and non-ICT-enabled Product and Process Innovations By Nepelski, Daniel
  10. Towards Understanding the Merger-Wave in the Indian Corporate Sector: A Comparative Perspective By P.L. Beena
  11. Cross-Border Mergers and Acquisations in India: Extent, Nature and Structure.July 2010 By Beena Saraswathy

  1. By: Alexander White (Department of Economics, Harvard University); E. Glen Weyl (Harvard University Society of Fellows; Toulouse School of Economics)
    Abstract: We propose a general model of imperfect competition among multi-product firms, the consumption of whose goods yields externalities from one consumer to another. We extend the allocation approach of the Weyl (2010) monopoly model, proposing a solution concept, Insulated Equilibrium, that allows for tractable analysis of competition. In such an equilibrium each firm’s price on one side of the market adjusts to all firms’ participation levels on the other side, so as to insulate its own allocation. This eliminates both the indeterminacy of consumer reactions once platforms have set their tariffs and the multiplicity of reaction functions that platforms can have to one another’s tariffs. Our approach allows us to derive intuitive first-order conditions characterizing equilibrium without restrictive assumptions and to analyze the effects of competition, mergers and regulation.
    Keywords: Two-sided Markets, Multi-sided Platforms, Quality Competition, Oligopoly, Antitrust of Network Industries
    JEL: D21 D43 L13
    Date: 2010–09
  2. By: Joseph A. Clougherty, Tomaso Duso
    Abstract: The strategic management literature has found it difficult to differentiate between collusive and efficiency-based synergies in horizontal merger activity. We propose a schematic to classify mergers that yields more information on merger types and merger effects, and that can, moreover, distinguish between mergers characterized largely by collusion-based synergies and mergers characterized largely by effi-ciency-based synergies. Crucial to the proposed measurement procedure is that it encompasses the impact of merger events not only on merging firms – as is custom – but also on non-merging competitor firms (the rivals). Employing the event-study methodology with stock-market data on samples of large horizontal mergers drawn from the US and UK (an Anglo-Saxon sub-sample) and from the European continent, we demonstrate how the proposed schematic can better clarify the nature of merger activity. <br> <br> <i>ZUSAMMENFASSUNG - Die Literatur über strategisches Management hatte bisher Schwierigkeiten, zwischen wettbewerbsschädlichen und Effizienz steigenden Synergien bei horizontalen Zusammenschlüssen zu differenzieren. Wir schlagen einen konzeptionellen Rahmen vor, um Fusionen zu klassifizieren, welcher mehr Informationen sowohl über die Fusionstypologie als auch über die Wirkung von Zusammenschlüssen entschlüsselt und welcher eine klare Abgrenzung zwischen wettbewerbsschädlichen und wettbewerbsfreundlichen Fusionen erlaubt. Fundamental für diesen konzeptionellen Rahmen ist, dass er nicht nur die Wirkung der Fusion auf die fusionierenden Unternehmen (was typisch in der Literatur ist) umfasst, sondern auch ihre Wirkung auf die Rentabilität der Wettbewerber. Wir wenden eine Ereignisstudienmethode mit Aktiendaten an, um unsere Kategorisierung empirisch umzusetzen. Im Vergleich einer Stichprobe von Fusionen in der angelsächsischen Welt (US und Großbritannien) mit Fusionen zwischen kontinentaleuropäischen Firmen zeigen wir, wie unsere Methodologie hilfreich sein kann, die Art der Fusionsaktivitäten zu identifizieren.<i>
    Date: 2010–10
  3. By: Rui Castro (Department of Economics and CIREQ, Université de Montréal); Gian Luca Clementi (Department of Economics, Stern School of Business, New York University and RCEA); Yoonsoo Lee (Department of Economics, Sogang University and Federal Reserve Bank of Cleveland)
    Abstract: We estimate firm–level idiosyncratic risk in the U.S. manufacturing sector. Our proxy for risk is the volatility of the portion of growth in sales or TFP which is not explained by either industry– or economy–wide factors, or firm characteristics systematically associated with growth itself. We find that idiosyncratic risk accounts for about 90% of the overall uncertainty faced by firms. The extent of cross–sectoral variation in idiosyncratic risk is remarkable. Firms in the most volatile sector are subject to at least three times as much uncertainty as firms in the least volatile. Our evidence indicates that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.
    Keywords: Schumpeterian Competition, Creative Destruction, Product Turnover, R&D Intensity, Investment–Specific Technological Change
    JEL: D24 L16 L60 O30 O31
    Date: 2010–01
  4. By: Evžen Kočenda (Osteuropa-Institut, Regensburg (Institut for East European Studies)); Jan Hanousek
    Abstract: We analyze the long-term effects of divesture and ownership change on corporate per-formance. We employ a unique data set for a large number of Czech firms spanning the period 1996–2005. We employ a propensity score matching procedure to deal with endogeneity problems. Our results, which are generally in line with the positive effects of divestiture found in the developed-market literature, show that the initial effects of di-vestiture are positive but after a certain point they quickly diminish over time.
    Keywords: firm divestiture, corporate performance, ownership changes, privatization, emerging markets, endogeneity, propensity score matching procedure
    JEL: D23 G32 G34 L20 M21 P47
    Date: 2010–10
  5. By: Fiedler, Ingo C
    Abstract: The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.
    Keywords: Antitrust, two-sided markets, broadcasting, welfare
    Date: 2010–10–25
  6. By: Pascal Billand (CREUSET, Jean Monnet University); Christophe Bravard (CREUSET, Jean Monnet University); Subhadip Chakrabarti (School of Management and Economics, Queen’s University Belfast); Sudipta Sarangi (DIW Berlin and Department of Economics, Louisiana State University)
    Abstract: We consider a multimarket framework where a set of firms compete on two interrelated oligopolistic markets. Prior to competing in these markets, firms can spy on others in order to increase the quality of their product. We characterize the equilibrium espionage networks and networks that maximize social welfare under the most interesting scenario of diseconomies of scope. We find that in some situations firms may refrain from spying even if it is costless. Moreover, even though spying leads to increased product quality, there exist situations where it is detrimental to both consumer welfare and social welfare.
    Keywords: Oligopoly, Multimarket, Networks
    JEL: C70 L13 L20
    Date: 2010–09
  7. By: G. Gulsun Akin (Bogazici University); Ahmet Faruk Aysan; Gazi Ishak Kara; Levent Yildiran
    Abstract: Attempts to explain high and sticky credit card rates have given rise to a vast literature on credit card markets. This paper endeavors to explain the rates in the Turkish market using measures of non-price competition. In this market, issuers compete monopolistically by differentiating their credit card products. The fact that credit cards and all other banking services are perceived as a bundle by consumers allows banks to deploy also bank level characteristics to differentiate their credit cards. Thus, credit card rates are expected to be affected by the features and service quality of banks. Panel data estimations also control various costs associated with credit card lending. The results show significant and robust effects of the non-price competition variables on credit card rates.
    Date: 2010–10
  8. By: Roberto Fontana (KITeS - Bocconi University, Milan, Italy and Department of Economics, University of Pavia, Pavia, Italy); Franco Malerba (KITeS - Bocconi University, Milan, Italy)
    Abstract: The performance of new companies coming from the demand side of the semiconductor industry is examined and it is compared with the performance of entrants coming from the semiconductor industry itself and with other types of entrants. By using a dataset of more than one thousand start-ups founded between 1997 and 2007 around the world, the paper shows that start-ups with a background in application sectors perform survive longer than spin-offs from the semiconductor industry itself or than inexperienced firms founded by people previously active in university or services. These results point strongly to the major role of demand not just as a source of innovations, but also as a major driver of entry into an industry and of successful performance of new firms.
    Date: 2010–04
  9. By: Nepelski, Daniel
    Abstract: The reason for contradictory predictions of the models studying the impact of competi¬tion on innovation is the varying assumptions with respect to competition or innovation type. Thus, we study how the impact of competition changes with different types of innova¬tive Output. In particular, we distinguish between non-ICT - and ICT-enabled product and process innovations. To allow for such flexibility, we apply Bayesian inference techniques and use direct measures of innovative that control for the heterogeneity of innovation Output. Our analysis provides evidence that supports the hypothesis that the effect of market com¬petition on innovation is not alike for all types of innovation. We observe an inverse U-shape relationship between competition and non-ICT-enabled and a clear U-shape dependency for ICT-enabled innovations. However, the results become considerably weaker, once industry effects are taken into account. Thus, although the impact of competition on innovation varies with the type of innovation, other factors seem to have a stronger impact on the incentives to innovate.
    Keywords: Competition, innovation, Information and communication technologies
    JEL: L20 L22 O31
    Date: 2010–06–01
  10. By: P.L. Beena
    Abstract: The corporate sector in India has witnessed a substantial growth of Mergers and Acquisitions (M&As) during the 1990s, facilitated by the policy-shift under Structural Adjustment Program. During the first wave (i.e., 1990-95), the Indian corporate houses seem to have been bracing up to face foreign competition while the second wave (i.e., 1995-2000) experienced a large presence of multinational firms. M&As also determined, to a large extent, the nature of foreign investment in the country during this period. [Working Paper No. 355]
    Keywords: Mergers and Acquistions, Competition policy, Corporate governance
    Date: 2010
  11. By: Beena Saraswathy
    Abstract: The corporate sector all over the world is restructuring its operations through mergers and acquisitions in an unprecedented manner in order to successfully overcome the challenges posed by globalization. One of the striking features of the present mergers and acquisitions scenario is the presence of a large number of cross-border deals, which is an easier way of internationalization comparing Greenfield mode of entry. Further, this is leading to a gradual shift in the organic ways of foreign investment into inorganic means of brownfield investment. In this context, the present study tries to understand the nature and extent of such deals in India in the backdrop of global scenario. [Working Paper No. 434]
    Keywords: Market structure, Mergers and acquisitions, Anti trust Issues, Multinational firms
    Date: 2010

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