nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒08‒13
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger without Cost Advantages By Steffen Huck; Kai A. Konrad; Wieland Müller
  2. Competition, Consumer Welfare, and the Social Cost of Monopoly By Yoon-Ho Alex Lee; Donald J. Brown
  3. Mergers and Acquisitions Waves in the U.K.: a Markov-Switching Approach By Marcelo Resende
  4. Antitrust in Innovative Industries By Ilya Segal; Michael Whinston
  5. Product Market Competition and Economic Performance in Japan By Jens Høj; Michael Wise
  6. Product Market Competition and Economic Performance in Sweden By Lennart Goranson; Martin Jørgensen; Deborah Roseveare
  7. Product Market Competition and Economic Performance in Norway By Jens Høj; Michael Wise

  1. By: Steffen Huck; Kai A. Konrad; Wieland Müller
    Abstract: The seminal paper by Salant, Switzer and Reynolds (1983) showed that merger in a standard Cournot framework with linear demand and linear costs is not profitable unless a large majority of the firms are involved in the merger. However, many strategic aspects matter for firm competition such as the internal organization of the firm, the time structure of decision making, information aspects of competition, or the imbeddedness of firm competition in a strategic trade competition game between governments. This survey will reveal that the puzzle as in Salant, Switzer and Reynolds (1983) may be resolved without recurring to cost savings of merger. Firms interact with each other, with customers, suppliers, their owners, and with governments in many different ways, and inspection of these types of interaction reveals a multiplicity of reasons why merger can be profitable for the merging firms, even in Cournot markets with linear demand and cost.
    JEL: D43 G34 L11 L13 L22 L41
    Date: 2005
  2. By: Yoon-Ho Alex Lee; Donald J. Brown (Cowles Foundation, Yale University)
    Abstract: Conventional deadweight loss measures of the social cost of monopoly ignore, among other things, the social cost of inducing competition and thus cannot accurately capture the loss in social welfare. In this Article, we suggest an alternative method of measuring the social cost of monopoly. Using elements of general equilibrium theory, we propose a social cost metric where the benchmark is the Pareto optimal state of the economy that uses the least amount of resources, consistent with consumers' utility levels in the monopolized state. If the primary goal of antitrust policy is the enhancement of consumer welfare, then the proper benchmark is Pareto optimality, not simply competitive markets. We discuss the implications of our approach for antitrust law as well as how our methodology can be used in practice for allegations of monopoly power given a history of price-demand observations.
    Keywords: Monopoly power, Antitrust economics, Applied general equilibrium
    JEL: D42 D58 D61 L12 L41
    Date: 2005–07
  3. By: Marcelo Resende
    Abstract: This paper further investigated wave behaviours for mergers and acquisitions-M&A in the U.K. during the 1969Q1/2004Q1 period by means of Markov-Switching models. Previous analysis had focused on traditional models that incorporate the potentially limiting assumption of constant transition probabilities across regimes. The consideration of more general models with time-varying transition probabilities across regimes along the lines of Diebold et al (1994) provide a useful route for assessing to which extent M&A waves are driven by economic variables usually considered in the related literature. The empirical implementation considered lagged conditioning variables referring to real output growth, real growth in money supply and real stock market returns. The evidence indicated that one should reject the constant transition probability model in favour of the time-varying transition probability model and therefore the usual aggregate variables considered in the empirical literature on M&A appear indeed to play some role in determining the wave behaviour of M&A in the U.K., though the effects are asymmetric across the different regimes.
    JEL: C32 L12
    Date: 2005
  4. By: Ilya Segal; Michael Whinston
    Abstract: We study the effects of antitrust policy in industries with continual innovation. A more protective antitrust policy may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We show that in some cases, holding the innovation rate fixed, as suggested by our comparative statics results, the tension does not arise and a more protective policy necessarily raises the rate of innovation.
    JEL: L40 O31
    Date: 2005–08
  5. By: Jens Høj; Michael Wise
    Abstract: <P>Empirical work shows that competition is important for promoting economic growth. However, in Japan the promotion of competition has long been compromised by ministerial guidance and exemptions from the competition law. Thus, the level and growth of productivity have been low in many domestically oriented sectors and consumer welfare has suffered under high prices and the slow introduction of new goods and services. This misallocation of resources contributes to explaining why the Japanese economy had difficulty in coming out of the quasi-stagnation of the past decade. Recognising that gains from more pro-competition policies are substantial, the Japanese government has now made the promotion of competitive markets a cornerstone of its economic policy. Reforms to promote product market competition in Japan should inter alia focus on strengthening the legal framework by increasing fines to a deterrent level and introducing cartel destabilising measures, such as a leniency ...</P> <P>Concurrence sur les marchés de produits et performance économique au Japon <P>Des études empiriques montrent que la concurrence est importante pour promouvoir la croissance économique. Mais au Japon, la stimulation de la concurrence a longtemps été compromise par des directives ministérielles et des exemptions au droit de la concurrence. Aussi, le niveau et le taux de croissance de la productivité ont été bas dans de nombreux secteurs tournés vers le marché intérieur, et le bien-être des consommateurs a souffert de prix élevés et d’une diffusion trop lente des nouveaux biens et services. Cette mauvaise allocation des ressources contribue à expliquer pourquoi l’économie japonaise n’est pas parvenue à sortir de la quasi-stagnation de la dernière décennie. Conscient que des politiques plus propices au jeu de la concurrence peuvent s’avérer très bénéfiques, le gouvernement japonais a fait de la promotion des marchés concurrentiels l’une des pièces maîtresses de sa politique économique. Les réformes visant à stimuler la concurrence sur les marchés de produits au ...</P>
    Keywords: télécommunications, regulatory reform, network industries, réforme de la réglementation, industries de réseau, Japan, Japon, anti-trust law, competition law, cartel, productivity and growth, retail sector, energy, telecommunication, postal services, transportation, public procurement, réglementation anti-trust, droit de la concurrence, entente, productivité et croissance, secteur de détail, énergie, services postaux, transports, marchés publics
    JEL: F13 K21 L11 L16 L33 L42 L43 L81 L87 L92 L93 L94 L95 L96 O53 O57 Q18
    Date: 2004–05–06
  6. By: Lennart Goranson; Martin Jørgensen; Deborah Roseveare
    Abstract: <P>Vigorous product market competition plays a central role in bolstering productivity growth. Sweden has strengthened competition legislation and deregulated a number of sectors, including electricity, telecommunications and parts of transport, over the past 10 to 15 years. This paper examines the current state of product market competition and proposes further measures. A stronger institutional framework would facilitate identification and elimination of anti-competitive behaviour, such as hard-core cartels. Efforts to inject effective competition into a range of network industries have been broadly successful, but specific measures could increase competition in several sectors, such as retail and construction. There is also room to boost competition in Sweden’s large and decentralised public sector and in its interactions with the private sector, so that competitive neutrality applies to all public sector activities ...</P> <P>La vigueur de la concurrence sur les marchés de produits joue un rôle central dans la stimulation des gains de productivité. La Suède a renforcé la législation concernant la concurrence et déréglementé un certain nombre de secteurs, dont l’électricité, les télécommunications et certains segments des transports. Cette étude examine l’état actuel de la concurrence en Suède et propose des mesures supplémentaires. Un cadre institutionnel renforcé faciliterait la détection et l’élimination des comportements anticoncurrentiels, don’t les ententes injustifiables. Des efforts ont été accomplis pour introduire un peu plus de concurrence active dans un éventail d’industries de réseau et ils ont globalement été couronnés de succès, mais quelques mesures concrètes seront nécessaires pour améliorer la concurrences dans plusieurs autres secteurs, dont la distribution et la construction. Il y a lieu également d’intensifier les efforts pour stimuler la concurrence dans le vaste secteur public ...</P>
    Keywords: Sweden, Regulation, network industries, Réglementation, industries de réseau, competition, concurrence, public procurement, marchés publics, product markets, retail distribution, construction, public sector, competitive neutrality, La Suède, marchés de produits, grande distribution, construction, neutralité de concurrence
    JEL: H4 K21 L1 L32 L33 L41 L43 L44 L8 L9 O52
    Date: 2004–05–12
  7. By: Jens Høj; Michael Wise
    Abstract: <P>Norwegian growth has been strong over the past decade. This development has been supported by the off-shore sector, but depleting oil reserves implies that growth will have to rely increasingly on the mainland economy. Empirical work shows that competition is important for promoting economic growth. Recognising the benefits of competition, the government wants to introduce regulatory reforms to stimulate economic growth. However, the promotion of competition has often conflicted with other policy objectives, such as maintaining a regionally dispersed population and a high degree of public ownership. This has lead to weak competition in a number of sectors, resulting in high prices, weak innovative activity and inefficient resource allocation. Reforms to promote product market competition in Norway should therefore <I>inter alia</I> focus on separating the public sector’s roles and functions as owner and regulator. This requires an increase in the independence of sector ...</P> <P>Concurrence sur les marchés de produits et performance économique en Norvège <P>La Norvège a connu une croissance vigoureuse au cours des dix dernières années. Cette expansion a été alimentée par le secteur pétrolier offshore, mais l'épuisement progressif des réserves implique que l'économie continentale va devoir prendre peu à peu le relais pour soutenir la croissance. Des travaux empiriques montrent que la concurrence contribue de manière importante à l'expansion économique. Conscient des bienfaits de la concurrence, le gouvernement entend réformer la réglementation pour stimuler la croissance économique. Néanmoins, la promotion de la concurrence est souvent entrée en conflit avec d'autres objectifs, tels que le maintien d'une population géographiquement dispersée et du contrôle étendu de l'État sur diverses activités. Cela se traduit par un faible niveau de concurrence dans un certain nombre de secteurs, qui a pour corollaires des prix élevés, un manque de dynamisme en matière d'innovation et une allocation inefficiente des ressources. Les réformes ...</P>
    Keywords: Norway, Norvège, regulatory reform, network industries, réforme de la réglementation, industries de réseau, commerce de détail, competition law, productivity and growth, retail sector, public procurement, droit de la concurrence, productivité et croissance, marchés publics, product market competition, public ownership, concurrence sur les marchés de produits, actifs publics
    JEL: K21 L11 L16 L33 L43 L81 L87 L9 O57
    Date: 2004–05–14

This nep-ind issue is ©2005 by Kwang Soo Cheong. 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.