nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒10‒04
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger Policy to Promote ‘Global Players’? A Simple Model By Andreas Haufler; Søren Bo Nielsen
  2. Perfect Competition in a Bilateral Monopoly (In honor of Martin Shubik) By Pradeep Dubey; Dieter Sondermann
  3. Can Rivalry Increase Price? By Christian Roessler
  4. The pricing behaviour of Italian firms: new survey evidence on price stickiness By Silvia Fabiani; Angela Gattulli; Roberto Sabbatini
  5. Bank mergers, competition and liquidity By Elena Carletti; Philipp Hartmann; Giancarlo Spagnolo

  1. By: Andreas Haufler; Søren Bo Nielsen
    Abstract: We use a simple framework where firms in two countries serve their respective domestic markets and a world market to analyze under which conditions cost-reducing mergers will be beneficial for the merging firms, the home country, and the world as a whole. For a national merger, the policies enacted by a national merger authority tend to be overly restrictive from a global efficiency perspective. In contrast, all international mergers that benefit the merging firms will be cleared by either a national or a regional regulator, and this laissez-faire approach is also globally efficient. Finally, we derive the properties of the endogenous merger equilibrium.
    Keywords: merger policy, international trade
    JEL: F13 H77 L41
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1523&r=ind
  2. By: Pradeep Dubey (Center for Game Theory, Dept. of Economics, SUNY at Stony Brook and Cowles Foundation, Yale University); Dieter Sondermann (Department of Economics, University of Bonn, Bonn)
    Abstract: We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.
    Keywords: Limit orders, double auction, Nash equilibria, Walras equilibria, perfect competition, bilateral monopoly, mechanism design
    JEL: C72 D41 D42 D44 D61
    Date: 2005–09
    URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1534&r=ind
  3. By: Christian Roessler (University of Melbourne)
    Abstract: Spatially differentiated duopolists set higher-than-monopoly prices at some distances. This is proven in a space of arbitrary dimensionality. But the maximal equilibrium price which may occur in a given space converges to the monopoly price as dimensionality increases. If consumers care about sufficiently many features of the product, monopoly nearly leads to an extreme price and is nearly least efficient.
    Keywords: multidimensional product spaces, duopoly pricing, spatial competition
    JEL: C72 D40 D43 L11 L13
    Date: 2005–09–26
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0509007&r=ind
  4. By: Silvia Fabiani (Research Department, Banca d'Italia, Via Nazionale 91, I-00184 Rome, Italy); Angela Gattulli (Research Department, Banca d'Italia, Via Nazionale 91, I-00184 Rome, Italy); Roberto Sabbatini (Research Department, Banca d'Italia, Via Nazionale 91, I-00184 Rome, Italy)
    Abstract: This study examines price setting behaviour of Italian firms on the basis of the results of a survey conducted by Banca d’Italia in early 2003 on a sample of around 350 firms belonging to all economic sectors. Prices are mostly fixed following standard mark-up rules, although customer-specific characteristics have a role, in particular in manufacturing and services where price discrimination across customers matters. Rival prices mostly affect pricesetting strategies in industrial firms. In reviewing their prices, firms follow either state-dependent rules or a combination of time and state-dependent ones. Concerning the frequency of price adjustments, a considerable degree of stickiness emerges both at the stage in which firms evaluate their pricing strategies and the stage in which they actually implement the price change. In 2002 most firms changed their price only once. Three alternative explanations of nominal rigidity are ranked highest by the firms interviewed: explicit contracts, tacit collusive behaviour and the perception of the temporary nature of the shock. Prices respond asymmetrically to shocks, depending on the direction of the adjustment (positive vs negative) and the source of the shock (demand vs supply). Real rigidities – captured by the degree of market competition, customers’ search costs, the sensitivity of profits to changes in demand – play an important role in determining this asymmetry. Moreover, whereas cost shocks impact more when prices have to be raised than when they have to be reduced, demand decreases are more likely to induce a price change than demand increases.
    Keywords: Nominal rigidity; real rigidity; Price-setting; Inflation persistence; Survey data.
    JEL: E30 D40
    Date: 2004–04
    URL: http://d.repec.org/n?u=RePEc:ecb:ecbwps:20040333&r=ind
  5. By: Elena Carletti (University of Mannheim, Department of Economics, 68131 Mannheim, Germany.); Philipp Hartmann (European Central Bank, DG Research, Kaiserstrasse 27, 60311 Frankfurt, Germany, and CEPR.); Giancarlo Spagnolo (Stockholm School of Economics, Handelshogskolan, BOX 6501, SE-11383 Stockholm, Consip SpA and CEPR.)
    Abstract: We model the impact of bank mergers on loan competition, banks' reserve holdings and aggregate liquidity. Banks compete in a differentiated loan market, hold reserves against liquidity shocks, and refinance in the interbank market. A merger creates an internal money market that induces financial cost advantages and may increase reserve holdings. We assess changes in liquidity risk and expected liquidity needs for each bank and for the banking system. Large mergers tend to increase expected aggregate liquidity needs, and thus the liquidity provision by the central bank. Comparative statics suggest that a more competitive environment moderates this effect.
    Keywords: Credit market competition; bank reserves; internal money market; banking system liquidity.
    JEL: D43 G21 G28 L13
    Date: 2003–11
    URL: http://d.repec.org/n?u=RePEc:ecb:ecbwps:20030292&r=ind

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