nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒02‒12
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. A GENERALIZED INDEX OF MARKET POWER By Hernán Vallejo G
  2. Entry and Regulation - Evidence from Health Care Professions By Schaumans, Catherine; Verboven, Frank
  3. Anti-Limit Pricing By Byoung Heon Jun; In-Uck Park
  4. Competition Policy and Exit Rates: Evidence from Switzerland By Stefan Buehler; Christian Kaiser; Franz Jaeger
  5. Mergers under Asymmetric Information – Is there a Lemons Problem? By Thomas Borek; Stefan Buehler; Armin Schmutzler

  1. By: Hernán Vallejo G
    Abstract: This paper analyses two approaches to measuring market power –the commonly used Lerner index and a range of exploitation measures-. It is argued that the Lerner index is designed to quantify market power from the supply side, and the exploitation measures are designed to quantify market power from the demand side, and that those two approaches do not always behave in a symmetric way, since they do not always have the same bounds. To sort out these potentially undesirable properties, this paper proposes a new general index to measure market power, which is symmetrical in the sense that it is bounded between cero and one, regardless of whether the market power comes from the supply or the demand side. The index proposed allows for the presence of more than one firm and for the existence of conjectural variations.
    Date: 2005–10–30
    URL: http://d.repec.org/n?u=RePEc:col:001049:002381&r=ind
  2. By: Schaumans, Catherine; Verboven, Frank
    Abstract: The health care professions in Europe have been subject to substantial entry and conduct regulation. Most notably, pharmacies have frequently received high regulated markups over wholesale costs, and have been protected from additional competition through geographic entry restrictions. We develop an entry model to study the direct impact of the regulations on the pharmacies, and the indirect impact on the physicians who provide related services. We study the case of Belgium, which is representative for many other countries with geographic entry restrictions. We find that the entry decisions of pharmacies and physicians are strategic complements. Furthermore, the entry restrictions have directly reduced the number of pharmacies by more than 50%, and indirectly reduced the number of physicians by about 7%. A policy analysis shows that a removal of the entry restrictions, combined with a large reduction in the regulated markups (by between 10-18%, down from the current 28%) would lead to a large shift in rent to consumers, without reducing the geographic coverage of pharmacies throughout the country. These findings show that the public interest motivation for the current regime has no empirical support. Our findings are also relevant in light of the renewed attention by competition authorities to liberalize professional regulation.
    Keywords: entry; professional services; regulation
    JEL: I11 K21 L10 L43
    Date: 2006–01
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5482&r=ind
  3. By: Byoung Heon Jun; In-Uck Park
    Abstract: Extending Milgrom and Roberts (1982) we present an infinite horizon entry model, where the incumbent(s) may use the current price to signal its strength to deter entry. We show that, due to the importance of entrants' types on the post-entry duopoly/oligopoly pro?ts, the incumbent(s) may want to signal its weakness to invite entry of weaker firms. (JEL D42, D43, D82, L11)
    URL: http://d.repec.org/n?u=RePEc:iek:wpaper:2&r=ind
  4. By: Stefan Buehler (Socioeconomic Institute, University of Zurich); Christian Kaiser (University of St. Gallen); Franz Jaeger (University of St. Gallen)
    Abstract: This paper provides evidence on the relation between the intensity of product market competition and the probability of exit. We adopt a natural experiment approach towards analyzing the impact of a tightening of Swiss antitrust legislation on exit probabilities. Based on a sample of more than 68,000 firms from all major sectors of the Swiss economy, we find that the exit probability of nonexporting firms increased significantly, whereas the exit probability of exporting firms remained largely unaffected. Our results support the notion that there is a positive relationship between the intensity of product market competition and the probability of exit.
    Keywords: competition intensity, exit, natural experiment
    JEL: D43 L23 L40
    Date: 2004–03
    URL: http://d.repec.org/n?u=RePEc:soz:wpaper:0405&r=ind
  5. By: Thomas Borek (Department of Mathematics, Swiss Federal Institute of Technology Zurich); Stefan Buehler (Socioeconomic Institute, University of Zurich); Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: We analyze a Bayesian merger game under two-sided asymmetric information about firm types. We show that the standard prediction of the lemons market model–if any, only low-type firms are traded–is likely to be misleading: Merger returns, i.e. the difference between pre- and post-merger profits, are not necessarily higher for low-type firms. This has two implications. First, under very general conditions, equilibria exist where mergers take place, and there is no presumption that there is ineffciently low trade. Second, in these equilibria it is typically not the case that only low-type firms enter an agreement.
    Keywords: merger, asymmetric information, oligopoly, single crossing
    JEL: D43 D82 L13 L33
    Date: 2004–07
    URL: http://d.repec.org/n?u=RePEc:soz:wpaper:0408&r=ind

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