nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒09‒30
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. CARTEL STABILITY IN A DYNAMIC OLIGOPOLY WITH STICKY PRICES By Hassan Benchekroun; Licun Xue
  2. MERGER PERFORMANCE UNDER UNCERTAIN EFFICIENCY GAINS By Rabah Amir; Effrosyni Diamantoudi; Licun Xue
  3. Mixed Oligopoly Equilibria When Firms' Objectives Are Endogenous By Philippe De Donder; John E. Roemer
  4. Merger Negotiations and Ex-Post Regret By Dennis Gaertner; Armin Schmutzler

  1. By: Hassan Benchekroun; Licun Xue
    Abstract: We study the stability of cartels in a differential game model of oligopoly with sticky prices (Fershtman and Kamien 1987). We show that when firms use closed-loop strategies and the rate of increase of the marginal cost is .small enough., the grand coalition (i.e., when the cartel includes all firms) is stable: it is unprofitable for a .firm to exit the cartel. Moreover, a cartel of 3 firms is stable for any positive rate of increase of the marginal cost: it is not profitable for an insider firm to exit the coalition, nor it is profitable for an outsider firm to join the coalition. When firms use open-loop strategies the grand coalition is never stable; moreover, we show that only a cartel of size 2 can be stable and it is so only when the rate of increase of the marginal cost is large enough.
    JEL: D43 L13 L12 C72
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:mcl:mclwop:2005-08&r=ind
  2. By: Rabah Amir; Effrosyni Diamantoudi; Licun Xue
    Abstract: In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity’s final cost. At > the Bayesian equilibrium, a bilateral merger is profitable provided the non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts. An extensive welfare analysis is conducted, bringing out the key role of effciency gains and the different implications of consumer and social welfare standards.
    JEL: D43 L11 L22
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:mcl:mclwop:2005-07&r=ind
  3. By: Philippe De Donder; John E. Roemer
    Date: 2006–09–22
    URL: http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000436&r=ind
  4. By: Dennis Gaertner (Socioeconomic Institute, University of Zurich); Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: We consider a setting in which two potential merger partners each possess private information pertaining both to the profitability of the merged entity and to stand-alone profits, and investigate the extent to which this private information makes ex-post regret an unavoidable phenomenon in merger negotiations. To this end, we consider ex-post mechanisms, which use both players’ reports to determine whether or not a merger will take place and what each player will earn in each case. When the outside option of at least one player is known, the efficient merger decision can be implemented by such a mechanism under plausible budget-balance requirements. When neither outside option is known, we show that the potential for regret-free implementation is much more limited, unless the budget balance condition is relaxed to permit money-burning in the case of false reports.
    Keywords: Mergers, Mechanism Design, Asymmetric Information, Interdependent Valuations, Efficient Mechanisms
    JEL: D82 L10 G34
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:soz:wpaper:0607&r=ind

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