nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒11‒18
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mergers and Government Policy By Margarita Sapozhnikov
  2. Upstream Horizontal Mergers, Bargaining and Vertical Contracts By Chrysovalantou Miliou; Emmanuel Petrakis
  3. Downstream Research Joint Venture with Upstream Market Power By Constantine Manasakis; Emmanuel Petrakis
  4. Cartels and Search By Ireland, Norman; Waterson, Michael
  5. Reference Pricing of Pharmaceuticals By Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
  6. Demand Elasticity and Market Power in the Spanish Electricity Market By Aitor Ciarreta; Maria Paz Espinosa

  1. By: Margarita Sapozhnikov (Boston College)
    Abstract: It has long been thought that government antitrust policy has an effect on aggregate merger and acquisition activity, but the empirical support for this hypothesis has been weak and inconsistent. This paper uses a new empirical specification and a new dataset on mergers and acquisitions to provide support for this conjecture. Regression analysis shows that government policy has a significant influence on mergers and that the nature of the effects depends on the type of merger. Fitting the time series into a two-state Markov switching model shows that conglomerate and horizontal time series fol low different dynamics for the last half century, which is most likely caused by the dissimilar treatment of the two types of merger by the government. Only the conglomerate merger and acquisition time series is well described by a two-state Markov switching model. In contrast, the horizontal time series has a break in the early 1980s that may be attributed to the dramatic change in government policy.
    Keywords: Antitrust enforcement, mergers and acquisitions, time series models, Markov switching
    JEL: L40 K21 C32 C50
    Date: 2006–11–14
    URL: http://d.repec.org/n?u=RePEc:boc:bocoec:656&r=ind
  2. By: Chrysovalantou Miliou (Department of Economics, Universidad Carlos III de Madrid, Calle Madrid 126, Getafe (Madrid)); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains.
    Keywords: horizontal mergers; bargaining; vertical relations; two-part tariffs; wholesale
    JEL: L41 L42 L22
    Date: 2005–03
    URL: http://d.repec.org/n?u=RePEc:crt:wpaper:0509&r=ind
  3. By: Constantine Manasakis (Department of Economics, University of Crete, Greece); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: In this paper, we examine how the structure of an imperfectly competitive input market affects final-good producers’ incentives to form a Research Joint Venture (RJV), in a differentiated duopoly where R&D investments exhibit spillovers. Although a RJV is always profitable, downstream firms’ incentives for R&D cooperation are non-monotone in the structure of the input market, with incentives being stronger under a monopolistic input supplier, whenever spillovers are low. In contrast to the hold-up argument, we also find that under non-cooperative R&D investments and weak free-riding, final-good producers invest more when facing a monopolistic input supplier, compared with investments under competing vertical chains. Integrated innovation and competition policies are also discussed.
    Keywords: Oligopoly; Process Innovations, Research Joint Ventures
    JEL: L13 O31
    Date: 2005–09
    URL: http://d.repec.org/n?u=RePEc:crt:wpaper:0513&r=ind
  4. By: Ireland, Norman (University of Warwick); Waterson, Michael (University of Warwick)
    Abstract: This paper unifies two significant but somewhat contradictory ideas. First, search costs potentially influence market price equilibria significantly; in many equilibria consumers do not search despite above-competitive prices. Second, cartels must guard against individual members offering lower prices, thereby creating incentives for consumers to search. We develop a simple framework, and then an example, in which whether search takes place depends upon the magnitude of search costs. Three potential equilibria result, dependent upon model parameters. These include a tacit cartel agreement exhibiting price variance and volatility. A policy conclusion is that such market characteristics do not always guarantee non-cartelisation.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:wrk:warwec:770&r=ind
  5. By: Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
    Abstract: We consider a therapeutic market with potentially three pharmaceutical firms. Two of the firms offer horizontally differentiated brand-name drugs. One of the brand-name drugs is a new treatment under patent protection that will be introduced if the profits are sufficient to cover the entry costs. The other brand-name drug has already lost its patent and faces competition from a third firm offering a generic version perceived to be of lower quality. This model allows us to compare generic reference pricing (GRP), therapeutic reference pricing (TRP), and no reference pricing (NRP). We show that competition is strongest under TRP, resulting in the lowest drug prices (and medical expenditures). However, TRP also provides the lowest profits to the patent-holding firm, making entry of the new drug treatment least likely. Surprisingly, we find that GRP distorts drug choices most, exposing patients to higher health risks.
    Keywords: pharmaceuticals, reference pricing, product differentiation
    JEL: I11 L13 L51 L65
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1825&r=ind
  6. By: Aitor Ciarreta (Departamento de Fundamentos del Analisis Economico II, Universidad del Pais Vasco); Maria Paz Espinosa (Departamento de Fundamentos del Analisis Economico II, Universidad del Pais Vasco)
    Abstract: In this paper we check whether generators' bid behavior at the Spanish wholesale electricity market is consistent with the hypothesis of pro?fit maximization on their residual demands. Using OMEL data, we ?find the arc-elasticity of the residual demand around the system marginal price. The results suggest that the larger ?firms are not actually pro?fit-maximizing on their residual demands while smaller generators' behavior is consistent with profit maximization. We argue how the regulatory environment may drive these results. Finally, we repeat the analysis for the ?first session of the intra-day market where presumably ?firms may not have the same incentives as in the day-ahead market
    Keywords: market power, electricity market, residual demand elasticity, pro?fit maximization
    JEL: L11 L13 L51
    Date: 2006–07
    URL: http://d.repec.org/n?u=RePEc:bbe:wpaper:200606&r=ind

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