nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒12‒01
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Market power and product quality: review of the literature By Cinzia COLAPINTO
  2. Linear quadratic games : an overview By Engwerda,Jacob
  3. Contest design and optimal endogenous entry By Fu, Qiang; Lu, Jingfeng
  4. Who writes the rules for hostile takeovers, and why? - The peculiar divergence of US and UK takeover regulations By John Armour; David A. Skeel, Jr.
  5. The long-term operating performance of European mergers and acquisitions By Martynova,Marina; Oosting,Sjoerd; Renneboog,Luc

  1. By: Cinzia COLAPINTO
    Abstract: In this paper we focus on the relation between product quality and information, which let us distinguishing search and experience goods. We show how literature has studied the way firms signalling the high quality of their products/services: introductory discount pricing, strong advertising expenditures or commitment (for instance, warranties). For search goods we consider contributions dealing with a single-product monopolist (Spence 1975, Rochet and Stole 1999, Lambertini 1998,…) and a multiproduct monopolist (Mussa and Rosen 1978), this first simple model has been used extensively by applied theorists studying regulation, auctions, and labor contracts (Katz 1984, Rochet and Stole 2002,…) For experience goods, we mention for instance the lemons model (Akerlof 1970) and no milking condition (Shapiro 1983)
    Keywords: Product quality, search goods, experience goods, advertising and reputation
    JEL: L15
    Date: 2006–11
    URL: http://d.repec.org/n?u=RePEc:mil:wpdepa:2006-35&r=ind
  2. By: Engwerda,Jacob (Tilburg University, Center for Economic Research)
    Abstract: In this paper we review some basic results on linear quadratic differential games. We consider both the cooperative and non-cooperative case. For the non-cooperative game we consider the open-loop and (linear) feedback information structure. Furthermore the effect of adding uncertainty is considered. The overview is based on [9]. Readers interested in detailed proofs and additional results are referred to this book.
    Keywords: linear-quadratic games;Nash equilibrium;affine systems;solvability conditions;Riccati equations
    JEL: C61 C72 C73
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:2006110&r=ind
  3. By: Fu, Qiang; Lu, Jingfeng
    Abstract: This paper derives the effort-maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs. The organizer is allowed to design the contest under a fixed budget with two strategic instruments: he sets the value of the prize purse, and arranges a monetary transfer (entry subsidy or fee) for each participating contestant. In other words, the budget can either be used to subsidize participation or an entry fee can be charged to fund the prize purse. The results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium (when there is a positive fixed entry cost) and extracts all the surplus from participating contestants. The study also shows that the direction and amount of the monetary transfer depend on the magnitude of the entry cost: the contest organizer subsidizes entry when contestants bear substantial entry costs, but charges an entry fee to fund the prize purse whenever the entry cost is sufficiently low.
    Keywords: Contest; Endogenous Entry; Entry Cost; Subsidy; Entry Fee
    JEL: D7 C72
    Date: 2006–11
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:945&r=ind
  4. By: John Armour; David A. Skeel, Jr.
    Abstract: Hostile takeovers are commonly thought to play a key role in rendering managers accountable to dispersed shareholders in the "Anglo-American" system of corporate governance. Yet surprisingly little attention has been paid to the very significant differences in takeover regulation between the two most prominent jurisdictions. In the UK, defensive tactics by target managers are prohibited, whereas Delaware law gives US managers a good deal of room to maneuver. Existing accounts of this difference focus on alleged pathologies in competitive federalism in the US. In contrast, we focus on the "supply-side" of rule production, by examining the evolution of the two regimes from a public choice perspective. We suggest that the content of the rules has been crucially influenced by differences in the mode of regulation. In the UK, self-regulation of takeovers has led to a regime largely driven by the interests of institutional investors, whereas the dynamics of judicial law-making in the US have benefited managers by making it relatively difficult for shareholders to influence the rules. Moreover, it was never possible for Wall Street to "privatize" takeovers in the same way as the City of London, because US federal regulation in the 1930s both pre-empted self-regulation and restricted the ability of institutional investors to coordinate.
    Keywords: Hostile takeovers; History of corporate law; Comparative corporate law; Self-regulation; Institutional investors; Evolution of law; Anglo-American corporate governance
    JEL: G23 G34 G38 K22 N20 N40
    Date: 2006–09
    URL: http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp331&r=ind
  5. By: Martynova,Marina; Oosting,Sjoerd; Renneboog,Luc (Tilburg University, Center for Economic Research)
    Abstract: We investigate the long-term profitability of corporate takeovers of which both the acquiring and target companies are from Continental Europe or the UK. We employ four different measures of operating performance that allow us to overcome a number of measurement limitations of the previous literature, which yielded inconsistent conclusions. Both acquiring and target companies significantly outperform the median peers in their industry prior to the takeovers, but the raw profitability of the combined firm decreases significantly following the takeover. However, this decrease becomes insignificant after we control for the performance of the peer companies which are chosen in order to control for industry, size and pre-event performance. None of the takeover characteristics (such as means of payment, geographical scope, and industry-relatedness) explain the post-acquisition operating performance. Still, we find an economically significant difference in the long-term performance of hostile versus friendly takeovers, and of tender offers versus negotiated deals: the performance deteriorates following hostile bids and tender offers. The acquirer's leverage prior takeover seems to have no impact on the post-merger performance of the combined firm, whereas the acquirer's cash holdings are negatively related to performance. This suggests that companies with excessive cash holdings suffer from free cash flow problems and are more likely to make poor acquisitions. Acquisitions of relatively large targets result in better profitability of the combined firm subsequent to the takeover, whereas acquisitions of a small target lead to a profitability decline.
    Keywords: takeovers;mergers and acquisitions;long-term operating performance; diversification;hostile takeovers;means of payment;cross-border acquisitions; private target
    JEL: G34
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:2006111&r=ind

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