nep-ind New Economics Papers
on Industrial Organization
Issue of 2006‒12‒09
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Monopolist’s Blues By Fabrizio Adriani; Luca G. Deidda
  2. Mergers of Equals and Unequals By Valerie Smeets; Kathryn Ierulli; Michael Gibbs

  1. By: Fabrizio Adriani; Luca G. Deidda
    Abstract: We consider the problem of trade between a price setting party who has private information about the quality of a good and a price taker who may also have private information. We restrict attention to the case in which, under full information, it is efficient to trade only a subset of all qualities. In particular, we assume that trading a low (high) quality is inefficient when the seller (buyer) sets the price. We show that there is a unique equilibrium outcome passing Cho and Kreps (1987) “Never a Weak Best Response”. The refined outcome is always characterized by no trade, although trade would be mutually beneficial in some state of nature. This occurs: 1. Even if the price taker has more precise information than the price setting party, and 2. Even when the information received by both parties is almost perfect. Both results imply that there are inefficiencies due to price setting that are not present in standard markets with adverse selection. We find that the price setting party can always increase her profits through ex-ante delegation of the price choice to an uninformed third party. We discuss applications to professional bodies and the market for unskilled labor.
    Keywords: Market for Lemons, Signaling, Two-Sided Asymmetric Information, Professional Bodies, Trade Unions, Market Breakdown.
    JEL: D4 D8 L15
    Date: 2006
  2. By: Valerie Smeets (Universidad Carlos III de Madrid and CCP); Kathryn Ierulli (University of Chicago); Michael Gibbs (University of Chicago and IZA Bonn)
    Abstract: We examine the dynamics of post-merger organizational integration. Our basic question is whether there is evidence of conflict between employees from the two merging firms. Such conflict can arise for several reasons, including firm-specific human capital, corporate culture, power, or favoritism. We examine this issue using a sample of Danish mergers. Controlling for other effects, employees from the acquirer fare better than employees from the acquired firm, suggesting that they have greater power in the newly merged hierarchy. As a separate effect, the more that either firm dominates the other in terms of number of employees, the better do its employees fare compared to employees from the other firm. This suggests that majority / minority status is also important to assimilation of workers, much as in ethnic conflicts. Finally, greater overlap of pre-merger operations decreases turnover. This finding is inconsistent with the view that workers of the two firms substitute for each other, creating efficiencies from merger. However, that result and our other findings are consistent with the view that more similar workers (in terms of either firm- or industry-specific human capital) are easier to integrate post merger.
    Keywords: mergers, internal organization, conflicts
    JEL: M5 G34 J63 M14
    Date: 2006–11

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