nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒01‒02
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merge and Compete. Strategic incentives for vertical integration By Filippo VERGARA CAFFARELLI
  2. Competition for Viewers and Advertisers in a TV Oligopoly By Hans Jarle Kind; Tore Nilssen; Lars Sørgard
  3. Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers By Fridolfsson, Sven-Olof; Stennek, Johan
  4. Licensing Complementary Patents and Vertical Integration By Schmidt, Klaus M.
  5. Red Tape and Delayed Entry By Ciccone, Antonio; Papaioannou, Elias
  6. Are Airlines' Price-Setting Strategies Different? By Volodymyr Bilotkach; Yuriy Gorodnichenko; Oleksandr Talavera; Igor Zubenko
  7. Eat or be eaten: a theory of mergers and firm size By Gary Gorton; Matthias Kahl; Richard J. Rosen
  8. Last-in first-out oligopoly dynamics By Jaap H. Abbring; Jeffrey R. Campbell
  9. Oligopoly dynamics with barriers By Jaap H. Abbring; Jeffrey R. Campbell
  10. How Much Collusion. A Meta-Analysis On Oligopoly Experiments By Christoph Engel

  1. By: Filippo VERGARA CAFFARELLI (Bank of Italy)
    Abstract: Vertical integration followed by quantity competition is studied. In the first stage of the game downstream firms simultaneously decide whether to integrate with one of the upstream suppliers. If firms are not able to observe whether their vertically integrated competitor enters the intermediate-good market then they are indifferent about vertical integration. If the entry choice of the integrated firm is observable then the unique equilibrium involves vertical integration and in-house production of the intermediate good. The importance of entry observability sheds light on the strategic importance of information exchange institutions such as the internet and business fairs.
    Keywords: Vertical integration, Cournot competition, Market entry
    JEL: L13 L22
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:bdi:wptemi:td_608_06&r=ind
  2. By: Hans Jarle Kind; Tore Nilssen; Lars Sørgard
    Abstract: We consider a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. We show that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. We also find that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.
    Keywords: television industry, advertising
    JEL: L82 M37
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1862&r=ind
  3. By: Fridolfsson, Sven-Olof; Stennek, Johan
    Abstract: There is diverging empirical evidence on the competitive effects of horizontal mergers: consumer prices (and thus presumably competitors' profits) often rise while competitors' share prices fall. Our model of endogenous mergers provides a possible reconciliation. It is demonstrated that anticompetitive mergers may reduce competitors' share prices, if the merger announcement informs the market that the competitors' lost a race to buy the target. Also the use of 'first rumour' as an event may create similar problems of interpretation. We also indicate how the event-study methodology may be adapted to identiy competitive effects and thus, the welfare consequences for consumers.
    Keywords: antitrust; coalition formation; event studies; in-play; mergers & acquisitions
    JEL: G14 G34 L12 L41
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5977&r=ind
  4. By: Schmidt, Klaus M.
    Abstract: In this paper we investigate the pricing incentives of IP holders and compare the equilibrium royalty rates charged by vertically integrated IP holders with those of non- integrated IP holders. We show that under many circumstances non-integrated companies are likely to charge lower royalties than their vertically integrated counterparts. The results of this paper are of special relevance for the analysis of competition in CDMA and WCDMA technology licensing, where some IP holders are not vertically integrated into handset and infrastructure manufacturing, while others are.
    Keywords: complementary patents; IP rights; licensing; vertical integration
    JEL: D43 L15 L41
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5987&r=ind
  5. By: Ciccone, Antonio; Papaioannou, Elias
    Abstract: Does cutting red tape foster entrepreneurship in industries with the potential to expand? We address this question by combining the time needed to comply with government entry procedures in 45 countries with industry-level data on employment growth and growth in the number of establishments during the 1980s. Our main empirical finding is that countries where it takes less time to register new businesses have seen more entry in industries that experienced expansionary global demand and technology shifts. Our estimates take into account that proxying global industry shifts using data from only one country--or group of countries with similar entry regulations--will in general yield biased results.
    Keywords: entry; entry regulation; globally expanding industries
    JEL: E6 F43 L16
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:5996&r=ind
  6. By: Volodymyr Bilotkach; Yuriy Gorodnichenko; Oleksandr Talavera; Igor Zubenko
    Abstract: Using a sample of fare quotes for non-stop travel from New York to London, this paper investigates the dynamics of offered fares as the departure date nears. We find that the general trend is toward fare increase at an accelerated rate as the departure date approaches. Clear differences in price-setting strategies among the carriers competing on a particular route are documented.
    Keywords: airline industry, price dynamics
    JEL: L93 D21
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp645&r=ind
  7. By: Gary Gorton; Matthias Kahl; Richard J. Rosen
    Abstract: We propose a theory of mergers that combines managerial merger motives and a regime shift that may lead to some value- increasing merger opportunities. Anticipation of the regime shift can lead to mergers, either for defensive or positioning reasons. Defensive mergers occur when managers acquire other firms to avoid being acquired themselves. Mergers may also allow a firm to position itself as a more attractive takeover target and earn a takeover premium. The identity of acquirers and targets and the profitability of acquisitions depend, among other factors, on the distribution of firm sizes within an industry.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-14&r=ind
  8. By: Jaap H. Abbring; Jeffrey R. Campbell
    Abstract: This paper extends the static analysis of oligopoly structure into an infinite- horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first- out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms’ equilibrium entry and survival decisions. Bresnahan and Reiss’s (1993) empirical analysis of oligopolists’ entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game- theoretic foundation for that structure.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-28&r=ind
  9. By: Jaap H. Abbring; Jeffrey R. Campbell
    Abstract: This paper considers the effects of raising the cost of entry for potential competitors on infinite-horizon Markov- perfect industry dynamics with ongoing demand uncertainty. All entrants serving the model industry incur sunk costs, and exit avoids future fixed costs. We focus on the unique equilibrium with last- in first-out expectations: a firm never exits before a younger rival does. When an industry can support at most two firms, we prove that raising barriers to a second producer’s entry increases the probability that some firm will serve the industry and decreases its long-run entry and exit rates. In numerical examples with more than two firms, imposing a barrier to entry stabilizes industry structure.
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-29&r=ind
  10. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Oligopoly has been among the first topics in the experimental economics. Over half a century, some 150 papers have been published. Each individual paper was interested in demonstrating one effect. But in order to do so, experimenters had to specify many more parameters. That way they have generated a huge body of evidence, untapped thus far. This meta-analysis makes this evidence available. More than 100 of the papers lend themselves to calculating an index of collusion. The data bank behind this paper covers some 700 different settings. The experimental results may be normalised as a percentage of the span between the Walrasian and the Pareto outcomes. The same way, results may be expressed as a percentage of the distance between the Nash and the Pareto outcomes. For each and every of the parameters, these two indices make it possible to answer two questions: how far is the market outcome away from the competitive equilibrium? And how good is the Nash prediction? Most importantly, however, the meta-analysis sheds light on how features of the experimental setting interact with each other. Most main effects and many interaction effects are indeed statistically significant.
    Keywords: oligopoly, collusion, unilateral effect, experiment
    JEL: C91 D21 D43 K21 L13 L41
    Date: 2006–12
    URL: http://d.repec.org/n?u=RePEc:mpg:wpaper:2006_27&r=ind

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