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on Industrial Organization |
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Issue of 2007‒02‒17
four papers chosen by |
| By: | Lapan, Harvey E.; Hennessy, David A. |
| Abstract: | Model invariances have been used extensively to understand welfare and conduct consequences of firm heterogeneity in a one-product Cournot oligopoly. Nothing is known about the richer and more realistic context of firm heterogeneity in multi-product Cournot oligopoly. In this note, welfare in a two-product Cournot oligopoly is shown to increase (decrease) with an increase in correlation between unit costs when the outputs complement (substitute) in demand. A more qualified correlation structure is required for the result to apply in a three-product Cournot oligopoly when products complement in demand. |
| Keywords: | Arrangement increasing; Complementarity; Invariance |
| Date: | 2007–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12720&r=ind |
| By: | Hashmi, Aamir Rafique; Van Biesebroeck, Johannes |
| Abstract: | The question that how market structure and innovation are related has been extensively studied in the literature. However, there is hardly any notable study on this question for the global automobile industry. We fill this gap by studying the relationship between market structure and innovation in the global automobile industry for the 1980-2005 period. We use the dynamic industry framework of Ericson and Pakes (Review of Economic Studies, 1995) and estimate the parameters of the model using a two-step procedure proposed by Bajari et al (Econometrica, forthcoming). Since the global auto industry has seen a lot of consolidation since 1980, mergers are an important ingredient of our model. After estimating the parameters of the model, we simulate the industry forward and study how changing market structure (mainly due to mergers) affects innovative activity at the firm as well as the industry level. Our findings are the following. (1) The effect of market structure on innovation in the global auto industry depends on the initial state of the industry. If the industry is not very concentrated, as it was in 1980, some consolidation may increase the innovative activity. However, if the industry is already concentrated, as in 2005, further consolidation may reduce the innovation incentives. (2) Mergers reduce the value of merging firms though they may increase the aggregate value of the industry. (3) Mergers between big firms eventually reduce consumers' utility. |
| Keywords: | Competition and Innovation; Automobile Industry; Dynamic Games |
| JEL: | O31 L62 L13 |
| Date: | 2007–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:1787&r=ind |
| By: | Granier, L.; Trinquard, S. |
| Abstract: | After patent expirations in pharmaceutical markets, brand-name laboratories are threatened by generic firms'entry. To fill the gap in the theoretical literature on this topic, we study brand-name .rms.incentives either to deter entry, or to merge with the entrant. These strategies are considered along with the possibility of the brandname firm producing its own generic drug, called a pseudo-generic drug. Using a vertical differentiation model with Bertrand-Stackelberg competition, we show that each strategy, merging and deterring entry, may be Nash equilibrium, according to the generic firm's setup cost level and to the rate of discount. |
| Keywords: | barriers, endogenous mergers, limit pricing, pharmaceuticals, pseudo- |
| JEL: | I11 L12 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mop:lasrwp:2007.21&r=ind |
| By: | Roberto Fontana; Lionel Nesta (Observatoire Français des Conjonctures Économiques) |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0702&r=ind |