nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒09‒24
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets By Eric Rasmusen; Young-Ro Yoon
  2. Collective Reputation, Professional Regulation and Franchising By Robert Evans; Timothy W Guinnane
  3. Do Gasoline Prices Resond Asymmetrically to Cost Shocks? The Confounding Effect of Edgeworth Cycles By Michael Noel
  4. Partnerships vs. Firms Entry Strategies By Michele Moretto; Gianpaolo Rossini
  5. Remedy for Now but Prohibit for Tomorrow: The Deterrence Effects of Merger Policy Tools By Barros, Pedro Pita; Clougherty, Joseph A; Seldeslachts, Jo
  6. Do Mergers of Potentially Dominant Firms foster Innovation? An Empirical Analysis for the Manufacturing Sector By Elena Cefis; Anna Sabidussi; Hans Schenk
  7. The Role of Innovation in Merger Policy: Europe’s Efficiency Defence versus America’s Innovation Markets Approach By Elena Cefis; Mark Grondsma; Anna Sabidussi; Hans Schenk

  1. By: Eric Rasmusen (Indiana University Bloomington); Young-Ro Yoon (Indiana University Bloomington)
    Abstract: Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served.
    Keywords: Market Entry, First- and Second Mover Advantage, Payoff Externalities, Informational Externalities, Endogenous Timing
    JEL: D81 D82 L13
    Date: 2007–09
    URL: http://d.repec.org/n?u=RePEc:inu:caeprp:2007017&r=ind
  2. By: Robert Evans; Timothy W Guinnane
    Date: 2007–09–17
    URL: http://d.repec.org/n?u=RePEc:cla:levrem:122247000000001563&r=ind
  3. By: Michael Noel (Department of Economics, University of California - San Diego)
    Abstract: Asymmetric price cycles which look similar to Edgeworth Cycles are appearing in increasingly many retail gasoline markets in the U.S. and worldwide. The cycles can give the appearance of asymmetric prices responses to cost shocks under traditional methodologies. This article shows how to remove the confounding effect of the cycles and test for any true underlying asymmetry in price responses. Designing the correct counterfactual is key. The methodology is demonstrated for one strongly cycling market and some asymmetry to cost shocks is found. Covert collusion is unlikely, but the ability to coordinate cyclical price increases may play a role. Consumers can still reduce xpenditures on gasoline up to 7.7% with simple timing rules of thumb.
    Keywords: Price cycles,
    Date: 2007–06–05
    URL: http://d.repec.org/n?u=RePEc:cdl:ucsdec:2007-04&r=ind
  4. By: Michele Moretto (Università di Padova); Gianpaolo Rossini (Università di Bologna)
    Abstract: From 1997 to 2001 we observe a faster growth in the number of Nonemployer businesses (mostly Partnerships) vis-à-vis Firms in the USA, a country with the mildest asymmetries between the two types of enterprise with respect to taxation, administrative entry barriers and other institutional aspects. The different speed of net entry may be due to the internal organisation of the two types of enterprise and its relation to some market features. In a continuous time stochastic environment, with sunk costs, we model entry as a growth option. Partnerships and Firms display speci…c entry patterns in terms of output price and size since they react in diverse fashions to market uncertainty. In most cases, the Partnership is less risky and better suited to enter under conditions of high volatility, as during the years between 1997 and 2001.
    Keywords: Entry Strategies, Uncertainty, Partnership, Firm
    JEL: L21 L3 J54 G13
    Date: 2007–09
    URL: http://d.repec.org/n?u=RePEc:pad:wpaper:0049&r=ind
  5. By: Barros, Pedro Pita; Clougherty, Joseph A; Seldeslachts, Jo
    Abstract: Antitrust policy involves not just the regulation of anti-competitive behavior, but also an important deterrence effect. Neither scholars nor policymakers have fully researched the deterrence effects of merger policy tools, as they have been unable to empirically measure these effects. We consider the ability of different antitrust actions – Prohibitions, Remedies, and Monitorings – to deter firms from engaging in mergers. We employ cross-jurisdiction/pan-time data on merger policy to empirically estimate the impact of antitrust actions on future merger frequencies. We find merger prohibitions to lead to decreased merger notifications in subsequent periods, and remedies to weakly increase future merger notifications: in other words, prohibitions involve a deterrence effect but remedies do not.
    Keywords: antitrust; deterrence; merger policy; remedies
    JEL: K21 L40 L49
    Date: 2007–08
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6437&r=ind
  6. By: Elena Cefis; Anna Sabidussi; Hans Schenk
    Abstract: We investigate the effects of M&A on innovation in the specific context of potential or realized market dominance. Authorities are challenged by balancing both detrimental and beneficial effects of mergers on innovation, especially when a merger threatens to result in market dominance, while firms would wish to uncover all the potential benefits arising from M&A. The effects of M&As on innovation have been tested on a panel dataset, constructed from the Dutch Community Innovation Survey and the Dutch Business Register, including around 1000 manufacturing companies. We have adopted a comprehensive approach, taking into consideration three dimensions of innovation: innovation inputs, innovation outputs and efficiency. The results show that M&As performed in the previous 3-5 years have a positive and significant effect on innovation except R&D expenses and innovation efficiencies. The results also suggest that technological regimes are critical to understanding the patterns of innovation.
    Keywords: Mergers and Acquisitions, Innovation, Market Dominance
    JEL: C14 D21 L11 L25
    Date: 2007–09
    URL: http://d.repec.org/n?u=RePEc:use:tkiwps:0720&r=ind
  7. By: Elena Cefis; Mark Grondsma; Anna Sabidussi; Hans Schenk
    Abstract: Changes in the world’s economies and discussions in the literature about the growing importance of innovation to firms have given rise to a demand for expanding the analysis of merger policy. The present study focuses on the different criteria used to assess the impact of M&A activities on innovation. The analysis is both theoretical and empirical. From a theoretical perspective, two main approaches are discussed: the efficiency defence approach, adopted in Europe, and the innovation markets doctrine as developed in the United States. The present paper contributes to the literature by suggesting that an integration of the two approaches would significantly improve M&A assessment. On the empirical side, two cases that have been scrutinised by both the European Commission and the U.S. Federal Trade Commission are discussed. The results show the relevance of the different approaches used when dealing with innovation in the assessment of mergers.
    Keywords: Mergers and Acquisitions, Innovation, Efficiency Defence
    JEL: C14 D21 L11 L25
    Date: 2007–09
    URL: http://d.repec.org/n?u=RePEc:use:tkiwps:0721&r=ind

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