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on Industrial Organization |
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Issue of 2007‒10‒27
twelve papers chosen by |
| By: | Gual, Jordi (IESE Business School) |
| Abstract: | This paper provides a critical analysis of some of the key features of merger policy as understood and practiced in leading jurisdictions such as the European Community and the United States. It focuses first on a discussion of the gradual move of merger policy towards the examination of unilateral effects. The critical appraisal of this process is based on the practical and theoretical shortcomings of the economic models that underlie the growing prominence of unilateral effects as the key anticompetitive factor arising from a proposed merger. The paper stresses that even if unilateral effects were to lead to an increase in the conventional measures of anticompetitive performance (such as markups), it is not clear that this implies less competitive behavior for many of the most relevant industries in today's advanced economies. Finally, the paper also examines the relationship between competition and welfare, and argues that even if competition does indeed diminish due to a merger, it does not necessarily follow that this is not good in terms of economic welfare, when we take fully into consideration the incentives to innovate and the dynamic welfare gains that arise from new products and production processes. |
| Keywords: | Mergers; Antitrust; Competition Policy; |
| Date: | 2007–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0694&r=ind |
| By: | Lukasz Grzybowski (Competition Commission, UK); Pedro Pereira (Autoridade da Concorrencia); |
| Abstract: | This article assesses the unilateral effects on prices of a merger in the Portuguese mobile telephony market. We use aggregate quarterly data from 1999 to 2005 and a nested logit model to estimate the price elasticities of demand and the marginal costs of subscription of mobile telephony. Given these estimates, we simulate the effects of the merger. We find that the available mobile telephony subscription products are close substitutes. The merger may cause substantial price increases, even in the presence of large cost efficiencies. On average, prices increase by 7-10% without cost efficiencies, and by about 6-10% with a 10% marginal cost reduction. |
| Keywords: | lock-in, merger simulation, mobile telephony, nested logit, network effects |
| JEL: | L13 L43 L93 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0712&r=ind |
| By: | Pelnar, Gregory |
| Abstract: | I present an overview of the antitrust literature on sports leagues, with particular emphasis on the National Collegiate Athletic Association, the National Football League, Major League Baseball, the National Basketball Association, and the National Hockey League, as well as on sanctioning organizations such as NASCAR. I review the major antitrust court decisions, the commentaries of the leading antitrust experts on these decisions, and the extensive sports economics literature touching on issues raised in these cases, particularly empirical studies assessing the anticompetitive and procompetitive effects of various league rules and policies. I also review the broader industrial organization literature on issues such as factors affecting the stability of joint ventures. I conclude with a summary of proposals for addressing the monopoly power of sports leagues. |
| Keywords: | antitrust; sports leagues |
| JEL: | L83 L4 L1 |
| Date: | 2007–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5382&r=ind |
| By: | Maarten C.W. Janssen (Tinbergen Institute and Erasmus University); Santanu Roy (Southern Methodist University) |
| Abstract: | Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm's product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more "competitive". Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium. |
| Keywords: | Signaling; Quality; Oligopoly; Incomplete Information. |
| JEL: | L13 L15 D82 D43 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:709&r=ind |
| By: | Ramesh Johari (Management Science and Engineering, Stanford University Author-Workplace-Homepage: http://www.stanford.edu/dept/MSandE/); Gabriel Weintraub (Columbia Business School) |
| Abstract: | In this paper we study the implications of service level guarantees (SLGs) in a model of oligopoly competition where providers compete to deliver a service to congestion-sensitive consumers. The SLG is a contractual obligation on the part of the service provider: regardless of how many customers subscribe, the firm is responsible for investing in infrastructure, capacity, or service quality so that the congestion experienced by all subscribers is equal to the SLG. First, we analyze a game where firms compete by setting prices and SLGs simultaneously. We establish that this game can be reduced to standard oligopoly models of price competition, greatly simplifying the analysis of this otherwise complex competitive scenario. Notably, we find that when costs in the original game are convex, the resulting equivalent pricing game also has convex costs. Further, for a broad class of models exhibiting constant returns to investment, the resulting pricing game is equivalent to a standard price game with constant marginal costs; many loss systems, such as those modeled by the Erlang loss formula, exhibit constant returns to investment. We then consider another commonly used contractual agreement between firms and customers: firms first set prices and investment levels simultaneously, and then consumers choose where to subscribe. In this case, firms provide the best possible service given their infrastructure, but without an explicit guarantee. Using the Nash equilibria of the games played by firms, we compare this competitive model with the model where firms set prices and SLGs, in terms of the resulting prices, service levels, firms' profits, and consumers' surplus. |
| Keywords: | competition, game theory, congestion, contracting, pricing. |
| JEL: | D43 L13 L96 M21 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0721&r=ind |
| By: | Qihong Liu (Department of Economics, University of Oklahoma); Konstantinos Serfes (LeBow College of Business, Drexel University) |
| Abstract: | We examine the profitability and the welfare implications of price discrimination in two-sided markets. Platforms have information about the preferences of the agents that allows them to price discriminate within each group. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. Moreover, it is well-known that the presence of indirect externalities in two-sided markets can intensify the competition. Despite all these, we show that the possibility of price discrimination, in a two-sided market, may actually soften the competition. Therefore, the implications of price discrimination from one-sided markets may not carry over to two-sided markets. This is the case regardless of whether prices are public or private, although private prices boost profits. Our analysis also sheds light on the welfare properties of price discrimination in intermediate goods markets, such as Business-to-Business (B2B) markets. |
| Keywords: | Price discrimination, Two-sided markets, Indirect network externalities, Market segmentation. |
| JEL: | D43 L13 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0725&r=ind |
| By: | Antonio Romero-Medina; Matteo Triossi |
| Abstract: | The paper studies two games of capacity manipulation in hospital-intern markets. The focus is on the stability of Nash equilibrium outcomes. We provide minimal necessary and sufficient conditions guaranteeing the existence of pure strategy Nash Equilibria and the stability of outcomes. |
| Keywords: | Stable Matchings, Capacity, Nash Equilibrium, Cycles. |
| JEL: | C71 C78 D71 D78 J44 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:52&r=ind |
| By: | Robert M. Adams; Dean F. Amel |
| Abstract: | The threat of entry is an important factor in the evaluation of the potential competitive effects of proposed mergers and acquisitions. In the evaluation of proposed bank mergers, a high probability of entry, or strong potential competition, is often found to mitigate the potential anticompetitive effect of a proposed horizontal merger. Because the probability of entry is not directly observed for each local market, variables such as per capita income, population growth and past entry are typically used to predict the probability of future entry. This study extends previous research on the determinants of entry into local banking markets. In addition to variables considered by past research, such as market demographic characteristics, branching deregulation and past merger activity, this study considers the effects on future entry of past entry and strategic barriers to entry, which are proxied by changes in incumbent branching, the presence of small incumbent firms and market concentration. The analysis uses data that allow a broader definition of entry than that used in most past research. In most of the previous studies, bank entry is defined as the creation of a new banking institution. We show that this definition is problematic and misses entry due to branch network extension by existing banks, which is substantial. Results of our analysis are consistent with past research where past research exists. In addition, we find significant negative relationships between strategic barriers to entry and entry. Assessment of the quantitative significance of the results, however, finds that very large changes in the explanatory variables are needed to cause substantial changes in the probability of entry into banking markets. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2007-51&r=ind |
| By: | Nicholas Economides; Joacim Tag |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:07-27&r=ind |
| By: | Lukasz Grzybowski (Competition Commission, UK); Chiraz Karamti (Telecom Paris - ENST); |
| Abstract: | This paper provides an insight into the antitrust investigation initiated by the French competition authority, which found that mobile operators exchanged strategic information and agreed to fix market shares in years the 2000-2002. The empirical analysis is based on the comparison of mobile markets in France and Germany and uses aggregate industry-level data on subscriptions and prices. The penetration of mobile phones at the end of 1999 was higher in France than in Germany, but this situation was reversed by the end of 2002. In the same time period, minimum prices of mobile services in France, computed for a defined low-usage basket, were on average by about 58% lower than the corresponding prices in Germany. The results of binomial logit demand estimation suggest two explanations for this situation. First, there is a significant difference between price elasticities of demand in these two countries. Second, consumers seem to perceive mobile telephony as a substitute to fixed-line connection in France and as a complement in Germany. However, in a separate reduced-form estimation we do not find a significant effect of prices for fixed-line services on mobile prices in either country. Furthermore, the estimation results suggest that the share-fixing agreement in France could have slowed down subscriptions, but we fail to find that it had an adverse effect on prices. |
| Keywords: | mobile telephony, binomial logit, reduced-form, share-fixing |
| JEL: | L13 L43 L93 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0724&r=ind |
| By: | Anirban Sengupta (Texas A&M University); ; |
| Abstract: | Internet presumably reduces search cost driving price to the competitive level. Evidence from empirical research quantifying dispersion in the electronic based markets has yield mixed results. More recent research has documented near zero dispersion in the electronic markets using transaction prices. This paper is one of only a handful of papers to examine the impact of internet on price dispersion using contemporaneous online and offline transaction data for airline ticket prices. The paper finds strong empirical evidence of lower dispersion in the electronic markets compared to the traditional markets, but fails to find evidence of near zero dispersion in the electronic markets, even with transaction prices. The results suggest that electronic markets exhibits significantly lower but positive dispersion, in contrary to the near zero dispersion as found in more recent empirical literature. |
| Keywords: | Price Dispersion, Search cost, Online, Offline, Transaction Prices |
| JEL: | L9 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0726&r=ind |
| By: | Itai Ater (Stanford University, Economics Department); ; |
| Abstract: | Empirical research on the relationship between market congestion and the market competitive level largely falsifies the positive relationship predicted by theoretical models. In this paper, I exploit the airline industry network structure and focus on the level of congestion during periods in which passengers cross-connect to their final destinations. About 70% of hub airport flights depart or land during these periods. The empirical analysis establishes a strong positive relationship. Furthermore, based on a simple theoretical model, I am able to quantify the potential time savings from eliminating congestion externalities and find that, on average, a flight can save 2 minutes of flight time at its departing airport and another 1.5 minutes at its destination airport. I also find that airlines choose to pad their schedule particularly on competitive routes, presumably to attract uninformed passengers. JEL classification: L93; R41; |
| Keywords: | Congestion; Air Transportation; |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0728&r=ind |