nep-ind New Economics Papers
on Industrial Organization
Issue of 2007‒11‒03
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Exclusionary Pricing and Rebates When Scale Matters By Liliane Karlinger; Massimo Motta
  2. Regime Shift in Antitrust By Ghosal, Vivek
  3. Duopolistic Competition, Taxes, and the Arm's-Length Principle By Korn, Evelyn; Lengsfeld, Stephan
  4. Mergers and Rivals' Mark-ups: Evidence from European Paper Manufacturers By Rosen Marinov

  1. By: Liliane Karlinger; Massimo Motta
    Abstract: We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers. The incumbent disposes of an installed base, while the entrant has a network of size zero at the outset, and needs to attract a critical mass of buyers to operate. We analyze different price schemes (uniform pricing, implicit price discrimination - or rebates, explicit price discrimination) and show that the schemes which - for given market structure - induce lower equilibrium prices are also those under which the incumbent is more likely to exclude the rival.
    JEL: L11 L14 L42
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:eui:euiwps:eco2007/30&r=ind
  2. By: Ghosal, Vivek
    Abstract: This paper empirically models the longer-run deep-seated shift in intellectual thinking that followed the Chicago School’s criticism of the older antitrust doctrine, the shorter-run driving forces related to switches of the political party in power, merger waves, changes in economic activity and the level of funding and quantifies their impact on enforcement by the Antitrust Division of the U.S. Department of Justice over the period 1958-2002. The key findings are: (1) a distinct regime-shift in antitrust enforcement during the 1970s and, post-regime-shift, there has been a marked compositional change with a quantitatively large increase (decrease) in criminal (civil) antitrust court cases initiated; (2) post-regime-shift, there appears to be a change in the role played by politics with Republicans initiating more (less) criminal (civil) court cases than Democrats and the estimated quantitative effects are large; (3) disaggregating the total number of court cases into the main categories under which they are initiated (price-fixing, mergers, monopolization and restraints-of-trade) shows that individual types of cases have widely differing responses to changes in the driving forces; and (4) in a horse-race between the regime-shift and political effect on one side and the remaining variables on the other, the former forces win hands-down in explaining broad shifts in enforcement. Modeling the longer-run shift and disaggregating the court cases emerge as crucial to gaining insights into the intertemporal shifts in enforcement. The paper elaborates on the causes for the shift in enforcement and on the effectiveness of antitrust.
    Keywords: Antitrust enforcement; regime-shift; politics; supreme court; effectiveness.
    JEL: L40 B00 K00 M20
    Date: 2007–02
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:5460&r=ind
  3. By: Korn, Evelyn; Lengsfeld, Stephan
    Abstract: Numerous (high-tax) countries presume that multinational firms use their transfer-pricing policies to shift profits into countries with lower tax rates. To avoid the corresponding loss in tax revenues, tax authorities develop constantly tightening rules to curb transfer-price distortions. Affected firms include the decision of compliance to these rules into their strategic considerations. In a scenario with arm's-length regulation in two countries, we analyze the transfer-pricing policy of a firm that uses the same transfer price for tax and managerial incentive purposes. Thus, the transfer-pricing policy is driven by three issues: interaction with competitors, minimization of tax burden, and avoidance of punishments. The model shows that tighter transfer-pricing rules may help firms to mitigate competition and to increase their profits and that non-compliance to the arm's-length principle is part of their equilibrium strategy.
    Keywords: transfer prices, taxes, arm's-length principle, one set of books, duopolistic competition, enforcement.
    JEL: H25 L22 M40
    Date: 2007–10
    URL: http://d.repec.org/n?u=RePEc:han:dpaper:dp-378&r=ind
  4. By: Rosen Marinov (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: This paper investigates the effect of merger-driven market concentration on the mark-ups of non-merging rival firms in Europe's paper manufacturing industry. Using a representative data set of 400 independently-owned companies spanning a ten-year period, we aim to disentangle the impact of full-scale mergers and acquisitions from that due to other concentration-increasing developments. We find a positive and statistically significant relationship between price-cost margins and overall industry consolidation, as captured by the Herfindahl-Hirschman and four-firm indexes. However, takeover-related market share amalgamation has a negative impact, albeit of more modest proportions. The latter result seems to be driven by vertical transactions, suggesting that input-side channels, much as product price competition, may explain non-merging firms' mark-up response.
    Keywords: Mergers and acquisitions; Concentration; Mark-up; Competition policy
    Date: 2007–09–16
    URL: http://d.repec.org/n?u=RePEc:gii:giihei:heiwp21-2007&r=ind

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