nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒04‒29
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Advertising, Entry Deterrence, and Industry Innovation By Shi Qi
  2. Strategic aspects of bundling By Marion PODESTA
  3. Competition and Quality in Regulated Markets: a Differential-Game Approach By Brekke, Kurt Richard; Cellini, Roberto; Siciliani, Luigi; Straume, Odd Rune
  4. A Theory of Regular Markov Perfect Equilibria in Dynamic Stochastic Games: Genericity, Stability, and Purification By Doraszelski, Ulrich; Escobar, Juan
  5. Settlement in Merger Cases: Remedies and Litigation By Bertrand Chopard; Thomas Cortade; Andreea Cosnita
  6. Genetic Codes of Mergers, Post Merger Technology Evolution and Why Mergers Fail By Alexander Cuntz
  7. Aftermarket Power and Basic Market Competition By Cabral, Luís M B
  8. Bank mergers and the dynamics of deposit interest rates By Craig, Ben R.; Dinger, Valeriya
  9. Determinants of Competitiveness of the Indian Auto Industry By Badri Narayanan G; Pankaj Vashisht

  1. By: Shi Qi
    Date: 2008–04–18
    URL: http://d.repec.org/n?u=RePEc:cla:levrem:122247000000002137&r=ind
  2. By: Marion PODESTA
    Abstract: The increase of bundle supply has become widespread in several sectors (for instance in telecommunications and energy fields). This paper review relates strategic aspects of bundling. The main purpose of this paper is to analyze profitability of bundling strategies according to the degree of competition and the characteristics of goods. Moreover, bundling can be used as price discrimination tool, screening device or entry barriers. In monopoly case bundling strategy is efficient to sort consumers in different categories in order to capture a maximum of surplus. However, when competition increases, the profitability on bundling strategies depends on correlation of consumers reservations values.
    Keywords: Product bundling, foreclosure, price discrimination
    JEL: D21 D43 L13
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:mop:credwp:08.03.74&r=ind
  3. By: Brekke, Kurt Richard; Cellini, Roberto; Siciliani, Luigi; Straume, Odd Rune
    Abstract: We investigate the effect of competition on quality in regulated markets (e.g., health care, higher education, public utilities) taking a differential game approach, in which quality is a stock variable. Using a Hotelling framework, we derive the open-loop solution (providers commit to an optimal investment plan at the initial period) and the feedback closed-loop solution (providers move investments in response to the dynamics of the states). If the marginal provision cost is constant, the open-loop and closed-loop solutions coincide, and the results are similar to the ones obtained by static models. If the marginal provision cost is increasing, investment and quality are lower in the closed-loop solution: in fact, quality drops to the minimum level in steady state, implying that quality competition is effectively eliminated. In this case, static models tend to exaggerate the positive effect of competition on quality. Our results can explain the mixed empirical evidence on competition and quality for regulated markets.
    Keywords: Competition; Quality; Regulated markets
    JEL: H42 I11 I18 L13
    Date: 2008–04
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6801&r=ind
  4. By: Doraszelski, Ulrich; Escobar, Juan
    Abstract: This paper develops a theory of regular Markov perfect equilibria in dynamic stochastic games. We show that almost all dynamic stochastic games have a finite number of locally isolated Markov perfect equilibria that are all regular. These equilibria are essential and strongly stable. Moreover, they all admit purification.
    Keywords: computation; dynamic stochastic games; essentiality; estimation; finiteness; genericity; Markov perfect equilibrium; purifiability; regularity; repeated games; strong stability
    JEL: C61 C62 C73
    Date: 2008–04
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6805&r=ind
  5. By: Bertrand Chopard; Thomas Cortade; Andreea Cosnita
    Abstract: This paper performs a pre-trial settlement analysis for the negotiation of asset divestitures in merger control cases. Taking into account the asymmetric information between the competition agency and the merging firms concerning the true competition impact of the merger, we examine the impact on the likelihood of settlement divestiture and the divestiture amount in equilibrium of various factors, such as the transfer rate of the merger’s cost savings, the severity of the appeal court, as well as the bargaining power of the merging partners in the sale of the divested assets.
    Keywords: out-of-court settlement, merger control, divestitures, asymmetric information
    JEL: K21 L41 D82
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:drm:wpaper:2008-10&r=ind
  6. By: Alexander Cuntz
    Abstract: This paper addresses the key determinants of merger failure, in par- ticular the role of innovation (post-merger performance) and technology (ex-ante selection) when rms decide to separate. After a brief review of the existing literature we introduce a model of process innovation where merged firms exibit intra-merger spillover of knowledge under different mar- ket regimes, depending on whether firms integrate vertically or horizontally. Secondly, we describe an ideal matching pattern for ex-ante selection cri- teria of technological partnering, abstracting from nancial market power issues. In a final section we test the model implications for merger failure for M&A data from the US biotechnology industry in the 90s. We find that post-merger innovation performance, in particular with large spillovers, in- creases the probability of survival, while we have no evidence that market power effects do so in long run. Additionally, we find extensive technology sourcing activity by firms (already in the 90s) which contradicts the notion of failure and suits well the open innovation paradigm.
    Keywords: merger failure, innovation performance, technology, matching, open innovation, biotechnology
    JEL: O30 L22 L25 C78 L65
    Date: 2008–04
    URL: http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2008-029&r=ind
  7. By: Cabral, Luís M B
    Abstract: I revisit the relation between aftermarket power and basic market competition. I consider an infinite period model with overlapping consumers: in each period, one consumer is born and joins one of the existing installed bases, then aftermarket payoffs are received by sellers and consumers, then finally one consumer dies. I derive the unique symmetric Markov equilibrium of this game and the resulting stationary distribution over states (each firm's installed base). I show that an increase in aftermarket power increases the extent of increasing dominance (i.e., a large firm is increasingly more likely to capture a new consumer than a small firm). This in turn leads to several implications of aftermarket power. First, the stationary distribution places greater weight on asymmetric states. Second, social welfare is greater. Third, under some conditions consumer welfare is also greater. Fourth, the value of a firm with zero installed base is lower, and so barriers to entry are higher.
    Keywords: aftermarkets; dynamic price competition; market power
    JEL: L1 L4
    Date: 2008–04
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6802&r=ind
  8. By: Craig, Ben R.; Dinger, Valeriya
    Abstract: Despite extensive research interest in the last decade, the banking literature has not reached a consensus on the impact of bank mergers on deposit rates. In particular, results on the dynamics of deposit rates surrounding bank mergers vary substantially across studies. In this paper, we aim for a comprehensive empirical analysis of a bank merger’s impact on deposit rate dynamics. We base the analysis on a unique dataset comprising deposit rates of 624 US banks with a monthly frequency for the time period 1997-2006. These data are matched with individual bank and local market characteristics and the complete list of bank mergers in the US. The data allow us to track the dynamics of bank mergers while controlling for the rigidity of the deposit rates and for a range of merger, bank and local market features. An innovation of our work is the introduction of an econometric approach of estimating the change of the deposit rates given their rigidity.
    Keywords: Deposit rate dynamics, bank mergers, deposit rate rigidity
    JEL: G21 L11
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:zbw:bubdp2:7218&r=ind
  9. By: Badri Narayanan G (Indian Council for Research on International Economic Relations); Pankaj Vashisht (Indian Council for Research on International Economic Relations)
    Abstract: This paper analyses the determinants of competitiveness of auto industry in India, based on a field survey and a quantitative analysis of secondary data. It highlights that all segments of Indian auto sector are growing at a fairly high rates and their productivity as well as export intensity is on the rise. Domestic sales are rising, but they have declined in certain sub-segments of vehicles. However, the R&D expenditure has been scarce. Effective rate of protection of automobile assembly is far higher than that of auto-components manufacturing. Unorganised sector, which is quite significant in auto-component manufacturing, has grown more rapidly in the urban areas than in the rural areas. The econometric analysis suggests various measures that could be taken by the government, particularly, the credit facilitation for SMEs. A field survey comprising auto manufacturers in India underlines various constraints faced by the sector, such as the shortage of skilled manpower along with poor infrastructure, fluctuating steel prices and unavailability of land at reasonable price. This suggests that the government could facilitate the industry in becoming more competitive by taking steps such as structural fiscal reforms, cut in import duties of raw materials and capital goods, promotion of R&D and FDI, training facilities, research-backed negotiations of FTAs, roadmap for harmonising emission norms across the country and infrastructure improvement. Industry, on the other hand, should improve its R&D capabilities and market research.
    Keywords: Indian Auto Industry, Competitiveness, Efficiency and Indian Auto Policy
    JEL: L62 F14 O25 D24
    Date: 2008–01
    URL: http://d.repec.org/n?u=RePEc:ind:icrier:201&r=ind

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