nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒06‒21
eleven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains By Christos Cabolis; Constantine Manasakis; Emmanuel Petrakis
  2. The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger By Clougherty, Joseph A; Duso, Tomaso
  3. How Demand Information Can Destabilize a Cartel By Liliane Karlinger
  4. Impact of Japanese Mergers on Shareholder Wealth: An Analysis of Bidder and Target Companies By Mehrotra, V.; Schaik, D. van; Spronk, J.; Steenbeek, O.W.
  5. Post Merger Innovative Patterns in Small and Medium Firms By Elena Cefis; Mihaela-Livia Ghita
  6. From Overt to Tacit Collusion By Jeroen Hinloopen; Adriaan Soetevent
  7. Bertrand Competition with Non-rigid Capacity Constraints By Prabal, Roy Chowdhury
  8. Sequential Screening and Renegotiation By Reiche, S.
  9. Does the Quality of Store Brands Affect the Number of National Brand Suppliers? By Daunfeldt, Sven-Olov; Orth, Matilda; Rudholm, Niklas
  10. Optimal ownership in joint ventures with contributions of asymmetric partners By Marinucci, Marco
  11. Domestic Rivalry and Export Performance: Theory and Evidence from International Airline Markets By Clougherty, Joseph A; Zhang, Anming

  1. By: Christos Cabolis (ALBA Graduate Business School); Constantine Manasakis (Department of Economics, University of Crete, Greece); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: We examine how the strategic long-run decisions, such as cost-reducing R&D investments, prior to the decision for integration; create endogenous efficiency gains that make a horizontal integration profitable. The "merger" and the "acquisition" are distinguished as different modes of horizontal integration, with respect to both incentives and equilibrium outcomes. We show that firms' incentives for integration depend on the magnitude of the cost efficiencies that R&D investments give rise to and the rule of sharing of the integrated entity's profits across participants. The welfare effects of horizontal integrations are also discussed.
    Keywords: Horizontal mergers and acquisitions; Processes Innovations; Endogenous efficiency gains.
    JEL: C72 G34 O31
    Date: 2008–06–18
  2. By: Clougherty, Joseph A; Duso, Tomaso
    Abstract: It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.
    Keywords: Acquisitions; Event-Study; Mergers; Rivals
    JEL: G14 G34 L22 M20
    Date: 2008–06
  3. By: Liliane Karlinger
    Abstract: This paper studies a symmetric Bertrand duopoly with imperfect mon- itoring where rms receive noisy public signals about the state of demand. These signals have two opposite eects on the incentive to collude: avoid- ing punishment after a low-demand period increases collusive prots, mak- ing collusion more attractive, but it also softens the threat of punishment, which increases the temptation to undercut the rival. There are cases where the latter eect dominates, and so the collusive equilibrium does not always exist when it does absent demand information. These ndings are related to the Sugar Institute Case studied by Genesove and Mullin (2001).
    JEL: L13 L41
    Date: 2008–02
  4. By: Mehrotra, V.; Schaik, D. van; Spronk, J.; Steenbeek, O.W. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The market for corporate control in the second largest economy in the world behaves very different from that in the U.S. Using a sample of 91 mergers in the period 1982-2003 we document several distinctive features of this market in Japan. First, we show that in stark contrast to the pro-cyclical U.S. merger waves, mergers in Japan tend to be counter-cyclical, both with respect to the general economy as well as with respect to stock market valuations. Second, and again in contrast to the U.S. experience, we find that a significant fraction of Japanese mergers are orchestrated by the main banks; in such cases, mergers are not between two weak companies, but at least one of the merging companies is financially strong. Other distinctive features of Japanese mergers are the positive pre-announcement returns accruing to both bidders and targets, with bidders capturing approximately half the gains that accrue to target firms. We also find differential shareholder wealth effects in the bubble period (1982-1989), the early 1990s, and the post-financial regulation regime (1997-2003). Overall our results point to a market for corporate control that is distinctly less shareholder-centered than that in the U.S. and one where creditors play an important, perhaps dominant, role.
    Keywords: Japanse mergers;corporate control;mergers;take-over
    Date: 2008–06–02
  5. By: Elena Cefis; Mihaela-Livia Ghita
    Abstract: This paper investigates whether involvement in mergers and acquisitions (M&As) triggers distinct patterns of innovative behaviour across firms situated at different points on the firm size distribution. Firms use more and more M&As as mechanisms to bridge the gap between where they are and what they want to achieve in terms of innovation and performance. We explore the different impact of M&A activity on the likelihood that firms begin to innovate using an unique dataset combining innovation and economic firm-level data from two different sources: the 4 waves of Community Innovation Survey and the Business Register, for the Dutch manufacturing sector. The analysis is carried out at different size classes. The results show that both new entry and persistence in innovative activities are fostered by M&A involvement. Medium firms are the ones showing the highest probabilities of entering /persisting in innovative activities after M&As. For small firms, M&As do not ease the overcome of “the innovative threshold”; on the contrary they seem to increase the probability of exiting innovative status in the post-merger period.
    Keywords: Mergers and acquisitions; innovation; small and medium enterprises; transition probabilities; probit models
    JEL: L11 L25 D21 C14
    Date: 2008–05
  6. By: Jeroen Hinloopen (University of Amsterdam); Adriaan Soetevent (University of Amsterdam)
    Abstract: Recent laboratory experiments support the popular view that the introduction of corporate leniency programs has significantly decreased cartel activity. The design of these repeated game experiments however is such that engaging in illegal price discussions is the only way for subjects to avoid the one-shot competitive equilibrium. Subjects in the experiment of this paper have multiple feasible Nash equilibrium strategies to avoid the competitive equilibrium. These strategies differ in the difficulty of the coordination problem they have to solve. The experimental results show that if the efforts of the antitrust authority and the leniency program are directed exclusively to the most straightforward collusive scheme, subjects manage to switch to a more intricate form of coordination. This shift from overt collusion to tacit collusion questions the acclaimed success of corporate leniency programs.
    Keywords: overt collusion; tacit collusion; corporate leniency program; antitrust policy
    JEL: C72 C92 L41
    Date: 2008–06–09
  7. By: Prabal, Roy Chowdhury
    Abstract: We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional cost, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as (a) the number of firms becomes large and (b) the capacity cost increases.
    JEL: D5 L2
    Date: 2008–06
  8. By: Reiche, S.
    Abstract: This paper considers a sequential screening problem. A seller sells an object to a buyer who is privately informed about the object's value. The value has two components. The buyer knows the first component when he contracts with the seller and learns the second component only later. The optimal contract when there is no commitment problem is a sequential mechanism in form of a menu of fee-price pairs. Paying the initial fee gives the buyer the right to purchase the good later at the corresponding price. High initial buyer types pay a high fee for a low price later. Each buyer chooses a different fee-price pair. If commitment is not feasible, the structure of the optimal contract is simpler. The optimal contract is either no contract, a simple forcing contract, or a contract in which high types buy for sure and low types pay an initial fee to buy the good at a price later. The di¤erence to the setting with commitment is that all low buyer types obtain the same fee-price pair and all high buyer types buy for sure. There is no fine-tuning to specific buyer types. This might explain some simple real life sales agreements and why firms might find it optimal to group consumers into specific customer groups.
    Date: 2008–04
  9. By: Daunfeldt, Sven-Olov (The Swedish Retail Institute (HUI)); Orth, Matilda (Department of Economics); Rudholm, Niklas (The Swedish Retail Institute (HUI))
    Abstract: This paper examines how the increased market shares of the store brands affect the entry and survival of national brand suppliers. The analysis is performed on monthly scanner data for a number of household- and personal-care products covering June 2001 through May 2004. An increased market share of medium-priced store brands was found to decrease the number of suppliers of national brands. However, no statistically significant impact was found of low-priced store brand market shares on the numer of national brand suppliers. It thus seems that it is mainly medium-priced store brands that compete with national brands.
    Keywords: Scanner data; household products; count data; private labels
    JEL: L13 L81
    Date: 2008–06–09
  10. By: Marinucci, Marco
    Abstract: This paper faces two questions concerning Joint Ventures (JV) agreements. First, we study how the partners contribution affect the creation and the profit sharing of a JV when partners' effort is not observable. Then, we see whether such agreements are easier to enforce when the decision on JV profit sharing among partners is either delegated to the independent JV management (Management Sharing) or jointly taken by partners (Coordinated Sharing). We find that the firm whose effort has a higher impact on the JV's profits should have a larger profit shares. Moreover, a Management sharing ensures, at least in some cases, a wider range of self-enforceable JV agreements.
    Keywords: D43; L13; L14; L22
    JEL: L14 L13 D43 L22
    Date: 2008–04
  11. By: Clougherty, Joseph A; Zhang, Anming
    Abstract: The much-studied relationship between domestic rivalry and export performance consists of those supporting a national-champion rationale, and those supporting a rivalry rationale. While the empirical literature generally supports the positive effects of domestic rivalry, the national-champion rationale actually rests on firmer theoretical ground. We address this inconsistency by providing a theoretical framework that illustrates three paths via which domestic rivalry translates into enhanced international exports. Furthermore, empirical tests on the world airline industry elicit the existence of one particular path – an enhanced firm performance effect – that connects domestic rivalry with improved international exports.
    Keywords: airlines; exports; national champion; rivalry hypothesis
    JEL: L40 L52 L93
    Date: 2008–06

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