nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒09‒29
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. When Market Competition Benefits Firms By Junichiro Ishida; Toshihiro Matsumura; Noriaki Matsushima
  2. Concentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality By Alvin J. Silk; Charles King III
  3. The Impact of Higher Standards in Patent Protection for Pharmaceutical Industries under the TRIPS Agreement: A Creation-date: 2008 By Li, Xuan
  4. Drug price setting and regulation in France By Nathalie Grandfils
  5. Bank mergers and the dynamics of deposit interest rates By Ben R Craig; Valeriya Dinger
  6. Bank mergers and lending relationships. By Judit Montoriol-Garriga

  1. By: Junichiro Ishida (Osaka School of International Public Policy (OSIPP),Osaka University); Toshihiro Matsumura (Institute of Social Science, University of Tokyo); Noriaki Matsushima (Graduate School of Business Administration, Kobe University)
    Abstract: A conventional wisdom in economics posits that more intense market competition, measured in almost any way, reduces firm profit. In this paper, we challenge this conventional wisdom in a simple Cournot model with strategic R&D investments wherein an efficient firm (dominant firm) competes against less efficient firms (fringe firms). We find that an increase in the number of fringe firms can stimulate R&D by the dominant firm, while it always reduces R&D by each of the fringe firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the dominant firm's profit may indeed increase with the number of fringe firms, quite contrary to the conventional wisdom. An implication of this result is far-reaching, as it gives dominant firms to help, rather than harm, fringe competitors. We relate this implication to a practice know as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.
    Keywords: competition, oligopoly, R&D, heterogeneity, entry
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:osp:wpaper:08e011&r=ind
  2. By: Alvin J. Silk (Harvard Business School); Charles King III (Greylock McKinnon Associates, Cambridge, MA)
    Abstract: This paper analyzes changes in concentration levels in the U.S. Advertising and Marketing Services (A&MS) industry using publicly released data that have been largely ignored in past discussions of the industrial organization of this industry, namely those available from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. We define the A&MS industry in terms of nine sectors, each of which is represented by a separate 5 digit NAICS category. In so doing, we have sought to redress some of the measurement problems surrounding estimates found in the existing literature. Our main findings are threefold. First, in the case of the core and largest sector, Advertising Agencies, firm level concentration as measured by Herfindahl-Hirschman Index (HHI) increased slightly but remained relatively low from 1977 to 2002. All of the HHI estimates readily satisfied the standard widely used to characterize an industry as "unconcentrated." We find mixed support for the hypotheses that the ranks of mid-sized agencies were depleted by ongoing waves of mergers and acquisitions and resulted in a polarized size structure. The size distributions of agency revenue have become more polarized in the sense that over time they appear more skewed, more dispersed, and exhibit greater inequality. The share of total receipts realized by small agencies fell while that of large agencies rose. However, the position of mid-sized agencies appears to have changed little over the period 1977- 2002, as measured by the shares of agencies and receipts they represent. Second, concentration levels in 1997 and 2002 varied across the nine sectors comprising the A&MS industry, but all were within the range generally considered as indicative of a competitive industry. Third, we developed concentration ratios at the level of holding companies (HC's) and find that the four largest HC's captured between a fifth and a quarter of total revenue from the A&MS industry, a share that remained quite stable over the period, 2002-2006. These estimates are lower by an order of magnitude than estimates often cited in the trade press. Reasons for the discrepancy are discussed.
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:hbs:wpaper:09-044&r=ind
  3. By: Li, Xuan
    Abstract: A comparative study is undertaken that explores Chinese and Indian pharmaceutical industries under different patent regimes. It is found that relative to India, which had implemented process patent until 2005, China with a product patent regime since 1993 suffers from both lower drug accessibility and availability (the latter is a missing parameter in the literature). Also, China lags behind in both lower R&D investment and patents filed by Chinese nationals. Based on these findings and associated legal interpretation, we conclude that higher patent protection in China generates negative impacts on the pharmaceutical industries. Thus, governments should utilize TRIPS flexibilities and other regimes like price control to offset the anticompetitive effect in designing patent policies.
    Keywords: product patent, process patent, TRIPS, pharmaceutical industries, China, India
    URL: http://d.repec.org/n?u=RePEc:unu:wpaper:rp2008-36&r=ind
  4. By: Nathalie Grandfils (IRDES institut for research and information in health economics)
    Abstract: In France, drug prices have historically been regulated but approaches to setting and regulating prices have been evolving in recent years. In 2003, the prices of new outpatient drugs, which had hitherto been entirely regulated, were semi-liberalised, with drug companies setting prices in line with those in neighbouring countries; and in parallel with this in 2004, the prices of expensive drugs and/or drugs qualifying for reassignment must now also be set in line with European prices. In addition to this, price/volume regulation has recently been introduced. This document describes the price setting rules applicable to each drug category and discusses different measures for regulating drug price, particu-larly the conventional policies implemented under successive framework agreements. The regulatory path for medicines and the different actors involved are presented in an Appendix.
    Keywords: Drugs, Regulation, Public Health
    JEL: I18 L65
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:irh:wpaper:dt16&r=ind
  5. By: Ben R Craig; Valeriya Dinger
    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 U.S. 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 United States. 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 for estimating the change of the deposit rates given their rigidity.
    Keywords: Bank mergers ; Bank deposits
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:fip:fedcwp:0806&r=ind
  6. By: Judit Montoriol-Garriga (Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02210, USA.)
    Abstract: This paper analyzes the effects of bank mergers on bank-firm relationships. Using matched bank-firm level data, I find that mergers disrupt lending relationships, specially to small borrowers of target banks. However, I find significant positive effects of mergers for borrowers that continue the lending relationship with the consolidated bank. On average, consolidated banks reduce loan interest rates. The most beneficial mergers from the borrower point of view are those involving two large banks and commercial banks. While the reduction in interest rates is larger when the acquirer and the target have some market overlap, the decline is much smaller when there is a significant increase in local banking market concentration. JEL Classification: G21, G34.
    Keywords: Banking consolidation, Lending relationships, Small business lending.
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080934&r=ind

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