nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒10‒21
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Are There Waves in Merger Activity After All? By Dennis L. Gärtner; Daniel Halbheer
  2. Competition vs. Regulation in Mobile Telecommunications By Johan Stennek; Thomas TangerŒs;
  3. Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets By Avi Goldfarb; Mo Xiao;
  4. Pricing and Multi-Market Contact in the Cable TV Industry By Robert Seamans; ;
  5. Network Effects and Geographic Concentration of Industry By Zhu Wang; Daniel Yi Xu
  6. An Agent-based Model of Retail Location with Complementary Goods By Arthur Huang; David Levinson
  7. Linking Reputations: The Signaling and Feedback Effects of Umbrella Branding By Miklos-Thal, Jeanine

  1. By: Dennis L. Gärtner (Socioeconomic Institute, University of Zurich); Daniel Halbheer (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper investigates the merger wave hypothesis for the US and the UK employing a Markov regime switching model. Using quarterly data covering the last thirty years, for the US, we identify the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave. We argue that the latter finding can be ascribed to the refined methods of inference offered by the Gibbs sampling approach. As opposed to the US, mergers in the UK exhibit multiple waves, with activity surging in the early 1970s and the late 1980s.
    Keywords: MergerWaves; Markov Regime Switching Regression Model; Gibbs Sampling
    JEL: G34 C32 C11 C15
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:iso:wpaper:0092&r=ind
  2. By: Johan Stennek (Gothenburg University); Thomas TangerŒs (Research Institute of Industrial Economics);
    Abstract: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome may prevail independently of market concentration when access prices are determined in bilateral negotiations. A lighthanded regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.
    Keywords: network competition; two-way access; mobile termination rates; entry; collusion
    JEL: L12 L14 L51 L96
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0809&r=ind
  3. By: Avi Goldfarb (Rotman School of Management, University of Toronto); Mo Xiao (Eller College of Management, University of Arizona);
    Abstract: This paper examines how manager and firm characteristics relate to entry decisions in US local telephone markets. To do so, it develops a structural econometric model that allows managers to be heterogeneous in their ability to correctly conjecture competitor behavior. The model adapts Camerer, Ho, and Chong’s (2004) Cognitive Hierarchy model to a real-world setting. We observe the industry in 1998, shortly after the Telecommunications Act of 1996 opened up the market. We find that older firms with older, more experienced managers have higher estimated levels of strategic ability. Managers with degrees in economics or business, and managers with graduate degrees, also have higher estimated levels of strategic ability. We find no evidence that university quality is related to ability. We repeat this exercise using data from 2000, 2002, and 2004. While the core results do not change, the overall level of measured strategic ability increases substantially by 2004. The estimates of strategic ability are also correlated with survival: those firms with lower estimated levels of ability are more likely to exit the industry early.
    Keywords: entry games, behavioral industrial organization, cognitive hierarchy, CLECs, local telephone competition
    JEL: L96 L20 C72
    Date: 2008–10
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0821&r=ind
  4. By: Robert Seamans (Haas School of Business, UC Berkeley); ;
    Abstract: This paper links empirical literature on the use of price as an entry deterring mechanism with literature on the effect of multi-market contact on competition. The analysis uses a dataset of cable TV system prices to provide evidence that incumbent cable TV firms use price to deter entry by telecom overbuilders as well as cities with municipal utilities. There is also some evidence that multi-market contact with telecom overbuilders results in lower prices. However, there is no evidence that incumbents use price to deter cable overbuilders. In addition to linking entry deterrence with multi-market contact, this study has two other unique features. First, it establishes entry deterrence using two techniques, one of which relies on theory by Ellison and Ellison (2008) on non-monotonic price decreases in response to entry probability. Second, it uses detailed price and channel data at the service tier level.
    Keywords: price, entry, public enterprises, multi-market contact
    JEL: L11 L13 L32 L82
    Date: 2008–10
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0813&r=ind
  5. By: Zhu Wang (Economic Research Department, Federal Reserve Bank of Kansas City.); Daniel Yi Xu (Department of Economics, New York University.)
    Abstract: This paper provides a theory of “family network”, in contrast to “local externalities”, to explain the geographic concentration of industry. For many industries, one most important source of entrants is spinoffs, who typically locate near parent firms and benefit from knowledge linkage and business relation within the family network. As a result, firms are more likely to enter and less likely to exit if they are associated with a large family. Using a unique dataset of US automobile industry in its early years, we identify six historically important production centers and sixty spinoff families. Our empirical analysis disentangles the effect of “family networks” from other “local externalities,” and provides strong evidence that it was the former rather than the latter that caused the geographic concentration of US automobile production.
    Keywords: Spinoffs, Entry and Exit, Geography of Industry
    JEL: J6 L0 R1
    Date: 2008–09
    URL: http://d.repec.org/n?u=RePEc:net:wpaper:0814&r=ind
  6. By: Arthur Huang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: This paper examines the emergence of retail clusters on a supply chain network comprised of suppliers, retailers, and consumers. An agent-based model is proposed to investigate retail location distribution in a market of two complementary goods. The methodology controls for supplier locales and unit sales prices of retailers and suppliers; a consumer's willingness to patronize a retailer depends on the total travel distance of buying both goods. On a circle comprised of discrete locations, retailers play a non-cooperative game of location choice to maximize individual proÞts. Our Þndings suggest that the number of clusters in equilibrium follow a power-law distribution and that hierarchical distribution patterns are much more likely to occur than the spread-out ones. In addition, retailers of complementary goods tend to co-locate at supplier locales. Sensitivity tests on the number of retailers and retailers' sequence of moving are also performed.
    Keywords: clustering, agent-based model, location choice, power-law distribution pattern, retailing
    JEL: R30 L22
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:nex:wpaper:clustercomplements&r=ind
  7. By: Miklos-Thal, Jeanine
    Abstract: This paper develops a theory of umbrella branding as a way to link the reputations of otherwise unrelated products. I show that while umbrella branding can credibly signal positive quality correlation, there are no equilibria in which umbrella branding either fully reveals high quality, or signals negative quality correlation. Finally, whenever umbrella branding signals perfect positive quality correlation, firms that already produce high quality products have stronger incentives to invest in developing further high quality products than firms that are currently inactive or produce low quality products.
    Keywords: reputation; umbrella branding; brand extensions; quality signaling
    JEL: M31 L15
    Date: 2008
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:11045&r=ind

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