nep-ind New Economics Papers
on Industrial Organization
Issue of 2008‒12‒14
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Dynamic Merger Review By Volker Nocke; Michael D. Whinston
  2. The UK Cartel Offence: Lame Duck or Black Mamba? By Andreas Stephan
  3. Did Mergers Help Japanese Mega-Banks Avoid Failure? Analysis of the Distance to Default of Banks By Kimie Harada; Takatoshi Ito
  4. Firm Entry and Exit in Iowa, 1992 - 2004 By Yu, Li; Jolly, Robert W.; Orazem, Peter
  5. High-Speed Rail & Air Transport Competition By Nicole Adler; Chris Nash; Eric Pels

  1. By: Volker Nocke; Michael D. Whinston
    Abstract: We analyze the optimal dynamic policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and occur over time. Approving a currently proposed merger will affect the profitability and welfare effects of potential future mergers, the characteristics of which may not yet be known to the antitrust authority. We show that, in many cases, this apparently difficult problem has a simple resolution: an antitrust authority can maximize discounted consumer surplus by using a completely myopic merger review policy that approves a merger today if and only if it does not lower consumer surplus given the current market structure.
    JEL: L0 L4
    Date: 2008–12
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:14526&r=ind
  2. By: Andreas Stephan (Centre for Competition Policy, University of East Anglia)
    Abstract: A criminal offence requiring Ghosh dishonesty was introduced in the UK by the Enterprise Act 2002, primarily to enhance cartel deterrence as a complement to corporate fines. Yet the first convictions resulted from a US plea bargain in 2008. This paper identifies three obstacles to enhancing deterrence through the cartel offence. First, Norris v USA and a public survey suggest relatively weak perceptions of cartels persist in the UK. It was envisaged that convictions would remedy this, but prosecutors will continue to be very selective about the cases they bring to trial if there are doubts as to whether price fixing alone is viewed as objectively dishonest. Secondly, any increase in criminal enforcement risks discouraging leniency applications to the European Commission, because corporate immunity granted on the Community level does not automatically protect employees from criminal prosecution in national courts. There is also no conclusive mechanism for direct settlement, as there is in the US. Thirdly, sizeable benefits and purportedly low detection rates mean deterrence may be weak if custodial sentences do not become the norm. Further sanctions such as Director Disqualification Orders can play an important role in ensuring cartelists do not seek immediate reemployment at a high level.
    Keywords: cartel offence, deterrence, dishonesty, Enterprise Act 2002, Norris v USA
    JEL: K14 K21 L40 L41
    Date: 2008–11
    URL: http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-19&r=ind
  3. By: Kimie Harada; Takatoshi Ito
    Abstract: In the late 1990s, several large Japanese banks failed for the first time in its postwar history. As the financial environment was deteriorating further, several remaining banks decided to merge among themselves, presumably, to make their operations more efficient to avoid failures. This paper defines, calculates and analyzes the distance to default (DD), a concept of credit risk in corporate finance, of Japanese large banks. The DD helps us to answer a question whether mergers in the late 1990s and 2000s made the merged banks financially more robust as intended. The novelty of the paper is to develop a method of analyzing the DD for banks that experience a merger, and to apply the method to the Japanese banking data. Our findings include: (1) A merged bank fundamentally inherits financial soundness of pre-merged banks, without adding special value from the merger. A merger of sound (unsound) banks produced a sound (unsound, respectively) merged financial institution; and (2) In some cases, a merged bank experienced a negative DD right after the merger. The findings are consistent with a view that a primary objective of a merger was to take advantage of the perceived too-big-to-fail policy, rather than to pursue a radical reform. Another interpretation is that mergers with intention of enhancing efficiency resulted in failed implementation of true operational efficiency, such as quick integration of computer operation systems and elimination of duplicating branches.
    JEL: G19 G21
    Date: 2008–12
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:14518&r=ind
  4. By: Yu, Li; Jolly, Robert W.; Orazem, Peter
    Abstract: This paper uses the pattern of firm entry and exit to develop a classification system for industries. The classifications include urban-rural bias; long-term growth; and firm survival patterns. The first captures the fact that sector-specific economic growth may be favored in urban areas for some industries and may benefit from low population density for others. Some industries have experienced long-term expansion in firm numbers while others have experienced a decline. Finally, some industries are characterized by high rates of both entry and exit while others have low rates of both. A taxonomy classifying industries according to those three criteria is developed in this paper. The taxonomy is applied to the Iowa subset of the National Establishment Time-Series (NETS) database over the period from 1992 to 2004. County level entry and exit rates are shown to be positively correlated across nearly all 2 digit NAICS code industries. Industry growth is found to be biased against rural areas. Not all of the industries experienced expansion or have a positive net entry rate. Entry of new firms replaces old incumbent firms in each industry but to different degrees. Understanding firm entry - exit pattern can help design customized policies of fostering expansion of specific industries in Iowa according to their location bias, industry growth patterns and development dynamics.
    Keywords: Entry – Exit Pattern, Taxonomy, Location Bias, Expansion, Churning, Entrepreneurship, Economic Development
    Date: 2008–12–05
    URL: http://d.repec.org/n?u=RePEc:isu:genres:13007&r=ind
  5. By: Nicole Adler (Hebrew University of Jerusalem, Israel); Chris Nash (Institute for Transport Studies, Leeds, England); Eric Pels (VU University Amsterdam)
    Abstract: This paper develops a methodology to assess transport infrastructure investments and their effects on a Nash equilibria taking into account competition between multiple privatized transport operator types. The operators, including high-speed rail, hub and spoke legacy airlines and low cost carriers, maximize profit functions via prices, frequency and train/plane sizes, given infrastructure provision and costs and environmental charges. The methodology is subsequently applied to all 27 European Union countries, specifically analyzing four of the prioritized Trans-European Networks.
    Keywords: airlines; high-speed rail; networks; applied game theory; infrastructure pricing
    JEL: R40 L92 L93
    Date: 2008–10–31
    URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20080103&r=ind

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