New Economics Papers
on Industrial Organization
Issue of 2009‒01‒03
four papers chosen by

  1. Barriers to Entry and Profitability By Heger, Diana; Kraft, Kornelius
  2. A Test of the Quality of Concentration Indices By Heger, Diana; Kraft, Kornelius
  3. The Determinants of Merger Waves: An International Perspective By Gugler, Klaus; Mueller, Dennis C.; Weichselbaumer, Michael
  4. The Impact of a Corporate Leniency Program on Antitrust Enforcement and Cartelization By Myong-Hun Chang; Joseph E. Harrington, Jr.

  1. By: Heger, Diana; Kraft, Kornelius
    Abstract: Barriers to entry are regarded as major impediments to the working of markets. Entry must not necessarily actually take place - the perceived threat of entry may encourage incumbent firms to behave as if they are in a competitive market, even if they are not. We present empirical evidence on effects of perceived threat of entry on profitability. Using information from managers about how they assess the existence of entry barriers a strong impact of these assessments on profitability is confirmed. The number and the relative size of competitors also exert considerable effects. We find no statistically significant relation between the perceived threat of entry and the actual number of firms if the size of the relevant market is taken into account.
    Keywords: Barriers to Entry, Profitability, Discrete Regression Models
    JEL: C25 L13 L25
    Date: 2008
  2. By: Heger, Diana; Kraft, Kornelius
    Abstract: Theory predicts a positive relationship between market concentration and profitability in most scenarios. In empirical work, however, this relation is frequently not found or only a weak connection is observed. We compare the performance of concentration and market share variables, which are generated on the basis of the official industry classification, with information collected directly from firms. Information from companies on the number of competitors, their relative size and the intensity of price competition is highly significant in explaining profit levels, while none of the concentration indices performs well. Hence, the poor quality of industry data is responsible for the loose connection that is usually found between concentration and profitability.
    Keywords: Concentration Indices, Profitability, Discrete Regression Models
    JEL: C25 L13 L25
    Date: 2008
  3. By: Gugler, Klaus; Mueller, Dennis C.; Weichselbaumer, Michael
    Abstract: One of the most conspicuous features of mergers is that they come in waves that are correlated with increases in share prices and price/earnings ratios. We use a natural way to discriminate between pure stock market influences on firm decisions and other influences by examining merger patterns for both listed and unlisted firms. If "real" changes in the economy drive merger waves, as some neoclassical theories of mergers predict, both listed and unlisted firms should experience waves. We find significant differences between listed and unlisted firms as predicted by behavioral theories of merger waves.
    Keywords: Merger waves, listed versus non-listed firms, managerial discretion, overvaluation
    JEL: G3 L2
    Date: 2008
  4. By: Myong-Hun Chang; Joseph E. Harrington, Jr.
    Abstract: To explore the efficacy of a corporate leniency program, a Markov process is constructed which models the stochastic formation and demise of cartels. Cartels are born when given the opportunity and market conditions are right, while cartels die because of internal collapse or they are caught and convicted by the antitrust authority. The likelihood that a cartel, once identified, is convicted depends inversely on the caseload of the antitrust authority due to an implicit resource constraint. The authority also chooses an enforcement policy in terms of the fraction of non-leniency cases that it prosecutes. Using numerical analysis, the impact of a leniency program on the steady-state cartel rate is investigated. Holding the enforcement policy of the antitrust authority fixed, a leniency program lowers the frequency of cartels. However, the additional caseload provided by the leniency program induces the antitrust authority to prosecute a smaller fraction of cartel cases identified outside of the program. Because of this less aggressive enforcement policy, it is possible that the cartel rate is higher when there is a leniency program.
    Date: 2008–12

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