nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒02‒22
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Pricing strategies in two-sided platforms: The role of sellers’ competition By María Fernanda Viecens
  2. Strategic supply function competition with private information By Vives, Xavier
  3. The European M&A industry: Trends, patterns and shortcomings By Campa, Jose M.; Moschieri, Caterina
  4. Compulsory or Voluntary Pre-merger Notification? Theory and Some Evidence By Chongwoo, Choe; Shekhar, Chander
  5. Horizontal Mergers, Involuntary Unemployment, and Welfare By Oliver Budzinski; Jürgen-Peter Kretschmer
  6. Mergers and Business Model Assimilation: Evidence from Low-Cost Airlines Takeovers By Paul W. Dobson; Claudio A. Piga

  1. By: María Fernanda Viecens
    Abstract: This paper offers a model of a two-sided platform to inspect how competition and prices in the seller side affect the platform’s behavior, incentives and profits. When setting prices, sellers may be constrained by one of two margins: the demand margin and the competition margin. According to the competition margin a seller sets its price equal to the marginal contribution to the users utility. However, a seller may set a lower price because it also has to take into account the demand margin: a higher price reduces the overall demand for the platform and the sellers. This central result is used to compare the efficiency of vertical integration and the private incentives to partially integrate. Several interesting insights are obtained; in particular, the model can explain the tendency of firms which operate software platforms to integrate with so-called killer applications. The paper also shows that the platform has an instrument to profitable affect sellers’ prices and to induce the margin that will bind. It is proved that the degree of competition among sellers is a crucial factor determining profitability of the platform.
    Date: 2009–02
    URL: http://d.repec.org/n?u=RePEc:fda:fdaddt:2009-11&r=ind
  2. By: Vives, Xavier (IESE Business School)
    Abstract: A Bayesian supply function equilibrium is characterized in a market where firms have private information about their uncertain costs. It is found that with supply function competition, and in contrast to Bayesian Cournot competition, competitiveness is affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions are downward sloping, margins are larger than the Cournot ones, and as we approach the common value case they tend to the collusive level. Furthermore, competition in supply functions aggregates the dispersed information of firms (the equilibrium is privately revealing) while Cournot competition does not. The implication is that with the former the only source of deadweight loss is market power while with the latter we have to add private information. As the market grows large the equilibrium becomes competitive and we obtain an approximation to how many competitors are needed to have a certain degree of competitiveness.
    Keywords: imperfect competition; adverse selection; competitiveness; rational expectations; collusion; welfare;
    JEL: D44 D82 L13 L94
    Date: 2008–11–09
    URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0774&r=ind
  3. By: Campa, Jose M. (IESE Business School); Moschieri, Caterina (IESE Business School)
    Abstract: This paper provides a comprehensive overview of the process of European mergers and acquisitions. We characterize the main features of M&A activity in Europe in the period 2001-2007. We review the process of M&A regulatory integration and patterns of activity. Most European M&As still take place among domestic firms, although cross-border transactions are larger in value and have been slightly increasing, especially in regulated industries. Transactions are likely to be friendly, partially negotiated via public tender offers and private deals, and paid in cash, especially for smaller deals. Competing bids are still fairly rare and less likely to be completed. Target shareholders obtain an average premium of around 20% and this premium is slightly declining with deal size. Regulatory differences are large, particularly in the application of takeover regulations, and uncertainty persists in the predictability of the national regulatory agencies.
    Keywords: European cross-border; domestic merger; acquisitions; M&A trends;
    Date: 2008–09–03
    URL: http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0762&r=ind
  4. By: Chongwoo, Choe; Shekhar, Chander
    Abstract: We compare the prevailing system of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification. It is shown that, for a non-trivial set of parameter values, a perfect Bayesian equilibrium exists in mixed strategies in which the regulator investigates un-notified mergers with probability less than one and the parties choose notification with probability less than one. Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.
    Keywords: Merger regulation; pre-merger notification; abnormal returns
    JEL: D21 G34 K21 L40
    Date: 2009–02
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:13450&r=ind
  5. By: Oliver Budzinski (Department of Environmental and Business Economics, University of Southern Denmark, Campus Esbjerg); Jürgen-Peter Kretschmer (Economic Policy Unit, Philipps-University of Marburg)
    Abstract: Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency effect increases welfare by reducing the costs of production (synergies). However, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.
    Keywords: horizontal mergers, involuntary unemployment, efficiency defense, oligopoly, competition
    JEL: L13 L41 J01 L16
    Date: 2009
    URL: http://d.repec.org/n?u=RePEc:mar:magkse:200907&r=ind
  6. By: Paul W. Dobson (Business School, Loughborough University.); Claudio A. Piga (Department of Economics, Loughborough University)
    Abstract: This paper examines mergers that lead to an almost immediate replacement of the target firm’s business model in favor of that of the acquiring firm. We examine the post-merger behavior of the two leading European dedicated low-cost airlines, EasyJet and Ryanair, each acquiring another low-cost airline, respectively Go Fly and Buzz. We find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of inter-temporal price schedules used on the acquired routes, with early booking fares noticeably reduced and only very late booking fares increased. The analysis suggests that the takeovers had a net beneficial effect as a consequence of the introduction of the acquiring firms’ business models and associated yield management pricing systems. .
    Keywords: merger policy; Business model; Low-cost airline; Price discrimination; Yield management .
    JEL: L11 L13 L93
    Date: 2009–02
    URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2009_2&r=ind

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