nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒02‒28
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Anticompetitive Effects of the Antitrust Policy By David Bartolini; Alberto Zazzaro
  2. Dynamic Merger Review By Nocke, Volker; Whinston, Michael
  3. Are Horizontal Mergers and Vertical Integration a Problem? By Simon Pilsbury; Andrew Meaney
  4. The Distribution of Harm in Price-Fixing Cases By Boone, Jan; Müller, Wieland
  5. Sunk Costs and Risk-Based Barriers to Entry By Robert S. Pindyck
  6. The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry By Pascal Courty; Mario Pagliero
  7. Are antitrust lnes friendly to competition? An endogenous coalition formation approach to collusive cartels By David Bartolini; Alberto Zazzaro

  1. By: David Bartolini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Date: 2009–02
  2. By: Nocke, Volker; Whinston, Michael
    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.
    Keywords: efficiency gain; horizontal merger; market power; merger policy; oligopoly
    JEL: D43 L13 L41
    Date: 2008–12
  3. By: Simon Pilsbury; Andrew Meaney
    Abstract: This report examines market power in rail markets in Europe arising from horizontal and vertical mergers in the sector, and is intended to provide a high-level basis for discussion at the round table itself. It presents factual information on horizontal and vertical merger cases involving rail freight operators, highlighting the processes used by competition authorities to determine the circumstances in which such mergers should be approved. It also provides commentary on the economics of these markets and, hence, the likely prospects for their future shape. The topic of the report is timely. The first set of results are available from a preparatory study for the European Commission on whether policy objectives with respect to moving freight onto rail can best be achieved by giving freight more priority on the rail network.
    Date: 2009–02
  4. By: Boone, Jan; Müller, Wieland
    Abstract: We consider a vertically related industry and analyze how the total harm due to a price increase upstream is distributed over downstream firms and final consumers. For this purpose, we develop a general model without making specific assumptions regarding demand, costs, or the mode of competition. We consider both the case of homogeneous and differentiated goods markets. Furthermore, we discuss data requirements and suggest explicit formulas and regression specifications that can be used to estimate the relevant terms in the harm distribution in practice, even if elevated upstream prices are rather constant over time. The latter can be achieved by considering perturbations of the demand curve. This in turn can be used to construct a supply curve for the case of imperfect competition that includes perfect competition and monopoly as special cases. Finally, we illustrate how basic intuition from the tax incidence literature carries over to the distribution of harm.
    Keywords: abuse of a dominant position; apportionment of harm; cartel; pass on defense; supply curve; tax incidence
    JEL: D43 L13 L42
    Date: 2008–08
  5. By: Robert S. Pindyck
    Abstract: In merger analysis and other antitrust settings, risk is often cited as a potential barrier to entry. But there is little consensus as to the kinds of risk that matter - systematic versus non-systematic and industry-wide versus firm-specific - and the mechanisms through which they affect entry. I show how and to what extent different kinds of risk magnify the deterrent effect of exogenous sunk costs of entry, and thereby affect industry dynamics, concentration, and equilibrium market prices. To do this, I develop a measure of the "full," i.e., risk-adjusted, sunk cost of entry. I show that for reasonable parameter values, the full sunk cost is far larger than the direct measure of sunk cost typically used to analyze markets.
    JEL: D43 L10 L40
    Date: 2009–02
  6. By: Pascal Courty; Mario Pagliero
    Abstract: Concert tickets can either be sold at a single price or at multiple prices corresponding to different seating categories. We study the relationship between price discrimination and revenue by examining variations in the number of seating categories across concert, tour, artist, location, and time. Offering multiple seating categories leads to revenues that are approximately 5 percent higher than with single price ticketing. The return to price discrimination is higher in markets with more heterogeneous demand, for musical groups that appeal to a more fragmented audience, in smaller venues and in more competitive markets. The return of increasing from three to four categories of seating is about half that of increasing from one to two.
    Keywords: Price discrimination, return to price discrimination, second degree price discrimination
    JEL: D42 L82 Z11
    Date: 2009
  7. By: David Bartolini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Abstract: A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and a specilc rule of cartel formation. Then we extend the analysis to the case of N symmetric firms and a generic rule of coalition formation. Finally, we consider;the case of asymmetric firms and show that our results still hold for an industry;populated by one Stackelberg leader and two followers.
    Keywords: Antitrust policy, Coalition formation, Collusive cartels
    JEL: C70 L40 L41
    Date: 2009–02

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