New Economics Papers
on Industrial Organization
Issue of 2009‒07‒28
six papers chosen by

  1. Endogenous Technology Sharing in R&D Intensive Industries By Clark, Derek J.; Sand, Jan Yngve
  2. Cournot Competition on a Network of Markets and Firms By Rahmi Ilkiliç
  3. On Regulation and Competition: Pros and Cons of a Diversified Monopolist By Carlo Scarpa; Giacomo Calzolari
  4. Do Foreign Mergers and Acquisitions Boost Firm Productivity? By Marc Schiffbauer; Iulia Siedschlag; Frances Ruane
  5. Auctions with Endogenous Price Ceiling:Theoretical and Experimental Results By RLobert F. Vesztegy, Serizawa; Kenju Akai; Tatsuyoshi Saijo; Shigehiro Serizawa
  6. Optimal Collusion with Limited Severity Constraint By Etienne Billette de Villemeur; Laurent Flochel; Bruno Versaevel

  1. By: Clark, Derek J.; Sand, Jan Yngve
    Abstract: This paper analyses the endogenous formation of technology sharing coalitions with asymmetric firms. Coalition partners produce complementary technology advancements, although each firm determines its R&D investment level non-cooperatively and there is no co-operation in the product market. We show that the equilibrium coalition outcome is either one between the two most efficient firms, or a coalition with all three firms. The two-firm coalition is the preferred outcome of a welfare maximising authority if ex ante marginal cost is sufficiently high, and the three-firm coalition is preferred otherwise. Furthermore, we show that the equilibrium outcomes result in the lowest total R&D investment of all possible outcomes. Aircraft engine manufacturing provides a case study, and indicates the importance of anti-trust issues as an addition to the theory.
    Keywords: R&D, endogenous coalitions, asymmetric firms
    JEL: L11 L13
    Date: 2009
  2. By: Rahmi Ilkiliç (Maastricht University)
    Abstract: Suppose markets and firms are connected in a bi-partite network, where firms can only supply to the markets they are connected to. Firms compete a la Cournot and decide how much to supply to each market they have a link with. We assume that markets have linear demand functions and firms have convex quadratic cost functions. We show there exists a unique equilibrium in any given network of firms and markets. We provide a formula which expresses the quantities at an equilibrium as a function of a network centrality measure.
    Keywords: Cournot Markets, Networks, Nash Equilibrium, Centrality Measures
    JEL: C62 C72 D85 L11
    Date: 2009–05
  3. By: Carlo Scarpa (University of Brescia); Giacomo Calzolari (University of Bologna)
    Abstract: We study the regulation of a firm which supplies a regulated service while also operating in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose size is the firm’s private information, unknown either to the regulator or to the rival firms. We characterize the unregulated market outcome (with price and quantity competition) and optimal regulation that involves an informational externality to the competitors. Although joint conduct of the activities generates scope economies, it also entails private information, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the firm to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope.
    Keywords: Regulation, Competition, Asymmetric Information, Conglomerate Firms, Multiutility, Scope Economies, Informational Externality
    JEL: L51 L43 L52
    Date: 2009–07
  4. By: Marc Schiffbauer (ESRI); Iulia Siedschlag (ESRI); Frances Ruane (ESRI)
    Abstract: This paper examines the causal relationship between foreign mergers and acquisitions and firm productivity in the UK over the period 1999-2007. Our results raise questions about the existence of aggregate effects of foreign ownership on TFP in the longer-run. However, we find significant heterogeneity in the TFP effects of foreign M&A at the industry level. Overall, we uncover a systematic pattern of post-acquisition TFP effects that is consistent with the most recent theoretical models of firm heterogeneity and cross-border mergers and acquisitions as mode of foreign entry. Furthermore, we find positive aggregate effects on labor productivity due to capital deepening but not due to changes in TFP.
    Date: 2009–07
  5. By: RLobert F. Vesztegy, Serizawa; Kenju Akai; Tatsuyoshi Saijo; Shigehiro Serizawa
    Abstract: This paper analyzes an auction mechanism that excludes overoptimistic bidders inspired by the rules of the procurement auctions adopted by several Japanese local governments. Our theoretical and experimental results suggest that the endogenous exclusion rule reduces the probability of suffering a monetary loss induced by winning the auction, and also mitigates the problem of the winnerfs curse in the laboratory. However, this protection comes at the price of a lower revenue for the seller.
    Date: 2009–06
  6. By: Etienne Billette de Villemeur (Toulouse School of Economics, IDEI & GREMAQ, 21 allée de Brienne, 31000 Toulouse, France); Laurent Flochel (Charles River Associates International, 27 Avenue de l’opéra, 75001 Paris, France); Bruno Versaevel (EMLYON Business School & CNRS, GATE, 69134 Ecully cedex France)
    Abstract: Collusion sustainability depends on ï¬rms' aptitude to impose suffciently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic ï¬rms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or ï¬nancial consider- ations (proï¬tability requirements) set a lower bound to ï¬rms' losses. The model speciï¬cations encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint.
    Keywords: Collusion, Oligopoly, Penal codes
    JEL: C72 D43 L13
    Date: 2009

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