nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒08‒30
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Screening and Merger Activity By Albert Banal-Estanol; Paul Heidhues; Rainer Nitsche; Jo Seldeslachts
  2. Firm entry, product repositioning and welfare By Eleftherios Zacharias

  1. By: Albert Banal-Estanol; Paul Heidhues; Rainer Nitsche; Jo Seldeslachts
    Abstract: In our paper targets, by setting a reserve price, screen acquirers on their (expected) ability to generate merger-speci?c synergies. Both empirical evidence and many common merger models suggest that the di?erence between high- and low-synergy mergers becomes smaller during booms. This implies that the target’s opportunity cost for sorting out rel- atively less ?tting acquirers increases and, hence, targets screen less tightly during booms, which leads to a hike in merger activity. Our screening mechanism not only predicts that merger activity is intense during economic booms and subdued during recessions but is also consistent with other stylized facts about takeovers and generates novel testable predictions.
    Keywords: Takeovers, Merger Waves, Defense Tactics, Screening
    JEL: D21 D80 L11
    Date: 2009–08
  2. By: Eleftherios Zacharias
    Abstract: We show that the entry of a second firm in a horizontally differentiated market (ala Hotelling) may harm consumers as prices increase and consumer's surplus possibly decrease. We first derive the price and the consumer's surplus of a monopoly which is located at the center of the market. When a second firm enters the market the first firm repositions and the two firms locate at their equilibrium points. Although competition adds to variety and increases consumer's surplus, the post entry increase in price may outweight the gains from extra variety and make consumers worse off.
    Keywords: Horizontal di¤erentiation, welfare analysis, product repositioning.
    JEL: L13 D43 D60
    Date: 2009–08–17

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