nep-ind New Economics Papers
on Industrial Organization
Issue of 2009‒10‒31
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU By Kamerbeek, S.P.
  2. The Effects of Leniency on Maximal Cartel Pricing By Harold Houba; Evgenia Motchenkova; Quan Wen
  3. Going Once, Going Twice, Reported! Cartel Activity And The Effectiveness Of Leniency Programs in Experimental Auctions By Jeroen Hinloopen; Sander Onderstal
  4. Price regulation of pluralistic markets subject to provider collusion By Longo, R; Miraldo, M; Street, A

  1. By: Kamerbeek, S.P.
    Abstract: In current horizontal merger policy in the US and the EU an explicit efficiency defense is allowed. On both sides of the Atlantic mergers are unconditionally approved if internal efficiencies are sufficient to reverse the mergers’ potential to harm consumers in the relevant market. Current merger policy is implicitly based on the assumption that rational managers will only propose privately profitable mergers. In this thesis I will show that the empirical evidence on merger performance suggests that this assumption can’t be sustained. Managers do propose uneconomic mergers, motivated by non-wealth maximizing behavior. To tackle this problem I argue that efficiencies should not only be used as an efficiency defense, but efficiencies should work both ways. To avoid type I and type II errors the competition authorities in the US and the EU should undertake a sequential efficiency test in their assessment of specific mergers.
    Keywords: Merger; competition policy; efficiencies; efficiency defence; merger performance; rational manager
    JEL: K0 K21 L4
    Date: 2009–07–01
  2. By: Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam); Quan Wen (Vanderbilt University)
    Abstract: We analyze maximal cartel prices in infinitely-repeated oligopoly models under leniency where fines are linked to illegal gains, as often outlined in existing antitrust regulation, and detection probabilities depend on the degree of collusion. We introduce cartel culture that describes how likely cartels persist after each conviction. Our analysis disentangles the effects of traditional antitrust regulation, leniency, and cartel strategies. Without rewards to the strictly-first reporter, leniency cannot reduce maximal cartel prices below those under traditional regulation. Moreover, in order to avoid adverse effects fine reductions should be moderate in case of multiple reporters. Our results extend the current literature and partially support existing leniency programs.
    Keywords: Cartel; Antitrust; Competition Policy; Leniency Program; Self-reporting; Repeated Game
    JEL: L41 K C72
    Date: 2009–09–25
  3. By: Jeroen Hinloopen (University of Amsterdam); Sander Onderstal (University of Amsterdam)
    Abstract: We experimentally examine the effectiveness of a leniency program against bidding rings in two
    Keywords: Leniency Programs; Auctions; Cartels; Laboratory Experiments
    JEL: C92 D44 L41
    Date: 2009–10–09
  4. By: Longo, R; Miraldo, M; Street, A
    Abstract: We analyse incentives for collusive behaviour when heterogeneous providers are faced with regulated prices under two forms of yardstick competition, namely discriminatory and uniform schemes. Providers are heterogeneous in the degree to which their interests correspond to those of the regulator, with close correspondence labelled altruism. Deviation of interests may arise as a result of de-nationalisation or when private providers enter predominantly public markets. We assess how provider strategies and incentives to collude relate to provider characteristics and across different market structures. We differentiate between "pure" markets with either only self-interested providers or with only altruistic providers and "pluralistic" markets with a mix of provider type. We find that the incentive for collusion under a discriminatory scheme increases in the degree to which markets are self-interested whereas under a uniform scheme the likelihood increases in the degree of provider homogeneity. Providers' choice of cost also depends on the yardstick scheme and market structure. In general, costs are higher under the uniform scheme, reflecting its weaker incentives. In a pluralistic market under the discriminatory scheme each provider's choice of cost is decreasing in the degree of the other provider's altruism, so a self-interested provider will operate at a lower cost than an altruistic provider. Under the uniform scheme providers always choose to operate at the same cost. The prospect of defection serves to moderate the chosen level of operating cost.
    Date: 2009–03

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