nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒02‒05
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Price-concentration analysis in merger cases with differentiated products By Beckert, Walter; Mazzarotto, Nicola
  2. Critical loss analysis in market definition and merger control By Hüschelrath, Kai
  3. Merger control as barrier to EU banking market integration By Köhler, Matthias
  4. Assessing the effects of a road surfacing cartel in Switzerland By Hüschelrath, Kai; Leheyda,, Nina; Beschorner, Patrick
  5. Are There Any Cournot Industries? By David Flath
  6. Quantum Model of Bertrand Duopoly By Salman Khan; M. Ramzan; M. K. Khan
  7. Quality Distortions in Vertical Relations By Pio Baake; Vanessa von Schlippenbach
  8. The competitive impact of hypermarket retailers on gasoline prices By Zimmerman, Paul R.
  9. Concepts of price fairness: Empirical research into the Dutch coffee market By Gielessen, R.; Graafland, J.J.

  1. By: Beckert, Walter; Mazzarotto, Nicola
    Abstract: This paper considers the empirical assessment of the relationship between prices and number of firms in local markets in geographic or, more generally, characteristic space and its use as evidence in merger cases. It outlines a structural, semi-nonparametric econometric model of competition in such markets, examines its testable implications in terms of price-concentration relationships, and demonstrates that the model is non-parametrically identified. This general approach to priceconcentration analysis in differentiated product markets is illustrated in a small-scale application to cinemas in the UK. The application highlights the main decision points faced by an authority when assessing the weight that can be attached to this type of analysis as evidence. --
    Keywords: Differentiated products,local competition,non-parametric identification
    JEL: L11 C31
    Date: 2010
  2. By: Hüschelrath, Kai
    Abstract: The last couple of years have seen an increasing interest in critical loss analysis, both, in academia and in practice. This development is documented by various research papers, high-level exchanges between antitrust experts as well as an increasing number of case decisions which make use of some form of critical loss analysis. In this context, it is the aim of this article to describe the general method of critical loss analysis, to assess important properties of the concept, to show how critical loss analysis has to differ between market definition exercises and the evaluation of the competitive effects of horizontal mergers and to discuss applications of critical loss analysis in recent cases. The results suggest that the application of critical loss analysis in practice is often not as straightforward as the rather simple theoretical concept might suggest. In fact, the method has to be applied with great care in order to receive meaningful results. --
    Keywords: Antitrust,competition policy,market power,market definition,merger control,unilateral effects
    JEL: L40 L41 L50 K21
    Date: 2009
  3. By: Köhler, Matthias
    Abstract: In 2005, the President of the Bank of Italy blocked the cross-border acquisition of two Italian banks for prudential reasons and formal errors. Because it became later public that both deals were not blocked for prudential reasons, but to protect domestic banks from foreign investors. A survey of the EU Commission indicates that the misuse of supervisory powers and political interference is not only a barrier to cross-border consolidation in Italy, but in other EU countries as well. Systematic empirical evidence on the role of merger control as barrier to M&A is, however, still missing. The main problem is the lack of data on the scope for politicians and supervisors to block M&A during merger control. The main contribution of this paper is to collect this data and to construct indices on the political independence of the supervisory authorities and the transparency of merger control. The main source of information is a questionnaire that was sent to the supervisors in the 25 EU member countries between October 2006 and March 2007. --
    Date: 2009
  4. By: Hüschelrath, Kai; Leheyda,, Nina; Beschorner, Patrick
    Abstract: The paper assesses the impact of the detection of a hard-core cartel in the Swiss market for road surfacing on post-cartel competition. In addition to an investigation of supply-side factors, demand-side factors, and market prices, the paper also derives estimates of the economic effects of the decision. The results indicate that the detection of the cartel may have led to short-term price reductions; however, the persistent collusion-friendly industry structure forecloses larger and durable gains for the customers. --
    Keywords: Competition Policy,Evaluation,Cartels,Switzerland
    JEL: L41 K21
    Date: 2009
  5. By: David Flath
    Abstract: For 70 Japanese manufacturing industries, I test the simple Cournot hypothesis of proportionality between industry price-cost margin and Herfindahl index against the non-nested alternative that the industry price-cost margin remains constant in the face of varying Herfindahl index, as it would under a simple product differentiated Bertrand framework. I then test each of these against the alternative hybrid specification that nests both of them, and from the pairwise tests, compute likelihoods of each specification. The simple Cournot specification is the most likely for five of the industries, the simple Bertrand specification for 35, and the hybrid specification for 30.
    Date: 2010–01
  6. By: Salman Khan; M. Ramzan; M. K. Khan
    Abstract: We present the quantum model of Bertrand duopoly and study the entanglement behaviour on the profit functions of the firms. Using the concept of optimal response of each firm to the price of the opponent, we found four Nash equilibria for maximally entangled initial state. We have shown that only one point among the four Nash equilibria has valid physical meaning. The very presence of quantum entanglement in the initial state gives payoffs higher to the firms than the classical payoffs at the physically valid point for higher values of substitution parameter.
    Date: 2010–01
  7. By: Pio Baake; Vanessa von Schlippenbach
    Abstract: This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a non-linear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that delivery contracts are more efficient the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less efficient outcomes.
    Keywords: Quality Uncertainty, Private Standards, Vertical Relations, Buyer Power
    JEL: D82 L14 L15
    Date: 2010
  8. By: Zimmerman, Paul R.
    Abstract: Hypermarkets are large retail suppliers of general merchandise or grocery items that also sell gasoline, often at very low margins. Using panel data for 1998-2002, this paper estimates the impact of hypermarkets on average state-level retail gasoline prices. The empirical results suggest a robust, economically (and statistically) significant effect of increased competition from hypermarkets. Furthermore, the results also suggest that refiners’ lower the delivered wholesale prices charged to their affiliated lessee-dealer and open-dealer stations in response to increased hypermarket competition, which in turn translates to lower retail (street) prices. The presence of a state motor fuel sales-below-cost (SBC) law may lessen the price-reducing effects from hypermarket competition by 40-67 percent while independently imparting no other offsetting price reductions. Finally, using recently published estimates of the short-run own price elasticity of demand for gasoline, consumer welfare is estimated to have increased in the neighborhood of $488 million over the sample period.
    Keywords: Dealer tank wagon; Hypermarkets; Motor fuel SBC laws; Petroleum; Vertical integration
    JEL: L11 L71 L22
    Date: 2009–06–18
  9. By: Gielessen, R.; Graafland, J.J.
    Abstract: This paper researches perceptions of the concept of price fairness in the Dutch coffee market. We distinguish four alternative standards of fair prices based on egalitarian, basic rights, capitalistic and libertarian approaches. We investigate which standards are guiding the perceptions of price fairness of citizens and coffee trade organizations. We find there is a divergence in views between citizens and key players in the coffee market. Whereas citizens support the concept of fairness derived from the basic rights approach, holding that the price should provide coffee farmers with a minimum level of subsistence, representatives of Dutch coffee traders hold the capitalistic view that the free world market price is fair.
    Keywords: Fair price; coffee market; justice; fair trade; libertarianism; moral desert; egalitarianism
    JEL: D63 A13 L31 D49 P16
    Date: 2009

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