nep-ind New Economics Papers
on Industrial Organization
Issue of 2010‒03‒28
ten papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Welfare-Enhancing Hard Core Cartels By Bos Iwan; Pot Erik
  2. Does Asymmetric Information Affect the Premium in Mergers and Acquisitions? By Georges Dionne; Mélissa La Haye; Anne-Sophie Bergères
  3. Regulating quality by regulating quantity : a case against minimum quality standards By BOCCARD, Nicolas; WAUTHY, Xavier
  4. Downstream Mode of Competition With Upstream Market Power By Constantine Manasakis; Minas Vlassis
  5. Competition among the big and the small By SHIMOMURA, Ken-Ichi; THISSE, Jacques-Franois
  6. A note on price competition in product differentiation models By GABSZEWICZ, Jean
  7. Product differentiation and vertical integration in presence of double marginalization By ZANAJ, Skerdilajda
  8. Endogenous network formation in patent contests and its role as a barrier to entry By MARINUCCI, Marco; VERGOTE, Wouter
  9. Intellectual Property Right Protection in the Software Market By Arai, Yasuhiro
  10. Multiple measures, inscription instability and action at a distance: performance measurement practices in the pharmaceutical industry By Dambrin, Claire; Robson, Keith

  1. By: Bos Iwan; Pot Erik (METEOR)
    Abstract: The conventional wisdom is that cartels are bad. In particular, cartels that merely lead to lower production levels and higher prices are thought to be exclusively detrimental to social welfare. This is reflected in the fact that most capitalist societies have declared such so-called hard core cartel arrangements illegal per se. In this paper, we question this rather rigid approach to hard core cartels. In a simple but fairly general setting, we provide necessary and sufficient conditions for the existence of a hard core cartel that is beneficial for firms and society at large. We consider both strong (with side payments) and weak (without side payments) hard core cartel contracts and find that (i) both strong and weak welfare-enhancing cartels exist when at least one firm makes a loss on part of its sales in competition, (ii) a welfare-enhancing strong cartel exists whenever there is a difference in unit costs at competitive production levels, and (iii ) a welfare-enhancing weak cartel exists when this difference is sufficiently large.
    Keywords: mathematical economics;
    Date: 2010
  2. By: Georges Dionne; Mélissa La Haye; Anne-Sophie Bergères
    Abstract: Our objective is to test the influence of information asymmetry between potential buyers on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions with asymmetric information. The theory of dynamic auctions with private values predicts that more informed bidders should pay a lower price for an acquisition. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We hypothesize that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Information asymmetry between participants is shown to influence the premium paid. Blockholders pay a much lower conditional premium than do other buyers (around 70% lower). Tests also show that the characteristics of the target, specifically the runup, sales growth and size, affect the premium. The size of the target relative to the buyer, the choice of a public takeover bid and the hostility of the bid are also influential.
    Keywords: Asymmetric information, merger and acquisition, blockholder, premium, English auction, test for over-identifying restriction (Sargan test), test for endogeneity (Durbin-Wu-Hausman test)
    JEL: C33 D81 G34
    Date: 2010
  3. By: BOCCARD, Nicolas (Departament d'Economia, University of Girona, Spain); WAUTHY, Xavier (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Keywords: quality, minimum quality standards, price competition
    JEL: D43 L13 L51
    Date: 2009–09–01
  4. By: Constantine Manasakis (Department of Economics, University of Crete, Greece); Minas Vlassis (Department of Economics, University of Crete, Greece)
    Abstract: In contrast with previous studies we assume no ex-ante commitment over the �price or quantity� type of contract which downstream firms will independently offer consumers in a two-tier oligopoly. Under competing vertical chains, we propose that the downstream mode of competition which in equilibrium emerges is the outcome of independent implicit agreements, between each downstream firm and its exclusive input supplier, in each vertical chain. Our findings suggest that input suppliers may thus act as commitment devices sufficient to endogenously sustain the quantity (Cournot) mode of competition.
    Keywords: Oligopoly; Vertical relations; Wholesale prices; Equilibrium mode of competition
    JEL: D43 L13 L42
    Date: 2010–03–17
  5. By: SHIMOMURA, Ken-Ichi (RIEB, Kobe University, Japan); THISSE, Jacques-Franois (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Keywords: oligopoly, monopolistic competition, product differentiation, welfare
    JEL: L13 L40
    Date: 2009–08–01
  6. By: GABSZEWICZ, Jean (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: We define a two-variant model of product differentiation which, depending on the number of consumers prefering one variant to the other, provides equilibrium prices reflecting the natural valuation of these variants by the market.
    Date: 2009–09–01
  7. By: ZANAJ, Skerdilajda (UniversitŽ du Luxembourg, CREA, Luxembourg)
    Abstract: In this paper, we present a model of endogenous vertical integration and horizontal differentiation. There exists two output brands and two versions of the input. The only mean for output differentiation is the input version used in output production. Firms may choose to vertically integrate to produce internally the required input version at marginal cost, rather then to buy it at the market price, if that version is made available. We show that vertical mergers increase the possibility that output goods are differentiated. Moreover, this occurs when the cost to differentiate the input is high. On the other hand, vertical integration is detrimental for brand variety if the cost to differentiate inputs is negligible.
    Keywords: horizontal differentiation, vertical agreements, successive Cournot oligopolies
    JEL: D43 L13 L42
    Date: 2009–11–01
  8. By: MARINUCCI, Marco (UniversitŽ catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); VERGOTE, Wouter (FacultŽs universitaires Saint-Louis, CEREC, B-1000 Bruxelles, Belgium and UniversitŽ catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: In a setting of R&D co-opetition we study, by using an all-pay auction approach, how collaboration affects strategic decisions during a patent contest, and how the latter influences the possible collaboration network structures the firms can hope to form. The all pay auction approach allows us to 1) endogenize both network formation and R&D intensities and 2) take heterogeneous and private valuations for patents into account. We find that, different from previous literature, the complete network is not always the only pairwise stable network, even and especially if the benefits from cooperating are important. Interestingly, the other possible stable networks all have the realistic property that some firms decide not to participate in the contest. Thus, weak cooperation through network formation can serve as a barrier to entry on the market for innovation. We further show that there need not be any network that survives a well known refinement of pairwise stability, strong stability, which imposes networks to be immune to coalitional deviations.
    Keywords: patent game, networks, R&D cooperation, all-pay auction
    JEL: L14 L24 O32
    Date: 2009–11–01
  9. By: Arai, Yasuhiro
    Abstract: We discuss the software patent should be granted or not. There exist two types of coping in the software market; reverse engineering and software duplication. Software patent can prevent both types of copies since a patent protects an idea. If the software is not protected by a patent, software producer cannot prevent reverse engineering. However, the producer can prevent the software duplication by a copyright. It is not clear the software patent is socially desirable when we consider these two types of coping. We obtain the following results. First, the number of copy users under the patent protection is greater than that under the copyright protection. Second, the government can increase social welfare by applying copyright protection when the new technology is sufficiently innovative.
    Keywords: Copyright Protection, Intellectual Property Right, Software
    JEL: D42 K39 L86
    Date: 2010–01
  10. By: Dambrin, Claire; Robson, Keith
    Abstract: In this paper the authors explore performance measurement practices in pharmaceutical companies with particular reference to the inscribing (or ‘tracing’) of pharmaceutical representatives (‘drug reps’) responsible for the promotion of prescription medications to general practitioners and other healthcare professionals. They draw upon Latour’s sociology of translation to explore the qualities of the inscriptions practiced in French pharmaceutical companies to control drug reps at a distance. Within the context of regulatory constraints upon drug representatives’ activities and the reporting of pharmaceutical prescriptions in France, the authors analyze the inscriptions devices and explore problems of interessement and instability of ‘performance measurement’ inscriptions. The paper concludes with a discussion of the concept of stability and how processes of ambiguity, uncertainty and professional identity may contribute to stabilizing inscriptions and tackling problems of action at a distance.
    Keywords: performance measurement; pharmaceutical industry
    JEL: L12 L25
    Date: 2009–03–01

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