nep-ind New Economics Papers
on Industrial Organization
Issue of 2011‒08‒02
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Using rival effects to identify synergies and improve merger typologies By Clougherty, Joseph A.; Duso, Tomaso
  2. Winning by Losing: Evidence on Overbidding in Mergers By Ulrike Malmendier; Enrico Moretti; Florian Peters
  3. Stackelberg oligopoly TU-games: characterization of the core and 1-concavity of the dual game By Theo Driessen; Dongshuang Hou; Aymeric Lardon
  4. Convexity and the Shapley value in Bertrand oligopoly TU-games with Shubik's demand functions By Dongshuang Hou; Theo Driessen; Aymeric Lardon
  5. Competition among Spatially Differentiated Firms: An Estimator with an Application to Cement By Matthew J Osborne; Nathan H. Miller
  6. Competition in Health Care Markets By Martin Gaynor; Robert J. Town
  7. Competition and Industry Structure for International Rail Transportation By Friebel, Guido; Ivaldi, Marc; Pouyet, Jérôme

  1. By: Clougherty, Joseph A.; Duso, Tomaso
    Abstract: The strategy literature has found it difficult to differentiate between collusive and efficiencybased synergies in horizontal merger activity. We propose a theoretically-backed methodological approach to classify mergers that yields more information on merger types and merger effects, and that can, moreover, distinguish between mergers characterized largely by collusion-based synergies and mergers characterized largely by efficiency-based synergies. Crucial to the proposed measurement approach is that it encompasses the impact of merger events not only on merging firms (custom in the literature), but also on non-merging rival firms (novel in the literature). Employing the event-study procedure with stock-market data on samples of large horizontal mergers drawn from the US and UK (an Anglo-American sub-sample) and from the European continent, we demonstrate how the proposed schematic can better clarify the nature of merger activity. --
    Keywords: acquisitions,event-study,mergers,research methods,rivals,synergy
    Date: 2011
  2. By: Ulrike Malmendier (UC Berkeley, and NBER); Enrico Moretti (UC Berkeley, and NBER); Florian Peters (Duisenberg school of finance, and University of Amsterdam)
    Abstract: Do shareholders of acquiring companies profit from acquisitions, or do acquiring CEOs overbid and destroy shareholder value? Answering this question is difficult since the hypothetical counterfactual is hard to determine. We exploit merger contests to address the identification issue. In those cases where, ex ante, at least two bidders had a significant chance at winning the contest, the post-merger performance of the loser allows calculating the counterfactual performance of the winner without the merger. In a novel data set of merger contests since 1985, we find that the returns of bidders are closely aligned before the merger contest, but diverge afterwards. In the sample where the loser had a significant chance to win, winners underperform losers by 48 percent over the following three years. Our results also imply that announcement returns fail to provide an informative estimate of the causal effect of mergers in our sample. Existing measures of long-run abnormal returns tend to underestimate the negative return implications.
    Keywords: Mergers; Acquisitions; Misvaluation; Counterfactual
    JEL: G34 G14
    Date: 2011–07–25
  3. By: Theo Driessen (Department of Applied Mathematics [Twente] - University of Twente); Dongshuang Hou (Department of Applied Mathematics [Twente] - University of Twente); Aymeric Lardon (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    Abstract: In this article we consider Stackelberg oligopoly TU-games in gamma-characteristic function form (Chander and Tulkens 1997) in which any deviating coalition produces an output at a first period as a leader and outsiders simultaneously and independently play a quantity at a second period as followers. We assume that the inverse demand function is linear and that firms operate at constant but possibly distinct marginal costs. Generally speaking, for any TU-game we show that the 1-concavity property of its dual game is a necessary and sufficient condition under which the core of the initial game is non-empty and coincides with the set of imputations. The dual game of a Stackelberg oligopoly TU-game is of great interest since it describes the marginal contribution of followers to join the grand coalition by turning leaders. The aim is to provide a necessary and sufficient condition which ensures that the dual game of a Stackelberg oligopoly TU-game satisfies the 1-concavity property. Moreover, we prove that this condition depends on the heterogeneity of firms' marginal costs, i.e., the dual game is 1-concave if and only if firms' marginal costs are not too heterogeneous. This last result extends Marini and Currarini's core non-emptiness result (2003) for oligopoly situations.
    Keywords: Stackelberg oligopoly TU-game; Dual game; 1-concavity
    Date: 2011
  4. By: Dongshuang Hou (Department of Applied Mathematics [Twente] - University of Twente); Theo Driessen (Department of Applied Mathematics [Twente] - University of Twente); Aymeric Lardon (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon)
    Abstract: The Bertrand Oligopoly situation with Shubik's demand functions is modelled as a cooperative TU game. For that purpose two optimization problems are solved to arrive at the description of the worth of any coalition in the so-called Bertrand Oligopoly Game. Under certain circumstances, this Bertrand oligopoly game has clear affinities with the well-known notion in statistics called variance with respect to the distinct marginal costs. This Bertrand Oligopoly Game is shown to be totally balanced, but fails to be convex unless all the firms have the same marginal costs. Under the complementary circumstances, the Bertrand Oligopoly Game is shown to be convex and in addition, its Shapley value is fully determined on the basis of linearity applied to an appealing decomposition of the Bertrand Oligopoly Game into the difference between two convex games, besides two nonessential games. One of these two essential games concerns the square of one non- essential game.
    Keywords: Bertrand Oligopoly situation, Bertrand Oligopoly Game, Convexity, Shapley Value, Total Balancedness.
    Date: 2011
  5. By: Matthew J Osborne; Nathan H. Miller (Bureau of Economic Analysis)
    Abstract: We develop an estimator for models of competition among spatially differentiated firms. In contrast to existing methods (e.g., Houde (2009)), the estimator has flexible data requirements and is implementable with data that are observed at any level of aggregation. Further, the estimator is the first to be applicable to models in which firms price discriminate among consumers based on location. We apply the estimator to the portland cement industry in the U.S. Southwest over 1983-2003. We estimate transportation costs to be $0.30 per tonne-mile and show that, given the topology of the U.S. Southwest, these transportation costs permit more geographically isolated plants to discriminate among consumers. We conduct a counterfactual experiment and determine that disallowing this spatial price discrimination would increase consumer surplus by $12 million annually, relative to a volume of commerce of $1.3 billion. Heretofore it has not been possible examine the surplus implications of spatial price discrimination in specific, real-world settings; these implications have been known to be ambiguous theoretically since at least Gronberg and Meyer (1982) and Katz (1984). Additionally, our methodology can be used to construct transportation margins, which are an important component of input-output tables.
    JEL: E60 C51 L11 L40 L61
    Date: 2011–04
  6. By: Martin Gaynor; Robert J. Town
    Abstract: This paper reviews the literature devoted to studying markets for health care services and health insurance. There has been tremendous growth and progress in this field. A tremendous amount of new research has been done in this area over the last 10 years. In addition, there has been increasing development and use of frontier industrial organization methods. We begin by examining research on the determinants of market structure, considering both static and dynamic models. We then model the strategic determination of prices between health insurers and providers where insurers market their products to consumers based, in part, on the quality and breadth of their provider network. We then review the large empirical literature on the strategic determination of hospital prices through the lens of this model. Variation in the quality of health care clearly can have large welfare consequences. We therefore also describe the theoretical and empirical literature on the impact of market structure on quality of health care. The paper then moves on to consider competition in health insurance markets and physician services markets. We conclude by considering vertical restraints and monopsony power.
    JEL: I11 I18 L10 L13 L30 L40
    Date: 2011–07
  7. By: Friebel, Guido; Ivaldi, Marc; Pouyet, Jérôme
    Abstract: This paper investigates various options for the organization of the railway industry when network operators require the access to multiple national networks to provide international (freight or passenger) transport services. The EU rail system provides a framework for our analysis. Returns-to-scale and the intensity of competition are key to understanding the impact of vertical integration or separation between infrastructure and operation services within each country in the presence of international transport services. We also consider an option in which a transnational infrastructure manager is in charge of offering a coordinated access to the national networks. In our model, it turns out to be an optimal industry structure.
    Keywords: Network access; Transport economics; Vertical Separation
    JEL: L14 L42 L51 L92
    Date: 2011–07

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