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on Industrial Organization |
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Issue of 2012‒07‒08
eight papers chosen by |
| By: | Duso, Tomaso; Gugler, Klaus; Szücs, Florian |
| Abstract: | We propose a general framework to assess merger policy effectiveness based on standard oligopoly theory and stock market reactions. We focus on four different dimensions of effectiveness: 1) legal certainty, 2) decision errors, 3) reversion of anti-competitive rents, and 4) deterrence. We apply this framework to 368 merger cases scrutinized by the European Commission (EC) between 1990 and 2007. To evaluate the economic impact of the change in European merger legislation, we compare the results of the four tests before and after its introduction in 2004. Our results suggest that the 'more economic approach' resulted in improved ex-ante predictability of decisions and a reduction of the frequency of type I errors. Merger policy enforcement deters anti-competitive mergers without over-deterring pro-competitive transactions. Yet, the policy shift away from prohibitions, which are effective as a policy tool and as a deterrent mechanism, does not seem to be well-grounded. -- |
| Keywords: | merger control,regulatory reform,EU Commission,event-study |
| JEL: | L4 K21 C13 D78 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:58&r=ind |
| By: | Ben Ferrett (School of Business and Economics, Loughborough University, UK); Joanna Poyago-Theotoky (School of Economics, La Trobe University, Australia) |
| Abstract: | We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We find, first, that a horizontal agreement always arises. The insiders’ merger/RJV choice involves a trade-off. While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability (“quality”) both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. |
| Keywords: | horizontal merger, research joint venture (RJV), contract enforceability, process R&D, R&D complementarity |
| JEL: | O30 L13 D43 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2012_04&r=ind |
| By: | Juan-Pablo Montero; Esperanza Johnson |
| Abstract: | We study the static and dynamic implications of non-linear pricing schemes (i.e., bundling) for otherwise unrelated products but for multimarket contact. Bundling is always present in competition but unlikely in a cartel agreement. Although it brings extra profits to the cartel –sometimes charging a premium rather than a discount for the bundle–, bundling makes deviation from the agreement far more attractive. Depending on the correlation of consumers’ preferences, this deviation effect is either reinforced with milder punishments (for positive correlations) or partially offset with harsher punishments (for negative correlations). The deviation effect is so strong that it even dominates a zero-profit (pure-bundling) punishment. |
| Keywords: | multimarket contact, conglomerate merger, bundling, collusion |
| JEL: | L13 L41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:420&r=ind |
| By: | Hackl, Franz (Department of Economics, University of Linz); Kummer, Michael E. (Department of Economics, University of Mannheim, and ZEW, Mannheim); Winter-Ebmer, Rudolf (Department of Economics, Johannes Kepler University, Linz, and Institute for Advanced Studies, Vienna, Austria); Zulehner, Christine (Department of Economics, University of Linz, and WIFO, Vienna) |
| Abstract: | We investigate the causal effect of market structure on market performance in the consumer electronics. We combine data from Austria’s largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game over the whole product lifecycle. Using this information for 70 digital cameras, we generate instrumental variables for the number of firms in the market based on the shops’ entry decisions on other product markets in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader. |
| Keywords: | Retailing, product lifecycle, market structure, market performance, markup, price dispersion |
| JEL: | L11 L13 L81 D43 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:287&r=ind |
| By: | Cremer, Helmuth; De Donder, Philippe; Dudley, Paul; Rodriguez, Frank |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26025&r=ind |
| By: | Ben Ferrett (School of Business and Economics, Loughborough University, UK) |
| Abstract: | The substantial within-industry variation in firm productivity typically observed in the data suggests that there is ample scope for catch-up by laggard firms. We analyse the normative effects of such catch-up. In the short run, where firms’ process technologies are fixed, catch-up can reduce social welfare if the initial unit-cost gap between firms is sufficiently large (the Lahiri/Ono effect). However, in the long run, where firms invest in process R&D to maximize profits, social welfare jumps upwards following catch-up if it causes the major firm’s R&D spending lead to grow. Both qualitative insights appear quite general. |
| Keywords: | asymmetric duopoly, catch-up, social welfare, process R&D. |
| JEL: | D61 L13 O33 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2012_05&r=ind |
| By: | Hüschelrath, Kai; Müller, Kathrin |
| Abstract: | We study the competitive effects of five liquidations and six mergers in the domestic U.S. airline industry between 1995 and 2010. Applying fixed effects regression models we find that route exits due to liquidation lead to substantially larger price increases than mergerrelated exits. Within the merger category, our analysis reveals significant price increases on all affected routes immediately after the exit events. In the medium and long-run, however, realized merger efficiencies and entry-inducing effects are found to be strong enough to drive prices down to pre-exit levels. -- |
| Keywords: | airline industry,exit,liquidation,merger,efficiencies,entry-inducing effects |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12037&r=ind |
| By: | Hüschelrath, Kai; Müller, Kathrin; Veith, Tobias |
| Abstract: | We use publicly available price data from the German cement industry to estimate the cartelinduced price increase. We apply two different comparator-based approaches - the 'before and-after' approach and the 'difference-in-differences' approach - and especially study the impact of various assumptions on the transition period from the cartel period to the non-cartel period on the overcharge estimate. We find that the cement cartel led to price overcharges in a range from 20.3 to 26.5 percent depending on model approach and model assumptions. -- |
| Keywords: | antitrust policy,cartels,private enforcement,damages,overcharge |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12035&r=ind |