nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒09‒06
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. The Upward Pricing Pressure Test for Merger Analysis: An Empirical Examination By Lydia Cheung
  2. Patent Licensing in Spatial Models By Yuanzhu Lu; Sougata Poddar
  3. The Rise and Fall of R&D Networks By Mauro V. Tomasello; Mauro Napoletano; Antonios Garas; Frank Schweitzer
  4. Flawed Economic Models have Misled RPM Policy in the US, Canada and the EU By Tarcisio da Graca; Robert Masson

  1. By: Lydia Cheung (Department of Economics, Faculty of Business and Law, Auckland University of Technology)
    Abstract: The Upward Pricing Pressure (UPP) test developed by antitrust economists Joseph Farrell and Carl Shapiro marks a new era in antitrust and provides an alternative to the traditional concentration-based tests in merger analysis. In addition to being free of market denition, the UPP's appeal lies in its ease of use: one simple formula indicates whether a merging rm has an incentive to increase prices postmerger. This paper rst establishes the theoretical relationship between the UPP and the standard structural merger simulation, namely, that the UPP is a \singleproduct merger simulation" that ignores the re-equilibration of all other endogenous variables except that product's own price. To assess the consequence of this simpli cation, I compute \true" UPP values for a cross-section of airline markets using structurally estimated price elasticities, and confront them with the \gold standard" of a merger simulation. I examine the predictive accuracy of both the sign and magnitude of the UPP. I nd that it gives wrong sign predictions to an average 10% of the observations, and its value has an average correlation of 0:92 with the structurally simulated price changes. However, since this test is meant to bypass a complicated demand estimation, I then use the example of a simple logit demand to illustrate the consequence of using inaccurate demand-side inputs in the UPP: the test will give a wrong sign prediction over a much larger range of cost synergies. Lastly, I discuss the pass-through conditions for Farrell and Shapiro's proposition, demonstrate empirically that they are not innocuous, and show that their violation can lead to false positive results (type I errors) in the UPP.
    Keywords: merger, upward pricing pressure
    Date: 2013–02
  2. By: Yuanzhu Lu (China Economics and Management Academy, Central University of Finance and Economics, China); Sougata Poddar (Department of Economics, Faculty of Business and Law, Auckland University of Technology)
    Abstract: We show that a two-part tariff licensing contract is always optimal to the insider patentee in spatial models irrespective of the size of the innovation or any pre-innovation cost asymmetries. The result provides a simple justification of the prevalence of two-part tariff licensing contracts in industries.
    Keywords: Salop Model, Hotelling Model, Costs, Innovation,PAtent Licensing
    JEL: D43 D45 L13
    Date: 2013–07
  3. By: Mauro V. Tomasello; Mauro Napoletano; Antonios Garas; Frank Schweitzer
    Abstract: Drawing on a large database of publicly announced R&D alliances, we track the evolution of R&D networks in a large number of economic sectors over a long time period (1986- 2009). Our main goal is to evaluate temporal and sectoral robustness of the main statistical properties of empirical R&D networks. By studying a large set of indicators, we provide a more complete description of these networks with respect to the existing literature. We find that most network properties are invariant across sectors. In addition, they do not change when alliances are considered independently of the sectors to which partners belong. Moreover, we find that many properties of R&D networks are characterized by a rise-and-fall dynamics with a peak in the mid-nineties. Finally, we show that such properties of empirical R&D networks support predictions of the recent theoretical literature on R&D network formation.
    Date: 2013–09–03
  4. By: Tarcisio da Graca (Université du Québec (Outaouais)); Robert Masson (Cornell University)
    Abstract: We show that some influential literature supporting the RPM efficiency view is flawed when it relies on the presale service justification for RPM. In particular we consider presale services that do not modify in use value of a good, what we term sterile services. We debunk what we call the Bork proposition, using Bork¹s own assumptions except one. Specifically Bork does not consider the fact that value in use may differ from prepurchase perceived value in use. We apply the value-in-use standard which exposes the loss in consumer surplus in Bork¹s model and reveals that even Bork¹s dissenters significantly underestimate their calculated losses to inframarginal consumers When consumer surplus is the antitrust/competition policy standard, our results suggest that a rule of reason regime in which competition/antitrust authorities or consumer protection agencies bear the burden of proof is inferior to a per se regime.
    Keywords: Resale Price Maintenance; Welfare Effects; Antitrust.
    JEL: L42
    Date: 2013–07–01

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