nep-ind New Economics Papers
on Industrial Organization
Issue of 2013‒12‒29
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On Cobb-Douglas Preferences in Bilateral Oligopoly By Dickson, Alex
  2. Merger regulation, firms, and the co-evolutionary process: An empirical study of internationalisation in the UK alcoholic beverages industry 1985-2005 By Julie Bower; Howard Cox
  3. Horizontal mergers and uncertainty By Le Pape, Nicolas; Zhao, Kai
  4. Assessing competition in the banking industry: A multi-product approach By Barbosa, Klenio de Souza; Rocha, Bruno; Salazar, Fernando
  5. A Model of Recommended Retail Prices By Dmitry Lubensky
  6. Overconfidence in the Markets for Lemons By Herweg, Fabian; Müller, Daniel
  7. Market power issues in the reformed Russian electricity supply industry By Nadia Chernenko
  8. The Impact of Retail Mergers on Food Prices: Evidence from France By Marie-Laure Allain; Claire Chambolle; Stéphane Turolla; Sofia Villas-Boas
  9. FOOD COMPETITION IN WORLD MARKETS: SOME EVIDENCE FROM A PANEL DATA ANALYSIS OF TOP EXPORTING COUNTRIES By Donatella Baiardi; Carluccio Bianchi; Eleonora Lorenzini

  1. By: Dickson, Alex
    Abstract: Bilateral oligopoly is a simple model of exchange in which a finite set of sellers seek to exchange the goods they are endowed with for money with a finite set of buyers, and no price-taking assumptions are imposed. If trade takes place via a strategic market game bilateral oligopoly can be thought of as two linked proportional-sharing contests: in one the sellers share the aggregate bid from the buyers in proportion to their supply and in the other the buyers share the aggregate supply in proportion to their bids. The analysis can be separated into two ‘partial games’. First, fix the aggregate bid at B; in the first partial game the sellers contest this fixed prize in proportion to their supply and the aggregate supply in the equilibrium of this game is X˜ (B). Next, fix the aggregate supply at X; in the second partial game the buyers contest this fixed prize in proportion to their bids and the aggregate bid in the equilibrium of this game is ˜B (X). The analysis of these two partial games takes into account competition within each side of the market. Equilibrium in bilateral oligopoly must take into account competition between sellers and buyers and requires, for example, ˜B (X˜ (B)) = B. When all traders have Cobb-Douglas preferences ˜ X(B) does not depend on B and ˜B (X) does not depend on X: whilst there is competition within each side of the market there is no strategic interdependence between the sides of the market. The Cobb-Douglas assumption provides a tractable framework in which to explore the features of fully strategic trade but it misses perhaps the most interesting feature of bilateral oligopoly, the implications of which are investigated.
    Keywords: strategic market game, bilateral oligopoly, Cobb-Douglas preferences, aggregative games,
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:edn:sirdps:493&r=ind
  2. By: Julie Bower; Howard Cox
    Abstract: We present an historic industry study of the consolidation of the UK alcoholic beverages firms to inform debates in organisation studies relating to co-evolution and the dynamics of internationalisation. We distinguish behavioural and structural co-evolutionary factors in firms’ strategic intent, mirroring the two types of remedies that competition authorities can impose on merging firms. We test this theoretical construct in an empirical investigation of the consolidating UK alcoholic beverages firms between 1985 and 2005. In this era Diageo was formed from the landmark merger of Grand Metropolitan and Guinness. Subsequently Diageo acquired the former international spirits empire of Seagram in partnership with a major competitor. Successful implementation of Diageo’s merger strategy owed much to an ability to navigate the evolving multijurisdictional co-ordinated oversight of cross-border mergers and acquisitions. The formation of novel deal structures as well as co-operation with competitors to circumvent policy intervention were significant co-evolutionary mechanisms that have featured more generally in subsequent international mergers as others have copied these deal structures to achieve similar regulatory outcomes.
    Keywords: Alcoholic beverages; Co-evolution; Competition policy; Merger regulation
    JEL: K21 L22 L66
    Date: 2013–12
    URL: http://d.repec.org/n?u=RePEc:cgs:wpaper:48&r=ind
  3. By: Le Pape, Nicolas; Zhao, Kai
    Abstract: Some path-breaking work on mergers takes efficiency gains for granted, or assumes that firms have perfect knowledge when taking merger decisions. In practice, firms and competition authorities cannot know exact future efficiency gains, prior to merger consummation. This paper analyzes horizontal mergers when the output decision-making process is sequential. A key assumption is that mergers create uncertainty on productivity and informational asymmetry between firms. The paper also studies whether the merged firm has interest to reveal the information about its own cost to competing firms. In terms of Merger Approval, the paper emphasizes the timing of regulatory intervention and distinguishes two different merger control interventions (ex ante or ex post enforcement). Since prudent competition authorities (using ex ante intervention) should take the restrictive policy, the framework illustrates why US Horizontal Merger Guidelines and EC Merger Regulation are biased in favor of the consumers' interests. --
    Keywords: merger,competition authorities,uncertainty,asymmetric information
    JEL: D21 D80 L20 L40
    Date: 2013
    URL: http://d.repec.org/n?u=RePEc:zbw:ifwedp:201362&r=ind
  4. By: Barbosa, Klenio de Souza; Rocha, Bruno; Salazar, Fernando
    Abstract: This paper investigates the competitive aspects of multi-product banking operations.Extending Panzar and Rosse (1987)’s model to the case of a multi-product bankingfirm, we show that the higher the economies of scope in multi-product banking are,the lower Panzar-Rosse’s measure of competition in the banking sector is. To test thisempirical implication and determine the impact of multi-production/conglomeration onmarket power, we use a new dataset on Brazilian banking conglomerates. Consistentwith our theoretical prediction, we find that banks offering classic banking products (i.e.,loans and credit cards) and other banking products (i.e., brokerage services, insuranceand capitalization bonds) have substantially higher market power than banks that offeronly classic products. These results suggest a positive bias in the traditional estimatesof competition in which multi-output actions are not considered.
    Date: 2013–12–06
    URL: http://d.repec.org/n?u=RePEc:fgv:eesptd:339&r=ind
  5. By: Dmitry Lubensky (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Consumers rely on a manufacturer's recommended price to help determine whether to accept a retailer's price or continue to search. This paper demonstrates that doing so can be rational even if the manufacturer's price recommendation is cheap talk. By incentivizing search, a manufacturer trades off reducing double marginalization and losing consumers to competitors. When the manufacturer's cost is low he induces low retail prices and benefits when consumers search more. When the manufacturer's cost is high he induces high retail prices and benefits when consumers search less. Since consumers prefer to search more when lower prices are available, their incentives are aligned with the manufacturer's and this allows informative cheap talk communication. Aside from costs, the manufacturer can inform consumers of other market parameters such as product quality.
    Keywords: consumer search, sequential search, search with uncertainty, manufacturer suggested retail prices, vertical markets, signaling, cheap talk
    JEL: L11 D82
    Date: 2013–12
    URL: http://d.repec.org/n?u=RePEc:iuk:wpaper:2013-14&r=ind
  6. By: Herweg, Fabian; Müller, Daniel
    Abstract: We extend Akerlof (1970)’s “Market for Lemons†by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is on display for sale. Overconfident buyers do not update according to Bayes’ rule but take the noisy signal at face value. We show that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. This stabilization, however, comes at a cost: rational buyers are crowded out of the market.
    Keywords: Adverse Selection; Market for Lemons; Overconfidence
    JEL: D82 L15
    Date: 2013–12–17
    URL: http://d.repec.org/n?u=RePEc:trf:wpaper:452&r=ind
  7. By: Nadia Chernenko
    Abstract: The paper examines long-run and short-run levels of market power in the liberalised Russian electricity market. We observe that despite potential for market power abuse, actual exercise of market power as measured by price-cost markups remained low. We attribute the result to the bid-at-cost rule implemented as a part of a special unit commitment procedure on the day-ahead market. We first look at the restructured industry and discuss the mergers and acquisitions and their impact on competition in long term. The M&A were undertaken in different market zones and thus did not seem to increase concentration (HHI remains almost unchanged) although with future zone integration competition in long run is put at risk. We then examine short-run level of market power by estimating hourly price-cost mark-ups and assessing their dynamics in 2010 and 2011, a year preceeding and following the market liberalisation respectively. Using time series models (AR models) we reject hypothesis of actual market power abuse. Further, using a Tobit regression we find that the liberalisation decreased the mark-ups by about 1.66 percetage points.
    Keywords: Russian electricity market, liberalisation, market power, concentration, price-cost mark-ups
    JEL: L11 L13 L94
    Date: 2013–07–12
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:1358&r=ind
  8. By: Marie-Laure Allain (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Claire Chambolle (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, INRA - Institut national de la recherche agronomique (INRA)); Stéphane Turolla (INRA - UMR 1302); Sofia Villas-Boas (UC Berkeley - University of California - University of California, Berkeley)
    Abstract: This paper analyzes the impact of a merger in the French retail sector on food prices, using a consumer panel data. We perform a di fference-in-diff erences analysis by comparing price changes in stores for which the local market structure is aff ected by the merger to unaff ected stores. In addition, we empirically investigate economic forces behind the observed price changes. On average, we fi nd that the merger signifi cantly raised competitors' prices contemporaneously with merging firms' price increases. Further, we show that competitor prices increase more in local markets that experience larger structural changes in concentration and chain diff erentiation.
    Keywords: Ex-post merger evaluation, Retail grocery sector, Diff erence-in-diff erences.
    Date: 2013–12–18
    URL: http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00920460&r=ind
  9. By: Donatella Baiardi (Dipartimento di Economia, Metodi Quantitativi e Strategie d’Impresa Università Bicocca, Milano); Carluccio Bianchi (Department of Economics and Management, University of Pavia); Eleonora Lorenzini (Department of Economics and Management, University of Pavia)
    Abstract: This paper investigates the relationships between export price and income elasticities, average unit values (AUVs) and market shares for the top world food exporters in the time period 1992-2011 using a panel data framework. Emerging countries and Spain show a high price elasticity unlike other advanced countries. Moreover, an inverse relationship between price elasticities and AUVs is found to exist. The overall analysis enables the conclusion that advanced countries can maintain a specialization in low-tech sectors only if high prices, as indicators of high quality, are accompanied by a rigid foreign demand and a satisfactory income elasticity of exports.
    Keywords: Clothing, Price elasticity, Income elasticity, Export Performance, Product Quality, Panel Granger causality
    JEL: F14 L66 Q17 C23
    URL: http://d.repec.org/n?u=RePEc:pav:demwpp:060&r=ind

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