nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒02‒08
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Monopolistic competition beyond the constant elasticity of substitution By ZHELOBODKO, Evgeny; KOKOVIN, Sergey; Parenti, Mathieu; THISSE, Jacques-François
  2. Equilibrium mergers in a composite good industry with efficiencies By PARDO-GARCIA, Christina; SEMPERE-MONERRIS, Jose J.
  3. Monopolistic competition and income dispersion By OSHARIN, Alexander; THISSE, Jacques-François; USHCHEV, Philip; VERBUS, Valery
  4. The "demand side" effect of price caps: uncertainty, imperfect competition, and rationing By Léautier, Thomas-Olivier
  5. Crossing takeover premiums and mix of payment: An empirical test of contractual setting in M&A transactions By Hubert De La Bruslerie
  6. Commitments or prohibition? The EU antitrust dilemma By Mario Mariniello
  7. Product Market Deregulation and Employment Outcomes: Evidence from the German Retail Sector By Charlotte Senftleben-König; ; ;
  8. Transmission constraints and strategic underinvestment in electric power generation By Léautier, Thomas-Olivier

  1. By: ZHELOBODKO, Evgeny; KOKOVIN, Sergey; Parenti, Mathieu; THISSE, Jacques-François
  2. By: PARDO-GARCIA, Christina (Department of Applied Economics, University of Valencia, Spain); SEMPERE-MONERRIS, Jose J. (Department of Economic Analysis and ERI-CES, University of Valencia, Spain; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: This paper studies equilibrium merging behavior in composite good industries. Component producers face the option to either merge with a similar component producer (horizontal merger) or a complementary one (complementary merger) of a composite good. Focusing only on strategic reasons, complementary mergers arise at equilibrium only when composite goods are very differentiated while horizontal mergers otherwise. Next, when efficiencies are considered, the level of marginal cost saving required for a horizontal merger in a composite industry to result in a non- increase in the upward price pressure index (UPPI) is greater as compared with the one in a regular industry. This result can be used by antitrust authorities to be more demanding when dealing with horizontal mergers in composite goods industries.
    Keywords: composite goods, substitutes, complements, horizontal merger, complementary merger, efficiency effects, UPPI, diversion ratio
    JEL: L13 L41
    Date: 2014–01–13
  3. By: OSHARIN, Alexander (NRU-Higher School of Economics, Russia); THISSE, Jacques-François (Université catholique de Louvain, CORE, Belgium); USHCHEV, Philip (NRU-Higher School of Economics, Russia); VERBUS, Valery (NRU-Higher School of Economics, Russia)
    Abstract: We develop a model of monopolistic competition that accounts for consumers' heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers' tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.
    Keywords: heterogenous consumers, income redistribution, toughness of competition, monopolistic competition
    JEL: D43 L11 L13
    Date: 2014–01–13
  4. By: Léautier, Thomas-Olivier
    Abstract: Price caps are often used by policy makers to "regulate markets". Previous analyses have focussed on the "supply side" impact of these caps, and derived the optimal price cap, which maximizes investment and welfare. This article expands the analysis to include the "demand side" impact of price caps: when prices can no longer rise, customers must be rationed to adjust demand to available supply. This yields two new findings, that contradict previous analyses. First, the welfare-maximizing cap is higher than the capacity-maximizing cap, since increasing the cap increases gross surplus when customers are rationed. Second, in somes cases, the capacity-maximizing cap leads to lower capacity and welfare than no cap. These findings underscores the importance for policy makers to examine the impact on customers when they impose price caps.
    Keywords: price caps, imperfect competition, rationing, investment incentives
    JEL: L13 L94
    Date: 2014–01–27
  5. By: Hubert De La Bruslerie (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)
    Abstract: The analyses of the tender offer premiums and of the means of payment should not be performed separately. In the empirical literature, these two variables are often considered independently, although they may have an endogenous relationship in a contractual setting. Using a sample of European M&As over the 2000-2010 decade, we show that these two variables are jointly set in a contractual empirical approach. The relationship between the percentage of cash and the offer premium is positive: higher premiums yield payments with more cash. We highlight that the payment choice is not a continuum between full cash and full share payments. Two different regimes of payment in M&A transactions are empirically characterized. We analyze the major determinants of M&A terms when the offer premium and the means of payment are jointly set. The underlying rationale of an asymmetry of information and a risk-sharing calculus is found to be significant in the setting of the agreement.
    Keywords: M&A, takeover premium, means of payment, contract setting
    Date: 2013
  6. By: Mario Mariniello
    Abstract: The issue: Excluding cartels, most investigations into suspected infringements of European Union competition law are resolved with â??commitment decisionsâ??. The European Commission drops the case in exchange for a commitment from the company under investigation to implement measures to stop the presumed anti-competitive behaviour. Commitment decisions are considered speedier than formal sanctions (prohibition decisions) in restoring normal competitive market conditions. They have a cost, however: commitments are voluntary and are unlikely to be subject to judicial review. This reduces the European Commissionâ??s incentive to build a robust case. Because commitment decisions do not establish any legal precedent, they provide for little guidance on the interpretation of the law. Policy challenge: The European Commission relies increasingly on commitment decisions. More transparency on the substance of allegations, and the establishment of a higher number of legal precedents, are however necessary. This applies in particular to cases that tackle antitrust issues in new areas, such as markets for digital goods, in which companies might find it difficult to assess if a certain behaviour constitutes a violation of competition rules. To ensure greater transparency and mitigate some of the drawbacks of commitment decisions, while retaining their main benefits, the full detail of the objections addressed by the European Commission to defendants should be published.
    Date: 2014–01
  7. By: Charlotte Senftleben-König; ; ;
    Abstract: This paper investigates the short- and medium-term effects of the deregulation of shopopening hours legislation on retail employment in Germany. In 2006, the legislative competence was shifted from the federal to the state level, leading to a gradual deregulation of shop opening restrictions in most of Germany’s sixteen federal states. The paper exploits regional variation in the legislation in order to identify the effect product market deregulation has on retail employment. We find robust evidence that the deregulation of shop closing legislation had negative effects on retail employment, with considerable heterogeneity in terms of the type of employment as well as establishment size. That is, the employment losses are most pronounced for small retail stores and are almost exclusively borne by full-time employees.
    Keywords: Product market regulation, Employment, Retail trade
    JEL: J21 L51 L81
    Date: 2014–01
  8. By: Léautier, Thomas-Olivier
    Abstract: This article is the first to examine electric power producers' investment decisions when competition is imperfect and the transmission grid congested. This analysis yields numerous original insights. First, congestion on the grid is transient, and may disappear when demand is highest. Second, transmission capacity increases have complex impacts on generation: they may increase, decrease, or have no impact on the marginal value of generation, and may have similar or opposite impacts on the marginal value of different technologies. Third, the true social value of transmission, including its impact on investment, may be significantly lower than is commonly assumed.
    Keywords: electric power markets, imperfect competition, investment, transmission constraints
    JEL: D61 L11 L94
    Date: 2014–01–06

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