nep-ind New Economics Papers
on Industrial Organization
Issue of 2014‒10‒22
nine papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger control on two-sided markets: is there need for an efficinecy defense? By Edmond Baranes; Thomas Cortade; Andreea Cosnita-Langlais
  2. The Merger-Paradox: A Tournament-Based Solution By Fan, Cuihong; Wolfstetter, Elmar G.
  3. Learning in a Perfectly Competitive Market By Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
  4. Capital Structure, Product Market Competition and Default Risk By Magali Pedro Costa; Cesaltina Pires
  5. The Exporting and Productivity Nexus: Does Firm Size Matter? By Cassey LEE
  6. Patent Licensing Networks By Doh-Shin Jeon; Yassine Lefouili
  7. Informational opacity and honest certification By Pollrich, Martin; Wagner, Lilo
  8. Refinancing under Yardstick Regulation with Investment Cycles–The Case of Long-Lived Electricity Network Assets By Dominik Schober
  9. Competition, Product Proliferation and Welfare: A Study of the U.S. Smartphone Market By Ying Fan; Chenyu Yang

  1. By: Edmond Baranes (LAMETA-CNRS and Labex Entreprendre, Faculté d'Economie, Université de Montpellier, Rue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2, France); Thomas Cortade (BETA-CNRS, Université de Lorraine, Ile du Saulcy, BP 80794, 57012 Metz cedex 1, France); Andreea Cosnita-Langlais (EconomiX-CNRS, Université Paris Ouest Nanterre La Défense, 200 Avenue de la République, 92001 Nanterre cedex, France)
    Abstract: We study horizontal mergers on two-sided markets between horizontally differentiated platforms. We provide a theoretical analysis of the merger's price effect based on the amount of cost savings it generates, the behavior of outsider platforms, and the size of cross-group network effects. We point out differences as compared with the standard, one-sided merger analysis, and also discuss the merger control policy implications.
    Keywords: horizontal merger; two-sided markets; cost savings; merger control
    JEL: L41 D82 K21
    Date: 2014–09
  2. By: Fan, Cuihong; Wolfstetter, Elmar G.
    Abstract: According to the well-known “merger paradoxâ€, in a Cournot market game mergers are generally unprofitable unless most firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable, more profitable than in other known mechanism, and in many cases welfare increasing. The proposed mechanism assumes that merged firms continue to operate as independent subsidiaries that are rewarded according to a simple and commonly observed relative performance measure.
    Keywords: Mergers; multi-divisional firms; tournaments; industrial organization.
    JEL: L00 D4
    Date: 2014–08
  3. By: Leonard J. Mirman; Egas M. Salgueiro; Marc Santugini
    Abstract: We study the informativeness of the price in a perfectly competitive market. A price-taking firm sells a good whose quality is unknown to some buyers. The uninformed buyers use the price to infer information about quality. The shape of the supply curve influences the amount of information contained in the equilibrium price.
    Keywords: Asymmetric information, Learning, Perfect competition, Rational expectations
    JEL: D2 D41 D8 L1
    Date: 2014
  4. By: Magali Pedro Costa (CEFAGE-UE and ESTG, Instituto Politécnico de Leiria, Portugal); Cesaltina Pires (CEFAGE-UE and Departamento de Gestão, Universidade de Évora, Portugal)
    Abstract: The aim of this paper is to analyze the equilibrium default risk in a two-stage duopoly model, where firms decide their financial structure in the first stage of the game and take their output market decisions in the second stage of the game. Using the framework of Brander and Lewis (1986) we analyze the impact of changing the parameters of the model (level of demand uncertainty, parameters that affect both firms and firm specific parameters) on the equilibrium default probabilities. This analysis is done both for the Nash equilibrium in the second stage of the game (for fixed debt levels) as well as for the subgame perfect equilibrium. Our results show that both direct and indirect effects (through changes in the equilibrium capital structure and product market decisions) need to be considered and that, in some cases, the total impact of parameters changes on the default risk may be counterintuitive.
    Keywords: Capital structure; Product market competition; Default risk.
    JEL: D43 G32 L13
    Date: 2014
  5. By: Cassey LEE (Institute of Southeast Asian Studies)
    Abstract: The main purpose of this study is to examine whether the relationship between exporting and productivity differs across firm sizes in the Malaysian manufacturing sector. A firm-level panel data from the Study on Knowledge Content in Economic Sectors in Malaysia (MyKE) is used in the study. Overall, exporters were found to be more productive than non-exporters. This productivity gap becomes less important as firms become larger. There is evidence that the selection process for exporting is binding only for small firms. Policies that are meant to encourage small firms to export need to focus on enhancing human capital and foreign ownership.
    Keywords: Globalisation, Firm Size, Exporting, Productivity
    JEL: L60 O30 F14
    Date: 2014
  6. By: Doh-Shin Jeon (Toulouse School of Economics and CEPR); Yassine Lefouili (Toulouse School of Economics)
    Abstract: This paper investigates the patent licensing networks formed by competing firms. Assuming that licensing agreements can involve the payment of fixed fees only and that firms compete à la Cournot, we show that the complete network is always bilaterally efficient and that the monopoly network is bilaterally efficient if the patents are complementary enough. In the case of independent patents, we fully characterize the bilaterally efficient networks and find that when the cost reduction resulting from getting access to a competitor's technology is large enough, the complete network is the only bilaterally efficient one. We also show that the bilaterally efficient networks can be sustained as subgame-perfect Nash equilibria with symmetric payoffs. This implies that the Pareto-dominance criterion selects the network that maximizes industry profits when more than one bilaterally efficient network exists.
    Keywords: Licensing; Networks; Antitrust and Intellectual Property
    JEL: L12 L13 L41
    Date: 2014–09
  7. By: Pollrich, Martin; Wagner, Lilo
    Abstract: This paper studies the interaction of information disclosure and reputational concerns in certification markets. We argue that by revealing less precise information a certifier reduces the threat of capture. Opaque disclosure rules may reduce profits but also constrain feasible bribes. For large discount factors a certifier is unconstrained in the choice of a disclosure rule and full disclosure maximizes profits. For intermediate discount factors, only less precise, such as noisy, disclosure rules are implementable. Our results suggest that contrary to the common view, coarse disclosure may be socially desirable. A ban may provoke market failure especially in industries where certifier reputational rents are low.
    Keywords: Certification; Bribery; Reputation
    JEL: L15 D82 L14 L11
    Date: 2014
  8. By: Dominik Schober (Chair for Management Science and Energy Economics University of Duisburg-Essen)
    Abstract: In the context of yardstick regulation with long-lived assets, the influence of investment cycles and thereof resulting heterogeneous capital structures on the ability to recover capital is quite important. Investment decisions are based on whole investment cycles of the infrastructure. It is shown in this article that variable lifetimes of assets may cause substantial problems of capital-recovery under an efficient firm standard yardstick regulation based on historic (straight-line) depreciation. Resulting heterogeneous investment and cost cycles may cause instantaneous yardstick levels below the long-run refinancing level. Recovery is neither possible in later periods because of the efficient firm standard. An illustrating empirical example is used to demonstrate the relevance of the problem. Finally, two alternatives, branch average cost yardstick determination and correction factors based on the share of capital under depreciation, are discussed.
    Keywords: Electricity markets, yardstick regulation, benchmarking, infrastructure investment, capital-recovery, sustainable refinancing
    JEL: L51 L52
    Date: 2013–06
  9. By: Ying Fan (Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109); Chenyu Yang (Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109)
    Abstract: We consider a structural model of demand and supply where firms endogenously offer vertically differentiated products and exercise second-degree price discrimination. We apply this model to the smartphone industry and quantify the welfare effects of price discrimination and competition. We use counterfactual simulations to assess how the welfare changes when each firm only offers its highest-quality product. We also study the market outcomes such as price, product variety and welfare if later entrants in the market entered earlier.
    Keywords: endogenous product choice, second-degree price discrimination, smartphone industry
    JEL: L11 L15 L13 L63
    Date: 2014–09

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