nep-ind New Economics Papers
on Industrial Organization
Issue of 2015‒01‒14
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Entry and shakeout in dynamic oligopoly By Hünermund, Paul; Schmidt-Dengler, Philipp; Takahashi, Yuya
  2. On The Social Efficiency In Monopolistic Competitioin Models By Igor G. Pospelov; Stanislav A. Radionov
  3. Best Prices: Price Discrimination and Consumer Substitution By Judith A. Chevalier; Anil K Kashyap
  4. Optimal Strategies in Unionized Oligopoly and Inward FDI By Minas Vlassis; Stefanos Mamakis
  5. Mergers in declining industries: puzzles from competition and industrial policies By Angelo Castaldo; Laura Ferrari-Bravo
  6. Mergers and Acquisitions in the German Hospital Market – Who are the Targets? By Adam Pilny
  7. The Structure and Evolution of Intersectoral Technological Complementarity in R&D in Germany from 1990 to 2011 By Matthias Brachert; T. Brökel

  1. By: Hünermund, Paul; Schmidt-Dengler, Philipp; Takahashi, Yuya
    Abstract: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm efficiency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model generates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.
    Keywords: Life Cycle,Dynamic Oligopoly,Preemption,War of Attrition,Penicillin
    JEL: L11
    Date: 2014
  2. By: Igor G. Pospelov (National Research University Higher School of Economics); Stanislav A. Radionov (National Research University Higher School of Economics)
    Abstract: We consider standard monopolistic competition models with aggregate consumer's preferences dened by two well-known classes of utility functions | the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibruim is ecient only for the special case when utility function has a constant elasticity of substitution, but we nd that in both cases a special tax on rms' output may be introduced such that market equilibrium becomes ecient
    Keywords: monopolistic competition, eciency.
    JEL: D43 D61
    Date: 2014
  3. By: Judith A. Chevalier; Anil K Kashyap
    Abstract: We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the ideal price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.
    JEL: C43 D11 D12 D4 L81
    Date: 2014–12
  4. By: Minas Vlassis (University of Crete); Stefanos Mamakis (Department of Economics, University of Crete, Greece)
    Abstract: In a union-oligopoly context, we interpret the optimal equilibria may arise from the implementation of any possible policies of a benevolent social planner in the labour market. The applied policies may contradict or correspond with unions' and firms' objectives, while in other cases institutional arrangements of labour market appear to be inefficient to induce or deter FDI and thus social planner must search for alternative strategic devices. Given the complexity of the model, which must be solved computationally to obtain results, there are several outcomes depending on the values of the parameters.
    Keywords: Oligopoly, Cournot Duopoly, Labour Unions, Unionisation, Foreign Direct Investment, Endogenous Objectives
    JEL: J50 J51 L13 F21
    Date: 2014–12–03
  5. By: Angelo Castaldo (Sapienza Università di Roma); Laura Ferrari-Bravo (Sapienza Università di Roma)
    Abstract: Exit strategies referred to specific industry characteristics have been widely studied in the economic literature (Harrigan, 1980; Ghemawat et al., 1985, 1990; Lieberman, 1990; Reynolds, 1988; Fundenberg et al., 1989; Baptista et al., 2006). These studies show that exit dynamics – by setting new boundaries and changing the dynamic of sectorial competition – may reallocate activities towards more efficient outcomes. In declining industries particularly exit strategies play a crucial role in granting efficiency. When demand declines, efficiency rules call out for a shrink in production capacity. We focus on M&A as a strategy of orderly exiting from a declining industry. We argue that merger strategies in such a context could represent an efficient solution to the attrition game. However, mergers often give rise to competitive concerns. This raises the question of how to reconcile the enforcement of competition rules with the need of mergers as efficient devices for orderly exiting from declining industries. We suggest a two-step approach to merger scrutiny that, beginning from market definition from both a competition law and industrial policy perspective, attempts to solve the trade-off between fostering competition and recovering from decline, thereby reducing the possibility of committing Type I and II errors in assessing the competitive impact of mergers.
    Keywords: Declining Industries, Mergers
    JEL: G34 K21 L41 L52
    Date: 2014–12
  6. By: Adam Pilny
    Abstract: Since the introduction of the DRG system in 2004, the German hospital market experienced a stream of consolidations in terms of mergers and acquisitions, resulting in a decreasing number of hospital owners. In this study, I examine the ex-ante characteristics of hospitals prior to a merger or an acquisition occurring between 2005 and 2010 in Germany, predominantly focusing on the financial conditions of hospitals. The results reveal that hospitals with a higher probability of default and less liquid resources are more often the targets of acquisitions. On the other hand, hospitals with a lower equity-to-assets ratio exhibit a higher probability of merger. This pattern can be explained by different motives and rationales of hospital chains and potential investors.
    Keywords: Hospital market; mergers; acquisitions; consolidation
    JEL: I11 L33
    Date: 2014–11
  7. By: Matthias Brachert; T. Brökel
    Abstract: Technological complementarity is argued to be a crucial element for effective Research and Development (R&D) collaboration. The real structure is, however, still largely unknown. Based on the argument that organizations’ knowledge resources must fit for enabling collective learning and innovation, we use the co-occurrence of firms in collaborative R&D projects in Germany to assess inter-sectoral technological complementarity between 129 sectors. The results are mapped as complementarity space for the Germany economy. The space and its dynamics from 1990 to 2011 are analyzed by means of social network analysis. The results illustrate sectors being complements both from a dyadic and portfolio/ network perspective. This latter is important, as complementarities may only become fully effective when integrated in a complete set of different knowledge resources from multiple sectors. The dynamic perspective moreover reveals the shifting demand for knowledge resources among sectors at different time periods.
    Keywords: collaborative R&D projects, resource complementarity, co-occurrence analysis
    JEL: L14 O31
    Date: 2014–12

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