nep-ind New Economics Papers
on Industrial Organization
Issue of 2016‒12‒11
six papers chosen by

  1. Distorted Monopolistic Competition By Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
  2. Cournot oligopoly with randomly arriving producers By Pierre Bernhard; Marc Deschamps
  3. Information Acquisition, Signaling and Learning in Duopoly By Thomas D. Jeitschko; Ting Liu; Tao Wang
  4. Collusive Agreements in Vertically Differentiated Markets By Marini, Marco A.
  5. Contribution of Patent Examination to Making the Patent Scope Consistent with the Invention: Evidence from Japan By OKADA Yoshimi; NAITO Yusuke; NAGAOKA Sadao
  6. Mergers and Acquisitions in the Indian Pharmaceutical Sector By Santosh K. Sahu; Nitika Agarwal

  1. By: Kristian Behrens; Giordano Mion; Yasusada Murata; Jens Suedekum
    Abstract: We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6-8% of the total labour input.
    Keywords: monopolistic competition, welfare distortion, intersectoral distortions, intrasectoral distortions
    JEL: D43 D50 L13
    Date: 2016–12
  2. By: Pierre Bernhard (Université Côte d’Azur, INRIA); Marc Deschamps (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: Cournot model of oligopoly appears as a central model of strategic interaction between competing firms both from a theoretical and applied perspective (e.g antitrust). As such it is an essential tool in the economics toolbox and always a stimulus. Although there is a huge and deep literature on it and as far as we know, we think that there is a ”mouse hole” wich has not already been studied: Cournot oligopoly with randomly arriving producers. In a companion paper [Bernhard and Deschamps, 2016b] we have proposed a rather general model of a discrete dynamic decision process where producers arrive as a Bernoulli random process and we have given some examples relating to oligopoly theory (Cournot, Stackelberg, cartel). In this paper we study Cournot oligopoly with random entry in discrete (Bernoulli) and continuous (Poisson) time, whether time horizon is finite or infinite. Moreover we consider here constant and variable probability of entry or density of arrivals. In this framework, we are able to provide algorithmes answering four classical questions: 1/ what is the expected profit for a firm inside the Cournot oligopoly at the beginning of the game?, 2/ How do individual quantities evolve?, 3/ How do market quantities evolve?, and 4/ How does market price evolve?
    Keywords: Cournot market structure, Bernoulli process of entry, Poisson density of arrivals, Dynamic Programming.
    JEL: C72 C61 L13
    Date: 2016–11
  3. By: Thomas D. Jeitschko; Ting Liu; Tao Wang
    Date: 2016
  4. By: Marini, Marco A.
    Abstract: This survey introduces a number of game-theoretic tools to model collusive agreements among firms in vertically differentiated markets. I firstly review some classical literature on collusion between two firms producing goods of exogenous different qualities. I then extend the analysis to a n-firm vertically differentiated market to study the incentive to form either a whole market alliance or partial alliances made of subsets of consecutive firms in order to collude in prices. Within this framework I explore the price behaviour of groups of colluding firms and their incentive to either pruning or proliferating their products. It is shown that a selective pruning within the cartel always occurs. Moreover, by associating a partition function game to the n-firm vertically differentiated market, it can be shown that a sufficient condition for the cooperative (or coalitional) stability of the whole industry cartel is is the equidistance of firms' products along the quality spectrum. Without this property, and in presence of large quality differences, collusive agreements easily loose their stability. In addition, introducing a standard infinitely repeated-game approach, I show that an increase in the number of firms in the market may have contradictory effects on the incentive of firms to collude: it can make collusion easier for bottom and intermediate firms and harder for the top quality firm. Finally, by means of a three-firm example, I consider the case in which alliances can set endogenously qualities, prices and number of variants on sale. I show that, in every formed coalition, (i) market pruning dominates product proliferation and (ii) partial cartelisation always arises in equilibrium, with the bottom quality firm always belonging to the alliance.
    Keywords: Vertically differentiated market, price collusion, product pruning, product proliferation, endogenous qualities, endogenous alliance formation, coalition structures, grand coalition, coalition stability, core, simultaneous and sequential game of coalition formation.
    JEL: L1 L12 L13 L2 L22
    Date: 2016–12–01
  5. By: OKADA Yoshimi; NAITO Yusuke; NAGAOKA Sadao
    Abstract: Delineating the patent scope consistently with the contribution of the disclosed invention is one of the most crucial requirements for a patent system to promote innovation effectively. Given the incentive of an applicant to set a scope for the patent as broad as possible, an important task of the Patent Office is to narrow it so that it becomes commensurate with the invention. This study analyzes empirically how significantly the Patent Office delivers this important function through patent examination, focusing on product patents in four major technology areas. We find that, often (i.e., two-thirds of the granted patents), the patent's scope is narrowed as an outcome of the patent examination. In addition, both the incidence and the extent of such narrowing increase when the applicant chooses broader claims and decrease when the quality of prior art disclosure by the applicant is higher, suggesting that patent examination indeed contributes to making the patent scope consistent with the contribution of the invention. We also found that a more important patent application experiences more the narrowing event, consistent with our simple model of examination where an examiner aims at reducing the economic cost due to excess claim such as deadweight loss, subject to time constraint.
    Date: 2016–11
  6. By: Santosh K. Sahu (Madras School of Economics); Nitika Agarwal (Madras School of Economics)
    Abstract: Mergers and acquisitions (M and A) are common strategies of firms to increase its performance. Although, the motives of M and A are different however, the determinants are discreet. This study tries to determine the factors affecting M and A activities in the Indian pharmaceutical sector. The empirical findings suggest; export intensity, import intensity, firm size and research and development intensity as the major determinants of M and A in the Indian pharmaceutical sector. In the context of acquisition, there is a riskiness associated with any business strategy, for to which a firm may choose to finance the deal either via cash, stock or assets. This study further looks at the firm’s decision on the types of acquisitions and arrives at the determinants of such decisions. The factors such as capital intensity was found more important when acquisition by share was undertaken compared to others. The success of the M and A is observed by considering the financial performance of the firm measured in terms of profit margin at firm level. Using propensity score matching technique, this study concludes that M and A have positive effect on the profit margin in the post M and A scenario.
    Keywords: Mergers, Acquisitions, Indian Pharmaceutical Sector Classification-JEL: G34, L65, C13
    Date: 2015–09

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