nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒02‒19
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. When multiple merged entities lead in Stackelberg oligopolies: Merger paradox and Welfare By Walter Ferrarese
  2. Cooperation in a differentiated duopoly when information is dispersed: A beauty contest game with endogenous concern for coordination By Camille Cornand; Rodolphe Dos Santos Ferreira
  3. R&D Cooperatives and Market Collusion: A Global Dynamic Approach By Jeroen Hinloopen; Grega Smrkolj; Florian Wagener
  4. Productive Efficiency and Ownership When Market Restructuring Affects Production Technologies By Astrid Cullmann; Maria Nieswand; Julia Rechlitz

  1. By: Walter Ferrarese (University of Rome "Tor Vergata")
    Abstract: The merger paradox refers to the fact that in a symmetric static Cournot oligopoly horizontal mergers are generally unprofitable. Moreover, even in case of profitable mergers, remaining outside the merger is better than participating (free-riding issue). In this paper we tackle both issues in a model with linear inverse demand, in which we allow for multiple simoltaneous mergers from a static symmetric Cournot market. Once the mergers occur, each merged entity acquires the right of becoming the leader over the remaining firms outside the mergers (outsiders). We allow the leaders to be heterogeneous in the number of members (insiders). Our model connects and extendes Liu and Wang (2015), who are the first to explore the feature of the leadership acquisiton. They show that if a unique merged entity acquires the leadership, then there is always an incetive for such merger to occur. However, they do not tackle the free riding aspect of mergers. We obtain that the case of a unique leader is the only one in which the merged entity has always an incentive to form. We carry out a welfare analysis and show that, in our setting, despite the symmetry of firms total output can often rise and make consumers better off. Moreover, the adoption of consumers surplus only or consumer surplus plus industry profits as welfare measures does not change the set of welfare improving mergers. This suggests that the common view on horizontal mergers among symmetric firms being unambiguously welfare reducing requires, in some cases a deeper analysis, since the change in the market structure alone can be enough to increase welfare. It also suggests parsimony for the antitrust authorities in evaluating the welafre implications of mergers.
    Keywords: horizontal mergers, market power, merger paradox, stackelberg competition, welfare.
    JEL: L11 L13 L14
    Date: 2017–02–10
  2. By: Camille Cornand; Rodolphe Dos Santos Ferreira
    Abstract: The paper provides a micra-founded differentiated duopoly illustration of a beauty contest, in which the weight put on the strategic vs. the fundamental motive of the pay­ offs is not exogenous but may be manipulated by the players. We emphasize the role of the competition component of the strategic motive as a source of conflict with the fun­ damental motive. This conflict, already present in an oligopolistic setting under perfect information, is only exacerbated when information is imperfect and dispersed. We show how firm owners ease such conflict by opting for sorne cooperation, thus moderating the competitive toughness displayed by their managers. By doing so, they also influence the managers' strategic concern for coordination and consequently the weight put on public relative to private information.
    Keywords: beauty contest, competition, cooperation, coordination, differentiated duopoly, dispersed information, public information.
    JEL: D43 D82 L13 L21
    Date: 2017
  3. By: Jeroen Hinloopen (CPB Netherlands Bureau for Economic Policy Analysis and University of Amsterdam, The Netherlands); Grega Smrkolj (Newcastle University, Geat-Britain); Florian Wagener (University of Amsterdam, The Netherlands)
    Abstract: We present a continuous-time generalization of the seminal R&D model of d'Aspremont and Jacquemin (The American Economic Review 78(5): 1133–1137, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion. We consider all trajectories that are candidates for an optimal solution as well as initial marginal cost levels that exceed the choke price. Firms that collude develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.
    Keywords: Antitrust policy; Bifurcations; Collusion; R&D cooperatives; Spillovers
    JEL: D43 D92 L13 L41 O31 O38
    Date: 2017–02–10
  4. By: Astrid Cullmann; Maria Nieswand; Julia Rechlitz
    Abstract: While the link between the ownership and productive efficiency of firms has been discussed extensively, no consensus exists regarding the superiority of one or the other in non-competitive, regulated environments. This paper applies a flexibleproduction model to test for efficiency differences associated with ownership types while allowing the production to adapt to market restructuring over time. Our empirical setting is based on a new, rich micro dataset of electricity distribution firms operating between 2006 and 2012 in Germany, where the energy transition enforces the adjustment of energy infrastructure. First, our results show that electricity distribution system operators adapted their production technologies over time. Second, there is no empirical evidence that public firms operated any less efficiently than private firms. The empirical findings are relevant to the (re)municipalization debate, which appears to have exaggerated the dichotomy between public and private utilities’ efficiency.
    Keywords: Utilities, ownership, productivity, electricity distribution, Energiewende
    JEL: L94 L51 L98
    Date: 2017

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