nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒07‒23
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cournot Oligopoly, Price Discrimination and Total Output By Aguirre, Iñaki
  2. Uncertain merger synergies, passive partial ownership, and merger control By Shekhar, Shiva; Wey, Christian

  1. By: Aguirre, Iñaki
    Abstract: This paper extends the traditional analysis of the output effect under monopoly (third-degree) price discrimination to a multimarket Cournot oligopoly. Under symmetric Cournot oligopoly (all firms selling in all markets) similar results to those under monopoly are obtained: in order for price discrimination to increase total output the demand and inverse demand of the strong market (the high price market) should be, as conjectured by Robinson (1933), more concave than the demand and inverse demand of the weak market (the low price one). When competitive pressure (measured by the number of firms) varies across markets the effect of price discrimination on total output crucially depends on what market, the strong or the weak, is more competitive.
    Keywords: Third-Degree Price Discrimination, Output, Oligopoly, Welfare.
    JEL: D43 D61 L13
    Date: 2017–07–13
  2. By: Shekhar, Shiva; Wey, Christian
    Abstract: We examine the competitive effects of a passive partial ownership (PPO) when it serves as an instrument for the acquirer firm to learn the merger synergies with the target firm in advance. The realization of a synergy is uncertain ex ante, so that a direct merger exhibits a downside risk not only for the merging candidates but also for consumers. We show that minority shareholdings can reduce this downside risk as they allow for a sequential takeover where the acquirer takes an initial minority share, becomes an insider, and learns the merger synergy. We show how this feature of PPOs affects a firm's takeover strategy and the decision problem of the antitrust authority. We derive implications for a merger control approach to PPO acquisitions, where we examine a forward looking price test and a safeharbor rule.
    Keywords: Merger Control,Passive Partial Ownership,Synergies
    JEL: L13 L41
    Date: 2017

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