nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒09‒03
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Behavioral Antitrust By Steven Martin
  2. Product differentiation and entry timing in a continuous-time spatial competition model with vertical relations By Takeshi Ebina; Noriaki Matsushima
  3. Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector? By John S. Howe; Thibaut G. Morillon
  4. The Collusive Effect of Multimarket Contact on Prices: Evidence from Retail Lumber Markets By Beomjoon Shim; Ahmed Khwaja

  1. By: Steven Martin
    Abstract: In this chapter, I review the rational economic man model and con- trast it with evidence of bounded rationality that has emerged since the last quarter of the previous century. I discuss the implications of bounded rationality for research in industrial economics, with par- ticular attention to the analysis of predation, collusion, and entry. I conclude by drawing implications for the antitrust rules toward domi- nant ?rm behavior that come out of the Matsushita and Brooke Group decisions.
    Keywords: behavioral economics; antitrust; predation; collusion; entry.
    JEL: L1 L4 D9
    Date: 2017–08
  2. By: Takeshi Ebina; Noriaki Matsushima
    Abstract: We study the entry timing and location decisions of two exclusive buyer-supplier relationships in a continuous-time spatial competition model. In each relationship, the firms determine their entry timing and location, and negotiate a wholesale price through Nash bargaining. Then, the downstream firm immediately determines its retail price. Our findings are as follows. Ordinarily, if the supplier of the first entrant (called the leader pair) has strong bargaining power, the equilibrium location of the leader will be closer to the center, inducing a delay in entry by the second entrant (called the follower pair). This delay implies the stronger bargaining power of the supplier in the leader pair can also benefit the buyer of the pair. The location of the leader pair can change non-monotonically with an increase in the supplier's bargaining power, which has a substantial impact on the entry timing of the follower pair. However, the greater the bargaining power of the supplier in the follower pair, the closer the leader pair will be to the edge. This implies that having greater bargaining power will enhance the profitability of the supplier in the follower pair.
    Date: 2017–08
  3. By: John S. Howe; Thibaut G. Morillon
    Abstract: We investigate the consequences of mergers and acquisitions (M&As) for information asymmetry in the banking sector. We test competing hypotheses about the effect of M&As on the information environment. M&As either increase information asymmetry (the opacity hypothesis) or diminishes it (the transparency hypothesis). We find evidence that information asymmetry increases following M&A announcements and decreases following deal completions. These findings are more pronounced for acquisitions involving a private target, and all-cash deals, as well as for mergers as opposed to acquisition of assets. Additionally, we find that the enactment of Dodd-Frank reduced the levels of information asymmetry. The results are important to regulators, policy makers, and investors.
    Keywords: mergers and acquisitions, opacity hypothesis, transparency hypothesis, information asymmetry
    JEL: G34
    Date: 2017–08
  4. By: Beomjoon Shim (Yale University); Ahmed Khwaja (Yale University)
    Abstract: In this paper, we investigate whether multimarket contact leads to collusive pricing in the retail lumber market and assess the effect of potential regulation on consumer welfare. In particular, we focus on the competition between Home Depot and Lowe's since they are the main players in retail lumber market. For our analysis, we assemble an original data set of prices and sales in the pressure treated lumber category. We first provide reduced form evidence for the effect of multimarket contact on collusion in pricing strategies by showing a positive and significant correlation between price and multimarket contact. Guided by this evidence we estimate a model, using the Berry, Levinsohn and Pakes (1995) equilibrium framework, that includes both the demand and supply side with conduct parameters which capture the degree of collusion in setting prices. We specify the conduct parameters as a function of multimarket contact, following the framework developed by Sudhir (2001) and Ciliberto and Williams (2014). We find that the conduct parameter for capturing the effect of multimarket contact on collusion is significant and positive, implying that multimarket contact leads to higher prices than those from a competitive Bertrand-Nash equilibrium. Using the model estimates, we conduct a counterfactual analysis to measure the consumer welfare impact due to collusive pricing. We find that consumer surplus in January, 2016 increases by $57.7k and this amounts to $692.4k in a year. To the best of our knowledge, this is the first paper that shows state-level multimarket contact facilitates collusive pricing with implications for consumer welfare. The finding has important policy implications that might suggest the need for monitoring prices in states where retail firms have a greater degree of multimarket contact.
    Date: 2017

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