nep-ind New Economics Papers
on Industrial Organization
Issue of 2017‒10‒08
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Merger effects on innovation: A rationale for stricter merger control? By Haucap, Justus
  2. R&D Output Sharing in a Mixed Duopoly and Incentive Subsidy Policy By Lee, Sang-Ho; Muminov, Timur
  3. Quality competition in healthcare services with regional regulators: A differential game approach By Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
  4. Umbrella Branding in Pharmaceutical Markets By Suppliet, Moritz
  5. Merger Effects with Product Complementarity: Evidence from Colombia’s Telecommunications By Juan Vélez

  1. By: Haucap, Justus
    Abstract: The question how mergers affect innovation has gained prominence in a number of recent merger cases. Accounting for the likely effects of mergers on innovation is difficult for a number of reasons though. First of all, the relationship between market concentration and innovation is far from clear and not unambiguous. While it is an empirical regularity and, hence, a useful presumption that an increase in market concentration also leads to an increase in price, the case for a similarly general presumption with respect to mergers and innovation is relatively weak. Secondly, while mergers may result in innovation efficiencies, these may be difficult to demonstrate, given that the European Commission requires the efficiencies to accrue in a timely fashion, i.e., within two to four years after the merger. This contrasts with the timespan applied to the theories of harm which the Commission itself employs. This structural asymmetry tends to bias the framework against innovation efficiencies. Thirdly, remedies are notoriously difficult to design, and this is even more valid for innovation markets. In addition, competitors may choose to strategically not disclose part of their research ideas and pipelines in order to sabotage a competing merger if that merger would be procompetitive. Hence, the market test for remedies, which is already difficult in other merger cases, given market participants' strategic interests, will be even more difficult for innovation markets where competing firms can easily hide their intentions, research ides and pipelines.
    Date: 2017
  2. By: Lee, Sang-Ho; Muminov, Timur
    Abstract: This study investigates the incentives for R&D output sharing in a mixed duopoly and shows that public firm chooses full sharing of their R&D output, whereas private firm enjoys free-riding. We then devise an agreement-based incentive R&D subsidy scheme, which can internalize R&D spillovers and induce both firms to earn higher payoffs through full sharing of their R&D output. We also show that an R&D subsidy policy is welfare-superior to a production subsidy policy.
    Keywords: Agreement-based R&D subsidy; Mixed duopoly; Production output subsidy; R&D output sharing
    JEL: H21 L13 L32
    Date: 2017–10–02
  3. By: Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
    Abstract: This article proposes a differential-game model, in order to analyze markets in which regional regulation is operative and competition is based on quality. The case we have in mind is healthcare public service, where consumers (patients) choose the provider mainly basing on the providers' location and the quality of services, while prices play a more limited role. In most European countries, within the same State, regional (or local) providers compete on quality to attract demand. Market regulation is set at national and/or regional level. Our model highlights the features of equilibrium in such a framework, and specifically investigates how the differences in product quality evolve among regions, and how inter-regional demand flows behave. Differently from some available similar models (that do not take into account the regional dimension of the decision process), we find that quality differentials among regions may persist in equilibrium.
    Keywords: Healthcare Services; Diffrential Game; Quality Competition;� Regional Regulators.
    JEL: C72 C73 I11 I18 L13 R38
    Date: 2017–10–02
  4. By: Suppliet, Moritz
    Abstract: Umbrella branding is a marketing practice whereby multi-product firms leverage their reputation across different product categories. This paper investigates how advertising in the market of over-the-counter (OTC) drugs affects the decision to buy prescription drugs from a promoted brand name. I exploit specific charac- teristics of market regulation in Germany to identify the effect of advertising and find positive effects of umbrella branding on sales of prescription drugs. Umbrella branding results in market expansion, particularly for generic firms which invest in OTC drug advertising. If the effect leads to more consumers of generic substitutes or to more patients in undertreated therapeutic areas, market expansion can have a positive effect on welfare.
    Keywords: umbrella branding; regulation; empirical io; pharmaceuticals ; marketing
    JEL: I3 L51 I1 M37 D22 C18
    Date: 2017
  5. By: Juan Vélez (Banco de la República de Colombia)
    Abstract: Mergers of firms producing complementary products have ambiguous effects on consumer welfare. Consumers benefit if the firm, motivated by the internalized profits created by the complementarity, lowers prices. Consumers are hurt if the firm uses bundles to exert price discrimination, making standalone products more expensive. To assess which effect dominates, I use an administrative dataset, which records prices, market shares, and plan attributes of the universe of Colombia’s telecom carriers. I estimate a random coefficients discrete choice model of demand for bundled and standalone telecom products, in which the degree of substitutability or complementarity among products is an essential parameter of interest. I find that major telecom products display a mix of substitutability and complementarity, but in general hardwired and mobile services are complements. Counterfactual experiments using the estimated model indicate positive net effects of mergers with complements: despite a small increase in the price of standalone goods, consumer surplus increased by around 11 million dollars per quarter after the Claro merger. On the other hand I find evidence that mergers between ISPs and mobile carriers reduce the likelihood of poorer households adopting faster broadband. Classification JEL: L22, L13, G34, L96.
    Keywords: Market Structure, Imperfect Competition, Mergers, Telecommunications
    Date: 2017–10

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