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on Industrial Organization |
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Issue of 2019‒01‒28
ten papers chosen by |
| By: | Ben Mermelstein; Volker Nocke; Mark A. Satterthwaite; Michael D. Whinston |
| Abstract: | We study optimal merger policy in a dynamic model in which the presence of scale economies implies that firms can reduce costs through either internal investment in building capital or through mergers. The model, which we solve computationally, allows firms to invest or propose mergers according to the relative profitability of these strategies. An antitrust authority is able to block mergers at some cost. We examine the optimal policy for an antitrust authority who cannot commit to its future policy rule and approves or rejects mergers as they are proposed, considering both consumer value and aggregate value as its possible objectives. We find that the optimal policy can differ substantially from what would be best considering only welfare in the period the merger is proposed. In general, antitrust policy can greatly affect firms' optimal investment behavior, and firms' investment behavior can in turn greatly affect the antitrust authority's optimal policy. Moreover, externalities imposed by mergers on rivals can have significant effects on firms' investment incentives and thereby shape the optimal policy. |
| Keywords: | Horizontal merger, merger policy, investment, scale economies, antitrust |
| JEL: | L13 L40 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_038&r=all |
| By: | Massimo Motta; Emanuele Tarantino |
| Abstract: | We study the effects of mergers when firms offer differentiated products and compete in prices and investments. Since it is in principle ambiguous, we use aggregative game theory to sign the net effect of the merger: We find that only if it entailed sufficient efficiency gains, could the merger raise total investments and consumer surplus. We also prove there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments. Finally, we show that, from the consumer welfare point of view, a R&D cooperative agreement is superior to any consumer-welfare reducing merger. |
| Keywords: | horizontal mergers, innovation, investments, research joint ventures, competition |
| JEL: | K22 D43 L13 L41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_056&r=all |
| By: | Dana Kassem |
| Abstract: | I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Empirical tests show that electrification creates new industrial activity, as opposed to only reorganizing industrial activity across space. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller. |
| JEL: | D24 L60 O13 O14 Q41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_052&r=all |
| By: | Markus Reisinger; Emanuele Tarantino |
| Abstract: | Patent pools are commonly used to license technologies to manufacturers. Whereas previous studies focused on manufacturers active in independent markets, we analyze pools licensing to competing manufacturers, allowing for multiple licensors and non-linear tariffs. We find that the impact of pools on welfare depends on the industry structure: Whereas they are procompetitive when no manufacturer is integrated with a licensor, the presence of vertically integrated manufacturers triggers a novel trade-off between horizontal and vertical price coordination. Specifically, pools are anticompetitive if the share of integrated firms is large, procompetitive otherwise. We then formulate information-free policies to screen anticompetitive pools. |
| Keywords: | patent pools and horizontal pricing agreements, complementary patents, vertical integration and restraints, antitrust policy |
| JEL: | K11 L41 L42 O34 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_057&r=all |
| By: | Pierre M. Picard; Alessandro Tampieri |
| Abstract: | This paper discusses a trade model with many countries, many goods produced in multiple quality versions, and non-homothetic preferences. It embeds in the same model a series of results that have been empirically confirmed: high-income countries specialize in the production of high-quality goods and trade more of those. Richer countries purchase more high-quality varieties. They import more high-quality products from the most productive exporters. The paper then studies the impact of productivity and population changes on the quality composition of exports. It finally explains why countries import higher quality goods from more distant countries. |
| Keywords: | vertical differentiation, horizontal differentiation, trade, income heterogeneity. |
| JEL: | F12 F16 L11 L15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_03.rdf&r=all |
| By: | Lapointe, Simon; Morand, Pierre-Henri |
| Abstract: | Governments spend large amounts of money to attract firms to their territory, often resulting from bidding wars against other regions. Previous papers show that such bidding wars can improve social welfare by allocating the investment to the regions that value it the most. In this paper, we depart from the usual assumption of exogenous, single-plant investment. We show that in this context, bidding wars incite the firm to allocate its investment strategically, by investing more and differentiating the plants. In turn, the firm receives larger subsidies. Despite these distortions, bidding wars may remain socially optimal, as in simpler models. |
| Keywords: | subsidies, regional governments, bidding wars, multi-establishment firms, auctions, Local public finance and provision of public services, Business regulation and international economics, D44, H71, H25, D21, L23, |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:115&r=all |
| By: | Mariassunta Giannetti; Nicolas Serrano-Velarde; Emanuele Tarantino |
| Abstract: | Using a unique dataset with information on 20 million inter-firm transactions, we provide evidence that suppliers offer cheap trade credit to ease competition in downstream markets. We show theoretically that trade credit allows suppliers to transfer surplus to high-bargaining-power customers while preserving sales to other buyers. Suppliers optimally choose a trade credit limit up to which customers can purchase on account. This contractual feature allows suppliers to target infra-marginal units and to leave unaffected customers' marginal costs. Empirically, we find that suppliers grant trade credit to high-bargaining-power customers only when they fear the cannibalization of sales to other low-bargaining-power customers. Exploiting a law that lowered the cost of offering trade credit, we show that higher provision of trade credit to high-bargaining-power customers leads to an expansion of the suppliers' customer base and higher growth of sales to low-bargaining-power customers. |
| Keywords: | Trade credit, competition, input prices, supply chains |
| JEL: | G3 D2 L1 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2018_062&r=all |
| By: | Levy, Daniel; Snir, Avichai; Gotler, Alex; Chen, Haipeng (Allan) |
| Abstract: | We document an asymmetry in the rigidity of 9-ending prices relative to non-9-ending prices. Consumers have difficulty noticing higher prices if they are 9-ending, or noticing price-increases if the new prices are 9-ending, because 9-endings are used as a signal for low prices. Price setters respond strategically to the consumer-heuristic by setting 9-ending prices more often after price-increases than after price-decreases. 9-ending prices, therefore, remain 9-ending more often after price-increases than after price-decreases, leading to asymmetric rigidity: 9-ending prices are more rigid upward than downward. These findings hold for both transaction-prices and regular-prices, and for both inflation and no-inflation periods. |
| Keywords: | Asymmetric Price Adjustment, Sticky/Rigid Prices, 9-Ending Prices, Psychological Prices, Price Points, Regular/Sale Prices |
| JEL: | C91 C93 D01 D12 D22 D4 D40 D83 E12 E31 E52 E58 L11 L16 L21 L81 M21 M31 |
| Date: | 2019–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:91360&r=all |
| By: | Alex Bell; Raj Chetty; Xavier Jaravel; Neviana Petkova; John Van Reenen |
| Abstract: | Many countries provide financial incentives to spur innovation, ranging from tax incentives to research and development grants. In this paper, we study how such financial incentives affect individuals' decisions to pursue careers in innovation. We _first present empirical evidence on inventors' career trajectories and income distributions using de-identified data on 1.2 million inventors from patent records linked to tax records in the U.S. We find that the private returns to innovation are extremely skewed - with the top 1% of inventors collecting more than 22% of total inventors' income - and are highly correlated with their social impact, as measured by citations. Inventors tend to have their most impactful innovations around age 40 and their incomes rise rapidly just before they have high-impact patents. We then build a stylized model of inventor career choice that matches these facts as well as recent evidence that childhood exposure to innovation plays a critical role in determining whether individuals become inventors. The model predicts that financial incentives, such as top income tax reductions, have limited potential to increase aggregate innovation because they only affect individuals who are exposed to innovation and have no impact on the decisions of star inventors, who matter most for aggregate innovation. Importantly, these results hold regardless of whether the private returns to innovation are known at the time of career choice. In contrast, increasing exposure to innovation (e.g., through mentorship programs) could have substantial impacts on innovation by drawing individuals who produce high-impact inventions into the innovation pipeline. Although we do not present direct evidence supporting these model-based predictions, our results call for a more careful assessment of the impacts of financial incentives and a greater focus on alternative policies to increase the supply of inventors. |
| Keywords: | inventors, innovation, tax policy |
| JEL: | L2 M2 O32 O33 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1597&r=all |
| By: | Lukasz Grzybowski; Ambre Nicolle |
| Abstract: | In this paper, we use a unique dataset on switching between mobile handsets in a sample of about 8,623 subscribers using tariffs without handset subsidies from a single mobile operator on a monthly basis between July 2011 and December 2014. We estimate a discrete choice model in which we account for disutility from switching to different operating systems and handset brands and for unobserved time-persistent preferences for operating systems and brands. Our estimation results indicate the presence of significant inertia in the choices of operating systems and brands. We find that it is harder for consumers to switch from iOS to Android and other operating systems than from Android and other operating systems to iOS. Moreover, we find that there is significant time-persistent heterogeneity in preferences for different operating systems and brands, which also leads to state-dependent choices. We use our model to simulate market shares in the absence of switching costs and conclude that the market shares of Android and smaller operating systems would increase at the expense of the market share of iOS. |
| Keywords: | smartphones, consumer inertia, switching costs, mixed logit, iOS, Android |
| JEL: | L13 L50 L96 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7434&r=all |