nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒02‒25
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Competitors In Merger Control: Shall They Be Merely Heard Or Also Listened To? By Giebe, Thomas; Lee, Miyu
  2. Brands in motion: How frictions shape multinational production By Thierry Mayer; Keith Head
  3. Online privacy and market structure: Theory and evidence By Sabatino, Lorien; Sapi, Geza
  4. Vertical Integration and Foreclosure: Evidence from Production Network Data By Johannes Boehm; Jan Sonntag
  5. Company Profits in Italy By Massimo Del Gatto; Fadi Hassan; Gianmarco I.P. Ottaviano; Fabiano Schivardi
  6. Do young innovative companies create more jobs? Evidence from Pakistani textile firms By Wadho, Waqar; Goedhuys, Micheline; Chaudry, Azam

  1. By: Giebe, Thomas; Lee, Miyu
    Abstract: There are legal grounds to hear competitors in merger control proceedings, and competitor involvement has gained significance. To what extent this is economically sensible is our question. The competition authority applies some welfare standard while the competitor cares about its own profit. In general, but not always, this implies a conflict of interest. We formally model this setting with cheap talk signaling games, where hearing the competitor might convey valuable information to the authority, but also serve the competitor's own interests. We find that the authority will mostly have to ignore the competitor but, depending on the authority's own prior information, strictly following the competitor's selfish recommendation will improve the authority's decision. Complementary to our analysis, we provide empirical data of competitor involvement in EU merger cases and give an overview of the legal discussion in the EU and US.
    Keywords: merger control, antitrust, European Commission, signaling, efficiency, competitors, rivals, competition
    JEL: C73 G34 K21 K4 L13 L2 L4
    Date: 2019–02–14
  2. By: Thierry Mayer (Département d'économie); Keith Head (Sauder School of Business (Columbia University))
    Abstract: Following the 2016 Leave vote in the referendum on UK membership in the EU and the election of Donald Trump, trade agreements have entered a period of great instability. To predict the impact of possible disruptions to existing arrangements requires counterfactual analysis that takes into account the complex set of factors influencing the production and marketing strategies of multinational corporations. We estimate a model of multinational decisionmaking in the car industry. This model predicts the production reallocation and consumer surplus consequences of changes in tariffs and non-tariff barriers induced by US-led protectionism, Brexit, Trans-Pacific and Trans-Atlantic integration agreements.
    Date: 2019
  3. By: Sabatino, Lorien; Sapi, Geza
    Abstract: This paper investigates how privacy regulation affects the structure of online markets. We provide a simple theoretical model capturing the basic trade-off between the degree of privacy intrusion and the informativeness of advertising. We derive empirically testable hypotheses regarding a possibly asymmetric effect of privacy regulation on large and small firms using a diff-diff-diff model with heterogeneous treatment timing. Our theoretical model predicts that privacy regulation may affect predominantly large firms, even if - as our data confirms - these large firms tend to offer more privacy. Our empirical results show that, if any, only large firms were negatively affected, suggesting that privacy regulation might boost competition by leveling out the playing field for small firms.
    Keywords: Privacy,Competition,Regulation,ePrivacy Directive
    JEL: D43 L86 M37 M38
    Date: 2019
  4. By: Johannes Boehm (Département d'économie); Jan Sonntag (Département d'économie)
    Abstract: This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers’ competitors than when they vertically integrate with an unrelated firm. This relationship holds also, among other things, when conditioning on mergers that follow exogenous downward pressure on the supplier’s stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place.
    Keywords: Mergers and acquisitions; Market foreclosure; Vertical integration; Production networks
    JEL: L14 L42
    Date: 2018–12
  5. By: Massimo Del Gatto; Fadi Hassan; Gianmarco I.P. Ottaviano; Fabiano Schivardi
    Abstract: We provide insights into the macro and microeconomic underpinnings of company profitability developments in Italy. We show that the average ROA (returns on assets) of Italian companies declined slightly between 1993 and 2005 and then contracted sharply during the economic crisis before starting a slow recovery in 2013. While the pattern in Italy before 2009 was very similar to the pattern in Germany; during the crisis it became more similar to the pattern in Spain, with both countries performing relatively worse than Germany and France. This decline appears to be attributable to a fall in productivity, rather than a rise in labour costs. Indeed, notwithstanding the substantial deterioration that began in 2000, unit labour costs (labour costs over value added) in Italy are still lower than in Germany, France and Spain. Within Italy, we document large cross-sectional differences. Micro firms and firms located in the South are tend to exhibit the lowest ROA, while the ROA of firms from the North-West dropped dramatically between the mid-1990s and 2010. Interestingly, firms with the highest innovation intensity (measured by intangibles over total assets) tend not to have the highest ROA, particularly if they are small and operating in low-tech and/or low competition sectors. We interpret our results in terms of ‘active’ (based on innovation and higher expenditure on intermediate goods and labour) and ‘passive’ (based on cost control) business models, with the latter exemplified by domestic and usually small-sized and family-owned firms. From this perspective, subsidising innovation could treat the symptom rather than the disease. Instead, medium-tolong term policies should focus on increasing the share of firms with ‘active’ business models. Our econometric analysis suggests possible instruments: increasing the efficiency of the market for corporate control; reducing the government ownership of firms; increasing the degree of competition in sectors where barriers are still present; and improving the effectiveness of the education system to raise the human capital endowment available to businesses.
    JEL: G3 L1 L2 O3
    Date: 2019–02
  6. By: Wadho, Waqar (Lahore School of Economics); Goedhuys, Micheline (UNU-MERIT); Chaudry, Azam (Lahore School of Economics)
    Abstract: Using unique innovation survey data collected among a homogenous sample of firms active in the textiles and apparel sector in Pakistan, this paper analyses the role of innovation for employment growth. In particular, it develops and tests the hypothesis that innovation is conducive to employment creation, and that this is especially the case for smaller and younger firms, supporting the hypothesis that young innovative companies grow faster by engaging in riskier and more radical innovation to catch up with incumbent firms. We find empirical evidence for these hypotheses, which is robust to different model specifications and estimation techniques and to different measures of innovation. Young innovative companies also perform well in absolute employment creation making them interesting from a policy perspective.
    Keywords: Technological innovation, Firm growth, Employment growth, Quantile regression, Textiles, Pakistan
    JEL: L25 L26 L67 O30 O53
    Date: 2019–01–11

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