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on Industrial Organization |
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Issue of 2019‒07‒15
six papers chosen by |
| By: | Steven T. Berry; Martin Gaynor; Fiona Scott Morton |
| Abstract: | This paper considers the recent literature on firm markups in light of both new and classic work in the field of Industrial Organization. We detail the shortcomings of papers that rely on discredited approaches from the “structure-conduct-performance” literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed cost associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups. |
| JEL: | L0 L1 L4 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26007&r=all |
| By: | Germán Gutiérrez; Thomas Philippon |
| Abstract: | We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entry with respect to Tobin’s Q was positive and significant until the late 1990s but declined to zero afterwards. Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returns to scale. We find that neither returns to scale nor technological costs can explain the decline in the Q- elasticity of entry, but lobbying and regulations can. We reconcile conflicting results in the literature and show that regulations drive down the entry and growth of small firms relative to large ones, particularly in industries with high lobbying expenditures. We conclude that lobbying and regulations have caused free entry to fail. |
| JEL: | D4 D6 E22 E23 K2 L0 O3 O4 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26001&r=all |
| By: | Giulio Federico; Fiona Scott Morton; Carl Shapiro |
| Abstract: | The goal of antitrust policy is to protect and promote a vigorous competitive process. Effective rivalry spurs firms to introduce new and innovative products, as they seek to capture profitable sales from their competitors and to protect their existing sales from future challengers. In this fundamental way, competition promotes innovation. We apply this basic insight to the antitrust treatment of horizontal mergers and of exclusionary conduct by dominant firms. A merger between rivals internalizes business-stealing effects arising from their parallel innovation efforts and thus tends to depress innovation incentives. Merger-specific synergies, such as the internalization of involuntary spillovers or an increase in the productivity of R&D, may offset the adverse effect of a merger on innovation. We describe the possible effects of a merger on innovation by developing a taxonomy of cases, with reference to recent U.S. and E.U. examples. A dominant firm may engage in exclusionary conduct to eliminate the threat from disruptive firms. This suppresses innovation by foreclosing disruptive rivals and by reducing the pressure to innovative on the incumbent. We apply this broad principle to possible exclusionary strategies by dominant firms. |
| JEL: | L1 L10 L12 L13 L4 O3 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26005&r=all |
| By: | Küfeoğlu, S.; Liu, G.; Anaya, K.; Pollitt, M. |
| Abstract: | This paper reviews digitalisation in energy sector by looking at the business models of 40 interesting new start-up energy companies from around the world. These start-ups have been facilitated by the rise of distributed generation, much of it intermittent in nature. We review Artificial Intelligence (AI), Machine Learning, Deep Learning and Blockchain applications in energy sector. We discuss the rise of prosumers and small-scale renewable generation, highlighting the role of Feed-in-Tariffs (FITs), the Distribution System Platform concept and the potential for Peer-to-Peer (P2P) trading. Our aim is to help energy regulators calibrate their support new business models. |
| Keywords: | Feed-in tariff, Distribution System Platform, Peer-to-Peer, Blockchain |
| JEL: | L94 |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1956&r=all |
| By: | Carletti, Elena (Bocconi University, IGIER, and CEPR); Ongena, Steven (University of Zurich, the Swiss Finance Institute, KU Leuven, and CEPR); Siedlarek, Jan-Peter (Federal Reserve Bank of Cleveland); Spagnolo, Giancarlo (SITE-Stockholm School of Economics, the University of Rome Tor Vergata, EIEF, and CEPR) |
| Abstract: | The effect of regulations on the banking sector is a key question for financial intermediation. This paper provides evidence that merger control regulation, although not directly targeted at the banking sector, has substantial economic effects on bank mergers. Based on an extensive sample of European countries, we show that target announcement premia increased by up to 16 percentage points for mergers involving control shifts after changes in merger legislation, consistent with a market expectation of increased profitability. These effects go hand-in-hand with a reduction in the propensity for mergers to create banks that are too-big-to-fail in their country. |
| Keywords: | banks; regulation; mergers and acquisitions; merger control; antitrust; |
| JEL: | G21 G34 K21 L40 |
| Date: | 2019–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:161402&r=all |
| By: | Simon Pröll (University of Natural Resources and Life Sciences Vienna, Institute of Sustainable Economic Development); Giannis Karagiannis (University of Macedonia, Department of Economics); Klaus Salhofer (University of Natural Resources and Life Sciences Vienna, Institute of Sustainable Economic Development) |
| Abstract: | The beer market in Germany may be described as a monopolistic competition with many breweries supplying a very large variety of different beer styles and brands. Advertising is one means of differentiating a product and increasing prices over marginal costs. Based on production data obtained from a sample of 197 German breweries and thirteen years of observation, we derive firm-specific markups, profit ratios and prices in each year and relate those to their advertising expenditures and firm size. We are able to show that advertising expenditures are positively correlated to a brewery’s markup, profit ratio and price while firm size is negatively correlated. |
| Keywords: | advertising, markup, imperfect competition, brewing |
| JEL: | D22 L11 L66 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:sed:wpaper:732019&r=all |