nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒08‒19
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Patterns of Competitive Interaction By Armstrong, Mark; Vickers, John
  2. Competition and productivity: Do commonly used metrics suggest a relationship? By David C. Maré; Richard Fabling
  3. The Rise of Market Power and the Macroeconomic Implications By Jan Eeckhout
  4. Failure and Success in Mergers and Acquisitions By Renneboog, Luc; Vansteenkiste, C.
  5. R&D Spillovers in Canadian Industry: Results from a New Micro Database By Myeongwan Kim, John Lester
  6. Formative Experiences and the Price of Gasoline By Christopher Severen; Arthur A. van Benthem

  1. By: Armstrong, Mark; Vickers, John
    Abstract: We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes.
    Keywords: Bertrand-Edgeworth competition, price dispersion, consideration sets, mixed strategies, captive customers
    JEL: D43 D83 L11 L13 L15
    Date: 2019–07
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:95336&r=all
  2. By: David C. Maré (Motu Economic and Public Policy Research); Richard Fabling (Independent Researcher)
    Abstract: We demonstrate the power of recently redeveloped productivity microdata to produce a range of meaningful competition indicators highlighting different aspects of industry competitiveness. Combining these competition metrics into composite indicators, we summarise the diverse range of competitive environments in New Zealand by clustering industries into four distinct groups. Estimating the relationship between competition and productivity within these groups provides some suggestive results that the tail of unproductive firms may be truncated when competition is greater, in part due to greater selection-to-exit based on productivity. Overall, the limited evidence we find for a direct relationship between competition and productivity does not necessarily imply that the two are unrelated, but more likely reflects that changes in competition in New Zealand over the sample period have not been particularly pronounced, making it difficult to identify a systematic relationship.
    Keywords: competition, profit elasticity, price-cost margin, industry concentration, multifactor productivity
    JEL: D22 D24 L11
    Date: 2019–08
    URL: http://d.repec.org/n?u=RePEc:mtu:wpaper:19_16&r=all
  3. By: Jan Eeckhout
    Keywords: wages; market power; mark-ups; technology; market dynamism; market structure
    Date: 2019–04
    URL: http://d.repec.org/n?u=RePEc:rba:rbaacp:acp2019-07&r=all
  4. By: Renneboog, Luc (Tilburg University, Center For Economic Research); Vansteenkiste, C. (Tilburg University, Center For Economic Research)
    Abstract: This paper provides an overview of the academic literature on the market for corporate control, and focuses specifically on firms’ performance around and after a takeover. Despite the aggregate M&A market amounting to several trillions USD on an annual basis, acquiring firms often underperform relative to non-acquiring firms, especially in public takeovers. Although hundreds of academic studies have investigated the deal- and firm-level factors associated with M&A announcement returns, short-run returns are often not sustained in the long run. Moreover, the wide variety of performance measures and heterogeneity in sample sizes complicates the drawing of accurate and unambiguous conclusions. In this light, our survey compiles the recent literature and aims to identify the areas of research for which short-run returns predict (or fail to predict) long-run performance. We find that post-takeover deal performance is affected by key determinants including serial acquisitions, CEO overconfidence, acquirer-target relatedness and complementarity, and shareholder intervention in the form of voting or activism.
    Keywords: takeovers; merges and acquisitions; long-run performance; corporate governance
    JEL: G34
    Date: 2019
    URL: http://d.repec.org/n?u=RePEc:tiu:tiucen:cb487f33-0217-412f-a1ec-d4db204b9dfb&r=all
  5. By: Myeongwan Kim, John Lester
    Abstract: Business investment in research and development (R&D) makes a key contribution to rising living standards. Firms undertaking the R&D can reduce production costs and introduce new products that provide benefits to consumers that are not fully captured in selling prices. Further, it is very difficult for R&D-performing firms to prevent some of the knowledge created from leaking out or spilling over to other firms. Since firms do not take these positive spillover benefits into consideration when making investment decisions, most governments subsidize business investment in R&D with the expectation that economic performance will improve as a result. Our study confirms the existence of substantial spillover benefits from R&D performed in Canada, so government support for R&D is justified. However, we do not find any empirical evidence to support the current policy of subsidizing R&D at a higher rate when it is performed by small firms than when it is performed by large firms. We also find much lower private rate of return on R&D performed by small firms than by large firms. Subsidies appear to be playing a key role in this result
    JEL: O32 D22 D24
    Date: 2019–08
    URL: http://d.repec.org/n?u=RePEc:sls:resrep:1710&r=all
  6. By: Christopher Severen; Arthur A. van Benthem
    Abstract: An individual’s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent negative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 significantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public transit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous income and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.
    Keywords: formative experiences, preference persistence, path dependence, driving behavior, gasoline price
    JEL: D12 D90 L91 Q41 R41
    Date: 2019
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7757&r=all

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