nep-ind New Economics Papers
on Industrial Organization
Issue of 2019‒11‒18
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Big Tech Acquisitions and the Potential Competition Doctrine: The Case of Facebook By Mark Glick; Catherine Ruetschlin
  2. R&D and the American Corporation before World War II By Richard N. Langlois
  3. Does a Second-Hand Market Limit a Durable Goods Monopolist's Market Power? By Meng-Yu Liang
  4. Bank mergers in the financial crisis: A competition policy perspective By Hellwig, Michael; Laser, Falk Hendrik
  5. The Mysterious Cross-Country Dispersion in Mobile Phone Price Trends By David M. Byrne

  1. By: Mark Glick (University of Utah); Catherine Ruetschlin (University of Utah)
    Abstract: The Big Tech companies, including Google, Facebook, Amazon, Microsoft and Apple, have individually and collectively engaged in an unprecedented number of acquisitions. When a dominant firm purchases a start-up that could be a future entrant and thereby increase competitive rivalry, it raises a potential competition issue. Unfortunately, the antitrust law of potential competition mergers is ill-equipped to address tech mergers. We contend that the Chicago School`s assumptions and policy prescriptions hobbled antitrust law and policy on potential competition mergers. We illustrate this problem with the example of Facebook. Facebook has engaged in 90 completed acquisitions in its short history (documented in the Appendix to this paper). Many antitrust commentators have focused on the Instagram and WhatsApp acquisitions as cases of mergers that have reduced potential competition. We show the impotence of the potential competition doctrine applied to these two acquisitions. We suggest that the remedy for Chicago School damage to the potential competition doctrine is a return to an empirically tractable structural approach to potential competition mergers.
    Keywords: Antitrust Law, Big Tech Companies, Digital Markets, Mergers, Potential Competition Big Tech Acquisitions and the Potential Competition Doctrine: The Case of Facebook
    JEL: K21 L40 L86
    Date: 2019–10
  2. By: Richard N. Langlois (University of Connecticut)
    Abstract: This paper is an excerpt from a larger book project called The Corporation and the Twentieth Century, which chronicles and interprets the institutional and economic history – the life and times, if you will – of American business in the twentieth century. One integrating theme of the book is that the signal calamities of the Great Depression and World War II, as well as the policy responses to those calamities, are crucial in understanding the structure of American industry in the post-war world. This excerpt examines the role of research and development in the corporation before and during the Depression. It argues that, although corporate R&D labs did generate many important new technologies, innovations also flowed importantly from a large variety of other sources, both within the corporation (but outside of the research lab) and elsewhere in the economy. Even though corporate research did sometimes lead to new products for the corporation to exploit, a narrative in which internal R&D systematized innovation widely in the service of corporate diversification is on the whole a fable. Nonetheless, by destroying market-supporting institutions (including, importantly, sources of external finance) and by reducing the information content of price signals, the Depression did help solidify the nexus between R&D and the large corporation. Coupled with New Deal price and entry regulation in many sectors, and followed by the far greater extent of non-market controls during World War II, the Depression set the stage for the emergence of the large Chandlerian corporation of the post-war period.
    Keywords: Research and development; innovation; technological change; economic regulation; Great Depression; New Deal
    JEL: D23 L51 L52 L6 L9 N42 N62 N72 N82 O3 P12 P16
    Date: 2019–11
  3. By: Meng-Yu Liang (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: Deneckere and Liang (2008) show that Swanís independent result fails when the monopolist cannot commit to a price schedule. The ratio between the rate of depreciation and the discount rate affects monopolist's market power when there is a frictionless secondhand market. This paper analyzes the same underlying model, except that resale is not allowed, and the existence of a second-hand market enlarges the range of parameters for the monopolist equilibrium. The presence of substitutes from the second-hand market after selling to the low valuation consumers may make the freshly release price less competitive in the first place.
    Keywords: : durability, market power, second-hand market, Coase Conjecture
    JEL: L12
    Date: 2019–09
  4. By: Hellwig, Michael; Laser, Falk Hendrik
    Abstract: We analyze a large merger in the Dutch banking market during the financial crisis using disaggregated data. Based on a merger simulation model, we evaluate merger-induced changes in the interest rates for savings accounts. We find that the merging banks decreased interest rates by 3 to 5 percent and competitors by up to 1 percent. These anti-competitive effects translate into a loss of consumer welfare by roughly 69 million euros in 2010. We identify heterogeneous effects indicating that less educated consumers with lower savings are most affected. Our findings highlight the important role of competition policy during financial crisis mitigation.
    Keywords: antitrust,competition policy,merger analysis,state aid,retail banking,random-coefficients logit models,differentiated products
    JEL: D22 G21 G34 L11 L25 L40 L41
    Date: 2019
  5. By: David M. Byrne
    Abstract: Mobile phones have been central to ICT innovation since the introduction of the smartphone and constant-quality prices are a barometer of their economic impact. Official consumer price indices (CPIs) indicate that impact differs wildly across countries: For the 2008-2018 period, average annual rates of mobile phone inflation range from no change to a 25 percent decline among 12 key countries examined in this paper. Although evidence indicates certain fundamental factors are at play, mis-measurement may lead the spread in rates to be overstated. Examination of methods employed in CPI calculation, including quality adjustment and index formulas, illuminates but does not resolve the mystery.
    Date: 2019–08–05

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