nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒03‒16
seven papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Mergers in the Digital Economy By Axel Gautier; Joe Lamesch;
  2. Merger incentive and strategic CSR by a multiproduct corporation By Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
  3. Buying and Selling Entrepreneurial Assets By Kankanamge, Sumudu; Gaillard, Alexandre
  4. Investment in Quality Upgrade and Regulation of the Internet By Edmond Baranes; Cuong Hung Vuong
  5. Endogenous Timing of R&D Decisions and Privatization Policy with Research Spillovers By Lee, Sang-Ho; Muminov, Timur
  6. Horizontal FDI in a Dynamic Cournot - Oligopoly with Endogenous Entry By Laszlo Goerke
  7. The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry By Juan M. Lozada; Lina M. Cortés; Daniel Velasquez Gaviria

  1. By: Axel Gautier; Joe Lamesch;
    Abstract: Over the period 2015-2017, the five giant technologically leading firms, Google, Amazon, Facebook, Amazon and Microsoft (GAFAM) acquired 175 companies, from small start-ups to billion dollar deals. By investigating this intense M&A, this paper ambitions a better understanding of the Big Five’s strategies. To do so, we identify 6 different user groups gravitating around these multi-sided companies along with each company’s most important market segments. We then track their mergers and acquisitions and match them with the segments. This exercise shows that these five firms use M&A activity mostly to strengthen their core market segments but rarely to expand their activities into new ones. Furthermore, most of the acquired products are shut down post acquisition, which suggests that GAFAM mainly acquire firm’s assets (functionality, technology, talent or IP) to integrate them in their ecosystem rather than the products and users themselves. For these tech giants, therefore, acquisition appears to be a substitute for in-house R&D. Finally, from our check for possible “killer acquisitions”, it appears that just a single one in our sample could potentially be qualified as such.
    Keywords: mergers, GAFAM, platform, digital markets, competition policy, killer acquisition
    JEL: D43 K21 L40 L86 G34
    Date: 2020
  2. By: Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
    Abstract: This study investigates an interplay between strategic CSR (corporate social responsibility) by a multiproduct corporation and merger decisions by rival firms each having single plant. We examine and compare two different timings of choosing CSR, i.e., ”merge-then-CSR” and ”CSR-then-merge” games. In the former case, we show that the level of CSR increases in products substitutability, but its level under merger is lower than that without merger. In the latter case where a multiproduct corporation can commit to a higher level of CSR before rival firms’ mergers, however, the level of CSR decreases in products substitutability and it might increase not only consumer surplus but social welfare.
    Keywords: multiproduct corporation; strategic CSR; timing of commitment; products substitutability; merger decision;
    JEL: L2 L4
    Date: 2020–02
  3. By: Kankanamge, Sumudu; Gaillard, Alexandre
    Abstract: This paper introduces a theory of entrepreneurial assets transfer consistent with empirical evidence and centered around a business for sale market that values firms based on their intangible assets. We consider the key endogenous entrepreneurial choices to purchase, found, sell or liquidate business assets and the equilibrium price designed to capture both the intertemporal and the intangible value of a firm. We distinguish earlystage and mature firms as the latter are less likely to fail, make higher profits and face less stringent financial constraints. We argue that maturity translates the intangible value of a firm. We discipline our model using U.S. surveys and a new dataset of business selling transactions. We show that the absence of the business for sale market leads to a severe drop in aggregate output. Then, decomposing the effects of maturity, we show how they shape aggregate outcomes and wealth concentration.
    Keywords: Entrepreneurship, Business transfers, Intangible Assets
    JEL: E21 E23 J24
    Date: 2020–02
  4. By: Edmond Baranes; Cuong Hung Vuong
    Abstract: This paper studies the investment decision by a monopolistic internet service provider (ISP) in different regulatory environments. We consider that the ISP could technically provide separate quality upgrades to two vertically differentiated content providers (CPs); therefore, it could potentially extract the CPs’ marginal profits through an offer to provide the quality upgrades. Our results show that if unregulated, the ISP optimally provides asymmetric quality upgrades, in favor of the high-quality CP. This subsequently increases the degree of content differentiation, softening competition between the CPs. Imposing a nondiscrimination regulation that forces the ISP to provide an equal quality upgrade to both CPs, however, can reduce the ISP.s investment incentive and social welfare. Furthermore, the investment level is higher if the regulated ISP is allowed to charge the CPs. Finally, a socially optimal investment can be opposite to the ISP’s choice when the contents are enough substitutes.
    Keywords: complementary, differentiation, investment, internet, regulation
    JEL: L13 L51 L96
    Date: 2020
  5. By: Lee, Sang-Ho; Muminov, Timur
    Abstract: This study investigates an endogenous R&D timing game between duopoly firms which undertake cost-reducing R&D investments and then play Cournot output competition. We examine equilibrium outcomes in private and mixed markets and find that spillovers rate critically affects contrasting results. We show that a simultaneous-move appears in a private duopoly only if the spillovers rate is low while a sequential-move appears in a mixed duopoly irrespective of spillovers. We also show that public leadership is the only equilibrium if the spillovers rate is intermediate and its resulting welfare is the highest. Finally, we show that the implementation of privatization policy transforms a public leader to a private competitor, but this can decrease the social welfare.
    Keywords: private duopoly; mixed duopoly; R&D spillovers; endogenous R&D timing game;
    JEL: L13 L32 L33
    Date: 2020–02
  6. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al. 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.
    Keywords: Excessive Entry, Cournot-Oligopoly, Horizontal FDI, Political Support Function
    JEL: D43 D72 F21 L13
    Date: 2020–03
  7. By: Juan M. Lozada; Lina M. Cortés; Daniel Velasquez Gaviria
    JEL: C32 G14 G21 G34
    Date: 2020–02–19

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