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on Industrial Organization |
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Issue of 2020‒07‒20
four papers chosen by |
| By: | Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo |
| 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: | Antitrust; banks; Merger Control; mergers and acquisitions; regulation |
| JEL: | G21 G34 K21 L40 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14449&r=all |
| By: | Amelio, Andrea; Karlinger, Liliane; Valletti, Tommaso |
| Abstract: | This paper studies the incentives to engage in exclusionary pricing in the context of two-sided markets. Platforms are horizontally differentiated, and seek to attract users of two groups who single-home and enjoy indirect network externalities from the size of the opposite user group active on the same platform. The entrant incurs a fixed cost of entry, and the incumbent can commit to its prices before the entry decision is taken. The incumbent has thus the option to either accommodate entry, or to exclude entry and enjoy monopolistic profits, albeit under the constraint that its price must be low enough to not leave any room for an entrant to cover its fixed cost of entry. We find that, in the spirit of the literature on limit pricing, under certain circumstances even platforms find it profitable to exclude entrants if the fixed entry cost lies above a certain threshold. By studying the properties of the threshold, we show that the stronger the network externality, the lower the thresholds for which incumbent platforms find it profitable to exclude. We also find that entry deterrence is more likely to harm consumers the weaker are network externalities, and the more differentiated are the two platforms. |
| Keywords: | Exclusionary practices; externalities; limit pricing; platforms; two-sided markets |
| JEL: | D40 L13 L41 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14406&r=all |
| By: | Elhanan Helpman; Benjamin C. Niswonger |
| Abstract: | We develop a model with a finite number of multi-product firms that populate an industry together with a continuum of single product firms, and study the dynamics of this industry that arises from investments in the invention of new products. Consistent with the available evidence, the model predicts rising markups and concentration and a declining labor share. We then examine the dynamics of market shares and product spans in response to improvements in the technologies of the multi-product and single product firms, and the impact of these changes on the steady state distribution of market shares and product spans. Our model predicts the possibility of an inverted-U relationship between labor productivity and product span in the cross-section of firms, for which we provide suggestive evidence. It also predicts that rising entry costs of single-product firms may flatten the relationship between labor productivity and market shares of the large multi-product firms. |
| JEL: | D43 L11 L13 L25 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27389&r=all |
| By: | Victor Aguirregabiria |
| Abstract: | Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behavior of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency, and welfare. This paper studies the identification of firms' beliefs using their observed actions -- a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games, and dynamic investment games. I focus on identification results that exploit a natural exclusion restriction in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms' profits. I present identification results under three scenarios --- common in empirical IO --- on the data available to the researcher. |
| Keywords: | Non-equilibrium beliefs; Structural models of competition; Identification; Revealed beliefs approach |
| JEL: | C57 D81 D83 D84 L13 |
| Date: | 2020–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-670&r=all |