nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒05‒17
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Do Firms with Specialized M&A Staff Make Better Acquisitions? By Sinan Gokkaya; Xi Liu; René M. Stulz
  2. Stronger Patent Regime, Innovation and Scientist Mobility By Ganguly, Madhuparna
  3. Switching Beers? The Effects of Switching Costs on Prices and Profits in Competitive Markets By Xiaoyang He; Ralph Siebert
  4. Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions By Craig Garthwaite; Rebecca Sachs; Ariel Dora Stern

  1. By: Sinan Gokkaya; Xi Liu; René M. Stulz
    Abstract: We open the black box of the M&A decision process by constructing a comprehensive sample of US firms with specialized M&A staff. We investigate whether specialized M&A staff improves acquisition performance or facilitates managerial empire building instead. We find that firms with specialized M&A staff make better acquisitions when acquisition performance is measured by stock price reactions to announcements, long-run stock returns, operating performance, divestitures, and analyst earnings forecasts. This effect does not hold when the CEO is powerful, overconfident, or entrenched. Acquisitions by firms without specialized staff do not create value, on average. We provide evidence on mechanisms through which specialized M&A staff improves acquisition performance. For identification, we use the staggered recognition of inevitable disclosure doctrine as a source of exogenous variation in the employment of specialized M&A staff.
    JEL: G14 G24 G30 G34
    Date: 2021–05
  2. By: Ganguly, Madhuparna
    Abstract: This paper analyzes the effects of a stronger patent regime on innovation incentives, patenting propensity and scientist mobility when an innovating firm can partially recover its damage due to scientist movement from the infringing rival. The strength of the patent system, which is a function of litigation success probability and damage recovery proportion, stipulates expected indemnification. We show that stronger patents fail to reduce the likelihood of infringement and further, decrease the innovation's expected profitability. Higher potential reparation also reduces the scientist's expected return on R&D knowledge, entailing greater R&D investment. Our results suggest important considerations for patent reforms.
    Keywords: Damage rules; Infringement; Patent strength; Scientist mobility
    JEL: J60 K40 L13 O34
    Date: 2021
  3. By: Xiaoyang He; Ralph Siebert
    Abstract: We consider a dynamic oligopoly on the beer market and study the differential effects of switching costs on product prices, market shares, and profits. Our demand estimation results show large differences in brand loyalty, and switching costs across customer income segments and beer brands. Our supply estimation results show that the low-quality firm experiences a higher competitive pressure on price since low-quality consumers are more price sensitive and switch more easily to the high-quality firm’s product than vice versa. The high-quality firm is better shielded from price competition, as its consumers are less likely to switch to the low-quality product.
    Keywords: consumer heterogeneity, differentiated products, dynamic oligopoly, dynamic pricing, loyalty, state dependence, switching costs
    JEL: L13 L25 L66 M21 M31
    Date: 2021
  4. By: Craig Garthwaite; Rebecca Sachs; Ariel Dora Stern
    Abstract: Pharmaceutical innovation policy involves managing a tradeoff between high prices for new products in the short-term and stronger incentives to develop products for the future. Prior research has documented a causal relationship between market size and pharmaceutical research and development (R&D) activities. The existing literature, however, provides no evidence of how this relationship varies across markets. We investigate whether recent expansions in state Medicaid programs caused an increase in R&D. We find no evidence of a response, potentially a result of Medicaid’s low reimbursement for pharmaceuticals, suggesting low(er) price markets may have different dynamics with respect to innovation policy.
    JEL: H0 I1 L43 L5 O3
    Date: 2021–05

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