nep-ind New Economics Papers
on Industrial Organization
Issue of 2022‒03‒07
ten papers chosen by

  1. A New Era of Midnight Mergers: Antitrust Risk and Investor Disclosures By John M. Barrios; Thomas G. Wollmann
  2. How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy By Ginger Zhe Jin; Mario Leccese; Liad Wagman
  3. Large Firms, Consumer Heterogeneity and the Rising Share of Profits By Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
  4. Horizontal Merger Analysis with Endogenous Product Range Choice By Nisvan Erkal; Lijun Pan
  5. Cournot meets Bayes-Nash : A Discontinuity in Behavior Infinitely Repeated Duopoly Games By Argenton, Cedric; Ivanova-Stenzel, Radosveta; Müller, Wieland
  6. Oligopoly under incomplete information: on the welfare effects of price discrimination By Daniel F. Garrett; Renato Gomes; Lucas Maestri
  7. Taking firms’ margin targets seriously in a model of competition in supply functions By Denis Claude; Mabel Tidball
  8. Monopoly Persistence under the Threat of Supply Function Competition By Saglam, Ismail
  9. Informational switching costs, bank competition, and the cost of finance By José Renato Haas Ornelas; Marcos Soares da Silva; Bernardus F Nazar Van Doornik
  10. An Empirical Analysis of Pricing in the U.S. Beef Industry By Bolotova, Yuliya V.

  1. By: John M. Barrios; Thomas G. Wollmann
    Abstract: Antitrust authorities search public documents to discover anticompetitive mergers. Thus, investor disclosures may alert them to deals that would otherwise escape scrutiny, creating disincentives for managers to divulge transactions. We study this behavior in publicly traded US companies. First, we estimate a regression discontinuity that exploits mandatory disclosure thresholds stipulated by securities law. We find that releasing information to investors poses antitrust risk. Second, we present a method for measuring undisclosed merger activity that relies on financial accounting reporting requirements. We find that undisclosed mergers total $2.3 trillion between 2002 and 2016.
    JEL: G3 G34 L0 L4 L40 M4
    Date: 2022–01
  2. By: Ginger Zhe Jin; Mario Leccese; Liad Wagman
    Abstract: Some argue that large platforms, such as Alphabet/Google, Amazon, Apple, Facebook and Microsoft (or GAFAM), are unusual in their number, pace and concentration of technology mergers, with the potential to harm market competition. Using a unique taxonomy developed by S&P Global Market Intelligence, we compare the M&A activities of GAFAM to other top acquirers from 2010 to 2020. We find: (i) GAFAM completed more tech acquisitions per firm than other groups of top acquirers, and acquired younger and more consumer-facing firms on average. (ii) The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an “acquire-adjacent-and-then-expand” strategy. (iv) Over time, more and more GAFAM and other top acquirers acquire in the same categories. (v) No evidence suggesting that a GAFAM acquisition in a category, compared to similar categories without GAFAM acquisitions, is correlated with a slowdown in the number of new acquirers acquiring in that category. Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.
    JEL: G34 L40 O33 O38
    Date: 2022–01
  3. By: Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
    Abstract: We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, the presence of consumer heterogeneity increases the profit share because it increases firm-level markups. Using data on purchases at the household-barcode level from Nielsen, we quantify the role of consumer heterogeneity, finding that the aggregate markup and the profit share are 8 and 3 percentage points larger than those predicted by a model of a representative consumer. Furthermore, we find that the profit share has been increasing over time and that firm targeting of consumer types plays a role in explaining this rise.
    JEL: D12 L11 L25 O51
    Date: 2022–01
  4. By: Nisvan Erkal; Lijun Pan
    Abstract: We consider mergers between multi-product firms in a market with monopolistically competitive fringe of single-product firms. Aggregate product variety is determined by product variety choices of multi-product firms and entry/exit decisions of single-product firms. Mergers can generate marginal cost synergies (affecting marginal cost of quantity) or fixed cost synergies (affecting marginal cost of variety). We show that with marginal cost synergies, consumer welfare decreases whenever aggregate variety increases following a merger. However, with fixed cost synergies, an increase in aggregate variety can indicate that the merger is beneficial. Our results also show high synergies do not necessarily improve consumer welfare.
    Date: 2022–02
  5. By: Argenton, Cedric (Tilburg University, School of Economics and Management); Ivanova-Stenzel, Radosveta; Müller, Wieland (Tilburg University, School of Economics and Management)
    Date: 2022
  6. By: Daniel F. Garrett (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Lucas Maestri (FGV-EPGE - Universidad de Brazil)
    Abstract: We study competition by firms that simultaneously post (potentially nonlinear) taris to consumers who are privately informed about their tastes. Market power stems from informational frictions, in that consumers are heterogeneously informed about firms' oers. In the absence of regulation, all firms oer quantity discounts. As a result, relative to Bertrand pricing, imperfect competition benefits disproportionately more consumers whose willingness to pay is high, rather than low. Regulation imposing linear pricing hurts the former but benefits the latter consumers. While consumer surplus increases, firms' profits decrease, enough to drive down utilitarian welfare. By contrast, improvements in market transparency increase utilitarian welfare, and achieve similar gains on consumer surplus as imposing linear pricing, although with limited distributive impact. On normative grounds, our analysis suggests that banning price discrimination is warranted only if its distributive benefits have a weight on the societal objective.
    Keywords: Asymmetric information,Informational frictions,Linear pricing,Nonlinear pricing,Oligopoly
    Date: 2021
  7. By: Denis Claude (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.
    Keywords: supply function,markup pricing,price fixing,oligopoly
    Date: 2022–01–31
  8. By: Saglam, Ismail
    Abstract: Can a monopoly persist by expanding its operation to a new market after strategically bidding for an exclusive license under the threat of supply function competition with a potential entrant? The answer may be yes or no depending on how the monopolist's existing product and the new product are related. The monopolist can win the bidding for the new market and thus expand its operation if the marginal cost (to produce a unit output) is sufficiently low with respect to the degree of product differentiation, while its likelihood of winning is higher if the two products are substitutes than if they are complements.
    Keywords: Monopoly persistence; supply function competition; strategic bidding.
    JEL: D42 D43 L13
    Date: 2022–02–04
  9. By: José Renato Haas Ornelas; Marcos Soares da Silva; Bernardus F Nazar Van Doornik
    Abstract: This paper studies the links between competition in the lending market and spreads of bank loans in Brazil. Evidence from a dataset of more than 13 million loan-level observations from private banks shows a positive relationship between market power, measured by the Lerner index, and the cost of finance, measured by loan spreads over the treasury curve. Furthermore, there is evidence of the holdup problem, originating from informational switching costs faced by firms. Private banks engage in a strategy of first competing fiercely for clients by offering a lower loan interest rate and later increasing interest rates as the bank-firm relationship duration increases. Both results are stronger for micro and small firms than for medium and large firms.
    Keywords: banking, Competition, switching costs, information asymmetry, holdup problem, lock-in.
    JEL: D43 G21 L10 L14
    Date: 2022–01
  10. By: Bolotova, Yuliya V.
    Abstract: The U.S. beef packing industry has historically raised competition concerns related to marketing and pricing of cattle and beef. In 2019 cattle producers, a meat wholesaler and consumers filed class action antitrust lawsuits alleging that the four largest beef packers in the country unlawfully conspired to decrease fed cattle prices and to increase wholesale and retail prices of beef and thus violated Section 1 of the Sherman Act. The supply restraints are claimed to be the primary method of implementing this price-fixing conspiracy. The research presented in the paper conducts an econometric analysis of wholesale and retail price behavior in the U.S. beef industry during the period of alleged cartel of the four largest beef packers and the prior (more competitive) period. The empirical evidence on wholesale price behavior indicates a shift from a perfectly competitive pricing of beef packers (wholesalers) during a more competitive period to an oligopoly/monopoly pricing during the alleged cartel period. The empirical evidence on retail price behavior indicates that the pricing of food retailers was consistent with oligopoly pricing during both periods of interest.
    Keywords: Demand and Price Analysis, Livestock Production/Industries
    Date: 2021–02

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