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on Industrial Organization |
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Issue of 2023‒04‒17
seven papers chosen by |
| By: | Ivaldi, Marc; Petit, Nicolas; Unekbas, Selçukhan |
| Abstract: | Do established firms buy new businesses to take out future competition? Recent works in economics literature use “killer acquisitions” as a graphic concept to describe these transactions. How concerned should competition policy be? The answer to this question hinges on how much the “theory” of killer acquisitions explains. To gain insights on this, the paper studies a sample of past cases composed of all merger transactions reviewed by the European Commission (“EC”) in ICT industries. In line with the predictions of the theory, some of these cases might constitute “killer acquisitions”. Hence, the paper asks: did they lead to a reduction of competition? By focusing on perceptions of the competitors of the acquired entity as reported in financial disclosures, the paper shows that one could not observe a disappearance of the target’s products, a weakening of competing firms, and/or a post-merger lowering or absence of entry and innovation. In other words, the paper finds no factual evidence supporting the killer acquisition theory. Whilst based on small number of observations, the paper’s findings are strong. Indeed the paper’s methodology overcomes the inherent problem of lack of observing the post-merger activities of the target, and addresses the inference problem that stems from the fact that even if the target’s products are discontinued in the buyer’s firm, it is non sequitur to infer from this a post-merger weakening of competition. |
| Keywords: | Killer Acquisition; Dynamic Competition; Mergers and Acquisitions; Innovation |
| JEL: | G34 L41 L86 O31 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127996&r=ind |
| By: | Erik Brynjolfsson; Wang Jin; Xiupeng Wang |
| Abstract: | Information flows, and thus information technology (IT) are central to the structure of firms and markets. Using data from the U.S. Census Bureau, we provide firm-level evidence that increases in IT intensity are associated with increases in firm size and concentration in both employment and sales. Results from instrumental variables and long-difference models suggest that the effect is likely causal. The effect of IT on size is more pronounced for sales than employment, which leads to a decline in the labor share, consistent with the “scale without mass” theory of digitization. Furthermore, we find that IT provides greater benefits to larger firms by increasing their capability to replicate their operations across establishments, markets, and industries. Our findings provide empirical evidence suggesting that the substantial rise in IT investment is one of the main driving forces for the increase in firm size, decline of labor share, the growth of superstar firms, and increased market concentration in recent years. |
| JEL: | L10 O3 O30 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31065&r=ind |
| By: | Fakhrabadi, Mahnaz (Dept. of Business and Management Science, Norwegian School of Economics); Sandal, Leif K. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | This paper investigates a multi-periodic channel optimization facing uncertain, price dependent, and dynamic demand. The picture of the market uncertainty is incomplete, and only the price and time-dependent mean and standard deviation are known and may depend on the price history. The actual demand distribution itself is unknown as is typically the case in real world problems. An algorithm finding the optimized decentralized channel equilibrium is developed when the downstream member optimizes her expected profit stream by a distributional-robust approach, and the upstream member (leader) considers it as the follower’s reaction function. The algorithm allows for strategic decisions whereby the current demand is scaled by the previous price setting. |
| Keywords: | Multi-Periodic problem; Stochasticity; Stackelberg Game; Subgame Perfect Distributional-Robust Approach; Supply Chain Management; Price-History Dependent Dynamic Demand |
| JEL: | C61 C62 C63 C72 C73 D81 |
| Date: | 2023–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2023_004&r=ind |
| By: | Guillaume Monchambert (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper investigates pricing decisions when a monopolistic multi-sided platform is myopic, that is unable to distinguish between two agents who participate on the same side of the platform but produce different externalities. We find that the structure of prices is the same for profit- and welfare-maximizing platforms. The unique price supplied to the two undistinguishable agents is a weighted average of the perfect information prices, where the weights depend on demand elasticities and externalities produced by the other undistinguishable agent. The prices supplied to the distinguishable agents are also affected by information asymmetry through an extra term than can be positive or negative. Introducing Hotelling competition does not affect results. We apply the model to a monopolistic short-distance carpooling platform with and without HOV lane, and show that the profit-maximizing platform does not subsidize efficiently the "good" side of the market, leading to very little traffic reduction. These results call for a discussion of the regulation of myopic platforms in general, and those of carpooling in particular. |
| Keywords: | Network effect, Information asymmetry, Externality, Working Papers du LAET |
| Date: | 2023–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03980205&r=ind |
| By: | Jonathan I. Dingel; Joshua D. Gottlieb; Maya Lozinski; Pauline Mourot |
| Abstract: | We measure the importance of increasing returns to scale and trade in medical services. Using Medicare claims data, we document that “imported” medical care — services produced by a medical provider in a different region — constitute about one-fifth of US healthcare consumption. Larger regions specialize in producing less common procedures, which are traded more. These patterns reflect economies of scale: larger regions produce higher-quality services because they serve more patients. Because of increasing returns and trade costs, policies to improve access to care face a proximity-concentration tradeoff. Production subsidies and travel subsidies can impose contrasting spillovers on neighboring regions. |
| JEL: | F12 F14 I11 R12 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31030&r=ind |
| By: | Doh-Shin Jeon (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse 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); Domenico Menicucci (UniFI - Università degli Studi di Firenze = University of Florence); Nikrooz Nasr (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse 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) |
| Abstract: | We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. Contrary to what happens in a static setting where symmetric firms choose compatibility (Matutes and Régibeau, 1988), when switching costs are high and firms make price discrimination based on past purchases, symmetric firms choose incompatibility to soften future competition if the discount factor is large, which harms consumers. Interoperability increases consumer surplus at least for high switching costs. Data portability, by reducing switching costs, induces the firms to choose compatibility more often but, given a compatibility regime, benefits consumers only if a non-negative pricing constraint binds. |
| Keywords: | Compatibility, Switching Cost, Data Portability, Interoperability, Cloud computing |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04018457&r=ind |
| By: | Bontemps, Christian; Gualdani, Cristina; Remmy, Kevin |
| Abstract: | We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes. |
| Keywords: | Endogenous market structure; Networks; Airlines; Oligopoly; Product repositioning; Mergers; Remedies |
| Date: | 2023–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127943&r=ind |