nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒07‒31
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Start-up Acquisitions, Venture Capital and Innovation: A Comparative Study of Google, Apple, Facebook, Amazon and Microsoft By Gugler, Klaus; Szücs, Florian; Wohak, Ulrich
  2. R&D tax credits and the acquisition of startups By McShane, William; Sevilir, Merih
  3. Employment versus Efficiency: Which Firms Should R&D Tax Credits Target? By Anna Bernard; Rahim Lila; Joana Silva
  4. Recurring Auctions with Costly Entry: Theory and Evidence By Shanglyu Deng; Qiyao Zhou
  5. Market Power and Regulation in Pharmaceutical Markets By Klaus Gugler; Florian Szücs
  6. Market Shares as Collusive Marker: Evidence from the European Truck Industry By Bovin, Andreas; Bos, Iwan
  7. A Tale of Oil Production Collapse By Henry Aray; David Vera
  8. Delivery platform impacts on retail pass-through in the restaurant industry By Kong, Xiangwen; Liu, Xiaoou

  1. By: Gugler, Klaus; Szücs, Florian; Wohak, Ulrich
    Abstract: We evaluate the impact of big-tech acquisitions on the incentives for investment and innovation. Using data on several hundred acquisitions by Google, Apple, Facebook, Amazon and Microsoft (GAFAM), we study the evolution of venture capital investment and patenting relative to control groups. The results show a clear negative impact on investment, while the effect on innovation depends on the acquirer and period. Both outcomes improve over time, as GAFAM firms become more similar in terms of their product and tech-portfolios, increasing competition. Yet, around 10% of acquisitions impact both metrics negatively.
    Keywords: M&A; big-tech; innovation; investment
    Date: 2023–07
  2. By: McShane, William; Sevilir, Merih
    Abstract: We propose a novel mechanism through which established firms contribute to the startup ecosystem: the allocation of R&D tax credits to startups via the M&A channel. We show that when established firms become eligible for R&D tax credits, they increase their R&D and M&A activity. In particular, they acquire more venture capital (VC)-backed startups, but not non-VC-backed firms. Moreover, the impact of R&D tax credits on firms' R&D is increasing with their acquisition of VC-backed startups. The results suggest that established firms respond to R&D tax credits by acquiring startups rather than solely focusing on increasing their R&D intensity in-house. We also highlight evidence that startups do not appear to benefit from R&D tax credits directly, perhaps because they typically lack the taxable income necessary to directly benefit from the tax credits. In this context, established firms can play an intermediary role by acquiring startups and reallocating R&D tax credits, effectively relaxing the financial constraints faced by startups.
    Keywords: indirect effects, innovation, mergers and acquisitions (M&A), research and development (R&D), startups, tax credits
    JEL: G00 G34 H24 M13 O31
    Date: 2023
  3. By: Anna Bernard; Rahim Lila; Joana Silva (Católica School of Business and Economics, Universidade Católica Portuguesa; Charles Rivers Associate; Católica School of Business and Economics, Universidade Católica Portuguesa)
    Abstract: R&D tax credits, by stimulating private sector innovation, can play a key role in promoting employment and firm performance. This paper examines the program impact on the trajectory of firms in terms of technology adoption, firm performance and workforce composition, and the extent to which it depends on the size of the targeted firms. It uses rich longitudinal micro-data on innovation, firms and their workers. Combining matching with a staggered adoption differences-in-differences, we show that tax credits increase investment in R&D-related activities while funds are being received, but not thereafter. Productivity and efficiency (but not employment) increase in large firms. These effects are driven by structural changes, both in terms of the increased share of skilled individuals within the firm (keeping the overall employment level constant) and enhanced technological adoption. In contrast, small firms mostly respond by increasing employment and production scale. Our results suggest that an important trade-off: R&D tax credit programs that target large firms are likely to lead to efficiency and productivity gains, but limited effects on employment of supported firms. In contrast, R&D tax credit programs that mostly benefit small firms may lead to employment gains in supported firms, but limited effects on structural changes in productivity and efficiency.
    Keywords: R&D tax credits, Innovation, SIFIDE, Matching, Differences-in-Differences
    JEL: O31 O38 H25
    Date: 2023–07
  4. By: Shanglyu Deng; Qiyao Zhou
    Abstract: Recurring auctions are ubiquitous for selling durable assets, such as land, home, or artwork: When the seller cannot sell the item in the initial auction, she often holds a subsequent auction in the near future. This paper characterizes the design of recurring auctions, both theoretically and empirically. On the theoretical side, we show that recurring auctions outperform single-round auctions in efficiency and revenue when potential buyers face costly entry. This occurs because recurring auctions allow potential buyers with different values to enter at different times, which generates savings in entry costs and increases the overall probability of sale. We further derive the optimal sequence of reserve prices in recurring auctions, depending on whether the seller aims to maximize efficiency or revenue. On the empirical side, we apply the theory to home foreclosure auctions in China, where a foreclosed home is auctioned up to three times in a row. After estimating structural parameters in a recurring auction model, we compare the observed recurring auctions to the counterfactual single-round auctions. We show that the recurring auction design leads to an annual efficiency gain of 3.40 billion USD (16.60\%) and an annual revenue gain of 2.97 billion USD (15.92\%) in China, relative to single-round auctions. Using the optimal reserve price sequences derived from our model can further improve efficiency by 0.80 billion USD (3.35\%) and revenue by 0.66 billion USD (3.06\%), respectively.
    Date: 2023–06
  5. By: Klaus Gugler (Department of Economics, Vienna University of Economics and Business); Florian Szücs (Department of Economics, Vienna University of Economics and Business)
    Abstract: We exploit the regulatory environment in the Austrian pharmaceutical market to study the effects of price regulation on market outcomes and consumer welfare. We evaluate all mergers of drug producers in the 2009-2017 period and find that the coexisting regulated and unregulated markets were unequally affected. While M&A have substantially increased prices without regulation, particularly for price-inelastic products, prices did not increase under regulation. Instead, variety increased in regulated markets. Therefore, regulation can successfully mitigate the effects of market power: whereas M&A decrease consumer welfare absent regulation, the additional product variety increases consumer welfare in the regulated market.
    Keywords: pharmaceuticals, regulation, market power, consumer welfare, pharma mergers, product variety
    JEL: L65 I18 D22 I11 L51 G34
    Date: 2023–07
  6. By: Bovin, Andreas; Bos, Iwan (RS: GSBE other - not theme-related research, Organisation, Strategy & Entrepreneurship)
    Abstract: Collusion theory robustly predicts non-cartel rivals to raise their price and increase their output. As the typical cartel cuts back production, its competitors are expected to gain market share during the collusive period and to lose market share in the period following the cartel's demise. We provide empirical support for this prediction by showing that it applied to the European truck cartel. We also illustrate how our analysis can be used in the prosecution stage. One truck manufacturer denied cartel participation, whereas the proposed market share test supports the European Commission's finding that this firm was, in fact, a member.
    JEL: L10 L40
    Date: 2023–07–11
  7. By: Henry Aray (Department of Economic Theory and Economic History, University of Granada.); David Vera (Department of Economics, Craig School of Business, California State University Fresno.)
    Abstract: Lack of and delayed investment in high capital-intensive industries along with mismanagement can lead to collapse in output. This article focuses on the recent Venezuelan experience, a country with an oil-based rentier economy whose oil industry collapsed. We use synthetic control methods to compare actual oil production performance in Venezuela with a counterfactual scenario since the beginning of Hugo Chavez’s presidency in 1999. Our findings indicate that the synthetic Venezuela outperforms the actual Venezuelan oil production, with the gap increasing notably since the late 2000s. On average, actual oil production in Venezuela was approximately 1 million barrels per day lower than the synthetic scenario during the 1999-2021 period. The results are robust to including additional predictors and a battery of placebo test.
    Keywords: Oil, Venezuela, Synthetic control.
    JEL: L71 Q35 C32
    Date: 2023–07–14
  8. By: Kong, Xiangwen; Liu, Xiaoou
    Keywords: Marketing, Agribusiness, Food Consumption/Nutrition/Food Safety
    Date: 2023

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