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on Industrial Competition |
| By: | Abe de Jong (RSM Erasmus University); Thuy Thu Nguyen (RSM Erasmus University); Mathijs A. van Dijk (RSM Erasmus University) |
| Abstract: | We investigate how competitive behavior affects the capital structure of a firm. Theory predicts that the impact of different types of output market uncertainty (in particular, unanticipated shocks in demand and costs) on a firm's leverage depends on the type of competition in an industry. We test these predictions in a sample of U.S. manufacturing firms by classifying firms into Cournot competition (strategic substitutes), and Bertrand competition (strategic complements). We show that demand uncertainty is positively related to leverage for firms in both the Cournot and the Bertrand sample. Cost uncertainty has a significantly positive impact on the leverage of Cournot firms, but plays a negligible role for Bertrand firms. Our results support the strategic use of debt and highlight the role of firms' competitive behavior in the product market in their capital structure decisions. |
| Keywords: | Strategic debt, Cournot competition, Bertrand competition, demand and cost uncertainty, leverage |
| JEL: | G32 L10 L60 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dpc:wpaper:1108&r=com |
| By: | Enrico Diecidue; Jeroen van de Ven; Utz Weitzel |
| Abstract: | This paper offers a new explanation of value-reducing mergers and stock market driven takeovers by introducing recent research on aspiration levels and individual decision making under risk. If market valuation constitutes an aspiration level for managers, we show that managers may be tempted to seek riskier mergers in order to meet shareholder optimism. Such merger seeking behavior increases in bidder overvaluation and can also favor acquisitions when the expected value of takeovers is lower than alternative investments. The paper provides support for several empirical findings and complements existing market-timing models as its predictions are decoupled from equity offers and are independent from the means of payment. |
| Keywords: | aspiration level, mergers and acquisitions, market-driven takeovers, overvaluation |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0806&r=com |
| By: | Fabio Maria Manenti (University of Padua); Ernesto Somma (University of Bari) |
| Abstract: | We study the strategic choice of compatibility between two initially incompatible network goods in a two-stage game played by an incumbent and an entrant firm. Compatibility may be achieved by means of a converter. We derive a number of results under different assumptions about the nature of the converter (one-way vs two-way), the existence of property rights and the possibility of side payments. With incompatibility, entry deterrence occurs for sufficiently strong network effects. In the case of a two-way converter, which can only be supplied by the incumbent, incompatibility will result in equilibrium unless side payments are allowed and the network externalities are sufficiently low. When both firms can build a one-way converter and there are no property rights on the necessary technical specifications, the unique equilibrium involves full compatibility. Finally, when each firm has property rights on its technical specifications, full incompatibility is observed at the equilibrium with no side payments; when these are allowed the entrant sells access to its network to the incumbent which refuses to do the same and asymmetric one-way compatibility results in equilibrium. The welfare analysis shows that the equilibrium compatibility regime is socially inefficient for most levels of the network effects. |
| Keywords: | network externalities, one-way compatibility, two-way compatibility, entry |
| JEL: | L13 L15 D43 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0068&r=com |
| By: | Köhler, Matthias |
| Abstract: | Although there is anecdotal evidence that merger control may constitute a barrier to the integration of European retail banking markets, systematic empirical evidence is missing until now. This paper aims to fill this gap. Based on a unique dataset on the transparency on merger control in the EU banking sector, we estimate the probability that a bank is taken over as a function of its characteristics, country characteristics and the transparency of merger control in the banking sector. The results indicate that a bank is systematically more likely to be taken over by foreign credit institutions if the regulatory process is transparent. Particularly large banks are less likely to be taken over by foreign credit institutions if merger control lacks transparency. This is in line with the hypothesis that governments may block crossborder bank merger because they want the largest institution in the country to be domestically owned. Domestic mergers are not affected. This suggests that merger control may therefore constitute an important barrier to cross-border consolidation and that further integration of EU banking markets requires a higher degree of transparency of the regulatory process. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:7020&r=com |
| By: | Berninghaus, Siegfried K. (Universität Karlsruhe); Gueth, Werner (Max Planck Institute for Research into Economic Systems, Strategic Interaction Group); Levati, M. Vittoria (Max Planck Institute of Economics, Strategic Interaction Group); Qiu, Jianying (Max Planck Institute of Economics, Strategic Interaction Group) |
| Abstract: | In a duopoly market, aspirations express how much sellers want to earn given their expectations about the other's behavior. We define individually and mutually satisficing sales behavior for given individual beliefs and aspirations. In a first experimental phase, whenever satisficing is not possible, beliefs, aspirations, or sales have to be adapted. In a second phase, testing the absorption of satisficing, participants are free to select nonsatisficing sales profiles. The results reveal that most people are satisficers who, either mandatorily or deliberately, tend to adjust aspiration levels if they cannot be satisfied. |
| Date: | 2007–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:sfbmaa:07-03&r=com |
| By: | Rod Tyers; Lucy Rees |
| Abstract: | The retreat from public ownership of service firms and industries has left behind numerous private monopolies and oligopolies supervised by regulatory agencies. Services industries in government and private ownership generate two-thirds of Australia's value added and employ three quarters of its workforce. This study offers an economy-wide approach that represents monopoly and oligopoly behaviour explicitly. It examines the implications of oligopoly rents for factor markets and the real exchange rate, the extent of sectoral interactions and the potential economy wide gains from tighter price cap regulation, with the results confirming the merit of an economy-wide approach. External shocks, like the present "China boom", are also simulated. Such positive shocks are shown to expand the potential for oligopoly rents and therefore to raise the bar for regulatory agencies. Moreover, less than tight price caps are shown to exacerbate entry-exit hysteresis in boom and bust cycles. |
| JEL: | C68 D43 D58 L13 L43 L51 L80 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2008-490&r=com |
| By: | Eichberger, Jürgen (Sonderforschungsbereich 504); Kelsey, David (Department of Economics, The University of Birmingham); Schipper, Burkhard (University of California, Davis Department of Economics) |
| Abstract: | We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing)equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements. |
| Date: | 2007–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:xrs:sfbmaa:07-19&r=com |