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on Industrial Organization |
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Issue of 2006‒02‒05
six papers chosen by |
| By: | Klaus Gugler; Dennis C. Mueller; B. Burçin Yurtoglu |
| Abstract: | One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers’ shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses. <br> <br> <i>ZUSAMMENFASSUNG - (Die Determinanten von Fusionswellen) <br> Es ist eines der auffallendsten Merkmale von Unternehmenszusammen-schlüssen, dass sie in Wellen stattfinden und dass diese Wellen mit dem Anstieg der Aktienkurse und des Preis/ Ertragsverhältnisses zusammen hängen. Wir untersuchen vier Hypothesen, die als Erklärung von Unternehmenszusammenschlüssen genannt werden: die der Industrieschocks, die q-Hypothese, die Hypothese der Überbewertung und die Hypothesen des Ermessensspielraums von Managern. Die ersten zwei sind neoklassischer Natur insofern als sie davon ausgehen, dass Manager Gewinne maximieren, Unternehmenszusammenschlüsse Reichtum schaffen und der Kapitalmarkt effizient ist. Die zwei letzteren sind Verhaltenshypothesen, die die neo-klassischen Annahmen (auf unterschiedliche Weise) lockern. Wir untersuchen die vier Hypothesen, indem wir Modellschätzungen der von Unternehmen akquirierten Aktien vornehmen. Dabei werden in den Modellen die Charakteristika der bei Zusammenschlüssen aufgekauften Unternehmen identifiziert und die Rendite für die Aktionäre des aufkaufenden Unternehmens geschätzt. Auch wenn alle vier Hypothesen in gewisser Hinsicht Bestätigung finden, untermauern die meisten Belege die zwei Verhaltenshypothesen.</i> |
| Keywords: | Mergers waves, managerial discretion, overvaluation |
| JEL: | G34 L2 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:spii2006-01&r=ind |
| By: | Richard Dagen; Daniel Richards |
| Abstract: | The Federal Trade Commission’s successful challenge to the proposed merger of Heinz and Beech-Nut baby food operations in 2001 remains a controversial case that raises concern over the role of cost efficiencies in merger analysis. Although the FTC argued that the merger would result in an increased likelihood of coordinated effects, we develop an alternative explanation for why the merger was likely to harm consumers even in the absence of such cooperation. We show that a conventional model of vertical product differentiation is able to replicate the premerger market data. Vertical product differentiation assumes that consumers agree on the relative quality of different products, which seems to describe the baby food market. When the model is then used to determine potential post-merger outcomes, we find that only using the most favorable assumptions for Heinz, would the claimed cost-efficiencies have been passed on to consumers. Under any more conservative and realistic scenarios, consumer prices rise substantially. The analysis supports the decision to oppose the merger. It also raises some doubt about the merit of cost efficiencies as a merger defense when an industry is characterized by vertical product differentiation. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0602&r=ind |
| By: | Ioana Chioveanu (Universidad de Alicante) |
| Abstract: | I construct a model in which an oligopoly first invests in persuasive advertising in order to induce brand loyalty to consumers who would otherwise buy the cheapest alternative on the market, and then competes in prices. Despite ex-ante symmetry, at equilibrium, there is one firm which chooses a lower advertising level, while the remaining ones choose the same higher advertising. For the endogenous profile of advertising expenditure, there are a family of pricing equilibria with at least two firms randomizing on prices. The setting offers a way of modelling homogenous product markets where persuasive advertising creates subjective product differentiation and changes the nature of subsequent price competition. The pricing stage of the model can be regarded as a variant of the Model of Sales by Varian (1980) and the two stage game as a way to endogenize consumers heterogeneity raising a robustness question to Varian¿s symmetric setting. |
| Keywords: | oligopoly, advertising, price dispersion, brand loyalty |
| JEL: | D21 D43 L11 L13 M37 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2005-32&r=ind |
| By: | Bruno De Borger; Kurt Van Dender |
| Abstract: | We study the duopolistic interaction between congestible facilities that supply perfect substitutes. Firms are assumed to make sequential decisions on capacities and prices. Since the outcomes directly affect consumers’ time cost of accessing or using a facility, the capacity sharing rule is endogenous. We study this two-stage game for different firm objectives and compare the duopoly outcomes with those under monopoly and at the social optimum. For the symmetrical duopoly outcome, our findings include the following. First, for profit maximizing firms both capacity provision and service quality are distorted under duopoly: they are below the socially optimal levels. This contrasts with the monopoly outcome, where pricing and capacity provision are such that the monopolist does provide the socially optimal level of service quality. Second, duopoly prices are lower than monopoly prices, but higher than in the social optimum. Hence, while price competition between duopolists yields benefits for consumer, capacity competition is harmful. Third, price-capacity competition implies that higher capacity costs may lead to higher profits for both facilities. Finally, if firms care about output as well as profits, this mainly affects pricing behavior; strategic interactions in capacities are much less affected. Finally, we explore the conditions under which symmetrical and asymmetrical duopoly equilibria arise and when they are stable. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p221&r=ind |
| By: | Saggi, Kamal; Pack, Howard |
| Abstract: | What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, the authors provide a critical survey of the analytical literature on industrial policy. They also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which less developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy. |
| Keywords: | Economic Theory & Research,ICT Policy and Strategies,Water and Industry,Industrial Management,Markets and Market Access |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3839&r=ind |
| By: | Rossana Galdini |
| Abstract: | The paper analyzes the role and the significance of tourism, as one particular set of industries that are of great significance in contemporary western societies, namely consumer services and especially tourist- related services. Particular emphasis is given to the impact of tourism on host communities, the changing role of tourism in the European economy, the relationship between tourism and environment, and its place in urban regeneration. Tourism is one of the most significant social forces in the world today. It also has enormous international economic and geopolitical importance. The economic, social environmental and cultural implications of such developments can be seen in a lot of cities. Tourism constructs, rearranges, and inhabits geographic, social and cultural spaces globally. This paper tries to better understand in a systematic way the spatial relationships, tourism systems and environments.The focus is on consumption and culture as drivers of urban policy. The main theme is that of tourism as a totalizing social construction of places and identities. The strong connections between society, time and space implies that the concept of 'society', the nature of 'locality', the significance of 'economic restructuring', and the concept of the 'rural', are to be examined in relationship to place. The paper then considers how places have been transformed by the development of service occupations and industries. Attention is then devoted to the ways in which places are consumed, the visual character of such consumption and its implications for place and people. The implications for nature and the environment are also explored . Places are constructed for tourism consumption through the promotion of certain images that have implications for the built environment. Tourist consumption is a place- creating and a place-altering act. The production and expansion of tourist spaces has consequences for the build environment, and so the promotion of a certain images can impact on the authenticity of environments. The paper tries to provide a critical approach of how places of cultural significance are trasformed into places of consumption by investigating the relationship between culture as a resorce for identity and social meaning and culture as an important economic resource for post-industrial cities. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa05p234&r=ind |