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on Industrial Organization |
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Issue of 2024‒07‒15
eight papers chosen by |
| By: | Vives, Xavier; Vravosinos, Orestis |
| Abstract: | We examine the effects of overlapping ownership among existing firms deciding whether to enter a product market. We show that in most cases—and especially when overlapping ownership is already widespread, an increase in the extent of overlapping ownership will harm welfare by softening product market competition, reducing entry, thereby (in contrast to standard results) inducing insufficient entry, and magnifying the negative impact of an increase of entry costs on entry. Overlap-ping ownership can mostly be beneficial only under substantial increasing returns to scale, in which case industry consolidation (induced by overlapping ownership) leads to sizable cost efficiencies. |
| JEL: | D43 L11 L13 L21 L41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129418&r= |
| By: | Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology) |
| Abstract: | Producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and the consumer knows their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either the consumer is uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumer may intensify competition in a way that benefits the consumer but results in inefficient production. We also characterize the information for consumer and producers that maximizes consumer surplus in a Hotelling duopoly. |
| Date: | 2024–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2373r1&r= |
| By: | Massimo Motta; Volker Nocke; Martin Peitz |
| Abstract: | With the increased risks of international trade frictions and geopolitical disruptions merger control that does not account for such risks may be too lenient. This article provides a proposal on how competition authorities should systematically assess mergers based on a risk assessment and how they should adjust their market share and UPP analysis. The authors also argue that the approach fits well into recent developments of merger analyses in the European Union. |
| Keywords: | merger control, market shares, UPP, resilience, geopolitical risks |
| JEL: | K21 L40 L13 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_568&r= |
| By: | Yann Delaprez; Morgane Guignard |
| Abstract: | This paper analyzes a merger of large manufacturers with divestiture in the French coffee market. In contrast to previous approaches used to study the effects of upstream divestitures on prices and welfare, we model the vertical market structure. First, our results show that the standard policy recommendation to require divestiture to small recipient firms may not hold when asymmetric bargaining power between firms is considered. Second, we show that previous models significantly overestimate costs. We estimate costs that are 41 percent lower, and find that divestiture can lead to marginal cost savings for the buyer of the divested brand. |
| Keywords: | Merger, remedies, divestiture, vertical markets, bargaining power |
| JEL: | D12 L11 L51 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2088&r= |
| By: | Zachary Knauss (Department of Economics, New School For Social Research, USA) |
| Abstract: | The profit-investment puzzle, characterized by the disconnect between rising corporate profits and stagnant capital investment, has become a focal point in recent economic research. This paper argues that the traditional pro-competitive policy framework, which attributes this phenomenon primarily to anti-trust failures, is insufficient for a comprehensive understanding. Instead, it posits that the post-Keynesian tradition, particularly the work of Josef Steindl, provides a more robust theoretical foundation for analyzing the relationship between market concentration and investment behavior. Steindl's insights into oligopoly dynamics and their impact on capacity utilization and investment decisions are applied to recent trends in U.S. industries. The paper includes both theoretical exploration and empirical analysis, employing econometric tests on data from 1972 to 2017. The results support Steindl's hypothesis of a pro-cyclical relationship between deviations in normal and actual capacity utilization rates and industry-wide investment rates, suggesting that increased market concentration leads to persistent underutilization of capacity and stagnation. This comprehensive analysis challenges the prevailing view that simply enhancing anti-trust enforcement can resolve the profit-investment gap, emphasizing instead the need for nuanced policies that address both market structures and broader economic dynamics. |
| Keywords: | Secular stagnation, capacity utilization, market concentration, oligopoly |
| JEL: | D43 E22 L13 L40 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2409&r= |
| By: | Gabe, Todd; Hunt, Elinor; Crawley, Andrew |
| Abstract: | This paper examines the technology use of US manufacturing businesses. Results from a 2023 survey of US manufacturers (n=268) show that computer-aided design (CAD), numerically or computer-controlled machines, and programmable controllers / programmable logic controllers have considerably higher adoption rates than Industry 4.0 technologies such as virtual and augmented reality, robots, and AI / machine learning. The most frequently cited barriers to the use of Industry 4.0 technologies are the size and needs (e.g., “products don’t require technology”) of a company more so than concerns about various aspects of technology (e.g., fear of obsoletion). When selecting technologies to use, US manufacturers consider the impacts of the technology on production and the business (e.g., enhance product quality, increase worker productivity) and costs (reduce production costs, costs of purchasing the technology) more so than the skills of workers and recommendations of (or use by) other businesses, industry associations, colleges, or universities. Future research using the survey data will provide a more in-depth analysis of technology use and its broader impacts on businesses and the regions where they are located. |
| Keywords: | US Manufacturing, Technology Use |
| JEL: | L60 O32 O33 |
| Date: | 2024–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121182&r= |
| By: | Chad Syverson |
| Abstract: | The North Dakota Railroad War of 1905, which pitted a potential entrant (the Soo Line) against an established monopolist incumbent (the Great Northern Railway), offers a lucid empirical example of strategic behavior, and in particular the potential for entry deterrence through product proliferation. I use detailed geographic data and historical records to examine the profitability of both the incumbent’s and entrant’s potential and chosen strategies. I find that the incumbent could have likely profitably deterred entry. It did not, however, waiting instead to respond only once the entrant began building. This simultaneous entry arguably led to over expansion in the market. I investigate whether the chosen strategies may have ultimately ended up being both unprofitable for the firms involved as well as, potentially, socially wasteful. |
| JEL: | L1 L9 N7 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32549&r= |
| By: | Heresi, Rodrigo |
| Abstract: | While there is widespread evidence of increasing markups in the United States and other developed economies in the last several decades, little is known about that evolution in developing economies, particularly Latin American countries. Using a harmonized dataset on listed firms from 70 countries in the period 2000-2022, I document four stylized facts about market power--measured as price-cost markups--in the six largest Latin American economies from a worldwide perspective. First, average markups in LAC are high relative to other emerging and developed economies, although they have slightly declined from prevailing levels during the commodity boom period. Second, aggregate markup dynamics are primarily driven by already high-markup firms in the top decile of the markup distribution, with little changes in the market power measured for the remaining nine deciles. Third, in contrast to the prediction of most theories about endogenously variable markups, I document a nonlinear relationship between firm-level markups and size, which is significantly negative for most of the size distribution and significantly positive for very large corporations. Fourth, the relationship between markups and investment depends heavily on the markup level. For a typical firm with median market power, a 1% increase in its markup implies a 0.86% rise in the investment rate. In contrast, for firms at the 99th percentile of the markup distribution, a 1% increase in its markup implies a -0.44% reduction in investment. |
| Keywords: | Market power;pricing;Firm size;TFP |
| JEL: | D22 D24 L11 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13610&r= |