Volume 18, Issue 3

Serdar Dalkir, John W. Logan and Robert T. Masson

"Mergers in symmetric and asymmetric noncooperative auction markets: the effects on prices and efficiency"

JEL codes: D44, L41
Keywords: antitrust, auctions, bidding, calibration, mergers, simulation, unilateral

Abstract: United States antitrust merger analysis has recently focused on simulating the unilateral effects of mergers. We develop a model to simulate the unilateral price increase from a merger in an auction market. We illustrate our results in the context of hospital mergers in the U.S., and calibrate our simulations to known market parameters.
We compare the price increases in our model to those suggested by analytically simpler models. The simulation results suggest that the unilateral price increases predicted by our model are modest in general. We also simulate the merger cost savings that are needed to offset the price effects.

Vivek Ghosal

"Product Market Competition and Industry Price-Cost Markup Fluctuations"

JEL codes: L11; L13; L16; E30
Keywords: Markup fluctuations; business cycles, monetary policy; energy prices; labor hoarding; import competition

Abstract:  We examine the role played by imperfect competition in the response of markups to energy price and monetary changes. We find: (i) for concentrated industrial, markups increase with monetary expansion and decrease when  energy prices increase; the elasticity with respect to energy prices is greater than monetary changes; (ii) for low concentration industries, markups are virtually unaffected by monetary changes and the energy price elasticities are statistically insignificant; (iii) markups are procyclical over the industry-specific cycle; and (iv) increased import competition lowers markups only in the concentrated industries. The energy price increases (decreases) during the 1970īs (1980īs) may have been a key factor contributing to the narrowing (widening) of the markup gap between high and low concentration industries. We provide evidence that procyclical markups in concentrated industries are not being driven by differences in the degree of labor hoarding between low and high concentration industries.

Sumit K. Majumdar

"With a little help from my friends? Cross-subsidy and installed-base quality in the U.S. tlecommunications industry"

JEL codes: L96, O33
Keywords: cross-subsidy, incentive regulation, technological quality

Abstract: This article examines the effect of the cross-subsidization process, which is a key institutional mechanism n the telecommunications infrastructure in the Untied States, Fiber optic and digital technology usage levels within local exchange crriers in the United States are used to capture installed-base quality. The results show that local exchange sector cross-subsidization has a positive effect on new technology deployed in the installed base. Regulatory influences are also controlled for and the introduction of pure price-cap schemes are introduced in conjunction with a mixed earnings sharing scheme, or where only an earnings sharing scheme is introduced, then the effect on new technology usage is much more mixed.

Charles F. Mason and Owen R. Phillips

"Vertical integration and collusive incentives: an experimental analysis"

JEL codes: L1, L22
vertical integration, merger, market experiments

Abstract: We consider vertically related industries with multiple downstream markets; firms make simultaneous choices in a repeated game. Upstream duopolists merge with producers in one of the downstream markets that is also a duopoly. Experimental duopoly markets are constructed to assess the effects of vertical integration upon outputs and profits. We find that integration raises outputs in both downstream and upstream markets, although only the upstream effect is statistically significant. Integrated profits are lower and consumer welfare is higher. The integrated markets tend to equilibrate more quickly.

Tarel M. Harchaoui and Malika Hamdad

"The prices of classical recorded music: a hedonic approach"

JEL codes:

Abstract: This paper is an empirical investigation into factors that are responsible for the differences in prices of classical music compact disks. Though primarily a statistical exercise, the current work has implications for understanding the structure, conduct and performance experience by the classical music record industry. The major changes experienced by this industry are highlighted. We focus on the rapid technological change in recording technologies, format changes, the product heterogeneity that results from the simultaneous existence of incumbent and entering models with various technological vintages, and the behaviour of firms of different kinds. Using an as-yet untapped French data source for the period 1989-1994, the results of hedonic regressions indicate that new vintages are priced at a premium, reflecting higher recording costs. Owing to contractual arrangements with superstars, this premium is even higher for recordings made by majors. The price markups enjoyed by major firms have declined over time because of increasing competitive pressure. Independents and majors exhibit a distinct behaviour as to the location of classical music CD's recordings in quality space. The results favour the hypothesis that independents locate their recordings in 'empty' market niches. The nominal quality-adjusted prices for independent firms' CDs declined at an average annual rate twice that of the majors.

Rui Baptista

"Do innovations diffuse faster within geographical clusters?"

JEL codes: L10, O31
: geographical clustering, technological diffusion, externalities, duration models

Abstract: There is considerable evidence to demonstrate that the diffusion of new technologies is spatially variable. This paper argues that externalities promoting the adoption of new technology are stronger at the regional level and depend positively on the proximity of early users. An empirical model of diffusion is built, including variables related to the regional density of adopters and of technologically close firms. Results support the existence of significant regional effects on adoption. These effects seem to be stronger at the early stages of diffusion.