0000000000530277
AUTHOR
Lluís M. Granero
Merger policy in innovative industries
We analyze optimal merger policy in R&D-intensive industries with product innovation aiming to improve the quality of products. Our results suggest that a permissive merger policy is rarely optimal in high-tech industries when the antitrust authority considers a welfare standard that balances the impact of mergers on con- sumers’ surplus and firms’ profits. In particular, relative to a benchmark where the effects from R&D are absent, we show that the optimal merger policy should not be substantially more permissive in the presence of those effects from R&D. info:eu-repo/semantics/publishedVersion
Excessive vs. insufficient entry in spatial models: When product design and market size matter
Abstract Under spatial product differentiation and product design, we identify conditions for either excessive or insufficient firm entry. We extend previous settings, based on the Salop circular model, to analyze the combined role of positive demand elasticity and endogenous targeted product design. First, we show that, given the number of firms, the equilibrium level of targeted design is either excessive or insufficient, depending on demand elasticity. Second, with free entry, we show that the degree of targeted product design increases with the relative market size and decreases with demand elasticity. Based on these effects, the interplay between demand elasticity and market size yield…
Industrial loans and market structure
Abstract Based on the observation that financing is one of the main obstacles to create new firms, this paper deals with the interactions between the market structure of both the banking sector and the borrowing industries. We consider that firms’ installation costs are financed by means of industrial loans from specialized banks. With endogenous entry in banking activity as well as in the borrowing industry, we find that a natural oligopoly emerges in both sectors if the entry cost in the industrial sector is small enough, relative to the banks’ entry cost.
Competition with targeted product design: Price, variety, and welfare
Abstract We consider the price and welfare effects of competition in targeted product design, in the context of the Salop circle model. Changes in product design lead to demand rotations that set the stage for our analysis. With an exogenous number of firms, we show that the degree of targeted product design tends to increase with the number of firms. Moreover, under reasonable conditions, price-increasing competition takes place, for intermediate levels of the number of firms. This effect is associated with the possibility of lower consumer welfare. With endogenous firm entry, an interesting insight from our analysis is that in some situations an increase in market size or a technological …
Strategic product variety and quality choice
Abstract We examine the linkages between strategic product assortment, quality choice, and pricing by multi-product firms as well as the welfare effects from those linkages. The analysis shows that strategic effects can lead to relevant inefficiencies. Specifically, the analysis identifies effects which can induce insufficient or excessive product quality relative to the socially optimal level of quality.
Forward Trading and Entry under Incomplete Information
This paper examines the strategic use of forward trading by an incumbent producer who faces potential entry under incomplete information. We show the existence of Bayesian-Nash equilibria in which the incumbent uses forward transactions to deter entry that would have occurred under complete information. Additionally, we find that increasing the frequency of forward trading can raise the volume of pre-entry forward trading and affect the likelihood of entry. Our analysis shows that the incumbent can deter entry with a short position if production cost correlation is low and with a long position if that correlation is high. In the limiting case of continuous trading, these two configurations …
Most-favored-customer pricing, product variety, and welfare
Abstract Most-favored-customer (MFC) clauses are usually seen as anticompetitive co-ordination devices that firms adopt for the purpose of higher prices. Here, I examine the welfare impact of MFC clauses under endogenous product variety. Product variety is relevant because prospective higher prices from MFC clauses can be anticipated by multi-product firms in their provision of product lines. Under such circumstances, I find that these clauses can be socially harmful, but this is not always the case: they tend to be socially neutral for relatively large fixed costs of product-line assortment, harmful for intermediate costs, and beneficial for relatively small costs.
Entry under uncertainty: Limit and most-favored-customer pricing
Abstract In the absence of uncertainty, an incumbent that attempts to prevent entry of rival firms can have no incentive to offer a most-favored-customer (MFC) clause because it could lead to higher post-entry prices. Our analysis suggests that this is not necessarily the case under uncertainty. In the presence of uncertainty, the incumbent can set a limit price that affects the entry decision. Limit pricing involves a pre-entry price different from the static monopoly price, which leads to a signaling cost. We show that part of this cost can be distributed over several periods by means of consumer refunds from the MFC clause. If the discount factor is not very high, the incumbent adopts th…
Duopoly and Product Design
Competition in product design is considered in the context of a circular duopoly model where each duopolist can choose either a standardized design or a customized version of its product. We examine the circumstances that lead to multiple equilibria, and characterize the type of equilibrium as a function of both the customization costs and the lower bound on the degree of customization. In the welfare analysis, it is shown that the degree of customization offered in equilibrium can be substantially different from the socially optimal level of this variable.
Multi-product firms and product variety
The goal of this paper is to study the role of multi-product firms in the market provision of product variety. The analysis is conducted using the spokes model of non-localized competition proposed by Chen and Riordan (2007). Firstly, we show that multi-product firms are at a competitive disadvantage vis-a-vis single-product firms and can only emerge if economies of scope are sufficiently strong. Secondly, under duopoly product variety may be higher or lower with respect to both the first best and the monopolistically competitive equilibrium. However, within a relevant range of parameter values duopolists drastically restrict their product range in order to relax price competition, and as a…