the lechatelier principle the lechatelier principle in the form introduced into economics by paul a samuelson asserts that at a point of long run equilibrium the derivative of long run compensated demand with respect to own price is larger in magnitude than the derivative of short run compensated demand the authors introduce an extended lechatelier principle that applies also to large price changes and to uncompensated demand as well as to a wide range of concave and nonconcave maximization problems outside the scope of demand theory this extension also clarifies the intuitive basis of the principle copyright 1996 by american economic association

endogenous formation of competing partnerships with moral hazard abstract we analyze the formation of competing partnerships as a sequential game with moral hazard within coalitions in a linear cournot model we show that when moral hazard is very severe no partnerships will form however when moral hazard is not too severe the coalition structure may be more concentrated than it is in the absence of moral hazard concerning industry profits in the absence of moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome but moral hazard may be responsible for an inefficiency of opposite sign

ownership consolidation and product characteristics a study of the us daily newspaper market this paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation taking into account not only firms price adjustments but also the adjustments in newspaper characteristics a new dataset on newspaper prices and characteristics is used to estimate the model the paper then simulates the effect of a merger in the minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics it finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers jel g32 l13 l82 m37 do mergers affect product characteristics standard merger analyses typically study price effects only and ignore changes in product characteristics this paper endogenizes both it is likely that firms would adjust the features of their products after a merger ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects specifically i study how ownership consolidation affects product characteristics and welfare in the us daily newspaper market the newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons first of all individual newspapers often circulate in local markets there is substantial variation in demographics and ownership structure across these markets this variation is crucial for this study secondly the characteristics of newspapers are obviously important for welfare for example after an ownership consolidation do newspaper publishers improve or diminish the content quality do they enlarge or shrink the local news ratio do they increase or decrease content variety to address these questions i set up a structural model of the us daily newspaper

mergers of producers of perfect complements competing in price abstract the endogenous merger model of kamien and zang qje 1990 is generalized to price competition with perfect complements and used to show that some socially desirable mergers will fail to occur we also clarify the link between this merger model and the exogenous merger literature

mergers and the importance of fitting well abstract this paper highlights the importance of partners fitting well for a stable merger to arise if all firms fit perfectly no stable merger can be performed on the contrary if not all firms are compatible a stable merger may arise

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

the unilateral incentives for technology transfers predation and deterrence by proxy abstract joint production between rival firms often entails knowledge transfers without direct compensation leaving the question as to why more efficient firms would give their rivals such an advantage we find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit we determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly while consumers are harmed by such action production efficiency normally increases sufficiently so that welfare increases

multidivisional firms internal competition and the merger paradox traditional modelling of mergers has the merged firms insiders cooperate and maximize joint profits this approach has several unappealing results in quantity setting games for example mergers typically are not profitable for insiders but are profitable for non merging firms outsiders we take a different approach and allow for a parent company that can play each insider off one another in quantity setting games with our approach mergers are profitable for insiders unprofitable for outsiders socially beneficial and involve in a non monopolizing merger a small number of firms finally we find that the optimal strategy depends on whether firms compete in quantity or prices jel classification l000 entreprises multi divisionnelles concurrence interne et le paradoxe des fusions les modelisations conventionnelles des fusions suggerent que les entreprises fusionnees parties prenantes cooperent et maximisent leurs profits conjoints cette approche engendre plusieurs resultats contre intuitifs dans des jeux de concurrence par les quantites i e les fusions en general ne sont pas profitables pour les parties prenantes mais sont profitables pour des entreprises qui ne sont pas fusionnees les autres les auteurs adoptent une approche differente qui permet a l entreprise mere de jouer les parties prenantes l une contre l autre dans ce genre de jeu avec l approche adoptee les fusions sont profitables pour les parties prenantes non profitables pour les autres socialement benefiques et impliquent un petit nombre d entreprises dans une fusion qui ne cree pas un monopole finalement on trouve que la strategie optimale depend fondamentalement du fait que les entreprises se concurrencent par les prix ou par les quantites

bertrand competition for inputs and walrasian outcomes market making by merchants who obtain stock from suppliers and resell it to con sumers is modeled as a two stage pricing game with winner take all c ompetition for the inputs in contrast to fixed capacity models the re is a unique subgame perfect nash equilibrium spne which is walr asian for elastic demand and non walrasian for inelastic demand alte rnatively when merchants first sell forward contracts to consumers a nd then compete for supplies the unique spne is always walrasian th us the author has an equilibrium model in which walrasian price aris es not from the benevolent actions of a fictitious auctioneer but fr om optimal price setting behavior of merchants copyright 1988 by american economic association

the limits of monopolization through acquisition we address the question of whether competitive acquisition of firms by their rivals can result in complete or partial monopolization of a homogeneous product industry this question is modeled in terms of two distinct three stage noncoopera tive games analysis of subgame perfect pure strategy nash equilibria of these games discloses that under simplifying assumptions monopolization of an industry through acquisition is limited to industries with relatively few firms partial monopolization is either limited in scope or can be completely eliminated by prohibiting any owner from acquiring over 50 percent of the firms in the industry

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

the antitrust implications of capacity reallocation by a dominant firm when a firm acquires rival firms in one market and moves their capacity to another market should antitrust authorities be concerned we address this question by studying a multi stage game a dominant firm has the opportunity to acquire fringe firms that operate in the same market then the dominant firm has the opportunity to move capacity from that market to a second market the model is motivated by a series of acquisitions in the specialized mobile radio industry aimed at establishing a new cellular carrier we derive necessary and sufficient conditions for the dominant firm to acquire too little capacity relative to the social optimum the results shed light on the consent decree negotiated in us v motorola inc and nextel communications inc 1994

successive oligopolies with differentiated firms and endogeneous entry we develop a model of successive oligopolies with endogenous entry allowing for varying degrees of product differentiation and entry costs in both markets we show that downstream conditions dominate the overall profitability of the two tier structure while upstream conditions mainly affect the distribution of profits we analyze how two part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects in contrast to previous literature we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization this is because linear prices induce more downstream market entry

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

directional heterogeneity of environmental disamenities the impact of crematory operations on adjacent residential values a hedonic study of residential house sales in rawlins wyoming was conducted to estimate the impact of an environmental shock from a new point source upon adjacent residential property values we use a unique data base of house sale prices and associated house attributes including structural and neighbourhood characteristics and geographic distances and directions from the source of the shock atmospheric emissions from a new crematory our data spans 27 months of house sales 7 months before and 20 months after the startup of crematory operations results indicate that proximity measured both in terms of direction and distance from the crematory imparts a statistically significant negative impact on average house sale prices an increase of 0 3 to 3 6 of average sale price for every one tenth mile increase up to one half mile in distance away from the crematory but depending on direction from the crematory this distance benefit increases somewhat with calendar time only for houses located west of

divisionalization franchising and divestiture incentives in oligopoly a two stage game is used to model firms strategic incentives to divide production among autonomous competing units through divisionalization franchising or divestiture firms simultaneously choose their number of competing units which then engage in cournot competition while it is costly to form autonomous units each firm does so in equilibrium thus reducing firm profits and increasing social welfare relative to the case where firms cannot form competing units with linear demand and costs duopolists choose the socially optimal number of competing units oligopolies with larger numbers of firms choose too many the case of nonlinear demand is also examined copyright 1996 by american economic association

bargaining failures and merger policy in this paper we study the optimal ex ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates we allow for firm asymmetries and in particular we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms the model demonstrates that under some circumstances relatively inefficient mergers may take place that is a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits such bargaining failures have important implications for the ex ante optimal merger policy we show that a more stringent policy than the ex post optimal reduces the scope of these bargaining failures and raises expected social surplus we use a bargaining model that is flexible in the sense that its strategic structure does not place any exogenous restriction on the endogenous likelihood of feasible mergers

endogenous mergers and cost heterogeneity the objective of this article is to analyze the effect of firms heterogeneity on their incentives to merge to reach this target merger decisions are modelled as endogenous to simplify the analysis we focus on the extreme case where merger leads to monopolization kamien and zang 1990 1993 give monopolization conditions in static and dynamic acquisition games introducing cost heterogeneity in a n firm industry we provide more general monopolization conditions indeed we show that any industry can be monopolized if cost heterogeneity is large enough this result provides new information to competition authorities on concentration possibilities and allows them to focus particularly on some industries

confining the coase theorem contracting ownership and free riding if individuals own the right to take any action that they please and are free to contract about behaviour will outcomes be efficient in all situations that is does the coase theorem hold we study this classic question through the lens of a non cooperative model of contract negotiations considering both compulsory and voluntary participation in negotiations in either case we find that all consistent equilibria of the contracting game are efficient in the case of two players but if participation is voluntary and there are more than two players there are situations in which all consistent equilibria are inefficient specifically the provision of public goods tends to be inefficiently low due to strategic abstention from contracting free riding on others agreements can be avoided if individuals do not own all their actions when actions involve the use of assets efficient action ownership may correspond to collective rather than individual asset ownership

on the inefficiency of merger control abstract according to the merger guidelines the antitrust authority has to challenge an anticompetitive merger these guidelines however neglect the parties litigation costs during trial we analyze under which circumstances these costs are so high that the agency s intervention is inefficient

the welfare effects of upstream mergers in the presence of downstream entry barriers we examine the incentives for upstream firms to consolidate horizontally and the impact of this process on industry performance when there are downstream entry barriers and firms negotiate bilaterally in the short run consumers are not worse off with upstream mergers since consolidation only results in a redistribution of industry rents in the long run consumers are better off after upstream mergers since they induce more entry into that segment when social welfare is evaluated a limit on upstream consolidation may prevent excessive entry but upstream entry can be sometimes insufficient if the retailers intrinsic bargaining power is excessive

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

technical compatibility and the mode of foreign entry with network externalities we examine the preferences of a foreign firm and a local government over two modes of foreign direct investment de novo entry and acquisition of the domestic incumbent two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology the relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality the clash between the foreign firm s choice and the local government s ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm ce texte examine les preferences d une firme etrangere et d un gouvernement du pays hote quant a deux modes d investissement direct de l etranger entree de novo de la firme etrangere versus acquisition d une firme domestique en place deux facteurs pris en compte sont la presence d externalites de reseau et d incompatibilite partielle entre la technologie locale et celle introduite par la firme etrangere l impact relatif des modes d entree sur le mieux etre local depend du degre de concurrence sur le marche et de l importance des externalites de reseau le conflit entre les preferences de l entreprise etrangere et les preferences du gouvernement local peuvent etre a la source de politiques qui limitent le degre de proprieteetrangere permis

sufficient decisions in multi sided and multiproduct markets we show that in many models where firms make multiple decisions analysis can be made more tractable by re formulating the model into one in which each firm makes a single choice which we call a sufficient decision the transformation allows application of standard techniques in these settings including pass through for tax incidence and upward pricing pressure for merger analysis the transformation works because the assumption of profit maximization links the firms decisions together examples include models of monopoly and oligopoly in two sided markets where a natural sufficient decision may be the number of transactions that the firm facilitates and multiproduct markets

stable coalition structures with externalities this paper argues that the sign of external effects of coalition formation provides a useful organizing principle in examining economic coalitions in many interesting economic games coalition formation creates either negatie externalities or posi tie externalities for nonmembers examples of negative externalities are research coalitions and customs unions examples of positive externalities include output cartels and public goods coalitions i characterize and compare stable coalition structures under the following three rules of coalition formation the open

entry deterrence and mergers under price competition in pharmaceutical markets after patent expirations in pharmaceutical markets brand name laboratories are threatened by generic firms entry to fill the gap in the theoretical literature on this topic we study brand name firms incentives either to deter entry or to merge with the entrant these strategies are considered along with the possibility of the brand name firm producing its own generic drug called a pseudo generic drug using a vertical differentiation model with bertrand stackelberg competition we show that each strategy merging and deterring entry may be nash equilibrium according to the generic firm s setup cost level and to the rate of discount