do mergers really reduce costs evidence from hospitals in this paper we compare potential and realized cost savings from hospital mergers our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger however we also show that over time cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines

trucks without bailouts equilibrium product characteristics for commercial vehicles the entry and exit of products rather than firms serve as the main equilibrating force in many markets so accurately predicting changes from a merger or bankruptcy should incorporate this behavior this paper estimates a structural model of the us commercial vehicle market and demonstrates the importance of allowing for endogenous product offerings in the context of the 85 billion automotive industry bailout in 2009 under alternate policies that facilitate an acquisition or liquidation of gm and chrysler product entry and exit moderate markup increases and output decreases by up to three quarters

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

revisiting prebisch and singer beyond the declining terms of trade thesis and on to technological capability development rather than the thesis of a secular decline in the commodity terms of trade prebisch and singer were more concerned with the income terms of trade consequently they advocated moderate import substitution is and recommended having it interweaved with export promotion ep to avoid technological dependence but achieve integrated industrialisation while coordinating is with ep prebisch emphasised enhancing indigenous technological densities and singer stressed building the indigenous capacities to create wealth that means while foreign direct investments should be attracted those activities should be managed and directed accordingly prebisch hoped to narrow the gap in centre periphery technological uneven development while singer aimed at tackling international dualism between rich and poor countries in the use of science and technology copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

outsourcing retail pricing to a category captain the role of information firewalls it has been argued that retailers lack both the resources and capabilities to maximize category performance retailers may seek category management cm advice from a manufacturer referred to as a category captain cc a cc s recommendations affect all brands in the category not just her own despite an increase in the number of cc collaborations retailers are still concerned about manufacturer opportunism and militant behavior by manufacturers not selected as ccs whereas government agencies are worried about anticompetitive behavior that could harm consumers the federal trade commission recommends strictly enforced information firewalls within a cc s organization as a best practice guideline in this study we develop an empirical model and use policy simulations to quantify the impact of cc arrangements with information firewalls on retailers manufacturers and consumers we show how these effects could be influenced by the deactivation of vertical and horizontal information firewalls within the cc s organization

market structure and media diversity i introduction information on news and current affairs can raise political awareness and promote a range of ideas under the assumption that unregulated media markets supply too little variety many societies have charged regulators with ensuring there are sufficient opportunities for different new and independent viewpoints diversity and that media respond to the interests of their local communities localism 1 the federal communications commission fcc has traditionally limited the amount of common and cross ownership of newspapers radio and television tv stations recently the fcc relaxed ownership rules and refocused their attention on market forces for example consumer preferences and new media such as satellite the internet and smartphone in order to achieve their diversity and localism goals given the increase in choices through new media supporters of greater ownership concentration argue that traditional media should be free to consolidate and use the efficiencies to provide more diverse and local news programming opponents question whether such efficiencies are achievable and argue that large consolidated media corporations are not flexible enough to serve the interests of local and minority communities in this paper we estimate consumer preferences for their local news and current affairs news service described by the offerings from newspapers radio tv the internet and smartphone news service characteristics are diversity of opinion in the reporting of information coverage of multiculturalism issues amount of information on community news and events and amount of space or time devoted to advertising we use our demand estimates to calculate the impact on consumer welfare from a change in media market structure that reduces the number of independent tv stations in the market by one specifically we employ the willingness to pay wtp construct to measure the expected consumer welfare effects between the news service supplied to the consumer before the change in market structure and the service supplied after the change we focus on broadcast tv stations because they are the main news for most households and because the fcc has direct oversight of their ownership we estimate our demand model with data obtained from a nationwide survey of households during march 2011 results show that the representative consumer is willing to pay from 18 to 26 per month for an increase in diversity of opinion and slightly more for community news from a low to a medium level but only an additional 6 to 7 to move to a high level of diversity of opinion or community news the representative consumer also values an improvement in information that reflects the interests of women and minorities from low to medium 7 the representative consumer is willing to pay about 5 to avoid a change from a low to a medium level of advertising but the much higher amount of 20 to avoid a change from a medium to a high level using fcc 2011 data on media market structure we present evidence that indicates the amount of diversity localism and advertising in the news services supplied to consumers is lower in markets with one fewer independent tv station as a result the average small market i e five or fewer tv stations consumer loses 83 per month whereas the average large market i e 20 or more tv stations consumer loses 37 per month these losses are equivalent to 45 million annually for all small market households in the united states and 13 million for large market households if the change in market structure occurs in all markets aggregate losses nationwide would be about 681 million other studies have measured the relationship between information on news and current affairs and market structure flowever these studies measure supply from just one of the media sources that comprise the consumer s news service for example milyo 2007 gentzkow 2007 and gentzkow and shapiro 2010 for newspapers and siegelman and waldfogel 2001 and crawford 2007 for radio and tv

exchange rates and cash flows in differentiated product industries a simulation approach how do exchange rate changes impact firms cash flows we extend a simulation method developed in industrial organization to answer this question we use prices quantities and product characteristics for differentiated products coupled with a discrete choice framework and an assumption of price competition to estimate marginal costs for all producers using a monte carlo approach we generate counterfactual prices and profits for different levels of exchange rates we illustrate the method using the market for bottled water our results stress that even in a relatively simple market such as this one different brands face very different exchange rate risks consider a firm that produces a good in france using mainly local inputs and sells it abroad in locations that have a floating exchange rate vis a vis the euro profits and in turn the value of the firm are potentially exposed to exchange rate changes if the euro appreciates profits when measured in euros are likely to decrease how large is the decrease in profits similarly what is the impact of such an exchange rate change on the profits of an import competing firm these are the questions that a large literature on exchange rate exposure attempts to answer

effects of deregulation and consolidation of the broadcast television industry this paper exploits deregulation in the 1990s to estimate viewership and revenue effects of consolidation in broadcast television then finds cost effects that explain the ownership structure given viewer ship and revenue effects results suggest that consolidation greatly increased profitability in an industry with otherwise declining profitability groups with broader national coverage attract more advertising per station joint ownership of two stations within a market and network ownership both allow for significant cost savings there is some evidence that within market consolidation allows stations to achieve local market power however both within market and across market consolidation appear to have boosted viewership on net jel g32 l13 l25 l51 l82 l88 deregulation of the telecommunications industry in the 1990s led to substantial consolidation in the local broadcast television industry which provoked considerable controversy critics of the deregulation argue that cost cutting led to lower quality programming broadcast groups counter that consolidation is necessary to make high quality broadcast programming viable in the face of increasing competition from other content providers that are not subject to the same strict ownership regulations as broadcasters to what extent did the consolidation that took place in the decade following deregulation actually improve the profitability of broadcast stations is there any evidence that consolidation had negative effects such as reduced programming quality or local market power a priori the answers are not obvious due to remaining regulations the vast majority of consolidation involved stations in different local markets which are not in direct competition with one another and are often hundreds of miles apart how does nexstar broadcasting s ownership of an nbc affiliated station in

additional information for comments on alternative models of demand for automobiles by charlotte wojcik abstract in a recent paper in this journal econ lett 68 2000 113 wojcik argues that the nested logit is likely to be superior to demand specifications we and others have used in recent empirical work we review the relevant models and their uses consider her application and find that her conclusions are incorrect

product differentiation cost reducing mergers and consumer welfare cost synergies are an explicitly recognized justification for a two firm merger and empirical techniques are now widely used to assess the impact of cost reducing mergers on prices and welfare in the post merger market we show that if the merger occurs in a vertically product differentiated market then the merger will lead to a reduction in product offerings that limits the usefulness of pre merger empirical estimates indeed we further show that in such markets two firm mergers will typically lead to higher prices regardless of the merger s cost savings jel classifica tion l10 l41 differentiation des produits fusions pour reduire les couts et bien etre du consommateur les synergies de couts sont une justification explicitement reconnue pour la fusion de deux firmes et il existe des techniques empiriques vastement utilisees pour mesurer l impact des fusions visant areduire les couts sur les prix et le niveau de bien etre dans le marcheapres la fusion on montre que si la fusion se produit dans un marchede produit differencieintegreverticalement alors la fusion reduit l even tail de produits ce qui limite l utilitedes estimations empiriques faites avant la fusion de plus on montre que dans de tels marches les fusions de deux firmes finissent par engendrer des prix plus eleves quelles que soient les reductions de couts auxquelles on en arrive

competition and mergers in the retail market for toys i study competition between big box retailers k mart and wal mart and toy retailers kb toys and toys r us with the aim of estimating wal mart s effect on the profits of toy retailers using rece

international aspects of merger policy a survey this paper surveys the literature on merger policy in open economies we first adopt a reduced form approach to derive general insights on the scope for conflict between national antitrust authorities and on the gains from international merger policy coordination taking trade costs as given we use standard oligopoly models to derive conditions on market structure under which underenforcement or overenforcement of national merger policies can arise we then study the interactions between merger policy and trade policy and find that trade liberalization often leads to stricter national merger policies we conclude by discussing empirical evidence on conflict between antitrust authorities

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

on modeling the advertising operations interface under asymmetric competition abstract using a market share attraction structure of advertising competition and following a supermodular game approach this article demonstrates for an asymmetric oligopoly the directional impact of changes in model parameters on the marketing controlled variables of all rivals advertising budgets and the operations controlled variables of all rivals ordered quantities importantly the various changes are examined analytically empirically and numerically in both non dominated and dominated asymmetric oligopolies in this regard the results indicate that firms in a dominated oligopoly one firm of market share larger than or equal to 50 behave differently compared to firms in a non dominated oligopoly each firm of market share less than 50 in response to changes in model parameters furthermore changes in model parameters are investigated in terms of their relative influential impact on a variety of equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters exert much more influence on the equilibrium measures than the operations parameters additionally a change in the mode of competition from non cooperation oligopoly to cooperation joint ownership dictates that strong asymmetric firms of favorable marketing and operations parameters continue advertising but at lower levels and weak asymmetric firms of less favorable parameters cease advertising altogether

pass through rates and the price effects of mergers abstract we investigate the relationship in bertrand oligopoly between the price effects of mergers absent synergies and the rates at which merger synergies are passed through to consumers in the form of lower prices we find that the demand conditions that cause a merger to result in large price increases absent synergies also cause the pass through rate to be high the low estimated pass through rate and the relatively large predicted merger effect thus likely were inconsistent in an important u s merger case

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

an empirical analysis of digital music bundling strategies we use panel data on digital song and album sales coupled with a quasi random price experiment to determine own and cross price elasticities for songs and albums we then develop a structural model of consumer demand to estimate welfare under various policy relevant counterfactual scenarios this approach represents an early application of the big data management paradigm within the media industries and provides managers with detailed guidance on optimal pricing and marketing strategies for digital music our results show that tiered pricing coupled with reduced album pricing increases revenue to the labels by 18 relative to uniform pricing policies traditionally preferred by digital marketplaces while also increasing consumer surplus by 23 thus optimal tiered pricing can yield a pareto improvement over the prior status quo additionally our results indicate that even without tiered pricing unbundling albums outperforms album only pricing policies that dominated the era of physical cd cassette sales this paper was accepted by alok gupta special issue on business analytics

mergers when firms compete by choosing both price and promotion enforcement agencies have a relatively good understanding of how to measure the loss of price competition caused by merger however when firms compete in multiple dimensions merger effects are not well understood in this paper we study mergers in industries where firms compete by setting both price and promotion and ask what happens if we mistakenly assume that price is the only dimension of competition to answer the question we build a structural model of the super premium ice cream industry where a 2003 merger between haagen dazs and dreyer s was challenged by the federal trade commission a structural merger model that ignores promotional competition underpredicts the price effects of a merger in this industry 5 instead of 12 about three fourths of the difference can be attributed to estimation bias estimated demand is too elastic with the remainder due to extrapolation bias from assuming post merger promotional activity stays constant instead it declines

market power and joint dominance in u k brewing market power and joint dominance are examined in u k brewing i assess unilateral and coordinated effects where the latter is equated with joint dominance and show how one can distinguish between the two econometrically the application makes use of two demand equations the nested logit of mcfadden 1978a and the distance metric of pinkse slade and brett 2002 the two equations yield very different predictions concerning elasticities and markups nevertheless although there is evidence of market power using either demand model that power is due entirely to unilateral effects in other words neither model uncovers evidence of coordinated effects tacit collusion

more evidence on the performance of merger simulations government antitrust agencies must predict the price effects of proposed mergers and chal lenge those predicted to reduce consumer wel fare merger simulation a model of oligopoly combined with demand estimates is routinely used to simulate the effects of potential merg ers gregory j werden and luke m froeb 2006 provide a survey merger simulation addresses the key question regulators must answer would a potential merger reduce consumer welfare however it requires strong assumptions on the nature of competition both before and after the merger occurs the shape of demand and mar ginal cost functions as well as the statistical assumptions necessary to consistently estimate demand given these strong assumptions and the substantial resources devoted to antitrust review it is important to evaluate the accuracy of simulation methodology this paper adds to a small literature that evaluates merger simu lation by comparing predicted price effects to retrospective estimates of the price effects of a

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

the credibility revolution in empirical economics how better research design is taking the con out of econometrics since edward leamer s memorable 1983 paper let s take the con out of econometrics empirical microeconomics has experienced a credibility revolution while leamer s suggested remedy sensitivity analysis has played a role in this we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs the advantages of a good research design are perhaps most easily apparent in research using random assignment we begin with an overview of leamer s 1983 critique and his proposed remedies we then turn to the key factors we see contributing to improved empirical work including the availability of more and better data along with advances in theoretical econometric understanding but especially the fact that research design has moved front and center in much of empirical micro we offer a brief digression into macroeconomics and industrial organization where progress by our lights is less dramatic although there is work in both fields that we find encouraging finally we discuss the view that the design pendulum has swung too far critics of design driven studies argue that in pursuit of clean and credible research designs researchers seek good answers instead of good questions we briefly respond to this concern which worries us little

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

the effect of local competition on admission prices in the u s motion picture exhibition market abstract this paper provides empirical evidence on the relationship between local market structure and the prices charged to consumers in the u s motion picture exhibition market i find that there is a statistically significant relationship between the geographic distribution of movie theaters in a market and the admission prices that they are able to charge however the magnitude of the price reducing effect of local competition appears to be economically modest moreover i find no evidence that increases in geographic concentration lead to increased adult admission prices the findings are directly relevant to merger policy in the industry and pertinent because of the dramatic changes in industry structure resulting from mergers that occurred during 2002 i conclude that the available evidence suggests that popular and governmental concerns about horizontal mergers in the industry leading to dramatically increased admission prices are likely misplaced

characteristics of demand for pharmaceutical products an examination of four cephalosporins we model demand for four cephalosporins and compute own and cross price elasticities between branded and generic versions of the four drugs we model demand as a multistage budgeting problem and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products in particular the prescribing and dispensing stages we find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

divestiture requirements as a tool for competition policy a case from the swedish beer market we investigate the effect of divestitures on prices and welfare following the carlsberg pripps merger in the swedish beer market both difference in difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases prices of divested brands fall by around 3 and the predicted price increase for carlsberg falls from 3 to 1 6 as a result of the divestitures to guide practice on divestitures we investigate the role of the recipient and the number and characteristics of the divested products by simulating post merger outcomes for all relevant cases we find that in this setting with large multiproduct firms the competition authority s most effective means to dampen adverse post merger outcomes are to aim for a small recipient firm and attain a large number of divested products enforcing larger divestitures in terms of market share and raising the average cross price elasticity between the merging parties divested and retained products strengthen the dampening effect further

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

a larger slice or a larger pie an empirical investigation of bargaining power in the distribution channel this research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model we use the nash bargaining solution to determine wholesale prices and thus how margins are split in the channel equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power bargaining power is itself a function of exogenous retail and manufacturer characteristics the parties bargaining positions are determined endogenously from the estimated substitution patterns on the demand side the more they have to lose in a negotiation relative to an outside option the weaker the bargaining position we use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years firm size increases store brand introductions and service level differentiation in our empirical analysis of the german market for coffee we find that bargaining power varies among the different manufacturer retailer pairs this result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner we are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits

estimating market power in a two sided market the case of newspapers the newspaper industry is a two sided market the readers market and the advertising market are closely linked by inter market network externalities we estimate market power in the italian newspaper industry by building a structural model which encompasses a demand estimation

cost pass through in differentiated product markets the case of u s processed cheese in this paper we estimate a mixed logit model for demand in the u s processed cheese market the estimates are used to determine pass through rates of cost changes under different behavioral regimes we find that under collusion the pass through rates for all brands fall between 21 and 31 while under nash bertrand price competition the range of pass through rates is between 73 and 103 the mixed logit model provides a more flexible framework for studying pass through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types

should further mergers be allowed product differentiation and merger in the external audit market the external audit market in us is a market with noticeable features a highly concentrated market various choice patterns of auditors and the sequential mergers of big auditors over time there has been growing concern about the impact of mergers and the increasing market concentration using a flexible multinomial probit model and micro level data on over 3000 public companies this article investigates production differentiation and merger in the external audit service market between the big four accounting firms based on the estimation results of the demand estimates a model of post merger conduct is then used to simulate the competitive effects of a merger the results suggest that merger effects on prices in this market are not significant with no larger than 3

imperfect competition in selection markets policies to correct market power and selection can be misguided when these forces coexist we build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection we use graphical price theoretic reasoning to characterize the interaction between these forces using a calibrated model of health insurance we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus conversely in a calibrated model of subprime auto lending realistic levels of competition can generate an oversupply of credit implying that greater market power is desirable

the welfare effects of restricted hospital choice in the us medical care market summary managed care health insurers in the usa restrict their enrollees choice of hospitals to within specific networks this paper considers the implications of these restrictions a three step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer the results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans a welfare analysis assuming fixed prices implies that restricting consumers choice of hospitals leads to a loss to society of approximately 1 billion per year across the 43 us markets considered this figure may be outweighed by the price reductions generated by the restriction copyright 2006 john wiley sons ltd

tiered co payments pricing and demand in reference price markets for pharmaceuticals health insurance companies curb price insensitive behavior and the moral hazard of insureds by means of cost sharing such as tiered co payments or reference pricing in drug markets this paper evaluates the effect of price limits below which drugs are exempt from co payments on prices and on demand first using a difference in differences estimation strategy we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand name drugs in the german reference price market second estimating a nested logit demand model we show that consumers appreciate co payment exempt drugs and calculate lower price elasticities for brand name drugs than for generics this explains the different price responses of brand name and generic drugs and shows that price related co payment tiers are an effective tool to steer demand to low priced drugs

airline code share alliances and their competitive effects abstract code share alliances have become a prominent feature in the competitive landscape of the airline industry however policy makers are extremely hesitant to approve proposed code share alliances when the potential partners route networks have significant overlap the main concern is that an alliance may facilitate price collusion on partners overlapping routes this article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code share alliances where potential alliance partners compete on overlapping routes in the prealliance industry as an example i apply the econometric model to the delta continental northwest alliance this proposed alliance was initially greeted with skepticism by the u s department of transportation owing to the potential partners unprecedented level of route network overlap for the markets considered in my analyses it appears as though the ultimate approval of the alliance by policy makers was justified

estimation of random coefficient demand models two empiricists perspective we document the numerical challenges we experienced estimating random coefficient demand models as in berry levinsohn and pakes 1995 using two well known data sets and a thorough optimization design the optimization algorithms often converge at points where the first and second order optimality conditions fail there are also cases of convergence at local optima on convergence the variation in the values of the parameter estimates translates into variation in the models economic predictions price elasticities and changes in consumer and producer welfare following hypothetical merger exercises vary at least by a factor of 2 and up to a factor of 5

the gains from merger or collusion in product differentiated industries a merger in an industry with differentiated products increases the market power of the merging firms to the extent that their products are close substitutes and that other firms produce only more distant substitutes such a merger makes the residual demand curve of each partner steeper by shifting each in the direction of the industry demand curve 2 the extent of this increase in market power depends upon the own elasticity of demand for each merging firm s product as well as the cross elasticity of demand for each with all other firms products as a result evaluating the effect of a merger between two firms with n 2 other competitors would seem to require the estimation of at least n2 parameters all of the price elasticities of demand a formidable task that extremely difficult estimation task is unnecessary however the necessary information is contained in the slopes of the two single firm residual demand curves before the merger and the extent to which the merged firm will face a steeper demand curve for example suppose a merger between two u s brewing firms say pabst and anheuser busch were proposed it is not particularly important to determine whether it is competition from miller or competition from stroh or from heileman or which puts the most effective brake on anheuser busch s pricing only the total effect of these other firms and the particular effect of competition from pabst are of interest this paper proposes econometric procedures for estimating the demand system that merger partners will face based only on pre merger data the key to the procedures is that the effects of all other firms in the industry are summed together formally we start with a model of an n firm product differentiated industry manipulation of the model removes the prices and quantities of all but two firms this reduces the dimensionality of the problem to manageable size rather than an n firm demand system we estimate a two firm residual demand system in this way the technique extends our econometric method for

quantifying the coordinated effects of partial horizontal acquisitions abstract recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology which can deal with settings involving all types of owners and ownership rights to quantify the coordinated effects of partial horizontal acquisitions on differentiated products industries by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained we also provide an empirical application of the methodology to several acquisitions in the wet shaving industry that give rise to cross and common ownership structures the results are as follows i the incentives to coordinate of the firms that the acquiring party is pre acquisition able to influence are non decreasing with any acquisition ii the incentives to coordinate of the acquired firm are non decreasing with acquisitions involving full or partial both financial and corporate control rights but non increasing with acquisitions involving full or partial solely financial rights and iii the incentives to coordinate of the remaining firms in the industry are non increasing with any acquisition this implies that the coordinated effects of partial horizontal acquisitions are in general ambiguous which illustrates the importance of an empirical structural methodology

evidence on the accuracy of merger simulations this paper evaluates the efficacy of a structural model of oligopoly used for merger review using premerger data we estimate several demand systems and use a static bertrand model to simulate the price effects of two mergers using pre and postmerger data we directly estimate the price effects the direct estimates imply that one merger resulted in moderate price increases while the second left prices essentially unchanged while some simulations are similar to the directly estimated price effects overall simulations overstate the price effects in one case and understate them in the other explanations for the discrepancies are explored

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

measuring unilateral effects in partial horizontal acquisitions recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology to examine quantitatively the unilateral impact of partial horizontal acquisitions the acquisitions may be direct or indirect and may or may not correspond to control the proposed methodology simulates the effects on prices market shares firm profits and consumer welfare it can deal with differentiated product industries and nest full mergers as a special case we provide an empirical application to several acquisitions in the wet shaving industry

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program comment consumers enrollment decisions in medicare part d can be explained by abaluck and gruber s 2011 model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases we evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data we find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information the validation tests provide evidence against widespread psychological biases in particular we find that precluding psychological biases improves the structural model s out of sample predictions for consumer behavior

package size and price discrimination in the paper towel market abstract estimates from a structural model of consumer behavior and firm conduct are used to decompose the extent to which quantity discounts for paper towels are consistent with second degree price discrimination as opposed to cost differences across sizes counterfactual exercises assuming that firms offer only one package size or charge uniform prices across sizes indicate that competition in the multi roll package size segment results in increased consumer surplus and lower prices for all consumers

choice set heterogeneity and the role of advertising an analysis with micro and macro data abstract the authors show how to use microlevel survey data from a tracking study on brand awareness in conjunction with data on sales and advertising expenditures to improve the specification estimation and interpretation of aggregate discrete choice models of demand in a departure from the commonly made full information assumption they incorporate limited information in the form of choice sets to reflect that consumers may not be aware of all available brands at purchase time they find that both the estimated brand constants and the price coefficient are biased downward when consumer heterogeneity in choice sets is ignored these biased estimates can lead firms to make costly price setting mistakes in addition the tracking data enable the authors to identify separately two processes by which advertising influences market shares they find that advertising has a direct effect on brand awareness inclusion in choice set in addition to its effect on consumer preferences increase in utility this

estimation of cost efficiencies from mergers application to us radio this article estimates fixed cost efficiencies from mergers using a dynamic oligopoly model in which mergers and repositioning of products are endogenous the inference is based on revealed preference approach selecting cost synergies that rationalize observed merger decisions the estimates can be used to assess the total welfare impact of retrospective and counterfactual mergers the framework is applied to estimate cost efficiencies after the 1996 deregulation of u s radio industry within the period of 1996 to 2006 the cost savings resulting from mergers amount to 1 2 billion per year equally split across economies of scale and within format cost synergies

the welfare impact of hmo mergers abstract this paper estimates the welfare consequences of hmo mergers using data from california s small group market the analysis estimates the parameters from a differentiated products demand system the parameters are then used to simulate the effects of several hmo mergers by solving for the nash equilibrium in prices under different ownership structures even small mergers in moderately concentrated markets can result in significant consumer surplus reductions however these welfare losses can be offset by large efficiency gains the welfare consequences of hmo mergers turn less upon demand side considerations than on the health plan s ability to realize efficiencies

taking the dogma out of econometrics structural modeling and credible inference without a doubt there has been a credibility revolution in applied econometrics one contributing development has been in the improvement and increased use in data analysis of structural methods that is the use of models based in economic theory structural modeling attempts to use data to identify the parameters of an underlying economic model based on models of individual choice or aggregate relations derived from them structural estimation has a long tradition in economics but better and larger data sets more powerful computers improved modeling methods faster computational techniques and new econometric methods such as those mentioned above have allowed researchers to make significant improvements while angrist and pischke extol the successes of empirical work that estimates treatment effects based on actual or quasi experiments they are much less sanguine about structural analysis and hold industrial organization up as an example where progress is less dramatic indeed reading their article one comes away with the impression that there is only a single way to conduct credible empirical analysis this seems to us a very narrow and dogmatic approach to empirical work credible analysis can come in many guises both structural and nonstructural and for some questions structural analysis offers important advantages in this comment we address the criticism of structural analysis and its use in industrial organization and consider why empirical analysis in industrial organization differs in such striking ways from that in fields such as labor which have recently emphasized the methods favored by angrist and pischke

spatial price competition a semiparametric approach we investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent we propose an instrumental variables series estimator for the matrix of cross price response coefficients demonstrate that our estimator is consistent and derive its asymptotic distribution our semiparametric approach allows us to discriminate among models of global competition in which all products compete with all others and local competition in which products compete only with their neighbors we apply our semiparametric estimator to data from u s wholesale gasoline markets and find that in this market competition is highly localized

the welfare impact of reducing choice in medicare part d a comparison of two regulation strategies motivated by widely publicized concerns that there are too many plans we structurally estimate and validate an equilibrium model of the medicare part d market to study the welfare impacts of two feasible similar sized approaches for reducing choice one reduces the maximum number of firm offerings regionally the other removes plans providing donut hole coverage consumers most valued dimension we find welfare losses are far smaller when coupled with elimination of a dimension of differentiation we illustrate our findings relevance under current health care reforms and consider the merits of instead imposing ex ante competition for entry

demand estimation and merger simulations for drugs logits v aids abstract we use adhd drugs sales data from 2000 2003 and compare estimates of elasticities and merger simulations from three different demand models models include logit random coefficients logit and conditional aids demand model with multistage budgeting the magnitude of cross price elasticities is larger in the third model in comparison to the first two and some of the cross price elasticities are estimated to be negative hypothetical merger simulations show larger price effects for the multistage aids model in comparison to the discrete choice models

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

switching cost and deposit demand in china this article develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time the switching cost is 0 8 of the deposit s value which leads the static model to bias the demand estimates the dynamic model shows that the price elasticity over a long time horizon is larger than the same elasticity over a short time horizon counterfactual experiments with a dynamic monopoly show that reducing the switching cost has a comparable competitive effect on bank pricing as a result of reducing the dominant position of the monopoly

quantifying the effects from horizontal mergers comments on the underlying assumptions in our paper published in this issue we measured the effects of the proposed volvo scania merger we first estimated an oligopoly model with product differentiation and then used the parameter estimates to compute the post merger equilibrium and the implied price and welfare changes under various alternative scenarios in section 4 4 of our paper we discussed what we view as the most important sources of concern regarding our empirical analysis in part based on the comments from the experts hired by volvo during the case the hausman leonard hl paper elaborates in more detail on the specific points raised by the experts during the case in this note we respond to these points

dynamics of consumer demand for new durable goods most new consumer durable goods experience rapid prices declines and quality improvements suggesting the importance of modeling dynamics this paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes rational expectations and repeat purchases over time we estimate the model on the digital camcorder industry using panel data on prices sales and characteristics we find that the 1 year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1 month elasticity standard cost of living indices overstate welfare gain in later periods due to a changing composition of buyers

how the source of the entrant s advantage limits entry deterring tying i revisit a simple model of entry deterring tyingexample 1 from whinston s 1990 seminal paperbut allow the potential entrant to have either a cost advantage or a willingness to pay wtp advantage relative to the incumbent i show that compared to the usual case in which the potential entrant is cost advantaged tying is less effective against an entrant with a wtp advantage because an entrant with a large wtp advantage may be able to induce the buyer to buy both the tied bundle and the entrant s product i also show that tying but failing to deter entry can be less costly when facing an entrant with a wtp advantage than when facing an entrant with a cost advantage for a firm facing uncertainty about for example the entrant s entry costs this makes tying a more attractive entry deterrence strategy against a wtp advantaged entrant these results shed light on the important policy question of which markets are most likely to be susceptible to entry deterring tying

partial identification and mergers this paper discusses policy choice under ambiguity in the context of merger simulation we do so by incorporating the uncertainty about post merger conduct into a simple merger simulation model we isolate the problem of uncertainty regarding post merger conduct by working with a simple conduct parameters model in the spirit of bresnahan 1982 and lau 1982 we then apply manski s 2011 analysis and discuss policy choice under the maxmin minimax regret and expected utility criteria

endogenous product choice a progress report empirical models of differentiated product demand are widely used by both academics and practitioners while these methods treat carefully the potential endogeneity of price until recently they have assumed the number and characteristics of the products offered by firms are exogenous this paper presents a progress report on an ongoing research agenda to address this issue first it summarizes how the appropriate choice of orthogonal instruments can yield consistent estimates of own and cross price elasticities in the presence of endogenous product characteristics second it summarizes how to measure quality markups and the welfare consequences of endogenous product quality in u s cable television markets related papers and extensions to consider multiple product characteristics and dynamics are also discussed

academic journal pricing and the demand of libraries the prices of for profit academic journals have increased rapidly over the past decade barbara albee and brenda dingley 2001 there remains substantial debate as to the explanation for these increases among those put forward are the increased concentration of the journal industry see e g mccabe 2002 and the relatively recent effort by major publishers to bundle print and electronic journals aaron s edlin and rubinfeld 2004 while both explanations are undoubtedly important what is missing is the significant role of the primary customers of journal publishers the academic libraries as agents of college and university faculties libraries serve the interests of their principals while having only limited information about faculty journal demands facing little or no hard budget constraint faculty are unlikely or unwilling to make difficult allocative choices as a result libraries have been making hard choices for years between journals and books and among journals in a world of increasing budgetary pressure given that electronic transmission of knowledge is becoming increasingly important an understanding of the reasons for the increases in journal prices is a vital element in the ongoing discussion of best mechanisms by which scholarly communications can be disseminated in this paper we formulate a model of library journal demand and suggest how it can be used to analyze the optimal pricing of journals by publishers this represents part of a larger project whose long range goal is to explain the pattern of journal pricing over time and to evaluate two broad policy questions i to what extent have mergers and or bundling practices been responsible for the increase in journal prices ii to what extent are journal prices likely to change in response to changing library acquisition strategies reallocation of budgets between serials and books journal sharing among libraries setting hard budgets etc

pricing behavior and verticle contracts in retail markets recent developments in the economic theory of multifirm markets and firm organization have motivated several empirical studies of retail gasoline markets a growing body of theoretical work suggests that the behavior of firms in markets once viewed as workably competitive can diverge significantly from that characteristic of competitive markets static models of free entry markets where firms are horizontally differentiated suggest that the equilibrium price structure will reflect local market power dynamic oligopoly models suggest that repeated interaction can sustain tacitly collusive outcomes in multifirm industries because gasoline stations are strikingly simple firms and data are available on wholesale and retail gasoline prices this market has proven to be a useful arena for testing pricing predictions from these models these tests are discussed in section i another growth area in industrial organization is research on the nature of vertical contracts this work suggests that the optimal contract between a manufacturer and a retailer will be sensitive to the nature of downstream competition and the available control technology imperfect competition downstream can lead to double marginalization and imperfect monitoring can allow shirking or free riding the manufacturer can be expected to choose contractual forms that minimize these effects section ii discusses efforts to assess the effect of competition and monitoring on the refiner s choice of contractual form for retail outlets while examining contractual form is interesting in itself policy initiatives provide additional impetus for examining contracts in gasoline retailing refiners have long been a favorite target of antitrust enforcement and complaints regarding restraints imposed on retailers have been viewed sympathetically by the courts court decisions have made unlawful exclusive dealing clauses for gasoline and automotive products as well as the various arrangements through which a refiner can control the retail price at franchise outlets in the last decade federal and state governments have enacted legislation further restricting the nature of the contract between refiners and the retail outlets for their gasoline the growth in these restrictions naturally leads to positive questions about the nature and effect of contractual relationships between refiners and dealers