The Gradual Response of Market Power to Mergers in the U.S. Steel Industry

Studies of the impact of horizontal mergers on market power typically impose an immediate adjustment of market power following a merger. This paper adopts an alternative procedure to estimate the effect of four mergers on market power in the U.S. steel industry. Namely, by estimating a switching regression model that incorporates profit-maximizing behavior, the results show that mergers generally increased market power in the steel industry. However, it did take some time for market power to fully adjust after each merger.     

Settling the Smoke: Public Policy and Shareholder Wealth in the Cigarette Industry

This article uses daily data on stock returns of five U.S. publicly traded cigarette producers to document the wealth effects of antismoking policies initiated in the period 1964 to 1971. The authors find significant abnormal returns across 23 dates corresponding to important regulatory events. The second-stage estimation shows that wealth effects are also influenced by firm characteristics, such as market share, advertising intensity, percentage of sales of filter-tip cigarettes, percentage of advertising expenditures devoted to TV and radio, and tobacco leaf inventories. Overall, the article estimates that industry losses from antismoking policies amounted to approximately $1.5 billion. (JEL L66 , G14 , I18 )     

Networks,Infrastructure and the New Task for Regulation. Werner Sichel and Donald L. Alexander,editors.

Review of Industrial Organization -     

What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?

Preferences elicited in hypothetical settings have recently come underscrutiny, causing estimates from the contingent valuation method to bechallenged due to perceived ``hypothetical bias.' Given that the receivedliterature derives value estimates using heterogeneous experimentaltechniques, understanding the effects of important design parameters onthe magnitude of hypothetical bias is invaluable. In this paper, we addressthis issue statistically by using a meta-analysis to examine data from 29experimental studies. Our empirical findings suggest that on averagesubjects overstate their preferences by a factor of about 3 in hypotheticalsettings, and that the degree of over-revelation is influenced by thedistinction between willingness-to-pay and willingness-to-accept, publicversus private goods, and several elicitation methods.     

Cyclicality and the Labor Market for Economists

The 1987 academic market was strong, whereas the 1997 market was weak. A multimarket theory of optimal search suggests that job seekers will respond to a weakening market by changing their search strategies at the extensive margin (which markets to enter) and the intensive margin (how many applications to submit per market). Employers respond to the weakening market by raising their hiring standards. High-quality applicants will obtain an increased share of academic interviews in weak markets while applicants from weaker schools will increasingly secure interviews outside of the academic market. Empirical results show that in the bust market, graduates of elite schools shifted their search strategies to include weaker academic institutions, while graduates of lower-ranked schools shifted their applications away from academia and toward the business sector. In bust conditions, academic institutions increasingly concentrate their interviews on elite school graduates, women, and U.S. residents.     

Health information and cigarette consumption: supply and spatial considerations

Assessments of the impact of health information on smoking incidence have largely been based upon estimates of the national demand for cigarettes. Yet various arguments can be made for health information also affecting the supply of cigarettes. Moreover, the effect of policy may vary spatially. Indeed, by estimating the relationship between U.S. health information, demand, and supply, at the state-level, this is found to be the case in this paper. In particular, while state-level demand has decreased in the wake of health information, supply has also weakened via decreases in competition within the industry. This suggests a potential concern for policies that promote public health yet also raise the attention of antitrust officials.     

The efficacy of state-level antismoking laws: Demand and supply considerations

Utilizing published ratings of state-level antismoking laws, this paper addresses the merits of limits to smoking in public places and restrictions on youth access to tobacco. Consistent with the literature, we find that clean indoor-air laws reduce demand. However, by failing to address supply considerations, the literature to date presents a biased reaction of consumption to antismoking laws. Indeed, we find that clean indoor-air laws also intensify competition, which suggests that producers mitigate demand reductions by lowering price. Nonetheless, restrictions to youth access, as well as enforcement and penalty efforts, have little impact on cigarette consumption across states.     

The effects of the business cycle on oligopoly coordination: Evidence from the U.S. rayon industry

Recent game-theoretic studies of the effects of the business cycle on oligopoly coordination predict that coordination is weakest when demand is high and expected future profit is lower. An empirical model that uses a conjectural elasticity term to measure the degree of coordination is developed to test for these two effects. The rayon industry of the 1930s is one that exhibited significantly non-competitive conduct that appears to have varied, in degree, with fluctuations in demand. Application of the empirical model to data from this industry produces results that support the predictions of recent theoretical models.