The ABC of complementary products mergers

We present a simple model where mergers benefit consumers, harm outsiders and, depending on the shape of demand, can be profitable for insiders (and where mergers do not involve cost synergies).     

For the Student: Matching and Economic Design

This article presents a brief survey of two‐sided matching. We introduce the reader to the problem of two‐sided matching in the context of the college admission model and explain two central requirements for a matching mechanism: stability and non‐manipulability. We show how the frequently used ‘Boston Mechanism’ fails these key requirements and describe how an alternative, the Deferred Acceptance Algorithm, leads to stable matchings but fails to be non‐manipulable in general. A third mechanism, the Top Trading Cycle, is efficient and non‐manipulable when only one side of the match acts strategically. We also discuss some applications of matching theory.     

Determinants of intra-industry trade: Among countries and across industries

Zusammenfassung Determinanten des intraindustriellen Handels: Eine internationale und interindustrielle Querschnittsanalyse. — In der vorliegenden Untersuchung werden in einem kombinierten Ansatz die Hypothesen empirisch überprüft, da\ (i) die Intensit?t des intraindustriellen Handels zwischen L?ndern systematisch mit bestimmten Charakteristika der Handelspartner und (ii) die Intensit?t des intraindustriellen Handels in einzelnen Branchen systematisch mit bestimmten Industriecharakteristika zusammenh?ngt. Als Stichprobe werden bilaterale Handelsstr?me der Jahre 1972 und 1973 zwischen den OECD-L?ndern auf der Basis dreistelliger Positionen der SITC-Gruppen 5–8 herangezogen. Die Untersuchungsergebnisse lassen darauf schlie\en, da\ es in der Regel zu einer Zunahme von intraindustriellen Handelsstr?men kommt, wenn Handelspartner im wirtschaftlichen Entwicklungsniveau oder in der (heimischen) Marktgr?\e aufholen, die heimischen M?rkte von Handelspartnern simultan wachsen und natürliche oder künstliche Handelshemmnisse abgebaut werden. Im Branchenquerschnitt sind intraindustrielle Handelsstr?me insbesondere in jenen Industrien ausgepr?gt, in denen Transaktionskosten eine vergleichsweise geringe Rolle spielen; gewisse Anhaltspunkte deuten überdies darauf hin, da\ die Intensit?t des intraindustriellen Handels mit abnehmendem Standardisierungsgrad des Sortiments zunimmt.

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Résumé Déterminants du commerce intra-industriel: Une analyse transversale internationale et interindustrielle. — Dans cette analyse nous testons empiriquement à l’aide d’une approche combinée les hypothèses que (i) l’intensité du commerce intra-industriel entre des pays dépend systématiquement des certains caractéristiques des partenaires commerciaux et que (ii) l’intensité du commerce intra-industriel dans les branches dépend systématiquement des certains caractéristiques de líndustrie. Comme échantillon nous utilisons le commerce extérieur bilatéral des années 1972 et {dy1973} entre les pays de l’OCDE au niveau des groupes 3-digit de la CTCI 5–8. Les résultats démontrent qu’il y a une augmentation du commerce intra-industriel en général, si les partenaires gagnent du terrain en niveau de développement économique ou en dimension du marché local, si les marchés locaux des partenaires croissent simultanément et si les obstacles commerciaux naturels ou artificiels sont diminués. En section transversale des branches, le commerce intra-industriel est particulièrement prononcé dans les branches oú les frais de transaction jouent un r?le comparativement faible; de plus, certains signes indiquent que l’intensité de commerce intra-industriel augmente si le degré de standardisation diminue.

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Resumen Determinantes del comercio intra-industrial: entre países e industrias. — Este trabajo examina conjuntamente, determinantes especificos de naciones y bienes, que pueden influir sobre la intensidad del comercio intra-industrial, basándose en flujos bilaterales desagregados de comercio entre países pertenecientes a la OCDE. Los resultados son consistentes con las hipótesis de que una equiparación en el nivel de desarrollo o en tama?o del mercado, o crecimiento simultáneo en los mercados nacionales de los países que comercian entre si, o una disminuciń de barreras naturales o artificiales contra el comercio, tienden a ser acompanadas de un incremento en el comercio intra-industrial entre países. A lo largo de las diferentes industrias, este comercio parece ser especialmente intenso cuando los costes de transacción son bajos. Finalmente existe evidencia positiva aunque no definitiva, de que el comercio intra-industrial disminuye con el aumento en la uniformidad de los productos.

     

Inefficient policies and incumbency advantage

We present a model of (re)elections in which an incumbency advantage arises because the incumbent can manipulate issue salience by choosing inefficient policies in the policy dimension in which he is the stronger candidate. The voters are uncertain about the state of the world and the incumbent's choice of policy. Under complete information they would reelect the incumbent if and only if the state is sufficiently high. Undesirable policy outcomes may be due to either a bad state or the incumbent's choice of inefficient policies. The incumbent uses inefficient policies in intermediate states, whereby he creates uncertainty about the true state in such a way that voters are better off in expectation reelecting him. Hence the equilibrium exhibits an incumbency advantage that stems from asymmetric information and the use of inefficient policies.     

Market structure and the competitive effects of vertical integration

We analyze the competitive effects of backward vertical integration when firms exert market power upstream and compete in quantities downstream. Contrasting with previous literature, a small degree of vertical integration is always procompetitive because efficiency gains dominate foreclosure effects, and vertical integration even to full foreclosure can be procompetitive. Interestingly, vertical integration is more likely to be procompetitive if the industry is otherwise more concentrated. Extensions analyze welfare effects of integration and the incentives to integrate. Our analysis suggests that antitrust authorities should be wary of vertical integration when the integrating firm faces many competitors and should be permissive otherwise.     

Horizontally Differentiated Market Makers

I analyze a model of competition between two market makers who are located at the opposite ends of the Hotelling line, both of which are also occupied by a search market. Buyers and sellers are uniformly distributed between the two market places, yet can only trade at one of them. In equilibrium, market makers net a positive profit and trade with buyers and sellers close to them, while buyers and sellers further away participate in search markets. Interestingly, a duopolistic market maker nets a larger profit than a monopoly because search markets make the quantities market makers trade strategic complements.     

Mix‐and‐match divestitures and merger harm

We consider the effects of a merger combined with a divestiture that mixes and matches the assets of the two pre‐merger suppliers into one higher‐cost and one lower‐cost post‐merger supplier. Such mix‐and‐match transactions leave the number of suppliers in a market unchanged but, as we show, can be procompetitive or anticompetitive depending on whether buyers are powerful and on the extent of outside competition. A powerful buyer can benefit from a divestiture that creates a lower‐cost supplier, even if it causes the second‐lowest cost to increase. In contrast, a buyer without power is always harmed by a weakening of the competitive constraint on the lowest‐cost supplier.     

Persuasion,binary choice,and the costs of dishonesty

We study the strategic interaction between a decision maker who needs to take a binary decision but is uncertain about relevant facts and an informed expert who can send a message to the decision maker but has a preference over the decision. We show that the probability that the expert can persuade the decision maker to take the expert’s preferred decision is a hump-shaped function of his costs of sending dishonest messages.     

An Oligopoly Model for Analyzing and Evaluating (Re)-Assignments of Spectrum Licenses

The Communications Act requires the Federal Communications Commission to assess whether proposed spectrum license transactions serve the public interest, convenience, and necessity. We review the FCC’s implementation of this component of the Act. We provide a tractable economic model of competition among wireless service providers in which spectrum licenses are a cost-reducing input. This model allows us to evaluate the effects of (re-)assigning spectrum licenses on economic outcomes and to define operational measures of “warehousing” licenses. Calibrating the model, we find little evidence of warehousing and that the approved Verizon-T-Mobile-SpectrumCo transaction increased social surplus.