Firm-specific cost savings and market power
AbstractWe report a policy experiment that illustrates a potential problem of using historical pass-through rates as a means of predicting the competitive consequences of projected firm-specific cost savings in antitrust contexts, particularly in merger analysis. The effects of cost savings on welfare can vary vastly, depending on how the savings affect the industry supply schedule. In a capacity-constrained price-setting oligopoly, we observe that cost savings can overwhelm behaviorally salient market power incentives when the savings affect marginal (high cost) units. However, cost savings of the same magnitude on an infra-marginal unit leave market power unchanged.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 16 (2000)
Issue (Month): 3 ()
Note: Received: December 7, 1998; revised version: October 25, 1999
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L4 - Industrial Organization - - Antitrust Issues and Policies
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Douglas Davis & Bart Wilson, 2006. "Equilibrium Price Dispersion, Mergers and Synergies: An Experimental Investigation of Differentiated Product Competition," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 13(2), pages 169-194.
- Brandts, Jordi & Cabrales, Antonio & Charness, Gary, .
"Forward induction and entry deterrence: an experiment,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/3996, Universidad Carlos III de Madrid.
- Jordi Brandts & Antonio Cabrales & Gary Charness, 2007. "Forward induction and entry deterrence: an experiment," Economic Theory, Springer, vol. 33(1), pages 183-209, October.
- Davis, Douglas D. & Wilson, Bart J., 2005. "Differentiated product competition and the Antitrust Logit Model: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 57(1), pages 89-113, May.
- Douglas D. Davis & Bart J. Wilson, 2006.
"Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation,"
0601, VCU School of Business, Department of Economics.
- Davis, Douglas D. & Wilson, Bart J., 2008. "Strategic buyers, horizontal mergers and synergies: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 643-661, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.