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Can industry regulators learn collusion structures from information-efficient asset markets?

  • Zimper, Alexander
  • Hassan, Shakill

This note combines a dynamic industrial organization model, in which an industry is subject to exogenous processes of market-size and collusion structure, with a consumption-based asset pricing model for the shares in the industry’s firms. Three main findings emerge for our model under the assumption of information-efficient asset markets. First, the volatility of a firm’s share price is exclusively driven by the volatility of the industry’s market-size. Second, the volatility of a firm’s price-dividend ratio is exclusively driven by the volatility of the industry’s collusion structure whereby high (resp. low) ratios indicate less (resp. more) collusion. Third, for non-volatile collusion structures the price-dividend ratio is constant across different collusion structures.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512000079
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 1 ()
Pages: 1-4

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:1:p:1-4
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
  2. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
  3. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  4. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2005. "The Impact of Collusion on Price Behavior: Empirical Results from Two Recent Cases," 2005 Annual meeting, July 24-27, Providence, RI 19164, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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