IDEAS home Printed from https://ideas.repec.org/p/bep/alecam/1038.html
   My bibliography  Save this paper

Mergers In Durable-Goods Industries: A Re-Examination Of Market Power And Welfare Effects

Author

Listed:
  • Ari Gerstle

    (U.S. Dept. of Justice - Antitrust Division)

  • Michael Waldman

    (Johnson Graduate School of Management)

Abstract

An important question from the standpoint of antitrust economics is, how do mergers in durable-goods industries differ from those in nondurable-goods industries from the perspective of welfare effects? Previous papers that have considered this issue employ an approach to modeling durable-goods markets that was popularized by Swan in the early 1970s in which new and used “service units” are perfect substitutes in consumption. We employ a modeling approach similar to those employed in later contributions by Anderson and Ginsburgh (1994), Waldman (1996a), and Hendel and Lizzeri (1999) which, more realistically, do not make the perfect substitutability assumption. Our analysis confirms the main result of the earlier literature which is that a competitively supplied stock of used units typically reduces the welfare loss associated with a durable-goods merger. However, we also show that in most cases this reduction is much smaller than found in Carlton and Gertner׳s (1989) classic analysis of the topic. The implication is that the antitrust authorities should be more concerned about mergers in durable-goods industries than the previous literature suggests.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ari Gerstle & Michael Waldman, "undated". "Mergers In Durable-Goods Industries: A Re-Examination Of Market Power And Welfare Effects," American Law & Economics Association Annual Meetings 1038, American Law & Economics Association.
  • Handle: RePEc:bep:alecam:1038
    as

    Download full text from publisher

    File URL: http://law.bepress.com/cgi/viewcontent.cgi?article=1038&context=alea
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, September.
    2. Gregory M. Perry & Clair J. Nixon, 1991. "Optimal Tractor Replacement: What Matters?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 13(1), pages 119-128.
    3. Ausubel, Lawrence M & Deneckere, Raymond J, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Econometrica, Econometric Society, vol. 57(3), pages 511-531, May.
    4. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    5. Larry M. Ausubel & Raymond J. Deneckere, 1989. "Reputation in Bargaining and Durable Goods Monopoly," Levine's Working Paper Archive 201, David K. Levine.
    6. Michael Waldman, 1996. "Planned Obsolescence and the R&D Decision," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 583-595, Autumn.
    7. Anderson, Simon P. & Ginsburgh, Victor A., 1994. "Price discrimination via second-hand markets," European Economic Review, Elsevier, vol. 38(1), pages 23-44, January.
    8. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    9. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, June.
    10. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    11. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer.
    12. Peter L. Swan, 1971. "The Durability of Goods and Regulation of Monopoly," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 347-357, Spring.
    13. Hodaka Morita & Michael Waldman, 2004. "Durable Goods, Monopoly Maintenance, and Time Inconsistency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 273-302, June.
    14. Igal Hendel & Alessandro Lizzeri, 1999. "Interfering with Secondary Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 1-21, Spring.
    15. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    16. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 729-749.
    17. E. Sieper & P. L. Swan, 1973. "Monopoly and Competition in the Market for Durable Goods," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 333-351.
    18. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
    19. K. Sridhar Moorthy & I. P. L. Png, 1992. "Market Segmentation, Cannibalization, and the Timing of Product Introductions," Management Science, INFORMS, vol. 38(3), pages 345-359, March.
    20. Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-894, December.
    21. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    22. Justin P. Johnson & Michael Waldman, 2010. "Leasing, Lemons, and Moral Hazard," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 307-328, May.
    23. Schmalensee, Richard, 1979. "Market Structure, Durability, and Quality: A Selective Survey," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 177-196, April.
    24. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    25. Carlton, Dennis W & Gertner, Robert, 1989. "Market Power and Mergers in Durable-Good Industries," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 203-226, October.
    26. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, September.
    27. Jiawei Chen & Susanna Esteban & Matthew Shum, 2013. "When Do Secondary Markets Harm Firms?," American Economic Review, American Economic Association, vol. 103(7), pages 2911-2934, December.
    28. Larry S. Karp & Jeffrey M. Perloff, 1996. "The Optimal Suppression of a Low-Cost Technology by a Durable-Good Monopoly," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 346-364, Summer.
    29. Edward Kutsoati & Jan Zabojnik, 2001. "Durable Goods Monopoly, Learning-by-doing and "Sleeping Patents"," Discussion Papers Series, Department of Economics, Tufts University 0105, Department of Economics, Tufts University.
    30. Sagasta, Amagoia & Saracho, Ana I., 2008. "Mergers in durable goods industries," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 691-701, December.
    31. Kutsoati, Edward & Zabojnik, Jan, 2005. "The effects of learning-by-doing on product innovation by a durable good monopolist," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 83-108, February.
    32. Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," The Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October.
    33. Rust, John, 1986. "When Is It Optimal to Kill Off the Market for Used Durable Goods?," Econometrica, Econometric Society, vol. 54(1), pages 65-86, January.
    34. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    35. Mann, Duncan P., 1992. "Durable goods monopoly and maintenance," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 65-79, March.
    36. Butz, David A, 1990. "Durable-Good Monopoly and Best-Price Provisions," American Economic Review, American Economic Association, vol. 80(5), pages 1062-1076, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo.
    2. Sagasta, Amagoia & Saracho, Ana I., 2008. "Mergers in durable goods industries," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 691-701, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo.
    2. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    3. Pasquale Schiraldi, 2006. "Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods," Boston University - Department of Economics - Working Papers Series WP2006-028, Boston University - Department of Economics.
    4. Galiani, Sebastian & Jaitman, Laura & Weinschelbaum, Federico, 2020. "Crime and durable goods," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 146-163.
    5. Fethke, Gary & Jagannathan, Raj, 2000. "Why would a durable good monopolist also produce a cost-inefficient nondurable good?," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 793-812, July.
    6. Judith Chevalier & Austan Goolsbee, 2005. "Are Durable Goods Consumers Forward Looking? Evidence from College Textbooks," NBER Working Papers 11421, National Bureau of Economic Research, Inc.
    7. Eric Brouillat, 2011. "Durability of consumption goods and market competition: an agent-based modelling," Post-Print hal-00780254, HAL.
    8. Adriano A. Rampini, 2019. "Financing Durable Assets," American Economic Review, American Economic Association, vol. 109(2), pages 664-701, February.
    9. Kumar, Praveen, 2006. "Intertemporal price-quality discrimination and the Coase conjecture," Journal of Mathematical Economics, Elsevier, vol. 42(7-8), pages 896-940, November.
    10. Francesco Nava & Pasquale Schiraldi, 2019. "Differentiated Durable Goods Monopoly: A Robust Coase Conjecture," American Economic Review, American Economic Association, vol. 109(5), pages 1930-1968, May.
    11. Kumar, Praveen, 2002. "Price and quality discrimination in durable goods monopoly with resale trading," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1313-1339, November.
    12. Justin P. Johnson & Michael Waldman, 2010. "Leasing, Lemons, and Moral Hazard," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 307-328, May.
    13. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
    14. Eric Brouillat, 2015. "Live fast, die young? Investigating product life spans and obsolescence in an agent-based model," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 447-473, April.
    15. Baojun Jiang & Lin Tian, 2018. "Collaborative Consumption: Strategic and Economic Implications of Product Sharing," Management Science, INFORMS, vol. 64(3), pages 1171-1188, March.
    16. Susanna Esteban & Matthew Shum, 2007. "Durable-goods oligopoly with secondary markets: the case of automobiles," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 332-354, June.
    17. Raymond Deneckere & Meng‐Yu Liang, 2008. "Imperfect durability and the Coase conjecture," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 1-19, March.
    18. Anton, James J. & Biglaiser, Gary, 2013. "Quality, upgrades and equilibrium in a dynamic monopoly market," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1179-1212.
    19. Kutsoati, Edward & Zabojnik, Jan, 2005. "The effects of learning-by-doing on product innovation by a durable good monopolist," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 83-108, February.
    20. Cerquera Dussán, Daniel, 2007. "Durable Goods, Innovation and Network Externalities," ZEW Discussion Papers 07-086, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bep:alecam:1038. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: https://edirc.repec.org/data/aleaaea.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.