Lars Sørgard

Downstream merger with upstream market power

We examine how a downstream merger a2ects input prices and, in turn, the pro3tability of a such a merger under Cournot competition with di2erentiated products. Input suppliers can be interpreted as ordinary upstream 3rms, or trade unions organising workers. If the input suppliers are plant-speci3c, we 3nd that a merger is more pro3table than in a corresponding model with exogenous input prices. In contrast to the received literature, we 3nd that it can be more profitable to take part in a merger than being an outsider. For 3rm-speci3c input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger. c

Sequential Horizontal Mergers

Abstract The purpose of this paper is to analyse the interdependence of merger decisions over time. Using the Fudenberg–Tirole (American Economic Review 74 (1984), 361–368) taxonomy of business strategies, we provide a general discussion of merger decisions made in sequence by disjoint groups of firms. In a linear Cournot model, we retrieve all four business strategies of the general taxonomy by allowing for cost savings due to merger. We find that the prospects of a subsequent merger decision have an ambiguous effect on the profitability of the first merger. We also show, in our general framework, that, when merger decisions are interdependent over time, the condition of Farrell and Shapiro (American Economic Review 80 (1990), 107–126) overestimates a mergers actual external effect.

Competition for Viewers and Advertisers in a TV Oligopoly

Abstract This study considers a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. It is shown that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. This study also finds that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising-financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases, by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.

Transfer Pricing as a Strategic Device for Decentralized Multinationals

A multinational firm sets the price that applies tointra-firm trade between the firms affiliates at a central level,but delegates decisions about national prices (or quantities)to national affiliates. When these affiliates encounter competitionit is shown that delegation of authority and the nature of competitionchanges the role of the transfer price; it now becomes both atax saving and a strategic device. Comparative static resultsdevelop transfer pricing policies for affiliates encounteringCournot as well as Bertrand competition.

Merger and product range rivalry

Abstract The received literature concludes that if scale economies are absent, mergers are often unprofitable under Cournot competition, but always profitable under Bertrand. In a linear demand model with three firms initially, where there are two merger candidates, we show that results will change if we introduce the number of brands as a choice variable. When a non-participating firm responds to a merger by introducing a new brand, the merger would often have been welfare improving, but it is never profitable. When the merged unit narrows its product range, the merger can be profitable. It will not be socially beneficial, though, unless the fixed cost of marketing a brand is high and non-sunk and brands are close substitutes.

Semicollusion in the Norwegian cement market

A model of semicollusion, where firms collude on prices and compete on capacities, is tailor-made to the characteristics of the Norwegian cement market and tested empirically on this particular market for the period 1927-1982. The results indicate that the rapid increase in capacity and thereby in exports in the period 1956 to 1967, the late phase of the price cartel, best can be explained by the market sharing agreement : each firm overinvested in capacity to receive a large quota in the domestic market.

Enforcement vs deterrence in merger control : can remedies lead to lower welfare?

This paper deals with the enforcement of merger policy, and aims to identify situations where the introduction of remedies can lead to a lower welfare. For this we study how merger remedies affect the deterrence accomplished by controlling mergers, and determine the optimal frequency of investigations launched by the agency. We find that when conditional approvals are possible, it may be harder to deter the most welfare-detrimental mergers, and the agency might have to investigate mergers more often. The resulting welfare from merger control can indeed be lower than without remedies.

Cross-Border Mergers and Domestic Wages: Integrating Positive ‘Spillover’ Effects and Negative ‘Bargaining’ Effects

The existing literature concerning the impact of cross-border merger activity on domestic wages can be split into two camps: 1) those focusing on positive ‘spillover’ effects; 2) those focusing on negative ‘bargaining’ effects. Motivated in part by the lack of scholarship spanning these two literatures, we provide a theoretical model that nests these two mechanisms in one conceptual framework. From our theoretical model we are able to predict that ‘spillover’ effects tend to be more dominant under low unionization rates, while ‘bargaining’ effects tend to be more dominant under high unionization rates; furthermore, ‘spillover’ effects tend to be more dominant with inward cross-border mergers, while ‘bargaining’ effects tend to be more dominant with outward cross-border mergers. We employ comprehensive panel data on wages, unionization and merger activity for US industry sectors over the 1986-2001 period in order to test the impact of cross-border merger activity on domestic wages. We find support for our propositions in that higher unionization rates make it more likely that cross-border mergers generate wage decreases, while outward cross-border mergers more likely involve wage decreases than do inward cross-border mergers.

Access Pricing, Quality Degradation, and Foreclosure in the Internet

Access to both a local and a global network is needed in order to get complete connection to the Internet. The purpose of this article is to examine the interplay between those two networks and how it affects the domestic public policy towards a domestic provider of local access. We find that a cost-oriented regulation is detrimental to domestic welfare, because it shifts profit to the foreign provider of global access. The optimal policy is that the regulator commits itself to set an access price above costs, possibly the same price as in an unregulated market economy. A regulation of the global access price has a non-monotonic effect on domestic welfare, and there is a potential conflict between international and domestic regulation policy.

Upstream Merger in a Successive Oligopoly: Who Pays the Price?

This study applies a successive oligopoly model, with an unobservable non-linear tariff between upstream and downstream firms, to analyze the possible anti-competitive effects of an upstream merger in the Norwegian food sector (specifically, the market for eggs). The theoretical predictions are that an upstream merger may lead to higher average prices paid by downstream firms and at the same time no changes in the prices paid by consumers. Consistent with the theoretical predictions it is found that the merger had no effect on consumer prices, but led to higher average prices paid by the downstream firms to the merged firm.