Victor J. Tremblay

The Determinants of Horizontal Acquisitions: Evidence from the U.S. Brewing Industry

The authors analyze the motives for horzonital mergers by estimating a logit model for the U. S. brewing industry, 1950-83. Their results support D. Deweys (1961) view that failing firms avoid bankruptcy by selling to successful firms. In the absence of an antitrust constraint, large firms are more likel;y than small firms to acquire another competitor. There is no evidence that firms merge to increase market power or to attain scale e conomies. Although the Justice Department may have been too restrictive in the past, its recent acceptance of an efficiency defense in merger cases seems appropriate in light of our results. Copyright 1988 by Blackwell Publishing Ltd.

Advertising and the US market demand for beer

The US per capita market demand for beer is empirically estimated to determine the effect of advertising on the demand for beer. The empirical results indicate that the most important determinants of demand are the price of beer, the price of substitutes, demographic factors, and a light beer dummy variable. The positive effects of income and lagged consumption appear to be small. Although many have argued that advertising promotes beer consumption, the empirical results of this study do not support this hypothesis.

Advertising with Subjective Horizontal and Vertical Product Differentiation

In this paper, we analyze the impact of advertising on markets wheresubjective horizontal and vertical product differentiation are important. A simple model showshow advertising can be used to create subjective horizontal and vertical differentiation.The model predicts that firms are likely to be symmetric when advertising creates subjective horizontaldifferentiation and that name and generic brands are most likely to coexist in markets whereadvertising creates subjective vertical differentiation. In all cases, the ability toadvertise creates distance between products which increases the market power of firms. Finally, severalreal world examples are used to illustrate the conditions under which the model is most relevant.

The Welfare Effect of Advertising Restrictions in the U.S. Cigarette Industry

The welfare effect of advertisingrestrictions in the U.S. cigarette industry dependsupon the impact of advertising on consumer and producer surplus, the transfer to consumers for being exposed to utility-reducing advertising, and smoking externalities. We estimate a demand equation and a supply relation simultaneously and use the parameter estimates to generate predictions of the impact of advertising restrictions on social welfare. Our results show that advertising restrictions benefit producers by limiting competition and generating higher industry profits, and such restrictions lower social welfare if the external cost of cigarette smoking is sufficiently low.

Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion

Abstract We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that this mixture of Cournot and Bertrand behavior can occur when advertising rotates demand. When behaving as a Cournot-type firm such as Honda, it is more profitable to pursue a mass-market advertising campaign that rotates demand counterclockwise when it faces relatively low unit costs and a flat demand function. When behaving as a Bertrand-type firm such as Scion, it pays to pursue a niche-market advertising campaign that rotates demand clockwise when it faces relatively high unit costs and a steep demand.

Endogenous Timing and Strategic Choice: The Cournot‐Bertrand Model

Cournot establishes a Nash equilibrium to a duopoly game under output competition; Bertrand finds a different Nash equilibrium under price competition. Both treat the strategic choice variable (output versus price) and the timing of play as exogenous. We investigate Cournot‐Bertrand models where one firm competes in output and the other competes in price in both static and dynamic settings. We also develop a general model where both the timing of play and the strategic choice variables are endogenous. Consistent with the conduct of Honda and Scion, we show that Cournot‐Bertrand behaviour can be a Nash equilibrium outcome.

New perspectives on industrial organization

Chapter 1 Introduction.- Chapter 2 Demand, Technology, and the Theory of the Firm.- Chapter 3 Introductory Game Theory and Economic Information.- Chapter 4 Behavioral Economics.- Chapter 5 Perfect Competition and Market Imperfections.- Chapter 6 Monopoly and Monopolistic Competition.- Chapter 7 Product Differentiation.- Chapter 8 Market Structure, Industry Concentration, and Barriers to Entry.- Chapter 9 Cartels.- Chapter 10 Quantity and Price Competition in Static Oligopoly Models.- Chapter 11 Dynamic Monopoly and Oligopoly Models.- Chapter 12 Market Power.- Chapter 13 Product Design, Multiproduct Production, and Brand Proliferation.- Chapter 14 Price Discrimination and Other Marketing Strategies.- Chapter 15 Advertising.- Chapter 16 Advertising and Welfare.- Chapter 17 Technological Change, Dynamic Efficiency, and Market Structure.- Chapter 18 Horizontal, Vertical, and Conglomerate Mergers.- Chapter 19 Efficiency, Equity, and Corporate Responsibility in Imperfect Competition.- Chapter 20 Antitrust Law and Regulation.- Chapter 21 Industry and Firm Studies

A model of vertical differentiation, brand loyalty, and persuasive advertising

In this paper, we analyze the impact of advertising and quality decisions on price competition in a duopoly setting. Firms are able to differentiate their products vertically and use persuasive advertising to increase consumer brand loyalty. The model predicts that the high quality firm will advertise more intensively than the low quality firm in both covered and uncovered markets. Because consumers are assumed to be informed about product characteristics, advertising neither signals high quality nor discourages firms from lowering product quality unexpectedly. Instead, advertising is persuasive and is used to dampen price competition, enabling firms to avoid the Bertrand Paradox. This model provides one explanation for the coexistence of name (heavily advertised) and generic (sparsely advertised) brands.

Efficiency and Technological Change in the U.S. Brewing Industry

This study demonstrates that the measurement of technological change and economic efficiency are tightly linked. Efficiency measures may depend on carefully controlling for technological change, while tests of technological change may be sensitive to empirical model specifications. Moreover, the study underlines Solows (1994) and Romers (1994) admonition that econometricians should pay attention to industry and institutional evidence in building models of technological change. The empirical results presented here suggest that there has been substantial technological change in the U.S. brewing industry from 1950 to 1992. This occurred in the form of a dramatic shift in technology beginning with the introduction of super breweries in about 1972. There has also been a substantial increase in scale economies, which undoubtedly caused many inefficiently small firms to exit the industry during the 1960s and 1970s. Further results suggest that a more complete specification of technological change and the stochastic nature of the frontier production function leads to higher and more tenable estimates of efficiency.

Advertising, search costs, and social welfare

Abstract Analysis of the welfare effect of advertising depends critically upon the effect of advertising on market prices. In many circumstances, advertising that leads to higher (lower) market prices is overproduced (underproduced) from society’s perspective. This paper demonstrates that these predictions may not hold when consumer search costs are important. A model is developed to show how advertising affects equilibrium prices, search costs, and social welfare in monopoly and imperfectly competitive markets. When informative advertising leads to a sufficient reduction in consumer search costs, both consumer and producer welfare may increase even though market prices rise. This conclusion has important implications for policy analysts, because it demonstrates that one cannot test the welfare effect of advertising by determining the impact of advertising on market prices alone. One must investigate the impact of advertising on both market prices and search costs to fully understand the welfare effect of advertising.