Merger Simulation in Competition Policy: A Survey

Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its ‘technical’ potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects. The authors thank Ulrich Schwalbe, Wolfgang Kerber, Arndt Christiansen and Niels Vestergaard for valuable comments on earlier versions of the paper, the participants of the 30th Hohenheimer Oberseminar (Nuernberg, April 2008) for helpful discussion, and Barbara Güldenring for valuable editorial assistance.Merger simulation, merger control, antitrust, oligopoly theory, auction models, mergers & acquisitions

Essays in applied microeconomics

This dissertation consists of three self-contained papers, which contribute to different strands of the literature on industrial organization and microeconomic theory. The first paper analyzes price collusion between platforms in a two-sided market model. I show that higher indirect network externalities have two opposing effects on the sustainability of a cartel. First, collusive profits increase while stage game Nash profits fall - this makes collusion more desirable. Second, the incentive to deviate increases as demand reacts more sensitively. The latter effect dominates because of the induced feedback effects and collusion becomes harder to sustain as indirect network externalities become stronger. The second paper, which is joint work with Johannes Koenen, examines the impact of patent protection on upstream innovation incentives in a vertical industry with complementary inputs and consecutive investment periods. We show that in case of fixed-order sequential bargaining between suppliers and a downstream firm, ironclad intellectual property rights lead to a complete breakdown of investments into components due to hold-up problems, despite full bargaining power of the investing parties. Knowledge diffusion that allows the downstream firm to buy an older version of the component at a cheaper price in later periods is thus beneficial for all firms. Allowing for a stochastic bargaining sequence alleviates the complete hold-up under patent protection. Yet, upstream innovation might still be higher under knowledge diffusion. The third paper, which was written jointly with Pia Dovern-Pinger, empirically investigates the existence of the compromise effect, referring to the tendency of individuals to choose an intermediate option in a choice set, using field data from a German Specialties Restaurant. The analysis of demand behavior in response to changes in the menu confirms experimental evidence. While demand generally decreases in prices, individuals tend to avoid alternatives at the lowest or highest end of the price spectrum. In contrast, an expansion of the dish choice set leads customers to choose less extreme options. Finally, group size and other background factors matter, although no clear direction of the effects can be identified

Essays in Applied Microeconomics

This dissertation consists of three self-contained papers, which contribute to different strands of the literature on industrial organization and microeconomic theory. The first paper analyzes price collusion between platforms in a two-sided market model. I show that higher indirect network externalities have two opposing effects on the sustainability of a cartel. First, collusive profits increase while stage game Nash profits fall - this makes collusion more desirable. Second, the incentive to deviate increases as demand reacts more sensitively. The latter effect dominates because of the induced feedback effects and collusion becomes harder to sustain as indirect network externalities become stronger. The second paper, which is joint work with Johannes Koenen, examines the impact of patent protection on upstream innovation incentives in a vertical industry with complementary inputs and consecutive investment periods. We show that in case of fixed-order sequential bargaining between suppliers and a downstream firm, ironclad intellectual property rights lead to a complete breakdown of investments into components due to hold-up problems, despite full bargaining power of the investing parties. Knowledge diffusion that allows the downstream firm to buy an older version of the component at a cheaper price in later periods is thus beneficial for all firms. Allowing for a stochastic bargaining sequence alleviates the complete hold-up under patent protection. Yet, upstream innovation might still be higher under knowledge diffusion. The third paper, which was written jointly with Pia Dovern-Pinger, empirically investigates the existence of the compromise effect, referring to the tendency of individuals to choose an intermediate option in a choice set, using field data from a German Specialties Restaurant. The analysis of demand behavior in response to changes in the menu confirms experimental evidence. While demand generally decreases in prices, individuals tend to avoid alternatives at the lowest or highest end of the price spectrum. In contrast, an expansion of the dish choice set leads customers to choose less extreme options. Finally, group size and other background factors matter, although no clear direction of the effects can be identified

Essays in Applied Microeconomics

This dissertation consists of three self-contained papers, which contribute to different strands of the literature on industrial organization and microeconomic theory. The first paper analyzes price collusion between platforms in a two-sided market model. I show that higher indirect network externalities have two opposing effects on the sustainability of a cartel. First, collusive profits increase while stage game Nash profits fall - this makes collusion more desirable. Second, the incentive to deviate increases as demand reacts more sensitively. The latter effect dominates because of the induced feedback effects and collusion becomes harder to sustain as indirect network externalities become stronger. The second paper, which is joint work with Johannes Koenen, examines the impact of patent protection on upstream innovation incentives in a vertical industry with complementary inputs and consecutive investment periods. We show that in case of fixed-order sequential bargaining between suppliers and a downstream firm, ironclad intellectual property rights lead to a complete breakdown of investments into components due to hold-up problems, despite full bargaining power of the investing parties. Knowledge diffusion that allows the downstream firm to buy an older version of the component at a cheaper price in later periods is thus beneficial for all firms. Allowing for a stochastic bargaining sequence alleviates the complete hold-up under patent protection. Yet, upstream innovation might still be higher under knowledge diffusion. The third paper, which was written jointly with Pia Dovern-Pinger, empirically investigates the existence of the compromise effect, referring to the tendency of individuals to choose an intermediate option in a choice set, using field data from a German Specialties Restaurant. The analysis of demand behavior in response to changes in the menu confirms experimental evidence. While demand generally decreases in prices, individuals tend to avoid alternatives at the lowest or highest end of the price spectrum. In contrast, an expansion of the dish choice set leads customers to choose less extreme options. Finally, group size and other background factors matter, although no clear direction of the effects can be identified