Three essays in empirical industrial organization and merger policy

The first chapter is titled "Endogenous Market Structure and Fixed-to-Mobile Competition in the U.S. Telecommunications Industry." This paper develops an empirical model to examine the intramodal and intermodal competition effects within and between the wired and wireless sectors in 1997 and 2002, a period in which wired and wireless carriers entered the local market on a large scale simultaneously. A two-step procedure is proposed to address the problem caused by the fact that wireless carriers usually make entry decisions in larger geographical regions than wired carriers. The results show that compared with national CLECs, regional CLECs and wireless carriers tend to be close competitors, as the presence of wireless carriers substantially lowers regional CLECs' margins. The intermodal competitive effect of wireless carriers on regional CLECs is much greater than their effect on national CLECs. It is also found that providing wired and wireless services together in a market does not lower a CLEC's profitability. The entry model for wireless sector shows that once the market has five wireless carriers, the next entrant has little effect on competitive conduct.;The second chapter is titled "Predicting Merger Outcomes: How Accurate Are Stock Market Event Studies, Market Structure Characteristics, and Agency Decision?" a paper coauthored with John Kwoka. This paper analyzes two leading methods of predicting the outcomes of mergers, as well as the accuracy of antitrust agencies' decisions whether or not to challenge mergers. Drawing on actual price effects of forty mergers, this paper develops data on market structural characteristics, on stock market event studies, and on agency decisions. It finds that event studies systematically underpredict the incidence of anticompetitive mergers, while market structure criteria systematically overpredict competitive concerns. While these might seem to be opposing errors, market structure serves primarily as an initial screen, so that over-inclusiveness may be an optimal decision approach.;The third chapter is titled "The Mergers Effects on Telephone Carriers' Efficiency: a Conditional Difference-in-Difference Approach." This paper examines the merger effects on telephone carriers' efficiency in the U.S. telecommunications industry over the period of 1996-2007. One limitation of traditional difference-in-difference (DID) approach is that if the mergers are not randomly assigned, any omitted factor that is correlated with the outcome measure as well as the probability of a merger will generate biased estimates of the impact of merger. Without the need for any instrumental variable, this paper uses a propensity score matching approach combined with DID method to address selection on both observables and unobservables associated with merger formation. The results show that mergers reduce merging carriers' incentive to innovate or invest on frontier technology, rather than lower carriers' technical efficiency. Moreover, mergers do not speed up carriers' scale efficiency progress as the carriers promised in the antitrust review processes.