We analyze horizontal mergers in Cournot oligopoly. We find general conditions under which such mergers raise price, and show that any merger not creating synergies raises price. We develop a procedure for analyzing the effect of a merger on rivals and consumers and thus provide sufficient conditions for profitable mergers to raise welfare. We show that traditional merger analysis can be misleading in its use of the Herfindahl Index. Our analysis stresses the output responses of large firms not participating in the merger.

We analyze incomplete long-term bilateral contracts when buyers incur relationship-specific setup costs and sellers choose some aspect of quality that is not verifiable to third parties. If setup costs are observable, the first best can be achieved even though contracts cannot enforceably specify quality; this does not even require long-term contracts. If setup costs are unobservable, however, then long-term price contracts can outperform short-term contracts, although they are not constrained Pareto efficient.

Charles Shapiro of University of California, Berkeley reviews “Rethinking Merger Analysis” by Louis Kaplow. The Econlit abstract of this book begins: “Explores major questions relevant to the analysis of horizontal mergers, assessing the appropriate way to set research agendas, formulate policy, and determine how best to analyze proposed mergers.”

When do oligopolists gain by sharing their private information about their costs with one another? What are the social welfare effects of such information exchange? I study these questions by comparing the oligopolists' expected profits under a cost sharing agreement with their expected profits in the Bayesian equilibrium that would arise without cost sharing. I also analyse the firms' decisions to form a trade association to share their cost data. Under conditions of linear demand and Cournot behaviour, industrywide information exchange is the unique point in the core of the trade association membership game. The exchange of cost data increases expected profits and welfare, but reduces expected consumer surplus. Cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output. Consumer surplus is diminished, however, because the variance of output is reduced, and consumer surplus is a convex function of output.

I analyse occupational licensing as an input regulation that requires minimum levels of human capital investment by professionals. By raising professionals' training levels, licensing helps alleviate moral hazard problems associated with the provision of high quality services. I also consider certification, whereby consumers are provided information about professionals' training levels. I show that licensing and certification tend to benefit consumers who value quality highly at the expense of those who do not. Licensing may raise total surplus if sellers' investments are not observable, but is Pareto-worsening if training levels are observable. Certification may, however, lead to excessive investment as a signalling device, and thus be Pareto Inferior to either licensing or to a policy of laissez-faire.

We analyze trade in both legitimate and counterfeit products. Domestic firms own trademarks and establish reputations for delivering high-quality products. Foreign suppliers export legitimate low-quality merchandise and counterfeits of domestic brand-name goods. Home consumers have rational expectations regarding counterfeiting. We describe the positive and normative effects of counterfeiting, and provide a welfare analysis of border inspection policy and of policy regarding the disposition of counterfeit goods that are confiscated at the border.

We study the rivalry between two firms to develop an innovation in a dynamic setting that allows for postdevelopment dissemination of the innovation, such as licensing or imitation. This dissemination may cause the noninnovating firm to benefit from the discovery. When this occurs, conventional results in the economics of R & D no longer need apply. We find that industry leaders will tend to develop minor innovations, but will develop major innovations only if imitation is difficult.