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Can industry regulators learn collusion structures from information-efficient asset markets?

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  • Zimper, Alexander
  • Hassan, Shakill

Abstract

This note combines a dynamic industrial organization model, in which an industry is subject to exogenous processes of market-size and collusion structure, with a consumption-based asset pricing model for the shares in the industry’s firms. Three main findings emerge for our model under the assumption of information-efficient asset markets. First, the volatility of a firm’s share price is exclusively driven by the volatility of the industry’s market-size. Second, the volatility of a firm’s price-dividend ratio is exclusively driven by the volatility of the industry’s collusion structure whereby high (resp. low) ratios indicate less (resp. more) collusion. Third, for non-volatile collusion structures the price-dividend ratio is constant across different collusion structures.

Suggested Citation

  • Zimper, Alexander & Hassan, Shakill, 2012. "Can industry regulators learn collusion structures from information-efficient asset markets?," Economics Letters, Elsevier, vol. 116(1), pages 1-4.
    • Handle: RePEc:eee:ecolet:v:116:y:2012:i:1:p:1-4
    DOI: 10.1016/j.econlet.2012.01.002
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    3. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    4. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2008. "The impact of collusion on price behavior: Empirical results from two recent cases," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1290-1307, November.
    5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cournot interaction; Collusion; Price-dividend ratio; Consumption-based asset pricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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