Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, July 23, 2018

Oligopoly, Macroeconomic Performance, and Competition Policy

José Azar, University of Navarra, IESE Business School and Xavier Vives, University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) research Oligopoly, Macroeconomic Performance, and Competition Policy.

ABSTRACT: We develop a macroeconomic framework in which firms are large and have market power with respect to both products and factors. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one sector economy, if returns to scale are non-increasing, then an increase in effective market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when labor market oligopsony power is low relative to product market oligopoly power. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification.

July 23, 2018 | Permalink | Comments (0)

Friday, July 20, 2018

Vertical Mergers and Entrepreneurial Exit

D. Daniel Sokol, University of Florida has written on Vertical Mergers and Entrepreneurial Exit.

ABSTRACT: The idea that tech companies should be permitted to acquire nascent start-ups is under attack from antitrust populists. Yet, this debate on vertical mergers has overlooked important empirical contributions regarding innovation related mergers in the strategic management literature. This Essay explores the extant empirical management literature, which identifies a pro-competitive basis that supports vertical mergers as efficiency enhancing. This literature solidifies the current general vertical merger presumption that favors a a pro-competitive vertical merger policy for purposes of government merger enforcement. However, the pro-competitive benefit for a presumption of merger approval for most vertical mergers does not end with the synthesis of an under-explored literature. Rather, the broader implications of vertical mergers and presumptions of legality have another overlooked implication – a change of policy may dampen entrepreneurial investment and innovation. Entrepreneurial exit is critical to a well-functioning entrepreneurial ecosystem, as the possibility of entrepreneurial exit via vertical merger is now the most usual form of liquidity event/exit for founders and venture capitalists. Vertical merger policy that would unduly restrict large tech firms from undertaking acquisitions in industries as diverse as finance, pharmaceuticals, medical devices, technology hardware, and internet platforms, would hurt incentives for innovation in the economy by chilling business formation in startups. Increased difficulty in the exit for founders and ventures capitalists makes investment in such ventures less likely, since the purpose of such investment is to reap the rewards of scaling a venture to exit. Thus, a general inference that makes vertical acquisitions, particularly in tech, more difficult to undertake leads to precisely the opposite of the purpose of the role of antitrust in promoting competition and innovation. This Essay explores how entrepreneurial exit for founders and venture capitalists is best served by promoting a robust vertical merger policy, though one that intervenes in cases of specific anti-competitive harm.

July 20, 2018 | Permalink | Comments (0)

The Rule of Reason in the Post-Actavis World

Michael A. Carrier, Rutgers Law School describes The Rule of Reason in the Post-Actavis World.

ABSTRACT: Though known more as U.S. President and Supreme Court Chief Justice, William Howard Taft played an important role in the development of antitrust law. As Sixth Circuit judge, his ruling in the Addyston Pipe case can be linked to modern antitrust law, including the Supreme Court’s 2013 decision in FTC v. Actavis on drug patent settlements. This essay, which builds on a lecture given to the NY State Bar Association's Antitrust Section, draws lessons from Addyston Pipe for these settlements, explains how courts today apply the Rule of Reason, and explores the analysis of settlements after Actavis.

July 20, 2018 | Permalink | Comments (0)

Reply to: 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry'

José Azar, University of Navarra, IESE Business School, Martin C. Schmalz, University of Michigan, Stephen M. Ross School of Business; CEPR; CESifo; European Corporate Governance Institute (ECGI), and Isabel Tecu, Charles River Associates (CRA)offer a Reply to: 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry'.

ABSTRACT: Dennis, Gerardi, and Schenone (2017) (DGS) claim to replicate the data construction and results of Azar, Schmalz, and Tecu (forthcoming) (AST). While their implementation of the main specifications in AST generates qualitatively similar results, they claim that AST’s baseline results are driven 1) by the use of passenger volume as regression weights and 2) largely by the top fifth percentile of markets in the passenger count distribution.

In this note, we show that these claims are factually incorrect. First, because DGS do not in fact replicate the data construction described in AST, their paper is of limited usefulness in showing the effect of deviations from AST’s empirical specifications. Second, we show that AST's results are qualitatively robust to not weighting regressions. Third, AST's results also hold on subsamples excluding the top fifth percentile of markets by passenger count. Additional evidence we present in this note suggests that DGS's erroneous conclusions are driven by an incorrect treatment of ownership data as well as other differences in their sample's characteristics compared to AST's.

July 20, 2018 | Permalink | Comments (0)

Net Neutrality, Network Capacity, and Innovation at the Edges

Jay Pil Choi, Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute), Doh-Shin Jeon, Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR), and Byung‐Cheol Kim, University of Alabama - Department of Economics, Finance and Legal Studies examine Net Neutrality, Network Capacity, and Innovation at the Edges.

ABSTRACT: We study how net neutrality regulations affect a high‐bandwidth content provider (CP)'s investment incentives to enhance its quality of services in content delivery to end users. We find that the effects crucially depend on whether the CP's entry is constrained by the Internet service provider's network capacity. If the capacity is relatively large, the prioritization reduces the investment as CP's investment and prioritization form substitutes. With limited capacity, however, they become complements and the prioritization can facilitate the entry of congestion‐sensitive content. Our analysis suggests that the optimal policy may call for potentially asymmetric regulations across mobile and fixed networks.

July 20, 2018 | Permalink | Comments (0)

Thursday, July 19, 2018

Do Merger Efficiencies Always Mitigate Price Increases?

Zhiqi Chen, Carleton University - Department of Economics, and Gang Li, Nanjing University - Department of Economics ask Do Merger Efficiencies Always Mitigate Price Increases?

ABSTRACT: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post‐merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.

July 19, 2018 | Permalink | Comments (0)

Is a Big Entrant a Threat to Incumbents? The Role of Demand Substitutability in Competition Among the Big and the Small

Makoto Hanazono, Nagoya University - Graduate School of Economics and Lijun Pan, Nanjing University - Department of Economics ask Is a Big Entrant a Threat to Incumbents? The Role of Demand Substitutability in Competition Among the Big and the Small.

ABSTRACT: We establish a model of market competition between large and small firms and investigate the way in which demand substitutability affects how the entry of big firms impacts incumbents. We focus on the relative strength of two opposing effects of entry on large incumbent firms’ demand: the direct substitution effect among large firms (negative) and the indirect feedback effect through the change in small firms’ aggregated behavior (positive). If the substitutability between large and small firms is sufficiently high, the indirect effect dominates the direct effect and large incumbents’ equilibrium prices and profits increase. We show that welfare effects are ambiguous, which calls for careful assessment when regulating large firms’ entry.

July 19, 2018 | Permalink | Comments (0)

Caron Beaton-Wells introduces new podcast series Competition Lore

Competition in a digital economy is a new frontier

Join Caron Beaton-Wells, Professor in Competition Law at the University of Melbourne, to tackle what it means to participate as a competitor, consumer or citizen in a digital economy and society.

Featuring regular cut-through interviews with leading thinkers, movers and shakers, Competition Lore is a podcast series that engages us all in a debate about the transformative potential and risks of digitalised competition.

 

About Caron Beaton-Wells

I’m a Professor specialising in competition law at the University of Melbourne Law School, Director of the University’s Competition Law & Economics Network and Global Competition and Consumer Law program.

Over 15 years steeped in researching and teaching in competition law, I’ve become increasingly concerned by the exclusion or marginalisation of academic contributions in important public debates.

On average an academic journal article is “read completely by no more than ten people”.

With Competition Lore, one of my aims is to entice academics out of the ivory tower and into the public discourse to engage as broadly as possible on a set of issues that pose opportunities and challenges for us all.

July 19, 2018 | Permalink | Comments (0)

Compliance Plus? Proposed Fine Reductions for Audited, Strengthened Compliance Programmes

Kevin Coates Andrea Zulli ask Compliance Plus? Proposed Fine Reductions for Audited, Strengthened Compliance Programmes.

ABSTRACT: Fire brigades have long since stopped seeing their job as simply putting out fires. They realised that one of the most effective ways that they can save lives and property is to spend time and money on fire prevention. This does not mean that they stop fighting fires; but it does reduce the number of fires they have to fight, which is better for society as a whole.

July 19, 2018 | Permalink | Comments (0)

Wednesday, July 18, 2018

GCR Live 10th Annual Competition Litigation Thursday, 04 October 2018 08:30 - 18:00 (GMT)

Thursday, 4 October 2018, Exchange House, London

Chaired by

Nicholas Heaton

Hogan Lovells International,

London 

 

Anthony Maton

Hausfeld,

London and Brussels

 

Keynote speaker

 

The Honourable Mr Justice Marcus Smith

High Court, Chancery Division and Chairman of the Competition Appeal Tribunal,

London

 

Speakers

Paul Chaplin, Hogan Lovells International, London

Peter Davis, Cornerstone Research, London

Kim Dietzel, Herbert Smith Freehills, London

Laurent Geelhand, Hausfeld, Brussels, London and Paris

Camilla Sanger, Slaughter and May, London

Mark Sansom, Freshfields Bruckhaus Deringer, London

Peter Scott, Norton Rose Fulbright, London

Further speakers to be announced 

Programme

8.30: Welcome coffee and registration

9.00: Chairs' opening remarks

Nicholas Heaton, Hogan Lovells International, London
Anthony Maton, Hausfeld, London and Brussels

9.15: Keynote address

The Honourable Mr Justice Marcus Smith, High Court, Chancery Division and Chair of the Competition Appeal Tribunal, London

9.50: Economics in action: BritNed and how the court assesses loss

A panel of economists and lawyers will consider how the court has approached the subject of assessing loss in the first cartel damages case to reach a judgment.

11.15: Coffee break 

11.45: Mass claims – approaches to the management, coordination and bundling of large numbers of related claims 

In the light of recent and future cases such as the interchange fee litigation, Air Cargo and Trucks; an international panel discuss developments in mechanisms for bringing claims;

  • The management by the courts and parties of multiple claims arising from a single infringement (e.g. Interchange cases) – what has gone wrong and how can this be made to work both domestically and internationally?
  • Different approaches to claims consolidation – class actions, assignment/claims vehicles, and consolidation – what is effective and why?
  • Will the trend of claim aggregation continue or will we see more individual claims?

13.00: Networking lunch

14.00: Geographical scope of damages claims revisited

In light of the CJEU judgment in Intel and the Court of Appeal judgment in Illiyma v Schott, are there any practical territorial limits on claims for breach of EU competition law?

14.25: Court of appeal interchange case

Following the Court of Appeal’s judgment in Interchange where do matters sit in relation to the hundreds of Interchange claims, and what are the wider consequences of the judgment in relation to important matters such a pass on?

15.55: Coffee break

16.15: Applicable law in light of Deutsche Bahn v MasterCard

 

Deutsche Bahn v MasterCard was the first decision directly to address the applicable law in relation to A101 infringement damages case. What have we learnt and how might it apply in other cases?

17.15: Closing speech

17.45: Chairs' closing remarks

Nicholas Heaton, Hogan Lovells International, London
Anthony Maton, Hausfeld, London and Brussels

18.00 onwards: All delegates are invited to attend a drinks reception kindly hosted by Norton Rose Fulbright

 

July 18, 2018 | Permalink | Comments (0)

Digitalisation: An Opportunity or a Risk?

Bitten Thorgaard Sørensen asks Digitalisation: An Opportunity or a Risk? 

ABSTRACT: As with all other questions within competition law, the answer is: ‘it depends…’.

First and foremost, from the point of view of a competition enforcer I see digitalisation as a massive opportunity. In short, digitalisation can lead to new business models, the rise of new competitors, better, and/or lower-priced products and services. Often the most important role we as competition enforcers have to play in this area is that of being an advocate for digitalisation e.g. advocating for the abolishment of unnecessary legislation standing in the way of disruptive competition.

But, certainly, digitalisation and some of its key features such as network effects, big data and algorithms, raise a number of competition related risks.

One such risk is that digitalisation and the use of algorithms, price robots and artificial intelligence may facilitate both explicit and tacit collusion.

July 18, 2018 | Permalink | Comments (0)

Risk and competitiveness in the Italian banking sector

Francesco Marchionne (Indiana University) ; Alberto Zazzaro (University of Naples Federico II; CSEF & MoFiR (Italy)) study Risk and competitiveness in the Italian banking sector.

ABSTRACT: In this paper, we analyse the relationship between risk and competition in the Italian banking sector over the period from 2006 to 2010. We employ OLS and panel estimators to estimate the impact of the Lerner index, a measure of bank market power, on the Altman Z-score, a proxy of the insolvency probability. Our results are consistent with the traditional charter value paradigm and reject the new risk-shifting paradigm proposed by Boyd-De Nicolo' (2005). We find that the relationship between bank risk and competition becomes more tightening during the financial crisis. Our results are robust to different definitions of crisis and different specifications.

July 18, 2018 | Permalink | Comments (0)

The EC is undermining innovation: here's how to change it

Thibault Schrepel, shows Utrecht University School of Law; a Research Associate at the Sorbonne Business & Finance Institute, University of Paris I Panthéon Sorbonne explains The EC is undermining innovation: here's how to change it.

ABSTRACT: On July 18, 2018, the European Commission fined Alphabet (Google) 4.34 billion euros. This decision confirms the Commission’s willingness to deter companies from engaging in anticompetitive practices. It also confirms that the European competition authority is missing the big picture by imposing disproportionate fines with regard to the specifics of the digital economy.

According to Article 23(2) of Regulation No 1/2003, the fines imposed by competition authorities cannot exceed 10% of the overall annual turnover of the concerned company. This limit is intended to avoid disproportionate sanctions that would jeopardize the company’s future. In fact, however, while this turnover threshold is useful, it is insufficient. The digital economy requires companies to compete by innovating. R&D investments have become the lifeblood of the digital economy and the very essence of competition. The specific competitive dynamics of the industry should also be taken into account in considering the extent to which fines imposed by competition authorities can disrupt the investment capacity of companies.

This article introduces an empirical study conducted over the period 2004 to 2018 (Android included) on all the fines imposed by the European Commission on the basis of Article 102 TFEU. We show that the European Commission’s decisions may have the effect of slowing down R&D for numerous sanctioned companies. For this reason, an innovation protection mechanism should be incorporated into the calculation of the fine. We propose doing so by introducing a new limit that caps Article 102 fines at a certain percentage of companies’ investment in R&D.

July 18, 2018 | Permalink | Comments (0)

What Level of Competition Intensity Maximises Investment in the Wireless Industry?

What Level of Competition Intensity Maximises Investment in the Wireless Industry?Georges Vivien Houngbonon (LGI - Laboratoire de Genie Industriel - CentraleSupélec) ; François Jeanjean (Orange Labs - Orange Labs [Belfort] - France Télécom) ask What Level of Competition Intensity Maximises Investment in the Wireless Industry?

ABSTRACT: This paper investigates the relationship between competition and investment in the wireless industry from a dynamic perspective. Using firm level data and instrumental variable estimation strategy, it finds that the relationship is inverted-U shaped. The investment maximising intensity of competition is reached when operators' gross profits represent 37 or 40 percent of their revenues, depending on whether capital expenditures are normalised by the number of subscribers. This finding means that investment increases with competition as long as operators' profits are above the thresholds of 37 or 40 percent of their revenues. Under these thresholds, there is a tradeoff between competition and investment. The paper also finds a significant long run effect of competition on investment which amplifies the short run effect by a factor of 3 to 4. 

July 18, 2018 | Permalink | Comments (0)

Tuesday, July 17, 2018

Spatial competition and quality: evidence from the English family doctor market

Hugh Gravelle (Centre for Health Economics, University of York, York, UK) ; Dan Liu (Centre for Health Economics, University of York, York, UK) ; Carol Propper (Imperial College London, UK) ; Rita Santos (Centre for Health Economics, University of York, York, UK) examine Spatial competition and quality: evidence from the English family doctor market.

ABSTRACT: We examine whether family doctor firms in England respond to local competition by increasing their quality. We measure quality in terms of clinical performance and patient-reported satisfaction to capture its multi-dimensional nature. We use a panel covering 8 years for over 8000 English general practices, allowing us to control for unobserved local area effects. We measure competition by the number of rival doctors within a small distance. We find that increases in local competition are associated with increases in clinical quality and patient satisfaction, particularly for firms with lower quality. However, the magnitude of the effect is small.

July 17, 2018 | Permalink | Comments (0)

High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription

Richard G. Frank and Richard J. Zeckhauser investigate High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription.

ABSTRACT: Drug pricing in the U.S. is a persistently vexing policy problem. While there is agreement among many policy analysts that supra competitive prices are necessary to promote innovation; significant disagreements arise over how much pricing discretion prescription drug manufacturers should be permitted, and what portion of the sum of producer plus consumer surplus in the prescription drug market should be claimed by manufacturers relative to consumers and other payers. This paper focuses on an extremely costly component of the Medicare Part D program the region of coverage that kicks in once a consumer has spent $4,950 on drugs in a calendar year (roughly $8,100 in total drug spending). At that point there are high levels of insurance for the consumer and reinsurance for the prescription drug plan. Consumers pay 5% of costs; plans pay 15% and the government 80%. That design generates serious inefficiencies. The significant subsidies to plans in the reinsurance region combined with the launch of unique high cost prescription drugs could be expected to lead to and has led to substantial departures from cost-effective outcomes in treatments delivered. We investigate two, possibly complementary, strategies for reducing these inefficiencies. The first follows on the MedPac recommendation that the government reduce its share of risk bearing for the Part D reinsurance benefit. The second focuses on curbing price inefficiencies. It has two components: eliminating monopolistic overpricing, and rewarding the quality of drugs brought to market. It is grounded in the economics of two part tariffs, research on innovation prizes, performance-based contracts, and draws on the mechanism design literature.

July 17, 2018 | Permalink | Comments (0)

Multimarket Linkages, Cartel Discipline and Trade Costs

Delina Agnosteva ; Constantinos Syropoulos ; and Yoto V. Yotov study Multimarket Linkages, Cartel Discipline and Trade Costs.

ABSTRACT: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.

July 17, 2018 | Permalink | Comments (0)

Automobile Prices in Market Equilibrium with Unobserved Price Discrimination

Xavier D'Haultfoeuille (CREST) ; Isis Durrmeyer (Toulouse School of Economics; Université Toulouse Capitole) ; Philippe Février (CREST) theorize about Automobile Prices in Market Equilibrium with Unobserved Price Discrimination.

ABSTRACT: In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This paper considers the structural estimation of a demand and supply model à la Berry et al. (1995) with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved by using supply-side conditions, provided that the marginal costs of producing and selling the goods do not depend on the characteristics of the buyers. The model can be estimated by GMM using a nested fixed point algorithm that extends BLP’s algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.

July 17, 2018 | Permalink | Comments (0)

Monday, July 16, 2018

6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going? Concurrences Review & The George Washington University Law School Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT) Washington, DC

6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going?

Concurrences Review & The George Washington University Law School

Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT)

Washington, DC

 

Ticket Information

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In case of over registration, attendance will be limited to three representatives per institution. Substitute delegates are welcome at any time.

Sep 21, 2018 Free   Ticket Quantity Select123
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Event Details

01.00 pm

Registration 

1:30 pm

Welcome Remark

William KOVACIC | Professor, George Washington University Law School, Washington, DC

2:15 pm

Opening Keynote Speech

Richard POSNER | Senior Lecturer, University of Chicago Law School, Chicago*

3.00 pm

"Populist" Antitrust: A Deviant Mutation or an Overdue Correction?

Einer ELHAUGE | Professor, Harvard Law School, Cambridge

Cristina CAFFARRA | Vice President, CRA, London/Brussels

William KOVACIC | Professor, George Washington Law, Washington, DC

Alex OKULIAR | Partner, Orrick, Washington, DC

Barry LYNN | Executive Director, Open Markets Institute, Washington, DC

Moderator: John BRIGGS | Partner, Axinn, Washington, DC

4.00 pm

Coffee Break

4:15 pm

Should the New Titans be Tamed? Lessons From the US, EU, and China

Bruce HOFFMAN | Director, Bureau of Competition, US FTC, Washington, DC*

Lynda K. MARSHALL | Chief of the Foreign Commerce Section, US DOJ, Washington, DC*

Luke FROEB | Professor, Vanderbilt University, Nashville*

Christopher YOO | Professor, University of Pennsylvania Law School, Philadelphia

Greg McCURDY | Director, Litigation and Global Competition Law, Uber, San Francisco

Peter DAVIS | Senior Vice President, Cornerstone Research, London

Alvaro RAMOS | Senior Director - Head of Global Antitrust, Qualcomm, San Diego

Moderator: Frédéric JENNY Chair, OECD Competition Committee, Paris

5:15 pm

A Judge's Eye View on Antitrust: Mergers, Cartels, Remedies...

Mark ISRAEL | Senior Managing Director, Compass Lexecon, Washington, DC

Mark GIDLEY | Partner, White & Case, Washington, DC

Maureen OHLHAUSEN | Judge, US Court of Federal Claims, Washington, DC

Colleen McMAHON | Judge, US District Court - Southern District of New York, New York

Michael BAYLSON | Judge, US District Court, Eastern District of Pennsylvania, Philadelphia

Kevin CASTEL | Judge, US District Court, Southern District of New York, New York*

Moderator: Douglas GINSBURG | Judge, US Circuit Court for the District of Columbia

6:15 pm

Closing Keynote Speech

Joseph SIMONS | Chairman, US FTC, Washington, DC*

 

Panel Sponsors

Axinn

Charles River Associates

Compass Lexecon

Cornerstone Research

Orrick

Qualcomm

White & Case

 

* To be confirmed

July 16, 2018 | Permalink | Comments (0)

The economic functioning of online drugs markets

Bhaskar, V. ; Linacre, Robin ; Machin, Stephen identify The economic functioning of online drugs markets.

ABSTRACT: The economic functioning of online drug markets using data scraped from online platforms is studied. Analysis of over 1.5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that, a priori, one might think would plague them. Only a small proportion of online drugs deals receive bad ratings from buyers, and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs. Furthermore, as with legal online markets, the market penalizes bad ratings, which subsequently lead to significant sales reductions and to market exit. The impact of the well-known seizure by law enforcement of the original Silk Road and the shutdown of Silk Road 2.0 are also studied, together with the exit scam of the market leader at the time, Evolution. There is no evidence that these exits deterred buyers or sellers from online drugs trading, as new platforms rapidly replaced those taken down, with the online market for drugs continuing to grow

July 16, 2018 | Permalink | Comments (0)