Antitrust & Competition Policy Blog

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

Thursday, August 16, 2018

Monopolistic Competition, Price Discrimination and Welfare

Youping Li, East China University of Science and Technology (ECUST) and Jie Shuai, Zhongnan University of Economics and Law examine Monopolistic Competition, Price Discrimination and Welfare.

ABSTRACT: This paper studies third degree price discrimination in a monopolistically competitive market. When the number of firms is fixed, price discrimination raises firm profit and reduces consumer welfare relative to uniform pricing. In the long run, the equilibrium product variety under price discrimination is always excessive compared with the social optimum, whereas under uniform pricing there may be too few. Except when, under rare circumstances, uniform pricing causes too little entry, a ban on price discrimination leads to enhanced consumer and social welfare.

August 16, 2018 | Permalink | Comments (0)

The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb

Chiara Farronato and Andrey Fradkin have an interesting paper on The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb.

ABSTRACT: We study the effects of enabling peer supply through Airbnb in the accommodation industry. We present a model of competition between flexible and dedicated sellers - peer hosts and hotels - who provide differentiated products. We estimate this model using data from major US cities and quantify the welfare effects of Airbnb on travelers, hosts, and hotels. The welfare gains from Airbnb are concentrated in locations (New York) and times (New Year’s Eve) when hotels are capacity constrained. This occurs because peer hosts are responsive to market conditions, expand supply as hotels fill up, and keep hotel prices down as a result.

August 16, 2018 | Permalink | Comments (0)

Collusion and bargaining in asymmetric cournot duopoly: An experiment

Fischer, Christian and Normann, Hans-Theo experiment on Collusion and bargaining in asymmetric cournot duopoly: An experiment.

ABSTRACT: In asymmetric dilemma games without side payments, players face involved cooperation and bargaining problems. The maximization of joint profits is implausible, players disagree on the collusive action, and the outcome is often inefficient. For the example of a Cournot duopoly with asymmetric cost, we investigate experimentally how players cooperate (collude implicitly and explicitly), if at all, in such games. We find that, without communication, players fail to cooperate and essentially play the static Nash equilibrium, confirming previous results. With communication, inefficient firms gain at the expense of efficient ones. When the role of the efficient firm is earned in a contest, the efficient firm earns higher profits than when this role is randomly allocated. Bargaining solutions do not satisfactorily predict collusive outcomes. Finally, when given the choice to talk, the efficient firms often decline that option.

August 16, 2018 | Permalink | Comments (0)

Wednesday, August 15, 2018

Toward a coherent policy on cartel damages

Jens-Uwe Franck and Martin Peitz offer thoughts Toward a coherent policy on cartel damages.

ABSTRACT: The focus of cartel damages law is on the recovery of the cartel overcharge. Parties other than purchasers are often neglected, not only as a matter of judicial practice, but also due to legal restrictions. We argue that a narrow concept of standing—which excludes parties that supply either the cartel or the firms that purchase from the cartel with complementary product components—falls short of achieving effective antitrust enforcement and corrective justice in the best possible way. We provide a framework with two complementary products and show that under neither competition nor cartelization do the allocation and the distribution of surpluses depend on whether producers of complements purchase from the cartel or supply the cartel or the cartel’s customers. Thus, we argue that prima facie producers of complements should be treated alike, regardless of their position in the supply chain. Moreover, based on various factors that determine the enforcement effect of antitrust damages claims and their role as an instrument to achieve corrective justice, we show that a broad concept of standing is, indeed, the preferable legal solution. While its implementation would require a change in position by the U.S. federal courts, we submit that it would amount to a consistent completion of the legal framework within the E.U.

August 15, 2018 | Permalink | Comments (0)

Algorithmic Collusion in Cournot Duopoly Market: Evidence from Experimental Economics

Nan Zhou ; Li Zhang ; Shijian Li ; and Zhijian Wang have a paper on Algorithmic Collusion in Cournot Duopoly Market: Evidence from Experimental Economics.

ABSTRACT: Algorithmic collusion is an emerging concept in current artificial intelligence age. Whether algorithmic collusion is a creditable threat remains as an argument. In this paper, we propose an algorithm which can extort its human rival to collude in a Cournot duopoly competing market. In experiments, we show that, the algorithm can successfully extorted its human rival and gets higher profit in long run, meanwhile the human rival will fully collude with the algorithm. As a result, the social welfare declines rapidly and stably. Both in theory and in experiment, our work confirms that, algorithmic collusion can be a creditable threat. In application, we hope, the frameworks, the algorithm design as well as the experiment environment illustrated in this work, can be an incubator or a test bed for researchers and policymakers to handle the emerging algorithmic collusion.

August 15, 2018 | Permalink | Comments (0)

Effect of Utility Deregulation and Mergers on Consumer Welfare

Ralph Sonenshine investigates the Effect of Utility Deregulation and Mergers on Consumer Welfare.

ABSTRACT:  In the late 1990s, many U.S. states deregulated electric utilities, allowing for competition among power generators. Deregulated states then adopted a retail choice program, allowing customers to choose their power provider. In addition, a significant merger wave among large utility companies ensued after deregulation. What was the impact of these changes on consumer welfare? While this issue has been widely studied, the results remain ambiguous. This study examines the effects of these events, by analyzing electricity price and output changes among deregulated and regulated states from 2001 through 2014. The study finds that deregulation may have had a positive effect when states adopted certain measures, such as retail choice or fuel changes, that enhanced competition and lowered costs

August 15, 2018 | Permalink | Comments (0)

New thoughts by 27 antitrust professors on AT&T

A group of antitrust professors in support of neither side submitted an amicus brief on AT&T. Download Filed - Amicus Brief 27 Antitrust Scholars

August 15, 2018 | Permalink | Comments (0)

Tuesday, August 14, 2018

Leapfrogging: Time of Entry and Firm Productivity

Josh Ederington (University of Kentucky) and Georg Goetz (University of Giessen) are Leapfrogging: Time of Entry and Firm Productivity.

ABSTRACT: We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry and adoption are dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur and show that leapfrogging can induce reverse preemption (i.e., forward-looking incumbent firms delaying entry and adoption due to leapfrogging behavior). As an application, we demonstrate how, in an industry conducive to leapfrogging, research subsidies can actually reduce short-run consumer welfare by discouraging firms from entering the market with a basic technology.

August 14, 2018 | Permalink | Comments (0)

Multiproduct Firms, Consumer Search, and Demand Heterogeneity

Yuta KITTAKA identifies Multiproduct Firms, Consumer Search, and Demand Heterogeneity.

ABSTRACT: This study constructs a sequential consumer search model with differentiated products in which some consumers search for a single product while the others search for multiple products. When the mass of consumers who demand one of the products decreases, the price for one product decreases while another price increases due to the joint-search effect, even if the products are neither complements nor substitutes. In addition, under some conditions, this decrease in demand causes an increase in each firm's profit.

August 14, 2018 | Permalink | Comments (0)

Consumer choice under limited attention when alternatives have different information costs

Frank Huettner, (ESMT European School of Management and Technology) ; Tamer Boyaci, (ESMT European School of Management and Technology) ; and Yalcin Akcay (Melbourne Business School) theorize about Consumer choice under limited attention when alternatives have different information costs.

ABSTRACT: Consumers often do not have complete information about the choices they face and therefore have to spend time and effort in acquiring information. Since information acquisition is costly, consumers trade-off the value of better information against its cost, and make their final product choices based on imperfect information. We model this decision using the rational inattention approach and describe the rationally inattentive consumer’s choice behavior when she faces alternatives with different information costs. To this end, we introduce an information cost function that distinguishes between direct and implied information. We then analytically characterize the optimal choice probabilities. We find that non-uniform information costs can have a strong impact on product choice, which gets particularly conspicuous when the product alternatives are otherwise very similar. There are significant implications on how a seller should provide information about its products and how changes to the product set impacts consumer choice. For example, non-uniform information costs can lead to situations where it is disadvantageous for the seller to provide easier access to information for a particular product, and to situations where the addition of an inferior (never chosen) product increases the market share of another existing product (i.e., failure of regularity). We also provide an algorithm to compute the optimal choice probabilities and discuss how our framework can be empirically estimated from suitable choice data.

August 14, 2018 | Permalink | Comments (0)

The Multiplier Effect in Two-Sided Markets with Bilateral Investments

Deniz Dizdar ; Benny Moldovanu ; and Nora Szech examine The Multiplier Effect in Two-Sided Markets with Bilateral Investments.

ABSTRACT: Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling private, complementary types, investments generate direct benefits for partners. We explore quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their own rank and about the types and investments of potential partners. We characterize how the multiplier effect hinges on market size, and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition.

August 14, 2018 | Permalink | Comments (0)

Monday, August 13, 2018

Differentiated Durable Goods Monopoly: A Robust Coase Conjecture

Nava, Francesco and Schiraldi, Pasquale analyze Differentiated Durable Goods Monopoly: A Robust Coase Conjecture.

ABSTRACT: The paper analyzes a durable good monopoly problem in which multiple varieties can be produced and sold. A robust Coase conjecture establishes that the market eventually clears, that profits exceed static optimal market-clearing profits, and that profits converge to this lower bound in all stationary equilibria when prices can be revised instantaneously. In contrast to the one-variety case though, equilibrium pricing is neither efficient nor minimal (that is, equal to the maximum between marginal cost an the minimal value). Conclusions apply even when products can be scrapped albeit at possibly smaller mark-ups. If so, a novel motive for selling high cost products naturally emerges. Moreover, with positive marginal costs, cross-subsidization arises as a result of equilibrium pricing. The online appendix delivers insights on product design.

August 13, 2018 | Permalink | Comments (0)

Naked exclusion under exclusive-offer competition

Hiroshi Kitamura ; Noriaki Matsushima ; and Misato Sato theorize Naked exclusion under exclusive-offer competition.

ABSTRACT: This study constructs a model of anticompetitive exclusive-offer competition between two existing upstream firms. Under exclusive-offer competition, the upstream firm's profit depends on the rival's exclusive offer. If the rival makes an exclusive offer acceptable for the downstream firm, the upstream firm is excluded unless it succeeds in exclusion. Consequently, the upper bound of exclusive offers becomes higher than when one of the upstream firms is a potential entrant that cannot make any exclusive offer. Thus, the exclusion of the existing upstream firm can be an equilibrium outcome even in the case where the potential entrant is never excluded.

August 13, 2018 | Permalink | Comments (0)

Collusion in Two-Sided Markets

Lefouili, Yassine and Pinho, Joana explore Collusion in Two-Sided Markets.

ABSTRACT: This paper explores the incentives for, and the effects of, collusion in prices between two-sided platforms. We characterize the most profitable sustainable agreement when platforms collude on both sides of the market and when they collude on a single side of the market. Under two-sided collusion, prices on both sides are higher than competitive prices, implying that agents on both sides become worse off as compared to the competitive outcome. An increase in cross-group externalities makes two-sided collusion harder to sustain, and reduces the harm from collusion suffered by the agents on a given side as long as the collusive price on that side is lower than the monopoly price. When platforms collude on a single side of the market, the price on the collusive side is lower (higher) than the competitive price if the magnitude of the cross-group externalities exerted on that side is sufficiently large (small). As a result, one-sided collusion may benefit the agents on the collusive side and harm the agents on the competitive side.

August 13, 2018 | Permalink | Comments (0)

Friday, August 10, 2018

Does the Potential to Merge Reduce Competition?

Hackbarth, Dirk and Taub, Bart ask Does the Potential to Merge Reduce Competition?

ABSTRACT: We study anti-competitive mergers in a dynamic model with noisy collusion. At each instant, firms either privately choose output levels or merge, which trades off benefits of avoiding price wars against the costs of merging. There are three results. First, mergers are optimal when collusion fails (i.e., firms sufficiently deviate from a collusive regime). Second, long periods of collusion are likely, because colluding is dynamically stable. Therefore, mergers are rare. Third, mergers (and, in particular, lower merger costs) decrease pre-merger collusion, as punishments by price wars are weakened. Thus, although anti-competitive mergers harm competition ex-post, barriers and costs of merging due to regulation should be reduced to promote competition ex-ante.

August 10, 2018 | Permalink | Comments (0)

The U.S. District Court for the Northern District of California Sets Student-Athletes' Antitrust Case for Trial (NCAA)

Mike Carrier, Rutgers describes The U.S. District Court for the Northern District of California Sets Student-Athletes' Antitrust Case for Trial (NCAA).

ABSTRACT: In the second direct challenge to the NCAA's amateurism rules, the Northern District of California court rejected an attempt by the NCAA and 11 conferences to dismiss claims that defendants violated antitrust law by “conspiring to impose an artificial ceiling on the scholarships and benefits that student-athletes may receive as payment for their athletic services.”

This short piece shows how the court paved the way for a second trial taking aim at the NCAA’s amateurism rules. The court denied defendants’ motions for summary judgment on the grounds of (1) res judicata and collateral estoppel; (2) stare decisis that, as a matter of law, would have credited the procompetitive benefits recognized in the earlier case brought by Ed O’Bannon; and (3) O’Bannon’s preclusion of consideration of the plaintiffs’ less restrictive alternatives. The piece concludes by emphasizing how this case could lead to even more far-reaching effects than the O’Bannon case.

August 10, 2018 | Permalink | Comments (0)

Thursday, August 9, 2018

Should Price Fixers Finally Go to Prison? - Criminalization, Leniency Inflation and Whistleblower Rewards in the EU

Catarina Moura Pinto Marvão, Economics Department, University College Dublin; Stockholm School of Economics - Stockholm Institute of Transition Economics (SITE) and Giancarlo Spagnolo, Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF ask Should Price Fixers Finally Go to Prison? - Criminalization, Leniency Inflation and Whistleblower Rewards in the EU.

ABSTRACT: There is a considerable debate on whether the introduction of criminal penalties in the EU, for individuals who engage in cartel activity, can strengthen antitrust enforcement. In this article we examine the recent changes to the antitrust enforcement scenery and the newly available empirical, theoretical and experimental evidence on fines and leniency, since the previous debate on criminalization. We also document a recent phenomenon that we name “leniency inflation” at the EU level. Our empirical analysis of the criminal sanctions imposed in the US suggests that repeat offenders are less likely to receive a prison sentence. In the EU, prison sentences are rare but seem to be on the rise and it appears that the current level of EC sanctions has a modest effect on corporate governance and needs to be strengthened. These results indicate that there is a need to introduce criminalization, in particular for infringements in the financial industry, possibly complemented by a moderate use of more expensive but proactive enforcement tools, such as screens and whistleblower rewards.

August 9, 2018 | Permalink | Comments (0)

Monopolistic Competition, Price Discrimination and Welfare

Youping Li, East China University of Science and Technology (ECUST) and Jie Shuai, Zhongnan University of Economics and Law study Monopolistic Competition, Price Discrimination and Welfare.

ABSTRACT: This paper studies third degree price discrimination in a monopolistically competitive market. When the number of firms is fixed, price discrimination raises firm profit and reduces consumer welfare relative to uniform pricing. In the long run, the equilibrium product variety under price discrimination is always excessive compared with the social optimum, whereas under uniform pricing there may be too few. Except when, under rare circumstances, uniform pricing causes too little entry, a ban on price discrimination leads to enhanced consumer and social welfare.

August 9, 2018 | Permalink | Comments (0)

Does market structure trigger efficiency? Evidence for the USA before and after the financial crisis

Halkos, George and Polemis, Michael ask Does market structure trigger efficiency? Evidence for the USA before and after the financial crisis.

ABSTRACT: This paper investigates the relationship between efficiency and market structure for a sample of industrial facilities dispersed among the USA states. In order to measure the relevant efficiency scores, we use a Data Development Analysis (DEA) allowing for the inclusion of desirable and undesirable (toxic chemical releases) outputs in the production function. In the next stage, we utilise the bootstrapped quantile regression methodology to uncover possible non-linear relationships between efficiency and competition at the mean and at various quantiles before and after the global financial crisis (2002 and 2012). In this way, we impose no functional form constraints on parameter values over the conditional distribution of the dependent variable (efficiency). At the same time, we estimate at which part of its conditional distribution function, the efficiency is located and draw substantial conclusions about the range of policy measures obtained. The empirical findings, indicate that the relationship between efficiency and market concentration did not remain unchanged in the aftermath of the economic crisis. The empirical results survived robustness checks under the inclusion of an alternative market concentration indicator (CR8).

August 9, 2018 | Permalink | Comments (0)

Wednesday, August 8, 2018

New York Plans to Cap Uber and Lyft

The WSJ has an editorial on how New York Plans to Cap Uber and Lyft.  A mayor being captured by special interests (taxi medallions) is not new but this was a well done editorial.  

August 8, 2018 | Permalink | Comments (0)