Antitrust & Competition Policy Blog

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

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Monday, August 24, 2009

Bundling and Competition for Slots: Sequential Pricing

Posted by D. Daniel Sokol

Doh-Shin Jeon (Toulouse School of Economics, Universitat Pompeu Fabra) and Domenico Menicucci (Università degli Studi di Firenze, Italy) explain Bundling and Competition for Slots: Sequential Pricing.

ABSTRACT: In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon-Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due ! to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments

Posted by D. Daniel Sokol

Victor Aguirregabiria (University of Toronto - Econ) and Chun-Yu Ho (Georgia Institute of Technology - Econ) analyze A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments.

ABSTRACT: This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors that may explain hub-and-spoke networks: (1) travelers may value the services associated with the scale of operation of an airline in the hub airport; (2) operating costs and entry costs in a route may decline with the airline's scale of operation in the origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As methodological contributions, we propose and apply a method to reduce the dimension of the state space in dynamic games, and a procedure to deal with the problem of multiple equilibria when using a estimated model to make counterfactual experiments. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Assessing the Implications of Upstream Buyer Power on Downstream Consumers

Posted by D. Daniel Sokol

For those who want an easy to follow overview of buyer power, James Mellsop (NERA) and Kevin Counsell (NERA) have a new short article on Assessing the Implications of Upstream Buyer Power on Downstream Consumers.

ABSTRACT: This article explores the factors that determine whether consumers are likely to be harmed or helped by upstream buyer power. The market factors that matter include the forces that shape market supply, the level of competition in the downstream market in which the buyer.

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August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

The Abuse of Dominant Position Under Romanian Antitrust Law in Light of European Antitrrust Law

Posted by D. Daniel Sokol

Anca Daniela Chiriţă (University of Saarland, Europa-Institut) explains The Abuse of Dominant Position Under Romanian Antitrust Law in Light of European Antitrrust Law.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)