Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, October 6, 2009

Price and promotion effects of supermarket mergers

Posted by D. Daniel Sokol

David E. Davis (Department of Economics, South Dakota State University) provides his thoughts on Price and promotion effects of supermarket mergers.

ABSTRACT: I use a unique data set of retail food prices to analyze mergers between supermarket chains. The data allow for an examination of the effects of mergers on prices, the frequency of promotions, and the depth of promotions. I find that increases in a chain’s share of the total US food sales are associated with price decreases, suggesting that supermarkets enjoy economies of scale and/or benefit from an improved bargaining position relative to their suppliers after a merger. I also find that mergers are associated with decreases in the frequency and depth of price-promotions.

October 6, 2009 | Permalink | Comments (1) | TrackBack (0)

Empirical Assessment of Merger and its Remedies: the Yawata-Fuji Case

Posted by D. Daniel Sokol

Hiroshi Ohashi (Faculty of Economics, University of Tokyo), Tsuyoshi Nakamura (Faculty of Economics, Tokyo Keizai University) and  Satoshi Myojo (National Institute of Science and Technology Policy (NISTEP)) provide an Empirical Assessment of Merger and its Remedies: the Yawata-Fuji Case.

ABSTRACT: This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition.

October 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, October 5, 2009

Breaking Up Is Hard to Do: Determinants of Cartel Duration

Posted by D. Daniel Sokol

Maggie Levenstein (Michigan - Ross School of Business) and Val Suslow (Michigan - Ross School of Business) explain that Breaking Up Is Hard to Do: Determinants of Cartel Duration.

ABSTRACT: Economic theory identifies uncertainty as the primary cause of cartel instability. The lure of collusive profits, however, provides firms with a strong incentive to reduce that uncertainty. Cartels respond to imperfect or noisy information by trying to create governance and compensation systems that raise the quality and credibility of information and better align individual firm incentives with those of the group. Cartels that endure are cartels that manage to do exactly this. We estimate the impact of these organizational mechanisms, as well as macroeconomic fluctuations and industry structure, on cartel duration using a new dataset created from detailed descriptions of contemporary international cartels. We estimate a proportional hazards model with competing risks, distinguishing those factors which increase the risk of “death by antitrust” from those that affect “natural death,” including defection, dissension or entry. Our analysis indicates that the probability of cartel death from any cause increased significantly after 1995 when competition authorities expanded their enforcement efforts toward international cartels. We also find that fluctuations in firm-specific discount rates have a significant impact on cartel duration. Cartels that have a compensation scheme – a plan for how the cartel will handle variations in demand – are significantly less likely to break up. In contrast, retaliatory punishments in response to perceived cheating significantly increase the likelihood of natural death. Cartels that have to punish are not stable cartels.

October 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Horizontal mergers, firm heterogeneity, and R&D investments

Posted by D. Daniel Sokol

Noriaki Matsushima, Yasuhiro Sato, and Kazuhiro Yamamoto (all Osaka University - Economics) address Horizontal mergers, firm heterogeneity, and R&D investments.

ABSTRACT: We investigate the incentive and the welfare implications of a merger when heterogeneous oligopolists compete both in process R&D and on the product market. We examine how a merger affects the output, investment, and profits of firms, whether firms have merger incentives, and, if so, whether such mergers are desirable from the viewpoint of social welfare. We also derive equilibrium configurations and explore their welfare properties.

October 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Consumers Win-back as Exclusionary Conduct. Some Insights for Antitrust Law

Posted by D. Daniel Sokol

 Antonio Nicita (Political Economy- Università di Siena) discusses Consumers Win-back as Exclusionary Conduct. Some Insights for Antitrust Law.

ABSTRACT: Incumbents' winback actions recently received a growing antitrust scrutiny in network industries. These actions refer to incumbents’ strategies aimed at regaining, through targeted marketing and selective discounts, former customers who switched to a new entrant. We analyze the impact of winback actions on competition and discuss pros and cons of a temporarily ban on incumbent's side, through the so-called 'winback rules'.

October 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have an Antitrust-Relevant Theory of Competition Now?

Posted by D. Daniel Sokol

Josh Wright (George Mason -  Law) has posted Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have an Antitrust-Relevant Theory of Competition Now?

ABSTRACT: Harold Demsetz once claimed that 'economics has no antitrust relevant theory of competition.' Demsetz offered this provocative statement as an introduction to an economic concept with critical implications for the antitrust enterprise: the multi-dimensional nature of competition. Competition does not take place upon a single margin, such as price competition, but several dimensions that are often inversely correlated such that a liability rule deterring one form of competition will result in more of another. This insight has important implications for the current policy debate concerning how to design antitrust liability standards for conduct involving both static product market competition and dynamic innovative activity. The primary purpose of this essay is to revisit Demsetz’s broader challenge to antitrust regulation in the context of the frequently discussed tradeoffs between innovation and price competition. I summarize recent developments in our knowledge of the relationship between competition and innovation, highlighting the deficiencies that significantly constrain antitrust enforcers’ abilities to confidently calculate inevitable welfare tradeoffs. I conclude by discussing policy implications that follow from these limitations.

October 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Mergers in Imperfectly Segmented Markets

Posted by D. Daniel Sokol

Pio Baake and Christian Wey (both Deutsches Institut für Wirtschaftsforschung (DIW) Berlin and Technische Universität Berlin) investigate Mergers in Imperfectly Segmented Markets.

ABSTRACT: We present a model with firms selling (homogeneous) products in two imperfectly segmented markets (a "high-demand" and a "low-demand" market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices differ in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the "high-demand" market is served. This is more likely (i) the lower consumers' transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.

October 5, 2009 | Permalink | Comments (0) | TrackBack (0)