Antitrust & Competition Policy Blog

Competition and Regulation in India, 2009

Posted by D. Daniel Sokol

	Competition and Regulation in India, 2009 Edited by Pradeep S Mehta
ISBN: 978-81-8257-130-3	The regulatory law and policy differ from sector to sector, as much as financial sectoral regulation will have different approaches to manage the complex web of financial products. Each infrastructure sector will have a customised regulatory regime which is shaped by the sectoral needs. This 2009 report, second in the series, is an effort to educate the public and the policy community about the effect of these various facets of public policy on competition and regulation. It focuses on the evaluation of quality of regulation in five sectors: power, ports, civil aviation, agricultural markets and higher education. India. The first report, published in 2007, lay down the rationale for a holistic competition policy and law regime in India. This study is an important contribution towards enriching the available literature in the public domain and encouraging a dialogue to promote a healthy and competitive environment as evolving an appropriate regulatory culture is always a learning curve. Table of Contents Foreword by N K Singh Preface by Nitin Desai Editor’s Note 1. Introduction 2. Perception and Awareness Studies 3. Competition and Regulation in Agricultural Markets in India 4. Competition and Regulation in the Indian Port Sector 5. Regulation of the Power Sector in India: Issues and Challenges 6. Regulation and Competition in Civil Aviation 7. Regulation of Higher Education in India 8. Epilogue
For more details please contact: Udai Singh Mehta Consumer Unity & Trust Society D-217, Bhaskar Marg, Bani Park, Jaipur 302 016, India Ph: +91.141.228 2821, Fx: +91.141.228 2485 Email: c-cier@cuts.org, usm@cuts.org Website: www.cuts-international.org, www.cuts-ccier.org

Optimal Collusion with Internal Contracting

Posted by D. Daniel Sokol

Gea M. Lee (Singapore Management University) explains Optimal Collusion with Internal Contracting.

ABSTRACT: In this paper, we develop a model of collusion in which two firms play an infinitelyrepeated Bertrand game when each firm has a privately-informed agent. The colluding firms, fixing prices, allocate market shares based on the agent's information as to cost types. We emphasize that the presence of privately-informed agents may provide firms with a strategic opportunity to exploit an interaction between internal contracting and market-sharing arrangement- the contracts with agents may be used to induce firms' truthful communication in their collusion, and collusive market-share allocation may act to reduce the agents' information rents.

Competition and Economic Growth: an Empirical Analysis for a Panel of 20 OECD Countries

Posted by D. Daniel Sokol

Alessandro Diego Scopelliti (University of Warwick, Department of Economics) has written on Competition and Economic Growth: an Empirical Analysis for a Panel of 20 OECD Countries.

ABSTRACT: This paper aims at analyzing, from an empirical point of view, the relationship between product market competition and economic growth, using the data on multi-factor productivity for a panel of 20 OECD countries over a period 1995-2005, and considering the role of the distance from the technological frontier in the growth process. Section A examines the impact of economic freedom and of the distance to frontier on the level and on the growth rate of multi-factor productivity. The analysis distinguishes between the indicators of business freedom and trade freedom, as proxies for the competitive pressures coming from domestic market and from foreign market. Then, trade liberalizations are more beneficial for the countries far from the frontier, because they can exploit the opportunities given by international trade also in order to adopt the existing technologies developed by the advanced economies. On the other hand, bus! iness liberalizations are more advantageous for the countries close to the frontier, because the elimination of regulatory barriers increases the possibility of entry in the market and then rises the potential competition to the incumbent firms. Section B studies the effect of product market regulation, employment protection legislation and of the distance to frontier on the level and on the growth rate of multi-factor productivity. Product market liberalization as well as labour market deregulation determine an increase of total factor productivity: moreover, the interaction of market rigidities with the distance to the frontier mostly displays an innovationenhancing effect, since the positive effect of market liberalizations on TFP is higher for the countries close to the frontier, where the existing technology level would reinforce the incentive for innovation.

Price regulation in oligopoly

Posted by D. Daniel Sokol

Luis Corchón (Universidad Carlos III, Madrid- Econ) and Félix Marcos (Universidad Complutense de Madrid - Econ) analyze Price regulation in oligopoly.

ABSTRACT: In this paper we consider price regulation in oligopolistic markets when firms are quantity setters. We consider a market for a homogeneous good with a special form of the demand function (?-linearity), constant returns to scale and identical firms. Marginal costs can take two values only: low or high. The regulator knows all parameters except marginal costs. Assuming that the regulator is risk neutral, we characterize the optimal policy and show how this policy depends on the basic parameter of demand and costs.

Credit card interchange fees

Posted by D. Daniel Sokol

Jean-Charles Rochet (Toulouse School of Economics) and Julian Wright (Department of Economics, National University of Singapore explain Credit card interchange fees.

ABSTRACT: We build a model of credit card pricing that explicitly takes into account credit functionality. We show that a monopoly card network always selects an interchange fee that exceeds the level that maximizes consumer surplus. If regulators only care about consumer surplus, a conservative regulatory approach is to cap interchange fees based on retailers’ net avoided costs from not having to provide credit themselves. In the model, this always raises consumer surplus compared to the unregulated outcome, sometimes to the point of maximizing consumer surplus.

The effects of airline alliances: What do the aggregate data say

Posted by D. Daniel Sokol

Phillipe Gagnepain and Pedro L. Marín (both Universidad Carlos III de Madrid - Econ) note The effects of airline alliances: What do the aggregate data say.

ABSTRACT: We consider an empirical model of worldwide airline alliances that we apply to a large set of companies for the period 1995-2000. Using observations at the companies level, we estimate a cost, capacity, and demand system that accounts for cross-price elasticities. From the estimates, we shed light on the fact that many airlines involved in the same alliances are potential substitutes. We also test for the effects of alliances on airlines’ fares and suggest that airlines inside alliances cut prices by 5% on average compared to airlines outside alliances. Finally, we construct price-cost margins for each airlines and suggest that current pricing habits are not uniform and vary from one alliance to another.