Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, May 3, 2011

Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions

Posted by D. Daniel Sokol

Christian M. Bender (University of Giessen) and Georg Götz (University of Giessen) discuss Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions.

ABSTRACT: This paper models competition between two firms, which provide broadband Internet access in regional markets with different population densities. The firms, an incumbent and an entrant, differ in two ways. First, consumers bear costs when switching to the entrant. Second, the entrant faces a make-or-buy decision in each region and can choose between service-based and facility-based entry. The usual trade-off between static and dynamic eficiency does not apply in the sense that higher access fees might yield both, lower retail prices and higher total coverage. This holds despite a strategic effect in the entrant's investment decision. While investment lowers marginal costs in regions with facility-based entry, it intensifies competition in all regions. We show that the cost-reducing potential of investments dominates the strategic effect: Higher access fees increase facility-based competition, decrease retail prices and i! ncrease total demand.

May 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Choosing Between Time and State Dependence: Micro Evidence on Firms' Price-Reviewing Strategies

Posted by D. Daniel Sokol

Daniel Dias (Department of Economics, University of Illinois at Urbana-Champaign). Carlos Robalo Marques (Bank of Portugal) and Fernando Martins (Bank of Portugal) investigate Choosing Between Time and State Dependence: Micro Evidence on Firms' Price-Reviewing Strategies .

ABSTRACT: Thanks to recent findings based on survey data, it is now well known that firms differ from each other with respect to their price-reviewing strategies. While some firms review their prices at fixed intervals of time, others prefer to perform price revisions in response to changes in economic conditions. In order to explain this fact, some theories have been suggested in the literature. However, empirical evidence on the relative importance of the factors determining firms' different strategies is virtually nonexistent. This paper contributes to filling this gap by investigating the factors that explain why firms follow time-, state- or time- and state-dependent price-reviewing rules. We find that firms' strategies vary with firm characteristics that have a bearing on the importance of information costs, the variability of the optimal price and the sensitivity of profits to non-optimal prices. Menu costs, however, do not! seem to play a significant role.

May 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Rod Sims nominated as Chairman of the Australian Competition & Consumer Commission

Posted by D. Daniel Sokol

According to news reports, Rod Sims has been nominated as chairman of the Australian Competition & Consumer Commission.  Assuming his nomination goes through, he will begin his five year term in August.

May 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Price Points and Price Rigidity

Posted by D. Daniel Sokol

Daniel Levy (Department of Economics, Bar Ilan University and RCEA), Dongwon Lee (Korea University), Haipeng (Allan) Chen (Texas A&M University), Robert J. Kauffman (Arizona State University) and Mark Bergen (University of Minnesota) address Price Points and Price Rigidity.

ABSTRACT: We study the link between price points and price rigidity, using two datasets: weekly scanner data, and Internet data. We find that: “9” is the most frequent ending for the penny, dime, dollar and ten-dollar digits; the most common price changes are those that keep the price endings at “9”; 9-ending prices are less likely to change than non-9-ending prices; and the average size of price change is larger for 9-ending than non-9-ending prices. We conclude that 9-ending contributes to price rigidity from penny to dollar digits, and across a wide range of product categories, retail formats and retailers.

May 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Business as Usual: A Consumer Search Theory of Sticky Prices and Asymmetric Price Adjustment

Posted by D. Daniel Sokol

Luís Cabral (IESE Business School and NYU) and Arthur Fishman (Bar-Ilan University) have an interesting new paper on Business as Usual: A Consumer Search Theory of Sticky Prices and Asymmetric Price Adjustment.

ABSTRACT: Empirical evidence suggests that prices are sticky with respect to cost changes. Moreover, prices respond more rapidly to cost increases than to cost decreases. We develop a search theoretic model which is consistent with this evidence and allows for additional testable predictions. Our results are based on the assumption that buyers do not observe the sellers costs, but know that cost changes are positively correlated across sellers. In equilibrium, a change in price is likely to induce consumer search, which explains sticky prices. Moreover, the signal conveyed by a price decrease is different from the signal conveyed by a price increase, which explains asymmetry in price adjustment.

May 3, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, May 2, 2011

FTC Announces Public Workshop on Antitrust and Accountable Care Organizations

Posted by D. Daniel Sokol

According to the FTC Pres Release:

On Monday, May 9, 2011, the Federal Trade Commission will host a workshop to seek input on the Proposed Statement of Antitrust Enforcement Policy, which discusses how the federal antitrust agencies will enforce U.S. antitrust laws when competing health care providers create new Accountable Care Organizations (ACOs) under the Affordable Care Act of 2010. The Act encourages physicians, hospitals, and other health care providers to integrate their health care delivery systems in order to improve the quality and reduce the costs of health care services for U.S. patients. The FTC and the Department of Justice issued the joint proposed Policy Statement on March 31, 2011, and the comment period ends on May 31, 2011.

The 10 am-1 pm workshop will feature a moderated discussion with a variety of industry stakeholders, including health care providers and insurers, as well as academics, health policy and economic experts, and representatives of the FTC and the Department of Justice.

The workshop is free and open to the public, but space is limited and attendees will be admitted on a first-come basis. It will be held at the FTC’s New Jersey Ave. Conference Center at 601 New Jersey Ave., NW, Washington, DC. Details about the workshop, including an agenda and list of speakers, will be posted by Wednesday, May 4, 2011 on the FTC’s ACO website at: http://www.ftc.gov/opp/workshops/aco2/index.shtml.

The event will be webcast live. A link will be available the day of the workshop at http://www.ftc.gov/opp/workshops/aco2/index.shtml. A transcript will be made available after the workshop. Questions for panelists may be submitted via email to aco@ftc.gov by May 5, 2011. Other questions about the workshop also may be directed to this email address.

Information about the workshop, the FTC/DOJ Proposed Statement of Antitrust Enforcement Policy, and the proposed rule on ACOs issued by the Centers for Medicare and Medicaid Services may be found at http://www.ftc.gov/opp/aco/index.shtml.

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Shrinking Goods and Sticky Prices: Theory and Evidence

Posted by D. Daniel Sokol

Avichai Snir (Bar-Ilan University and Humboldt-Universität zu Berlin) and Daniel Levy (Department of Economics, Bar Ilan University and RCEA) explain Shrinking Goods and Sticky Prices: Theory and Evidence.

ABSTRACT: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity i! nformation. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions.

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment Lags

Posted by D. Daniel Sokol

Daniel Dias (Department of Economics, University of Illinois at Urbana-Champaign) Carlos Robalo Marques (Banco de Portugal) Fernando Martins (Banco de Portugal) and J.M.C.Santos Silva (Department of Economics, University of Essex) ask Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment Lags.

ABSTRACT: Infrequent price changes at the firm level are now well documented in the literature. However, a number of issues remain partly unaddressed. This paper contributes to the literature on price stickiness by investigating the lags of price adjustments to different types of shocks. We find that adjustment lags to cost and demand shocks vary with firm characteristics, namely the firm’s cost structure, the type of pricing policy, and the type of good. We also document that firms react asymmetrically to demand and cost shocks, as well as to positive and negative shocks, and that the degree and direction of the asymmetry varies across firms.

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Sixth ASCOLA Conference ‘New Competition Jurisdictions: Shaping Policies and Building Institutions’ 1-2 July 2011, King’s College London

Posted by D. Daniel Sokol

 

 

Sixth ASCOLA Conference

 

‘New Competition Jurisdictions:

Shaping Policies and Building Institutions’

 

1-2 July 2011, King’s College London

 

CONFIRMED SPEAKERS

 

THURSDAY 30 JUNE 2011 (starts 7pm)

Drinks reception and keynote speech:      Bill Kovacic

 

FRIDAY 1 JULY 2011 (starts 10am)

Session One:             Institutional challenges and choices: deterrence 

Chair:                         Michal Gal

  • Small Steps, Big Changes: increasing deterrence in Latin American competition law enforcement regimes (Javier Tapia)
  • The Role of Private Enforcement Actions in Building New Competition Regimes (Clifford A Jones)
  • Building Credible Competition Agencies in Developing Countries: lessons from South Africa (Keith Weeks)

 

Session Two:            The Global Perspective (starts 2pm)

Chair:                         David Gerber

§  Does Implementation of Merger Regulation in Developing and Transition Countries Impede Inbound Cross-border Mergers? (Manish Agarwal)

§  The Impact of Multi-Jurisdictional Concentrations on the Systems of Merger Control of the Developing Countries: Case Study on Argentina and Brazil (Marco Botta)

 

7pm, Dinner at the Athenaeum - 107 Pall Mall, London (the dress code is smart/ casual, gentlemen must wear a collar, jacket and tie and there must be no denim or training shoes).

 

SATURDAY 2 JULY 2011 (starts 10am)

Session Three:          Challenges and obstacles in adopting competition laws

Chair:                         David Lewis

§  Designing Competition Laws in Developing Countries: three models of competition law (Heba Shahein)

§  Competition Policies in Small Developing Economies: the experience of the Central American countries (Claudia Schatan)

§  The Political Economy of Reform: a demand and supply approach to competition law enforcement (Michelle Chowdhury)

 

Final Session:           Discussion of Teaching Competition Law and Economics in New Competition Jurisdictions

Chair:                         Richard Whish

 

We aim to finish the conference at about 4pm.

Download ASCOLA London Registration Form

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Repositioning Dynamics and Pricing Strategy

Posted by D. Daniel Sokol

Paul B. Ellickson (Rochester) Sanjog Misra (Rochester) and Harikesh S. Nair (Stanford) have an interesting new paper on Repositioning Dynamics and Pricing Strategy.

ABSTRACT: We measure the revenue and cost implications to supermarkets of changing their price positioning strategy in oligopolistic downstream retail markets. Our estimates have implications for long-run market structure in the supermarket industry, and for measuring the sources of price rigidity in the economy. We exploit a unique dataset containing the price-format decisions of all supermarkets in the U.S. The data contain the format-change decisions of supermarkets in response to a large shock to their local market positions: the entry of Wal-Mart. We exploit the responses of retailers to Wal- Mart entry to infer the cost of changing pricing-formats using a “revealed-preference” argument similar to the spirit of Bresnahan and Reiss (1991). The interaction between retailers and Wal-Mart in each market is modeled as a dynamic game. We …nd evidence that suggests the entry patterns of WalMart had a signi…cant impact on the costs and incidence of switching pricing strategy. Our results add to the marketing literature on the organization of retail markets, and to a new literature that discusses implications of marketing pricing decisions for macroeconomic studies of price rigidity. More generally, our approach which incorporates long-run dynamic consequences, strategic interaction, and sunk investment costs, outlines how the paradigm of dynamic games may be used to model empirically …rms’positioning decisions in Marketing.

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)

On the feedback solution of a differential oligopoly game with capacity adjustment

Posted by D. Daniel Sokol

Davide Dragone (Department of Economics, University of Bologna) Luca Lambertini (ENCORE, University of Amsterdam) and Arsen Palestini (MEMOTEF, University of Roma “La Sapienza”) provide thoughts On the feedback solution of a differential oligopoly game with capacity adjustment.

ABSTRACT: We propose a simple method for characterising analytically the feedback solution of oligopoly games with capital accumulation à la Solow-Swan. As a result, it becomes possible to contrast the feedback equilibrium against the corresponding one generated by open-loop information. Our method accomodates extensions of the stripped down oligopoly model in several directions. As an example, we expand the setup to include environmental effects and Pigouvian taxation.

May 2, 2011 | Permalink | Comments (0) | TrackBack (0)