Antitrust & Competition Policy Blog

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

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Tuesday, December 13, 2011

Exploding Offers and Buy-Now Discounts

Posted by D. Daniel Sokol

Mark Armstrong (Oxford) and Jidong Zhou (UCL) analyze Exploding Offers and Buy-Now Discounts.

ABSTRACT: A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly, before she can investigate rival deals in the market. We consider a market with sequential consumer search in which firms can achieve this either by making an exploding offer (which permits no return once the consumer leaves) or by offering a buy-now discount (which makes the price paid for immediate purchase lower than the regular price). We show that firms often have an incentive to use these sales techniques, regardless of their ability to commit to their selling policy. We examine the impact of these sales techniques on market performance. Inducing consumers to buy quickly not only reduces the quality of the match between consumers and products, but may also raise market prices.

December 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Do Exclusivity Arrangments Harm Consumers?

Posted by D. Daniel Sokol

Jihui Chen (Department of Economics, Illinois State University) asks Do Exclusivity Arrangments Harm Consumers?

ABSTRACT: This paper explores welfare implications of exclusivity arrangements, e.g. iPhone?s part- nership with wireless carriers. Two ?rms compete in a primary good market, while a monop- olistic ?rm o¤ers a value-adding good. The primary good can be consumed alone, while the value-adding good must be consumed with the primary good. The monopolistic ?rm forms an exclusivity partnership with one of the primary good providers. Buyers are able to consume the value-adding good only if they patronize the monopolistic ?rm?s exclusive partner. This practice allows the monopolistic ?rm to extract surplus from the primary good market. Sur- prisingly, consumers bene?t from the exclusivity arrangement. However, overall social welfare declines, despite improvements to consumer welfare.

December 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, December 12, 2011

Bundling Revisited: Substitute Products and Inter-Firm Discounts

Posted by D. Daniel Sokol

Mark Armstrong (Oxford) has written on Bundling Revisited: Substitute Products and Inter-Firm Discounts.

ABSTRACT: This paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. When products are partial substitutes, this typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the standard model with additive preferences), while product substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers negotiate their inter-firm discount, they can use the discount to relax competition.

December 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Market Size and Vertical Structure in the Railway Industry

Posted by D. Daniel Sokol

Noriaki Matsushima and Fumitoshi Mizutani (both Institute of Social and Economic Research Osaka University) analyze Market Size and Vertical Structure in the Railway Industry.

ABSTRACT: We provide a theoretical framework to discuss the relation between market size and vertical structure in the railway industry. The framework is based on a simple downstream monopoly model with two input suppliers, labor forces and the rail infrastructure firm. The operation of the downstream firm (i.e., the train operating firm) generates costs on the rail infrastructure firm. We show that the downstream firm with a larger market size is more likely to integrate with the rail infrastructure firm. This is consistent with the phenomenon in the railway industry.

December 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Regulation, competition and fraud: evidence from retail gas stations in Mexico

Posted by D. Daniel Sokol

Julio Cesar Arteaga and Daniel Flores (both Facultad de Economia, Universidad Autonoma de Nuevo Leon) discuss Regulation, competition and fraud: evidence from retail gas stations in Mexico.

ABSTRACT: Mexican gas stations across the country buy and sell gasoline at regulated common prices. Therefore, authorities that set these prices do not take into account competition conditions of each market. In this paper we establish the effect of a regulated mark-up price as well as competition on the incentives that gas stations in Mexico have to dispense less amount of gasoline than what consumers pay for. The results of theoretical and empirical work indicate that a higher regulated mark-up price reduces the incentives of gas stations to cheat. Similarly, more intense competition among the retailers of a given market decreases the average shortage.

December 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Interchange fees in card payments

Posted by D. Daniel Sokol

Ann Borestam (European Central Bank) and Heiko Schmiedel (European Central Bank) describe Interchange fees in card payments.

ABSTRACT: The present paper explores issues surrounding multilateral interchange fees (MIFs) in payment card markets from various angles. The Eurosystem’s public stance on interchange fees is neutral. However, the Eurosystem takes a keen interest in facilitating a constructive dialogue among the stakeholders involved in this debate. Transparency and clarity with respect to the real costs and benefi ts of different payment instruments are indispensable for a modern and harmonised European retail payments market. Interchange fees (if any) should be set at a reasonable level so as to promote overall economic efficiency in compliance with competition rules.

December 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Sunday, December 11, 2011

Merger Control Reform in Brazil

Posted by D. Daniel Sokol

Victor Pavon-Villamayor (Federal Telecommunications Commission, Mexico) & Leopoldo Pagotto (Veirano Advogados, Sao Paulo) describe Merger Control Reform in Brazil.

ABSTRACT: The main purpose of merger control is to secure the competitive structure of markets by identifying, ex ante, concentrations that may significantly impede the process of competition. Merger control is a key component of any competition regime and its efficient operation remains critical for the construction of a solid pro-competitive environment.

On October 5, 2011, the Brazilian Congress approved a new competition bill that introduced a number of changes to its antitrust legislation in order to increase its transparency and the efficiency of its competition regime. The bill (Law 12,529/2011) was signed by the President on November 30, with some revisions. In the particular area of merger control, the Brazilian reform envisaged three central changes, namely: the introduction of a pre-merger review system, the implementation of new notification thresholds, and the concentration of merger review responsibilities into a single authority.

The Brazilian reform in merger control certainly enhances the competitive assessment of mergers and acquisitions in the largest Latin American economy and the expected benefits of this reform are large. In the context of the recent Brazilian reform, this note provides some reflections on the challenges created by the implementation of an efficient merger control system in two specific areas: pre-merger review and notification thresholds. Notwithstanding that the following thoughts are discussed in the framework of the current Brazilian reform, the economic and policy implications of these reflections are not necessarily exclusive to that economy.

December 11, 2011 | Permalink | Comments (0) | TrackBack (0)