Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Monday, August 13, 2012

Jobs at the World Bank

Tacit collusion in a non-repeated price competition game with a soft capacity constraint

Posted by D. Daniel Sokol

Marie-Laure Cabon-Dhersin (CREAM - Universite de Rouen) and Nicolas Drouhin (CES - CNRS Universite Paris I - Pantheon Sorbonne) have posted Tacit collusion in a non-repeated price competition game with a soft capacity constraint.

ABSTRACT: This paper analyses price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game generating a soft capacity constraint and implying a convex short term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game i.e. the unique payoff-dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.

August 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Dynamic Spatial Competition Between Multi-Store Firms

Posted by D. Daniel Sokol

Victor Aguirregabiria (Toronto) and Gustavo Vicentini (Northeastern) describe Dynamic Spatial Competition Between Multi-Store Firms.

ABSTRACT: We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store retailers. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We develop an algorithm to approximate a Markov Perfect Equilibrium in our model, and propose a procedure for the estimation of the parameters of the model using panel data on number of stores, prices, and quantities at multiple geographic locations within a city. We also present numerical examples to illustrate the model and algorithm.

August 13, 2012 | Permalink | Comments (0) | TrackBack (0)

OECD Hiring OECD, Paris – opportunities for experienced competition economists and lawyers

Posted by D. Daniel Sokol

The OECD is looking for experts to join its existing competition team. We are seeking applications from economists and lawyers to work on projects that support the development of sound competition and regulatory policy in member and non-member countries. The posts will be based in the OECD’s headquarters in Paris but are likely to involve significant time spent on mission in other countries.
Detailed information on the vacancies and the online application procedure is available through the links below.  The deadline for applications is 10 September 2012. 
Senior Competition Experts (at least eight years experience)
 
Competition Experts (at least three years experience)
 
More information on the OECD’s work on competition can be found here: http://www.oecd.org/competition
 
The OECD also has short-term opportunities for similarly qualified competition experts interested and available to work full-time from October 2012 for up to six months on a consultancy basis, based in Paris but likely to involve significant travel.  Remuneration would be based upon pro-rated take-home pay for the longer-term positions. Please email alette.wernberg@oecd.org for more details, including a CV and a short letter setting out your qualifications and availability.

August 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Credence Goods, Consumer Misinformation, and Quality

Posted by D. Daniel Sokol

Soham Baksi, Pinaki Bose and Di Xiang (all University of Winnepeg) have written on Credence Goods, Consumer Misinformation, and Quality.

ABSTRACT: For certain products, consumers' misinformation about quality is more endemic at intermediate levels of the quality spectrum rather than at the top or the bottom levels of quality. Using an oligopoly model of vertical product differentiation with three quality levels - green, natural, and brown - we examine the consequences of consumers' overestimation of the quality of the natural (i.e. intermediate quality) product. There are three firms in the market, with each type of firm producing the corresponding type of the product. The firms choose the quality level of their product before choosing its price (Bertrand case) or quantity (Cournot case). Irrespective of the nature of second stage competition, we find that quality overestimation by consumers increases profit of the natural firm, and motivates it to raise its product’s quality. In response, the green firm improves its quality even further, but ends up with lower p! rofit. Overall, average quality of the vertically differentiated product improves, which raises consumer surplus. Social welfare increases when firms compete in prices but falls when they compete in quantities.

August 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Choice vs Efficiency?

Posted by D. Daniel Sokol

Paul Nihoul (KU Leuven) asks Choice vs Efficiency?

ABSTRACT: A lot has been written about the goals to be pursued through the application of competition laws. Yet, no certainty ever came out of these discussions. On the one hand, such conversations appear to remain theoretical. One does not always see what consequences they could have in practice. On the other hand, there is a feeling that, anyway, some kind of goal ambiguity can be useful, and even necessary, to allow agencies and courts to adapt their jurisprudence as needed by the evolution of circumstances, markets, and ideas.

In recent years, it has been suggested, in Europe, that, henceforth, the sole purpose of competition law should be to enhance ‘efficiency’. But using one word does not, by itself, solve all the difficulties. Opinions differ as to how efficiency should be calculated. Should we aim at maximising consumer welfare? Producer welfare? Total welfare?

August 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Sunday, August 12, 2012

Anticompetitive Market Division through Loyalty Discounts without Buyer Commitment

Posted by D. Daniel Sokol

Einer Elhauge, Harvard Law School and Abraham L. Wickelgren University of Texas at Austin - School of Law explain Anticompetitive Market Division through Loyalty Discounts without Buyer Commitment.

ABSTRACT: We show that loyalty discounts without buyer commitment create an externality among buyers because each buyer who signs a loyalty discount contract softens competition and raises prices for all buyers. This externality can enable an incumbent to use loyalty discounts to effectively divide the market with its rival and raise prices. We prove that, provided the entrant's cost advantage is not too large, with enough buyers, this externality implies that in any equilibrium some buyers sign loyalty discount contracts, segmenting the market and reducing consumer welfare and total welfare. These propositions are true even if the buyers coordinate, the entrant is more efficient, the loyalty discounts cover less than half the market, and all the loyalty discounts are above cost. We also prove that these propositions hold even if we assume no economies of scale, no downstream competition, no buyer switching costs, no financial constraints, no limits on rival expandability, and no intraproduct bundle of contestable and incontestable demand.

August 12, 2012 | Permalink | Comments (0) | TrackBack (0)

Endogenous Entry in Markets with Unobserved Quality

Posted by D. Daniel Sokol

Anthony Creane (Michigan State) and Thomas D. Jeitschko (Michigan State) examine Endogenous Entry in Markets with Unobserved Quality.

ABSTRACT: In markets for experience or credence goods adverse selection can drive out higher quality products and services. This negative implication of asymmetric information about product quality for trading and welfare, poses the question of how such markets first originate. We consider a market in which sellers make observable investment decisions to enter a market in which each seller's quality becomes private information. Entry has the tendency to lower prices, which may lead to adverse selection. The implied price collapse limits the amount of entry so that high prices are sustained in equilibrium, which results in above normal profits. The analysis suggests that rather than observing the canonical market collapse, markets with asymmetric information about product quality may instead be characterized by above normal profits even in markets with low measures of concentration and less entry than would be expected.

August 12, 2012 | Permalink | Comments (0) | TrackBack (0)