Antitrust & Competition Policy Blog

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

Monday, August 14, 2017

Intertemporal Price Discrimination with Multiple Products

Rochet, Jean-Charles and Thanassoulis, John Intertemporal explore Price Discrimination with Multiple Products.

ABSTRACT: We study the multiproduct monopoly profit maximisation problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly-ordered then optimality for the seller requires intertemporal price discrimination and it can be implemented by dynamic pricing on the cross-sell to the bundle. If consumers are perfectly negatively correlated, reducing the cross-sell price at a single point in time is optimal. For general valuations we show that if the cross-partial derivative of the profit function is negative then dynamic pricing on the cross-sell is more profitable than fixing prices. So we show that the celebrated Stokey (1979) no-discrimination-across-time result does not extend to multiple good sellers when consumers' valuations are drawn from the tilted uniform, the shifted uniform, the exponential, or the normal distribution. We extend our results to welfare, to complementarities in demand, and to the determination of optimal discount schedules.

August 14, 2017 | Permalink | Comments (0)

Buyer-Optimal Learning and Monopoly Pricing

Anne-Katrin Roesler and Balazs Szentes assess Buyer-Optimal Learning and Monopoly Pricing.

ABSTRACT: This paper analyzes a bilateral trade model where the buyer's valuation for the object is uncertain and she observes only a signal about her valuation. The seller gives a take-it-or-leave-it offer to the buyer. Our goal is to characterize those signal structures which maximize the buyer's expected payoff. We identify a buyer-optimal signal structure which generates (i) efficient trade and (ii) a unit-elastic demand. Furthermore, we show that every other buyer-optimal signal structure yields the same outcome as the one we identify: in particular, the same price.

August 14, 2017 | Permalink | Comments (0)

Contracts as a Barrier to Entry in Markets with Nonpivotal Buyers

Özlem Bedre-Defolie and Gary Biglaiser discuss Contracts as a Barrier to Entry in Markets with Nonpivotal Buyers.

ABSTRACT: Considering markets with nonpivotal buyers, we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future. Buyers differ in their intrinsic switching costs. Breakup fees are profitably used to foreclose entry, regardless of the entrant's efficiency advantage or level of switching costs. Banning breakup fees is beneficial to consumers. The ban enhances the total welfare unless the entrant's efficiency is close to the incumbent's. Inefficient foreclosure arises not because of rent shifting from the entrant, but because the incumbent uses a long-term contract to manipulate consumers' expected surplus from not signing it.

August 14, 2017 | Permalink | Comments (0)

Antitrust Populism

Barak Orbach, Arizona has written on Antitrust Populism.

ABSTRACT: In antitrust literature, “populism” is typically associated with sympathy for small local businesses and fear of bigness. In other areas and everyday language, populism is understood as a political tool that is used to attack existing institutions and influential elites. With the rise of populism in the United States and around the world, this Essay questions and criticizes the antitrust tradition of equating populism with ideas that used to be influential decades ago. This approach effectively shields contemporary antitrust populists from the criticism and stigma that they deserve and, thus, empowers populist ideas that courts sometimes endorse. The Essay further explores the relationship of technological progress and antitrust populism. The Essay argues that courts and agencies should make effort to reduce the influence of populism on antitrust law and policy.

August 14, 2017 | Permalink | Comments (0)

Saturday, August 12, 2017

Call for papers: 5th Biennial NYU School of Law/American Bar Association, Section of Antitrust Law Next Generation of Antitrust Scholars Conference January 26, 2018

January 26, 2018
NYU School of Law

This is a call for papers the 5th Biennial NYU School of Law/American Bar Association, Section of Antitrust Law Next Generation of Antitrust Scholars Conference.  The purpose of this day-long conference is to provide an opportunity for antitrust/competition law professors who began their full time professorial tenure track career in or after 2010 to present their latest research.  Senior antitrust scholars and practitioners in the field will comment on the papers (due September 15, 2017). We have lively discussion and we encourage audience participation. Please submit papers to sokold@law.ufl.edu.

Participants pay their own way but we provide free breakfast, coffee and lunch.

 

Conference co-organizers:

Ned Cavanagh, St. John's
Harry First, NYU
D. Daniel Sokol, University of Florida

August 12, 2017 | Permalink | Comments (0)

Friday, August 11, 2017

The Determinants of Consumer Price Dispersion: Evidence from French Supermarkets

Nicoletta Berardi, Banque de France - Economic Study and Research Division, Patrick Sevestre, Aix-Marseille University and Jonathan Thebault analyze The Determinants of Consumer Price Dispersion: Evidence from French Supermarkets.

ABSTRACT: We characterize the dispersion of grocery prices in France based on a large original data set of prices in more than 1500 supermarkets. On average across products, the 90th percentile of relative prices is 17 percentage points higher than the 10th and the mean absolute deviation from quarterly average product prices is 5%. We show that temporal price variations (including sales and promotions) explain only little of the observed price dispersion, while the spatial permanent component of price dispersion largely dominates. Price dispersion across stores in France essentially results from persistent heterogeneity in retail chains' pricing, while local conditions regarding demand or competition contribute to a much lower extent.

August 11, 2017 | Permalink | Comments (0)

Is Mandatory Access to the Postal Network Desirable and If So at What Terms?

Damien Geradin, Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws asks Is Mandatory Access to the Postal Network Desirable and If So at What Terms?

ABSTRACT: Access to the network is one of the key tools used by regulators to stimulate competition in network industries. For instance, incumbents in the telecommunications sector, in the European Union and elsewhere, are typically mandated to grant access to their network to their rivals. Third-party access to the network requirements can also be found in the energy (gas and electricity) and rail sectors. The questions this paper seeks to address are (i) whether postal incumbents should be mandated to give access to their network and, if that is the case, (ii) at what terms. These questions are addressed by reference to the specific features of the postal sector. 

Mandatory access to the postal network is generally not necessary since the postal network is not a monopolistic bottleneck and end-to-end competition is generally possible. However, should public authorities decide to mandate access, the regulator should allow the incumbent to set the prices for access to its network. This will not amount to laissez faire considering that, with respect to the setting of its access prices, the incumbent is typically subject to tight regulatory and competition law constraints. If the regulator nevertheless wants to set the access prices, it should calculate these prices on the basis of the ECPR methodology. This methodology presents the advantages that it promotes efficient entry, and has no impact on the profits of the incumbent and its ability to perform its missions of universal service. The regulator should, however, be concerned by the cream-skimming risks that may occur when rivals use a mixed by-pass strategy whereby they provide an end-to-end service in low cost areas and rely on the network of the incumbent to deliver mail destined to high cost areas. In such cases, the regulator should vary access prices depending on the incremental costs of the incumbent to deliver mail in different areas (“zonal pricing”). 

Given the transaction costs that are generated by the adoption of a mandatory access regime at regulated prices and the risks it presents for universal service, it is questionable whether such a regime is worth it. That is especially the case considering that access-based policies only expose a relatively small amount of costs to competition (competition at the margin) and therefore the price reductions it will trigger will generally be small and only profit to large postal users.

August 11, 2017 | Permalink | Comments (0)

CAN ONE (EVER) ACCURATELY DEFINE MARKETS?

Andrew P. Vassallo asks CAN ONE (EVER) ACCURATELY DEFINE MARKETS?

ABSTRACT: The ongoing debate about the role of market definition in antitrust cases addresses the usefulness and correct application of the Hypothetical Monopolist Test (HMT) as defined by the U.S. Department of Justice and the Federal Trade Commission in the Horizontal Merger Guidelines. These guidelines intend to identify the techniques that those agencies use to evaluate the potential anticompetitive effects of a merger. In this article, I examine the accuracy of the HMT. In applying the HMT, I consider two separate models. In each model, one knows the true extent of the product market. First, I apply the HMT in a linear differentiated demand model with nfirms that each produce one symmetrically differentiated product, and derive conditions whereby m products would be considered to comprise a product market. I find that the test consistently underestimates the number of products in the relevant market in that setting, and the resulting relevant product markets are arbitrary subsets of the actual product market. The second model uses a quasi-linear utility specification, where the products enter the utility function additively. The only interaction between the two products occurs through the income effects of the budget constraint. Under certain conditions, the smallest possible product market as defined by the HMT must include at least one producer of the other product. Therefore, depending on the underlying parameters of the utility function, the HMT might either overestimate or underestimate the size of the relevant product market, sometimes producing purely arbitrary results.

August 11, 2017 | Permalink | Comments (0)

Thursday, August 10, 2017

Cartels Costly for Customers

John Connor (Purdue and AAI) argues Cartels Costly for Customers.

ABSTRACT: This paper describes some major trends in cartelization of markets worldwide with a special emphasis on the economic injuries being generated by illegal collusion. Known affected commerce by international cartels discovered during 1990-2014 exceeds a nominal $13.6 trillion worldwide. Projections to adjust for unknown affected commerce raise the total to the $64 to $189 trillion range. Overcharges cause price-fixing injuries in the $12 to $37 trillion range. Global antitrust fines announced for discovered international cartels were less than 1% of the economic injuries sustained.

August 10, 2017 | Permalink | Comments (0)

Does bank competition affect bank stability after the global financial crisis?

Gerti Shijaku asks Does bank competition affect bank stability after the global financial crisis?

ABSTRACT: This paper addresses the dynamic relationship between competition and bank stability in Albanian banking system during the period 2008 - 2015. To this purpose, we construct a proxy for bank competition as referred to the Boone indicator. We also calculated the Lerner index and the efficient adjusted Lerner index, as well as the profit elasticity index and the Herfindahl–Hirschman Index. The main results provide support for the “competition – stability” view – that lower degree of market power sets banks to less overall risk exposure. The results further show that increasing concentration will have a larger impact on bank’s fragility. Similar, bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. We also used a quadratic term of the competition measures to capture a possible non-linear relationship between competition and stability, but find no supportive evidence.

August 10, 2017 | Permalink | Comments (0)

Oligopolistic competition for the provision of hospital care

Laura Levaggi (Libera Università di Bolzano, Italy) and Rosella Levaggi (Università di Brescia, Italy) examine Oligopolistic competition for the provision of hospital care.

ABSTRACT:Competition in the market for health care has followed different patterns, and some health care systems have opted for mixed markets where public organisations compete alongside private ones. Empirical evidences on these market structures are however mixed. In this article we argue that public hospitals which have different objectives than private ones and faces different constraints, are also perceived differently by patients. For this reason we model the market for hospital care as Salop circle with a centre where the public hospital is located; private providers are located on the circle. We show that, depending on the difference in the productivity advantage, mixed markets may outperform both the benchmark (one public hospital at the centre) and private competition (N private providers competing along the circle), but the welfare distribution of these improvements should be carefully analysed. In some cases monopoly franchise on the mixed market should be introduced to redistribute these benefits.

August 10, 2017 | Permalink | Comments (0)

A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices

Elena Argentesi ; Albert Banal-Estanol ; Jo Seldeslachts ; and Meagan Andrews offer A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices.

ABSTRACT: We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006 created one of the world’s largest energy companies. We perform an econometric analysis, based on Difference-in-Difference techniques on the market for trading on the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analysis shows a price decline after the merger. This decline suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, the remedies may have done more than simply mitigate the potential anticompetitive effects of the merger; they may have effectively created competition.

August 10, 2017 | Permalink | Comments (0)

Wednesday, August 9, 2017

Merger Guidelines for Bidding Markets

Philippe Gagnepain (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) and David Martimort (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) propose Merger Guidelines for Bidding Markets.

ABSTRACT:We propose merger guidelines for bidding markets through the construction of a simple test. It is applied in the particular context of the French urban transport industry. It designs the optimal auction and captures two opposite forces at stake: on the one hand, the optimal auction is biased against a merger due to a loss of competition; on the other hand, potential efficiency gains bias the optimal allocation towards the merger firm. The two effects can be nested in a single equation condition which determines whether the merger improves the consumer net surplus. We suggest that the merger between Transdev and Veolia is consumer surplus improving if the efficiency gains from the merger allow both firms to decrease their initial costs inability by at least 17.9% and 17.8% respectively.

August 9, 2017 | Permalink | Comments (0)

Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior

Jorge Florez-Acosta (Universidad del Rosario - Universidad del Rosario) ; Daniel Herrera-Araujo (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) explore Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior.

ABSTRACT:This paper empirically examines the effects of product delisting on consumer shopping behavior in a context of grocery retailing by large multiproduct supermarket chains. A product is said to be delisted when a supermarket stops supplying it while it continuous being sold by competing stores. We develop a model of demand in which consumers can purchase multiple products in the same period. Consumers have heterogeneous shopping patterns: some find it optimal to concentrate purchases at a single store while others prefer sourcing several separate supermarkets. We account for this heterogeneity by introducing shopping costs, which are transaction costs of dealing with suppliers. Using scanner data on grocery purchases by French households in 2005, we estimate the parameters of the model and retrieve the distribution of shopping costs. We find a total shopping cost per store sourced of 1.79 e on average. When we simulate the delisting of a product by one supermarket, we find that customers’ probability of sourcing that store decreases while the probability of sourcing competing stores increases. The reduction in demand is considerably larger when consumers have strong feelings of loyalty for the delisted brand. This suggests that retailers may be hurting themselves, and not only manufacturers, when they delist a product. However, when customers are loyal to the store, such effects are lower, suggesting that inducing store loyalty in customers (through strong private labels and loyalty programs, for example) appears to have an effect on vertical negotiations and, in particular, it enables powerful retailers to impose vertical restraints on manufacturers.

August 9, 2017 | Permalink | Comments (0)

Ready-to-Mix: Horizontal Mergers, Prices, and Productivity

Robert Kulick studies Ready-to-Mix: Horizontal Mergers, Prices, and Productivity.

ABSTRACT: I estimate the price and productivity effects of horizontal mergers in the ready-mix concrete industry using plant and firm-level data from the US Census Bureau. Horizontal mergers involving plants in close proximity are associated with price increases and decreases in output, but also raise productivity at acquired plants. While there is a significant negative relationship between productivity and prices, the rate at which productivity reduces price is modest and the effects of increased market power are not offset. I then present several additional new results of policy interest. For example, mergers are only observed leading to price increases after the relaxation of antitrust standards in the mid-1980s; price increases following mergers are persistent but tend to become smaller over time; and, there is evidence That firms target plants charging below average prices for acquisition. Finally, I use a simple multinomial logit demand model to assess the effects of merger activity on total welfare. At acquired plants, the consumer and producer surplus effects approximately cancel out, but effects at acquiring plants and non-merging plants, where prices also rise, cause a substantial decrease in consumer surplus.

August 9, 2017 | Permalink | Comments (0)

Empirical Models of Firms and Industries

Victor Aguirregabiria and Margaret Slade examine Empirical Models of Firms and Industries.

ABSTRACT: We review important developments in Empirical Industrial Organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, interfirm contracts, and auctions. We present models that are workhorses in empirical IO, and describe applications. For each topic, we discuss at least one empirical application using Canadian data.

August 9, 2017 | Permalink | Comments (0)

Tuesday, August 8, 2017

Zone Pricing in Retail Oligopoly

Brian Adams (Bureau of Labor Statistics) and Kevin R. Williams (Cowles Foundation, Yale University) have a paper on Zone Pricing in Retail Oligopoly.

ABSTRACT: We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. Zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does.

August 8, 2017 | Permalink | Comments (0)

Price Discrimination and Dispersion under Asymmetric Profiling of Consumers

Paul Belleflamme (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille) ; Wing Man Wynne Lam (University of Liège) ; Wouter Vergote (CEREC, University Saint-Louis) discuss   Price Discrimination and Dispersion under Asymmetric Profiling of Consumers.

ABSTRACT: Two duopolists compete in price on the market for a homogeneous product. They can use a 'profiling technology' that allows them to identify the willingness-to-pay of their consumers with some probability. If both firms have profiling technologies of the exact same precision, or if one firm cannot use any profiling technology, then the Bertrand paradox continues to prevail. Yet, if firms have technologies of different precisions, then the price equilibrium exhibits both price discrimination and price dispersion, with positive expected profits. Increasing the precision of both firms’ technologies does not necessarily harm consumers.

August 8, 2017 | Permalink | Comments (0)

Market Power and Growth through Vertical and Horizontal Competition

Gilad Sorek studies Market Power and Growth through Vertical and Horizontal Competition.

ABSTRACT: I study the implications of innovators' market power to growth and welfare in a two-R&D-sector economy. In this framework either vertical or horizontal competition is binding in the price setting stage, depending on the model parameters and the implemented market-power policy. I consider two alternative policies that are commonly, yet separately, used in the literature to constraint innovators' market power: patent lagging-breadth protection and direct price controls. I show that (a) the alternative policies may have non-monotonic and contradicting effects on growth (b) unconstrained market power may yields either excessive or insufficient growth compared with social optimum and (c) the social optimum can be achieved by reducing innovators market power with the proper policy instrument, along with a corresponding flat rate R&D-subsidy.

August 8, 2017 | Permalink | Comments (0)

Market Power and Asset Contractibility in Dynamic Insurance Contracts

Alexander Karaivanov, Simon Fraser University (SFU) - Department of Economics and Fernando M. Martin, Federal Reserve Banks - Federal Reserve Bank of St. Louis discuss Market Power and Asset Contractibility in Dynamic Insurance Contracts.

ABSTRACT: The authors study the roles of asset contractibility, market power, and rate of return differentials in dynamic insurance when the contracting parties have limited commitment. They define, characterize, and compute Markov-perfect risk-sharing contracts with bargaining. These contracts significantly improve consumption smoothing and welfare relative to self-insurance through savings. Incorporating savings decisions into the contract (asset contractibility) implies sizable gains for both the insurers and the insured. The size and distribution of these gains depend critically on the insurers’ market power. Finally, a rate of return advantage for insurers destroys surplus and is thus harmful to both contracting parties.

August 8, 2017 | Permalink | Comments (0)