Thursday, October 12, 2017
I am saddened to report the death of antitrust scholar Fred McChesney. Fred taught at a number of schools, most recently Miami and before that at Northwestern, Cornell and Emory. He also worked at the FTC during the Reagan years. Fred made important contributions to antitrust and in particular in the study of Virginia School public choice analysis of antitrust institutions.
Lamentably, Fred was in bad shape for a while. I really liked him. He could sometimes be tough but inside he was a real sweetheart - a really caring and nice guy. I worked with him as his editor on a chapter for my Oxford Handbook of International Antitrust Economics. We had great back and forth on ideological, doctrinal, religious, and sometimes health issues over the past 8 years. At one point he asked me to join him as a coauthor on his antitrust casebook. I am very idiosyncratic when it comes to casebook philosophy so I politely declined but in retrospect, it would have meant some more time spent with Fred. I am sorry that I don't have that time to spend with him ever again.
Maxime C. Cohen, New York University (NYU) - Leonard N. Stern School of Business and Renyu (Philip) Zhang, New York University Shanghai examine Coopetition and Profit Sharing for Ride-Sharing Platforms.
ABSTRACT: The introduction of on-demand ride-hailing platforms totally changed the way people commute. In recent years, several firms entered this market to directly compete with traditional taxi companies. These online platforms often offer a carpooling service in which several passengers heading in the same direction can share a ride by being efficiently matched to an available vehicle. Examples of such services in NYC include uberPOOL, Lyft Line and Via. Recently, some of these platforms decided to engage in a profit sharing contract with one of their competitors by introducing a new hybrid service. For example, on June 6, 2017, Via officially announced a partnership with an online NYC taxi-hailing platform called Curb. This partnership allows riders to order a taxi, and share some portion of the trip with other riders by using Via's efficient matching algorithm. Since these two platforms are competing with each other, this form of partnership is often referred to as coopetition. This paper is motivated by this specific type of coopetition. We model the price competition between ride-hailing platforms by using the Multinomial Logit choice model, and show that a unique equilibrium exists. Then, we analyze the impact of introducing the new joint service to the market. Interestingly, we show that a well-designed profit sharing contract benefits both platforms. This result admits a similar win-win outcome as in the supply chain contract literature, even though these two settings are very different. In addition, we show that one can design a profit sharing contract that also benefits the riders and the drivers. Consequently, such a coopetition partnership may benefit every single party (riders, drivers and both platforms) when using a properly designed profit sharing contract.
Torrado, María and Escribano Sáez, Álvaro examine Nonlinear and asymmetric pricing behaviour in the Spanish gasoline market.
ABSTRACT: Over the last decades a transition from a state-own monopoly to a private business took placein the Spanish fuel sector. To figure out whether downstream prices react differently toupstream price increases than to price decreases, alternative dynamic nonlinear andasymmetric error correction models are applied to weekly price data. This paper analyse theexistence of price asymmetries in the fuel market in Spain during the 2011-2016 period. Incomparison with traditional asymmetric price theory literature, this paper introduces a newdouble threshold error correction (ECM) model (DT-ECM) and new double logistic ECMmodels and compares them with more common linear ECM, time varying parameter models(TV-ECM), threshold autoregressive models (T-ECM), smooth transition autoregressive(STAR) models and nonlinear error correction (Logistic-ECM) and double threshold Logistic(DT-Logistic ECM). The nonlinear and asymmetric results found show that sophisticatedbivariate long-run asymmetries are present in the prices of the fuel sector and that those pricereactions depend on whether the oil price increases or decreases, on the stage of theproduction, the distribution chain as well as on the period considered.
Johannes Laitenberger, Director-General for Competition, European Commission has a new speech on EU competition law in innovation and digital markets: fairness and the consumer welfare perspective.
V. Bhaskar ; Robin Linacre ; Stephen Machin describe The Economic Functioning of Online Drugs Markets.
ABSTRACT: The economic functioning of online drug markets using data scraped from online platforms is studied. Analysis of over 1.5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that, a priori, one might think would plague them. Only a small proportion of online drugs deals receive bad ratings from buyers, and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs. Furthermore, as with legal online markets, the market penalizes bad ratings, which subsequently lead to significant sales reductions and to market exit. The impact of the well-known seizure by law enforcement of the original Silk Road and the shutdown of Silk Road 2.0 are also studied, together with the exit scam of the market leader at the time, Evolution. There is no evidence that these exits deterred buyers or sellers from online drugs trading, as new platforms rapidly replaced those taken down, with the online market for drugs continuing to grow.
Campello, Murillo ; Ferrés, Daniel ; Ormazabal, Gaizka ask Whistleblowers on the Board? The Role of Independent.
ABSTRACT: Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. This finding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options -when those directors have fewer economic ties to indicted firms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits|when directors have fewer ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.
Wednesday, October 11, 2017
Shekhar, Shiva and Wey, Christian explore Uncertain merger synergies, passive partial ownership, and merger control.
ABSTRACT: We examine the competitive effects of a passive partial ownership (PPO) when it serves as an instrument for the acquirer firm to learn the merger synergies with the target firm in advance. The realization of a synergy is uncertain ex ante, so that a direct merger exhibits a downside risk not only for the merging candidates but also for consumers. We show that minority shareholdings can reduce this downside risk as they allow for a sequential takeover where the acquirer takes an initial minority share, becomes an insider, and learns the merger synergy. We show how this feature of PPOs affects a firm's takeover strategy and the decision problem of the antitrust authority. We derive implications for a merger control approach to PPO acquisitions, where we examine a forward looking price test and a safeharbor rule.
Inaki Aguirre studies Cournot Oligopoly, Price Discrimination and Total Output.
ABSTRACT: This paper extends the traditional analysis of the output effect under monopoly (third-degree) price discrimination to a multimarket Cournot oligopoly. Under symmetric Cournot oligopoly (all firms selling in all markets) similar results to those under monopoly are obtained: in order for price discrimination to increase total output the demand and inverse demand of the strong market (the high price market) should be, as conjectured by Robinson (1933), more concave than the demand and inverse demand of the weak market (the low price one). When competitive pressure (measured by the number of firms) varies across markets the effect of price discrimination on total output crucially depends on what market, the strong or the weak, is more competitive.
The Impact of Price Controls in Two-sided Markets : Evidence from US Debit Card Interchange Fee Regulation
Mark D. Manuszak and Krzysztof Wozniak discuss The Impact of Price Controls in Two-sided Markets : Evidence from US Debit Card Interchange Fee Regulation.
ABSTRACT: We study the pricing of deposit accounts following a regulation that capped debit card interchange fees in the United States and provide the first empirical investigation of the link between interchange fees and granular deposit account prices. This link is broadly predicted by the theoretical literature on two-sided markets, but the nature and magnitude of price changes are key empirical issues. To examine the ways that banks adjusted their account prices in response to the regulatory cap on interchange fees, we exploit the cap's differential applicability across banks and account types, while accounting for equilibrium spillover effects on banks exempt from the cap. Our results show that banks subject to the cap raised checking account prices by decreasing the availability of free accounts, raising monthly fees, and increasing minimum balance requirements, with different adjustment across account types. We also find that banks exempt from the cap adjusted prices as a competitive response to price changes made by regulated banks. Not accounting for such competitive responses underestimates the policy's impact on the market, for both banks subject to the cap and those exempt from it.
Naomi R. Lamoreaux and William J. Novak have edited a wonderful volume on Corporations and American Democracy. Dan Crane (Michigan) has a nice chapter on the Progressive Era and New Deal.
BOOK ABSTRACT: Recent U.S. Supreme Court decisions in Citizens United and other high-profile cases have sparked passionate disagreement about the proper role of corporations in American democracy. Partisans on both sides have made bold claims, often with little basis in historical facts. Bringing together leading scholars of history, law, and political science, Corporations and American Democracy provides the historical and intellectual grounding necessary to put today’s corporate policy debates in proper context.
From the nation’s founding to the present, Americans have regarded corporations with ambivalence—embracing their potential to revolutionize economic life and yet remaining wary of their capacity to undermine democratic institutions. Although corporations were originally created to give businesses and other associations special legal rights and privileges, historically they were denied many of the constitutional protections afforded flesh-and-blood citizens.
This comprehensive volume covers a range of topics, including the origins of corporations in English and American law, the historical shift from special charters to general incorporation, the increased variety of corporations that this shift made possible, and the roots of modern corporate regulation in the Progressive Era and New Deal. It also covers the evolution of judicial views of corporate rights, particularly since corporations have become the form of choice for an increasing variety of nonbusiness organizations, including political advocacy groups. Ironically, in today’s global economy the decline of large, vertically integrated corporations—the type of corporation that past reform movements fought so hard to regulate—poses some of the newest challenges to effective government oversight of the economy.
The influence of the concentration on the performance of firms in retail industry in the Republic of Croatia
Ivan Kristek (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku) ; Mladen Pancić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku) and Hrvoje Serdarušić (Sveučilište Josipa Jurja Strossmayera u Osijeku, Ekonomski fakultet u Osijeku) examine The influence of the concentration on the performance of firms in retail industry in the Republic of Croatia.
ABSTRACT: According to SCP paradigm (Structure-Conduct-Performance paradigm) the industry structure affects the behavior of firms in the industry, which affects their performance. The paradigm is consistent with the Neoclassical Theory of the Firm which assumes that there is a direct link between the industry structure, entrepreneurial conduct and performance. The basic principle of this paradigm might be the ability of entrepreneurs to exercise market power in a concentrated industry. High industry concentration is correlated with high profits, especially if the concentration level exceeds a certain critical level under the condition that there are some barriers to entry of new entrepreneurs in the industry. Economic theory supports the view that the industry concentration is in a positive relationship with efficiency, and it can be argued that the growth of industry concentration will increase the efficiency of industry. Current approaches in economic theory and recent empirical studies do not follow the SCP theory, they suggest that the above-average profits, which occur in most concentrated industry’s, are results of economic efficiency and effectiveness, and not a consequence of non-competitive behavior. In this paper we will try to give an answer to the above-mentioned issue present in economic theory. The study will try to demonstrate a statistically significant link between the measure of concentration and measure of efficiency in retail industry in the Republic of Croatia.
Tuesday, October 10, 2017
Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Universidade de Évora, CEFAGE-UE) and Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School) ; Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance) are Quantifying the Coordinated Effects of Partial Horizontal Acquisitions.
ABSTRACT: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to quantify the coordinated effects of such acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. The methodology can deal with settings involving all type of owners and ownership rights: owners that can be internal to the industry (rival firms) and external to the industry; and ownership rights that can involve financial interests and corporate control, can be direct and indirect, can be partial or full. We provide an empirical application of our proposed methodology to several acquisitions in the wet shaving industry. The results seem to suggest that the incentives of (i) the acquiring party’s firm to coordinate are non-decreasing after an acquisition (independently of whether it involves full or partial financial or corporate control rights, by internal or external owners), (ii) the acquired firm to coordinate are non-decreasing after acquisitions involving full or partial corporate control rights, but non-increasing after acquisitions involving full or partial financial rights, and (iii) the remaining firms in the industry to coordinate are non-increasing after an acquisition (again, independently of whether it involves full or partial financial or corporate control rights, by internal or external owners).
Stephanie Caprice has written Private Label Positioning and Product Line.
ABSTRACT: This article examines (i) how retailers position private label products, (ii) why private labels are sold in some product categories but not in others, and why some national brand products may have difficulty in accessing retailers' shelves, (iii) why some private label products are positioned as "premium" brands, and (iv) how consumers' surplus and total welfare are affected by private labels. We find that private label positioning leads to less differentiation in product category, which structurally changes a retailer's product line in return. Consumer welfare and total welfare are lower.
John Asker, Allan Collard-Wexler, and Jan De Loecker have written on Market Power, Production (Mis)Allocation and OPEC.
ABSTRACT: This paper estimates the extent to which market power is a source of production misallocation. Productive inefficiency occurs through more production being allocated to higher-cost units of production, and less production to lower-cost production units, conditional on a fixed aggregate quantity. We rely on rich micro-data covering the global market for crude oil, from 1970 to 2014, to quantify the extent of productive misallocation attributable to market power exerted by the OPEC. We find substantial productive inefficiency attributable to market power, ranging from 14.1 percent to 21.9 percent of the total productive inefficiency, or 105 to 163 billion USD.
Monday, October 9, 2017
Rey, Patrick and Salant, David offer a paper on Auctions for essential inputs.
ABSTRACT: We study the design of auctions for the allocation of essential inputs, such as spectrum rights, transmission capacity or airport landing slots, to firms using these inputs to compete in a downstream market. When welfare matters in addition to auction revenues, there is a trade-off: provisions aimed at fostering post-auction competition in the downstream market typically result in lower prices for consumers, but also in lower auction proceeds. We first characterize the optimal auction design from the standpoints of consumer and total welfare. We then examine how various regulatory instruments can be used to implement the desired allocation.
S. Bolatto and L. Lambertini have written on Collusive Vertical Relations.
ABSTRACT:We investigate the possibility for two vertically related firms to at least partially collude on the wholesale price over an infinite horizon to mitigate or eliminate the effects of double marginalisation, thereby avoiding contracts which might not be enforceable. We characterise alternative scenarios envisaging different deviations by the upstream firm and different punishments. This allows us to show that the most efficient case is that in which the upstream firm deviates along its best reply function and the punishment prescribes the disruption of the vertical relation for good after a deviation from the collusive path.
Exploitation of Consumer Decision-making and How to Address it: Lessons From Past Demand-side Interventions
Amelia Fletcher, University of East Anglia discusses Exploitation of Consumer Decision-making and How to Address it: Lessons From Past Demand-side Interventions.
ABSTRACT: In a number of recent antitrust cases, the authorities’ concerns have centred on firms’ ability to distort and exploit the behaviour of consumers to their own ends.
Jan De Loecker, Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and Jan Eeckhout, University College London - Department of Economics explore The Rise of Market Power and the Macroeconomic Implications.
ABSTRACT: We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output.
Friday, October 6, 2017