Tuesday, September 18, 2018
Jeanine Miklós-Thal University of Rochester - Simon Business School and Greg Shaffer University of Rochester - Simon Business School study Input Price Discrimination by Resale Market.
ABSTRACT: This paper analyzes the drivers and welfare effects of supply contracts that discriminate between resale in different markets. In a game between a supplier and competing downstream firms that resell the supplier's input in multiple (independent or interdependent) markets, we show that, all else equal, the supplier wants to discriminate against resale in the market with more intense downstream competition. Unlike monopolistic third-degree price discrimination in final-goods markets, input price discrimination by resale market can have a positive allocation effect, which implies that welfare can rise with discrimination even if total output decreases. The output effect of input price discrimination by resale market, in turn, is shown to depend on the competitive pass-through rates and on the curvatures of the demand functions. Our insights are relevant for the policy treatment of vertical restraints on online sales.
Birgit Moritz, Martin Becker, and Dieter Schmidtchen are Measuring the Deterrent Effect of European Cartel Law Enforcement.
ABSTRACT: This article proposes a new approach to measuring the deterrent effect of cartel law enforcement by combining a game-theoretic model with Monte Carlo simulations. The game-theoretical analysis shows which type of perfect Bayesian Nash equilibria is obtained depending on the parameter setup: perfect compliance, imperfect compliance or zero compliance. For each equilibrium, we also derive the probabilities of type I (false-positive) and type II (false-negative) errors committed by the cartel authority. To account for the uncertainty and the vague knowledge concerning the model parameters, we perform Monte Carlo simulations based on parameter ranges extracted from the related literature. The simulations indicate that zero compliance dominates the picture and that the error probabilities are high for type II and negligible for type I errors. The results are fairly robust against correlation in the input parameters. Further robustness studies and interactive visualizations can be obtained with a supplemental web application.
Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications Thursday, October 25, 2018
Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications
Thursday, October 25, 2018
Top of the Hill Conference Center
Minutemen Ballroom—5th Floor
One Constitution Ave., NE
Washington, DC 20002
The Searle Center on Law, Regulation, and Economic Growth at Northwestern Pritzker School of Law will host a Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications. This lunch-time forum event will be held at Top of the Hill in Washington D.C. (One Constitution Ave., NE, Washington DC) on Thursday, October 25, 2018 There is no registration fee for this widely attended event that is sponsored by the Searle Center.
The forum will begin with registration in the Top of the Hill Ballroom starting at 10:30 a.m. with a buffet lunch commencing at 11:45 am. Please see the full program agenda and registration instructions below.
The panel discussion will explore the proper application of antitrust law to Standard Setting Organizations (SSOs). Panelists will discuss antitrust implications of evolving forms of coordination among SSO participants, principles of good conduct in SSO governance and policy development, and the role of diversity and coordination among SSOs. The event will also feature a presentation on a forthcoming study on the governance of Standard Development Organizations and their policies on intellectual property rights.
Thursday, October 25th
10:30 a.m. Registration Check-in
11:00 Introduction and Opening Remarks
Matthew L. Spitzer, Director, Searle Center on Law, Regulation, and Economic Growth and Howard and Elizabeth Chapman Professor, Northwestern Pritzker School of Law
11:10 "Making the Rules - The Governance of Standard Development Organizations and their Policies on Intellectual Property Rights"
(Presentation of the results of a comparative study for the European Commission)
Justus Baron, Senior Research Associate, Searle Center on Law, Regulation, and Economic Growth, Northwestern Pritzker School of Law
Pierre Larouche, Professor of Law, Faculty of Law, Université de Montréal
11:45 Buffet Lunch Available
12:00 Panel Discussion on Antitrust and Collusion in Standard Setting Organizations
Moderator: Justus Baron, Senior Research Associate, Searle Center on Law, Regulation, and Economic Growth, Northwestern Pritzker School of Law
Andrew Finch, Principal Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
David J. Kappos, Partner, Cravath, Swaine & Moore LLP; former Under Secretary of Commerce and Director of the United States Patent and Trademark Office (USPTO)
Bruce Kobayashi, Director, Bureau of Economics, U.S. Federal Trade Commission; Professor of Law, Antonin Scalia Law School, George Mason University
Suzanne Drennon Munck, Chief Counsel for Intellectual Property, Deputy Director, Office of Policy Planning, Federal Trade Commission
To confirm your attendance please fill out the RSVP form at the following link
If you have any questions please contact us at email@example.com
A recent article in GCR on Agency economists see profits as antitrust concern has me thinking about corporate finance and M&A in a way that is distinct from IO antitrust analysis. Do higher profit margins mean that certain industries or firms have higher monopoly rents? Not necessarily.
Profit margins may mean very different things in different industries, and we would expect cross-industry differences independent of market concentration/competition. Two other issues come to mind. First, even in the same industry, net profit margins (measured simply as net income/sales) also vary with leverage -- all else equal, companies with a higher percentage of debt will have lower accounting-based profit margins (although their economic profits would not necessarily be lower). Second, companies with high accounting-based profit margins are not necessarily generating large economic rents if they regularly have a high required level of net investment. For example, a cable company or cell phone company may have to continually make large capital investments, which means that the free cash flow they actually generate for their investors may not be that large even in those cases when they have what might appear to be high profit margins.
Melissa Newham, KU Leuven; German Institute for Economic Research (DIW Berlin), Jo Seldeslachts, University of Amsterdam; Tinbergen Institute, Albert Banal-Estañol, Universitat Pompeu Fabra - Department of Economics and Business (DEB); City University London - Department of Economics offer Common Ownership and Market Entry: Evidence from Pharmaceutical Industry.
ABSTRACT: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical researchsuggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the effect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We first provide a theoretical framework that shows that a higher level of common ownership between the brand firm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for sufficiently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.
Monday, September 17, 2018
Price Strategies of Independent and Branded Dealers in Retail Gas Market. The Case of a Contract Reform in Spain
Pilar Cuadrado, Banco de España, Aitor Lacuesta, Banco de España, María de los Llanos Matea, Banco de España, and and F. Javier Palencia-González Universidad Nacional de Educacion a Distancia (UNED) study Price Strategies of Independent and Branded Dealers in Retail Gas Market. The Case of a Contract Reform in Spain.
This paper analyses how the contract structure between gas stations and the wholesale operator affects price strategies. Using daily data on prices of different gas stations the paper finds that independent dealers charge lower margins than other dealers with different contracts. One potential hypothesis is that this is the case because independent stations react more to the number of competitors. We use the introduction of a discretional regional excise duty (IVMDH) on gas stations to check the reaction of markups to changes in marginal costs of the actual number of competitors. Results are consistent with the idea that regardless the type of contract all dealers react notably to the increases in relative marginal costs by decreasing average markups. We use those results to interpret the inexistent reduction in markups that followed a change in the Spanish regulation that took place in 2013 fostering competition in the retail sector. One potential interpretation is that the big increase in independent stations following the reform was not considered an increase in actual competition for most of the incumbent stations.
Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market
Bourreau, Marc; Sun, Yutec; Verboven, Frank study Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market.
ABSTRACT: We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbent firms. Using an empirical oligopoly model with differentiated products, we show that the incumbents' launch of the fighting brands can be rationalized only as a breakdown of tacit collusion. In the absence of entry the incumbents successfully colluded on restricting their product variety to avoid cannibalization; the new entry of the low-end competition made such semi-collusion more difficult to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety of the new entrant and the fighting brands, and to a lesser extent from the incumbents' price response to the entry.
Haris Tabakovic, Harvard Business School and Thomas Wollmann, University of Chicago study From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners.
ABSTRACT: Many regulatory agency employees are hired by the firms they regulate, creating a “revolving door” between government and the private sector. We study these transitions using detailed data from the US Patent and Trademark Office. We find that patent examiners grant significantly more patents to the firms that later hire them and that much of this leniency extends to prospective employers. These effects are strongest in years when firms are actively hiring, and these relationships hold for the intensive margin of intellectual property protection. Ultimately, this leads the agency to issue lower quality patents, which we measure in citations. Together with other supporting evidence, we argue these results are suggestive of regulatory capture.
Anne-Fleur Roos (ESHPM, Erasmus University Rotterdam); Eddy van Doorslaer (ESHPM, Erasmus University Rotterdam); Owen O'Donnell (Erasmus University Rotterdam, University of Macedonia); Erik Schutt (ESHPM, Erasmus University Rotterdam); and Marco Varkevisser (ESHPM, Erasmus University Rotterdam) ask Does price competition damage healthcare quality?
ABSTRACT: One of the reasons why regulators are hesitant about permitting price competition in healthcare markets is that it may damage quality when information is poor. Evidence on whether this fear is well-founded is scarce. We provide evidence using a reform that permitted Dutch health insurers and hospitals to freely negotiate prices for elective procedures. Unlike previous research that has relied on indicators of the quality of urgent treatments, we take advantage of the plausible absence of selection bias in our setting to identify the effect on quality of non-acute hip replacements. Using administrative data on all admissions to Dutch hospitals, we find no evidence that increased exposure to price competition reduces quality measured by readmission rates, despite the lack of publicly available information on this outcome. In fact, there is evidence of a temporary, positive impact on quality. Our estimated null effect over the full post-liberalization period is robust.
Sunday, September 16, 2018
The Sisk rankings, which rank US law faculties based on mean and median citation counts, came out last month. Many Deans and faculty members spend lots of time discussing the most impactful faculties based on the rankings. After having a conversation with a friend at another institution, I am convinced that the Sisk rankings have it (partially) wrong. While it is interesting to see which non-scholars bring down particular faculties in terms of school-wide rankings or which significant individual pickups lead to a big increase (Orin Kerr and Herb Hovenkamp, for example, this last time around), school-wide rankings do not accurately reflect the impact of a school. The rankings tend to benefit schools with smaller faculties where one or two faculty members with high citations make up for a number of less productive or inactive scholars.
I propose an alternative measurement to augment the Sisk rankings. I draw upon my NBA watching experience to explain. The biggest difference between the NBA regular season and playoffs in the NBA is largely one of a shrinking rotation. You want your better players on the floor longer because that is how you win games. Typically, but not always, your starting five players are your best players on the team and get the most minutes. Why don't we treat the faculty rankings in a similar way?
The Sisk rankings provide the top 10 most cited people of the last five years of a given faculty. Typically (and there are caveats why this is not always true), these people represent the most important scholars on a given faculty and the ones most responsible for the entire faculty's reputation. For purposes of a competitive system, we don't know by name and we don't care about the marginal professor at a given school the way we don't care about the 11th person in the rotation on the Knicks. The people who create the scholarly reputation for a school are the top performers, much the way that the most offensive value in the NBA as measured by win shares are the ones we care about the most.
It would be interesting to see what such rankings would look like. Sisk et al have this information and I would encourage them or Brian Leiter to run another comparison ranking as an appendix that uses this methodology.
Judicial Deference in Competition Law
11 October 2018, University of Warsaw, Krakowskie Przedmieście 32, Pałac Tyszkiewiczów-Potockich.
It is crucial for contemporary democracies to respond efficiently to economic and social challenges. A major role in this respect is played by administrative authorities, to whom a legislator delegates the responsibility to design and implement policies in areas that require expert knowledge, such as financial markets’ supervision, sectorial regulation in energy and telecommunication, or the protection of competition. The challenge is to build such a system that administrative authorities can undertake their tasks efficiently while guaranteeing at the same that their activities are subject to controls. An adequate shape of judicial review is crucial here. On one hand, it is necessary for the courts to play their traditional role, namely to protect the lawfulness of administrative actions and individual rights. On the other hand, one can presume that courts should not replace expert administrative authorities in the fulfilment of the tasks delegated to the later by the legislator. Against this backdrop, the conference· aims to discuss the place for judicial deference in an area of law that requires expert knowledge and involves policy questions, namely competition law.
9:00-9:10 Opening of the Conference
9:10-9:20 Introductory remarks
Maciej Bernatt, University of Warsaw
9:20-10:00 Key Note Speech
Paul Craig, Oxford University, Explaining the Foundations of Judicial Deference
10:00-11:30 Judicial Deference: General Aspects
Rob Widdershoven, University of Utrecht, Judicial Deference and the Court of Justice
Kent H. Barnett, University of Georgia, U.S., Current Debates in Deference to U.S. Administrative Agencies
Miroslava Scholten, University of Utrecht, Judicial Deference from a Broader Perspective on Controls in the System of the Rule of Law
Chair: Professor Mirosław Wyrzykowski, Judge Emeritus, Constitutional Tribunal of Poland
11:45-13:30 Judicial Deference and Competition Authorities’ Economic Assessment
Ioannis Lianos, University College London, Judicial scrutiny of economic evidence and the direction of deference
Andriani Kalintiri, City University of London, The review of the European Commission’s economic assessments by the General Court
Heike Schweitzer, Free University Berlin, Intensity of Judicial Review of Competition Authorities Economic Assessment. German Perspective
Chair: Małgorzata Modzelewska de Raad, Modzelewska&Pasnik Law Firm
14:30-16:15 Judicial Deference and Competition Authorities Fining Policy
Krystyna Kowalik-Bańczyk, Judge of the General Court, Intensity of Judicial Review of Fines in EU Competition Law
Dawid Miąsik, Judge of Polish Supreme Court, Intensity of Judicial Review of Fines in Poland
Csongor Nagy, Szeged University, Judicial Review of Fines in Hungarian Competition Law
Chair: Iwona Terlecka, Clifford Chance
16:30-18:20 Institutional Structure of Competition Authority and the Intensity of Judicial Review
Renato Nazzini, King’s College London, The European Commission’s Institutional Structure and the Intensity of Judicial Review
Katalin Cseres, University of Amsterdam, The Role of Consumers in Competition Proceedings and its Implication for Judicial Review
Maciej Bernatt, University of Warsaw, The Intensity of Judicial Review and the Competition Authority Institutional Structure, Findings from Central Europe, EU and the U.S.
David George, UK Competition and Market Authority, The Intensity of Judicial Review by CAT and the Institutional Model of UK Competition Law
Chair: Bernadeta Kasztelan-Świetlik, Gessel law firm, former vice-President of Polish Competition Authority
18:20-18:40 Summary of the Conference
Address by Spencer Waller, Loyola University Chicago
Conference is supported by:
- The conference fee to be paid at the time of enrolment. Transfer description must include your full name along with phrase ‘CARS JUDICIAL DEFERENCE CONFERENCE’. Account details: Fundacja na rzecz Wydzialu Zarzadzania UW, IBAN: PL 07 1240 2887 1111 0000 3388 7461. SWIFT: PKOPPLPW. The reduced fee applies to academics, judges, public officials/administration employees. It is fully waived in case of Phd candidates and students.
- The conference is organised in the framework of the research project ‘The Limits of Judicial Assessment in Competition Law’ (Polish National Science Centre, UMO-2014/15/D/HS5/01562).
Friday, September 14, 2018
Haizhen Lin; Ian M. McCarthy have a paper on Multimarket Contact in Health Insurance: Evidence from Medicare Advantage.
ABSTRACT: Many industries, including health insurance, are characterized by a handful of large firms that compete in multiple geographic markets. Such overlap across markets, defined as multimarket contact (MMC), may facilitate tacit collusion and thus reduce the intensity of competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our estimation strategy exploits two plausibly exogenous changes to MMC: 1) a merger-induced change in MMC due to consolidations in other markets; and 2) reimbursement policy changes in which benchmark rates were increased in a subset of markets, encouraging additional entry into those markets and therefore affecting MMC even in markets otherwise unaffected by the policy itself. Across a range of estimates and alternative measures of MMC, our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and quality significantly lower as MMC increases. These results suggest MMC as one potential channel through which cross-market mergers and acquisitions could soften competitiveness in local markets.
Competition agency guidelines and policy initiatives regarding the application of competition law vis-à-vis intellectual property: An analysis of jurisdictional approaches and emerging directions
Anderson, Robert D.; Chen, Jianning; Müller, Anna Caroline; Novozhilkina, Daria; Pelletier, Philippe; Sen, Nivedita; and Sporysheva, Nadezhda offer Competition agency guidelines and policy initiatives regarding the application of competition law vis-à-vis intellectual property: An analysis of jurisdictional approaches and emerging directions.
ABSTRACT: Competition agency guidelines, policy statements and related advocacy are an important vehicle for policy expression and the guidance of firms across the full spectrum of anti-competitive practices and market conduct. The role of guidelines and policy statements has, arguably, been particularly important in the context of the competition policy treatment of intellectual property rights, given the complexity of this area, the importance that competition agencies attach to it, and its importance for innovation, technology transfer and economic growth. As such, this important normative material also provides a useful empirical foundation for mapping relevant trends and the evolution of policy thinking over time and across jurisdictions. In this light, the paper examines the competition agency guidelines, policy statements and related initiatives regarding intellectual property (IP) of the following three sets of jurisdictions: (i) the United States, Canada, the European Union and Australia; (ii) Japan and Korea; and (iii) the BRICS economies (Brazil, China, India, Russia, and South Africa). It focuses, to the extent possible, on a common set of issues addressed in one way or another in the majority of these jurisdictions, comprising: (i) the treatment of licensing practices, including refusals to license; (ii) anti-competitive patent settlements; (iii) issues concerning standard-essential patents (SEPs); (iv) the conduct of patent assertion entities (PAEs); and (v) competition advocacy activities focused on the IP system. Additionally, while the primary focus of the paper is on competition agency guidelines, policy statements and advocacy activities relating to IP, reference is also made to enforcement and case developments where they are helpful in illustrating relevant approaches and trends. Overall, the analysis suggests, firstly, that, in contrast to the situation prevailing twenty or thirty years ago, interest in the systematic application of competition law vis-à-vis IP certainly is no longer a preoccupation of only a few traditional developed jurisdictions. Secondly, we find evidence of significant cross-jurisdictional learning processes and partial policy convergence across the jurisdictions surveyed. Thirdly, the analysis also reveals the continuing potential for coordination failures in regard to the approaches taken by national authorities in this area, for example where jurisdictions take different approaches to specific practices such as refusals to license and/or give differing weights to industrial policy as opposed to consumer welfare or other objectives in their policy applications.
Justus Haucap, Wolfgang Kerber, Heike Schweitzer and Robert Welker have just finished a study on a potential reform of the German law on abuse of market power in digital times. It has received some public attention by the press in Germany and beyond, also because the minister for economic affairs has publicly endorsed some of the recommendations. There is no English version of it - but it is being prepared. In the meantime, this is an English language official summary.
Rupprecht Podszun has written about the report on his blog.
here was an email sent out to an ABA listserve by Thomas Funke describing the report. Based on that description, Heike Schweitzer wrote me to offer some clarifying comments which I reproduce with her permission below:
According to Thomas Funke, our report suggests that data could be
treated like an essential facility or SEP that should be made available
to third parties where this is necessary to prevent market foreclosure.
This is not what we suggest. The report does not discuss "data as a SEP".
We do discuss the broader issue of access to data and what the role of
competition law can or should be. We make a number of points here - in
an attempt to insert a greater degree of differentiation into a debate
which is characterized by over-generalizations and overly sweeping
According to our view:
(1) it doesn't make much sense to talk about "data" -- there are so many
different types of data, data in the production of which you need to
invest, data which is produced as a mere by-product of use, personal/non
personal data, "raw" data and processed data etc. There are also so many
different uses to which data can be put. For some uses, there may be
substitutes. For others not. If we want to apply competition law to data
access issues, we need to look at these issues case by case and in context.
(2) we need to distinguish between different settings when we talk about
access to data: (a) access to huge "data reservoirs" - that may
sometimes be needed to compete effectively, in particular in areas where
competition is, to a large extent, competition about the best algorithms
and the relevant algorithms need to be trained on large data sets; (b)
access to data in vertical relationships - e.g. machine producer has
exclusive control over use data / machine user wants access to that
data; also: digital platform that has exclusive control over all the
data about platform use / businesses presenting offers on the platform
(but in this latter case, we have to be very careful about data access,
as competition-sensitive data may be at stake - granting access to such
data could result in a publicly orchestrated cartel!) (c) access to data
by third parties in value creation networks where the "monopolisation"
of specific types of data will imply reserving markets for value added
(3) the essential facilities doctrine (EFD) may play a role with regard
to (a) - if all the preconditions of the EFD are shown; in particular:
the essentiality of data access for effective competition/ lack of
substitutability for a given data use. Nonetheless: If this data is
personal data - difficult: the GDPR will apply. If the data sets can be
anonymized, and if the relevant data is of a kind that is produced as a
byproduct without much investment needed, and if the innovation effects
of granting access are strong - under these narrow conditions it may
make sense to apply the "essential facilities"-doctrine. We doubt,
though, that the EFD will, in the longer run, be a sufficient legal
basis to handle the data access issues that will arise efficiently. We
believe that, rather, sector-specific regulation will emerge (and is
already emerging). There is a debate in Germany about an "data for
all"-law, though - which takes up some of the ideas suggested by Victor
As regards the setting (b): that's probably best solved by contract law.
Setting (c) might again be a competition law problem that can already be
addressed under German competition law. It may also be the factual
setting that needs a much closer look and economic/legal analysis in the
Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints
Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Faculty of Economics, Ryukoku University) identify Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints.
ABSTRACT: We consider product line strategies of duopolistic firms supplying two vertically differentiated products with non-negativity output constraint and its expectation on rival's product line reaction. We consider a game in which there exists a heterogeneous unit production costs in high quality goods but is homogeneous in low quality product between firms. We derive equilibria for the game and characterize graphically firms' product line strategies and the realized profits of both firms through quality superiority and relative cost efficiency ratios. We also show that the efficient cost firm earns more than the inefficient firm except for the special case where both firms specialize in low quality good. We also illustrate that firms can correctly conjecture the ex ante relationship between the quality superiority of both goods and the relative cost efficiency ratios of firms on high quality good ex post in equilibrium.
Thursday, September 13, 2018
Gomes, Renato and Tirole, Jean examine Missed Sales and the Pricing of Ancillary Goods.
ABSTRACT: Firms often sell a basic good as well as ancillary ones. Hold-up concerns have led to ancillary good regulations such as transparency and price caps. The hold-up narrative, however, runs counter to evidence in many retail settings where ancillary good prices are set below cost (e.g. free shipping, or limited card surcharging in countries where the "no-surcharge rule" was lifted). We argue that the key to unifying these conflicting narratives is that the seller may absorb partly or fully the ancillary good's cost so as not to miss sales on the basic good. A supplier with market power on the ancillary good market then takes advantage of cost absorption and jacks up its wholesale price. Hold-ups occur only when consumers are initially uninformed or naïve about the drip price and shopping costs are high. The price of the basic good then acts as a signal of the drip price, since a high markup on the basic good makes the firm more wary of missed sales. Regardless of whether consumers are informed, uninformed-but-rational, or naïve, mandating price transparency and banning loss-making on the ancillary good leads to (i) an efficient consumption of the ancillary good, and (ii) a reduction of its wholesale price, generating strict welfare gains.
An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking
Tsionas, Mike; Malikov, Emir; and Kumbhakar, Subal C. offer An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking.
ABSTRACT: We develop a novel unified econometric methodology for the formal examination of the market power -- cost efficiency nexus. Our approach can meaningfully accommodate a mutually dependent relationship between the firm's cost efficiency and marker power (as measured by the Lerner index) by explicitly modeling the simultaneous determination of the two in a system of nonlinear equations consisting of the firm's cost frontier and the revenue-to-cost ratio equation derived from its stochastic revenue function. Our framework places no a priori restrictions on the sign of the dependence between the firm's market power and efficiency as well as allows for different hierarchical orderings between the two, enabling us to discriminate between competing quiet life and efficient structure hypotheses. Among other benefits, our approach completely obviates the need for second-stage regressions of the cost efficiency estimates on the constructed market power measures which, while widely prevalent in the literature, suffer from multiple econometric problems as well as lack internal consistency/validity. We showcase our methodology by applying it to a panel of U.S. commercial banks in 1984-2007 using Bayesian MCMC methods.
Maria Perrotta Berlin (SITE); Bei Qin (University of Hong Kong); and Giancarlo Spagnolo (SITE-Stockholm School of Economics, EIEF, Tor Vergata & CEPR) have written on Leniency, Asymmetric Punishment and Corruption: Evidence from China.
ABSTRACT: Fostering whistleblowing through leniency and asymmetric sanctions is regarded as a potentially powerful anti-corruption strategy in the light of its success in busting cartels. The US Department of Justice started a pilot program of this kind in 2016. It has been argued, however, that introduced in China in 1997, these policies did not help against corruption. We map the evolution of the Chinese anti-corruption legislation and aggregate enforcement data, documenting a large and stable fall in prosecuted cases after the 1997 reform. The fall is consistent with reduced corruption detection, but under specific assumptions also with improved deterrence. To resolve the ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point indeed at a negative effect of the 1997 reform on corruption detection and deterrence, but plausibly linked to its poor design: contrary to what theory prescribes, it increased leniency also for bribe-taking bureaucrats that cooperate after being denounced, enhancing their ability to retaliate against whistleblowing bribe-give rs.
Derrien, François; Frésard, Laurent; Slabik, Victoria; Valta, Philip identify The Negative Effects of Mergers and Acquisitions on the Value of Rivals.
ABSTRACT: Average stock price reactions of industry rivals in horizontal U.S. mergers and acquisitions around deal announcements are robustly negative. This finding is in contrast to the results in the existing literature, which focuses on smaller samples of deals involving mostly publicly listed firms. Rivals’ returns are more negative in growing and concentrated industries. Moreover, the negative rivals’ stock price reactions are related to future decreases in operating performance, increased probability of bankruptcy and challenges by antitrust authorities, and increased probability of rivals’ future acquisitions. Overall, these results suggest that M&As have strong competitive effects for the rivals of target companies.