Monday, June 12, 2017
How Does Brazil Review Multi-Jurisdictional Merger Cases? An Empirical Study from the Competition Authority's Perspective
Anna Binotto and Bruno Bastos Becker, Yale University - Law School; University of Sao Paulo (USP) - Direito Comercial ask How Does Brazil Review Multi-Jurisdictional Merger Cases? An Empirical Study from the Competition Authority's Perspective.
ABSTRACT: This paper puts the Brazilian Competition Authority in the center of the debate involving multi-jurisdictional merger control review. It aims at answering the following question: how relevant and complex are multi-jurisdictional merger cases submitted to CADE? Adopting the empirical method, we analyzed 726 merger cases submitted to CADE in 2015 and 2016. We conclude that multi-jurisdictional cases represented a substantial share of all cases; there is no significant difference of complexity between domestic and multi-jurisdictional cases; and, despite CADE’s declared enhanced international cooperation strategies, it is not yet clear how this influences CADE’s decisions.
The EU Competition Law Fining System: A Quantitative Review of the Commission Decisions between 2000 and 2017
Damien Geradin, Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws and Katarzyna Sadrak, University of Heidelberg analyze The EU Competition Law Fining System: A Quantitative Review of the Commission Decisions between 2000 and 2017.
ABSTRACT: There is a large amount of legal and economic literature on the fining policy of the European Commission for breaches of EU competition law. This paper takes a quantitative approach as it analyses the factors that have been considered by the Commission in establishing the level of the fine imposed on infringing undertakings in 110 cartel decisions, as well 11 abuse of dominance decisions, adopted between January 2000 and March 2017. The factors included in our analysis, which is summarized in two tables provided in an Annex, comprise inter alia the gravity of the infringement, the presence of aggravating and mitigating circumstances, the adoption of an entry fee, whether inability to pay was invoked, and in the case of cartels the presence of some form of leniency and/or the use of the settlement procedure. We also looked at whether these Commission decisions have been appealed to the General Court of the EU.
Our analysis shows that the Commission has made significant use of the aggravating and mitigating circumstances listed in the Fining Guidelines to adjust the basic amount of the fine. It also shows that the vast majority of cartel decisions (i.e., 88%) adopted by the Commission during the period analysed involved some form of leniency (immunity from fines and/or fines reduction). Our analysis also shows that the cartel settlement procedure, even though it only provides for a 10% reduction of the level of the fines, has been a significant success with the Commission concluding 22 settlements since 2010. Despite the success of the leniency and cartel settlement procedures, which should in theory have a dampening effect on fines, the level of fines has massively increased over the past couple of decades. As recidivism is still prevalent, it is questionable whether increasingly high fines are an effective remedy to deter undertakings from breaching competition law. Alternative mechanisms, such as personal sanctions, should perhaps be contemplated.
Fernando Pastor-Merchante examines The Role of Competitors in the Enforcement of State Aid Law.
BOOK ABSTRACT: This book explores the tools that the European rules on State aid place in the hands of competitors when it comes to fighting subsidies and other state measures of financial assistance to firms. In order to do so, the book scrutinises the means of redress available to competitors before national courts (private enforcement), as well as the opportunities that they have to make their voice heard in the course of the European Commission's enforcement procedures (public enforcement). The insights provided by the book lead to a better understanding of the rights of private parties under the rules and practices that govern the enforcement of State aid law.
Friday, June 9, 2017
Does Banking Market Power Matter on Financial (In)Stability? Evidence from the Banking Industry MENA Region
Widede Labidi ; Sami Mensi (University of Manouba) ask Does Banking Market Power Matter on Financial (In)Stability? Evidence from the Banking Industry MENA Region.
ABSTRACT: The various financial crises during the last two decades, and particularly since the 2007-2008 Global Financial Crisis, have revealed the complexity of the interaction between bank market structure, regulation and the stability of the banking industry. Due to its effects on financial stability, banking market structure has been a focus of academic and policy debates of which we prefer the market power paradigm. More precisely, the impact of competition and market concentration on the probability of financial crisis emerges as a crucial topic. Despite their importance, little is known about the relationship between Banking Market Power and Bank Soundness of banks in the MENA region. This paper tries to overcome the tradeoff between banking market power and financial (in) stability among 157 commercial banks chosen from 18 countries in the MENA region between 2000 and 2008. The results indicate that although the banks operate in a competitive market, they suffer from financial instability. The results also reveal a non-significant negative relationship between the rather low degree of market power and financial instability. In other words, we concluded that financial instability is not affected by competition in the banking market in the MENA region.
Hyo-young Lee (Center for International Commerce and Finance, Seoul National University) is Applying Competition Policy to Optimize International Trade Rules.
ABSTRACT: This paper delves into the relationship between trade and competition, which has long been a subject largely untouched since the issue had been dropped from the multilateral trade agenda in 2003. The need to incorporate elements of competition policy into international trade rules has long been discussed in the context of making the international trade regime more effective. The issue has gained more attention as state-owned enterprises (SOEs) began to emerge as new influential players in the international market, competing with private enterprises on an unequal footing. A growing number of bilateral trade agreements have included chapters on competition policy, albeit with rules that do not have sufficient binding force for disciplining the business practices of state-owned enterprises. The recently concluded Trans-Pacific Partnership (TPP), however, has introduced innovative rules for disciplining the competitive practices of SOEs by integrating the existing WTO disciplines on subsidies with competition rules. In this article, "competitive neutrality", the fundamental principle underlying the SOE disciplines, is used as a framework of analysis for understanding the new disciplines and obligations in the SOE rules. Several legal issues and challenges are identified that are relevant for applying the new rules in the real world, and implications are derived for future rule-making involving other new trade issues.
Thursday, June 8, 2017
Florencia Marotta-Wurgler, New York University School of Law explores Self-Regulation and Competition in Privacy Policies.
Malcolm Coate, FTC has written on The Merger Review Process at the Federal Trade Commission from 1989 to 2016. Worth reading!
ABSTRACT: The modern Merger Guidelines have controlled merger policy for the last thirty years. Economic theory has evolved (and continues to evolve) and revisions of the Merger Guidelines have integrated some of these considerations into the merger review methodology. This paper tabulates and evaluates information from Federal Trade Commission (FTC) merger reviews using data for 1989 to 2016. The FTC’s workload focuses on horizontal mergers, with particular interest in health care, consumer goods, retailing, and a specific group of intermediary product industries. The evidence suggests that a shift away from coordinated interaction (collusion) cases occurred after the introduction of the 1992 Merger Guidelines, with a further shift focused on differentiated products after the 2010 revision in the Guidelines. Abstracting from mergers to monopoly, the structural characteristics of investigations reviewed with unilateral effects or collusion theories appear similar, but not identical. Most three-to-two and many four-to-three mergers end up as challenged, while other transactions often pass through the review process. Evidence suggests that the probability of ease of entry and cognizable efficiency findings has declined in recent years, as merger analysis seems to have focused on modeling competitive concerns.
Brian J. Miller and George L. Wolfe have written on Managed Care Marketplaces: Managed Care Marketplaces: Growing Drivers of Payer-Provider Vertical Integration.
ABSTRACT: Recent health insurance marketplace changes have brought about innovative risk-sharing arrangements and vertical integration along the healthcare delivery supply chain. This integration is occurring through full-asset acquisitions—such as UnitedHealth’s acquisition of Surgical Care Affiliates to provide a comprehensive ambulatory care services platform—and through joint venture and contractual arrangements—such as Aetna’s partnering with Inova Health System to create Innovation Health Plans. These vertical arrangements have the potential to provide significant quality of care and cost saving efficiencies by increasing transparency and collaboration along the healthcare supply chain. At the same time, vertical alignment between health insurance providers (“payers”) and hospital-centric health systems raises unique antitrust questions that require courts to balance foreclosure issues against enhanced quality of care and network design efficiencies.
Wednesday, June 7, 2017
Federico Quartieri, Department of Business and Quantitative Studies, University of Naples Parthenope asks Are Vessel Sharing Agreements Pro-Competitive?
ABSTRACT: Attention is focussed on a type of strategic alliance of the container shipping industry: vessel sharing agreements. In such consortia carriers jointly provide - but independently sell - a liner service. The strategic alliances studied in this work have not been extensively analyzed in the theoretical literature; a new model is proposed that embodies their main distinguishing features. By it, an examination is provided of the effects on equilibrium prices, equilibrium aggregate quantities and consumer welfare of the formation and enlargement of vessel sharing agreements. A positive answer is developed to the question raised in the title of the present work that supports a laissez-faire policy for these consortia.
Liangliang Jiang ; Ross Levine ; Chen Lin ask Does Competition Affect Bank Risk?
ABSTRACT:Although policymakers often discuss tradeoffs between bank competition and stability, past research provides differing theoretical perspectives and empirical results on the impact of competition on risk. In this paper, we employ a new approach for identifying exogenous changes in the competitive pressures facing individual banks and discover that an intensification of competition materially boosts bank risk. With respect to the mechanisms, we find that competition reduces bank profits, charter values, and relationship lending and increases banks’ provision of nontraditional banking services.
Ralph Sonenshine studies Effect of Utility Deregulation and Mergers on Consumer Welfare.
ABSTRACT: In the late 1990s many US states deregulated their electric utilities, separating generation from transmission, allowing for competition among power generators. As a result there was a significant merger wave among large utility companies. To date the effect of utility deregulation and mergers on electricity prices, while widely studied, remains ambiguous. This study examines the effects of these events by analyzing statewide electricity price and output changes among deregulated and regulated states from the period 2001 through 2014. The study finds that deregulation appears to have a positive impact on social welfare by lowering prices and output by improving efficiencies in part through retail choice programs. However, mergers appear to have a slightly negative effect on social welfare by raising prices and possibly output in deregulated states.
Gobillon, Laurent (Paris School of Economics) and Milcent, Carine (Paris School of Economics) examine Competition and Hospital Quality: Evidence from a French Natural Experiment.
ABSTRACT: We evaluate the effect of a pro-competition reform gradually introduced in France over the 2004-2008 period on hospital quality measured with the mortality of heart-attack patients. Our analysis distinguishes between hospitals depending on their status: public (university or non-teaching), non-profit or for-profit. These hospitals differ in their degree of managerial and financial autonomy as well as their reimbursement systems and incentives for competition before the reform, but they are all under a DRG-based payment system after the reform. For each hospital status, we assess the benefits of local competition in terms of decrease in mortality after the reform. We estimate a duration model for mortality stratified at the hospital level to take into account hospital unobserved heterogeneity and censorship in the duration of stays in a flexible way. Estimations are conducted using an exhaustive dataset at the patient level over the 1999-2011 period. We find that non-profit hospitals, which have managerial autonomy and no incentive for competition before the reform, enjoyed larger declines in mortality in places where there is greater competition than in less competitive markets.
Tuesday, June 6, 2017
André de Palma ; Carlos Ordás Criado and Laingo M. Randrianarisoa analyze When Hotelling meets Vickrey: Service timing and spatial asymmetry in the airline industry.
ABSTRACT: This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical space and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travellers’ costs include a fare, a transportation cost to the facility and a schedule delay cost, which captures the monetary cost of departing earlier or later than desired. One carrier operates at each facility and schedules a single departure time. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares with simultaneous choices at each stage. We find that duopolistic competition leads to an identical departure time across carriers when their operational cost does not vary with the time of day, but generally leads to distinct service times when this cost is time dependent. When a facility possesses a location advantage, it can set a higher fee and its downstream carrier can charge a higher fare. Departure time differentiation allows the facilities and their carrier to compete along an additional differentiation dimension that can reduce or strengthen the advantage in location. By incorporating the downstream carriers into the analysis, we also find that a higher per passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operational cost for one carrier implies a higher fee at its departure facility, a lower fee at the other facility served by the rival carrier and a lower fare at both facilities.
Arcan Nalca, (Smith School of Business, Queen's University) ; Tamer Boyaci, (ESMT European School of Management and Technology) ; Saibal Ray (Desautels Faculty of Management, McGill University) explore Consumer taste uncertainty in the context of store brand and national brand competition.
ABSTRACT: In this paper, we focus on the uncertainty in consumer taste and study how a retailer can benefit from acquiring that taste information in the presence of competition between the retailer's store brand and a manufacturer's national brand. In this context, we also identify the optimal information sharing strategy of the retailer with the manufacturer as well as the equilibrium product positioning and pricing of the two brands. We model a competitive setting in which there is ex-ante uncertainty about consumer preferences for different product features and the retailer has a distinct advantage in terms of resolving this uncertainty, given his close proximity to the consumers. We identify two important effects of retailer's information acquisition and sharing decisions about consumer taste. The direct effect is that having taste information allows the retailer to make better SB introduction and positioning decisions. The indirect effect is that information sharing enables the manufacturer to make better NB positioning decisions - which in return may benefit or hurt the retailer. Furthermore, we show that these effects interact with each other and the nature of their interaction depends on three external factors: relative popularity of different product features, the vertical differentiation between the two brands, and the cost of store brand introduction. This interaction is most striking when the store brand introduction is not very costly. In this case, if one of the features is quite popular, then the retailer voluntarily shares information with the manufacturer because the indirect effect augments the value of the direct effect - even though this increases the competition between the brands. Otherwise, the retailer refrains from information sharing because the indirect effect then diminishes the value of the direct effect. We also generate managerial insights as to when it is most valuable for the retailer to acquire taste information as well its worth for the manufacturer.
Kenji Fujiwara (Kwansei Gakuin University) and Keita Kamei (Yamagata University) discuss Competition Policy at the Intensive and Extensive Margins in General Equilibrium.
ABSTRACT: This paper examines welfare effects of competition policies in a gen- eral equilibrium model in which perfectly competitive and oligopolistic industries coexist and compete for a common factor of production. We first show that increasing the number of oligopolistic firms raises wel- fare if the oligopolists' production technology exhibits non-increasing returns to scale. Then, we address another competition policy mod- eled by an increase in the portion of perfectly competitive industries, finding that this policy improves welfare if decreasing returns of the oligopolists' technology are strong enough. These results suggest that the degree of returns to scale plays a key role for welfare-enhancing competition policy.
Chen, Xuan ; Liu, Yizao and Rabinowitz, Adam N. study Private Labels Competition, Retail Pricing and Bargaining Power: The Case of Fluid Milk Market.
ABSTRACT: This article focus on the question that whether private labels are competing along with their retailers’ characteristics and its impacts on retailers’ pricing strategies as well as bargaining power. We differentiate private labels with different retailers and estimate consumer demand and the supply of private labels using BLP (Berry, Levinsohn, and Pakes, 1995) model with monthly-county level data of fluid milk market data in Connecticut. We classify the retailers into regional retailers and national retailers and conduct counterfactual exercises showing retailers pricing strategies to private labels and national brands. Preliminary results indicate consumers like to substitute national retailers’ private labels with regional retailers’ private labels, reflecting the existence of competition. Moreover, with estimated supply model, national retailers have less wholesale prices while regional retailers have potential bargaining power to manufactures when they adjust their private label prices.
Monday, June 5, 2017
Buettner, Thomas ; Federico, Giulio ; Lorincz, Szabolcs examine The Use of Quantitative Economic Techniques in EU Merger Control.
ABSTRACT: In some recent merger cases the European Commission has relied on quantitative economic techniques in the competitive assessment of horizontal mergers. These techniques have ranged from the use of merger simulation models (for both differentiated and homogenous goods), to the deployment of direct estimation methods to study the effects of relevant events in the past. This article describes the appropriate use of these quantitative techniques, and it explains the rationale for the reliance on these methods. It also explains why the evidence from economic modelling is complementary to more traditional qualitative evidence on the expected impact of horizontal mergers.
Kristian Behrens ; Giordano Mion ; Yasusada Murata and Jens Suedekum model Distorted monopolistic competition.
ABSTRACT: We characterize the equilibrium and optimal resource allocations in a general equilibrium model of monopolistic competition with multiple asymmetric sectors and heterogeneous firms. We first derive general results for additively separable preferences and general productivity distributions, and then analyze specific examples that allow for closed-form solutions and a simple quantification procedure. Using data for France and the United Kingdom, we find that the aggregate welfare distortion -- due to inefficient labour allocation and firm entry between sectors and inefficient selection and output within sectors -- is equivalent to the contribution of 6- 8% of the total labour input.
Johansen, Bjørn Olav (Department of Economics, University of Bergen, Norway) and Vergé, Thibaud (CREST, ENSAE, Université Paris-Saclay and Norwegian School of Economics) explore Platform price parity clauses with direct sales.
ABSTRACT: In the context of vertical contractual relationships, where competing sellers distribute their products directly as well as through competing intermediation platforms, we analyze the welfare effects of price parity clauses. These contractual clauses prevent a seller from offering its product at a lower price on other platforms or through its own direct sales channel. Recently, they have been the subject of several antitrust investigations. Contrary to the theories of harm developed by competition agencies and in some of the recent literature, we show that when we account for the sellers’ participation constraints, price parity clauses do not always lead to higher commissions and final prices. Instead, we find that they may simultaneously benfit all the actors (platforms, sellers and consumers), even in the absence of traditional efficiency arguments.
Friday, June 2, 2017
Ioannis Pinopoulos (Department of Economics, University of Macedonia) describes Input price discrimination, two-part tariff contracts and bargaining.
ABSTRACT: We consider an upstream supplier who bargains with two cost-asymmetric downstream firms over the terms of interim observable two-part tariff contracts: contracts are initially secret (acceptance decisions are based on beliefs) but downstream firms observe the accepted contract terms before competing in prices. We show that the more efficient downstream firm pays a higher input price than its less efficient rival, a finding that is in stark contrast to the previous findings in the literature on input price discrimination with two-part tariff contracts. We also show that a ban on input price discrimination will reduce both consumer and total welfare when the upstream supplier bargains the common two-part tariff contract with the less efficient firm. This result is interesting from a policy perspective since it implies that even though under discriminatory input prices the upstream supplier favors the “wrong” firm, non-discriminatory input pricing can make things even worse in terms of welfare.