Thursday, August 11, 2016
Quantifying the Effects of Patent Protection on Innovation, Imitation, Growth, and Aggregate Productivity
Pedro Bento (Texas A&M University, Department of Economics) is Quantifying the Effects of Patent Protection on Innovation, Imitation, Growth, and Aggregate Productivity.
ABSTRACT: I develop a general equilibrium model in which patent protection can increase or decrease the costs of sequential innovation, original innovation, and imitation. Depending on these relative effects, protection can in theory increase or decrease markups, imitation, innovation, growth, and aggregate productivity. I discipline the model using data from several different sources, and find that weakening protection in the U.S. would lead to no change in markups and imitation, no change in long-run growth, a more than doubling of the number of firms, and an increase in aggregate productivity of 9 percent.
Wednesday, August 10, 2016
Kazunori Miwa (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan) explores Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets.
ABSTRACT: This paper investigates the interaction between firms' information acquisition decisions and disclosure of internally acquired information in a Cournot duopoly market. The results are as follows. Given that the precision of firms' private information is constant, mandatory disclosure of information about the industry-wide demand uncertainty can enhance social welfare. However, when the precision of firms' private information is endogenously determined, mandatory disclosure is not always desirable. This is because when disclosure is mandated, firms acquire less precise information compared to the case where acquired information is not disclosed, and hence their internal information environments are deteriorated. This can lead to "unintended consequences," such that disclosure regulation strictly decreases social welfare on the whole.
Luke, Garrod and Matthew, Olczak examine Collusion under Imperfect Monitoring with Asymmetric Firms.
ABSTRACT: We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms must monitor the agreement through their privately observed sales and prices. In this private monitoring setting, we show that all firms can infer when at least one firm’s sales are below some firm-specific “trigger level”. This public information ensures that firms can detect deviations perfectly if fluctuations in market demand are sufficiently small. Otherwise, there can be collusion under imperfect public monitoring where punishment phases occur on the equilibrium path. We find that symmetry faciliates collusion. Yet, we also show that if the fluctuations in market demand are sufficiently large, then the collusive prices of symmetric capacity distributions are actually lower than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.
Nickolas Michelacakis theorizes about Strategic delegation effects on Cournot and Stackelberg competition.
ABSTRACT: This paper compares the outcomes of two three-stage games of two firms competing for quantity with managerial delegation. In fact, we prove that simultaneous choice of managers by the proprietors of the firms followed by Stackelberg-type competition is equivalent to sequential choice of managers followed by Cournot-type competition. We prove equivalence in a general setting, namely, when the duopolistic model is characterised by a non-linear inverse demand function.
Loy, Jens-Peter ; Glauben, Thomas and Weiss, Christoph ask Asymmetric Cost Pass-Through? Empirical Evidence on the Role of Market Power, Search and Menu Costs.
ABSTRACT: We estimate cost pass-through rates based on data for store-level retail prices and wholesale costs. The data allows us to identify heterogeneity in cost pass-through across retailers and relate it to underlying explanatory factors such as retailer market power, measures of consumer search and menu costs. Results from a threshold-errorcorrection- model clearly provide empirical support for the ‘rockets and feathers’ phenomenon. In contrast to much of the literature which explains the ‘rockets and feathers’ phenomenon as a result of retailers’ market power, we find contrary find that the degree of asymmetry between costs and prices is negatively related to a measure of market power.
Tuesday, August 9, 2016
Robert McLeod, MLex comments on Novel But a Long Time Coming: The Bundeskartellamt Takes on Facebook.
ABSTRACT: With German antitrust chief Andreas Mundt taking on Facebook in a case that many describe as unprecedented in its attempt to tie a possible breach of an unrelated set of laws to an abuse of dominance, he is taking on a challenge that while novel, reflects changes in attitudes to privacy and data that have been a decade or more in the making. In a statement released in early March, the Bundeskartellamt announced it has initiated a proceeding against Facebook, Inc., USA, the Irish subsidiary of the company, and Facebook Germany GmbH, Hamburg. The authority is investigating suspicions that with its specific terms of service on the use of user data, Facebook has abused its possibly dominant position in the market for social networks. There is an initial suspicion that Facebook's conditions of use are in violation of data protection provisions and that, in the case in question, Facebook's use of unlawful terms and conditions could represent an abusive imposition of unfair conditions on users. The Bundeskartellamt will examine, among other issues, to what extent a connection exists between the possibly dominant position of the company and the use of such clauses.
How Close Is Too Close? A Critical Review of the European Commission's Assessment of Closeness of Competition
ABSTRACT: While market-share analysis has not become obsolete, closeness of competition has developed into a key criterion for the assessment of horizontal mergers.
Closeness of competition arguments are unlikely to succeed in the absence of reliable data.
There is a lack of guidance from the European Commission on the qualitative and quantitative tools that should be used to assess closeness of competition as well as on the degree of closeness that is problematic.
‘Close Your Eyes’? Navigating the Tortuous Waters of Conscious Parallelism and Signalling in the European Union
Peter D. Camesasca, Covington and Laurie-Anne Grelier ask ‘Close Your Eyes’? Navigating the Tortuous Waters of Conscious Parallelism and Signalling in the European Union.
ABSTRACT: The antitrust treatment of price signalling comes back in the limelight with the decision taken by the European Commission to launch investigation on the practice of periodic price announcement in the container shipping industry.
At this stage, our research tends to demonstrate that arguments raised to interpret price signalling as elements of a concerted practice, or a concertation, are limited in number and in quality, in law, and in economics.
The European Commission's apparent reinvigorated willingness to take on perceived price signalling might well subject companies to burdensome investigations or at least to (unwarranted) regulatory focus.
Can Computers Form Cartels? About the Need for European Institutions to Revise the Concertation Doctrine in the Information Age
Andreas Heinemann, University of Zurich and Aleksandra Gebicka ask Can Computers Form Cartels? About the Need for European Institutions to Revise the Concertation Doctrine in the Information Age.
ABSTRACT: Traditionally, the European Commission and the European courts have considered that a concertation arises as soon as information is exchanged among competitors. That approach creates difficulties on information-based markets where computers and more generally machines systematically organise such exchanges and may thus give rise to allegations of cartel infringement for their operators, despite the absence of any fraudulous intention whatsoever on the part of the latter. For the authors, such development emphasizes the need, for the European institutions, to revisit their doctrine, and their jurisprudence, on the formation of anticompetitive coordination.
Monday, August 8, 2016
Lydia Cheung (School of Economics, Faculty of Business and Law, Auckland University of Technology) examines Antitrust Market Definition and the Sensitivity of the Diversion Ratio.
ABSTRACT: The diversion ratio is a key ingredient for merger analysis, as mentioned in the new Horizontal Merger Guidelines (2010) in the U.S. and similar documents abroad. It is a measure of substitutability between merging goods, which determines the potential for price increase post-merger. There is little existing research on how the diversion ratio is to be estimated. This paper is the rst one to explore estimation issues through standard demand estimation techniques and how changes in the antitrust market de nition a ect the resultant diversion ratios. I use random draws of supermarket products from a supermarket dataset to show that the estimated diversion ratios are, in fact, not greatly a ected by market de nition. They have the same magnitude as baseline estimates and the rst signi cant gures vary within a small range.
Anne Marie Knott and Carl Vieregger are Reconciling the Firm Size and Innovation Puzzle.
ABSTRACT: Since Schumpeter, there has been a long-standing debate regarding the optimal firm size for innovation. Empirical results have settled into a puzzle: R&D spending increasing with scale while R&D productivity decreases with scale. Thus large firms appear irrational. We propose the puzzle stems from the fact that product and patent counts undercount large firm innovation. To test that proposition we use recently available NSF BRDIS survey data of firms R&D practices as well as a broader measure of R&D productivity. Using the broader measure, we find that both R&D spending and R&D productivity increase with scale—thus resolving the puzzle. We further find that while large firms and small firms differ in the types of R&D they conduct, there is no type whose returns decrease in scale—there are merely types for which the small firm penalty is less severe.
Han, Johann ; Kairies-Schwarz, Nadja ; Vomhof, Markus offer Quality competition and hospital mergers: An experiment.
ABSTRACT: Based on a Salop model with regulated prices, we investigate quality provision behavior of competing hospitals before and after a merger. For this, we use a controlled laboratory experiment where subjects decide on the level of treatment quality as head of a hospital. We find that the post-merger average quality is significantly lower than the average pre-merger quality. However, for merger insiders and outsiders, average quality choices are significantly higher than predicted for pure profit maximizing hospitals. We show that the upward deviation is potentially driven by altruistic behavior towards patients. Furthermore, we fi nd that in case sufficient cost synergies are realized by the merged hospitals, this yields a significant increase in average quality choices compared to the scenario without synergies. Finally, we find that our results do not change when comparing individual to team decisions.Auf Grundlage eines Salop-Modells mit regulierten Preis! en wird in dieser Arbeit das Qualitätssetzungsverhalten konkurrierender Krankenhäuser vor und nach einer Fusion untersucht. Hierfür wird ein kontrolliertes Laborexperiment verwendet, in welchem die Probanden in der Rolle eines Leiters eines Krankenhauses über die Behandlungsqualität entscheiden. Dabei finden wir nach der Fusion einen signifikanten Rückgang in der durchschnittlichen Höhe der bereitgestellten Qualität im Vergleich zur Wettbewerbssituation vor der Fusion. Jedoch setzen die Markakteure nach der Fusion - unabhängig davon, ob sie zu den fusionierten Krankenhäusern gehören oder als allein operierendes Krankenhaus agieren - durchschnittlich eine signifikant höhere Marktqualität als die für profitmaximierende Krankenhäuser vorhersagte. Wir zeigen, dass man diese Abweichung nach oben auf altruistische Motive gegenüber den Patienten zurückführen kann. Des Weiteren finden wir in einem Vergleichsszenario mit hinreichend starken Kostensynergien auf Seit! en der fusionierten Krankenhäuser signifikant höhere Qualitäten als im Fall ohne Kostensynergien. Unsere Resultate bleiben auch robust, wenn Gruppenentscheidungen statt Individualentscheidungen betrachtet werden.
Okullo, Samuel (Tilburg University, Center For Economic Research) and Reynes, F. analyze Imperfect Cartelization in OPEC.
ABSTRACT: A model of global oil production is applied to study cartelization by OPEC countries. Writing out the shadow price on quota allocations so as to draw correspondence to coefficients of cooperation (Cyert et al. 1973), we examine the incentives that different OPEC members to collude. We find that heterogeneity in OPEC and the supplies of the non-OPEC fringe create strong incentives against OPEC cooperation. OPEC’s optimal supply strategy although observed to be substantially more restrictive than that of a Cournot-Nash oligopoly, is found to still be more accommodative than that of a perfect cartel. The strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel. This is contrary to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas. Furthermore, we find that cartel collusion is likely to be sustain! ed for elastic than inelastic demand. Since global oil demand is well known to be inelastic, this observation provides another structural explanation for why OPEC behavior is inconsistent with that of a perfect cartel. Our study points to multiple headwinds that limit OPECs ability to raise long-run global oil prices.
Friday, August 5, 2016
William Secor, Dept of Agricultural & Applied Economics, Virginia Tech and Metin Cakır, Dept of Applied Economics, University of Minnesota ask Impacts from a retail grocery acquisition: Do national and store brand prices respond differently?
ABSTRACT: We investigate the extent to which a grocery retailer merger has different effects on the prices of national and store brands. Using retail scanner data, we retrospectively analyze a food retail acquisition in a large United States city. We focus on fluid milk and ready-to-eat cereal categories, which represent a relatively homogenous and a relatively differentiated product category, respectively. We use a difference-in-difference estimation framework to obtain the causal effect of the acquisition on prices for the acquiring retailer. Our findings provide evidence that store brands in differentiated product categories could allow a retailer to improve its market power.
Ivaldi, Marc and Lagos, Vicente offer an Assessment of Post-merger Coordinated Effects: Characterization by Simulations.
ABSTRACT: This paper aims at evaluating the coordinated effects of horizontal mergers by simulating their impact on firms' critical discount factors. We consider a random coefficient model on the demand side and heterogeneous price-setting firms on the supply side. Results suggest that mergers strengthen the incentives to collude among merging parties, but weaken the incentives of non-merging parties, with the former effect being stronger. To assess the magnitudes of these effects, we introduce the concepts of Asymmetry in Payoffs and Change in Payoffs effects, which allow us to identify appropriate screening tools according to the relative pre-merger payoffs of merging parties.
Brito, Duarte ; Osorio, Antonio (Antonio Miguel); Ribeiro, Ricardo ; and Vasconcelos, Helder describe Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI.
ABSTRACT: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose a generalization to a partial horizontal acquisition setting of the two most traditional indicators used to screen unilateral anti-competitive effects: the Helfindahl- Hirschman Index and the Gross Upward Price Pressure Index. The proposed generalized indicators can deal with all types of acquisitions that may lessen competition in the industry: acquisitions by owners that are internal to the industry (rival firms) and engage in cross-ownership, as well as acquisitions by owners that are external to the industry and engage in common-ownership. Furthermore, these indicators can deal with direct and indirect acquisitions, which may or may not correspond to control, and nest full mergers as a special case. We provide an empirical application to several acquisitions in the wet shaving industry. The results seem to suggest that (i) a full merger induces higher unilateral anti-competitive effects than a partial controlling acquisition involving the same firms, (ii) a partial controlling acquisition induces higher unilateral anti-competitive effects than a partial non-controlling acquisition involving the same firms and the same financial stakes, and (iii) an acquisition by owners that are internal to the industry induces higher unilateral anti-competitive effects than an acquisition (involving the same firms and the same stakes) by external owners that participate in more than one competitor firm.
Emmanuel LORENZON explores Collusion with a Greedy Center in Position Auctions.
ABSTRACT: In this paper we aim at studying the sensitivity of the Generalized Second-Price auction to bidder collusion when monetary transfers are allowed. We propose a model of position auction that incorporates third-parties as agents facilitating collusion in complete information. We show that the first-best collusive outcome can be achieved under any Nash condition. Under the locally envy-free criterion, we find that if the collusive gain is uniformly redistributed among members, the best that can be achieved is Vickrey-Clarkes-Groves outcome. Bidders do not have sufficient incentives to reduce even more their expressed demand. We then provide elements upon which an incentive compatible fee can be set by the center. We provide conditions under which bidders can enhance efficient collusion. Doing so we also contribute to the literature on collusion in multiple-objects simultaneous auctions.
Lester, Benjamin (Federal Reserve Bank of Philadelphia) ; Shourideh, Ali (The Wharton School of the University of Pennsylvania) ; Venkateswaran, Venky (NYU–Stern School of Business) ; and Zetlin-Jones, Ariel (Carnegi Mellon University) study Screening and adverse selection in frictional markets.
ABSTRACT: We incorporate a search-theoretic model of imperfect competition into an otherwise standard model of asymmetric information with unrestricted contracts. We develop a methodology that allows for a sharp analytical characterization of the unique equilibrium and then use this characterization to explore the interaction between adverse selection, screening, and imperfect competition. On the positive side, we show how the structure of equilibrium contracts—and, hence, the relationship between an agent’s type, the quantity he trades, and the corresponding price—is jointly determined by the severity of adverse selection and the concentration of market power. This suggests that quantifying the effects of adverse selection requires controlling for the market structure. On the normative side, we show that increasing competition and reducing informational asymmetries can be detrimental to welfare. This suggests that recent attempts to increase competition and ! reduce opacity in markets that suffer from adverse selection could potentially have negative, unforeseen consequences
Thursday, August 4, 2016
Alberto Bucci (National Research University Higher School of Economics) and Philip Ushchev (National Research University Higher School of Economics) model Specialization vs Competition: An Anatomy of Increasing Returns to Scale.
ABSTRACT: We develop a two-sector model of monopolistic competition with a dierentiated intermediate good and variable elasticity of technological substitution. This setting proves to be well-suited to studying the nature and origins of external increasing returns. We disentangle two sources of scale economies: specialization and competition. The former depends only on how TFP varies with input diversity, while the latter is fully captured by the behavior of the elasticity of substitution across inputs. This distinction gives rise to a full characterization of the rich array of competition regimes in our model. The necessary and sucient conditions for each regime to occur are expressed in terms of the relationships between TFP and the elasticity of substitution as functions of the input diversity. Moreover, we demonstrate that, despite the folk wisdom resting on CES models, specialization economies are in general neither necessary nor sucient for external increasin! g returns to emerge. This highlights the profound and non-trivial role of market competition in generating agglomeration economies, endogenous growth, and other phenomena driven by scale economies.
Nicolas Petit, University of Liege - School of Law explores The Antitrust and Intellectual Property Intersection in European Union Law.
ABSTRACT: In European legal scholarship, many articles discuss the equilibrium reached in the case-law of the Court of Justice of the European Union (“CJEU”) when the EU antitrust prohibitions apply to, and restrain, the free and ordinary use of intellectual property rights (“IPRs”). We call this the antitrust-IP intersection. The most interesting feature of this literature is perhaps the common assumption that a unifying substantive perspective, vision or theory on IPR underpins the intersection point reached by the antitrust case-law. Whilst the theory of “absolutism” can be quickly disposed of, several other theories like inherency, exceptionalism or complementarity have been described as the lynchpin of the antitrust-IP intersection. Our paper offers a different reading of the case-law. It submits that the antitrust-IP intersection does not rest on any unitary theory which, in turn, bespeaks the Court’s vision of the social function of IPRs. Instead, the main feature of the CJEU case-law is that a specific methodology is applied to antitrust cases with IPR ramifications. The CJEU deals with most of such cases under a rule-based approach, instead of a standard-based approach. By rule-based approach, we refer to the ex ante setting of structured tests of liability, by opposition to ex post case-by-case resolution on grounds of a pre-determined, general standard (e.g., reasonableness, competition on the merits, efficiency, fairness, equity, etc.). As will be seen below, this approach has many virtues, not least in terms of legal certainty. But it also has a major qualification. Whilst the Court has consistently formulated rules of liability and justifiability at the antitrust and IP intersection, it has at the same time often embedded abstract standards within those rules. The implications of this mixed approach are unclear.