Tuesday, February 2, 2016
Benjamin Bridgman (Bureau of Economic Analysis); Shi Qi (Florida State University) and James A. Schmitz (Federal Reserve Bank of Minneapolis) have an empirical paper on Cartels Destroy Productivity: Evidence from the New Deal Sugar Manufacturing Cartel, 1934-74.
ABSTRACT: The idea that cartels might reduce industry productivity by misallocating production from high to low productivity producers is as old as Adam. However, the study of the economic consequences of cartels has almost exclusively focused on the losses from higher prices (i.e., Harberger triangles). Yet, as the old idea suggests, we show that the rules for quotas and side payments in the New Deal sugar cartel led to significant misallocation of production. The resulting productivity declines essentially destroyed the entire cartel profit. The magnitude of the deadweight losses (relative to value added) was large: we estimate a lower bound for the losses equal to 25 percent and 42 percent in the beet and cane industries, respectively.
Monday, February 1, 2016
Tommy S. Gabrielsen (Department of Economics, University of Bergen); Bjorn Olav Johansen (Department of Economics, University of Bergen); Teis L. Lomo (Department of Economics, University of Bergen) examine Resale price maintenance in two-sided markets.
ABSTRACT: In many two-sided markets, platforms use intermediary agents to reach consumers at one side of the market. In addition to the usual externalities in two-sided markets, the use of agents creates an additional externality for the platforms. We study if and how competing platforms can internalize the externalities by imposing resale price maintenance (RPM) on the agents. By the appropriate use of RPM, the platforms can induce the fully integrated outcome. Using a speci…c example, we show that consumers’surplus is reduced when the equilibrium involves the use of minimum RPM, and consumers benefit when maximum RPM is used.
Doh-Shin Jeon and Yassine Lefouili study Cross-Licensing and Competition.
ABSTRACT: We study bilateral cross-licensing agreements among N (>2) competing firms. We find that the industry-profit-maximizing royalty can be sustained as the outcome of bilaterally efficient agreements. This holds regardless of whether agreements are public or private and whether firms compete in quantities or prices. We extend this monopolization result to a general class of two-stage games in which firms bilaterally agree in the first stage to make each other payments that depend on their second-stage non-cooperative actions. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived.
Vertical Mergers and Downstream Spatial Competition with Different Product Varieties, Revised and Corrected
Konstantinos Eleftheriou and Nickolas Michelacakis have authored Vertical Mergers and Downstream Spatial Competition with Different Product Varieties, Revised and Corrected.
ABSTRACT: The aim of this paper is to revise and correct the results obtained in Beladi et al. [Beladi, H., Chakrabarti, A., Marjit, S., 2008. Vertical mergers and downstream spatial competition with different product varieties. Economics Letters 101, 262-264]. Specifically, we prove that in the pre-merger case, Nash equilibrium locations are socially optimal, whereas a vertical merger will relocate downstream firms by making them move to the right of their socially optimal positions while keeping their in-between distance intact.
Juliane Fudickar (Freie Universitat Berlin) has a theory paper on Net Neutrality, Vertical Integration, and Competition Between Content Providers.
ABSTRACT: This paper investigates the effects of a net neutrality regulation on the competition between content providers and the investment incentives of the internet service provider. We consider a situation where the monopoly internet service provider is vertically integrated with one of the content providers, and content providers compete in prices. Without net neutrality the vertical integrated firm can prioritise the delivery of its own content. We find that, under prioritisation, the integrated internet service provider and consumers as a whole are unambiguously better off. The competing content providers might also be better off under prioritisation if the congestion intensity is high. From a social welfare perspective prioritisation is also desirable unless product differentiation and congestion intensity are low. Contrary to some claims by internet service providers, we find that investment incentives are not always higher under prioritisation.
Friday, January 29, 2016
Round Table Discussion - Pharmaceuticals: Changing Competition Dynamics - 10 Mar 2016, 14:00-18:30 - Pembroke College, Oxford
Charalambos Christou (Department of Economics, University of Macedonia) offers A model of dynamic competition with sticky prices.
ABSTRACT: This paper studies dynamic competition in a duopoly under the assumption that prices are sticky, that is, they do not adjust instantaneously to the level implied by the quantities produced by the two ?rms. Assuming that market de- mand is static, contrary to the traditional approach according to which demand evolves dynamically following the course of prices, the equilibrium prices are conjectured to be higher than the Cournot level since at that level the marginal direct bene?t of a quantity increase is strictly lower than the marginal indirect cost of a future price reduction. Therefore, sticky prices have an e¤ect similar to that of the fear of price wars that keeps prices high.
Antoine Goujard discusses Enhancing Competitiveness, Purchasing Power and Employment by Increasing Competition in France.
ABSTRACT: Over the past decade, France has substantially eased the burden of anti-competitive regulations and effectively enforced competition law against anti-competitive practices. Various sectors have been opened up more widely to competition, and the powers of the Competition Authority have been strengthened. However, the administrative procedures involved in starting a business remain lengthy, and the number of regulations and rules is substantial, while their potential impact on competition is not fully taken into account when they are drawn up and implemented. Recent streamlining initiatives are welcome but remain limited. Meanwhile, the territorial fragmentation of public procurement procedures, which could decline following ongoing reforms, impairs their efficiency and entry and operating requirements appear to go beyond consumer protection in several regulated professions, such as in legal services and health care. In the retail sector, recent reforms hav! e significantly relaxed negotiating conditions between suppliers and retailers, and Sunday trading is intended to be partly liberalised. However, the ban on resale below cost has not been challenged, nor the tight rules controlling commercial zoning. Individual shops that contract with superstore chains cannot change chain easily. Of the network industries, it is in the telecommunications sector that competition has made the most progress, and there is room for further improvements in transport and energy. This Working Paper relates to the 2015 OECD Economic Survey of France (www.oecd.org/eco/surveys/economic-survey-france.htm).
Gregor Matvos (University of Chicago Booth School of Business) ; Ali Hortacsu (University of Chicago) and Mark Egan (University of Chicago) offer findings on Deposit Competition and Financial Fragility: Evidence from the US Banking Sector.
ABSTRACT: We develop and estimate an empirical model of the U.S. banking sector using data covering the largest U.S. banks over the period 2002-2013. Our model incorporates insured depositors and run-prone uninsured depositors who choose between differentiated banks. Banks compete for deposits and can endogenously default. We estimate demand for uninsured deposits and find that it declines with banks' financial distress, which is not the case for insured deposits demand. We calibrate the supply side of the model and find that the deposit elasticity to bank default is large enough to introduce the possibility of multiple equilibria, suggesting that banks can be very fragile. Last, we use our model to analyze the proposed bank regulatory changes. For example, our results suggest that the capital requirement below 17% can lead to significant instability in the banking system, and that a requirement of 31% maximizes the welfare of the worst equilibrium.
Thursday, January 28, 2016
Tamer Cetin (Yildiz Technical University) and Kadir Y. Eryigit (Uludag University) are Estimating the Economic Effects of Deregulation: Evidence from the Turkish Airline Industry.
ABSTRACT: This paper mainly studies the effect of deregulation on prices and quantity. For this aim, we employ cointegration methodology with structural breaks to empirically investigate the simultaneous relationship between deregulation, ticket prices, and the number of passengers in the Turkish airline industry. The findings confirm that deregulation increases quantity and decreases prices through accessibility to air transport service and actual competition, respectively. Also, structural breaks suggest that deregulation of prices and entry into the market has remarkable effect on the change in ticket prices and the number of passengers.
Does one more or one less mobile operator affect prices? A comprehensive ex-post evaluation of entries and mergers in European mobile telecommunication markets
Gergely Csorba (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences) and Zoltan Papai (Infrapont Economic Consulting) ask Does one more or one less mobile operator affect prices? A comprehensive ex-post evaluation of entries and mergers in European mobile telecommunication markets.
ABSTRACT: This paper estimates the impact of entries and mergers on the price of mobile voice services in a panel database of 27 European Member States between 2003 and 2010. Our difference-in-differences econometric methodology exploits the variance in different structural changes between countries to separate the respective effects. Our results show that the effect of entry crucially depends on the number of active operators and the type of entrant, and not controlling for these differences might lead to misleading conclusions. We find no robust evidence that entry has a price-decreasing effect on markets with originally 2 operators. However, the entry of a 4th operator does have a price-decreasing effect, but with different dynamics concerning the entrant's type. When we separate entry effects for the subsequent years, we show that the significant price-decreasing effects for local operators entering occur only in the first year after entry, while the price-decr! easing effects for multinational entries are significantly larger on the long-run. Last, we find no price-increasing effects of 5-to-4 mergers, but a long run price-increasing effect of a 4-to-3 merger.
Dynamic Effects of Patent Pools: Evidence from inter-generational competition in optical disk industry
SHIMBO Tomoyuki, NAGAOKA Sadao and TSUKADA Naotoshi have an empirical paper on Dynamic Effects of Patent Pools: Evidence from inter-generational competition in optical disk industry.
ABSTRACT: This paper examines empirically how patent pools affect the research and development (R&D) for a next-generation standard and for improving and exploiting the current standard, based on panel data from the optical disk industry. Our analysis explicitly recognizes the inter-generational competition among standards and the timing difference between the standard agreement and the pool formation for the standard. The major findings are as follows. Both the agreement for the current standard (DVD) and the formation of the pools were followed by more R&D by the pool licensors for a next-generation standard (BD and HDDVD), relative to the nonparticipants of the pools. Furthermore, the formation of the pools was followed by intensified R&D efforts by the pool licensors for improving and exploiting the current standard. Thus, there is no evidence for negative effects of the pools on the innovations by the pool licensors. The R&D of the pool license! es for the next-generation standard also increased with some lag after the pool, suggesting the positive effect of open pool licensing for their learning and innovations toward the next-generation technology. Lower response of the 6C licensors, relative to that of the 3C licensors, may reflect the former's larger sunk cost in the DVD technology. After the formation of the pools, the patenting propensity by the licensors increased with deteriorating patent quality, and such tendency is larger for the 6C patent pool, presumably reflecting their royalty distribution policy based on simple patent counts.
Background of the Gazprom Antitrust Case: Internal and external energy policies, and antitrust law enforcement in the EU
TAKEDA Kuninobu examines the Background of the Gazprom Antitrust Case: Internal and external energy policies, and antitrust law enforcement in the EU.
ABSTRACT: The European Commission sent a Statement of Objections to Russian state-owned enterprise (SOE) Gazprom, alleging that its business practices breached European Union (EU) antitrust rules. This paper analyzes the case from the viewpoints of EU internal and external energy policies. The Commission has been using competition law as a tool for internal and external energy policies. Until the entry into force of the Lisbon Treaty, the Commission had been applying competition law in order to materialize an internal energy policy. Since the Lisbon Treaty, it has been using competition law for both external and internal energy policies. The Gazprom case, in which Lithuania pressed the Commission to enforce competition law under the name of "solidarity," is the latter case. But using competition law in such an instrumental way can cause a negative side effect such as disincentive for investment in pipelines, and it can also bring about a fierce conflict between con! cerned nations as seen in a Russian blocking statute.
Wednesday, January 27, 2016
D. Daniel Sokol (University of Florida) and Roisin Comerford (Wilson Sonsini) ask Does Antitrust Have a Role to Play in Regulating Big Data?
ABSTRACT: The collection of user data online has seen enormous growth in recent years. Consumers have benefitted from the growth through an increase in free or heavily subsidized services, better quality offerings, and rapid innovation. At the same time, the debate about Big Data, and what it really means for consumers and competition, has grown louder. Many have focused on whether Big Data even presents an antitrust issue, and whether and how harms resulting from Big Data should be analyzed and remedied under the antitrust laws. The academic literature, however, has somewhat lagged behind the debate, and a closer inspection of existing scholarly works reveals a dearth of thorough study of the issue. Commentators generally split into two camps: one in favor of more proactive antitrust enforcement in the Big Data realm, and one opposing such intervention, considering antitrust inappropriate for regulation of Big Data. The academic case for the former has not, as yet, been fully developed, and is relatively light at present. Meanwhile, policy-focused work by academics practitioners in this arena suggests that antitrust intervention in Big Data would be premature and misguided, especially considering the myriad pro-competitive benefits offered by Big Data.
In this chapter, we review the scholarly work on the implications of Big Data on competition, and consider the potential role of antitrust in the regulation of Big Data. Part I provides an overview of current, scarce, academic literature specifically addressing the role of antitrust in Big Data issues. Parts II and III delve into the policy issues surrounding Big Data and whether it poses a risk to competition that warrants antitrust intervention. Part II details the ways in which Big Data may prove pro-competitive while Part III reviews and critiques the suggested potential harms to competition from Big Data. Part IV discusses the suitability of antitrust as the institutional choice for Big Data issues, and Part V concludes that, at present, antitrust is ill suited as the institutional choice. This conclusion is further born by the fact that thus far there have been no cases in the United States or Europe that have found Big Data itself to be a basis for a theory of harm on antitrust grounds for mergers or conduct cases. Further, the scholarly case for such harm has not yet been adequately established.
Shamim S. Mondal and Viswanath Pingali examine Competition Law and the Pharmaceutical Sector in India.
ABSTRACT: The Indian pharmaceutical industry is one of the largest in the world both in terms of volume and value. Given its critical importance, the sector has been subject to a series of regulatory interventions, which have altered the nature of the industry quite significantly. With enacting the Indian competition Act (2002), India has joined the list of countries that has a robust competition regime. The purpose of this chapter is to understand the pharmaceutical sector through the prism of competition law.
Pavlova, Natalia and Shastitko, Andrey observe the Effects of Hostility Tradition in Antitrust: Leniency Programs and Cooperation Agreements.
ABSTRACT: The article focuses on the effects that type I errors can have on the incentives of firms to compete, collude or engage in efficiency promoting socially beneficial cooperation. Our results confirm that in the presence of type I errors the introduction of a leniency program can have ambiguous effects, including the destruction and prevention of welfare enhancing horizontal cooperation agreements. The obtained results help understand the negative impact the hostility tradition resulting in type I enforcement errors can have on social welfare when applied to the regulation of horizontal agreements.
COLLUSION IN MARKETS CHARACTERIZED BY ONE LARGE BUYER: LESSONS LEARNED FROM AN ANTITRUST CASE IN RUSSIA
ABSTRACT: This paper demonstrates that even established and verified facts of agreements among producers are not a sufficient condition for cartel identification and, as a consequence, prosecution of agreement participants. Such requires looking at institutional details and the wider context of these and similar appearances or occurrences of documents and actions when qualifying the actions of market participants and their effects. This paper discusses a recent antitrust case brought against Russian manufacturers of large diameter pipes (LDPs) that examined supposedly abusive practices by these firms that were contrary to the law on the Protection of Competition, which prohibits market division. The case under consideration illustrates the importance of investigating institutional details when qualifying the actions of market participants and their effects. An analysis of the materials in this case using modern economic theory indicates that the presence of collusi! on is inconsistent with the active participation of the main consumer of LDPs in that agreement. The chosen format for the cooperation between pipe manufacturing companies and OJSC Gazprom, namely indicative planning, may be explained from the perspective of reducing contract risk in an environment characterized by large-scale private investments.
Romain De Nijs (Ecole Polytechnique [Palaiseau] - Ecole Polytechnique, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - Ecole des hautes etudes en sciences sociales - ENS Paris - Ecole normale superieure - Paris - Ecole des Ponts ParisTech (ENPC)) explores Behavior-based price discrimination and customer information sharing.
ABSTRACT: This article investigates the incentives and the effects of information sharing among rival firms about the identities of their past customers in a two-period model with behavior based price discrimination (BBPD). An unilateral information exchange between the two periods takes place in a subgame-perfect equilibrium. This exchange increases the ability of the industry to price discriminate consumers according to their profiles and boosts the profitability of BBPD at the expense of consumers.
Tuesday, January 26, 2016
Hemant K. Bhargava, University of California, Davis, David S. Evans, Global Economics Group; University of Chicago Law School; University College London, and Deepa Mani, Indian School of Business (ISB), Hyderabad examine The Move to Smart Mobile and its Implications for Antitrust Analysis of Online Markets.
ABSTRACT: Online markets have changed as a result of people shifting massively from using personal computers and browsers to using technologically powerful mobile devices and apps. These changes cover leading online players, consumer behavior, and products. The use of smartphones and mobile apps, and the speed of change, vary between countries and in particular between countries based on their stage of development. Mobile app use is lower in fast-growing countries, such as India, than in developed ones, such as the United States. However, as smart mobile phones with mobile broadband connections become ubiquitous among consumers in developing countries, mobile app use in these countries is likely to leapfrog the use of personal computers and browsers. As a result of the movement to smart mobile, the analysis of markets that might have made sense several years ago, does not today, and will make even less sense several years hence. The widespread adoption of smart mobile has caused, and continues to result in, significant market disruption, including for incumbent Internet-based companies, which are themselves young compared to the traditional companies they disrupted. These dramatic and unpredictable changes pose several issues for antitrust. They show that antitrust analysis that focuses on static markets is highly prone to error when it comes to dynamic online industries, that authorities risk making assumptions during investigations that are disproven by the markets soon after they have brought charges or decided a case, and antitrust remedies are prone to be ineffective or harmful because they are developed for markets during the investigation but are radically different by the time the remedies are implemented.
Dubois, Pierre and Perrone, Helena address Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases.
ABSTRACT: Traditional demand models assume that consumers are perfectly informed about product characteristics, including price. However, this assumption may be too strong. Unannounced sales are a common supermarket practice. As we show, retailers frequently change position in the price rankings, thus making it unlikely that consumers are aware of all deals o¤ered in each period. Further empirical evidence on consumer behavior is also consistent with a model with price information frictions. We develop such a model for horizontally di¤erentiated products and structurally estimate the search cost distribution. The results show that in equilibrium, consumers observe a very limited number of prices before making a purchase decision, which implies that imperfect information is indeed important and that local market power is potentially high. We also show that a full information demand model yields severely biased price elasticities.