Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, June 8, 2017

Managed Care Marketplaces: Growing Drivers of Payer-Provider Vertical Integration

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.

June 8, 2017 | Permalink | Comments (0)

Wednesday, June 7, 2017

Are Vessel Sharing Agreements Pro-Competitive?

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.

 

June 7, 2017 | Permalink | Comments (0)

Does Competition Affect Bank Risk?

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.

June 7, 2017 | Permalink | Comments (0)

Effect of Utility Deregulation and Mergers on Consumer Welfare

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.

June 7, 2017 | Permalink | Comments (0)

Competition and Hospital Quality: Evidence from a French Natural Experiment

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.

June 7, 2017 | Permalink | Comments (0)

Tuesday, June 6, 2017

When Hotelling meets Vickrey: Service timing and spatial asymmetry in the airline industry

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.

June 6, 2017 | Permalink | Comments (0)

Consumer taste uncertainty in the context of store brand and national brand competition

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.

June 6, 2017 | Permalink | Comments (0)

Competition Policy at the Intensive and Extensive Margins in General Equilibrium

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.

June 6, 2017 | Permalink | Comments (0)

Private Labels Competition, Retail Pricing and Bargaining Power: The Case of Fluid Milk Market

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.

June 6, 2017 | Permalink | Comments (0)

Monday, June 5, 2017

The Use of Quantitative Economic Techniques in EU Merger Control

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.

June 5, 2017 | Permalink | Comments (0)

Distorted monopolistic competition

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.

June 5, 2017 | Permalink | Comments (0)

Platform price parity clauses with direct sales

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.

June 5, 2017 | Permalink | Comments (0)

Friday, June 2, 2017

Technology adoption in emission trading programs with market power

André, Francisco J. (Departamento de Análisis Económico. Universidad Complutense de Madrid.) ; Arguedas, Carmen. (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) explore Technology adoption in emission trading programs with market power.

ABSTRACT: In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. The presence of market power results in a di- vergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more e¤ective in reducing abatement costs. Also, the initial distribution of permits, in particular, the amount of permits initially given to the dominant rm, is crucial in determining over- or under-investment in relation to the benchmark model. Speci cally, if the dominant rm is initially endowed with more permits than the corresponding cost e¤ective allocation, this results in under- investment by the dominant rm and over- investment by the competitive fringe, regardless of the speci c amount of permits given to the latter rms. The results are reversed if the dominant rm is initially endowed with relatively few permits. Our ndings seem consistent with some empirical evidence about the performance of the power sector in the initial phases of the European Union Emission Trading System.

June 2, 2017 | Permalink | Comments (0)

Input price discrimination, two-part tariff contracts and bargaining

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.

June 2, 2017 | Permalink | Comments (0)

Political Determinants of Competition in the Mobile Telecommunication Industry

Mara Faccio and Luigi Zingales have an interesting paper on Political Determinants of Competition in the Mobile Telecommunication Industry.

ABSTRACT: We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones.

June 2, 2017 | Permalink | Comments (0)

Thursday, June 1, 2017

The State of Antitrust Enforcement Friday, June 09, 2017

The State of Antitrust Enforcement

Start : Friday, June 09, 2017 12:00 PM
End : Friday, June 09, 2017 02:00 PM

 
Location:
National Press Club
MWL Conference Rooms
529 14th Street, NW
Washington, DC 20045

Featured Speakers:
Albert A. Foer
Geoffrey A. Manne
Joshua D. Wright
Ronald A. Cass

Description:

Antitrust policy during much of the Obama Administration was a continuation of the Bush Administration’s minimal involvement in the market. However, at the end of President Obama’s term, there was a significant pivot to investigations and blocks of high profile mergers such as Halliburton-Baker Hughes, Comcast-Time Warner Cable, Staples-Office Depot, Sysco-US Foods, and Aetna-Humana and Anthem-Cigna. How will or should the new Administration analyze proposed mergers, including certain high profile deals like Walgreens-Rite Aid, AT&T-Time Warner, Inc., and DraftKings-FanDuel?

Join us for a lively luncheon panel discussion that will cover these topics and the anticipated future of antitrust enforcement.

Speakers: 

  • Albert A. Foer, Founder and Senior Fellow, American Antitrust Institute
  • Profesor Geoffrey A. Manne, Executive Director, International Center for Law & Economics

  • Honorable Joshua D. Wright, Professor of Law, George Mason University School of Law

  • Moderator: Honorable Ronald A. Cass, Dean Emeritus, Boston University School of Law and President, Cass & Associates, PC
Registration details:

Registration for this event is free of charge.

Please retain the QR code from the registration confirmation email for entrace into the Press Club. If you did not receive a confirmation email, please check your spam filter. If you still cannot find the email, please call (202) 822 8138. 

June 1, 2017 | Permalink | Comments (0)

The Effects of Internet Book Piracy: The Case of Japanese Comics

Tatsuo Tanaka (Faculty of Economics, Keio University) studies The Effects of Internet Book Piracy: The Case of Japanese Comics.

ABSTRACT: In this study, the effects of internet book piracy in the case of the Japanese comic book market were examined using direct measurement of product level piracy ratio and a massive deletion project as a natural experiment. Panel regression and difference-in-difference analysis consistently indicated that the effect of piracy is heterogeneous: piracy decreased the legitimate sales of ongoing comics, whereas the legitimate sales of completed comics increased. The latter result is interpreted as follows: piracy reminds consumers of past comics and stimulates sales in that market.

June 1, 2017 | Permalink | Comments (0)

Einer Elhauge to Receive the Jerry S. Cohen Award for Antitrust Scholarship

From the AAI Press release:

Harvard Law School's Einer Elhauge will receive the Jerry S. Cohen Award for Antitrust Scholarship at the American Antitrust Institute's Annual Conference on June 21. The Cohen Award was created through a trust established in honor of the late Jerry S. Cohen, an outstanding trial lawyer and antitrust writer. It is administered by the law firm he founded, Cohen Milstein Sellers & Toll.

Elhauge's winning article "Horizontal Shareholding," 129 Harv. L. Rev. 1267 (2016), catalogs new empirical evidence measuring the anticompetitive effects of institutional shareholders owning substantial stakes in horizontally competing firms and indicating that such horizontal shareholding is pervasive. Elhauge argues that horizontal shareholding can help explain fundamental economic puzzles including executive compensation methods, reluctance of firms to invest, and the rise of income inequality. He also argues that current antitrust law can tackle this problem by challenging stock acquisitions that create anticompetitive horizontal shareholdings in concentrated markets.

The award is given each year to the best antitrust writing during the prior year that is consistent with the following standards established by the Board of Trustees of the Jerry S. Cohen Memorial Fund. To be considered eligible and selected for the Award, submissions should reflect a concern for principles of economic justice; the dispersal of economic power; and the maintenance of effective limitations upon economic power or the federal statutes designed to protect society from various forms of anticompetitive activity. Submissions should reflect an awareness of the human and social impacts of economic institutions upon individuals, small businesses and other institutions necessary to the maintenance of a just and humane society-the values and concerns that Jerry S. Cohen dedicated his life and work to fostering. Submissions may address substantive, procedural or evidentiary matters that reflect these values and concerns.

 

I think that the award is well deserved.  Einer did a very nice job in working through the antitrust law implications of this topic. While I disagree with some of his analysis, he did what every good author of an article should do - get you to think critically and reexamine your assumptions.  I predict this essay will have some significant impact in both scholarly and policy communities. I also want to take this opportunity to announce that Einer will deliver the University of Florida Heath Endowed Antitrust Lecture in February 2018.  

June 1, 2017 | Permalink | Comments (0)

Ownership Concentration and Strategic Supply Reduction

Ulrich Doraszelski; Katja Seim; Michael Sinkinson; and Peichun Wang offer an empirical paper on Ownership Concentration and Strategic Supply Reduction.

ABSTRACT: We explore the sensitivity of the U.S. government's ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior to the auction and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. We analyze a potential rule change that reduces the distortion in payouts to license holders by up to 80%, but find that lower participation could greatly increase payouts and exacerbate strategic effects.

June 1, 2017 | Permalink | Comments (0)

On measuring welfare changes when varieties are endogenous

Behrens, Kristian ; Kanemoto, Yoshitsugu ; and Murata, Yasusada offer thoughts On measuring welfare changes when varieties are endogenous.

ABSTRACT: Extant studies take it for granted that there is a one-to-one mapping from a change in the equilibrium allocation to a change in welfare. We show that such a premise does not apply to fairly standard models of monopolistic competition. For any change in the equilibrium allocation, there exist an infinite number of possible welfare changes when the mass of varieties consumed differs between the two equilibria. Our results thus reveal a fundamental difficulty in measuring welfare changes when varieties are endogenous.

June 1, 2017 | Permalink | Comments (0)