Wednesday, July 27, 2016
Emmanuel LORENZON studies 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.
Eleftheriou, Konstantinos and Polemis, Michael explore Gasoline Price Wars: Spatial Dependence Awakens.
ABSTRACT: We build an Asymmetric Spatial Error Correction Model (ASpECM) to investigate the role of spatial dependence at the retail gasoline price adjustment mechanism. We find evidence that the symmetric price pattern is fully reversed when we account for spatial spillover effects, indicating that retail prices adjust more rapidly in an upward than a downward direction. This finding raises the possibility that retailers are more likely to engage in anti-competitive practices which may be ignored when the regulators bypass the role of spatial dependence.
Tuesday, July 26, 2016
Harrington, Joseph E. ; Hüschelrath, Kai ; and Laitenberger, Ulrich examine Rent sharing to control non-cartel supply in the German cement market.
ABSTRACT: A challenge for many cartels is avoiding a destabilizing increase in non-cartel supply in response to having raised price. In the case of the German cement cartel that operated over 1991-2002, the primary source of non-cartel supply was imports from Eastern European cement manufacturers. Industry sources have claimed that the cartel sought to control imports by sharing rents with intermediaries in order to discourage them from sourcing foreign supply. Specifically, cartel members would allow an intermediary to issue the invoice for a transaction and charge a fee even though the output went directly from the cartel member's plant to the customer. We investigate this claim by first developing a theory of collusive pricing that takes account of the option of bribing intermediaries. The theory predicts that the cement cartel members are more likely to share rents with an intermediary when the nearest Eastern European plant is closer and there is more Eastern ! European capacity outside of the control of the cartel. Estimating a logit model that predicts when a cartel member sells through an intermediary, the empirical analysis supports both predictions.
Gianpaolo Parise identifies Threat of entry and debt maturity: evidence from airlines.
ABSTRACT: I explore the effect of the threat posed by low-cost competitors on debt structure in the airline industry. I use the route network expansion of low-cost airlines to identify routes where the probability of future entry increases dramatically. I find that when strategic routes are threatened, incumbents significantly increase debt maturity before entry occurs. Overall, the main findings suggest that airlines respond to entry threats trading off financial flexibility for lower rollover risk. The results are consistent with models in which firms set their optimal debt structure in the presence of costly rollover failure.
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.
Monday, July 25, 2016
Arnildo da Silva Correa ; Myrian Beatriz S. Petrassi ; and Rafael Santos have posted Price-Setting Behavior in Brazil: survey evidence.
ABSTRACT: Price surveys became popular after the seminal work of Blinder (1991) exploring the price-setting practices of the US firms, which filled some blanks left by the simple observation of prices charged by firms. The present paper reports the findings of a survey conducted by the Central Bank of Brazil with local firms. The sample covered 7,002 firms, the entire country and 3 economic sectors: manufacturing, services and commerce. The collected answers suggest important features about price-setting behavior in Brazil, such as: (i) the cost of reviewing price are low, but there is important nominal rigidity – firms report that change prices 3.6 times per year –, (ii) state-dependent rules seem to be more frequent than time-dependent behavior, (iii) markup pricing appears to be the dominant strategy, and (iv) the two most important factors driving price changes are the cost of intermediate goods and the inflation rate. A complete description of the results ! is found throughout the paper and summarized in the final section. The paper also discusses some policy implications from the results
Ariel Pakes (Harvard) describes Empirical Tools and Competition Analysis: Past Progress and Current Problems.
ABSTRACT: I review a subset of the empirical tools available for competition analysis. The tools discussed are those needed for the empirical analysis of; demand, production efficiency, product repositioning, and the evolution of market structure. Where relevant I start with a brief review of tools developed in the 1990’s that have recently been incorporated into the analysis of actual policy. The focus is on providing an overview of new developments; both those that are easy to implement, and those that are not quite at that stage yet show promise.
Pedro Bento (Texas A&M University, Department of Economics) looks at Competition, Innovation, and the Number of Firms.
ABSTRACT: I look at manufacturing firms across countries and over time, and find that barriers to competition actually increase the number of firms. This finding contradicts a central feature of all current models of endogenous markups and free entry, that higher barriers should reduce competition and firm entry, thereby increasing markups. To rationalize this finding, I extend a standard model in two ways. First, I allow for multi-product firms. Second, I model barriers as increasing the cost of entering a product market, rather than the cost of forming a firm. Higher barriers to competition reduce the number of products per firm and per market, but increase markups and the total number of firms. Calibrating the model to U.S. data, I estimate cross-country differences in consumption as large as 65 percent from observed differences in barriers to competition. In addition, increasing barriers generates either a negative or inverted-U relationship between firm-level ! innovation and markups. While higher markups encourage product-level innovation through the usual Schumpeterian mechanism, firm-level innovation (at least eventually) drops as firms reduce their number of products. I provide new evidence supporting these two novel implications of the model - that product-level innovation increases with barriers to competition, while the number of products per firm decreases.
Bronwyn H. Hall (Institute for Fiscal Studies); Christian Helmers (Institute for Fiscal Studies and Santa Clara University); Georg von Graevenitz (Institute for Fiscal Studies and Queen Mary University of London) explore Technology entry in the presence of patent thickets.
ABSTRACT: We analyze the effect of patent thickets on entry into technology areas by firms in the UK. We present a model that describes incentives to enter technology areas characterized by varying technological opportunity, complexity of technology, and the potential for hold-up in patent thickets. We show empirically that our measure of patent thickets is associated with a reduction of first time patenting in a given technology area controlling for the level of technological complexity and opportunity. Technological areas characterized by more technological complexity and opportunity, in contrast, see more entry. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies regardless of a firm’s size.
Aleksandar B. Todorov (Department of Economics, University of Economics - Varna) is Assessing Competition in the Bulgarian Insurance Industry: A Panzar-Rosse Approach.
ABSTRACT: The study assesses the competitive behavior in the Bulgarian general insurance industry by applying an empirical methodology developed by Panzar & Rosse (1987). Based on company data from insurers' balance sheets and profit and loss accounts for the period between 2005 and 2014 a reduced-form revenue equation is estimated. The information about the insurers' competitive behavior is provided by the sum of the estimated factor price elasticities, which constitute the so called H-statistic. The fixed effects panel estimation suggests that the hypotheses of monopoly or collusive behavior cannot be rejected. These findings suggest that the Bulgarian insurance market is far from being perfectly competitive and may require further actions to promote its competitive development.
Sunday, July 24, 2016
D. Daniel Sokol, University of Florida - Levin College of Law and Jingyuan Ma,Central University of Finance and Economics provide an Understanding Online Markets and Antitrust Analysis.
ABSTRACT: Antitrust analysis of online markets is a hot topic around the world. In a number of jurisdictions, online markets already have been subject to antitrust review in merger or conduct cases. In other jurisdictions, these issues are in a nascent stage of policy. A number of lessons can be learned from the cases to date involving online markets with regard to optimal antitrust policy. What these cases tend to share are some basic features as to how online markets work. Some jurisdictions understand the particular dynamics of multi-sided online markets. Other competition authorities sometimes may misidentify these markets. This essay outlines four areas in which online markets may be different from traditional markets for antitrust purposes. The essay also explores why such markets require a more careful consideration from antitrust authorities and courts in their respective antitrust analyses.
Friday, July 22, 2016
Leemore Dafny; Kate Ho and Robin S. Lee examine The Price Effects of Cross-Market Hospital Mergers.
ABSTRACT: So-called "horizontal mergers" of hospitals in the same geographic market have garnered significant attention from researchers and regulators alike. However, much of the recent hospital industry consolidation spans multiple markets serving distinct patient populations. We show that such combinations can reduce competition among the merging providers for inclusion in insurers' networks of providers, leading to higher prices. The result derives from the presence of "common customers” (i.e. purchasers of insurance plans) who value both providers, as well as (one or more) "common insurers" with which price and network status is negotiated. We test our theoretical predictions using two samples of cross-market hospital mergers, focusing exclusively on hospitals that are bystanders rather than the likely drivers of the transactions in order to address concerns about the endogeneity of merger activity. We find that hospitals gaining system members in-state (but! not in the same geographic market) experience price increases of 6-10 percent relative to control hospitals, while hospitals gaining system members out-of-state exhibit no statistically significant changes in price. The former group are likelier to share common customers and insurers. This effect remains sizeable even when the merging parties are located further than 90 minutes apart. The results suggest that cross-market, within-state hospital mergers appear to increase hospital systems' leverage when bargaining with insurers.
This book is designed as a working tool for the study and practice of European Competition Law. It is an enlarged and updated fifth edition of the highly practical guide to the leading cases of European Competition Law. This new edition also contains detailed coverage of State Aid law. Each chapter begins with an introduction which outlines the relevant laws, regulations and guidelines for each of the topics, setting the analytical foundations for the case entries. Within this framework, cases are reviewed in summary form, accompanied by analysis and commentary. This seminal text is essential reading for competition law students and practitioners.
Jean-Pierre H. Dube, Zheng Fang, Nathan Fong and Xueming Luo experiment with Competitive Price Targeting with Smartphone Coupons.
ABSTRACT: We conduct a large-scale field experiment to study competitive price discrimination in a duopoly market with two rival movie theaters. The firms use mobile targeting to offer different prices based on location and past consumer activity. A novel feature of our experiment is that we test a range of relative ticket prices from both firms to trace out their respective best-response functions and to assess equilibrium outcomes. We use our experimentally-generated data to estimate a demand model that can be used to predict the consumer choices and corresponding firm best-responses at price levels not included in the test. We find an empirically large return on investment when a single firm unilaterally targets its prices based on the geographic location or historical visit behavior of a mobile customer. However, these returns can be mitigated by competitive interactions whereby both firms simultaneously engage in targeting. In practice, firms typically test on! ly their own prices and do not consider the competitive response of a rival. In our study of movie theaters, competition enhances the returns to behavioral targeting but reduces the returns to geo-targeting. Under geographic targeting, each theater offers a discount in the other rival's local market, toughening price competition. In contrast, under behavioral targeting, the strategic complementarity of prices coupled with the symmetric incentives of the two theaters to raise prices charged to high-recency customers softens price competition. Thus, managers need to consider how competition moderates the profitability of price targeting. Moreover, field experiments that hold the competitor's actions fixed may generate misleading conclusions if the permanent implementation of a tested action would likely elicit a competitive response.
Severin Frank (University of Marburg) and Wolfgang Kerber (University of Marburg) ask Patent Settlements in the Pharmaceutical Industry: What Can We Learn From Economic Analysis?
ABSTRACT: Patent settlements between originator and generic firms in the pharmaceutical industry have been challenged by antitrust and competition authorities in the U.S. and the EU. Particularly settlements with large "reverse payments" to generic firms raise the concern of collusive behaviour for protecting weak patents and delaying price competition through generic entry and therefore harming consumers. However, it is still heavily disputed under what conditions such patent settlements are anticompetitive and violate antitrust rules. This article scrutinizes critically what economic analysis has so far contributed to our knowledge about the effects of these patent settlements and the possible rules for their antitrust treatment. An important claim of this paper is that the problem of patent settlements can only be understood, if we analyze it not only from a narrow antitrust perspective but also take into account its deep interrelationship with the problems (and! the economics) of the patent system. Therefore we identify three different channels of effects, how patent settlements can influence consumer welfare: (1) price effects, (2) innovation incentive effects, and (3) effects via the incentives to challenge weak patents. The paper critically analyzes the existing economic studies and identifies a number of research gaps, especially also in regard to trade offs between different effects. It also suggests that policy solutions for these patent settlements should also be sought in combination with patent law solutions.
Thursday, July 21, 2016
Matthew Embrey (University of Sussex) ; Friederike Mengel (University of Essex and Maastricht University) and Ronald Peeters (Maastricht University) theorize Strategy Revision Opportunities and Collusion.
This paper studies whether and how strategy revision opportunities affect levels of collusion in indefinitely repeated two-player games. Consistent with standard theory, we find that such opportunities do not affect strategy choices, or collusion levels, if the game is of strategic substitutes. In contrast, there is a strong and positive effect for games of strategic complements. Revision opportunities lead to more collusion. The latter cannot be explained by renegotiation or standard risk-dominance considerations, but is consistent with a notion of fear of miscoordination based on minmax regret.
Monopoly VS Competition: Market Structure’s Impact on Product Innovation-with Endogenous Quality of New Product
ABSTRACT: This paper focuses on innovation for new product with exogenously determined horizontal difference from initial product which is provided either by a monopolist or by competitive firms. The innovator, no matter initially under monopoly or competition, will be unique producer of new product and need decide quality of new product which is correlated with investment for innovation. The paper through a model shows that for horizontally similar new product, competition is superior to monopoly to innovate. However, for typical horizontally differentiated product, a monopolist would choose higher quality and invest more than a competitive innovator does if innovation is complex, but brings about lower endogenous quality than the innovator initially under competition does if innovation is easy. Monopoly can support sales of new product with higher price of initial product, but also hamper product innovation to avoid erosion of initial profit. If it is presumed th! at complexity of innovation is always huge at the beginning, monopoly is more likely to generate innovation for horizontally different product while competition for similar product, respectively compared to each other.
Andrea Attar; Eloisa Campioni; and Gwenael Piaser provide thoughts On Competing Mechanisms under Exclusive Competition.
ABSTRACT: We study games in which several principals design incentive schemes in the presence of privately informed agents. Competition is exclusive: each agent can participate with at most one principal, and principal-agents corporations are isolated. We analyze the role of standard incentive compatible mechanisms in these contexts. First, we provide a clarifying example showing how incentive compatible mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling equilibria are robust against unilateral deviations toward arbitrary mechanisms. We then consider the single agent case and exhibit sufficient conditions for the validity of the revelation principle.
Wednesday, July 20, 2016
Pinar Akman, University of Leeds offers The Theory of Abuse in Google Search: A Positive and Normative Assessment Under EU Competition Law.
ABSTRACT: In its ongoing investigation into Google’s search practices, Google Search, the Commission alleges that Google abuses its dominant position on the web search market by giving systematic favourable treatment to its ‘comparison shopping product’ (namely, ‘Google Shopping’) in its general search results pages. This article analyses whether the conduct in question in Google Search can be an abuse under Article 102TFEU and if so, under what conditions. The article proceeds by first providing a positive assessment of the application of Article 102TFEU and the relevant case law to the issues involved in Google Search on the assumption that the Commission may seek to place the facts under an existing category of abuse. Three categories of abuse are analysed to this end: refusal to deal (including the essential facilities doctrine); discrimination; and, tying. The article then proceeds to a normative assessment of the circumstances under which Article 102TFEU should be applied in Google Search under a principled conceptualisation of ‘abuse’: one which requires exploitation, exclusion, and a lack of an increase in efficiency. The article finds that the facts in Google Search do not meet the requirements of the existing law to be found abusive unless the established frameworks for the types of abuse examined are unjustifiably disrupted. It also finds that under the conceptualisation of abuse adopted in this article, the facts in Google Search do not represent the type of conduct that should be found abusive either.