Monday, September 25, 2017
Tomaso Duso ; Jo Seldeslachts ; and Florian Szücs study The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets.
ABSTRACT: We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission’s (EC) and EU member states’ competition policy decisions, and combine it with firm- and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions – EC state aid and anti-trust interventions; as well as all individual Member State policy variables – do not have a uniform effect on energy markets’ functioning. Our findings are consistent with the idea that the EC’s merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.
Chatterjee, Susmita ; Chattopadhyay, Srobonti ; Chatterjee, Rittwik ; and Dutta, Debabrata identify Public Firm in Mixed Oligopolistic Structure: A Theoretical Exposition.
ABSTRACT: The logic for state monopoly of public utilities arises from increasing returns to scale and the concern that private business in these areas results in monopolistic exploitation of consumers. The state monopoly however is fraught with the danger of production inefficiency. In this backdrop, the market form of mixed oligopoly is contemplated in markets like health, education, electricity, gas, telecommunications etc, where public and private sector coexists. The private firms maximize profit but the public firm maximizes social welfare. Despite this theoretical exposition, it is often observed that public firms fail to make contributions according to their potentiality. The public firm in an industry with rapid change in technology can perform inefficiently due to decision making delay, adherence to social obligation. The policy makers must rise to these occasions then survival of public firms will be smooth. The option of public private partnership also derives affirmative results for the society and the particular industry per se.
Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Universidade de Évora, CEFAGE-UE) ; Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School) ; and Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance) are Quantifying the Coordinated Effects of Partial Horizontal Acquisitions.
ABSTRACT: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to quantify the coordinated effects of such acquisitions on differentiated products industries, by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained. The methodology can deal with settings involving all type of owners and ownership rights: owners that can be internal to the industry (rival firms) and external to the industry; and ownership rights that can involve financial interests and corporate control, can be direct and indirect, can be partial or full. We provide an empirical application of our proposed methodology to several acquisitions in the wet shaving industry. The results seem to suggest that the incentives of (i) the acquiring party’s firm to coordinate are non-decreasing after an acquisition (independently of whether it involves full or partial financial or corporate control rights, by internal or external owners), (ii) the acquired firm to coordinate are non-decreasing after acquisitions involving full or partial corporate control rights, but non-increasing after acquisitions involving full or partial financial rights, and (iii) the remaining firms in the industry to coordinate are non-increasing after an acquisition (again, independently of whether it involves full or partial financial or corporate control rights, by internal or external owners).
Paolo Bertoletti (Department of Economics and Management, University of Pavia) and Federico Etro (Department of Economics, University of Venice Ca' Foscari) study Monopolistic Competition, As You Like It.
ABSTRACT: We study imperfect and monopolistic competition with asymmetric preferences over a variety of goods provided by heterogeneous firms. We show how to compute equilibria through the Morishima elasticities of substitution. Simple pricing rules and closed-form solutions emerge under monopolistic competition when demands depend on common aggregators. This is the case for Generalized Additively Separable preferences (encompassing additive preferences and their Gorman-Pollak extensions), implicitly additive preferences and others. For applications to trade, with markups variable across goods of different quality, and to macroeconomics, with markups depending on aggregate variables, we propose specifications of indirectly additive, self-dual addilog and implicit CES preferences.
Friday, September 22, 2017
Simplice Asongu (Yaoundé/Cameroun) and Nicholas Biekpe (Cape Town, South Africa.) describe ICT, Information Asymmetry and Market Power in the African Banking Industry.
ABSTRACT: This study assesses how market power in the African banking industry is affected by the complementarity between information sharing offices and information and communication technology (ICT). The empirical evidence is based on a panel of 162 banks consisting of 42 countries for the period 2001-2011. Four estimation techniques are employed, namely: (i) instrumental variable Fixed effects to control for the unobserved heterogeneity; (ii) Tobit regressions to control for the limited range in the dependent variable; and (iii) Instrumental Quantile Regressions (QR) to account for initial levels of market power. Whereas results from Fixed effects and Tobit regressions are not significant, with QR: (i) the interaction between internet penetration and public credit registries reduces market power in the 75th quartile and (ii) the interaction between mobile phone penetration and private credit bureaus increases market power in the top quintiles. Fortunately, the positive net effects are associated with negative marginal effects from the interaction between private credit bureaus and mobile phone penetration. This implies that mobile phones could complement private credit bureaus to decrease market power when certain thresholds of mobile phone penetration are attained. These thresholds are computed and discussed.
The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing
Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics) ; Nguyen, Mai Thi (Dept. of Business and Management Science, Norwegian School of Economics) ; Steen, Frode (Dept. of Economics, Norwegian School of Economics) study The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing.
ABSTRACT: First, we analyze how regular days off from competition and a time-dependent price pattern affect firm performance. Second, we examine the effects on firms' profitability from consumers’ changing search- and timing behavior. We use microdata from gasoline retailing in Norway. Since 2004, firms have practiced an industry-wide day off from competition, starting on Mondays at noon, by increasing prices to a common level given by the recommended prices (decided and published in advance). Hence, firms know when and to what level to raise their price. In areas without local competition, retail prices are always equal to the recommended prices. Hinged on this, we regard recommended prices as the monopoly price level. In turn, a foreseeable low-price window is open before every restoration. During the data period, we observe an additional weekly restoration on Thursdays at noon. We show that an additional day off from competition increases firm performance. As expected, a conventional price search of where to buy reduces firms’ profitability. In contrast, consumers who are aware of the cycle and spend effort on when to buy have a positive impact on firms’ profitability. If consumers spend effort on when to buy rather than where to buy, price competition might be softened even in the low-price windows.
Pavan, Giulia ; Pozzi, Andrea ; Rovigatti, Gabriele offer evidence of Strategic Entry and Potential Competition: Evidence from Compressed Gas Fuel Retail.
ABSTRACT: We study the effect of competition on preemption incentives. An unexpected change in regulation in the Italian retail market for compressed natural gas fuel allows us to identify the potential entrants and creates exogenous variation in their number. We document that markets with a larger pool of potential competitors experience faster entry. We provide evidence suggesting that this occurs because a larger number of potential entrants raises firms' incentives to preempt.
Thursday, September 21, 2017
Thomas W. Quan (University of Georgia) and Kevin R. Williams (Cowles Foundation, Yale University) examine Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail.
ABSTRACT: Online retail gives consumers access to an astonishing variety of products. However, the additional value created by this variety depends on the extent to which local retailers already satisfy local demand. To quantify the gains and account for local demand, we use detailed data from an online retailer and propose methodology to address a common issue in such data - sparsity of local sales due to sampling and a significant number of local zeros. Our estimates indicate products face substantial demand heterogeneity across markets; as a result, we find gains from online variety that are 30% lower than previous studies.
F. Delbono ; L. Lambertini investigate Innovation and product market concentration: Schumpeter, Arrow and the inverted-U shape curve.
ABSTRACT: We investigate the relationship between market concentration and industry innovative effort within a familiar two-stage model of R&D race in which fi rms compete à la Cournot in the product market. With the help of numerical simulations, we show that such a setting is rich enough to generate Arrovian, Schumpeterian and inverted-U curves. We interpret these different patterns on the basis of the relative strength of the technological incentive and the strategic incentive.
Aguirregabiria, Victor and Slade, Margaret summarize Empirical Models of Firms and Industries.
ABSTRACT: We review important developments in Empirical Industrial Organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, inter-firm contracts, and auctions. We present models that are workhorses in empirical IO, and describe applications. For each topic, we discuss at least one empirical application using Canadian data.
Daniel Garcia explores Dynamic Pricing with Search Frictions.
ABSTRACT: This paper studies dynamic pricing in markets with search frictions. Sellers have a single unit of a good and post prices in every trading period. Buyers have to incur a search cost to match with a new seller and upon matching they observe the price and the realization of some idiosyncratic match value. There is no discounting but trade ends at an exogenously given deadline. We show that equilibrium involves trading in nitely many trading periods and the volume of trade increases over time. Under mild conditions on the buyerto- seller ratio and the distribution of valuations, prices decrease at increasing rates as the deadline approaches. We derive the gains from trade in equilibrium and their distribution between buyers and sellers. For the case in which the measures of buyers and sellers coincide, we provide a full characterization of the (unique) equilibrium for a class of distribution functions. We nally discuss implications for market design, including the use of platform fees and cancellation policies.
Wednesday, September 20, 2017
ABSTRACT: In a dynamic competition model where firms initially share half of the market and consumers have switching costs, consumers' sophistication, lifespan and concentration impact the possibility to set collusive prices. I first show that with strategic long-run consumers, collusion is harder to implement than when consumers are not strategic: with sophisticated consumers, a deviating fi rm can cash-in the rents that a buyer obtains after switching. I then study the consequences of relaxing buyers concentration and show that collusion is then easier to maintain than with non-strategic consumers: with strategic consumers a firm must offer a low price at the moment of deviation as consumers can bene t from increased competition, emerging from an asymmetric market structure, without having to pay switching costs. The paper suggests simple policy recommendations: it does not suffice to educate consumers about the competitive effects of their current purchasing decisions, but central purchasing agencies also need to be promoted.
Thomas N. Hubbard, Northwestern University - Department of Management & Strategy; National Bureau of Economic Research (NBER) and Michael J. Mazzeo, Northwestern University - Kellogg School of Management investigate When Demand Increases Cause Shakeouts.
ABSTRACT: Standard economic models that guide competition policy imply that demand increases should lead to more, not fewer firms. However, Sutton’s (1991) model illustrates that in some cases, demand increases can catalyze competitive responses that bring about shake-outs. This paper provides empirical evidence of this effect in the 1960s-1980s hotel and motel industry, an industry where quality competition increasingly took the form of whether firms supplied outdoor recreational amenities such as swimming pools. We find that openings of new Interstate Highways are associated with increases in hotel employment, but decreases in the number of firms, in local areas. We further find that while highway construction is associated with increases in hotel employment in both warm and cold places, it only leads to fewer firms in warm places (where outdoor amenities were more valued by consumers). Finally, we find no evidence of this effect in other industries that serve highway travelers, gasoline retailing or restaurants, where quality competition is either less important or quality is supplied more through variable costs. We discuss the implications of these results for competition policy, and how they highlight the importance and challenge of distinguishing between “natural” and “market-power-driven” increases in concentration.
Presented by the Program on Law and Government, Washington College of Law and the Washington Center for Equitable Growth
Antitrust is a hot topic today, attracting policy attention from journalists and politicians as well as academics. The protection of competition, consumers, and workers requires not only the enactment of laws but also their effective enforcement. This conference asks whether there is scope for more vigorous enforcement of existing law. The event will feature nine examples of enforcement possibilities presented by leading scholars in law and economics along with discussion by prominent antitrust practitioners.
• C. Scott Hemphill, A. Douglas Melamed and Philip J. Weiser: “Bringing Reality to the Law of Predation”
• Michael Katz and Jonathan Sallet: “Multi-Sided Platforms and Antitrust Enforcement”
• Steven C. Salop: “Restoring the Full Power of Antitrust: Vertical Merger Enforcement”
• Herbert Hovenkamp and Carl Shapiro: “Horizontal Mergers, Market Structure, and Burdens of Proof”
• Howard Shelanski: “Antitrust and Deregulation”
• C. Scott Hemphill and Nancy L. Rose: “Monopsony, Bargaining Leverage, and Buy-Side Benefits”
• Jonathan B. Baker and Fiona Scott Morton: “Platform MFNs and Antitrust Enforcement”
• A. Douglas Melamed and Carl Shapiro: “Antitrust and Effective FRAND Commitments”
• Herbert Hovenkamp and Fiona Scott Morton: “Horizontal Shareholding and Antitrust Enforcement”
Ralph Bernd Siebert, Purdue University discusses The Impact of Imperfect Information on Prices and Qualities: Evidence from the Housing Market.
ABSTRACT: This study empirically investigates how imperfect information on prices, qualities and search costs affect prices and qualities. We build on a comprehensive dataset on the housing market that encompasses detailed buyer-specific information on mortgages, income and residential status before moving as well as house and neighborhood characteristics of houses they bought. Based on a housing demand model, we find that incomplete information on quality and higher search costs explain an average increase in house prices by $27,800. Moreover, imperfect information on market prices increases prices by $7,900. Less informed buyers also purchase houses with less desirable qualities which explains a price reduction of $19,171. Hence, less informed buyers spend on average $16,529 ($27,800 $7,900-$19,171) more on houses due to imperfect information on prices and qualities. Our study provides insights to the policy debate on imperfect information on prices and qualities, i.e., incomplete information can lead to higher prices and lower qualities.
An Ode To A Great Law Dean Visionary - Dan Rodriguez of Northwestern who is stepping down as Dean at the end of this academic year
Dan Rodriguez, Dean of Northwestern Pritzker School of Law, will be stepping down at the end of this academic year. My spring 2018 course will be the fourth year I will teach part time at Northwestern and so I disclose that Dan is my part time boss.
Dan is the most visionary Dean at any law school in the United States. He has a keen sense of the fundamental transformations that have occurred in the legal workplace, how law responds and shapes disruptive innovation, and he has identified changes to the structure in higher education more generally. He made changes to the Northwestern law curriculum that seem to have improved student learning and development of critical analytical skills. He is also a wildly successful fundraiser, including a $100 million transformative gift from law alum JB Pritzker.
Dan launched the largest and most successful master of science of law program in the country. My students in that program are really great and have gotten better each year. The program started with a simple, and in retrospect, obvious proposition (and most of the best ideas are obvious in retrospect): many of the people involved in business who interface with law are not lawyers by training. Yet, law both shapes their opportunities and emerging business and technology structures reshape law. These non-lawyer individuals require some amount of legal training and legal astuteness for their business needs but not a general legal education. The Master of Science of Law (MSL) program brings together the study of the intersection of law, business and technology to fill this educational gap. The program (headed by the incredibly capable Leslie Oster) has over 100 STEM professional students enrolled in only its fourth year.
Dan has created bridges across disciplinary silos at Northwestern and worked with other units on campus such as engineering, the business school and arts and sciences on joint programming and other collaborative initiatives. Let me provide just two examples. I worked on a program relating to the basics of start up law (VC financing, IP and exit strategies) that was co-sponsored with a number of units on campus that brought in lots of students and faculty who were thinking about their own high tech ventures. In another setting, Dan organized what I thought was the highly successful Bridges II: The Law-STEM Alliance & Next Generation Innovation conference and related brainstorming session among law faculty involved in innovation.
Dan also has done a very good job in hiring a talented and diverse pool of faculty across a number of different areas of law and analytical approaches. We had Destiny Peery (law and psych, implicit bias) give a talk in our UF Faculty Workshop series last year. I also like the work of junior scholar Laura Pedraza-Fariña (IP sociology). Among lateral hires, some of the great ones in recent years have included: Dave Schwartz (empirical patents), Alex Lee (theoretical law and econ), Ajay Mehrotra (tax), and Sarah Lawsky (tax).
Dan has accomplished much and Northwestern and legal education more generally are better off because of Dan. Let me also put in a shout out to my full time Dean, Laura Rosenbury, who also has done a very good job and is transforming the University of Florida for the better.
Malcolm B. Coate and Arthur J. Del Buono ask Modelling the ease of entry in merger analysis: can financial analysis move the ball?
ABSTRACT: In competition policy, ease of entry, when present, generally trumps competitive concerns and allows market behaviour, such as a merger, to proceed unchallenged. Thus, the entry issue plays a role in every antitrust study. That said, it is surprising that entry analysis is inconsistently defined, both in the US courts and at the Agencies. Research suggests that the key problem revolves around the analysis of the likelihood of entry. This article addresses the likelihood problem head-on, suggesting that this question be addressed with a discounted cash flow analysis to assess the profitability of a hypothetical entry able to deter or defeat the potential anticompetitive effects caused by the merger. We present a comprehensive discounted cash flow model and broaden the analysis to evaluate the major risks of the project. We also discuss how to evaluate the results of the model and discuss various objections to and limitations of the modelling technique. Our methodology provides practitioners with an innovative approach to evaluate the profitability and thus the likelihood of entry in an antitrust analysis.
Tuesday, September 19, 2017
The Interaction of Public and Private Enforcement of Competition Law before and after the EU Directive – A Hungarian Perspective
Tihamer Toth, Competition Law Research Centre, Hungary; Peter Pazmany Catholic University - Faculty of Law has written on The Interaction of Public and Private Enforcement of Competition Law before and after the EU Directive – A Hungarian Perspective.
Abstract: The paper explores the changes the EU Directive on harmonizing certain rules governing actions for damages under national law for infringements of the competition law provisions will bring about in Hungary, with a special focus placed on damages liability rules, the interaction of public and private enforcement of these rules, and the importance of class actions. Amendments of the Competition Act introduced in 2005 and 2009 had created new rules to promote the idea of private enforcement even before the Directive was adopted. Some of these rules remain unique even now, notably the legal presumption of a 10% price increase for cartel cases. However, subsequent cases decided by Hungarian courts did not reflect the sophistication of existing substantive and procedural rules. There has only ever been one judgment awarding damages, while most stand-alone cases involved minor competition law issues relating to contractual disputes. The paper looks at the most important substantial rules of tort law (damage, causality, joint and several liability), the co-operation of competition authorities and civil courts, as well as at (the lack of) class action procedures from the perspective of the interaction of public and private enforcement of competition law.