Wednesday, February 12, 2025

Data and Algorithms: Designing Marketplace Analytics for Platform Sellers

Data and Algorithms: Designing Marketplace Analytics for Platform Sellers

 

Yi Liu

Wisconsin School of Business; University of Wisconsin - Madison

Fei Long

University of North Carolina (UNC) at Chapel Hill - Marketing Area

Date Written: July 10, 2024

Abstract

The data boom in e-commerce has spurred AI-powered marketplace analytics, but platforms hold the data reins. Some adopt open data-access policies with third-party analytics providers (e.g., permitting data-scraping or API-sharing) while others are restrictive. We ask why and when an e-commerce platform-capable of designing its own analytics to control sellers' actions-may benefit from open data-access policies to accommodate competing third-party analytics services, despite the potential drawbacks of weakening its data advantages and control. We analyze two intertwined decisions an ecommerce platform can make when designing analytics to predict market competition to assist sellers' pricing decisions involving (1) data-access policy and (2) algorithm design. We find that platforms may use over-optimistic algorithms (downplaying competition) in their own analytics. This may make sellers reluctant to adopt a platform's analytics, resulting in a lose-lose situation and prompting the platform to allow data access to third-party providers. In highly competitive markets, however, it benefits the platform to mislead sellers into believing the market is good and the sellers to be deluded into this belief. Overall, platforms gain from open data-access strategies in markets with moderately strong or weak competition. Finally, privacy legislation aimed at curtailing platforms' data-sharing practices may inadvertently hurt consumers.

February 12, 2025 | Permalink | Comments (0)

Tuesday, February 11, 2025

Do Hospital Mergers Reduce Waiting Times? Theory and Evidence from the English NHS

Do Hospital Mergers Reduce Waiting Times? Theory and Evidence from the English NHS

 

Vanessa Cirulli

Italian Agency for Development Cooperation 

Giorgia Marini

University of Rome La Sapienza

Marco A. Marini

Marco A. Marini; University of Rome La Sapienza

Odd Rune Straume

CESifo (Center for Economic Studies and Ifo Institute); University of Minho - Economic Policies Research Unit (NIPE)

Abstract

We analyse---both theoretically and empirically---the effect of hospitalmergers on waiting times in healthcare markets where prices are fixed. Usinga spatial modelling framework where patients choose provider based ontravelling distance and waiting times, we show that the effect istheoretically ambiguous. In the presence of cost synergies, the scope forlower waiting times as a result of the merger is larger if the hospitals aremore profit-oriented. This result is arguably confirmed by our empiricalanalysis, which is based on difference-in-differences estimations using along panel of data on hospital merger in the English National Health Service(NHS). While we find that hospital mergers lead to higher waiting times onaverage, we also show that the effects of a merger on waiting timescrucially rely on a legal status that can reasonably be linked to the degreeof profit-orientation. Whereas hospital mergers involving Foundation Truststend to reduce waiting times, the corresponding effect of mergers involvinghospitals without this legal status tends to go in the opposite direction.

February 11, 2025 | Permalink | Comments (0)

Monday, February 10, 2025

Concentrating Intelligence: Scaling and Market Structure in Artificial Intelligence

This paper examines the evolving structure and competition dynamics of the rapidly growing market for foundation models, with a focus on large language models (LLMs). We describe the technological characteristics that shape the AI industry and have given rise to fierce competition among the leading players. The paper analyzes the cost structure of foundation models, emphasizing the importance of key inputs such as computational resources, data, and talent, and identifies significant economies of scale and scope that may create a tendency towards greater market concentration in the future. We explore two concerns for competition, the risk of market tipping and the implications of vertical integration, and we evaluate policy remedies that aim to maintain a competitive landscape. Looking ahead to increasingly transformative AI systems, we discuss how market concentration could translate into unprecedented accumulation of power, highlighting the broader societal stakes of competition policy.

February 10, 2025 | Permalink | Comments (0)

Friday, February 7, 2025

Cloud technologies, firm growth and industry concentration: Evidence from France

By: Bernardo CaldarolaLuca Fontanelli
Abstract: Recent empirical evidence finds positive associations between digitalisation and industry concentration. However, ICT may not be all alike. We investigate the effect of the purchase of cloud services on the long run size growth rate of French firms. Our findings suggest that cloud services positively impact firm growth rates, with smaller firms experiencing more significant benefits compared to larger firms. This evidence suggests that the diffusion of cloud technologies may help mitigate concentration in the era of the digital transition by favouring the digitalisation and growth of smaller firms, especially when the cloud services provided are more advanced.
URL: https://d.repec.org/n?u=RePEc:ssa:lemwps:2024/25

February 7, 2025 | Permalink | Comments (0)

Thursday, February 6, 2025

Competing for cookies: Platforms business models in data markets with network effects

By: Sarit Markovich (Kellogg School of Management, Northwestern University, Evanston, IL, USA); Yaron Yehezkel (Coller School of Management, Tel-Aviv University, Ramat-Aviv, Israel)
Abstract: We consider platform competition when platforms can either 1) commercialize users data and in return offer their services for free (data-based business model); 2) protect users privacy and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users privacy. When network effects are strong, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model; thereby, increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong, and welfare reducing (or neutral) otherwise.
URL: https://d.repec.org/n?u=RePEc:net:wpaper:2402

February 6, 2025 | Permalink | Comments (0)

Wednesday, February 5, 2025

Network interoperability and platform competition

By: Jinglei Huang (Tsinghua University, School of Social Science, Mingzhai Building, Haidian District, Beijing, China); Guofu Tan (University of Southern California, 3620 South Vermont Avenue KAP Hall, 300, Los Angeles, CA 90089-0253, United States); Tat-How Teh (Nanyang Technological University, Division of Economics, 48 Nanyang Ave, 639818 Singapore); Junjie Zhou (Tsinghua University, School of Economics and Management, 30 Shuangqing Road, Haidian District, Beijing, China)
Abstract: Network interoperability between platforms often comes in various possible configurations, including industry-wide, coalition-based, and pairwise interoperability arrangements. We present an approach to incorporate generalized configurations of network interoperability into the analysis of price competition among any number of symmetric platforms. Specifically, the network benefit received by consumers on each platform increases with the effective network size of the platform, which is determined by an interoperability matrix reflecting the connections between platforms. Four key factors—the strength of interoperability, the shape of the network externality function, the interoperability configuration, and the number of platforms—jointly determine the equilibrium prices. Our findings show, among other things, that increased interoperability strength tends to reduce prices and benefit consumers when: (i) the network externality function exhibits strong increasing returns to scale, or (ii) the interoperability configuration includes multiple coalitions.
URL: https://d.repec.org/n?u=RePEc:net:wpaper:2403

February 5, 2025 | Permalink | Comments (0)

Tuesday, February 4, 2025

The Morality of Markets

By: Mathias Dewatripont (ULB - Université libre de Bruxelles); Jean Tirole (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
Abstract: Scholars and civil society have argued that competition erodes supplier morality. This paper establishes a robust irrelevance result, whereby intense market competition does not crowd out consequentialist ethics; it thereby issues a strong warning against the wholesale moral condemnation of markets and procompetitive institutions. Intense competition, while not altering the behavior of profitable suppliers, may, however, reduce the standards of highly ethical suppliers or not-for-profits, raising the potential need to protect the latter in the marketplace.
URL: https://d.repec.org/n?u=RePEc:hal:journl:hal-04695298

February 4, 2025 | Permalink | Comments (0)

Monday, February 3, 2025

Artificial Intelligence and Competition Policy

Artificial Intelligence and Competition Policy

Alden Abbott, Thibault Schrepel (eds.)

“Artificial Intelligence and Competition Policy” features 20 essays by leading scholars and practitioners exploring the wide range of questions bearing on the implications of AI for the competitive process. This collection of essays is divided into three sections, providing a solid foundation to delve into the emerging subjects: “Market Dynamics, Mergers, and Partnerships in AI”, “AI Challenges for Competition Law”, and “Policy Responses to the AI Boom”.

This book offers a provocative look at key areas of competition-related AI scholarship. It serves as a valuable resource for legislators, policymakers, and enforcers to assess how competition law can be adapted to confront the challenges of AI.

With contributions from: Cora AllenJonathan BarnettChristian BergqvistOliver BudzinskiYo Sop ChoiDiane CoyleDaniel CraneHayane DahmenStephen DnesFausto GernoneTeodora GrozaAaron HoagWilliam LehrMariateresa MaggiolinoGodefroy de BoiscuilléTejas N. NarechaniaMark NieferVictoriia NoskovaMaureen OhlhausenTaylor OwingsJennifer PullenLazar RadicCamilla RingelingQuentin B. SchäferGanesh SitaramanDaniel SpulberVolker StockerKristian StoutDavid TeeceAleksandra WierzbickaJohn Yun and Laura Zoboli.

February 3, 2025 | Permalink | Comments (0)

Friday, January 31, 2025

Markups and Markdowns

Markups and Markdowns

 

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Abstract

Interest in market power has recently surged among economists in many fields, well beyond its traditional home in industrial organization. This has focused empirical attention on markups, the ratios of price to marginal cost in product markets, and markdowns, the ratios of inputs’ marginal products to their paid wage in factor markets. In this review, I offer a conceptual overview of both metrics and survey recent research examining them. I pay particular attention to the distinct interests that microeconomists and macroeconomists have had regarding these metrics, as well as topics that have bridged and are bridging these often distinct literatures.

January 31, 2025 | Permalink | Comments (0)

Thursday, January 30, 2025

James F. Rill Liber Amicorum A Life in Antitrust

James F. Rill Liber Amicorum A Life in Antitrust

John Taladay, Paul Lugard, Jane Antonio (eds.)

This Liber Amicorum honors James F. Rill’s extraordinary career, his professional accomplishments, and his exceptional and lasting influence on the development of national and international antitrust law and policy.

This selection of 21 essays, written by Jim’s friends, current and former colleagues, academics and other prominent practitioners, provides insightful, analytical and thoughtful reflections on an array of current and historical topics in antitrust law. Together, they also reflect Jim Rill’s life in antitrust: his illustrious career as an antitrust practitioner, his successful tenure as Assistant Attorney General for Antitrust within the US Department of Justice and his ground-breaking work as Co-Chair of the International Competition Policy Advisory Committee (ICPAC), culminating in the creation of the International Competition Network (ICN).

As testified by this compilation of articles, Jim’s keen interest in the law, his dedication to the principles of international cooperation, convergence, and due process in antitrust, and his genuine interest in and affection for the people who are part of the antitrust community have made an enduring impact in the field of competition law and will continue to do so for many decades.

With contributions from: Alden F. AbbottJ. Howard Beales IIITerry CalvaniAllan Fels AOKonrad von Finckenstein C.M. K.C.Arianna FletcherEleanor FoxCalvin S. Goldman K.C.Mauro GrinbergSean HeatherRoy E. HoffingerHugh M. HollmannMerit E. JanowFrederic JennyKeith KloversChristina KolotourouAthena KontosakouTad LipskyPhilip LoweCecilio Madero VillarejoTimothy J. MurisBernard A. Nigro Jr.Eduardo Perez Motta, Jaime Andreu Romeo, Irving ScherJana I. SeidlTrevor SoamesRandolph TritellTheodore Voorhees Jr. and Christine S. Wilson.

January 30, 2025 | Permalink | Comments (0)

Wednesday, January 29, 2025

Germany's New Competition Tool: Sector Inquiry With Remedies

Germany's New Competition Tool: Sector Inquiry With Remedies

 

Martin Peitz

University of Mannheim; Centre for Economic Policy Research (CEPR)

Jens-Uwe Franck

University of Mannheim - Department of Law

Abstract

This paper explains the novelties for sector inquiries as a result of the 11th amendment to the German Competition Act. The Bundeskartellamt is now authorized to impose measures ranging from behavioural requirements to the unbundling of a company in order to remedy identified competition problems. The new regulatory instrument supplements antitrust law in an appropriate manner.

January 29, 2025 | Permalink | Comments (0)

Tuesday, January 28, 2025

The Efficiency of Dynamic Electricity Prices

The marginal cost of electricity fluctuates hour-by-hour, yet retail customers typically face flat prices. Using data from all seven US wholesale markets and a new method to evaluate alternative rates set in advance that accounts for equilibrium price effects, we estimate efficiency gains from time-varying price schedules that better align price with cost. We have three main results. First, time-of-use rates and critical-peak pricing, the two most common time-varying rate plans, each correct about 10% of mispricing. Second, complex rate structures based on historical prices often backfire. Third, real-time pricing with price ceilings can capture most potential efficiency gains while limiting customer risk.

January 28, 2025 | Permalink | Comments (0)

Monday, January 27, 2025

Markups and Cost Pass-through Along the Supply Chain

Markups and Cost Pass-through Along the Supply Chain

Santiago Alvarez

University of Basel

Alberto Cavallo

Harvard University - Business School (HBS)

Alexander MacKay

University of Virginia - Department of Economics

Paolo Mengano

Harvard Business School

Date Written: August 23, 2024

Abstract

We study markups and pricing strategies along the supply chain. Our unique dataset combines detailed price and cost information from a large global manufacturer with matched retail prices collected online for the period July 2018 through June 2023. We show that total markups—reflecting the difference between retail prices and production costs—are stable over time, despite the inflationary period at the end of the sample. Along the supply chain, manufacturer and retail markups are negatively correlated. For the most part, we find similar patterns across countries, though there is substantial heterogeneity in the split of markups between the manufacturer and retailers. Our analysis also reveals divergent pricing behaviors in response to cost shocks. The manufacturer adjusts prices more quickly than retailers and appears to more fully incorporate idiosyncratic cost shocks to specific products. Both types of firms respond more quickly to expected costs than to unexpected costs.

January 27, 2025 | Permalink | Comments (0)

Friday, January 24, 2025

AI and Antitrust: "The Algorithm Made Me Do It"

AI and Antitrust: "The Algorithm Made Me Do It"

Robin Feldman

UC Law, San Francisco

Caroline A. Yuen

UC Law, San Francisco; University of California, Berkeley; University of Oxford

Abstract

As the dawn of AI rises rapidly, competition authorities may wish to contemplate the potential for hazy days ahead. Undoubtedly, AI offers exciting possibilities for society-from sparking innovation, to enhancing efficiency, to easing life's burdens, to leveling the playing field for non-native speakers. Nevertheless, the future of AI may bring more than the opportunity to bask in its glow. As AI becomes a more accurate and skillful tool, it could conceivably lead to more anticompetitive hub-and-spokes arrangements that current competition laws may not be fully equipped to evaluate. Using the pharmaceutical supply chain as an example of an industry with concentrated intermediaries, this article discusses how such structures are tacit collusion, and how AI is likely to exacerbate the issue.

January 24, 2025 | Permalink | Comments (0)

Thursday, January 23, 2025

Market Power, Technology Shocks, and the Profitability Premium

Market Power, Technology Shocks, and the Profitability Premium

Yao Deng

University of Connecticut

Ding Luo

City University of Hong Kong

Jincheng Tong

University of Toronto

Abstract

This paper studies how market power affects the well-documented positive relation between firms' profitability and future stock returns in the cross-section. We find that this relation is significantly more pronounced among firms with high markup. A long-short portfolio sorted on profitability earns an average monthly return of 0.57% among firms with high markup, and only 0.05% among firms with low markup. Firms' differential exposure to investment-specific technology shocks explains this gap. To understand these results, we introduce market power into a standard investment-based asset pricing model to study its impact on firms' endogenous investment and risk exposures. Market power exacerbates the displacement risk faced by highly profitable firms.

January 23, 2025 | Permalink | Comments (0)

The Effect of Demand Variability on the Adoption and Design of a Third Party's Pricing Algorithmm

The Effect of Demand Variability on the Adoption and Design of a Third Party's Pricing Algorithm

Joseph E. Harrington Jr

University of Pennsylvania

Abstract

Consider a data analytics company supplying a pricing algorithm that adjusts price to a changing demand state. For this setting, I show the pricing algorithm is designed and priced so that higher demand variability results in more firms adopting the pricing algorithm. Furthermore, there is a critical threshold for demand variability whereby there is complete or near-complete adoption of the pricing algorithm. While widespread adoption of a third party's pricing algorithm among competitors has raised concerns of collusive conduct, it could instead reflect a strong efficiency delivered by a third party.

January 23, 2025 | Permalink | Comments (0)

Wednesday, January 22, 2025

Competition and Defaults in Online Search

Competition and Defaults in Online Search

Francesco Decarolis

Bocconi University - Department of Economics

Muxin Li

Bocconi

Filippo Paternollo

Columbia University

Abstract

This paper offers the first systematic quantitative assessment of default-option interventions designed to mitigate Google's search dominance. By analyzing interventions in the European Economic Area, Russia, and Turkey, we find that, across all three cases, changes to default settings effectively reduced Google's market share. The causal impact amounts to less than 1 percentage point in the EEA and over 10 percentage points in Russia and Turkey. Differences arise from intervention nuances, including the size of the targeted users' group, local market characteristics, and remedy designs. We discuss the complexity of assessing the interventions' impact on welfare deriving from quality responses.

January 22, 2025 | Permalink | Comments (0)

Tuesday, January 21, 2025

The Distribution of Common Ownership and Product Market Outcomes

The Distribution of Common Ownership and Product Market Outcomes

Yufei Deng

Universidad Carlos III de Madrid

Pablo Ruiz-Verdú

Universidad Carlos III de Madrid

Abstract

We study the relation between the distribution of common ownership in an industry, aggregate industry outcomes, and the distribution of market shares. We show that increasing the common owners' stake in a firm need not be anticompetitive and that industry profits can be higher in an industry with lower average common ownership. We also show that the equilibrium market structure is closely related to the distribution of sympathy coefficients, which measure the extent to which firm managers care about their rivals' profits and determine how aggressively firms compete. In particular, the ordering of product market shares is the inverse of the ordering of sympathy coefficients. Aggregate industry outcomes are determined not just by the average level of sympathy but also by the asymmetry of its distribution across firms.

January 21, 2025 | Permalink | Comments (0)

Monday, January 20, 2025

NEW VISION, OLD MODEL: HOW THE FTC EXAGGERATED HARMS WHEN REJECTING BUSINESS JUSTIFICATIONS FOR NONCOMPETES

NEW VISION, OLD MODEL: HOW THE FTC EXAGGERATED HARMS WHEN REJECTING BUSINESS JUSTIFICATIONS FOR NONCOMPETES

 

Alan J. Meese

William & Mary Law School

Abstract

The Federal Trade Commission has rejected consumer welfare and the Rule of Reason — standards that drove antitrust for 50 years — in favor of a “NeoBrandeisian” vision.  This approach seeks to enhance democracy by condemning abuses of corporate power that restrict the autonomy of employees and consumers, regardless of impact on prices or wages.  Pursuing this agenda, the Commission has proposed banning all employee noncompete agreements (“NCAs”) as unfair methods of competition under Section 5 of the FTC Act. 

The Notice of Proposed Rulemaking (“NPRM”) articulating the Commission’s rationale found that NCAs reduce aggregate wages, harm traditionally recognized by the Rule of Reason.  But the NPRM also found that nearly all NCAs are both procedurally and substantially coercive, because employers use overwhelming bargaining power to impose agreements that restrict employees’ post-employment autonomy.  The invocation of coercion as distinct antitrust harm reflected NeoBrandeisian concerns about corporate power in today’s economy.

Echoing Transaction Cost Economics (“TCE”), the Commission conceded that NCAs can encourage employee training and/or creation of trade secrets.  The Commission nonetheless rejected such business justifications for two reasons.  First, these benefits do not exceed NCAs’ harms.  Second, NCAs are not “narrowly tailored,” because alternative, albeit less effective, means can further such objectives.  Both rationales assumed that the benefits of nonexecutive NCAs always coexist with all three harms described above. 

This essay critiques the Commission’s assumption that NCAs’ benefits coexist with both forms of coercion and the resulting rejection of business justifications for NCAs.  The coexistence assumption echoes Price Theory’s partial equilibrium tradeoff (“PET”) model, which informs the same consumer welfare standard the Commission has rejected.  This model treats the creation of market power and resulting misallocation of resources as the sole antitrust harm, to be balanced against any productive efficiencies, which necessarily coexist with such harm.

However, the Commission’s NeoBrandeisian focus on coercion introduced a new form of antitrust harm, which entailed a particular process of contract formation, independent of any impact on prices or wages.  Moreover, TCE teaches that, unlike efficiencies contemplated by Price Theory, efficiencies generated by NCAs are non-technological in nature and arise in low transaction cost settings.  Taken together, the altered definition of harm and TCE’s account of efficiencies undermine application of the PET model’s coexistence assumption when assessing business justifications for NCAs. 

            In particular, TCE predicts that fully-disclosed NCAs that produce significant benefits reflect voluntary contractual integration between the parties and are thus not procedurally or substantively coercive.  Proof that such NCAs create benefits undermines the prima facie case of coercion and obviates any need to balance benefits against supposed coercive harms.   The Commission’s assessment of business justifications therefore rested upon an exaggeration of the harms that NCAs produce and may have reached an erroneous result.

To be sure, proof that some or even all NCAs are voluntary does not refute the findings that NCAs have an aggregate negative impact on wages.  Perhaps this narrower set of harms still outweighs the benefits that NCAs produce.  Or perhaps an assessment of “balanced alternatives” would still conclude that NCAs are on net inferior to alternatives.  However, the NPRM performed no such assessment. As a result, the Commission must reconsider its rejection of business justifications, this time unconstrained by the inapposite PET model.

The Commission’s erroneous exaggeration of harms highlights the perils of abrupt and ill-considered normative change.  The Commission developed its Section 5 enforcement policy without public input and ignored public comment and academic literature explaining TCE’s account of voluntary contract formation.    Instead of adapting its methodology of assessment to its new normative account of Section 5, the Commission implicitly fell back on the PET model — developed to assess entirely different economic phenomena.  The Commission should reconsider its new normative account of antitrust harm or revise its methodology of assessing business justifications to reflect the best economic account of the formation of NCAs.

January 20, 2025 | Permalink | Comments (0)

Friday, January 17, 2025

Upstream Collusion with Downstream Compensation

Upstream Collusion with Downstream Compensation

 

Dingwei Gu

School of Management, Fudan University

Zhiyong Yao

Fudan University - School of Management

Bingyong Zheng

Shanghai University of Finance and Economics - School of Economics

Abstract

This paper investigates upstream collusion that needs to compensate downstream firms to prevent them from antitrust litigation. Our analysis shows that the relationship between cartel incidence and upstream market concentration is nonmonotonic and likely to exhibit an inverted U shape. As the compensation for downstream firms increases, this inverted U shape becomes more pronounced. Although the compensation reduces the negative effects of upstream collusion on social welfare and consumer surplus, a small amount of compensation facilitates upstream collusion. These findings have important implications for antitrust policy and market regulation.

January 17, 2025 | Permalink | Comments (0)