Monday, June 21, 2021
Reflective Willingness to Pay: Preferences for Sustainable Consumption in a Consumer Welfare Analysis
Reflective Willingness to Pay: Preferences for Sustainable Consumption in a Consumer Welfare Analysis
Our starting point is the following simple but potentially underappreciated observation: When assessing willingness to pay (WTP) for hedonic features of a product, the results of such measurement are influenced by the context in which the consumer makes her real or hypothetical choice or in which the questions to which she replies are set (such as in a contingent valuation analysis). This observation is of particular relevance when WTP regards sustainability, the “non-use value” of which does not derive from a direct (physical) sensation and where perceived benefits depend heavily on available information and deliberations. The recognition of such context sensitivity paves the way for a broader conception of consumer welfare (CW), and our proposed standard of “reflective WTP” may materially change the scope for private market initiatives with regards to sustainability, while keeping the analytical framework within the realm of the CW paradigm. In terms of practical implications, we argue, for instance, that actual purchasing decisions may prove insufficient to measure consumer appreciation of sustainability, as they may rather echo learnt but unreflected heuristics and may be subject to the specific shopping context, such as heavy price promotions. Instead, when measuring WTP through hypothetical choices, the choice context can be adopted accordingly, and in the presence of non-negligible externalities, as is typical in the case of sustainability, consumers can be confronted with alternatives that escape the pitfall of free-riding and market failure.
Current discussions about how to regulate platforms revolve around the extent to which existing frameworks can and should be applied to modern-day platform firms and business models. We outline and explain the economic and strategic features of platforms, and compare and contrast them to utility industries often considered structurally similar. We will then outline the manner in which these industries have been regulated and the rules for regulatory intervention and assess how these approaches and others currently being discussed are likely to affect competition and innovation on modern-day platforms.
In various countries, competition laws restrict retailers’ freedom to sell their pro-ducts below cost. A common rationale, shared by policymakers, consumer interestgroups and brand manufacturers alike, is that such “loss leading” of products wouldultimately lead to a race-to-the-bottom in product quality. Building on Varian’s(1980) model of sales, we provide a foundation for this critique, though only whenconsumers are salient thinkers, putting too much weight on certain product attribu-tes. But we also show how a prohibition of loss leading can backfire, as it may makeit even less attractive for retailers to stock high-quality products, decreasing bothaggregate welfare and consumer surplus.
Friday, June 18, 2021
The discussion about how European Union (EU) competition law can support sustainability goals, for instance those of the European Green Deal, entirely neglects the role Article 102 TFEU can play. Equally absent is a discussion of the role competition law enforcement can play to strike down unsustainable business practices. Instead, the debate is mostly dominated by how competition law can facilitate (otherwise anticompetitive) agreements of undertakings through the application of Article 101(3) TFEU, essentially, offering less competition in exchange for sustainability initiatives.
Our research addresses the Article 102 TFEU gap in the debate and in the enforcement of EU competition law by looking at why and how the prohibition can be used as a sword to strike down unsustainable business practices. In this short chapter, we present our research on the relation between dominance and unsustainable business practices, examine briefly Article 102’s purpose and how it informs the concept of ‘abuse’, and introduce our ideas on how to see unsustainable business practices as ‘abuses’ of a dominant position. We do so by looking at barriers to entry, effects, and theories of harm.
Our approach is a departure from how Article 102 is currently enforced and contrary to an economic approach to EU competition law that is obsessed with efficiency instead of fairness and level playing field, that understands competition as a race to the bottom to reward undertakings that care only about profit, that is disjointed from the acute problems our societies currently face, and that is based on a blind belief that markets will solve those problems.
Yet, as we argue in this paper, that approach has failed and there is nothing normal, logical, or inevitable about the kind of competition it has enabled. We realised long ago that common standards (e.g. harmonization), offsetting charges (e.g. tariffs, anti-dumping measures, countervailing duties for subsidies), or exceptions on public policy grounds are needed in order to ensure States do not compete unfairly with low regulation. Within the context of constitutionalisation of private law, it is only inevitable to ensure that powerful market players be constrained from doing the same through their conduct. Thus seen, our approach is about more competition, just not the toxic kind. It is a call for refocusing competition policy and reconnecting concepts such as ‘abuse’ with the goals of the system of EU competition law.
We investigate collusive pricing in laboratory markets when human players interact with an algorithm. We compare the degree of (tacit) collusion when exclusively humans interact to the case of one firm in the market delegating its decisions to an algorithm. We further vary whether participants know about the presence of the algorithm. We find that three-firm markets involving an algorithmic player are significantly more collusive than human-only markets. Firms employing an algorithm earn significantly less profit than their rivals. For four-firm markets, we find no significant differences. (Un)certainty about the actual presence of an algorithm does not significantly affect collusion.
Thursday, June 17, 2021
We review the cartel penalty and leniency practices of the Competition Commission of India (CCI), in light of the law and economics literature on optimal penalties, as well as current practices in different jurisdictions. Our analysis reveals that although India’s Competition Act allows for a much harsher penalty than other jurisdictions in cartel cases, the actual practices followed by the CCI are often inconsistent and non-transparent, resulting in a large number of court cases and very low penalty recovery. This inconsistency also weakens the leniency programme adopted by the CCI in order to induce cartelists to come forward with evidence. In the majority of cases, penalties fall short of restitution and deterrence benchmarks suggested by some earlier literature. We conclude with some suggestions to improve India's penalty and leniency regime.
Powerful platforms that ‘hoard’ data in ecosystems, prevents the possibility to access or port data, or restrict interoperability may risk violating competition law. However, the general doctrine for triggering the refusal to supply abuse under Article 102 TFEU sets high thresholds. Moreover, competition law cannot be the basis for a general rights scheme, which is very well needed in the upcoming Internet of Things paradigm. Indeed, competition law does not suffice to overcome the anticompetitive effects of access to data is limited.
Perhaps, a sector specific competition regulation, e.g. an ex ante competition rules modelled after the proposal for a Digital Markets Act could be the solution. Such regulation could impose new form of violations and stipulate ex ante rules applicable to platforms. Yet, also with such a sector-specific regulation, the system risks be a piece meal, not adapted to the up-coming IoT era, and without a fundamental basis in a rights system available erga omnes for private parties. Indeed, it would provide some competition in reference to several sort of market failures created by platforms, yet it is not fit as a system for regulating the digital industry.
Indeed, as analysed in this Paper, competition law and sector specific regulations, are needed, but still works on a case-by-case basis and cannot be used to empower innovators and creators of data such as a general rights system for business providers of platforms, irrespectively whether these platforms are old Internet based or IoT based. The idea is to find a solution for dysfunctional data-driven markets, and the answer provided is that the EU should introduce an access and portability right. The subject-matter of the protection, the right holder, and the scope of the protection, including its exceptions and limitation under intellectual property law and competition law will be discussed. Indeed, the thesis of the Paper is to enact something akin to a new property right, an access and portability right, and the reason for such a legislative effort will be discussed.
I study the effects of a tax on ride-sharing trips in Chicago, which was nominally motivated by a desire to reduce congestion, but which also affected competition between ride-sharing platforms and traditional taxis. I find that platforms passed through more than 100% of the tax to consumers taking single rides, but there was incomplete pass-through to shared rides. This pattern can be explained by the two-sidedness of the market. The tax shifted demand back to taxis, but only in the downtown area, where competition is more intense. Finally, I find that the tax did not significantly reduce congestion and a simple calibration suggests that it lowered consumer surplus by over $300,000 per day.
Acquisitions are competitive moves that disrupt an industry’s competitive structure. As a result, firms are often not passive observers of their rival’s acquisitions, but actively retaliate against such competitive moves. In this study, we explore these dynamics by analyzing one way in which multimarket contact may influence acquisition strategies, namely, the type of targets acquired. We contribute to the acquisition literature by clarifying the role that pre-acquisition competitive interdependencies play in firms’ acquisition strategies. Specifically, we suggest that high multimarket contact firms do not necessarily avoid acquisition activity. Instead, these firms are more likely to acquire targets that are less likely to incur retaliation from interconnected rivals. We also explore two important boundary conditions to this relationship: (1) the market’s competitive structure and (2) the location of the target firm. Our empirical tests of a sample of 741 bank holding companies from 1995 to 2014 offer support for our hypotheses.
Wednesday, June 16, 2021
Is Taking Away User Traffic Anti-Competitive? Munich Court Stops Cooperation between Google and the German Federal Ministry of Health
Applying Ne Bis in Idem to Commission Proceedings Implicating Article 11(6) of Regulation 1/2003: Case C-857/19 Slovak Telekom
We estimate the effect of patent protection on follow-on investments in corporate scientific research. We exploit a new method for identifying an exogenous reduction in the protection a granted patent provides. Using data on public, research-active firms between 1990 and 2015, we find that firms decrease follow-on research after a reduction in patent protection, as measured by a drop in internal citations to an associated scientific article. This effect is stronger for smaller firms and in industries where patents are traded less frequently. Our findings are consistent with a stylized model whereby patent protection is a strategic substitute for commercialization capability. Our results imply that stronger patents encourage follow-on research, but also shift the locus of research from big firms toward smaller firms and startups. As patent protection has strengthened since the mid-1980s, our results help explain why the American innovation ecosystem has undergone a growing division of innovative labor, where startups become primary sources of new ideas.
Digital platforms are not only match-making intermediaries but also establish internal rules that govern all users in their ecosystems. To better understand the governing role of platforms, we study two Airbnb pro-guest rules that pertain to guest and host cancellations, using data on Airbnb and VRBO listings in 10 US cities. We demonstrate that such pro-guest rules can drive demand and supply to and from the platform, as a function of the local platform competition between Airbnb and VRBO. Our results suggest that platform competition sometimes dampens a platform wide pro-guest rule and sometimes reinforces it, often with heterogeneous effects on different hosts. This implies that platform competition does not necessarily mitigate a platform's incentive to treat the two sides asymmetrically, and any public policy in platform competition must consider its implication on all sides.
This paper maps out some of the vertical restraints in the online environment that are particularly relevant from the consumer perspective. This article focuses on some of the most contentious vertical restraints that directly involve prices, are particularly relevant for online commerce and are harmful to consumers – resale price maintenance, price parity clauses, dual pricing and bans on price comparison websites. We look at how these vertical restraints have been analysed in the EU to date and where we should go from here from a consumer perspective. Notwithstanding this limited focus, other vertical restraints—especially on online sales, selective distribution systems, or non-compete obligations—can also have strong anti-competitive effects and harm (final) consumers.
Tuesday, June 15, 2021
The Competition Commission of India’s (CCI) journey with “control” has been the subject of much discussion among competition law practitioners, businesses, and within the halls of the regulator’s office itself. As the new decade witnesses an increase in the reliance of technology as well as a consolidation in conventional industries, both catalysed by the Covid-19 pandemic, there is a corresponding increase in activity in the Indian merger market. It is therefore crucial for businesses contemplating mergers and/or acquisitions, to have a clear sense of the hurdles they need to cross, particularly if the merger activity in question is in the same or in a related industry. Since such activity may have an impact on competition in the market, the CCI would need to provide clarity on what constitutes control, and in which situations transacting parties are to approach the CCI. In addition, the CCI must be transparent in what factors it considers when assessing whether a control transaction causes anti-competitive effects. This paper proposes that the CCI provide a clear and concise list of scenarios which it considers as amounting to control, from the perspectives of both notifiability as well as from competitive effects and suggests a way forward for the CCI to resolve its control quandary.
The migration of business and social activities from physical to virtual venues, once known as the transition to the “New Economy,” is one of the defining characteristics of the digital revolution. This article explores a relatively underdeveloped aspect of the migration: the proliferation of fluid forms of arrangements, which, in the absence of a better term, I call flexible market arrangements (FMAs). In their essence, FMAs are alternatives to some of the structured arrangements that pervaded the brick-and-mortar economy. The core feature of FMAs—the flexibility—is derived from the elimination of economic constraints that are inherent to activities in physical spaces, such as the location of workers and consumers, capital investments, long-term contracts, employment relations, and preferences for in-person interactions. Concerns about competition in digital and labor markets and long-term trends in income and wealth inequality have shaped debates over antitrust policies in recent years. These debates, I argue, have failed to identify adequately the significance of the increasing prevalence of FMAs.
This article explains why the rapid spread of FMAs will become the subject of antitrust litigation, investigations, and legislative proposals. It further reviews changes in antitrust law and antitrust analysis that the proliferation of FMAs is likely to trigger.
Monday, June 14, 2021
The organizational structure of U.S. health care has changed dramatically in recent years, with nearly half of physicians now employed by hospitals. This trend toward increasing vertical alignment between physicians and hospitals may alter physician behavior relative to physicians remaining in independent or group practices. We examine the effects of such vertical alignment using an instrumental variable strategy and a clinical context facilitating well-defined episodes of care. We find relatively modest positive effects (point estimates of 7% or lower) on total Medicare payments per episode, characterized by an increase in billable activity among other integrated physicians alongside a large decrease in activity among non-integrated providers. Acquiring hospitals ultimately capture more revenue following a physician practice acquisition; yet, the smaller overall bundle of care generates no net savings to Medicare due to location-based payment rules favorable to hospitals.
Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.