Tuesday, April 23, 2024

Vertical product differentiation, prominence, and costly search

Vertical product differentiation, prominence, and costly search

By:

Rozzi, Roberto; Schmitt, Stefanie Y.

Abstract:

In many markets, firms offering low-quality goods are more prominent than firms offering high-quality goods. Then, consumers are perfectly informed about the good of the prominent low-quality firm but incur search costs to bring the high-quality good of a competitor to mind. We analyze under which circumstances the less-prominent firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous search costs. If search costs are homogeneous, the less-prominent firm produces highquality goods for sufficiently low search costs, and an increase in search costs reduces the range of values for which the less-prominent firm invests in high quality. In contrast, if search costs are heterogeneous, the less-prominent firm produces high-quality goods for sufficiently high search cost heterogeneity, and an increase in average search costs expands the range of values for which the less-prominent firm invests in high quality.

URL:

http://d.repec.org/n?u=RePEc:zbw:bamber:283000&r=ind

April 23, 2024 | Permalink | Comments (0)

Monday, April 22, 2024

Cambridge-USC Virtual Antitrust Workshop series as they welcome Professor Dale Collins (Georgetown University Law Center) - “Politics and the Passage of the Sherman Act” - Thursday, May 2, 2024 at 9:00 a.m. (PST)

Please join Daniel Sokol, Carolyn Craig Franklin Chair in Law and Professor of Law and Business, USC Gould School of Law and USC Marshall School of Business, and Okeoghene Odudu, Professor of Competition Law, Fellow of Emmanuel College, University of Cambridge and Deputy Director of the Centre for European Legal Studies, in the Cambridge-USC Virtual Antitrust Workshop series as they welcome Professor Dale Collins (Georgetown University Law Center), who will present his paper “Politics and the Passage of the Sherman Act” on Thursday, May 2, 2024 at 9:00 a.m. (PST) /12:00pm (EST).

https://lnkd.in/grRY97Wn

Please email me if you would like to join the distribution list for the workshop series and would like the zoom information.

April 22, 2024 | Permalink | Comments (0)

Private labels and platform competition

Private labels and platform competition

By:

Saruta, Fuyuki

Abstract:

This study examines the degree and manner by which first-party selling by a platform affects the profits of a third-party seller and a competing platform. After developing a model in which a third-party seller distributes goods through two competing platforms, with only one platform able to have a private label, we analyze first-party selling effects in both monopoly and duopoly platform cases. Our findings demonstrate the following. In a monopoly case, a platform consistently reduces the seller fee when introducing a private label. In a duopoly case, the two platforms will jointly raise or lower fees upon private label introduction. Additionally, first-party selling can either positively or negatively affect the competing platform's profit. Results suggest that competition among platforms might upset the influence of first-party selling on commission fees. Consequently, platforms might opt for first-party selling as a strategy to weaken commission fee competition and retail competition.

URL:

http://d.repec.org/n?u=RePEc:pra:mprapa:119585&r=ind

April 22, 2024 | Permalink | Comments (0)

Saturday, April 20, 2024

2024 Milton Handler Antitrust Lecture: Bill Baer

The presenter of the 2024 Milton Handler Antitrust Lecture of the New York City Bar Association will be Bill Baer, Visiting Fellow at the Brookings Institution, and the only person to have served as both AAG Antitrust and Director of the FTC Bureau of Competition.  Bill will speak on "Competition Policy and Enforcement in the Biden Administration."

Bill's presentation will be followed by a panel discussion with him moderated by Prof. Spencer Weber Waller, Professor and Director of the Institute for Consumer Antitrust Studies at Loyola Law School.  The panelists are Daniel Brockett, Quinn Emanuel Urquhart & Sullivan; Arthur Burke, Davis Polk & Wardwell; George Cary, Cleary Gottlieb Steen & Hamilton; and Karin Garvey, DiCello Levitt.

Full details and registration are online at   https://services.nycbar.org/Members/Event_Display.aspx?EventKey=CMTE051424&We 


April 20, 2024 | Permalink | Comments (0)

Friday, April 19, 2024

Tech Giants and New Entry Threats

Tech Giants and New Entry Threats

Yang Pan

Tulane University - A.B. Freeman School of Business

Wei-Ling Song

Louisiana State University

Abstract

Tech giants like Amazon, Apple, Facebook, Google, and Microsoft have drawn antitrust concerns due to their perceived power, potentially stifling new startups, especially through the so-called kill zone within their product domains. This study demonstrates that tech-giant entrants face a significantly lower likelihood of obtaining follow-on financing and achieving long-term survival in recent years. However, such phenomena are transitory and concentrated among tech-giant entrants lacking patents and operating within segments characterized by high network effects. There is no evidence that the M&As conducted by tech giants deter entries. Furthermore, tech giants experience more entries compared to the average tech incumbent.

April 19, 2024 | Permalink | Comments (0)

Buyer Power and the Effect of Vertical Integration on Innovation

Buyer Power and the Effect of Vertical Integration on Innovation

By:

Claire Chambolle; Morgane Guignard

Abstract:

Our article investigates the impact of vertical integration (without foreclosure) on innovation. We compare cases where either (i) two manufacturers or (ii) a manufacturer and a vertically integrated retailer invest. Then, the independent manufacturer( s) and the retailer bargain over non-linear contracts before selling to consumers. We show that vertical integration always increases the incentives to invest on the integrated product which stifles (resp. spurs) the investment of the independent manufacturer when spillovers are low (resp. high). In contrast, when investments are sequential, if the buyer power is high, the leader independent manufacturer invests more (resp. less) to discourage the integrated retailer’s investment when spillovers are low (resp. high). Furthermore, vertical integration is always profitable even when it is not desirable for the industry and welfare. Overall, vertical integration is only desirable for the industry when the buyer power is high and may damage welfare when both the buyer power and spillovers are low.

URL:

http://d.repec.org/n?u=RePEc:diw:diwwpp:dp2071&r=ind

April 19, 2024 | Permalink | Comments (0)

Thursday, April 18, 2024

Private labels and platform competition

Private labels and platform competition

By:

Saruta, Fuyuki

Abstract:

This study examines the degree and manner by which first-party selling by a platform affects the profits of a third-party seller and a competing platform. After developing a model in which a third-party seller distributes goods through two competing platforms, with only one platform able to have a private label, we analyze first-party selling effects in both monopoly and duopoly platform cases. Our findings demonstrate the following. In a monopoly case, a platform consistently reduces the seller fee when introducing a private label. In a duopoly case, the two platforms will jointly raise or lower fees upon private label introduction. Additionally, first-party selling can either positively or negatively affect the competing platform's profit. Results suggest that competition among platforms might upset the influence of first-party selling on commission fees. Consequently, platforms might opt for first-party selling as a strategy to weaken commission fee competition and retail competition.

URL:

http://d.repec.org/n?u=RePEc:pra:mprapa:119585&r=ind

April 18, 2024 | Permalink | Comments (0)

Wednesday, April 17, 2024

Regulation of Algorithmic Collusion

Regulation of Algorithmic Collusion

By:

Jason D. Hartline; Sheng Long; Chenhao Zhang

Abstract:

Consider sellers in a competitive market that use algorithms to adapt their prices from data that they collect. In such a context it is plausible that algorithms could arrive at prices that are higher than the competitive prices and this may benefit sellers at the expense of consumers (i.e., the buyers in the market). This paper gives a definition of plausible algorithmic non-collusion for pricing algorithms. The definition allows a regulator to empirically audit algorithms by applying a statistical test to the data that they collect. Algorithms that are good, i.e., approximately optimize prices to market conditions, can be augmented to contain the data sufficient to pass the audit. Algorithms that have colluded on, e.g., supra-competitive prices cannot pass the audit. The definition allows sellers to possess useful side information that may be correlated with supply and demand and could affect the prices used by good algorithms. The paper provides an analysis of the statistical complexity of such an audit, i.e., how much data is sufficient for the test of non-collusion to be accurate.

URL:

http://d.repec.org/n?u=RePEc:arx:papers:2401.15794&r=ind

April 17, 2024 | Permalink | Comments (0)

Tuesday, April 16, 2024

The Anatomy of Concentration: New Evidence From a Unified Framework

The Anatomy of Concentration: New Evidence From a Unified Framework

By:

Kenneth R. Ahern; Lei Kong; Xinyan Yan

Abstract:

Concentration is a single summary statistic driven by two opposing forces: the number of firms in a market and the evenness of their market shares. This paper introduces a generalized measure of concentration that allows researchers to vary the relative importance of each force. Using the generalized measure, we show that the widely-cited evidence of increasing industrial employment concentration is driven by the Herfindahl Index's over-weighting of evenness and under-weighting of firm counts. We propose an alternative, equally-weighted measure that has an equivalent economic meaning as the Herfindahl Index, but possesses superior statistical attributes in typical firm size distributions. Using this balanced measure, we find that employment concentration decreased from 1990 to 2020. Finally, decomposing aggregate diversity into meaningful geographic and industry subdivisions reveals that concentration within regional markets has fallen, while concentration between markets has risen.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:32057&r=ind

April 16, 2024 | Permalink | Comments (0)

Monday, April 15, 2024

Deterrence in Merger Review: Likely Impacts of Recent U.S. Policy Changes

Deterrence in Merger Review: Likely Impacts of Recent U.S. Policy Changes

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Steven Tschantz

Vanderbilt University - Department of Mathematics

Gregory J. Werden

Independent; George Mason University - Mercatus Center

Abstract

We model deterrence in a multistage merger review process, potentially ending in a court proceeding. Potential merging parties sequentially decide whether to begin the process, and whether to proceed to the next stage, in the face of uncertainty about what the enforcement agency or court will do. The model is designed to explore the complex impacts of policy changes in a costly regulatory process subject to uncertainty, and in particular to elucidate the likely impact of policy changes by the two U.S. enforcement agencies. The model shows why those policy changes can be expected to succeed in deterring bad mergers but at the cost of deterring a greater number of good mergers.

April 15, 2024 | Permalink | Comments (0)

Friday, April 12, 2024

Airline delays, congestion internalization and non-price spillover effects of low cost carrier entry

Airline delays, congestion internalization and non-price spillover effects of low cost carrier entry

By:

William E. Bendinelli; Humberto F. A. J. Bettini; Alessandro V. M. Oliveira

Abstract:

This paper develops an econometric model of flight delays to investigate the influence of competition and dominance on the incentives of carriers to maintain on-time performance. We consider both the route and the airport levels to inspect the local and global effects of competition, with a unifying framework to test the hypotheses of 1. airport congestion internalization and 2. the market competition-quality relationship in a single econometric model. In particular, we examine the impacts of the entry of low cost carriers (LCC) on the flight delays of incumbent full service carriers in the Brazilian airline industry. The main results indicate a highly significant effect of airport congestion self-internalization in parallel with route-level quality competition. Additionally, the potential competition caused by LCC presence provokes a global effect that suggests the existence of non-price spillovers of the LCC entry to non-entered routes.

URL:

http://d.repec.org/n?u=RePEc:arx:papers:2401.09174&r=ind

April 12, 2024 | Permalink | Comments (0)

Thursday, April 11, 2024

Do larger firms exert more market power? Markups and markdowns along the size distribution

Do larger firms exert more market power? Markups and markdowns along the size distribution

By:

Mertens, Matthias; Mottironi, Bernardo

Abstract:

Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework.

URL:

http://d.repec.org/n?u=RePEc:ehl:lserod:121283&r=ind

April 11, 2024 | Permalink | Comments (0)

Wednesday, April 10, 2024

Search Engine Competition

Search Engine Competition

By:

Daniel Garcia

Abstract:

This paper studies a model of search engine competition with endogenous obfuscation. Platforms may differ in the quality of their search algorithms. I study the impact of this heterogeneity in consumer surplus, seller profits and platform revenue. I show that the dominant platform will typically induce higher prices but that consumers may benefit from asymmetries. I also show that enabling sellers to price-discriminate across platforms is pro-competitive. I then embed the static model in a dynamic setup, whereby past market shares lead to a better search algorithm. The dynamic consideration is pro-competitive but initial asymmetries are persistent.

URL:

http://d.repec.org/n?u=RePEc:ces:ceswps:_10856&r=ind

April 10, 2024 | Permalink | Comments (0)

Tuesday, April 9, 2024

General equilibrium, welfare and policy when firms have market power

General equilibrium, welfare and policy when firms have market power

By:

Moreno, Diego; Petrakis, Emmanuel

Abstract:

We consider a simple private goods market economy and show that when firms have market power the equilibrium real wage, employment, real output, and labor share are less than under perfect competition. Contrary to common wisdom market concentration may have non-monotonic general equilibrium effects: the equilibrium allocation of a monopolistic economy may Pareto dominate that of an oligopolistic economy. Corporate taxes provide an appropriate instrument to pursue distributional objectives since, unlike taxes on labor income, they do not create additional deadweight losses. An appropriate minimum real wage improves efficiency and increases the labor share in a monopolistic economy, whereas in an oligopolistic economy its efficiency effects are uncertain due the existence of multiple equilibria.

URL:

http://d.repec.org/n?u=RePEc:cte:werepe:39547&r=ind

April 9, 2024 | Permalink | Comments (0)

Monday, April 8, 2024

Market power and innovation in the intangible economy

Market power and innovation in the intangible economy

By:

De Ridder, Maarten

Abstract:

This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism, and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs, such as software, can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and US micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since the mid-1990s.

URL:

http://d.repec.org/n?u=RePEc:ehl:lserod:120285&r=ind

April 8, 2024 | Permalink | Comments (0)

Friday, April 5, 2024

Taking over the World? Automation and Market Power

Taking over the World? Automation and Market Power

By:

Haarburger, Richard; Stemmler, Henry

Abstract:

This paper studies how automation technology affects market power in the global economy. We develop a theoretical model in which firms' markups are endogenous to factor input choices based on technology levels, but are also affected by technology adoption of other domestic and foreign firms. In an empirical analysis, we find that market power, measured as the markup of price over marginal cost, declines on average with higher levels of automation. However, there is substantial heterogeneity, with firms in the highest revenue and markup quintile gaining market power. Moreover, we find that exposure to foreign automation increases competition in the local market.

URL:

http://d.repec.org/n?u=RePEc:zbw:esprep:281378&r=ind

April 5, 2024 | Permalink | Comments (0)

Thursday, April 4, 2024

Structural Change and the Rise in Markups

Structural Change and the Rise in Markups

By:

Ricardo Marto

Abstract:

Is the recent rise in markups caused by increased monopoly power or is it a natural consequence of structural change? I show that the rise in aggregate markups has been driven by a reallocation of market share away from non-services to services-producing firms and a faster increase of services’ markups. I develop a two-sector model to assess the sources of the rise in markups, in which the two forces of structural change play opposing roles. On one hand, an increase in the relative productivity of manufacturing leads to a decline of the relative price of manufactured goods and to an increase of the goods markups. On the other hand, the increase in incomes that triggers the rise of the services sector leads to higher markups for firms in services. I show that the rise in markups is in line with the rise of the services sector and the fall of the relative price of manufactured goods, and may not necessarily reflect a decline of competition. I provide novel experimental evidence supporting the notion that the price elasticity of demand decreases with income.

URL:

http://d.repec.org/n?u=RePEc:fip:fedlwp:97547&r=ind

April 4, 2024 | Permalink | Comments (0)

Wednesday, April 3, 2024

The Antitrust–Copyright Interface in the Age of Generative Artificial Intelligence

The Antitrust–Copyright Interface in the Age of Generative Artificial Intelligence

 

Daryl Lim

Pennsylvania State University, Dickinson Law; Fordham University - Fordham Intellectual Property Institute

Peter K. Yu

Texas A&M University School of Law

Abstract

The U.S. government's antitrust actions against Big Tech have recently surged in response to the growing dominance of Amazon, Apple, Google, Meta and Microsoft. Last fall, the Federal Trade Commission filed a controversial submission in response to the U.S. Copyright Office's request for comments on artificial intelligence (AI) and copyright. The agency's comments hinted at its eagerness to fully deploy its enforcement powers in the AI sector, including targeting AI developers that have made unauthorized use of copyrighted works to train their systems.

This article examines the changing interface of antitrust and copyright law in the age of generative AI. It argues that the antitrust–copyright interface now faces new complications in two directions. Technologically, the structural elements antitrust law aims to regulate are key to the success of AI developers. Politically, antitrust law is now confronted with an ideological shift from the once dominating Chicago School to the Neo-Brandeisian School. The article then highlights the oft-overlooked copyright's competition policy. It identifies several built-in procompetitive safeguards, such as fair use, the idea-expression dichotomy, the first sale doctrine, compulsory licenses and the copyright misuse doctrine.

The second half of this article makes the case against antitrust intervention at the nascent stage of AI development. It discusses how such intervention could stifle the growth of the AI sector, change longstanding antitrust principles, upset copyright's internal balance and generate unintended global consequences. The article concludes with a five-pronged strategy for reconfiguring the antitrust–copyright interface and reducing the tensions between antitrust and copyright law.

April 3, 2024 | Permalink | Comments (0)

Tuesday, April 2, 2024

How the Consumer Welfare Standard Solves the Monopoly Prisoner’s Dilemma: A Micro-in- Macro Analysis of Market Institutions

How the Consumer Welfare Standard Solves the Monopoly Prisoner’s Dilemma: A Micro-in- Macro Analysis of Market Institutions

Fabrizio Esposito

CEDIS - Nova School of Law

Gianmaria Pessina

Independent

Abstract

This article delves into the ongoing conflict between the total welfare standard and the consumer welfare standard in economic law analysis. This longstanding debate gains heightened significance due to its influence on the activities and institutional structure of antitrust authorities. Our aim is to provide a robust theoretical foundation for the prominence of the consumer welfare standard while contributing to the broader discussion surrounding market regulation. Our core argument is grounded in a micro-founded examination of market allocations, aiming to find common ground with mainstream economics, “the total welfare standards supporter”. From our perspective, the consumer welfare standard emerges as a “rule-in-equilibrium,” a choice that self-interested, rational agents would make to coordinate their behaviour across multiple markets. Crucially, the institutionalization of the consumer welfare standard addresses the Monopoly Prisoner’s Dilemma—a social dilemma where participants seek competitive advantages while assuming monopolistic roles. The article introduces the partial-in-general equilibrium analysis or micro-in-macro (MnM) approach, showing that the consumer welfare standard effectively resolves the social dilemma while the total welfare standard. It follows that the consumer welfare standard is not a proxy of the total welfare standard selected to simplify antitrust enforcement; on the contrary, the consumer welfare standard justifies the emergence of antitrust institutions and related market regulation mechanisms.

April 2, 2024 | Permalink | Comments (0)

Monday, April 1, 2024

Antitrust and LIE: The Impact of Competition on International Labor Investment Efficiency

Antitrust and LIE: The Impact of Competition on International Labor Investment Efficiency

Erik Devos

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Yoonsoo Nam

Clemson University - Wilbur O. and Ann Powers College of Business - Department of Finance

Adrian Tippit

University of South Dakota

Abstract

This article examines the impact of competition on labor investment efficiency in an international context. Using panel data on antitrust laws across 33 countries, we find that competition leads to improved efficiency in hiring decisions through reductions in both over- and under-investment in labor. This competitive effect appears to be driven by the fundamental rules governing competition rather than by regulations focused on law enforcement. We further find that this relationship strengthens in the presence of higher labor adjustment costs and more effective governance. Specifically, when employee protection laws are more potent, collectivism is more prevalent, and amidst elevated political stability, intensified government effectiveness, and heightened rule of law. We interpret our results as evidence that competition prompts active managers to seek improved labor investment efficiency, particularly when faced with efficiency-reducing labor adjustment costs or stricter governance. These results are the opposite when we focus solely on North America.

April 1, 2024 | Permalink | Comments (0)