Friday, January 21, 2022
Thursday, January 20, 2022
We examine the proﬁtability of personalized pricing policies that are derived using diﬀerent speciﬁcations of demand in a typical retail setting with consumer-level panel data. We generate pricing policies from a variety of models, including Bayesian hierarchical choice models, regularized regressions, and classiﬁcation trees using diﬀerent sets of data inputs. To compare pricing policies, we employ an inverse probability weighted estimator of proﬁts that explicitly takes into account non-random price variation and the panel nature of the data. We ﬁnd that the performance of machine learning models is highly varied, ranging from a 21% loss to a 17% gain relative to a blanket couponing strategy, and a standard Bayesian hierarchical logit model achieves a 17.5% gain. Across all models purchase histories lead to large improvements in proﬁts, but demographic information only has a small impact. We show that out-of-sample hit probabilities, a standard measure of model performance, are uncorrelated with our proﬁt estimator and provide poor guidance towards model selection.
Wednesday, January 19, 2022
Some argue that large platforms, such as Alphabet/Google, Amazon, Apple, Facebook and Microsoft (or GAFAM), are unusual in their number, pace and concentration of technology mergers, with the potential to harm market competition. Using a unique taxonomy developed by S&P Global Market Intelligence, we compare the M&A activities of GAFAM to other top acquirers from 2010 to 2020. We find: (i) GAFAM completed more tech acquisitions per firm than other groups of top acquirers, and acquired younger and more consumer-facing firms on average. (ii) The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an “acquire-adjacent-and-then-expand” strategy. (iv) Over time, more and more GAFAM and other top acquirers acquire in the same categories. (v) No evidence suggesting that a GAFAM acquisition in a category, compared to similar categories without GAFAM acquisitions, is correlated with a slowdown in the number of new acquirers acquiring in that category. Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.
The empirical analysis of auction data has become a thriving field of research over the past thirty years. Relying on sophisticated models and advanced econometric methods, it addresses a wide range of policy questions for both public and private institutions. This chapter offers a guide to the literature by stressing how data features and policy questions have shaped research in the field. The chapter is organized by types of goods for sale and covers auctions of timber, construction and services procurement, oil and gas leases, online auctions, internet advertising, electricity, financial securities, spectrum, as well as used goods. It discusses the idiosyncrasies of each applied setting and the respective empirical findings.
Tuesday, January 18, 2022
The debate regarding the determinants of persistent abnormal profits is re-examined using a new approach to the measurement of profits which explicitly accounts for intangible capital. Abnormal profits are estimated using data on tangible and intangible capital for 2800 Australian firms over a 18-year period. The determinants of abnormal profits are then estimated using variables collated from separate accounting and administrative company records data as well as an in-house survey of innovation and management practices. Our results imply that firm-specific factors relating to efficiency and strategy are much larger than the industry-specific effects of collusion
Monday, January 17, 2022
As of late, there has been a concerted push in the Biden administration, backed by prominent academics, to expand the application of antitrust law against major employers who exercise monopsony power that reduces aggregate demand and thus leaves too many workers on the sidelines. The effort chiefly occurs in two major areas: stricter attacks on covenants not to compete and more intense review of mergers under the Clayton Act. This paper begins with an historical account of the law in both areas, from which it concludes that there is no good reason to alter the status quo ante. The modern claims of antitrust violations are said to rest on the traditional consumer welfare standard. But the theoretical and empirical evidence on this point is thin. Turnover rates in labor markets are high, labor shortages are now common; wage growth varies by presidential administration that changes, and not antitrust law, which has been constant. Other labor policies like anti-discrimination laws, paid leave policies, and minimum wage and overtime laws exert a more direct power. No systematic evidence suggests the current (cautious) acceptance of non-compete clauses allows large numbers of major employers to extract monopsony profits. The only employers with market power work in markets (like hospitals subject to certificates of need), where these formal barriers to entry make these mergers suspect for excessive concentration in product markets, leaving it utterly unwise to pore over concentration ratios in thousands of discrete labor markets. Any concern with monopoly influence in labor markets should seek to weaken the hold of public and private unions, consistent with the consumer welfare standard.
Friday, January 14, 2022
Abstract: This paper studies the role and incidence of entry preemption strategic motives on the dynamics of new industries, while providing an empirical test for entry preemption, and quantifying its impact on market structure. The empirical context is the evolution of the U.S. drive-in theater market between 1945 and 1957. We exploit a robust prediction of dynamic entry games to test for preemption incentives: the deterrence effect of entering early is only relevant for firms in markets of intermediate size. Potential entrants in small and large markets face little uncertainty about the actual number of firms that will eventually enter. This leads to a non-monotonic relationship between market size and the probability of observing an early entrant. We find robust empirical support for this prediction using a large cross-section of markets. We then estimate the parameters of a dynamic entry game that matches the reduced-form prediction and quantify the strength of the preemption incentive. Our counterfactual analysis shows that strategic motives can increase the number of early entrants by as much as 50 percent in mid-size markets without affecting the number of firms in the long run. By causing firms to enter the market too early, we show that strategic entry preemption leads on average to a 5% increase in entry costs and a 1% decrease in firms' expected value (relative to an environment without strategic investments).
Thursday, January 13, 2022
Wednesday, January 12, 2022
Eager to shed constraints imposed by Sherman Act precedent, New FTC Chair Lina M. Khan issued a statement declaring her intention to attack “unfair methods of competition even if they do not violate a separate antitrust statute.” She has sought to distance herself from the Sherman Act’s rule of reason and find shelter in the incipiency concept. We argue that she misconstrues both concepts and that she will fail if she makes departure from Sherman Act precedent her rallying cry. But she can succeed by acting on fact-based, forward-looking assessments of competitive effects.
Tuesday, January 11, 2022
We study the effects of mergers in the consumer packaged goods industry, a sector that comprises approximately one-tenth of GDP in the United States. We match data on all recorded mergers between 2006 and 2017 with retail scanner data. In comparison to prior work, which focuses on case studies of large mergers, our approach allows us to estimate the effect of a typical merger. Most mergers we study are highly asymmetric (a large firm acquires a much smaller firm) and rarely challenged. By studying these mergers, we provide new evidence on the effects of mergers on prices, quantities, product availability, and exit. On average, mergers lead to a short-run price effect at the target of 1% and declines in total revenue of 7%. These average effects hide substantial heterogeneity across different groups of mergers. Our results highlight the importance of effects not captured in the canonical model, such as effects on consumer surplus through changes in product availability, and through inefficient firms' capital being repurposed by more productive acquirors.
Monday, January 10, 2022
With extensive updating in the decade since the publication of the second edition, and written by the key Commission and European Court officials in this area, as well as leading practitioners, the third edition of this unique title provides meticulous and exhaustive coverage of EU Merger Law.
I assess the effect of recent U.S. airline mergers on productive efficiency and market power. I recover productivity, markup, and marginal cost estimates for each airline using production and cost data. I then employ these estimates, a panel event study design, and synthetic control methods to estimate the effects of mergers on these outcomes. I find that in most cases, mergers have not significantly affected merging parties’ productive efficiency, and in a few cases, have increased marginal costs. Some mergers, such as the American-US Airways merger, have substantially increased the markups charged. The increase in markups is not explained by efficiencies, proportionally higher fixed costs, or changes in technology (i.e., a larger scale elasticity). Instead, the net profit rate has increased for these carriers after the mergers. Indirect evidence suggests that quality effects cannot account fully for the observed markup changes. Taken together, these findings point to an increase in market power.
Friday, January 7, 2022
Two-Sided Matching between Fashion Firms and Publishers: When Firms Strategically Target Consumers for Brand Image
Two-Sided Matching between Fashion Firms and Publishers: When Firms Strategically Target Consumers for Brand Image
Many fashion companies strategically choose publishers for advertising to target preferred consumers, because such consumers not only generate revenue, they also influence the companies’ brand image. Meanwhile, publishers also select companies because the ads posted by companies affect publishers’ image as well. It is important to jointly model the preferences of firms and publishers in this scenario, because observed advertising is an outcome of mutual selection from both sides. We develop a two-sided matching framework to model advertising as realized from such a two-sided selection process. The preference of a third party (consumers) is embedded in this framework through a consumer product choice model. Applying the proposed model to two unique datasets of fashion brand purchases, magazine readership, and advertising record, we are able to detect magazines and watch brands’ preferences separately. More expensive magazines also prefer more luxurious fashion watch brands. Watch brands prefer magazines with a potential consumer network with more male, well-educated and wealthy readers. Advertising effect is more prominent in terms of consumers’ awareness set formation compared to the brand purchase persuasion in general, but Asian brands can benefit more from advertising at the brand choice stage instead of the awareness formation stage.
Thursday, January 6, 2022
In this study, we examine the effects of common ownership on labor market outcomes. We find that an increase in common ownership in a labor market is associated with decreases in both wages per employee and the employment-to-population ratio. We conduct an event study based on the acquisition of Barclays Global Investors by BlackRock in 2009. Using a synthetic control method, we find that markets that were more affected by the acquisition experienced post-acquisition decreases in annual wages per employee and employment-to-population ratio relative to the counterfactual of no acquisition. The estimated treatment effects of the acquisition were stronger in markets with higher unemployment rates, lower personal income per capita, lower population density, and stricter enforcement of noncompete clauses.
Wednesday, January 5, 2022
We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. We use detailed data on prices and quantities for products in more than 100 distinct product categories to estimate demand systems with flexible consumer preferences. We recover markups under an assumption that firms set prices to maximize profit. Within each product category, we recover separate yearly estimates for consumer preferences and marginal costs. We find that markups increase by about 25 percent on average over the sample period. The change is attributable to decreases in marginal costs that are not passed through to consumers in the form of lower prices. Our estimates indicate that consumers have become less price sensitive over time.
Tuesday, January 4, 2022
Suppose differentiated firms compete in quantities. This paper derives a formula for the minimum cost savings that would offset the incentive to increase price created by a merger. The formula depends only on pre-merger information on margins and demand slopes, and is invariant to demand and cost curvature. The paper then develops an algorithm to infer demand slopes -- and thus allow calibration of parameterized demand and cost curves -- from pre-merger data. While the Cournot model of quantity competition is commonly accompanied by an assumption that rivals' products are interchangeable, the inflexibility of this assumption and its implications opens the model to criticisms. The paper examines the advantages of relaxing the assumption of interchangeability, in particular greater consistency with pre-merger data and greater scope for profitable mergers. An extended numerical example illustrates the application of a differentiated Cournot model to a hypothetical industry.
Monday, January 3, 2022
Digital platforms facilitate interactions between consumers and merchants that allow collection of profiling information which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures both on-platform, among merchants, and off-platform, among competing platforms. This paper develops two product differentiation models to study private and social incentives to share information within and between platforms. We show that there is scope for ex-ante regulation of mandatory data sharing that improves social welfare better than competing interventions such as barring entry, break-up, forced divestiture, or limiting recommendation steering. These alternate proposals do not make efficient use of information. We argue that the location of data access matters and develop a regulatory framework that introduces a new data right for platform users, the in-situ data right, which is associated with positive welfare gains. By construction, this right enables effective information sharing, together with its context, without reducing the value created by network effects. It also enables regulatory oversight but limits data privacy leakages. We discuss crucial elements of its implementation in order to achieve innovation friendly and competitive digital markets.
Friday, December 31, 2021
"Hard discounters" are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (2012). We find that hard-discounter entry had the expected effect of reducing margins from similar stores, but did not affect markups earned by stores in the same market that are likely to appeal to a different market segment. In general, hard-discounter entry reduced markups for incumbent retailers by 7:3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability, regardless of higher sales realized by incumbent retailers.
Thursday, December 30, 2021
Market Entry, Fighting Brands, and Tacit Collusion: Evidence from the French Mobile Telecommunications Market
We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbents. Using an empirical oligopoly model, we find that the incumbents’ fighting brand strategies are difficult to rationalize as unilateral best responses. Instead, their strategies are consistent with a breakdown of tacit semi-collusion: before entry, the incumbents could successfully coordinate on restricting product variety to avoid cannibalization; after entry, this outcome became harder to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety and, to a lesser extent, from the incumbents’ price responses