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)

Friday, March 29, 2024

Merger Policy for a Platform Economy

Merger Policy for a Platform Economy

Harry First

New York University School of Law

Abstract

President Biden’s Executive Order 14036 laid out an ambitious agenda for antitrust enforcement, particularly with regard to mergers involving “dominant Internet platforms,” and generally expressed broad concern over “excessive market concentration” and “consolidation.” Enforcers in the Biden Administration have taken these concerns seriously, pursuing what can be called a “progressive merger policy” to rein in platform growth through acquisition. This enforcement effort, however, has not been limited to the United States but is also being pursued by the European Commission and the United Kingdom’s Competition and Markets Authority.

The thesis of this paper is that enforcers are in fact making progress on their professed goal of slowing concentration in platform industries, but that there is a substantial chance that their merger enforcement efforts will ultimately fail to achieve their objectives.

The exposition of this thesis comes in three parts. The paper begins with problem identification—what exactly seems to be driving enforcers? The next part of the paper provides some overall data on today’s merger enforcement to enable us to understand the effort that enforcers are making to deal with mer-gers in this area. The third part of the paper examines in depth six significant mergers that have been the subject of enforcement in the U.S., the EU, and/or the UK: 1) Facebook/Instagram/WhatsApp, 2) Sabre/Farelogix, 3) Meta /Giphy, 4) Meta/Within, 5) Illumina/Grail, and 6) Microsoft/Activision.

The paper ends with four broad conclusions about current merger policy for a platform economy, drawn from the six cases studied. First, enforcers are making good on their promised policy of progressive merger enforcement. The record of the U.S. enforcers in these cases, however, is mixed, casting into some doubt whether they will be successful in deterring the types of mergers about which they are concerned. Second, platform industry merger policy has been more concerned about innovation than price, which has required enforcers to have a longer time-frame for evaluation. It is unclear whether reviewing courts, particularly in the United States, are willing to embrace this long-er-term perspective. Third, institutional arrangements matter. Enforcers using administrative processes have been more successful in stopping platform industry mergers than those litigating exclusively before courts. Fourth, enforcers have been willing to fight more and settle less. Nevertheless, they face an important challenge from late settlement offers, particularly offers that appear to resolve narrower competition concerns but still permit digital plat-forms to grow and expand into adjacent markets. Receptivity to these offers may ultimately undermine the progressive agenda to reduce concentration, control corporate size, and curtail the growth of major digital platforms.

March 29, 2024 | Permalink | Comments (0)

Thursday, March 28, 2024

Do Trade Associations Matter to Corporate Strategies?

Do Trade Associations Matter to Corporate Strategies?

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Ekaterina Neretina

University of Southern California - Marshall School of Business

Abstract

This paper uses textual analysis and plausibly exogenous instruments based on geographic networks to assess the role of trade associations in forming corporate strategies. Companies are most likely to join trade associations when innovative opportunities have declined, and they are older and larger. Joining associations helps members to increase profits and markups, improve risk management, find acquisition partners and improve efficiency. To assess mechanisms regarding higher profits, we consider high dimensional analysis of geographic market exclusivity using firm-pairs and hundreds of strategic decisions to operate in specific markets. We find that members of associations jointly avoid entering geographic markets when peers have already entered. Overall we find strong support for the conclusion that associations bring positive and mutually beneficial gains to their members and their industries, and some evidence of an externality in the form of anti-competitive market-exclusion strategies.

March 28, 2024 | Permalink | Comments (0)

Wednesday, March 27, 2024

Hub-and-Spoke Cartels: Theory and Evidence from the Grocery Industry

Hub-and-Spoke Cartels: Theory and Evidence from the Grocery Industry

Robert Clark, Ig Horstmann and Jean-François Houde

Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other—hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada's alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. Using court documents and pricing data, we make three contributions: (i) we show that collusion was effective, increasing inflation by about 50 percent; (ii) we provide evidence that collusion existed at both ends of the supply chain; and (iii) we develop a model explaining why this form of collusion arose.

March 27, 2024 | Permalink | Comments (0)

Tuesday, March 26, 2024

Antitrust Regulation

Antitrust Regulation

 

D. Daniel Sokol

USC Gould School of Law; USC Marshall School of Business

Bobby Zhou

University of Maryland, Smith School of Business

Abstract

Ex ante regulation of digital markets seems to be an increasing policy focus globally. Competition is but one area of digital regulation. In some cases, digital regulation is warranted. The question of what motivates regulation specific to the competition space is interesting. Antitrust/competition regulation is but one of many policy tools, and yet the focus globally has been on competition regulation. Understanding when to regulate as well as the nature and scope of regulation has significant potential impact on the future of social welfare in a dynamic setting. Regulate wisely in a way that addresses societal concerns and balances such harms against the potential benefits of innovation in fast moving markets, and society is better off. Regulate poorly or devise a regulatory system that is not nimble enough to promote innovation, and society will be worse off.

In this essay we focus on the cost-benefit analysis of what should have taken place specific to competition regulation. Some of the problems identified by various commentors may have a better regulatory home with other types of regulation. The idea that competition regulation can solve all societal ills is not merely incorrect but creates a rhetoric of expectations that cannot be satisfied. Such unrealistic expectations will only increase mistrust in government and its institutions. Unfortunately, some of the justifications for antitrust regulation are not consistent. Others are misguided as a matter of theory and empirics. Yet other types of regulation make strong sense but for which antitrust is ancillary rather than core to the problem, such as electoral fraud or privacy.

March 26, 2024 | Permalink | Comments (0)

2023 Draft Merger Guidelines: A Comment to Add an Anticompetitive Presumption for Exit-Inducing Vertical Arrangements

2023 Draft Merger Guidelines: A Comment to Add an Anticompetitive Presumption for Exit-Inducing Vertical Arrangements

Javier D. Donna

University of Florida; Rimini Centre for Economic Analysis

Pedro Pereira

Autoridade da Concorrência; Instituto Universitário de Lisboa - ISCTE-IUL - Business Research Unit, BRU-IUL

Abstract

This document responds to the public inquiry asking for feedback regarding the 2023 Draft Merger Guidelines released on July 19, 2023. Our comment focuses on mergers involving vertical relationships. We recommend a specific addendum to the Draft Merger Guidelines. Specifically,
we suggest adding an anticompetitive presumption regarding vertical arrangements that might induce rivals’ exit. These are vertical mergers or mergers involving vertical relationships that might cause the exit of a current market participant. An exit-inducing vertical merger might substantially lessen competition even if, absent exit, it does not.

March 26, 2024 | Permalink | Comments (0)

Monday, March 25, 2024

The Tension between Public Interest Litigations and Private Actions under China’s Anti-Monopoly Law

The Tension between Public Interest Litigations and Private Actions under China’s Anti-Monopoly Law

City University of Hong Kong (CityU) - School of Law

Jing Zhang

City University of Hong Kong (CityU) - School of Law

Abstract

China’s Anti-Monopoly Law came into effect in 2008. Since then, the country has been relying on both conventional public enforcement and private enforcement to combat anti-competitive conduct. Then, in 2022, China amended its Anti-Monopoly Law for the first time. Among other things, the amendment extended the then-existing public interest litigation regime to the antitrust field. Thereafter, if antitrust victims want to seek compensation, they can either (1) file a private action and claim damages by themselves or (2) ask the procuratorate to initiate a public interest litigation and claim damages for them. The rise of the new form of antitrust enforcement provides an incentive for some victims to free-ride the procuratorate’s effort, hindering the development of private antitrust enforcement in China. As a first attempt, this article examines the tension between the two forms of enforcement via cost-benefit analysis and proposes ways to mitigate its negative consequences.

March 25, 2024 | Permalink | Comments (0)

Friday, March 22, 2024

Market Exclusivity and Innovation: Evidence From Antibiotics

Market Exclusivity and Innovation: Evidence From Antibiotics

Edward Kong

Harvard University Department of Economics

Olivia Zhao

Harvard Business School

Abstract

The US incentivizes drug innovation via patents as well as market exclusivity periods awarded by the US Food and Drug Administration. We estimate the causal effects of extending market exclusivity for an important drug class: antibiotics. Using a difference-in-differences approach, we show that the Generating Antibiotic Incentives Now (GAIN) Act – a policy change that granted 5 additional years of exclusivity for antibiotics but not antivirals or vaccines – led to a significant increase in phase 3 clinical trials. We also find evidence that the GAIN Act generated novel innovation, including larger effects among drugs with more novel patents.

March 22, 2024 | Permalink | Comments (0)