Friday, June 24, 2022

Harvested Cattle, Slaughtered Markets?

Harvested Cattle, Slaughtered Markets?

C. Robert Taylor

Auburn University - Department of Agricultural Economics and Rural Sociology

Abstract

Reasons for intense concern about competition and fairness in cattle and beef markets are obvious from charts of retail beef prices, beef packer profit margins, grocery profit margins, and returns to independent cattle feeders.

June 24, 2022 | Permalink | Comments (0)

Thursday, June 23, 2022

Horizontal Collusion and Parallel Wage-Setting in Labor Markets

Horizontal Collusion and Parallel Wage-Setting in Labor Markets

Jonathan S. Masur

University of Chicago - Law School

Eric A. Posner

University of Chicago - Law School

Abstract

Horizontal collusion among employers to suppress wages has received almost no attention in the academic literature, in contrast with its more familiar cousin, product market collusion. The similar economic analysis of labor and product markets might suggest that antitrust should regulate labor and product markets in the same way. But product markets and labor markets do not operate identically: people behave differently as employees and as consumers. Unlike consumers who can switch products relatively easily, employees face significant frictions in changing jobs. Other labor market frictions are created by the pay equity norm and downward nominal wage rigidity. These factors and related factors stabilize collusive arrangements and facilitate tacit coordination in labor markets. Antitrust law should therefore more aggressively regulate labor market collusion, including tacit coordination, than product market collusion.

June 23, 2022 | Permalink | Comments (0)

Wednesday, June 22, 2022

Getting Antitrust and History in Tune

Getting Antitrust and History in Tune

 

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Abstract

Antitrust is high on the reform agenda at present, associated with calls to “break up big tech.” Proponents of reform have invoked history with regularity in making their case. They say reform is essential to reverse the baleful influence of the Chicago School of antitrust, which, in their telling, disastrously and abruptly ended in the 1980s a “golden” era of beneficially lively antitrust enforcement. In fact, antitrust enforcement was, at best, uneven, from the early 20th century through to the end of the 1970s. As for the antitrust “counter-revolution” of the late 20th century, this was fostered as much by fears of foreign competition and skepticism of government regulation as Chicago School theorizing. The pattern helped to ensure that the counter-revolution was largely sustained through the opening decades of the 21st century. This article, in addition to getting antitrust and history in tune by drawing attention to the foregoing points, provides insights regarding antitrust’s future direction.

June 22, 2022 | Permalink | Comments (0)

Tuesday, June 21, 2022

Replacing the Structural Presumption

Replacing the Structural Presumption

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Abstract

Horizontal mergers are a focus of competition regulation throughout the world. In the United States, the so-called structural presumption—under which anticompetitive effects are presumed if market concentration and its merger-induced increase are high—is regarded to be central in merger challenges. But is it? Should it be? And should it be strengthened as well as extended to additional domains, as a U.S. House Majority Staff Report on Big Tech and a Senate bill recently suggest? Upon examination, despite its superficial appeal as a proxy to aid in the identification of problematic mergers, the structural presumption turns out to neither simplify assessments nor provide a useful indicator of anticompetitive danger. A core defect is that the structural presumption requires a choice of market definition in order to determine concentration. The market definition process is incoherent and, ironically, requires proof of the very sorts of effects that are to be presumed rather than demonstrated under the structural presumption. Moreover, the concentration measures used in the structural presumption are largely the wrong market characteristics for predicting anticompetitive effects under the leading economic models used in each standard setting. Finally, in operation the presumption and its associated burden- shifting framework are strange: they are deployed only after completing a full trial, battle of experts and all, and these are bench trials, so judges are supposedly deciding whether to take the decision from factfinders who are themselves. A full reset is required—that is, if the structural presumption indeed describes current merger decision-making rather than constituting a superficial rationalization for what actually transpires. Those seeking to toughen antitrust enforcement in the tech domain and elsewhere should do so in ways that effectively address competitive harms rather than creating seemingly simple but deeply misguided legal tests that would inevitably but unnecessarily allow some anticompetitive actions and block other, beneficial ones.

June 21, 2022 | Permalink | Comments (0)

Monday, June 20, 2022

Innovation and Appropriability: Revisiting the Role of Intellectual Property

Innovation and Appropriability: Revisiting the Role of Intellectual Property

By:

Filippo Mezzanotti; Timothy Simcoe

Abstract:

It is more than 25 years since the authors of the Yale and Carnegie surveys studied how firms seek to protect the rents from innovation. In this paper, we revisit that question using a nationally representative sample of firms over the period 2008-2015, with the goal of updating and extending a set of stylized facts that has been influential for our understanding of the economics of innovation. There are five main findings. First, while patenting firms are relatively uncommon in the economy, they account for an overwhelming share of R&D spending. Second, utility patents are considered less important than other forms of IP protection, like trade secrets, trademarks, and copyrights. Third, industry differences explain a great deal of the level of firms’ engagement with IP, with high-tech firms on average being more active on all forms of IP. Fourth, we do not find any significant difference in the use of IP strategies across firms at different points of their life cycle. Lastly, unlike age, firms of different size appear to manage IP significantly differently. On average, larger firms tend to engage much more extensively in the protection of IP, and this pattern cannot be easily explained by differences in the type of R&D or innovation produced by a firm. We also discuss the implications of these findings for innovation research and policy.

June 20, 2022 | Permalink | Comments (0)

Friday, June 17, 2022

Multiproduct Cost Passthrough: Edgeworth’s Paradox Revisited

Multiproduct Cost Passthrough: Edgeworth’s Paradox Revisited

By:

Mark Armstrong; John Vickers

Abstract:

Edgeworth’s paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, we show how it can arise with uniform pricing, and we give an analysis of the case of linear marginal cost and demand conditions. We show how the matrix of cost-passthrough terms must be similar to a positive definite matrix. When the firm supplies two substitute products we show how the paradox always occurs with a suitable choice of cost function. We then show a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost.

June 17, 2022 | Permalink | Comments (0)

Thursday, June 16, 2022

Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes

Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes

By:

Gomes, Renato; Lozachmeur, Jean-Marie; Maestri, Lucas

Abstract:

We study oligopolistic competition by firms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers’ taste for quality and propensity to switch brands. If low-type consumers are sufficiently less (more) brand loyal than high types, (i) quality provision is inefficiently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is sufficiently different across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty.

June 16, 2022 | Permalink | Comments (0)

Wednesday, June 15, 2022

Bertrand competition in vertically related markets

Bertrand competition in vertically related markets

By:

Tomomichi Mizuno (Graduate School of Economics, Kobe University); Kazuhiro Takauchi (Faculty of Business and Commerce, Kansai University / Research Fellow, Graduate School of Economics, Kobe University)

Abstract:

We build a successive Bertrand model with homogenous good. We show that increasing the pro- duction efficiency of upstream industry can reduce upstream Firms' profits. We also show that increasing the production efficiency of downstream industry may reduce downstream Firms' prof- its. Hence, an industrial policy that aims at improving production efficiency may be undesirable for Firms.

June 15, 2022 | Permalink | Comments (0)

Tuesday, June 14, 2022

Concentration and Competition: Evidence from Europe and Implications for Policy

Concentration and Competition: Evidence from Europe and Implications for Policy

By:

Gábor Koltay; Szabolcs Lorncz; Tommaso M. Valletti

Abstract:

The paper provides new evidence on proxy indicators of market power for major European countries. The data shows moderately increasing average industry concentration over the last two decades, a considerably increasing proportion of high concentration industries, and an overall tendency towards oligopolistic structure. Estimates of aggregate profitability also show a sustained increase over the recent decades for European economies. While the academic and policy debate is not settled as to whether the causes of these trends are policy driven or reflect technological improvement, our findings suggest that competition policy is likely to face more challenges as large companies are becoming more common in more and more industries.

URL:

http://d.repec.org/n?u=RePEc:ces:ceswps:_9640&r=

June 14, 2022 | Permalink | Comments (0)

Multiproduct Mergers and the Product Mix in Domestic and Foreign Markets

Multiproduct Mergers and the Product Mix in Domestic and Foreign Markets

 

 

Jackie M.L. Chan

Aarhus University

Michael Irlacher

Johannes Kepler University

Michael Koch

Aarhus University - Department of Economics and Business Economics

 

Abstract

This paper investigates the effects of mergers on the product mix of multiproduct firms. Thus, we open the black box of post-merger efficiency improvements to reveal a new margin of adjustment along the product dimension. We analyze horizontal mergers in a theoretical model where oligopolistic firms employ a flexible manufacturing technology and allocate assets between differentiated varieties. After a merger, acquirers drop products from their consolidated domestic product portfolio and reallocate assets towards core varieties. We further demonstrate that such merger-induced efficiency gains imply greater activity in foreign markets. Using detailed Danish register data, we document novel facts regarding mergers and multiproduct firms and find empirical evidence strongly supporting the model’s predictions. Our results show that the number of domestic products of the post-merger acquirer falls relative to the sum of the premerger acquirer and target, that skewness of domestic sales rises towards core products, and that export activity increases.

June 14, 2022 | Permalink | Comments (0)

Monday, June 13, 2022

Qualitative Market Definition

Qualitative Market Definition

 

 

Thomas Nachbar

University of Virginia School of Law

 

Abstract

Modern antitrust law has come under intense criticism in recent years, with a bipartisan chorus of complaints about the power of technology and internet platforms such as Google, Amazon, Facebook, and Apple. A fundamental issue in these debates is how to define the “market” for the purposes of antitrust law. But market definition is highly contentious. The Supreme Court case that launched modern market definition has become the name of an economic blunder: the “Cellophane fallacy,” and the Justices in 2018’s Ohio v. American Express case disagreed with each other so strongly that the dissent described the majority’s approach as not only “wrong” but “economic nonsense.” Partially in response to the controversy in American Express, recent judicial, legislative, and regulatory proposals have even suggested doing away with market definition in some antitrust cases.
The root problem, this Article shows, is that modern market definition has been treated in antitrust as a matter of quantitative economics, with markets defined by economic formulas (such as the Lerner Index) lacking a connection to widely held social understandings of competition. Antitrust law needs to augment these quantitative approaches by explicitly acknowledging qualitative aspects of markets, including the normative visions of competition they represent. When more fully considered, the Lerner Index itself represents a vision of competition, but it is a vision is one that no society would want to pursue.
Paying attention to the normative meaning underlying quantitative measures is hardly radical; such qualitative factors have been part of market definition since its origin. The Cellophane fallacy itself was originally advanced not as a point about economics but about the content of the antitrust law. This Article argues that market definition is necessarily normative and describes an approach for including qualitative criteria in market definition so that market definition accurately reflects the types of competition antitrust law seeks to protect.

June 13, 2022 | Permalink | Comments (0)

Friday, June 10, 2022

Mergers Involving Nascent Competition

Mergers Involving Nascent Competition

 

 

A. Douglas Melamed

Stanford Law School

 

Abstract

Mergers involving nascent competition are a hot topic in antitrust circles, especially in light of the pending FTC case against Facebook; but the thinking about the topic is nascent, too. This paper is intended to contribute to that thinking and to discuss a variety of questions that have not previously been discussed together. It explains that, while the vast majority of such mergers are likely to be benign or procompetitive, some might be very harmful to competition and economic welfare. It argues that the latter can in principle be prohibited under existing Section 2 law, suggests criteria for doing so, and addresses policy concerns about merger efficiencies, error costs, the impact of heighted scrutiny of such mergers on venture capital investment, and post-acquisition challenges to such mergers.

June 10, 2022 | Permalink | Comments (0)

Thursday, June 9, 2022

The Competitive Efficacy of Divestitures: An Empirical Analysis of Generic Drug Markets

The Competitive Efficacy of Divestitures: An Empirical Analysis of Generic Drug Markets

Viola Chen

Government of the United States of America - Federal Trade Commission

Christopher Garmon

Bloch School of Management

Kenneth Rios

Federal Trade Commission

David Schmidt

Federal Trade Commission

 

Abstract

One approach that antitrust enforcement authorities use to address potentially anticompetitive mergers is to seek divestitures in specific, competitively problematic overlap markets while allowing the rest of the merger to consummate. We evaluate the efficacy of this approach by studying divestitures ordered by the U.S. Federal Trade Commission to remedy mergers of generic prescription drug manufacturers. Our study encompasses 230 generic drug markets across 25 mergers from 2005 to 2016. We evaluate the evolution of price, number of competitors, number of entrants, concentration, and market share by analyzing changes in both means and distributions using a large dataset on prescriptions dispensed at retail pharmacies. We estimate differences between markets experiencing a divestiture to matched markets not experiencing any divestitures in quarterly intervals after divestitures. We find that over the two to four years following a divestiture, divestiture markets evolve to have fewer competitors (0.21 to 0.36 fewer relative to an initial average of 3.8 competitors) driven mainly by less entry (0.22 and 0.33 fewer relative to an average of approximately one entrant), and higher concentration (420 and 532 points higher than the pre-divestiture average of 4525 on the 10,000 HHI scale). Average price changes in divestiture markets exceed those in non-divestiture markets by between 1.6% and 5.5% in the two to four years after a divestiture, although unlike with the structural market characteristics, the price differences are not statistically significant. Our analysis of distributional changes shows that while divestiture markets experience similar ranges of outcomes as non-divestiture markets, they also demonstrate some differences in the relative frequency of various outcomes (which is most pronounced in the analysis of market shares). Using a separate administrative dataset, we also analyze differences in exit rates in annual intervals up to five years post-divestiture, and we find that differences in exit rates emerge at the five year mark (about 9% of divested drugs exit compared to 5% of similar non-divested drugs).

June 9, 2022 | Permalink | Comments (0)

Wednesday, June 8, 2022

How to Exploit Market Power: Horizontal Ownership Concentration and Network Access Pricing

How to Exploit Market Power: Horizontal Ownership Concentration and Network Access Pricing

 

 

Sumit K. Majumdar

University of Texas at Dallas - Department of Information Systems & Operations Management

 

Abstract

This article reports an evaluation of the impact of horizontal ownership concentration on access pricing outcomes. Historical data of post-acquisition impacts on firms’ access outcomes have enabled analysis for the entire local exchange sector of the United States telecommunications industry. The sector’s horizontal ownership concentration process has caused key access-providing firms’ average access revenue ratios to be over 16 percent higher. Access revenue enhancements, through using market power, by entities belonging to larger groupings, have resulted in annual fiscal windfalls of between $5 and $6 billion, and these windfalls account for between 4.5 and 5 percent of provider firms’ total revenues. United States customers have incurred a between 6 and 7 percent overcharge on monthly bills, over several years, because network access charges have been higher, in part due to horizontal ownership concentration. Access and interconnection functionalities permit digital ecosystems competition. Access charges are regulated. The horizontal ownership concentration-enhancing deals were allowed after stringent institutional assessments. Market power exploitation has led to United States telecommunications customers’ exploitation. Consumer harm has been immense. Classic topics, such as access regulation and merger control, remain contemporary, demanding continuous attention, if digital technology is to be ubiquitous in the service of humanity.

June 8, 2022 | Permalink | Comments (0)

Tuesday, June 7, 2022

A New Era of Midnight Mergers: Antitrust Risk and Investor Disclosures

A New Era of Midnight Mergers: Antitrust Risk and Investor Disclosures

 

 

John Manuel Barrios

Washington University in St. Louis - Olin Business School; National Bureau of Economic Research

Thomas Wollmann

University of Chicago

 

Abstract

Antitrust authorities search public documents to discover anticompetitive mergers. Thus, investor disclosures may alert them to deals that would otherwise escape scrutiny, creating disincentives for managers to divulge transactions. We study this behavior in publicly traded US companies. First, we estimate a regression discontinuity that exploits mandatory disclosure thresholds stipulated by securities law. We find that releasing information to investors poses antitrust risk. Second, we present a method for measuring undisclosed merger activity that relies on financial accounting reporting requirements. We find that undisclosed mergers total $2.3 trillion between 2002 and 2016.

June 7, 2022 | Permalink | Comments (0)

Monday, June 6, 2022

Common Ownership, Executive Compensation, and Product Market Competition

Common Ownership, Executive Compensation, and Product Market Competition

 

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Henry L. Friedman

University of California, Los Angeles (UCLA) - Anderson School of Management

Hwa Young Kim

University of California-Los Angeles, Anderson School of Management

 

Abstract

The negative effects of common ownership on competition have received significant attention, but many proposed mechanisms for institutional investor influence seem implausible. We develop and test an analytical model of optimal compensation in an oligopoly with common ownership, focusing on revenue-based pay as a plausible channel through which institutional investors might influence competition. Our model implies a negative effect of common ownership on firms' use of revenue-based pay. Using both associative analyses and an event study difference-in-differences design based on plausibly exogenous institutional mergers, we find that common ownership has zero (or a marginally positive) effect on the use of revenue-based pay. Results involving relative performance incentives are similar. Collectively, our results provide no support for the notion that cross-owning block-holders influence compensation contracts in order to soften executives' incentives to compete aggressively.

June 6, 2022 | Permalink | Comments (0)

Friday, June 3, 2022

Deputy Assistant Attorney General Richard A. Powers Delivers Keynote at the University of Southern California Global Competition Thought Leadership Conference

See here.

June 3, 2022 | Permalink | Comments (0)

The Evolution of Concentration and Markups in the United States Cement Industry

The Evolution of Concentration and Markups in the United States Cement Industry

 

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Matthew Osborne

University of Toronto at Mississauga - Department of Management

Gloria Sheu

Board of Governors of the Federal Reserve System

Gretchen Sileo

Georgetown University

 

Abstract

We examine local market concentration and markups in the United States cement industry over 1974-2016. We estimate a model in which buyers use a second-score auction to procure cement from spatially differentiated plants. The model matches aggregated outcomes in the data, and the implied transportation costs and shipping distances are consistent with external sources. We infer local market concentration and markups from the model. At the county-level, the average HHI rises from 1,890 to 2,800 during the sample period. Average markups increase modestly, but prices do not rise. We attribute these changes to a technological innovation---the precalciner kiln---that lowered marginal costs, increased plant-level capacities, and also contributed to an industry shakeout in which many plants closed.

June 3, 2022 | Permalink | Comments (0)

Thursday, June 2, 2022

Do Board Connections between Product Market Peers Impede Competition?

Do Board Connections between Product Market Peers Impede Competition?

 

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Renping Li

Washington University in St. Louis - John M. Olin Business School

Alminas Zaldokas

Hong Kong University of Science & Technology (HKUST) - Department of Finance

 

Abstract

Using a treated-control matched sample, we find that after a new direct board connection is formed to a product market peer, a firm's gross margin significantly increases by 0.8%. Gross margin also rises after a new indirect board connection is formed to a product market peer through a third intermediate firm. We see consistent results when the new connections are caused by changes on the board of an intermediate firm. Such third-party initiated changes are unlikely to be related to the economic prospects of the focal firm. Consistent with the anti-competitive mechanism, the effects are stronger when the newly connected peers are located closer to each other or have more similar businesses and when the firms are in industries with greater potential benefits of collusion.

June 2, 2022 | Permalink | Comments (0)

Wednesday, June 1, 2022

The Concentration of Digital Markets: How To Preserve the Conditions for Effective and Undistorted Competition?

The Concentration of Digital Markets: How To Preserve the Conditions for Effective and Undistorted Competition?

 

Frédéric M. Marty

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis; OFCE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

 

Abstract

The policy initiatives announced on both sides of the Atlantic to complement competition rules focus on two key dimensions: the contestability of markets on the one hand and fairness in their functioning on the other. The underlying idea is that the market positions of Big Tech would be inexpugnable - insofar as high barriers to entry protect them from self-regulating competition and insofar as they would have regulatory power over their respective ecosystems. Competition for the market would no longer be free, and competition in the market would be distorted. Our purpose in this working paper is to discuss these two dimensions. Are digital markets still contestable, and is the competition in them still competition on the merits? Finally, we discuss the remedies proposed to address these two alleged phenomena.

June 1, 2022 | Permalink | Comments (0)