Wednesday, September 25, 2013

Search Engine Optimization: What Drives Organic Traffic to Retail Sites?

Michael R. Baye (Department of Business Economics and Public Policy, Indiana University Kelley School of Business), Babur De los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) and Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) ask Search Engine Optimization: What Drives Organic Traffic to Retail Sites?

ABSTRACT:  The lion’s share of retail traffic through search engines originates from organic (natural) rather than sponsored (paid) links. We use a dataset constructed from over 12,000 search terms and 2 million users to identify drivers of the organic clicks that the top 759 retailers received from search engines in August 2012. Our results are potentially important for search engine optimization (SEO). We find that a retailer’s investments in factors such as the quality and brand awareness of its site increases organic clicks through both a direct and an indirect effect. The direct effect stems purely from consumer behavior: The greater the brand equity of an online retailer, the greater the number of consumers who click its link rather than a competitor in the list of organic results. The indirect effect stems from our finding that search engines tend to place better-branded sites in better positions, which results in additional clicks since consumers tend to click links in more favorable positions. We also find that consumers who are older, wealthier, conduct searches from work, use fewer words or include a brand name product in their search are more likely to click a retailer’s organic link following a product search. Finally, the brand equity of a retail site appears to be especially important in attracting organic traffic from individuals with higher incomes. The beneficial direct and indirect effects of an online retailer’s brand equity on organic clicks, coupled with the spillover effects on traffic through other online and traditional channels, leads us to conclude that investments in the quality and brand awareness of a site should be included as part of an SEO strategy.

September 25, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 24, 2013

Price Differentiation and Menu Costs in Credit Card Payments

Marcos Valli Jorge (Banco Central do Brasil) and Wilfredo Leiva Maldonado (Catholic University of Brasilia) discuss Price Differentiation and Menu Costs in Credit Card Payments.

ABSTRACT: We build a model of credit card payments where the retailers are allowed to charge differential prices depending on the instrument of payment chosen by the consumer. We follow the Rochet and Wright (2010) approach, but assuming a credit card system without a no-surcharge rule or any type of price differentiation disincentive. In a Hotelling competition framework at the retailers level, the competitive equilibrium prices are computed assuming that the store credit provided by the retailer is less cost efficient than the one provided by the credit card. In accordance with the literature, we obtain that the interchange fee becomes neutral if we eliminate the no-surcharge rule, when the interchange fee loses its ability to distort the individual consumer’s decisions displacing the aggregated consumers’ welfare from its maximum. We prove that the average price obtained under price differentiation is smaller than the singl! e retail price under the no-surcharge rule, despite the retailer’s margins being the same in both scenarios. Furthermore, we show how some cross subsidies are eliminated when price differentiation is allowed. In addition, we introduce menu costs to prove that there is a threshold value for the interchange fee such that price differentiation is equilibrium if that fee is above this value. The threshold may be interpreted as an endogenous cap for the interchange fee fixed by the credit card industry. Finally we conclude that, even with menu costs associated to price differentiation, the consumers’ welfare can be greater in the price differentiated equilibrium than in the single price equilibrium under the non-surcharge rule.

September 24, 2013 | Permalink | Comments (0) | TrackBack (0)

The text for legality under EU competition rules: What guidance do the commission's guidelines provide?

Peter Behrens, Europa-Kolleg Hamburg ponders The text for legality under EU competition rules: What guidance do the commission's guidelines provide?

ABSTRACT: Under the regime of Regulation 1/2003 on the implementation of the rules of competition laid down in Articles 101 and 102 TFEU undertakings are obliged to take care by themselves of their compliance with the competition rules. For practical purposes this is also true when it comes to the rules applicable to the the control of concentrations under Regulation 139/2004. In order to facilitate the task of undertakings, which has become even more difficult according to the more economic approach to competition law, the Commission has published a number of guidelines which are setting out the relevant criteria applied by the Commission itself. A closer look reveals, however, that the criteria defined in the various guidelines are far from reflecting a coherent, precise and consistent approach of the Commission. At least four distinct legal tests may be identified, such as a consumer harm-test, a negative market effects-test, a! market power-test and a competitive process-test. This paper analyses the various guidelines in order to demonstrate how these different approaches are embedded in their wording. The unavoidable conclusion is that undertakings get much less guidance from the guidelines than they would be justified to expect. This is all the more deplorable, because the European cours' jurisdprudence continues to follow an approach which is considerably different from the Commission's.

September 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets

Patrick Andreoli-Versbach (International Max Planck Research School for Competition and Innovation, Munich Center for Innovation and Entrepreneurship Research and Ludwig-Maximilians-Universitat Munchen) and Jens-Uwe Franck (Ludwig-Maximilians-Universitat Munchen) argue that Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets.

ABSTRACT: Tacit collusion reduces welfare comparably to explicit collusion but remains mostly unaddressed by antitrust enforcement which greatly depends on evidence of explicit communication. We propose to target specific elements of firms’ behavior that facilitate tacit collusion by providing quantitative evidence that links these actions to an anticompetitive market outcome. We apply our approach to incidents on the Italian gasoline market where the market leader unilaterally announced its commitment to a policy of sticky pricing and large price changes which facilitated price alignment and coordination of price changes. Antitrust policy has to distinguish such active promotion of a collusive strategy from passive (best response) alignment. Our results imply the necessity of stronger legal instruments which target unilateral conduct that aims at bringing about collusion.

September 24, 2013 | Permalink | Comments (0) | TrackBack (0)

The value of switching costs

Gary Biglaiser, University of North Carolina, Chapel Hill, Jacques Cremer, Toulouse School of Economics (GREMAQ, CNRS and IDEI) and Gergely Dobos, Gazdasagi Versenyhivatal (GVH) describe The value of switching costs.

ABSTRACT: We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We first show that if all consumers have the same switching cost, then the intertemporal profits of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its profits increase as their presence hinders entrants who find it more costly to attract high switching cost customers.

September 24, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, September 23, 2013

TOWARD AN ECONOMIC APPROACH TO AGENCY AGREEMENTS

Angela Zhang (Kings College) advocates a move TOWARD AN ECONOMIC APPROACH TO AGENCY AGREEMENTS.

ABSTRACT: It is a long-standing antitrust principle that agency relationships are exempt from price-fixing violations. But the agency relationship must be “genuine.” To discern genuine agency agreements, the prevailing approach adopted in both the United States and the European Union focuses on whether the agent has incurred any specific risk or cost in relation to the distribution of the manufacturer's goods. Yet this approach has tended to obscure the economic nature of agency relationships. The real question to ask is not whether the agent has incurred any specific cost or risk, but instead whether, in a given case, an agency model, rather than a distribution model, actually constitutes a more efficient form for organizing distribution functions between the contracting parties. In fact, over a quarter of a century ago, Judge Richard Posner proposed a business justification approach for analyzing agency agreements in Morrison v. Murray Biscuit. Building on Morrison, and on the economic literature of property rights and agency problems, this article explores the fundamental question of how parties choose to enter into an optimal contractual form, and, moreover, proposes an economic approach to discern genuine agency agreements. It also calls for revision of the current EU Vertical Guidelines on agency agreements, which are so stringent that they deter businesses unnecessarily from entering into agency arrangements.

September 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Exclusive Dealing: Before Bork, and Beyond

J. Mark Ramseyer, Harvard Law School and Eric Bennett Rasmusen, Indiana University Bloomington - Department of Business Economics & Public Policy discuss Exclusive Dealing: Before Bork, and Beyond.

ABSTRACT: Antitrust scholars have come to accept the basic ideas about exclusive dealing that Bork articulated in The Antitrust Paradox. Indeed, they have even extended his list of reasons why exclusive dealing can promote economic efficiency. Yet they have also taken up his challenge to explain how exclusive dealing could possibly cause harm, and have modelled a variety of special cases where it does. Some (albeit not all) of these are sufficiently plausible to be useful to prosecutors and judges.

September 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition in the Audit Market: Policy Implications

Joseph Gerakos (Chicago) and Chad Syverson (Chicago) analyze Competition in the Audit Market: Policy Implications.

ABSTRACT: The audit market's unique combination of features–its role in capital market transparency, mandated demand, and concentrated supply–means it receives considerable attention from policymakers. We explore the effects of two market scenarios that have been the focus of policy discussions: a) further supply concentration due to one of the "Big 4" auditors exiting and b) mandatory audit firm rotation. To do so, we first estimate publicly traded firms' demand for auditing services, treating services provided by each of the Big 4 as differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, conservatively, exit by one of the Big 4 would reduce client firms' surplus by $1.2-1.8 billion per year. These estimates reflect only firms' lost options to
hire the exiting auditor; they do not include the likely fee increases resulting from less competition among auditors. We calculate that the latter could result in audit fee increases between $0.3-0.5 billion per year. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010. We find similarly large impacts from mandatory audit firm rotation, estimating consumer surplus losses at approximately $2.4-3.6 billion if rotation were required after ten years and $4.3-5.5 billion if rotation were mandatory after only four years.

September 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Endogenous Timing in Quality Choices and Price Competition

Luca Lambertini (Bologna) and Alessandro Tampieri (Bologna) discuss Endogenous Timing in Quality Choices and Price Competition.

ABSTRACT: The authors modify the price-setting version of the vertically differentiated duopoly model by Aoki (Effect of Credible Quality Investment with Bertrand and Cournot Competition, 2003) by introducing an extended game in which firms noncooperatively choose the timing of moves at the quality stage. Their results show that there are multiple equilibria in pure strategies, whereby firms always select sequential play at the quality stage. They also investigate the mixed-strategy equilibrium, revealing that the probability of generating out-of-equilibrium outcomes is higher than its complement to one. In the alternative case with full market coverage, the authors show that the quality stage is solved in dominant strategies and therefore the choice of roles becomes irrelevant as the Nash and Stackelberg solutions coincide.

September 23, 2013 | Permalink | Comments (0) | TrackBack (0)

Sunday, September 22, 2013

Special Issue: Minnesota Journal of Law, Science and Technology - The Future of Reverse Payment Settlements in the wake of FTC v. Actavis

Upcoming Issue

VOLUME 15, ISSUE 1 - SYMPOSIUM
The Future of Reverse Payment Settlements in the wake of FTC v. Actavis


The following articles are pre-publication versions of articles that will appear in MJLST Volume 15, Issue 1. The page numbers within the articles will change at
time of publication.

For citation purposes, please refer to the final print version of the articles.

ARTICLES
Hatch-Waxman Patent Case Settlements - The Supreme Court Churns the Swamp
Kent Bernard
Activating Actavis: Economic Issues in Applying the Rule of Reason to Reverse Payment Settlements Sumanth Addanki, Ph.D. & Henry N. Butler, J.D., Ph.D.
A Response to Chief Justice Roberts: Why Antitrust Must Play a Role in the Analysis of Drug Patent Settlements Michael A. Carrier
FTC v. Actavis, Inc.: When is the Rule of Reason Not the
Rule of Reason?
Thomas F. Cotter

Convergence?

Shubha Ghosh
Anticompetitive Patent Settlements and the Supreme Court's Actavis Decision Herbert Hovenkamp

September 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Crafting a fact-based spectrum auction structure that benefits consumers

David Balto advocates Crafting a fact-based spectrum auction structure that benefits consumers in an op-ed for The Hill.

September 22, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, September 20, 2013

How to Commit to a Future Price

Keisuke Hattori (Osaka University of Economics) and Amihai Glazer (Department of Economics, University of California-Irvine) explain How to Commit to a Future Price.

ABSTRACT:  Consider a monopolist which sells a durable good and also consumables that require use of the durable good. After the firm sells the durable good, it has an incentive to charge a price greater than marginal cost for the consumables. Realizing that they will have to pay a high price for consumables, consumers would be willing to pay only a low price for the durable good, reducing the
firm's profits. The paper considers three mechanisms which would induce the firm to charge a low price for the consumables. First, it can enter into a financial contract paying a lump-sum fee in return for a per-unit subsidy for the selling the consumable. Second, the seller can allow entry into the market for the consumable. Third, the firm may sell the durable good at a low price to
consumers who little value the durable and consumable, so that it will have an incentive to later set a low price for the consumable.

September 20, 2013 | Permalink | Comments (0) | TrackBack (0)

The fight against cartels: a transatlantic perspective

Emilie Dargaud (University of Lyon), Andrea Mantovani (University of Bologna), and Carlo Reggiani (University of Manchester) explain The fight against cartels: a transatlantic perspective.

ABSTRACT: The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred.

September 20, 2013 | Permalink | Comments (0) | TrackBack (0)

Is there an exclusionary effect of retroactive price reduction schemes?

Lisa Bruttel (Universitat Konstanz) asks Is there an exclusionary effect of retroactive price reduction schemes?

ABSTRACT: This paper presents an experiment on the loyalty enhancing effect potentially created by retroactive price reduction schemes. Such price reductions are applied ex post to all units bought in a certain time frame if the total quantity passes a given threshold. Close to the threshold, the marginal price for the missing units up to the threshold is very low. A dominant firm can use this effect to exclude potential rivals from competition, which is why some jurisdictions consider retroactive discounts as unlawful. This study considers whether there in fact is a loyalty enhancing effect of retroactive discounts and shows how it relates to risk preferences and loss aversion.

September 20, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 19, 2013

Search Deterrence

Mark Armstrong (Oxford) and Jidong Zhou (Oxford) describe Search Deterrence.

ABSTRACT: A seller wishes to prevent the discovery of rival offers by its prospective customers. We study sales techniques which serve this purpose by making it harder for a customer to return to buy later after a search for alternatives. These include making an exploding offer, offering a "buy-now" discount, or requiring payment of a deposit in order to buy later. It is unilaterally profitable for a seller to deter search under mild conditions, but sellers can suffer when all do so. In a monopoly setting where the buyer has an uncertain outside option, the optimal selling mechanism features both buy-now discounts and deposit contracts. When a seller cannot commit to its policy, it exploits the inference that those consumers who try to buy later have no good alternative. In many cases the outcome then involves exploding offers, so that no consumers return to buy after search.

September 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Producer Liability and Competition Policy When Firms are Bound by a Common Industry Reputation

Posted by D. Daniel Sokol

Andrzej Baniak, Central European University (CEU) - Department of Economics Peter Grajzl, Washington and Lee University - Department of Economics and A. Joseph Guse, Washington and Lee University - Williams School of Commerce, Economics, and Politics research Producer Liability and Competition Policy When Firms are Bound by a Common Industry Reputation.

ABSTRACT: We contrast the laissez-faire regime with the regime of strict producer liability, and draw the implications for competition policy, in a setting where oligopolistic firms cannot differentiate themselves from rivals but rather are bound by a common industry reputation for product safety. We show that, first, unlike in the traditional products liability model, firms' incentives to invest in precaution depend on market structure. Second, depending on the magnitude of expected damages awarded by the courts, laissez-faire can welfare-dominate strict producer liability. Third, the relationship between social welfare and industry size, and hence the role for competition policy, depends on the institutional regime governing the industry. Under some circumstances, restricting industry size is unambiguously welfare-enhancing.

September 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Devising Non-Unitary Merger Threshold, and Tackling Prejudices and Public Interest in Competition Policy

Posted by D. Daniel Sokol

Vikas Kathuria, Jindal Global Law School is Devising Non-Unitary Merger Threshold, and Tackling Prejudices and Public Interest in Competition Policy.

ABSTRACT: Choosing a non-unitary merger threshold system is not common for competition regimes. Consequently, less attention has been devoted to this practice by the anti-trust scholarship to trace its validity, viability and consequences. This paper takes the recommendations of the Arun Maira committee to reduce merger threshold in the Indian pharmaceutical sector as a starting point to set out the criteria to choose non-unitary threshold followed by suggestions and precautions. Discussing the prejudices in policy circles against mergers and acquisitions by MNCs of Indian pharmaceutical companies it is explained how such prejudices, especially in young competition regimes, may result in blocking potentially beneficial mergers as well. Similarly, the adjudication of various social and political objectives through competition policy has rightly troubled the proponents of efficiency in merger scrutiny. This paper, however, takes a realistic approach and treads a middle path between efficiency considerations and obligations of welfare democratic state while suggesting solutions. The need for holistic competition policy is also emphasized to realize the full benefits of competition. The policy prescriptions and suggestions made in this paper are particularly beneficial for young competition regimes in developing countries.

September 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Co-ordinated Diversity: Revolutionary Suggestions for EU Competition Law (and for EU Law too)

Posted by D. Daniel Sokol

Christopher Townley, King's College London analyzes Co-ordinated Diversity: Revolutionary Suggestions for EU Competition Law (and for EU Law too).

ABSTRACT: The overwhelming view is that the EU competition rules should be applied uniformly. By placing the competition rules in a wider EU context, specifically Article 101 TFEU (anti-competitive arrangements), this paper argues that the national competition authorities (NCAs) should be able to diverge in their application of Article 101. This better respects the EU legal order’s substantive and procedural diversity. It also helps learning. There are limits, however. The paper then suggests co-ordinating this diversity in networks where the NCAs and the Commission can share policy solutions and ideas (the ECN). This network can be replicated to help in other areas of EU law. Take the network of national and EU bodies that discuss proposed technical regulations’ compatibility with Articles 34 and 36 TFEU under Directive 98/34, as amended. The paper explores how insights from the ECN can improve policy learning in this free movement network too.

ABSTRACT:

September 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 18, 2013

Chronicle of Higher Education Story on John Connor's Cartel Work

The Chronicle of Higher education has run a story on John Connor (Purdue) and his work on cartels.

September 18, 2013 | Permalink | Comments (0) | TrackBack (0)

Antitrust Law Answer Book 2014

Kathryn M. Fenton, Joe Sims and David P. Wales (all Jones Day) have published the Antitrust Law Answer Book 2014.

 BOOK ABSTRACT: As the economy improves, the Justice Department is ramping up its antitrust enforcement efforts. Given the potential for severe criminal sanctions and civil liability, expert guidance is indispensable to successfully navigate a legal minefield that often combines government enforcement and potentially devastating private suits.

Jones Day has forged a stellar reputation in some of the most challenging antitrust matters in history, and the Antitrust Law Answer Book 2014 reflects their hard-earned knowledge in a highly accessible format you can immediately put to work for you and your clients. Bring their expertise to bear as you tackle such issues as investigations and litigation, agreements between suppliers and customers, monopolization claims, pricing, and unilateral conduct not related to price. What’s more, this handy guide’s detailed coverage of antitrust compliance programs can help you avoid or minimize problems that can derail a deal and lead to costly litigation.

Antitrust Law Answer Book 2014 will quickly become your “go to” source when it comes to the practical impact of domestic antitrust and international competition law.

September 18, 2013 | Permalink | Comments (0) | TrackBack (0)