Antitrust & Competition Policy Blog

Unpaid Crowd Complementors: The Platform Network Effect Mirage

Kevin J. Boudreau, London Business School and Lars Bo Jeppesen, Bocconi University describe Unpaid Crowd Complementors: The Platform Network Effect Mirage.

ABSTRACT: Platforms have evolved beyond just being organized as multi-sided markets with complementors selling to users. Complementors are often unpaid, working outside of a price system and driven by heterogeneous sources of motivation — which should affect how they respond to platform growth. Does reliance on network effects and strategies to attract large numbers of complementors remain advisable in such contexts? We test hypotheses related to these issues using data from 85 online multi-player game platforms with unpaid complementors. We find that complementor development responds to platform growth even without sales incentives, but that attracting complementors has a net zero effect on on-going development and fails to stimulate network effects. We discuss conditions under which a strategy of using unpaid crowd complementors remains advantageous.

Optimal Leniency Programs When Firms Have Imperfect Cumulative and Asymmetric Evidence

Marc Blatter, University of Bern, Winand Emons, University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR), and Silvio Sticher, University of Bern theorize on Optimal Leniency Programs When Firms Have Imperfect Cumulative and Asymmetric Evidence.

ABSTRACT: An antitrust authority deters collusion using fines and a leniency program. Unlike in most of the earlier literature, our firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports: reporting makes conviction only more likely, the more so, the more firms report.  Furthermore, the evidence is distributed asymmetrically among firms. Asymmetry of the evidence can  increase the cost of deterrence if the high-evidence firm chooses to remain silent. Minimum-evidence standards may counteract this effect. Under a  marker system only one firm reports; this may increase the cost of deterrence.

Airline Network Effects and Consumer Welfare

Bryan Keating, Compass Lexecon, Mark A. Israel, Compass Lexecon, Daniel L. Rubinfeld, University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School and Robert Willig, Princeton University - Woodrow Wilson School of Public and International Affairs have an interesting new paper on Airline Network Effects and Consumer Welfare.

ABSTRACT: We develop a methodology that quantifies from data on itinerary demand consumers' valuations of the characteristics of airline networks, and show that airline network effects are highly valued. We show that these effects are crucial for determining consumer impacts of public policies that affect airlines’ network architectures, such as treatments of airport asset allocations, mergers and alliances. For example, conventional wisdom on "hub premiums" is reversed since the consumer network benefits of hubs outweigh most nominal price effects. As another example, we find that the consumer network benefits from the Delta‐Northwest merger outweighed any traditionally‐predicted concentration impacts on nominal fares.

Francine Lafontaine to the FTC as head of the Bureau of Economics

Francine Lafontaine of the University of Michigan's Ross School of Business, an expert in vertical restraints, will join the FTC as the head of the Bureau of Economics.  See the press release here.

Francine has a forthcoming chapter "Franchising and Exclusive Distribution: Adaptation and Antitrust" in Roger D. Blair and D. Daniel Sokol, The Oxford Handbook of International Antitrust Economics Volume 2 (Oxford University Press 2014).

Competition and Fragmentation in Supply Chains

Alex Nikulkov, Stanford Graduate School of Business and Hau L. Lee, Stanford Graduate School of Business have a new paper on Competition and Fragmentation in Supply Chains.

ABSTRACT: Supply chains rarely have tiers consisting of single firms - much more common are competitive environments in which there are multiple parties on both supply and demand sides. Classical supply chain literature has focused on describing simple supply chains, consisting of a single supplier and a single retailer. We fill in the gap by considering a supply chain with multiple suppliers and multiple retailers.
Our model has single period and normally distributed demand. Suppliers are actively competing on inventory (hence competition), while retailers are splitting a fixed retail market (hence fragmentation). Wholesale price is determined endogenously as a price that equates supply and demand.
We show that competition helps to align the supply chain by reducing double marginalization. Fragmentation increases effective demand variance, but under certain conditions it can increase supply chain profit by making retailers more price-sensitive and inducing lower wholesale price. Our findings highlight the importance of endogenous specification of wholesale price.

Plausibility, Facts and Economics in Antitrust Law

Mariateresa Maggiolino, Bocconi University - Department of Legal Studies discusses Plausibility, Facts and Economics in Antitrust Law.

ABSTRACT: According to EU competition law, the existence of an anticompetitive agreement can be inferred from a number of coincidences and indicia only in the absence of another plausible explanation of the facts at stake. According to U.S. federal law (antitrust law included), only a complaint that states a plausible claim for relief can survive a motion to dismiss at the pleading stage. What is plausible, however? After explaining the relationship between facts and evidence law, this chapter analyses the general meaning of the notion of plausibility, discusses the degree of discretion that it introduces, how it affects the justifications that judges and fact-finders make for their choices, and remarks on how this concept relates to substantial accuracy. On the other hand, the chapter acknowledges that antitrust law, by relating our understanding of what is plausible to economic models, debunks these concerns and raises another issue. Namely, since economics is rooted in various axioms and value-choices, the antirust link between plausibility, evidence standards and economics grants to these axioms and value-choices the possibility of affecting even antitrust decisions about facts, even though these decisions should amount to pure descriptions of the concrete facts.

Congratulations to Professor Robin Feldman on being named one of the 50 Women Leaders in Tech Law

Robin Feldman is a wonderful scholar of the competition-IP interface.  I am happy to report on an email that was just circulated to a professor listserve that she was just named of the 50 Women Leaders in Tech Law:

 

Congratulations to Professor Robin Feldman on being named one of the 50 Women Leaders in Tech Law for her role in founding the Startup Legal Garage at UC Hastings College of the Law in San Francisco. In the last year, our program has tripled in size, allowing 60 students to enroll. (Startup Legal Garage students provide free legal services for early stage Tech and BioTech companies, with the work supervised by outside law firms.)

Price Differentiation and Discrimination in Transport Networks

Adriaan Hendrik Van der Weijde, VU University Amsterdam - Faculty of Economics and Business Administrationexplores Price Differentiation and Discrimination in Transport Networks.

ABSTRACT: This paper analyzes the effects of price differentiation  and discrimination by a monopolistic transport operator, which sets fares in a congestible network. Using three models, with different spatial structures, we describe the operator’s optimal strategies in an unregulated market, a market where price differentiation is not allowed (i.e., ticket prices must be the same for all users), and a market where price discrimination is illegal (i.e., ticket prices must only differ with the marginal external costs of users), and analyze the welfare effects of uniform and non-discriminatory pricing policies. The three models allow us to consider three different forms of price differentiation and discrimination in networks: by user class, by origin-destination pair, and by route.
We generalize the existing literature, in which groups usually only differ in their value of time, and hence, there is no distinction between differentiation and discrimination. In our models, users may also have different marginal external costs; we show how these two differences interact. We also show how non-differentiated and non-discriminatory policies may increase or decrease welfare, and that non-discrimination can be worse than non-differentiation. The network models show that results obtained for a single-link network can be generalized to a situation where operators price-discriminate or differentiate based on users’ origins and destinations, but not directly to a situation in which differentiation is based on route choices.

Regulation of Realty Sector for Consumer Welfare: Indian Perspective

Saroj Kant Choudhary, Indian Institute of Technology Kharagpur writes on Regulation of Realty Sector for Consumer Welfare: Indian Perspective.

ABSTRACT: Economic liberalisation initiated by P. V. Narshimha Rao Government in early 90s propelled the Indian economy and opened gates for foreign investments. The result was seen as increase in employability, per capita income and increasing pace of urbanisation that together added in the growth in GDP of the nation. This increasing pace of urbanisation with almost 31%  of urban population of 1.21 billion populations (Census 2011) created an overwhelming demand for residential and other types of commercial space including residential complexes, shopping malls and office spaces. As a matter of fact, more and more interested players pooled and contributed their resources and funds in the growth of the reality sector especially in the urban agglomerates.

The demand for huge inflow of money to sustain the projects, the developers and builders were often tempted to procure funds and resources from sources that are not legally justified. There has been constant endeavour on the part of Government to bring it under strict regulatory compliances for proper growth and development of this sector for optimum benefits of the consumers and to restrict abusive trade tactics, cartelisation and abuse of dominant position by these operators that are against the principle of competition Law.

Cartel Sustainability and Piracy in a Vertically Differentiated Oligopoly

Iacopo Grassi, Universita Federico II analyzes Cartel Sustainability and Piracy in a Vertically Differentiated Oligopoly.

ABSTRACT: In recent years economic literature has deeply analyzed piracy and copyright violation. Nevertheless most of the contributions focus on the study of digital markets and monopoly. In this paper we concentrate on the effect the entry of a pirate may have in a vertically differentiated duopoly where originally two firms compete producing a high quality and a low quality good. We show that, under general conditions payoffs of firms might increase with piracy, since piracy may support collusion between the two firms producing the original goods and the collusive profits of the firms in presence of piracy may be bigger than the profits of Nash without piracy. This result may explain the reason why in some markets, like the fashion market, where the producers of the original brands basically control the supply chain of the sector, piracy and production of high quality fakes is huge.

Dynamic Price Competition with Capacity Constraints and a Strategic Buyer

James J. Anton, Duke University, Gary Biglaiser, University of North Carolina, and Nikolaos Vettas, Athens University of Economics and Business - Department of Economics; University of Athens - Faculty of Economics; Centre for Economic Policy Research, analyze Dynamic Price Competition with Capacity Constraints and a Strategic Buyer.

ABSTRACT: We analyze a simple dynamic durable good model. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition, making it possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller.

Why we need a European energy union: EU consumers would benefit directly as more competitive markets lead to lower prices

Marek Martyniszyn, U Belfast, has an op-ed in today's Irish Times on Why we need a European energy union: EU consumers would benefit directly as more competitive markets lead to lower prices.

Competition and Financial Structure: Evidence from Airlines

Gianpaolo Parise, Swiss Finance Institute discusses Competition and Financial Structure: Evidence from Airlines.

ABSTRACT: Using a large dataset of flight routes, I study the effect of route competition on financial variables in the airline industry. I find that growing route competition pushes airlines to accumulate cash reserves, affects the maturity structure of their liabilities and reduces their propensity to lease airplanes. Cash hoarding policies are driven by small and financially constrained airlines. Conversely, competition affects the debt maturity structure of large and financially unconstrained air carriers. To establish causality, I exploit two quasi-natural experiments: the industry deregulation during Carter's administration and the introduction of high-speed trains in the north-east corridor. Overall, my results suggest that the main response to competition in the airline industry is the lengthening of the maturity of the debt. However, the increasing number of airlines that cannot borrow long-term drove up average cash holdings in the industry.

Limited Deposit Insurance Coverage and Bank Competition

Oz Shy, Federal Reserve Banks - Federal Reserve Bank of Boston, Rune Stenbacka, Hanken School of Economics, and Vladimir Yankov, Federal Reserve Board discuss Limited Deposit Insurance Coverage and Bank Competition.

ABSTRACT: Deposit insurance schemes in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks to achieve higher or full deposit insurance coverage. We compare three regimes of deposit insurance: No deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces total welfare relative to no or unlimited deposit insurance.

Sufficient Decisions in Multi-Sided and Multi-Product Markets

Alexei Alexandrov, Consumer Financial Protection Bureau and Daniel F. Spulber, Northwestern University - Kellogg School of Management make Sufficient Decisions in Multi-Sided and Multi-Product Markets.

ABSTRACT: We show that in many applied economic models, it is possible to reduce the dimensionality of the space of actions to what we call "sufficient decisions." We find that for monopoly and oligopoly in multi-sided markets and multi-product markets, the market equilibrium can be transformed into an isomorphic market equilibrium in which each firm makes a single decision. Because profit maximization connects a firm's decisions to each other, it is often possible to introduce a constraint linking the firm’s decisions. For example, the bid-ask spread is a sufficient decision for a monopolist in a two-sided market. We provide a general regularity condition for that constraint that determines whether or not the model can be reduced to one in which each firm makes a sufficient decision. This is useful for addressing public policy questions using standard intuition and comparative statics developed for one-dimensional economic models.

Ancillary Copyright for News Publishers: Would Google Really Have to Pay? – A Competition Law Analysis

Christian Kersting, Heinrich Heine University Dusseldorf - Faculty of Law and Sebastian Dworschak, Heinrich-Heine University Dusseldorf - Faculty of Law ask Ancillary Copyright for News Publishers: Would Google Really Have to Pay? – A Competition Law Analysis.

ABSTRACT: At the time the first paper was published, the ancillary copyright for news publishers had not yet been adopted by the German legislator. However, the conclusions drawn in both papers are still valid. The introduction of an ancillary copyright for news publishers was intended to allow news publishers to prohibit search engines to display snippets of their content, which until then did not enjoy copyright protection. Even though the ancillary copyright for news publishers was adopted in 2013, it is uncertain whether the snippets displayed by search engines enjoy copyright protection. A well-founded opinion argues that snippets still do not enjoy copyright protection. If, however, snippets enjoyed copyright protection, search engines would need to either stop displaying such snippets or license them from the publishers. Using Google as an example, this article discusses the plausibility of a potential competition law obligation to index publishers' content and pay publishers if snippets appear on a search results page. We conclude this is not the case: Google can avoid paying for snippets by refraining from indexing and displaying this content.

Fault in EU Law Based Competition Restriction Damages Cases

Katri Havu, University of Helsinki describes Fault in EU Law Based Competition Restriction Damages Cases.

ABSTRACT: This article discusses fault as a (possible) condition for awarding damages in the context of claims for compensation relating to infringing EU competition law. Private damages cases are heard by the national courts, which must find the relevant legal norms amongst a floating mass of EU law and national law. It is submitted that current EU law, that is, mainly case-law, does not in principle prevent applying national law that sets a requirement of fault or of proving fault – intention or negligence – by the infringer. What the detailed content of the applicable combination of EU law and national law is and what constitutes relevant EU law that should be taken into account by the national courts are, however, more intricate questions.

Rosh Hashana - Wishing You a Happy New Year and a new video

I want to wish everyone a happy and sweet new year.  There is a new Rosh Hashana video that the Sokol girls like - I don't - but the merger guidelines recognize these differences.

 

 

 

A Basic Analysis of Entry and Exit in the US Broadband Market, 2005-2008

Michelle P. Connolly, Duke University - Department of Economics and James E. Prieger, Pepperdine University - School of Public Policy offer A Basic Analysis of Entry and Exit in the US Broadband Market, 2005-2008.

ABSTRACT: We conduct a basic analysis of entry and exit in the US broadband market, using a complete FCC census of providers from 2005 to 2008. There is a tremendous amount of (simultaneous) entry and exit in the US broadband market. Most entry is from existing providers expanding into new geographic areas. Entry and exit vary widely across the various modes of provision, which argues against treating broadband as a homogenous service in theoretical or empirical work. The highest entry rates also generally have the highest entrant shares. Entry rates display positive autocorrelation, and the same is true for exit. There is also positive correlation between the entry and exit rates at various leads and lags, suggesting that there are systematic differences among the broadband types in the height of entry and exit barriers. We discuss some implications these results may have for both policy purposes and future work in the broadband market.

Prices, Product Differentiation, and Heterogeneous Search Costs

Jose Luis Moraga Gonzalez, VU University Amsterdam - Faculty of Economics and Business Administration, Zsolt Sandor, University of Groningen, and Matthijs R. Wildenbeest, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy have written on Prices, Product Differentiation, and Heterogeneous Search Costs.

ABSTRACT: We study price formation in the standard model of consumer search for differentiated products but allow for search cost heterogeneity. In doing so, we dispense with the usual assumption that all consumers search at least once in equilibrium. This allows us to analyze the manner in which prices affect the decision to search rather than to not search at all, which is an important but often neglected aspect of the price mechanism. Recognizing the role the equilibrium price plays in consumers’ participation decisions turns out to be critical for understanding how search costs affect market power. This is because the two margins that determine prices - the intensive search margin, or search intensity, and the extensive search margin, or search participation - may be affected in opposing directions by a change in search costs. When search costs go up, fewer consumers decide to search, which modifies the search composition of demand such that demand can become more elastic. At the same time, the consumers who choose to search reduce their search intensity, which makes demand less elastic. Whether the effect on the extensive or the intensive search margin dominates depends on the range and shape of the search cost density. We identify conditions for higher search costs to result in higher, constant, or lower prices. Similar results are obtained when the marginal gains from search vary across consumers.