Antitrust & Competition Policy Blog

Non-Cooperative Asymptotic Oligopoly in Economies with Infinitely Many Commodities

Sayantan Ghosal and Simone Tonin, both University of Glascow theorize about Non-Cooperative Asymptotic Oligopoly in Economies with Infinitely Many Commodities.

ABSTRACT:  In this paper, we extend the non-cooperative analysis of oligopoly to exchange economies with infinitely many commodities by using strategic market games. This setting can be interpreted as a model of oligopoly with differentiated commodities by using the Hotelling line. We prove the existence of an “active” Cournot-Nash equilibrium and show that, when traders are replicated, the price vector and the allocation converge to the Walras equilibrium. We examine how the notion of oligopoly extends to our setting with a coutable infinity of commodities by distinguishing between asymptotic oligopolists and asymptotic price-takers. We illustrate these notions via a number of examples.

Investments in Quality, Collective Reputation and Information Acquisition

Fulvio Fontini (Department of Economics and Management - Universita degli Studi di Padova - University of Padua); Katrin Millock (CES - Centre d'economie de la Sorbonne - CNRS : UMR8174 - Universite Paris I - Pantheon-Sorbonne, EEP-PSE - Ecole d'Economie de Paris - Paris School of Economics - Ecole d'Economie de Paris) and Michele Moretto (Department of Economics and Management - Universita degli Studi di Padova - University of Padua) study Investments in Quality, Collective Reputation and Information Acquisition.

ABSTRACT: In many cases consumers cannot observe firms' investment in quality or safety, but have only beliefs on the average quality of the industry. In addition, the outcome of the collective investment game of the firms may be stochastic since firms cannot control perfectly the technology or external factors that may affect production. In such situations, when only consumers' subjective perceptions of the industry level of quality matters, the regulator may make information available to firms or subsidize their information acquisition. Under what conditions is it desirable to make information available? We show how ! firms' overall level of investment in quality depends upon the parameters of the quality accumulation process, the cost of investment and the number of firms in the industry. We also show the potentially negative effects on the total level of quality from providing information on consumers' actual valuation.

Prescribing Behavior of General Practitioners : Competition Matters!

Schaumans, C.B.C. (Tilburg University, Center For Economic Research) concludes Prescribing Behavior of General Practitioners : Competition Matters!

ABSTRACT:  Background: General Practitioners have limited means to compete. As quality is hard to observe by patients, GPs have incentives to signal quality by using instruments patients perceive as quality. Objectives: We investigate whether GPs exhibit different prescribing beha! vior (volume and value of prescriptions) when confronted with more com petition. As there is no monetary benefit in doing so, this type of (perceived) quality competition originates from GPs satisfying patients’ expectations. Method: We look at market level data on per capita and per contact number of items prescribed by GPs and the value of prescriptions for the Belgian market of General Practitioners. We test to which extent different types of variables explain the observed variation. We consider patient characteristics, GP characteristics, number and type of GP contacts and the level of competition. The level of competition is measured by GP density, after controlling for the number of GPs and a HHI. Results: We find that a higher number of GPs per capita results in a higher number of units prescribed by GPs, both per capita and per contact. We argue that this is consistent with quality competition in the GP market. Our findings reject alternative explanations of GP scarcity, availability effect in GP care consumption and GP dispersing prescription in time due to competition.

Provider competition and over-utilization in health care

Jan Boone and Rudy Douven describe Provider competition and over-utilization in health care. ABSTRACT: This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We argue that each of these can be optimal depending on the contracting environment of a speciality. In particular, CfM is optimal in a clinical situation where the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer's and patients' p! references are aligned.

Competition and third party access in railroads

Gunter Knieps, Freiburg studies Competition and third party access in railroads.

ABSTRACT: This chapter is organized as follows: In section 2 the historical roots of third party acess regulation are characterized. This includes the Prussian railway law of 1838 and the terminal railroad case of 1912. In section 3 a normative frame-work, based on modern network economics, for the evaluation of third party access policies is provided. In section 4, the gradual process of market opening for railway transport services and the evolution of third party access regulation in Europe are characterized. In this context the potentials for competition on the markets for passenger rail services and public subsidies are also considered.

More Than Money: The Economics of Payments and Its Regulation

More Than Money: The Economics of Payments and Its Regulation                                         UCL Faculty of Laws Events                                    Wednesday, 11 March 2015 from 13:00 to 19:00 (GMT)                                     London, United Kingdom

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Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies

Klaus Gugler (Department of Economics, Vienna University of Economics and Business)
Mario Liebensteiner (Research Institute for Regulatory Economics, Vienna University of Economics and Business) and Stephan Schmitt (WIK Consult and Research Institute for Regulatory Economics, Vienna University of Economics and Business) offer Vertical Disintegration in the European Electricity Sector: Empirical Evidence on Lost Synergies.

ABSTRACT:   The EU has been promoting unbundling of the transmission grid from other stages of the electricity supply chain with the aim of fostering competition in the upstream stage of electricity generation. At presence, ownership unbundling is the predominant form of unbundling in Europe. However, the benefits of increased competition from ownership unbundling of the transmission grid may come at the cost of lost vertical synergies between the formerly integrated stages of electricity supply. The policy debate generally neglects such potential costs of unbundling, yet concentrates on its benefits. Therefore European cross-co! untry evidence may shed some light on this issue. This study helps fill this void by empirically estimating the magnitude of economies of vertical integration (EVI) between electricity generation and transmission based on a quadratic cost function. For this purpose we employ novel firm-level panel data of major European electricity utilities. Our results confirm the presence of substantial EVI, which put the policy measure of transmission ownership unbundling into question.

A Survey of the Economics of Patent Systems and Procedures

Eckert, Andrew (University of Alberta, Department of Economics) and Langinier, Corinne (University of Alberta, Department of Economics) offer A Survey of the Economics of Patent Systems and Procedures.

ABSTRACT: The last several decades have seen increases in patenting activity worldwide, as well as growing issues related to patent quality. In response to these quality issues a recent patent literature has emerged, that investigates the behavior and incentives of patent examiners, applicants, and third parties. In this paper, we provide an overview of patent procedures, patent systems and a survey of the new economic literature on patent systems. Both theoretical and empirical papers are considered. Policy implications coming from this literature are presented.

Endogenous cartel formation: Experimental evidence

Miguel A. Fonseca, Exeter and Hans-Theo Normann, DICE examine Endogenous cartel formation: Experimental evidence.

ABSTRACT:  In a Bertrand-oligopoly experiment, firms choose whether or not to engage in cartel-like communication and, if so, they may get fined by a cartel authority. We find that four-firm industries form cartels more often than duopolies because they gain less from a hysteresis effect after cartel disruption.

On firm choice between online and physical markets

Yijuan Cheny, ANU, Xiangting Hu, Renmin, and Sanxi Li, Renmin have written On firm choice between online and physical markets.

ABSTRACT: Consumers buying goods online often cannot physically inspect the products prior to purchase. Thus an online market may turn what is usually regarded as a search good into an experience good. We investigate how this feature, together with other features of the marketplace, affects a firms choice between online and physical markets. Using a simple yet flexible framework, we show that the choice of a marketplace can be used to disclose or hide product quality. If the production cost is convex with respect to quality, the firm's choice will be characterized by a cutoff quality level, below which the firm will choose the online market, and above which the firm will choose the physical market. However, if the production cost of qua! lity is concave, there are situations where the highest qualities pool with the lowest ones in the online market, leaving the physical market to intermediate qualities.

Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector

Mathias Kifmann (Hamburg) and Luigi Siciliani (York)  explore Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector.

ABSTRACT: This study investigates hospitals' dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients' severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.

Shrinking Goods

Daniel Levy, Emory University, Bar-Ilan University, and RCEA and Avichai Snir, Netanya Academic College, Department of Banking and Finance describe Shrinking Goods.

ABSTRACT: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices don't change. We study a situation where producers adjust the quantity per package rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information.

Price Versus Non-price Incentives for Participation in Quality Labeling: The Case of the German Fruit Juice Industry

Roland Herrmann, Institute of Agricultural Policy and Market Research, Justus Liebig University Giessen, and and Simon Bleich, Produkt + Markt Marketing Research examine Price Versus Non-price Incentives for Participation in Quality Labeling: The Case of the German Fruit Juice Industry.

ABSTRACT: Quality assurance and labeling play an important and increasing role in firms’ marketing strategies. In almost all cases, a price incentive has been stressed as the major incentive for firms to participate in such schemes. We argue here that important non-price incentives for participation in quality labeling may exist, too. In German retailing, it can be observed that discount retailers are listing more and more foods with quality labels. Processors may then participate in voluntary quality labeling in order to enter the large and growing market of discount retailers. The price-premium versus the market-entry hypothesis are analyzed theo-retically. We investigate then in an empirical hedonic pricing model for the German fruit juice market and for participation in the quality label of the Deutsche Landwirtschafts-Gesellschaft (DLG) which of the two hypotheses is consistent with the data. There is strong support for the market-entry hypothesis.

Concurrences Antitrust Writing Awards Vote Now

It's not too late to cast your votes! The deadline to vote for the best antitrust articles and your favorite soft laws has been extended to FEBRUARY 27. You have 2 more weeks to read online and vote for the nominated articles, temporarily in free access. 10 Categories, 20 Awards: General Antitrust: Eleanor Fox, Douglas Ginsburg, Roy Hoffinger, Richard Parker, Spencer Waller, Dan Sokol… Anticompetitive Practices: James Keyte, Einer Elhauge, Herbert Hovenkamp, Alec Burnside, Akiva Miller… Dominance: James Venit, Hans Zenger, Jonathan Jacobson, Nicolas Petit, Dan Rubinfeld... Mergers: François-Charles Laprévote, Mark Powell, George Cary, Charlotte Breuvart, Maurice Stucke... Intellectual Property: Janusz Ordover, Alison Jones, Carl Shapiro, James Killick, Martin Coleman... Private Enforcement: Michael Hausfeld, Robert Lande, Michael Osborne, Sebastian Peyer... Cross-Border Issues: John DeQ. Briggs, Beau Buffier, Jeremy Evans, Roxane Busey... Procedure: Flavio Laina, Kyriakos Fountoukakos, Chris Hockett, Thomas Barnet... Asian Antitrust: Ian Forrester, Nathan Bush, Fei Deng, Mel Marquis, James Modrall... Economics: Ariel Ezrachi, Jonathan Baker, Jan Bouckaert, Leslie Marx, Elizabeth Wang... The deadline has been extended also to vote for your favorite soft laws issued in 2014 bydifferent competition authorities worldwide. Winners will be announced at the Gala Dinner to be held in Washington DC on 14 April 2015 by Bill Kovacic. Thousands of readers have already expressed their votes.  If you have not done it yet, browse theAntitrust Writing Awards Websiteto read and vote now!

Deregulation, Competition, and Market Integration in China's Electricity Sector

Yanrui WU (University of Western Australia) explores Deregulation, Competition, and Market Integration in China's Electricity Sector.

ABSTRACT:  This report presents an updated and expanded review of reforms in China’s electricity sector. It aims to examine the impact of reforms on competition, deregulation, and electricity market integration in China. The findings are used to draw policy implications for electricity market development, particularly the promotion of energy market! integration (EMI).

Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage

Marika Cabral Michael Geruso Neale Mahoney ask Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage.

ABSTRACT: The debate over privatizing Medicare stems from a fundamental disagreement about whether privatization would primarily generate consumer surplus for individuals or producer surplus for insurance companies and health care providers. This paper investigates this question by studying an existing form of privatized Medicare called Medicare Advantage (MA). Using difference-in-differences variation brought about by payment floors established by the 2000 Benefits Improvement and Protection Act, we find that for each dollar in increased capitation payments, MA insurers reduced premiums to individuals by 45 cents and increased the actuarial value of benefits by 8 cents. Using administrative data on the near-universe of Medicare beneficiaries, we show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that insurer market power is an important determinant of the division of surplus, with premium pass-through rates of 13% in the least competitive markets and 74% in the markets with the most competition.

Harvey Goldschmid 1940-2015

Columbia Law Professor Harvey Goldschmid has died.  His most important antitrust contribution was as the primary casebook author of what had been known as the Milton Handler casebook but in its current incarnation is Pitofsky, Goldschmid and Wood's Trade Regulation, 6th.  For many years, it was the market leader in antitrust casebooks.

Defining a Cluster Market: The Case of the Korean Internet Portal Service Market

Youngsun Kwon, Department of Business & Technology Management, KAIST, Daejeon, Republic of Korea, is Defining a Cluster Market: The Case of the Korean Internet Portal Service Market.

ABSTRACT: In a cluster market, many related and unrelated products or services are sold. Examples of cluster markets are Tesco, Sears, Carrefour, Walmart, JCPenny, and Meijer. Because of certain unique characteristics of cluster markets, studies of cluster market definition have been very scant. This paper reviews the market definition issues of cluster markets, proposes a statistical market definition method for cluster markets, and applies the method to the Korean Internet portal service market. The results of analyses show that there is one market for the Korean Internet portals and confirm the concern that the a priori definition of the Internet portal service market using a representative group of services like 1S4C, which was used by the Korea Fair Trade Commission in 2008, did not reflect the actual structure of competition in the Korean Internet portal service market. According to the analyses, the third ranked player in the Korean Internet portal service market, Nate, is more akin to a specialty service provider, not a player competing in the cluster market with Naver and Daum.

A price concentration study on European mobile telecom markets: Limitations and insights

Pauline Affeldt (E.CA Economics, ESMT European School of Management and Technology) and Rainer Nitsche (E.CA Economics) provide A price concentration study on European mobile telecom markets: Limitations and insights.

ABSTRACT: Price concentration studies investigate the relationship between market concentration and price levels. They are increasingly used in the mobile telecom industry. This paper provides a detailed account of the limitations of such studies. In addition, it proposes a specific approach in order to account for quality differences across countries, which are likely important when explaining price differences. When applying our approach to European mobile telecom markets from 2003 to 2012, we find that there is no positive relationship between concentration and prices and some indications that the relationship may be negative.

On the antitrust economics of the electronic books industry

Germain Gaudin, DICE and Alexander White, Tsinghua provide thoughts On the antitrust economics of the electronic books industry.

ABSTRACT: When Apple entered the ebook market, prices rose. A recent court decision found Apple guilty of colluding with publishers, blaming the price hike, in part, on agency agreements and prohibiting their use. Building a model to compare these with traditional wholesale agreements, we identify a single, pivotal condition that leads prices under agency to be higher than under wholesale with two-part tariffs but lower with linear pricing. Our model shows that the increase in ebook prices can be explained, instead, by heightened competition for reading devices, and it guides our understanding of when restricting agency agreements is advisable.