Friday, April 24, 2015
Claire Chambolle (INRA-UR1303 ALISS), Clemence Christin (Normandie Université, UCBN, CREM-UMR CNRS 6211) and Guy Meunier (INRA-UR1303 ALISS) ask Optimal production channel for private labels: Too much or too little innovation?
ABSTRACT: We analyze the impact of the private label production channel on innovation. A retailer may either choose to integrate backward with a small firm (insourcing) or rely on a national brand manufacturer (outsourcing) to produce its private label. The trade-off between insourcing and outsourcing strategies is a choice between too much or too little innovation (i.e. quality investment) on the private label. When insourcing, an outside-option effect leads the retailer to over-invest to increase its buyer power. When outsourcing, a hold-up effect leads to under-investment. In addition, selecting the national brand manufacturer may create economies of scale that spur innovation.
Comcast Corporation Abandons Proposed Acquisition of Time Warner Cable After Justice Department and the Federal Communications Commission Informed Parties of Concerns
The DOJ press release explains:
"The companies' decision to abandon this deal is the best outcome for American consumers," said Attorney General Eric Holder. "The Antitrust Division of the United States Department of Justice has demonstrated, time and again, that it can and will defend the interests of the American consumer no matter the complexity of the issue or the size of the opponent. This is a victory not only for the Department of Justice, but also for providers of content and streaming services who work to bring innovative products to consumers across America and around the world. I commend the Antitrust attorneys and investigators whose outstanding work led to this outcome, and I know that the Department of Justice will continue to fight for fair access and free competition in every industry and every market."
Marek Martyniszyn, Queen's University Belfast has an op-ed on The EU’s case against Gazprom is about far more than business.
Hiroshi Kitamura, Kyoto Sangyo University Noriaki Matsushima, Osaka University and Misato Sato, GW study Exclusive Contracts with Complementary Inputs.
ABSTRACT: This study constructs a model of anticompetitive exclusive contracts in the presence of complementary inputs. A downstream firm transforms multiple complementary inputs into final products. When complementary input suppliers have market power, upstream competition within a given input market benefits not only the downstream firm (by lowering the input price) but also complementary input suppliers (by raising complementary input prices). The downstream firm is thus unable to earn higher profits even when socially efficient entry is allowed. Hence, the inefficient incumbent supplier can deter socially efficient entry by using exclusive contracts even in the absence of economies of scale and downstream competition. These results have ! important implications for antitrust agencies, showing the importance of considering the existence of complementary inputs when examining cases of potential anticompetitive exclusive dealing.
Roman Inderst and Zlata Jakubovic and Dragan Jovanovic (all University of Frankfurt) address Buyer Power and Functional Competition for Innovation.
ABSTRACT: Our analysis starts from the observation that with progressive consolidation in retailing and the spread of private labels, retailers increasingly take over functions in the vertical chain. Focusing on innovation, we isolate various reasons for why when a large retailer grows in size, this can lead to an inefficient shift of innovation activity away from manufacturers and to the large retailer. One rationale for this is the retailer's control of access to consumers, which gives rise to a rent-appropriation motive for innovation, next to a hold-up problem. With retail competition, through crowding out the manufacturer's innovative activity, a large retailer obtains a competitive advantage vis-à-vis smaller retailers. We further analyze when inefficiencies are aggravated in case a large retailer's presence threatens the manufacturer with imitation of his innovations.
Thursday, April 23, 2015
Yuriy Gorodnichenko, Viacheslav Sheremirov and Oleksandr Talavera ask Price Setting in Online Markets: Does IT Click?
ABSTRACT: Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. We document that although online prices are more flexible than offline prices, they continue to exhibit relatively long spells of fixed prices, large size and low synchronization of price changes, considerable cross-sectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions. Qualitatively these patterns are similar to those observed for offline prices, which calls for more research on the sources of price rigidities and dispersion.
Emanuela Ciapanna and Concetta Rondinelli, European Central Bank analyze Retail market structure and consumer prices in the euro area.
ABSTRACT: We investigate the empirical relationship between product market competition and prices in the retail grocery sector in the euro area. The study uses micro-data from ACNielsen on chain stores' census characteristics and price levels for a broad variety of products. We construct Herfindahl-Hirschman indices of concentration at different levels of market aggregation (buying group and parent company) to investigate their effects on prices. The analysis confirms the inverse relation between downstream market competition among retailers and price levels for most of the reference products. Though less conclusive in terms of statistical significance, the proposed estimates also point to a welfare enhancing role of buying ! groups. Our results indicate that buying groups provide a balancing mechanism between retailers' and producers' bargaining power, in support of the countervailing power hypothesis.
Liangliang Jiang, Ross Levine, and Chen Lin analyze Competition and Bank Opacity.
ABSTRACT: Did regulatory reforms that lowered barriers to competition among U.S. banks increase or decrease the quality of information that banks disclose to the public and regulators? We find that an intensification of competition reduced abnormal accruals of loan loss provisions and the frequency with which banks restate financial statements. The results indicate that competition reduces bank opacity, enhancing the ability of markets and regulators to monitor banks.
Minas Vlassis (Department of Economics, University of Crete, Greece) and Maria Varvataki (University of Crete) ask Union-Oligopoly Bargaining and Vertical Differentiation: Do Unions Affect Quality?
ABSTRACT: This paper investigates unionized oligopolistic markets with differentiated products and quality improvement-R&D investments. In endogenous union structures, we investigate the conditions under which firm-level unions may strategically collude, or not, and the impact of their decisions upon the firms incentives to individually spend on R&D investments. We show that, separate firm-level unions are sustained in the equilibrium, where product quality and the level of R&D investments are relatively high. Moreover, we consider two instances of policy maker's intervention. In the first case, we assume that a benevolent policy maker proceeds to quality improvement-R&D, as a common public good, by undertaking the costs of those investments and providing for free the know-how to the industry. In the second case he finances a percentage of the cost of firm-specific R&D investments. In both cases he finances those costs by indirect taxation on market products. We conclude that all market participant surpluses are higher (and consequently so is Social Welfare), when the R&D - quality improvement is a public good, even if this leads to indirect taxation on market products.
Wednesday, April 22, 2015
Comparative Analysis Of Antitrust Policy Against Collusion In Some Transition Economies: Challenges For Effectiveness
Andrey V. Makarov (National Research University Higher School of Economics) offers a Comparative Analysis Of Antitrust Policy Against Collusion In Some Transition Economies: Challenges For Effectiveness.
ABSTRACT: This article focuses on the development of antitrust policy in transition economies in the context of preventing explicit and tacit collusion. Experience of BRICS, Kazakhstan, Ukraine and CEE countries (Bulgaria, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Czech Republic, Estonia) in the creation of antitrust institutions was analyzed, including both legislation and enforcement practice. This article analyzes such enforcement problems as: classification problems (tacit vs explicit collusion, vertical vs horizontal agreements), flexibility of prohibitions (“per se” vs “rule of reason”), design of sanctions, private enforcement challenge, leniency program mechanisms, the role of antitrust authorities etc. Main challenges for policy effectiveness in this field were shown
According to the press release:
Margrethe Vestager, the European Union’s new competition commissioner, came to NYU School of Law on April 20 to deliver a speech on “Enforcing competition rules in the global village.”
For a link to her speech, see here.
Minas Vlassis (Department of Economics, University of Crete, Greece) and Maria Varvataki (University of Crete) discuss Welfare Improving Cartel Formation in a Union-Oligopoly Static Framework.
ABSTRACT: In a union-oligopoly static framework we study the role of unions regarding the possibility and the effects of endogenous cartel formation. Given that firms independently adjust their own quantities, we show that, if union members are not sufficiently risk-averse and firms products are sufficiently close substitutes, then collusion among firms may emerge in equilibrium, and that in contrast to conventional wisdom cartel formation proves to be a welfare improving market arrangement. Quite remarkably, the latter gain in social welfare materializes at the cost of union rents despite it is the union presence which effectively sustains collusion.
Marina S. Sandomirskaia (National Research University Higher School of Economics) offers A Model Of Tacit Collusion: Nash-2 Equilibrium Concept.
ABSTRACT: We examine the novel concept for repeated noncooperative games with bounded rationality: \Nash-2" equilibrium, called also \threatening-proof prole" in [16, Iskakov M., Iskakov A., 2012b]. It is weaker than Nash equilibrium and equilibrium in secure strategies: a player takes into account not only current strategies but also the next-stage responses of the partners to her deviation fr! om the current situation that reduces her relevant choice set. We prov ide a condition for Nash-2 existence, criteria for a strategy prole to be the Nash-2 equilibrium in strictly competitive games, apply this concept to Bertrand and Hotelling game and interpret the results as tacit collusion
Sugata Marjit, Centre for Studies in Social Sciences, Calcutta and GEP, University of Nottingham, UK, Arijit Mukherjee, Nottingham University Business School, and Lei Yang, Hong Long Polytechnic University provide thoughts On the Sustainability of Product Market Collusion under Credit Market Imperfection.
ABSTRACT: We study the implication of credit constraints for the sustainability of product market collusion in a bank financed Cournot duopoly when firms face an imperfect credit market. We consider two situations without or with credit rationing. When there is no credit rationing moderately higher cost of external finance may affect the degree of collusion, but a substantial increase keeps it unaffected. Permanent adverse demand shock in this set up does not affect the possibility of collusion, but may aggravate the finance constraint and eventually lead to collusion. We also discuss the case with credit rationing.
Tuesday, April 21, 2015
Alden Abbott (Heritage Foundation) provides a sobering analysis on The European Commission, Google, and the Limits of Antitrust. He explores some of the biggest problems with the Statement of Objections against Google.
Margaret Kyle and Yi Qian summarize Intellectual Property Rights and Access to Innovation: Evidence from TRIPS.
ABSTRACT: We examine the effect of pharmaceutical patent protection on the speed of drug launch, price, and quantity in 60 countries from 2000-2013. The World Trade Organization required its member countries to implement a minimum level of patent protection within a specified time period as part of the TRIPS Agreement. However, members retained the right to impose price controls and to issue compulsory licenses under certain conditions. These countervailing policies were intended to reduce the potential static losses that result from reduced competition during the patent term. We take advantage of the fact that at the product level, selection into TRIPS "treatment" is exogenously determined by compliance deadlines that vary across countries. W! e find that patents have important consequences for access to new drugs: in the absence of a patent, launch is unlikely. That is, even when no patent barrier exists, generic entry may not occur. Conditional on launch, patented drugs have higher prices but higher sales as well. The price premium associated with patents is smaller in poorer countries. Price discrimination across countries has increased for drugs patented post-TRIPS and prices are negatively related to the burden of disease, suggesting that countervailing policies to offset expected price increases may have had the intended effects.
Koichiro Ito and Mar Reguant have written on Sequential Markets, Market Power and Arbitrage.
ABSTRACT: We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using micro-data from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power, reducing consumer costs but decreasing productive efficiency.
ASEAN ANTITRUST: The Future of Competition Law & Policy in ASEAN Countries - Thursday, April 23, 2015, from 8:30 am to 6:00 pm
Last days to register for the inaugural conference organized by Concurrences Journal in partnership with ESSEC Singapore and Sorbonne-Assas International Law School:
ASEAN ANTITRUST: The Future of Competition Law & Policy in ASEAN Countries
Mr. Aubeck Kam,Chairman, Competition Commission of Singapore, will deliver the opening keynote speech at the conference.
Speakers include, among others:
- Siti N. Yaakob (Chairman, Competition Commission, Malaysia)
- Geronimo L. Sy (Assistant Secretary, Office for Competition, Department of Justice, Manila)
- Muhammad N. Messi (President, Indonesian Commission for the Supervision of Business Competition, Jakarta)
- Frédéric Jenny (Chairman, OECD Competition Committee, Paris)
- Laurence Idot (Member, Competition Authority, Paris)
- William E. Kovacic (Professor, George Washington University, Washington, DC)
This conference will take place this Thursday, April 23, 2015, from 8:30 am to 6:00 pm, at ESSEC Asia-Pacific Campus, 2, One-North Gateway, Singapore, Singapore 138502.
If you have not done it yet, you can read the full program and register here.
Stephen P. King and Demitra Patras (Monash) explore Posted prices and bargaining: the case of Monopoly.
ABSTRACT: If buyers can choose to initiate bargaining with a seller, how does this alter the price that the seller `posts' in the market? And does the option of bargaining raise or lower expected welfare? This paper develops a simple model to answer these questions. With a single seller, the potential for bargaining raises the profit maximising posted price. In part, as has been noted in related literature, this reflects the role of the posted price as a fall-back option if bargaining fails. However, our model highlights a separate effect. When the choice to bargain is endogenous, a seller will raise the posted price to encourage buyers to bargain. The posted price not only exceeds the monopoly price, it can be higher than the price! a seller would set if he knew in advance that all buyers would bargain. Further, the posted price can change discontinuously in exogenous parameters such as the buyers' distribution of bargaining costs. While we assume efficient bargaining, the welfare consequences are ambiguous.