Friday, September 18, 2015

Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music

Luis Aguiar (European Commission - JRC - IPTS) and Joel Waldfogel (University of Minnesota - Carlson School of Management) have an interesting paper on Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music.

ABSTRACT: We explore the consequence of quality unpredictability for the welfare benefit of new products, using recent developments in recorded music as our context. Digitization has expanded consumption opportunities by giving consumers access to the "long tail" of existing products, rather than simply the popular products that a retailer might stock with limited shelf space. While this is clearly beneficial to consumers, the benefits are somewhat limited: given the substitutability among differentiated products, the incremental benefit of obscure products - even lots of them - can be small. But digitization has also reduced the cost of bringing new products to market, giving rise to a different sort of long tail, in production. If the appeal of new products is unpredictable at the time of investment, as is the case for cultural products as well as many others, then creating new products can have substantial welfare benefits. Technological change in the recorded music industry tripled the number of new products between 2000 and 2008. We quantify the effects of new music on welfare using an explicit structural model of demand and entry with potentially unpredictable product quality. Based on plausible forecasting models of expected appeal, a tripling of the choice set according to expected quality adds more than fifteen times as much consumer surplus as the usual long-tail benefits from a tripling of the choice set according to realized quality.

September 18, 2015 | Permalink | Comments (0)

Note on ‘Competition in Two-sided Markets’

Yuyu Zeng (VU University Amsterdam, the Netherlands) ; Harold Houba (VU University Amsterdam, the Netherlands) ; and Gerard van der Laan (VU University Amsterdam, the Netherlands) offer a Note on ‘Competition in Two-sided Markets’.

ABSTRACT: We extend the models in ("Competition in two-sided markets" of Armstrong (2006, <I>Rand Journal of Economics</I>) by adding within-group externalities. In the monopoly and duopoly cases, positive within-group externalities reduce the price of the own group. Negative externalities have an opposite price effect. In the case of a competitive bottleneck, we show by examples that within a certain range of parameter values, a novel phenomenon arises that the platform attracts more agents from one of the groups compared with the social optimum.

September 18, 2015 | Permalink | Comments (0)

Thursday, September 17, 2015

Market Structure and Entry: Evidence from the intermediate goods market

NISHITATENO Shuhei explores Market Structure and Entry: Evidence from the intermediate goods market.

ABSTRACT: The question of whether incumbent firms could deter new entrants in a more concentrated market has been a major concern by both antitrust authorities and industrial economists. This study is the first attempt to analyze the relationship between the market structure and entry in the intermediate goods market, utilizing unique data on auto parts transactions between automakers and auto parts suppliers in Japan during the period 1990-2010. The results suggest that there exists a U-shaped relationship between market concentration and entry, which sees entry decreasing and then increasing as markets concentrate. This result could emanate from a significant role of multi-product and multi-customer firms.

September 17, 2015 | Permalink | Comments (0)

Price Dispersion and Demand Uncertainty: Evidence from US Scanner Data

Benjamin Eden (Vanderbilt University) discusses Price Dispersion and Demand Uncertainty: Evidence from US Scanner Data.

ABSTRACT: I use the Prescott (1975) hotels model to explain variations in price dispersion across goods sold by supermarkets in Chicago. I extend the theory to accounts for the monopoly power of chains and for non-shoppers. The main empirical finding is that the effect of demand uncertainty on price dispersion is highly significant and quantitatively important: More than 50% of the cross sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good.

September 17, 2015 | Permalink | Comments (0)

Wednesday, September 16, 2015

The Welfare Effects of Supply-Side Regulations in Medicare Part D

Francesco Decarolis ; Maria Polyakova ; Stephen P. Ryan report The Welfare Effects of Supply-Side Regulations in Medicare Part D.


ABSTRACT: The efficiency of publicly-subsidized, privately-provisioned social insurance programs depends on the interaction between insurer behavior and public subsidies. We study this interaction within Medicare Part D Prescription Drug Plan (PDP) markets. Using a structural model of supply and demand, we find: consumers purchase too few and too socially-costly PDP plans; insurers price near marginal cost; the primary driver of welfare is the opportunity cost of government spending on other Medicare programs; and the current subsidization policy achieves a level of total welfare close to that obtained under an optimal in-kind subsidy, but is far from the social planner's first-best solution.

September 16, 2015 | Permalink | Comments (0)

The development of competition law in Kosovo

Novitet Xh Nezaj, explores The development of competition law in Kosovo.

ABSTRACT: Competition law is a pillar of a market economy and determines the quality of economic life. This paper explores the origin and development of competition law in Kosovo. It deals with constitutional developments. It attempts to explore how Kosovo's Constitution expresses crucial provisions regarding competition law. Additionally, it takes a broad approach to the relevance of EU competition law for Kosovo. It discusses specific aspects of EU competition law, and the implications of the changes required by the Stabilization and Association Agreement (SAA). This paper seeks to address these aspects by developing theoretical approaches and conceptual tools that can enable the implementation of the SAA's provisions.

September 16, 2015 | Permalink | Comments (0)

Rome Antitrust Forum Second meeting: Busting cartels and competition advocacy: Is the AGCM effective? 18 SEPTEMBER 2015

Rome Antitrust Forum Second meeting: Busting cartels and competition advocacy: Is the AGCM effective?

ORGANIZED BY:

ALBERTO HEIMLER - MEL MARQUIS - GIORGIO MONTI

18 SEPTEMBER 2015

SCUOLA NAZIONALE DELL’AMMINISTRAZIONE

VIA DEI ROBILANT, 11 - ROME, ITALY

Download Programma 18 sett

September 16, 2015 | Permalink | Comments (0)

Tuesday, September 15, 2015

Cartel enforcement in the EU: Leniency programmes and the appeals process

Kai Huschelrath studies Cartel enforcement in the EU: Leniency programmes and the appeals process.

ABSTRACT: Fighting cartels is a major priority of EU competition policy. Acting in concert with national competition authorities in the EU, the European Commission (EC) has made considerable efforts to promote competitiveness by detecting and punishing cartels. These efforts are visible not only in the increasing number of cartel cases, but also in the substantial rise in the average fines imposed per cartel member. While the successes of past years in fighting cartels clearly hinge to some extent on various policy reforms, many commentators argue that the introduction of the EC leniency programme (LP) in 1996 is likely a key enabler. Generally, LPs offer violators a fine reduction or even full amnesty from fines if they disclose an infringement to the responsible authority and cooperate during the subsequent investigation. Below, the key results of an empirical ZEW study on the determinants of self-reporting under the European LP are presented. Given the substanti! al increase in both the number of detected cartels and the average fine per cartel member, it comes as no surprise that an increasing number of convicted firms have considered filing an appeal against EC decisions. Below, the characteristics of firms filing an appeal and the factors that determine their success in terms of fine reduction are discussed.

September 15, 2015 | Permalink | Comments (0)

Monday, September 14, 2015

Price and quantity competition in a differentiated duopoly with network compatibility effects

Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) examines Price and quantity competition in a differentiated duopoly with network compatibility effects.

ABSTRACT: We consider endogenous choice of the strategic variables, price and quantity, in a horizontally differentiated duopoly market, assuming network effects and product compatibility (hereafter, network compatibility effects). We demonstrate the following. If the degree of network compatibility effects of the other rival firm is smaller (larger) than the degree of product substitutability, then choosing quantity (price) is a dominant strategy for the firm. In this case, the Cournot (Bertrand) equilibrium arises. If there are asymmetric network compatibility effects between the firms, the firm with larger (smaller) network compatibility effects than the degree of product substitutability chooses quantity (price). In this case, the Cournot−Bertrand equilibrium arises.

September 14, 2015 | Permalink | Comments (0)

Strategic Incentives When Supplying to Rivals

Serge Moresi (Charles River Associates, Inc., Washington DC) and Marius Schwartz (Department of Economics, Georgetown University) explore Strategic Incentives When Supplying to Rivals.

ABSTRACT: We consider an unregulated, vertically integrated input monopolist that supplies to a differentiated downstream rival. With linear input pricing, the integrated firm unambiguously wants to induce expansion by the rival the opposite incentive from that in standard oligopoly settings with no supply relationship, even though the downstream competition effect is still present here. This result holds whether downstream competition involves prices or quantities and strategic substitutes or complements. If the firm charges a two-part tariff for the input, the result continues to hold under Bertrand competition in the normal case of prices as strategic complements, but is reversed for Cournot and strategic substitutes. We analyze one mechanism for influencing the independent downstream firm, vertical delegation, whereby the integrated firm charges its downstream unit an observable input price, and the downstream unit does not treat that price as a pure internal transfer. Vertical delegation is shown to dominate centralized behavior by the integrated firm, and we characterize how the input price should be set in order to alter the independent firms choice depending on the specifics of downstream competition.

September 14, 2015 | Permalink | Comments (1)

Estimating Equilibrium in Health Insurance Exchanges: Analysis of the Californian Market under the ACA

Pietro Tebaldi (Stanford University) is Estimating Equilibrium in Health Insurance Exchanges: Analysis of the Californian Market under the ACA.

ABSTRACT: This paper develops and estimates a model of a regulated health insurance exchange, in which insurers ability to adjust prices across buyers with different observed risk or preferences is restricted. I show conditions under which the joint distribution of risk and preferences is identified, even when the econometrician does not observe any information on individual risk. These primitives can then be used to simulate equilibrium under alternative regulations. I estimate the model with data from the first year of the Californian exchange under the Affordable Care Act, where age-rating restrictions and a subsidy program determine the way in which insurers decisions translate to expected profits. For this market, I investigate alternative designs of the subsidy program. Compared to the subsidy formula mandated by the healthcare reform, the adoption of a voucher program – providing buyers with a lump-sum equal to 70-80% of their expected! expenditure – would transfer welfare away from insurers, favoring consumers and/or taxpayers. Simulations of equilibrium under this alternative policy result in total coverage between 100-115% of the levels achieved by the current regulations, while also reducing government expenditure, average premiums, and markups, by 0-20%, 12-15%, and 22-27%, respectively.

September 14, 2015 | Permalink | Comments (0)

Saturday, September 12, 2015

Policy Innovations, Political Preferences, and Cartel Prosecutions

Vivek Ghosal, Georgia Institute of Technology; Center for Economic Studies and Ifo Institute for Economic Research (CESifo) and D. Daniel Sokol, University of Florida - Levin College of Law discuss Policy Innovations, Political Preferences, and Cartel Prosecutions.

ABSTRACT: Though cartel prosecution has received significant attention, the policy determinants and the political preferences that guide such prosecutions remain understudied. We empirically examine the intertemporal shifts in U.S. cartel prosecutions during the period 1969-2013. This period has seen substantive policy innovations with increasing penalties related to fines and jail terms. There appear to be four distinct cartel policy regimes: pre-1978, 1978-1992, 1993-2003, and 2004-2013. Our empirical estimates show significant variation in the number of cartels prosecuted and the penalties imposed across the policy regimes. The more recent regimes are characterized by far fewer cartels prosecuted, but with substantially higher penalties levied on firms and individuals. While effective deterrence is one explanation for these patterns, we are more inclined to conclude that US cartel enforcement has seen an underlying shift away from focusing on smaller cartels to larger and multinational firms. In terms of political effects, our results reveal no clear inter-political party effect on cartel prosecutions, but there appear to be interesting intra-political party effects. We find that particular Presidencies matter for cartel prosecutions, and variation across Presidential administrations led to marked shifts in the total number of cartels prosecuted. Overall, the shifts in the number of cartels prosecuted and penalties levied portray changing policy priorities and a search for the optimal enforcement design to curtail one of the clearest sources of welfare loss, collusion.

September 12, 2015 | Permalink | Comments (0)

Friday, September 11, 2015

Merger remedies in oligopoly under a consumer welfare standard

Dertwinkel-Kalt, Markus ; Wey, Christian analyze Merger remedies in oligopoly under a consumer welfare standard.

ABSTRACT: We analyze the welfare effects of structural remedies on merger activity in a Cournot oligopoly if the antitrust agency applies a consumer surplus standard. We derive conditions such that otherwise price-increasing mergers become externality-free by the use of remedial divestitures. In this case, the consumer surplus standard ensures that mergers are only implemented if they increase social welfare. If the merging parties can extract the entire surplus from the asset sale, then the socially optimal buyer will be selected under a consumer standard.

September 11, 2015 | Permalink | Comments (0)

University of Florida Sept. 11, 2015 – Louis Kaplow presents the Bayard Wickliffe Heath Memorial Lecture

The University of Florida Levin College of Law presents the 2015 Bayard Wickliffe Heath Memorial Lecture Series. 

Louis Kaplow (Harvard) is presenting.  Commenting are Kai Uwe Kuhn (University of Michigan) and Abe Wickelgren (University of Texas).

 

Harvard Law Professor Louis Kaplow will deliver the lecture, “Market Definition and Market Power.” Kaplow is Finn M.W. Caspersen and Household International Professor of Law and Economics at Harvard Law School, Associate Director of the John M. Olin Center for Law, Economics, and Business, a Research Associate at the National Bureau of Economic Research, and a Fellow of the American Academy of Arts and Sciences. He has a Ph.D. in economics and a J.D. from Harvard University. He has published widely in the fields of taxation and public economics, antitrust, law and economics, and welfare economics and moral philosophy. He serves on editorial boards of numerous journals and has been an economic and legal consultant to government entities and private parties.

The Heath Memorial Lecture Series is made possible by a gift from Inez Heath, Ph.D., widow of Bayard “Wick” Heath. Before his death in 2008, Heath was the senior competition consultant with Info Tech, a Gainesville firm specializing in statistical and econometric consulting, expert witness testimony and antitrust law. Previous lecturers include Herbert Hovenkamp, William Kovacic, Joseph Harrington and Dennis Carlton.

September 11, 2015 | Permalink | Comments (0)

Endogenous information disclosure in experimental oligopolies

David Kopanyi (Department of Economics, University of Nottingham) and Anita Kopanyi-Peuker (University of Amsterdam) provide results in Endogenous information disclosure in experimental oligopolies.

ABSTRACT: With this research we examine whether observing firm-specific production levels leads to a less competitive market outcome. We consider an endogenous information setting where firms can freely decide whether they want to share information about their past production levels. By voluntarily sharing information, firms can show their willingness to cooperate. We conduct a laboratory experiment where firms decide only about their production levels first, and the information they receive is exogenous (either no information, or aggregate / disaggregated information about others' production, in varying order). Later, firms can also decide whether to share their past production levels with others. We vary the kind of information firms receive: they receive the shared information either in aggregate or in disaggregated form. Our results show no difference in average total outputs across data aggregation and information settings. However, we observe more collusion wh! en individual information was shared voluntarily. Our results show that subjects use voluntary sharing to show their intentions to cooperate. If they share information, they produce significantly less than if they do not share information.

September 11, 2015 | Permalink | Comments (0)

Speculative Constraints on Oligopoly

Sebastien Mitraille (Toulouse Business School, University of Toulouse) and Henry Thille (Department of Economics and Finance, University of Guelph) offer Speculative Constraints on Oligopoly.

ABSTRACT: We examine an infinite horizon game in which producers output can be purchased by speculators for resale in a future period. The existence of speculators serves to constrain the feasible set of prices that can result from producers output game in each period. Absent speculation, producers play a repeated Cournot game with random demand. With speculative inventories possible, the game becomes a dynamic one in which speculative stocks are a state variable which firms can control via their influence on price. We employ collocation methods to find the unknown expected price and value functions required for computation of equilibrium quantities. We demonstrate that strategic considerations result in an incentive to sell to speculators that is nonmonotonic in the number of producers: speculation has the largest effect on equilibrium prices and welfare for market structures intermediate between monopoly and perfect competition. Using a computed example, we demonstrate that the effect of speculative storage on the average price level can be substantial, even though the effects on social welfare can be ambiguous.

September 11, 2015 | Permalink | Comments (0)

Thursday, September 10, 2015

Cross-Licensing and Competition

Jeon, Doh-Shin ; Lefouili, Yassine write on Cross-Licensing and Competition.

ABSTRACT: We study bilateral cross-licensing agreements among N (> 2) competing firms. We find that the fully cooperative royalty, i.e., the one that allows them to achieve the monopoly profit, can be sustained as the outcome of bilaterally efficient agreements, regardless of whether the agreements are public or private and whether firms compete in quantities or prices. We extend this monopolization result to a general class of two-stage games in which firms bilaterally agree in the first stage to make each other payments that depend on their second-stage non-cooperative actions. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived.

September 10, 2015 | Permalink | Comments (0)

Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly

C. Benassi ; M. Castellani ; M. Mussoni theorize about Price equilibrium and willingness to pay in a vertically differentiated mixed duopoly.

ABSTRACT: In the framework of a vertically differentiated mixed duopoly, with uncovered market and costless quality choice, we study the existence of a price equilibrium when a welfare-maximizing public firm producing low quality goods competes against a profit-maximizing private firm producing high quality goods. We show that a price equilibrium exists if the quality spectrum is wide enough vis a vis a measure of the convexity of the distribution of the consumers' willingness to pay, and that such equilibrium is unique if this sufficient condition is tightened. Log-concavity of the income distribution is inconsistent with the existence of equilibrium.

September 10, 2015 | Permalink | Comments (0)

The Simple Economics of Asymmetric Cost Pass-Through

Robert A. Ritz explores  The Simple Economics of Asymmetric Cost Pass-Through.

ABSTRACT: In response to cost changes, prices often rise more strongly or quickly than they fall. This phenomenon has attracted attention from economists, policymakers, and the general public for decades. Many assert that it cannot be explained by standard economic theory, and is evidence for “anti-competitive” behaviour by firms. This paper argues against this conventional wisdom; it shows that simple price theory can, in principle, account for such asymmetric pass-through - even with perfect competition. From a policy perspective, knowledge of cost pass-through patterns in a market does not allow for strong inferences on the intensity of competition.

September 10, 2015 | Permalink | Comments (0)

The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya

Troug, Haytem Ahmed ; Sbia, Rashid explore The Relationship between Banking Competition and Stability in Developing Countries: The Case of Libya.

ABSTRACT: In our paper, we examined the relationship between non-performing loans, as a measure of stability, and concentration, as a measure of competition, in the Libyan banking sector. We used aggregate quarterly data for the 15 commercial banks in the country during the period 2002-2013. A broad set of tests were conducted to measure the relationship between the two variables, and alternative robustness tests were conducted to assure our core finding that less competition in the banking sector leads to a more resilient banking sector. Thus, our results offer empirical support against “competition–stability” theory and conform to the “competition–fragility” literature. We conclude by recommending the need to inspect in more detail (on a bank by bank level) the relationship between competition and fragility in developing countries in general and in Libya in particular.

September 10, 2015 | Permalink | Comments (0)