Tuesday, January 19, 2016
Dubois, Pierre and Perrone, Helena examine Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases.
ABSTRACT: Traditional demand models assume that consumers are perfectly informed about product characteristics, including price. However, this assumption may be too strong. Unannounced sales are a common supermarket practice. As we show, retailers frequently change position in the price rankings, thus making it unlikely that consumers are aware of all deals offered in each period. Further empirical evidence on consumer behavior is also consistent with a model with price information frictions. We develop such a model for horizontally differentiated products and structurally estimate the search cost distribution. The results show that in equilibrium, consumers observe a very limited number of prices before making a purchase decision, which implies that imperfect information is indeed important and that local market power is potentially high. We also show that a full information demand model yields severely biased price elasticities.
Alex Barrachina (Department of Economics, Universitat Jaume I, Castellón, Spain); Yair Tauman (IDC Herzliya, Israel and Department of Economics, Stony Brook University, NY, USA); and Amparo Urbano (Department of Economic Analysis, University of Valencia,Spain) explore explore Entry with Two Correlated Signals.
ABSTRACT: We analyze the effect of industrial espionage on limit-pricing models. We consider an incumbent monopolist engaged in R&D trying to reduce his cost of production and deter a potential entrant from entering the market. The R&D project may be successful or not and its outcome is a private information of the incumbent. The entrant has an access to an Intelligence System (IS hereafter) of a certain precision that generates a noisy signal on the outcome of the R&D project, and she decides whether to enter the market based on two signals: the price charged by the incumbent and the signal sent by the IS. It is assumed that the precision of the IS is exogenous and common knowledge. Our fundamental result is that for intermediate values of the IS precision, the set of pooling equilibria is non-empty even with profitable entry and the entrant enters if the IS tells her the R&D project was not successful. Since in the classical limit- pricing models ! the entrant never enters in a pooling equilibrium, the use of the IS by the entrant increases competition in pooling equilibrium with high probability. Moreover, the incumbent can deter profitable entry with positive probability.
Franciso Galera (University of Navarra); Pedro Mendi (University of Navarra); and Juan Carlos Molero (University of Navarra) identify Quality differences, third-degree price discrimination, and welfare.
ABSTRACT: We propose a theoretical model to analyze the welfare implications of price discrimination in the presence of differences in quality. The model considers two markets where in each market competition takes place between a local firm that operates in that market only and a global firm that operates in both markets. All firms are assumed to be producing with zero marginal costs. Local firms produce a good that is perceived by consumers to have superior quality than that produced by the global firm. We find that there are parameter values such that welfare increases while total output decreases if the global firm engages in price discrimination. This is due to a positive allocation effect brought about precisely by the global firm engaging in price discrimination.
Gaston Llanes (Escuela de Administracion, Pontificia Universidad Catolica de Chile) and Francisco Ruiz-Aliseda (Escuela de Administracion, Pontificia Universidad Catolica de Chile) study Private Contracts in Two-Sided Markets.
ABSTRACT: We study a two-sided market in which a platform connects consumers and sellers, and signs private contracts with sellers. We compare this situation with a two-sided market with public contracts. We find that the platform provider sets positive (negative) royalties to sellers and earns a negative (positive) markup on consumers when contracts are private (public). Thus, private contracting has a significant effect on the price structure. Private contracting leads to lower platform profits, consumer surplus, and social welfare. We study the welfare effects of most-favored-nation clauses, price-forcing contracts, and integration with sellers; and relate our results with the agency model of sales. Our results indicate that enhancing the market power of a dominant platform over sellers may increase welfare because it acts as a commitment device for inducing lower seller prices, mitigating the hold-up problem borne by consumers when they cannot observe sellers' ! contracts.
Monday, January 18, 2016
David A. Hyman, University of Illinois College of Law and William E. Kovacic, George Washington University - Law School ask Can't Anyone Here Play this Game? Judging the FTC's Critics.
ABSTRACT: The conventional wisdom is that the FTC was the governmental equivalent of a leper colony prior to 1969, and its credibility and reputation were restored only by the adoption of the wise recommendations in the 1969 ABA Report. There is no question that the FTC deserves plenty of criticism for its pre-1969 performance. It is also beyond doubt that there has been a dramatic turn-around in the intervening forty-five years, as the FTC adopted the recommendations in the 1969 Report. But, before we simply genuflect at the wisdom of those responsible for the ABA Report and the inherent virtue of their recommendations, it is worth noting that those recommendations also placed the FTC’s continued existence at risk as well — and did so for an entirely new set of reasons than had been the case pre-1969. Indeed, the last forty-five years of the FTC’s history (which are assuredly an improvement on the first fifty-five) are still a testament to the unintended consequences that can accompany even the best of reform proposals.
Votes Now Open!
The 2016 Antitrust Writing Awards have received nominations for more than 600 papers.
The Awards Editorial Committee has selected:
- 100 academic articles
- 70 business articles
- 13 soft laws
Readers can now vote online until February 15 for their favorite papers on the Awards website.
Free access to all these articles is temporarily being provided on the Awards website.
Results will be announced by the FTC Chairwoman Edith Ramirez, Bill Kovacic, and other Board members at the Gala Dinner on April 5, in Washington DC, the night before the ABA Spring Meeting.
Early Bird tickets for the Gala Dinner are available until January 25 only.
Nicolas Charbit – Elisa Ramundo
For the 2016 Antitrust Writing Awards Editorial Committee
William E. Kovacic, George Washington University - Law School and David A. Hyman, University of Illinois College of Law ponder Consume or Invest: What Do/Should Agency Leaders Maximize?
Abstract: In the regulatory state, agency leaders face a fundamental choice: should they “consume” or should they “invest?” “Consume” means launching high profile cases and rule-making. “Invest” means developing and nurturing the necessary infrastructure for the agency to handle whatever the future may bring. The former brings headlines, while the latter will be completely ignored. Unsurprisingly, consumption is routinely prioritized, and investment is deferred, downgraded, or overlooked entirely. This essay outlines the incentives for agency leadership to behave in this way and explores the resulting agency costs (pun intended). The U.S. Federal Trade Commission’s health care portfolio provides a useful case study of how one agency managed and minimized these costs. Our essay concludes with several proposals that should help encourage agency leadership to strike a better balance between consumption and investment.
Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) and Yossi Spiegel, Tel Aviv University - The Leon Recanati Graduate School of Business Administration ask Can Collusion Promote Sustainable Consumption and Production?
ABSTRACT: Several competition authorities have taken public interest considerations, such as promoting sustainable consumption and production, into account in cartel proceedings. We show that when consumers value sustainable products and firms choose investments in sustainability before choosing output, coordination of output choices boosts investments in sustainability and may even enhance consumer surplus, whereas coordination of investments in sustainability hinders investments and harms consumers.
Vera Ivanova (National Research University Higher School of Economics) and Philip Ushchev (National Research University Higher School of Economics) analyze When Ricardo Meets Chamberlin: A Simple Dynamic Model Of Monopolistic Competition.
ABSTRACT: We develop a dynamic model of monopolistic competition which sheds light on how the interplay between the degree of product dierentiation and intertemporal elasticity of substitution aects the steady-state equilibrium. Consumers love variety and split their labor endowment between wage labor, which brings immediate income, and producing capital, which yields a rent in the future. The impact of the elasticity of substitution across varieties on the market outcome depends crucially on whether consumption today and consumption tomorrow are gross substitutes or gross complements. The case of Cobb-Douglas intertemporal utility is a borderline situation, when the market outcome is invariant to the degree of product dierentiation. We also fully characterize the unique steady-state equilibrium path and show that the key dynamic properties of the model, such as local stability and determinacy of equilibrium, also hinge mainly on the interplay between the intra- an! d intertemporal elasticities of substitution.
Friday, January 15, 2016
Asymmetric cartel formation under trade liberalization: Heterogeneous ﬁrms with capacity constraints
Aya Ahmed (Paris School of Economics), examines Asymmetric cartel formation under trade liberalization: Heterogeneous ﬁrms with capacity constraints.
ABSTRACT: In a context of trade liberalization , this paper is interested in studying the impact of a decline in trade costs on cartel formation between foreign and domestic ﬁrms. In a model that endogenizes the cartel formation between heterogeneous ﬁrms in their capacities and their marginal costs, the paper investigates how the decrease in trade tariffs affects the formation of such a cartel. Contrary to previous works in this area, the paper does not study how trade liberalization aﬀects cartel stability, however it is in- terested in testing whether the cartel becomes more or less inclusive after this openness. The model predicts that the price prevailing on the market following trade liberalization depends on capacity distribution of the foreign ﬁrms. If they are large enough, price may increase after openness.
The GCR 100 2016 edition is now out. Who makes the top 20?
|1||Freshfields Bruckhaus Deringer|
|2||Cleary Gottlieb Steen & Hamilton|
|4||Gibson Dunn & Crutcher|
|5||Baker & McKenzie|
|6||Allen & Overy|
|7||Latham & Watkins|
|8||Norton Rose Fulbright|
|9||Wilmer Cutler Pickering Hale and Dorr|
|11||White & Case|
|13||Arnold & Porter|
|14||Wilson Sonsini Goodrich & Rosati|
|16||King & Wood Mallesons (SJ Berwin)|
|17||Herbert Smith Freehills|
|19||Covington & Burling|
|20||Skadden Arps Slate Meagher & Flom|
The LCII is pleased to invite you to its next must event :
REGULATING PATENT “HOLD-UP”? AN ASSESSMENT IN LIGHT OF RECENT ACADEMIC, POLICY AND LEGAL EVOLUTIONS
Abstract: The patent hold-up theory has nurtured many policy developments in the past ten years. On the one hand, Standard Setting Organizations (SSOs) have been exploring changes to their licensing policies, in particular in relation to the commercial implications of FRAND pledges given by holder of Standard Essential Patents (“SEPs”). On the other hand, antitrust agencies and patent courts across the globe have been confronted with several waves of cases Those proceedings have generated a thick, diverse and somewhat inconsistent body of case-law on a wide array of topics, including the availability of injunctive relief, patent valuation, portfolio licensing, practicing and non-practicing entities, etc. This conference seeks to provide a 360° state of play on patent hold-up in contemporary antitrust and patent policy.
This Half-Day conference will take place in Brussels, on February 29th, 2016.
The full Conference programme is available here: http://www.lcii.eu/event/lcii-half-day-conference-regulating-patent-hold-up/ Register Now: http://www.eventbrite.fr/e/billets-lcii-half-day-conference-regulating-patent-hold-up-19397594728
Arzdar Kiracı (Siirt University, Department of Economics) explores The Impact of Innovative New Economy Products on Market Competition: Competition Might Decrease.
ABSTRACT: This paper presents a parametric Cournot type of game theoretic model that uses Rogers’ Diffusion of Innovations Theory to construct a model that simulates the strategic interaction between firms. The constructed model simulates the strategic interaction of old economy firms that compete with the adoption of an innovative information and communication technologies based product, which is produced by a monopolistic New Economy firm. The model incorporates the accelerated product innovation process, globalization and interaction of firms in competitive environment. This paper confirms the expected result that innovator firms gain by adopting profitable New Economy products; however, surprisingly, under some circumstances market competition might decrease even when there is globalization. It is proven that this result is valid for markets with large (customer) demands when firms of the New Economy that produce innovative products charge high prices for the! ir products. Firms of the New Economy that produce innovative products are given the privilege to be monopolists for the duration of their patent, but according to the findings of this paper they need to be regulated by competition authorities.
Maxime C. Cohen; Georgia Perakis; and Robert S. Pindyck study Pricing with Limited Knowledge of Demand.
ABSTRACT: How should a firm price a new product for which little is known about demand? We propose a simple pricing rule: the firm only estimates the maximum price it can charge and still expect to sell at least some units, and then sets price as though the actual demand curve were linear. We show that if the true demand curve is one of many commonly used demand functions, or even if it is a more complex function, and if marginal cost is known and constant, the firm can expect its profit to be close to what it would earn if it knew the true demand curve. We derive analytical performance bounds for a variety of demand functions, and calculate expected profit performance for randomly generated demand curves.
Thursday, January 14, 2016
Hernan Roman is Testing for Endogenous Sunk Costs in the Retail Industry.
ABSTRACT: This paper uses data from retail industries in Chile to test Shaked and Sutton's (1987) hypothesis of endogenous sunk costs. I find that industries which are less likely to have endogenous sunk costs display a signicant negative relationship between market size and concentration. In contrast, in the supermarket industry, where investment in advertising is presumed to be more intense, the tests show that concentration does not vary with market size and is bounded away from zero.
Jacob Malone (University of Georgia, Department of Economics); Aviv Nevo (Northwestern University, Department of Economics) and Jonathan Williams (University of North Carolina - Chapel Hill, Department of Economics) offer A Snapshot of the Current State of Residential Broadband Networks.
ABSTRACT: The way in which consumers use the Internet is changing rapidly, and over-the-top video services (OTTV) are a major contributor to this trend. The dramatic rise of OTTV services has led to major changes in the telecommunications sector and greater attention to several important and ongoing public policy debates. We provide an essential component to inform these policy debates: an in-depth descriptive analysis of the rapidly changing way in which consumers use the Internet from a representative sample of consumers. At the core of our contribution are unique data from the spring and summer of 2015 that we acquired from a North American ISP that provides detailed disaggregated high-frequency information on individuals’ Internet usage. We provide insight into temporal patterns in usage within the day, measure persistence in the level and composition of usage across days, and contrast usage patterns for consumers that subscribe to traditional pay TV services (i.e., purchase a bundle of services from the operator) to those that do not. We also present results on how the level and composition of usage for a consumer changes immediately after “cutting the cord” and dropping traditional linear TV service.
WAN, Yunyun and MIYAGIWA, Kaz describe Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act.
ABSTRACT: We present a formal analysis that sheds new light on the Hatch-Waxman Act. Hatch-Waxman restores incentives to develop new drugs by extending the patent life for them, but also promotes generic entry by reducing entry costs and by providing 180-day marketing exclusivity to a first challenger to the patent. Although these two objectives appear incompatible, our model shows that marketing exclusivity, with a significant entry cost reduction, contributes to incentive restoration. It finds however that social welfare is lower with marketing exclusivity. Finally, our analysis suggests that marketing exclusivity not be granted in the case of drugs for rare diseases.
Andrew Sweeting (Department of Economics, University of Maryland) offers A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design.
ABSTRACT: I develop a tractable framework for conducting platform design counterfactuals in settings where many sellers compete and set prices dynamically, using approaches developed in the recent literature on Oblivious Equilibria. As an initial application, I use the model to study a simple platform design counterfactual using data from the secondary event ticket market on Stubhub.com where the perishability of the product being sold results in sellers facing a dynamic and non-stationary pricing problem. Currently, most transactions happen at low prices close to the event. Motivated by some simple theoretical examples, I investigate how the dynamics of prices, the timing of transactions, platform revenues and participant surplus would be a affected if a commission structure that encouraged earlier transactions was introduced.
Wednesday, January 13, 2016
Doh-Shin Jeon (Toulouse School of Economics and CEPR); Domenico Menicucci (Dipartimento di Scienze per l'Economia e l'impresa, Universita degli Studi di Firenze); Nikrooz Nasr (Toulouse School of Economics) explore Dynamics of Compatibility under Switching Costs.
ABSTRACT: We study firms choices of compatibility in a dynamic setting. Current compatibility choice shapes the distribution of consumers switching costs and thereby affects competition and compatibility choice in the future. Given todayâ€™s market shares, the dynamics of compatibility is asymmetric in that firms are more likely to embrace compatibility tomorrow if products are compatible today but no such inertia exists for incompatibility. However, this asymmetry disappears when the market shares are endogenous. Contrary to what happens in a static setting, when consumer lock-in arises due to a significant switching cost, firms make their systems incompatible in order to soften future competition, which hurts consumers and tends to reduce welfare.
Peter Behrens explores The ordoliberal concept of "abuse" of a dominant position and its impact on Article 102 TFEU.
ABSTRACT: This paper explores the impact of ordoliberal thinking on the drafting of the prohibition of "abuse" of a dominant position in the market that was included in the competition rules of the Rome Treaty establishing the European Economic Community as well as on its interpretation by the Commission and the Court of Justice of the European Union (CJEU). Firstly, it is shown that the ordoliberal school must not be regarded as a set of ideas frozen in its formative period of 1933 to 1950 or 1957 when the "Freiburg School" was established but rather as an approach that has been dynamically developed and refined over the last 75 years (i.e. over four generations of ordoliberals) up to the present day by integrating important new insights without, however, giving up its core tenets and convictions. Secondly, it is shown on the basis of the preparatory work which lead in the 1950ies to the Rome Treaty that the adoption of the concept of "abuse" for the control of do! minant undertakings was due to the strong influence of the German negotiating team that consisted of (in the meantime second generation) ordoliberals. Thirdly, it is explained how ordoliberal thinking about the "system of undistorted competition" and the protection of "residual competition against exclusionary practices" has influenced the application of the "abuse" concept in the jurisprudence of the Commission and the CJEU from the Continental Can case to the recent Intel case. This approach has come under attack from welfare-economic approaches which emphasize efficiency instead of competition and which have accused the ordoliberal approach of formalism, lack of sufficient economic analysis, preoccupation with fairness, protection of competitors instead of competition, obsession with interventionist regulation etc. This paper demonstrates that all of these characterizations are based on fundamental misunderstandings of what ordoliberal thinking originally meant and what it stands for today.