Antitrust & Competition Policy Blog

Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace

Lingfang (Ivy) Li; Steven Tadelis and Xiaolan Zhou are Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace.

ABSTRACT:  Reputation is critical to foster trust in online marketplaces, yet leaving feedback is a public good that can be under-provided unless buyers are rewarded for it. Signaling theory implies that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao's "reward-for-feedback" mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process.

Information Asymmetry and Market Power in the African Banking Industry

Agyenim Boateng (Glasgow Caledonian University, UK) ; Simplice Asongu (Yaounde, Cameroon) ; Raphael Akamavi (Hull, UK) ; Vanessa Tchamyou (Yaoundé, Cameroon) survey Information Asymmetry and Market Power in the African Banking Industry.

ABSTRACT:  This study investigates the role of information sharing offices and its association with market power in the African banking industry. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. Five simultaneity-robust estimation techniques are employed, namely: (i) Two Stage Least Squares; (ii) Instrumental Fixed effects to control for the unobserved heterogeneity; (iii) Instrumental Tobit regressions to control for the limited range in the dependent variable; (iv) Generalised Method of Moments (GMM) to control for persistence in market power and (v) Instrumental Quantile Regressions (QR) to account for initial levels of market power. The following findings have been established from non-interactive regressions. First, the effects of information sharing offices are significant in Two Stage Least Squares, with a positive effect from private credit bureaus. Second, in GMM, public credit registries increase market power. Third, from Quintile Regressions, private credit bureaus consistently increase market power throughout the conditional distributions of market power. Given that the above findings are contrary to theoretical postulations, we extended the analytical framework with interactive regressions in order to assess whether the anticipated effects can be established if information sharing offices are increased. The extended findings show a: (i) negative net effect from public credit registries on market power in GMM regressions and; (ii) negative net impacts from public credit registries on market power in the 0.25th and 0.50th quintiles of market power.

Bank Concentration, Competition, and Financial Inclusion

Ann L. Owen and Javier Pereira analyze Bank Concentration, Competition, and Financial Inclusion.

ABSTRACT:  Expanding access to financial services holds the promise to help reduce poverty and foster economic development. However, little is still known about the determinants of the outreach of financial systems across countries. Our study is the first attempt to employ a large panel of countries, several indicators of financial inclusion and a comprehensive set of bank competition measures to study the role of banking system structure as a determinant of cross-country variability in financial outreach for households. We use panel data from 83 countries over a 10-year period to estimate models with both country and time fixed effects. We find that greater banking industry concentration is associated with more access to deposit accounts and loans, provided that the market power of banks is limited. We find evidence that countries in which regulations allow banks to engage in a broader scope of activities are also characterized by greater financial inclusion. Our results are robust to changes in sample, data, and estimation strategy and suggest that the degree of competition is an important aspect of inclusive financial sectors.

Call for papers: 2016 COFECE Research Award

The Mexican Federal Economic Competition Commission (hereinafter referred to by its Spanish acronym, COFECE) is committed to fulfilling its mission of guaranteeing free market entry and competition in the Mexican economy. COFECE acknowledges that many areas of scientific inquiry provide important insights into how markets work, and may therefore contribute to improving the implementation of competition policy in our country.  

With the latter in mind, on May 25^th this Commission issued a call for submissions for the 2016 COFECE Research Award, with one category: "Academic research related to the workings of markets". The purpose of the award is to encourage researchers and postgraduate students to approach this topic. The themes studied may be addressed from a diversity of perspectives including, but not limited to, those of economics, law and political science. Researchers of all nationalities are welcome to participate. All registered work, however, must be written in either English or in Spanish.

Prospective participants may register their work until May 28^th, 2017. The prizes for the first and second places are $ 200,000 and $ 70,000 Mexican Pesos, (around 10,000 USD and 3,700 USD) respectively. In addition, the jury (comprised of representatives from prestigious Mexican academic and public institutions) is entitled to award as many as three Honourable Mentions. The call for submissions is available at:

https://www.cofece.mx/cofece/attachments/article/473/Call_for_submissions.pdf

Price Setting in Online Grocery Markets: The Case of Chocolate

Theresa Grein and Roland Herrmann discuss Price Setting in Online Grocery Markets: The Case of Chocolate.

ABSTRACT: Online markets are developing rapidly in many industrialized countries and have already reached a rather mature status for some product categories. This, however, is not the case in the food sector. In Germany, the online food market captured still less than 1 % of total food sales in 2014. Despite this small share of the online market, the segment is clearly increasing and major players on the offline grocery market engage themselves on the online market, too, or they plan to do so. It is intended in this paper to contribute to our knowledge on competitive strategies of multichannel suppliers and pure online traders which are active on this growing market segment. A major element of competitive strategies on the online market for foods is pricing. We concentrate on pricing strategies of multichannel firms and pure online traders on the German online market and present evidence for the product group chocolate. More and quicker price information for consumers will become available with the development of online markets. Theory suggests that buyers’ search costs will be lowered and market efficiency will be improved. With lower search costs, it is expected that price dispersion will be reduced, i.e. markets will tend towards the law of one price for identical goods, and that the price level will decline and adjust rapidly. It may, however, happen that online markets induce new search costs for consumers as the variety of products offered will also increase substantially. It is an empirical question whether the level and the dispersion of prices will actually fall as the online supply of foods grows. The increasing empirical evidence on non-food markets indicates that remarkable differences between various suppliers persist with the growing importance of online markets and prices remain relatively rigid over time. Different explanations for these patterns are offered in the literature including a growing importance of product differentiation and non-price strategies on online and offline markets.

Does competition from private surgical centres improve public hospitals’ performance? Evidence from the English National Health Service

Zack Cooper; Stephen Gibbons and Matthew Skellern ask Does competition from private surgical centres improve public hospitals’ performance? Evidence from the English National Health Service.

ABSTRACT:  This paper examines the impact of competition from government-facilitated entry of private, specialty surgical centres on the efficiency and case mix of incumbent public hospitals within the English NHS. We exploit the fact that the government chose the location of these surgical centres (Independent Sector Treatment Centres or ISTCs) based on nearby public hospitals’ waiting times – not length of stay or clinical quality – to construct treatment and control groups that are comparable with respect to key outcome variables of interest. Using a difference-in-difference estimation strategy, we find that ISTC entry led to greater efficiency – measured by presurgery length of stay for hip and knee replacements – at nearby public hospitals. However, these new entrants took on healthier patients and left incumbent hospitals treating patients who were sicker, and who stayed in hospital longer after surgery.

Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange

Mark Shepard analyzes Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange.

ABSTRACT:  Health insurers increasingly compete on their covered networks of medical providers. Using data from Massachusetts’ pioneer insurance exchange, I find substantial adverse selection against plans covering the most prestigious and expensive “star” hospitals. I highlight a theoretically distinct selection channel: these plans attract consumers loyal to the star hospitals and who tend to use their high-price care when sick. Using a structural model, I show that selection creates a strong incentive to exclude star hospitals but that standard policy solutions do not improve net welfare. A key reason is the connection between selection and moral hazard in star hospital use.

Strategic Real Options : Entry deterrence and exit inducement

Maria Lavrutich (Tilburg University, School of Economics and Management) has written on Strategic Real Options : Entry deterrence and exit inducement.

ABSTRACT: The focus of this thesis is the analysis of the strategic behavior of the firms undertaking an irreversible investment decision in an uncertain environment. In particular, this thesis contains three studies, in which we develop continuous-time investment models under uncertainty with lumpy investment. The first two studies analyze firms’ competitive strategies in a setting where they decide not only upon the optimal timing of the investment, but also upon the scale of its installment. In Chapter 2, we examine how hidden competition affects the capacity investment decisions in a duopoly. Chapter 3 extends the strategic investment model with capacity choice by incorporating the exit option. Chapter 4 presents a stochastic dynamic model of predatory pricing under firm-specific uncertainty.

AALS Antitrust Section – Extended Deadline for Nominations re. Virtual Election for Appointment to the Executive Committee 2016

AALS Antitrust Section – Extended Deadline for Nominations re. Virtual Election for Appointment to the Executive Committee

Dear AALS Antitrust Section Membership,

Please participate in the first virtual election to appoint the newest member to the Antitrust and Economic Regulation Section (Antitrust Section) of AALS. The following link will direct you to the Antitrust Section membership page (password protected) which will direct you to the Wufoo nomination form that also explains the process in greater detail. 

 

http://connect.aals.org/antitrust 

 

 

Here is the summary version of the relevant information:

·      This election is to select the newest member of the Executive Committee. 

·      The Antitrust Section’s Executive Committee is comprised of 6 members. The most senior member (as defined by year of appointment to the board) serves as the Chairperson. After serving as Chairperson for one year, he/she rotates off the Executive Committee and the next most senior member becomes the new Chairperson.

·      This election will occur in two phases. Phase one involves soliciting nominations and it is now extended through December 4th (Sunday).  Phase two, the actual vote itself, is slated for shortly thereafter in December.  

·      Only faculty and administrators of member schools are eligible to hold office.  Only Antitrust Section members may offer nominees or vote.  The nominees must be members of the Antitrust Section before being placed on the ballot.  

·      The three individuals who receive the greatest number of nominations and who meet the other requirements (membership in the Antitrust Section, research/teaching interests falling squarely within field of antitrust, and who indicate a willingness to be placed on the ballot after being contacted by the Executive Committee) along with up to two additional nominees selected by the Executive Committee (who also meet the requirements) will constitute the final slate of candidates.

·      Persons who previously served on the Executive Committee are ineligible for nomination.  A list of those individuals is provided when you click on the Wufoo link.  If you have not previously served on the Executive Committee, you may nominate yourself!

·      Any questions about section membership or your AALS account credentials, please email [email protected]

·      If you have any technical questions, please contact Mr. Patrick Riley (Manager of Section Services, AALS) at [email protected]

·      Please direct any other questions or comments to Antitrust Section Chairperson Hillary Greene at [email protected]

The Executive Committee greatly appreciates your participation in this process.

Sincerely,

Hillary Greene, Chair

C. Scott Hemphill, Chair-Elect

Rebecca Haw Allensworth

Aaron Edlin

Harry First

Alan J. Meese

The effect of entry on R&D networks

Emmanuel Petrakis and Nikolas Tsakas discuss The effect of entry on R&D networks.

ABSTRACT: We investigate the effect of potential entry on the formation and stability of R&D networks considering farsighted firms. We show that the presence of a potential entrant often alters the incentives of incumbent firms to establish an R&D link. In particular, incumbent firms may choose to form an otherwise undesirable R&D collaboration in order to deter the entry of a new firm. Moreover, an incumbent firm may refrain from establishing an otherwise desirable R&D collaboration, expecting to form a more profitable R&D link with the entrant. Finally, potential entry may lead an inefficient incumbent to exit the market. We also perform a welfare analysisand show that market and societal incentives are often misaligned.

Product Differentiation with Multiple Qualities

F. Barigozzi and C. A. Ma examine Product Differentiation with Multiple Qualities.

ABSTRACT:  We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each firm can choose the levels of an arbitrary number of qualities. Consumers’ valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the equilibrium effects of qualities on the rival’s price in the general model. We present necessary and sufficient conditions for equilibrium differentiation in any of the qualities.

Price Competition in Product Variety Networks

Ushchev, Philip and Zenou, Yves Price examine Competition in Product Variety Networks.

ABSTRACT: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that, even though prices need not to be strategic complements, there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by both firms’ sign-alternating Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.

Genentech: No EU Competition Law Barrier to Patent Royalties Despite Invalidity or Non-infringement of the Licensed Patent(s)

Helen Hopson, Bristows has written on Genentech: No EU Competition Law Barrier to Patent Royalties Despite Invalidity or Non-infringement of the Licensed Patent(s).

ABSTRACT: The Court of Justice has confirmed that EU competition law prohibition of anticompetitive arrangements does not preclude the entitlement to patent royalties in the event of the revocation or finding of non-infringement of the licensed patent(s), provided that the licensee was able freely to terminate the licence by giving reasonable notice.

Competition Law Compliance Programmes

Johannes Paha has edited the interesting Competition Law Compliance Programmes.

BOOK ABSTRACT: Improved detection, rising fines, a greater relevance of private damages claims (especially in Europe), and longer prison sentences (for example in USA) have raised the necessity for firms to implement measures that prevent their managers and other employees from violating competition laws (e.g., by engaging in price fixing or the abuse of a dominant position). Competition law compliance programmes have increasingly been implemented by European firms since about the year 2005 while having been in use by, e.g., US-American firms already for a somewhat longer period. Yet, research on this topic is often relatively new and sparse. Such work has mainly been done by legal scholars but increasingly also by researchers in business administration and economics. However, concepts relevant for competition law compliance have been examined by psychologists and political scientists, too. This poses two challenges. First, researchers sometimes work on this topic within the confines of their disciplines without necessarily knowing all the relevant concepts and results established in other fields. Second, practitioners had to implement and design competition law compliance programmes to the best of their knowledge without necessarily getting the scientific advice they may have wished for.

The Interface between Competition and the Internal Market: Market Separation under Article 102 TFEU

Vasiliki Brisimi has authored The Interface between Competition and the Internal Market: Market Separation under Article 102 TFEU.

BOOK ABSTRACT: This book explores the interface between competition law and market integration in the application of Article 102 of the Treaty on the Functioning of the European Union (TFEU), focusing on the notion of 'market separation'-namely conduct that may hinder cross-border trade. The discussion reviews, among other things, the treatment of geographic price discrimination and exclusionary abuse, by which out-of-state competitors are affected. 'Market separation' cases are treated in the book as a case study for appraising the interface between competition and the Internal Market. On this basis, the book provides a comparative analysis of the Treaty requirements under Article 102 TFEU when applied in 'market separation' cases and the Treaty requirements under the free movement provisions. In addition, it utilises 'market separation' cases as a springboard for advancing an informed reformulation of the application of Article 102 TFEU when state action comes into play.

All in all, the analysis presented in the book deconstructs the elements for establishing 'market separation' as an abuse of the dominant position. It shows that there is nothing that would justify a distinctive treatment of 'market separation' under Article 102 TFEU, other than a principled understanding of Internal Market law as a whole: whatever understanding one reaches about the proper shape of the Internal Market, interrogation of the proper application of competition law comes after that and thus should be informed by this understanding.

Does Merger Policy Converge after the 2004 European Union Reforms

Mats Bergman, Sodertorn University, Stockholm, Malcolm B. Coate, U.S. Federal Trade Commission (FTC), Anh T. V. Mai, Sodertorn University (University College of Southern Stockholm), and Shawn W. Ulrick, U.S. Federal Trade Commission (FTC) ask Does Merger Policy Converge after the 2004 European Union Reforms.

ABSTRACT: With almost ten years of experience with the reformed European merger policy, sufficient data has been accumulated to explore the impact of the reform on the difference between the European Union (EU) and the United States (US) merger policy. We expect the EU 2004 reform that established a “significant impediment to effective competition” standard close to the US “substantial lessening of competition” standard would lead to some convergence. We start by identifying changes in the EU regime and verifying the consistency in the US regime. We detect a weaker EU policy for clear dominance and monopoly cases and some changes in its collusion policy after the reform. The incidence of collusion cases falls while EU’s policy, conditional on collusion being the theory of harm, appears stronger. Limited data precludes detailed analysis for the non-dominance unilateral concerns, although the EU data implies stability in the challenge probability associated with that type of case. The US results remain stable over time. Decompositions show some convergence in policy for unilateral cases and non-parametric analysis shows further convergence occurs in unilateral effects analysis. Matching analysis is attempted, but fails to generate any results, because even adjusted, the two sample distributions are not sufficiently balanced, so we must rely on the structural form assumptions of our logit models.

 

 

The China Inc. illusion

Angela Zhang (King's College) has an op-ed on The China Inc. illusion.

Congrats to the Women in Antitrust 2016: Academics

The GCR has announced its 2016 women in antitrust - academics. 

Amelia Fletcher

Eleanor Fox

Diana Moss

Fiona Scott Morton

Koren Wong-Ervin

 

All have made an important impact in operationalizing antitrust academic insights in the practice community.

All-Units Discounts as a Partial Foreclosure Device

Yong Chao, University of Louisville - College of Business - Department of Economics, Guofu Tan, University of Southern California - Department of Economics, and Adam Chi Leung Wong, discuss Lingnan University All-Units Discounts as a Partial Foreclosure Device. Worth downloading!

ABSTRACT: We investigate the strategic effects of all-units discounts (AUDs) used by a dominant firm in the presence of a capacity-constrained rival. Due to the limited capacity of the rival, the dominant firm has a captive portion of the buyer’s demand for the single product. As compared to linear pricing, the dominant firm can use AUDs to go beyond its captive portion by tying its captive demand with part of the competitive demand and partially foreclose its small rival. When the rival’s capacity level is well below relevant demand, AUDs reduce the buyer’s surplus.

 

 

I love Chile! Reflections from Chile's 2016 Competition Day

Chile is blessed with great enforcers at the Fiscalía Nacional Económica (headed by Felipe Irarrázabal) and a highly quality competition tribunal of three lawyers and two economists (headed by Enrique Vergara).  For the second time I was a speaker for Chile's Competition Day. This was very effective outreach for Chile's competition system.  The event, held last Thursday at the W Hotel in Santiago had roughly 600 attendees.  The event began with presentations by President of Chile Michelle Bachelet and Minister of Economy Luis Felipe Céspedes.  Both presentations were excellent. Below is a picture of Enrique Vergara, Felipe Irarrázabal, Michelle Bachelet, and Luis Felipe Céspedes.

  

Bachelet's presence was important given that Chile has criminalized cartel offenses.

Céspedes discussed competition and economic growth (including entrepreneurship and innovation).

My presentation focused on online competition.

There were a series of international experts who presented. The level of ability of enforcers, private sector, and academic communities in Chile is very high. This model for Competition Day is something that more agencies should do.