Antitrust & Competition Policy Blog

Collusion in Vertical Relationships: The Case of Insurance Fraud in Taiwan

Pierre Picard (Ecole Polytechnique [Palaiseau]) and Kili Wang (Tamkang University) examine Collusion in Vertical Relationships: The Case of Insurance Fraud in Taiwan.

ABSTRACT: The delegation of services from producers to retailers is frequently at the origin of transaction costs, associated with the discretion in the way retailers do their job. This is particularly the case when retailers and customers collude to exploit loopholes in the contracts between producers and customers. In this paper, we analyze how insurance distribution channels may affect such misbehaviors, when car repairers are joining policy holders to defraud insurers. We focus attention on the Taiwan automobile insurance market by using a database provided by the largest Taiwanese automobile insurer. The theoretical underpinning of our analysisis provided by a model of claims fraud with collusion and audit. Our econometric analysis con firms that fraud occurs through the postponing of claims to the end of the policy year, possibly by filing on single claim for several events. It highlights the role of car dealer owned insurance agents in the collusive fraud mechanism.

GCR Awards Dinner and Concurrences Antitrust Writing Awards Dinner Pictures

The Spring Meeting concludes today.  In reality, the most important events (from a fashion perspective at least)  happened on Tuesday night.  The pictures are in: GCR Awards Dinner and the Concurrences Antitrust Writing Awards Dinner. 

Market structure, patient choice and hospital quality for elective patients

Giuseppe Moscelli (Centre for Health Economics, University of York, York, UK.) ; Hugh Gravelle (Centre for Health Economics, University of York, York, UK.); and Luigi Siciliani (Department of Economics and Related Studies, University of York, York, UK.) describe Market structure, patient choice and hospital quality for elective patients.

ABSTRACT: We examine the change in the effect of market structure on hospital quality for elective procedures (hip and knee replacements, and coronary artery bypass grafts) following the 2006 loosening of restrictions on patient choice of hospital in England. We allow for time-varying endogeneity due to the effect of unobserved patient characteristics on patient choice of hospital using Two Stage Residual Inclusion. We find that the change in the effect of market structure due to the 2006 choice reforms was to reduce quality by increasing the probability of a post-operative emergency readmission for hip and knee replacement patients. There was no effect of the choice reform on hospital quality for coronary bypass patients. We find no evidence of self-selection of patients into hospitals, suggesting that a rich set of patient-level covariates controls for differences in casemix.

Foreign Competition and Domestic Innovation: Evidence from U.S. Patents

Autor, David ; Dorn, David ; Hanson, Gordon ; Pisano, Gary ; Shu, Pian have an empirical paper on Foreign Competition and Domestic Innovation: Evidence from U.S. Patents.

ABSTRACT: Manufacturing is the locus of U.S. innovation, accounting for more than three quarters of U.S. corporate patents. The rise of import competition from China has represented a major competitive shock to the sector, which in theory could benefit or stifle innovation. In this paper we empirically examine how rising import competition from China has affected U.S. innovation. We confront two empirical challenges in assessing the impact. We map all U.S. utility patents granted by March 2013 to firm-level data using a novel internet-based matching algorithm that corrects for a preponderance of false negatives when using firm names alone. And we contend with the fact that patenting is highly concentrated in certain product categories and that this concentration has been shifting over time. Accounting for secular trends in innovative activities, we find that the impact of the change in import exposure on the change in patents produced is strongly negative. It remains so once we add an extensive set of further industry- and firm-level controls. Rising import exposure also reduces global employment, global sales, and global R&D expenditure at the firm level. It would appear that a simple mechanism in which greater foreign competition induces U.S. manufacturing firms to contract their operations along multiple margins of activity goes a long way toward explaining the response of U.S. innovation to the China trade shock.

Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence

Tom Hamami provides Network Effects, Bargaining Power, and Product Review Bias: Theory and Evidence.

ABSTRACT: I construct a theoretical framework for expert product reviews and demonstrate how the existence of positive network effects can make review inflation profitable even when fully rational consumers understand the existence of bias. This finding moreover suggests that product reviews, in addition to transmitting information, may also serve as a coordination mechanism for early adopters. Empirical application to video game review data suggests that this industry is in an inflation equilibrium. Specifically, I find evidence that reviews are inflated for games produced by large firms and for those that are part of pre-existing game franchises. Additionally, I find that review inflation is heterogeneous across genres that vary by the extent to which they produce network externalities, and I argue that this result is inconsistent with alternative explanations of review inflation.

Internal conflict, market uniformity, and transparency in price competition between teams

Michael Kurschilgen (Max Planck Institute for Research on Collective Goods) ; Alexander Morell (Max Planck Institute for Research on Collective Goods) ; and Ori Weisel (Coller School of Management, Tel Aviv University) discuss Internal conflict, market uniformity, and transparency in price competition between teams.

ABSTRACT: The way profits are divided within successful teams imposes different degrees of internal conflict. We experimentally examine how the level of internal conflict, and whether such conflict is transparent to other teams, affects teams' ability to compete vis-à-vis each other, and, consequently, market outcomes. Participants took part in a repeated Bertrand duopoly game between three-player teams which had either the same or different level of internal conflict (uniform vs. mixed). Profit division was either private-pay (high conflict; each member received her own asking price) or equal-pay (low conflict; profits were divided equally). We find that internal conflict leads to (tacit) coordination on high prices in uniform private-pay duopolies, but places private-pay teams at a competitive disadvantage in mixed duopolies. Competition is softened by transparency in uniform markets, but intensified in mixed markets. We propose an explanation of the results and discuss implications for managers and policy makers.

Oligopolization of Markets

Sveinn Vidar Gudmundsson, Toulouse Business School has written on the Oligopolization of Markets.

ABSTRACT: In this paper, concentration in US air transport markets is assessed by calculating the Herfindahl-Hirschman Index for domestic versus international markets separately. The findings show that industry concentration in the US domestic market fluctuates substantially, usually increasing in the years following recessions, when the number of financially weak carriers in the industry increases, and receding during periods of economic prosperity. Overall, the oligopolistic characteristics of the domestic market are stronger than in international markets, yet both markets do not show strong concentration using the US Department of Justice criteria. One explanation is that the industry has had a large number of new entrants since deregulation that have challenged the legacy carriers in the domestic market in a sustainable way. The Herfindahl-Hirschman Index for US international markets is showing signs of increased concentration among US carriers but reduced concentration among international airlines. So far as entry barriers are not overwhelming, the industry concentration is likely to fluctuate according to economic cycles and shocks. US domestic concentration indices may continue to increase, as low-cost airlines with competitive advantage grow, while legacy airlines strive to maintain position through mergers and acquisitions.

Optimization of Customized Pricing with Multiple Overlapping Competing Bids

Dutta, Goutam ; Natesan, Sumeetha R. analyze Optimization of Customized Pricing with Multiple Overlapping Competing Bids.

ABSTRACT: In this paper, we consider the case of project procurement where there is a single buyer and multiple sellers who are bidding. We consider one seller having one or more competitors. We formulate the pricing problem from the point of view of one seller having one or multiple competitors (say n). We also assume that based on past experience, we have some idea about the distribution of bid prices of the competitors. We consider uniform distribution to describe the bid price of the competitors. The prices of the competitors are pairwise mutually independent and the price range are either identical or different and overlapping. We consider maximizing the expected contribution. Assuming the contribution as a linear function of price we compute the conditions for maximization of the expected contribution to profit in case of n bidders. Further, we also compare the optimization results with simulation results.

The Formation of Consumer Brand Preferences

Bronnenberg, Bart ; Dube, Jean-Pierre examine The Formation of Consumer Brand Preferences.

ABSTRACT: Brands and brand capital have long been theorized to play an important role in the formation of the industrial market structure of consumer goods industries. We summarize several striking empirical regularities in the concentration, magnitude and persistence of brand market shares in consumer goods categories. We then survey the theoretical and empirical literatures on the formation of brand preferences and how brand preferences contribute to our understanding of these empirical regularities. We also review the literature on how brand capital creates strategic advantages to firms that own established brands.

Employee-Athletes, Antitrust, and the Future of College Sports

William W. Berry III, University of Mississippi School of Law has written on Employee-Athletes, Antitrust, and the Future of College Sports.

ABSTRACT: The Ninth Circuit’s antitrust analysis in its recent college sports cases centers on whether amateurism offers a pro-competitive justification for its restraint on athlete compensation. Specifically, the question is whether the market for college football and basketball would suffer if universities paid their athletes. Despite this framing, there remains an implicit assumption driving the analysis—the determination of whether to characterize athletes as “employee-athletes” or “student-athletes.”

Specifically, this Article argues that the determination of whether college athletes are employees constitutes the central question in determining how the courts ought to apply the Sherman Act in this context. Having made the implicit assumptive concept explicit, the Article explores four key questions that should bear on the determination of whether college athletes are employees. The Article then concludes by proposing that the employee-athlete question is not bi-modal, but rather a spectrum, providing a map for universities and administrators eager to preserve the current status quo.

Part I explains the competing arguments raised in O’Bannon and their likely application in Jenkins. Part II argues that the real question does not concern economics and markets, but instead rests upon the question of whether athletes are employees. Part III frames the potential analysis of the employee question suggesting four indicia that ought to guide this determination. Finally, Part IV provides a road map for saving the status quo in light of the employee-athlete question.

Contracting in a market with differential information

M. Rocha and T. Greve consider Contracting in a market with differential information.

ABSTRACT: This Consider an oligopolistic industry where two firms have access to the same technology and compete in prices, but one firm has access to better information about the customers in the market. We assume that better information allows the better informed firm to attract specific customers. The better informed firm obtains a first customer contact advantage, whereas the uninformed firm can only offer a menu of prices without being able to pre-identify the types of customers. We show that better information does not lead to higher profit.

Productive Efficiency and Ownership When Market Restructuring Affects Production Technologies

Astrid Cullmann, German Institute for Economic Research (DIW Berlin), Maria Nieswand, German Institute for Economic Research (DIW Berlin), and Julia Rechlitz, German Institute for Economic Research (DIW Berlin) address Productive Efficiency and Ownership When Market Restructuring Affects Production Technologies.

ABSTRACT: While the link between the ownership and productive efficiency of firms has been discussed extensively, no consensus exists regarding the superiority of one or the other in non-competitive, regulated environments. This paper applies a flexible production model to test for efficiency differences associated with ownership types while allowing the production to adapt to market restructuring over time. Our empirical setting is based on a new, rich micro dataset of electricity distribution firms operating between 2006 and 2012 in Germany, where the energy transition enforces the adjustment of energy infrastructure. First, our results show that electricity distribution system operators adapted their production technologies over time. Second, there is no empirical evidence that public firms operated any less efficiently than private firms. The empirical findings are relevant to the (re)municipalization debate, which appears to have exaggerated the dichotomy between public and private utilities’ efficiency.

Vertical Licensing, Input Pricing, and Entry

Elpiniki Bakaouka, Athens University for Economics and Business and Chrysovalantou Milliou, Athens University of Economics and Business discuss Vertical Licensing, Input Pricing, and Entry.

ABSTRACT: We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm, transforming the licensee into its input supplier. We find that the incumbent opts for licensing even when licensing also transforms the licensee into one of its direct competitors in the final products market. In fact, the licensee's entry into the final products market, although increases the competition and the cost that the licensor faces, it reinforces, instead of weakens, the licensing incentives. Furthermore, the licensee's entry augments the positive welfare implications of vertical licensing.

The Competitive Effects of Common Ownership: We Know Less than We Think

Daniel P. O'Brien, Bates White Economic Consulting and Keith Waehrer, Bates White Economic Consulting argue The Competitive Effects of Common Ownership: We Know Less than We Think.

ABSTRACT: Recent empirical research purports to show that common ownership by institutional investors harms competition even when all financial holdings are minority interests. This research has received a great deal of attention, leading to both calls for and actual changes in antitrust policy. This paper examines the research on this subject to date and finds that its conclusions regarding the effects of minority shareholdings on competition are not well established. Without prejudging what more rigorous empirical work might show, we conclude that researchers and policy authorities are getting well ahead of themselves in drawing policy conclusions from the research to date. The theory of partial ownership does not yield a specific relationship between price and the MHHI. In addition, the key explanatory variable in the emerging research – the MHHI – is an endogenous measure of concentration that depends on both common ownership and market shares. Factors other than common ownership affect both price and the MHHI, so the relationship between price and the MHHI need not reflect the relationship between price and common ownership. Thus, regressions of price on the MHHI are likely to show a relationship even if common ownership has no actual causal effect on price. The instrumental variable approaches employed in this literature are not sufficient to remedy this issue. We explain these points with reference to the economic theory of partial ownership and suggest avenues for further research.

Abuse of Dominance in EU Competition Law Emerging Trends

Pier Luigi Parcu, Giorgio Monti and Marco Botta, European University Institute analyze Abuse of Dominance in EU Competition Law  Emerging Trends.

BOOK ABSTRACT: Granting rebates to a customer or refusing to supply a competitor are examples of ordinary commercial practices, which become ‘abusive’ under Article 102 of the Treaty on the Functioning of the EU (TFEU) when carried out by ‘dominant’ firms. This topical book provides an up-to-date account of the emerging trends in the enforcement and interpretation of this provision at both the EU and national level.

Employing a range of case studies, this illuminating book adds a cross-country perspective to the growing debate surrounding the scope of application of Article 102 of the TFEU; a debate largely caused by its ambiguous wording. Besides analysing the case law of the EU Courts and EU Commission that determine what conduct falls in the ‘abuse’ box, a number of chapters examine the active contribution of national courts and competition authorities in the ongoing process of shaping the meaning of this legal provision.

The Art of Regulation Competition in Europe – Wealth and Wariness

Christian Koenig and Bernhard von Wendland have a new book out on The Art of Regulation Competition in Europe – Wealth and Wariness.

BOOK ABSTRACT: Increasingly, EU market regulation measures have been introduced in the pursuit of economic justice and welfare. This book illustrates how regulation can help to prevent the abuse of dominance, in particular the abuse of public capital by the state. Comprehensive and interdisciplinary, this book presents the theory of regulation in a highly accessible manner. It explains that whilst the state’s ability to make major investments, compete with the private sector and target subsidies may be necessary in supporting infrastructure, the wasteful allocation of public monies can also do immense harm by crowding out private investments, distorting private incentives, and helping to foreclose markets. Against this background, Christian Koenig and Bernhard Von Wendland discuss the strengths and weaknesses of EU regulation in the area of competition in the Internal Market, considering both private and public economic activities and market interventions and providing further analysis in light of global competitive pressures.

Price Dispersion and Consumer Upgrade: Theory and Empirical Evidence from Airline Industry

Yao Cui, Cornell University - Samuel Curtis Johnson Graduate School of Management, A. Yesim Orhun, University of Michigan, Stephen M. Ross School of Business, and Izak Duenyas, University of Michigan, Stephen M. Ross School of Business offer Price Dispersion and Consumer Upgrade: Theory and Empirical Evidence from Airline Industry.

ABSTRACT: In recent years, major U.S. airlines introduced the option to upgrade to premium economy seating which provides comfort-enhancing features compared to regular economy seating. This paper examines the effect of the introduction of this upgrade option on the airline’s price dispersion in the main cabin. We first provide a theoretical analysis of the airline’s optimal pricing policy when customers exhibit multi-dimensional heterogeneity, and the airline price-discriminates intertemporally for its regular economy seating and can offer an upgrade option to premium economy seating. Our analysis highlights two competing pressures on main cabin prices. On the one hand, the airline benefits from lowering its prices because by allowing more customers to purchase in the first place, it increases the probability of selling upgrades (admission effect). On the other hand, for some customers, the value of flying with the airline increases due to the upgrade availability, therefore the airline may find it optimal to increase its prices (valuation effect). In the second part of the paper, we conduct an empirical investigation of the impact of the introduction of the upgrade option on main cabin prices based on a proprietary transaction-level dataset from a major U.S. airline company. The empirical analysis tests the main predictions of our theoretical model and provides further insights. The results show that the introduction of the premium seating upgrade is associated with an increase in the price dispersion in the main cabin, the admission effect is stronger than the valuation effect on the low-end of the price distribution, and the opposite is true on the high-end of the price distribution.

 

Software Resale Price Maintenance and Competition Law

Qiang Yu, Leiden Law School; Skolkovo Institute for Law and Development, National Research University Higher School of Economics explores Software Resale Price Maintenance and Competition Law.

ABSTRACT: The legal treatment of resale price maintenance (RPM) in the United States had a major switch in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007)(Leegin). Rule of reason analysis was applied to certain category of RPM practice. While RPM in the European Union is prohibited as a hardcore restriction of competition. Seen from the effects of RPM, it is aimed at controlling price and distribution, legal rules against RPM are highly sector-specified, namely, they are designed for markets that featured of price and distribution competition. There are many other markets that price restraint is not always an important element for competition. Such a market is the software market, where although distribution is an inherent part of market competition, the decisive competitive advantage is an innovative product. Price restraint is less likely to contribute to the process of innovation. On the contrary, RPM is likely to be used as a way of foreclosing intro-brand competition in the distribution procedure. After reviewing the theory of RPM and competition in the software market, this article concludes that RPM is less likely to be considered pro-competitive in the software market and therefore rule of reason analysis cannot be applied in these circumstances, per se rule fits software RPM.

Anti-Competitive Agreements According to Kosovo's Law on the Protection of Competition – Case Study of the Insurance Market

Orhan M Çeku Sr., Pjeter Budi College of Commercial Law and Mentor Q. Shaqiri, Iliria College describe Anti-Competitive Agreements According to Kosovo's Law on the Protection of Competition – Case Study of the Insurance Market.

ABSTRACT: Competition law is an area which links the economy with the law and is very important for the functioning of a free market economy. Anti-competitive agreements, along with the abuse of dominance and concentrations of undertakings, are the subject matter of the Law on the Protection of Competition (LPC) of the Republic of Kosovo. Anti-competitive agreements can be horizontal or vertical in nature.

The following paper deals with agreements and other multilateral practices prohibited under Kosovo’s Law on the Protection of Competition. The LPC explicitly states also specific circumstances where the prohibition does not apply – these are covered by the so called ‘exceptions and allowances’ section of the LPC. In this respect, the LPC has incorporated the entirety of the principles covered by Article 101 TFEU.

The insurance market of the Republic of Kosovo was analyzed in the context of this case study, which has all the features of an oligopoly including: a limited number of participating firms, product standardization, interdependence in controlling prices and, difficulty of new market entry. From this perspective, the insurance market is highly problematic as far as violations of the provisions of the law dealing with anti-competitive agreements are concerned. The analysis is conducted based on the enforcement measures undertaken by the Kosovo Competition Authority and reviewed by the judiciary of the Republic of Kosovo.

Taking into consideration that Kosovo is a young country facing special transitional challenges and aiming to become a member of the European Union, much needed reforms are to take place still. The aim of this analysis is thus to contribute to further development of competition law in Kosovo through the analysis of current market situation, domestic legislation and its compliance with EU rules.

CUTS 5th Biennial Competition, Regulation & Development Conference 09-11 November, 2017 Jaipur, India

CALL FOR PAPERS

I. INTRODUCTION

CUTS and CIRC invite papers for the 5th Biennial Competition, Regulation & Development Conference to be held on 09-11 November, 2017 in Jaipur (India). Interested scholars and practitioners are invited to submit a 500 word abstract for a chance to participate in this Conference and present their paper.

The abstract should be based on any one of the four plenaries of the Conference (below) and should be submitted to the undersigned, along with a brief CV (not more than 2 pages) of the author. Authors are requested to mention the specific ‘Plenary’ their paper is based on while submitting the abstract.

Authors of selected abstracts would be invited to submit full conference papers (3,000 to 4,000 words) for a chance to participate in this conference. On successful selection, the organisers will provide support to the author (air travel, accommodation and meals) to participate in the conference, and present the paper.

II. PLENARY SESSIONS

The abstract/paper should target any one of the following four plenaries of the conference.
Plenary 1
:
Revisiting IPR and Competition
Plenary 2
:
Disruptive Technologies and Economic Regulations
Plenary 3
:
Building Organisational capacities for tackling policy and regulatory uncertainty
Plenary 4
:
Challenges and Opportunities of Development Financing for Fostering an Innovation based Ecosystem

For more information, please visit:
Call for Papers https://goo.gl/1yMK3L
Background Note https://goo.gl/pFfby9

III. IMPORTANT DATES AND DEADLINES

The following dates/deadlines need to be noted:
 Last date for submission of Abstract (500 words) is 15th April 2017
 Selection of successful Abstract will be done by 30th April 2017
 Last date of submission of Full paper (3,000 to 4,000 words) is 30th June 2017
 Selection of successful papers will be done by 31st August 2017

IV. FURTHER INFORMATION AND CONTACTS

All submission and further queries should be directed to Mr. Ashutosh Soni ([email protected]) and Mr. Parveer Ghuman ([email protected])