Friday, April 14, 2017
A stochastic frontier estimator of the aggregate degree of market power exerted by the U.S. beef and pork packing industries
Stavrakoudis, Athanassios and Panagiotou, Dimitrios offer A stochastic frontier estimator of the aggregate degree of market power exerted by the U.S. beef and pork packing industries.
ABSTRACT: The objective of this study is to measure the amount of market power exercised by the U.S. red meatpacking industry using the recently developed stochastic frontier estimator of market power. The aggregate degree of market power in both the input market (cattle and hogs) and the output market (beef and pork) is estimated using annual time series data for the period 1970- 2009. The empirical results reveal that the farm-to-wholesale price spread is 4.91% and 4.16% above the marginal processing costs, in the beef and pork packing industries, respectively. These findings indicate that rather a small percentage of the farm-to-wholesale price spread can be attributed to market power in both U.S. meat packing sectors.
17th ANNUAL LOYOLA ANTITRUST COLLOQUIUM
April 21, 2017
INSTITUTE FOR CONSUMER ANTITRUST STUDIES
LOYOLA UNIVERSITY CHICAGO
SCHOOL OF LAW
Continental Breakfast and Registration
Welcome Professor Spencer Weber Waller
Darren Bush, University of Houston Law Center
Harry First, New York University Law School
John Kirkwood, Seattle University Law School
Stephen Calkins, Wayne State University Law School
Professor Howard Shelanski
Politics, Regulation, and Competition Policy beyond Antitrust
Warren Grimes, Southwestern Law School
Susan Beth Farmer, Penn State Law
Ice Cream Sundae Break
Barach Y. Orbach, University of Arizona College of Law
Jan De Loecker and Paul T. Scott are Estimating market power Evidence from the US Brewing Industry.
ABSTRACT: While inferring markups from demand data is common practice, estimation relies on difficult-to-test assumptions, including a specific model of how firms compete. Alternatively, markups can be inferred from production data, again relying on a set of difficult-to-test assumptions, but a wholly different set, including the assumption that firms minimize costs using a variable input. Relying on data from the US brewing industry, we directly compare markup estimates from the two approaches. After implementing each approach for a broad set of assumptions and specifications, we find that both approaches provide similar and plausible markup estimates in most cases. The results illustrate how using the two strategies together can allow researchers to evaluate structural models and identify problematic assumptions.
Leonardo Cardoso ; Mauricio Bittencourt and Elena Irwin explore Price asymmetry and retailers heterogeneity in Brazilian gas stations.
ABSTRACT: In a competitive market situation, a symmetric price transmission is expected, and the speed of adjustment of the market should be equal, no matter in which direction input prices are going (up or down). When inputs? prices increase, firms need to pass on costs to avoid negative profit situation. When they go down, firms? reaction is in a direction to avoid market share losses. Therefore, if firms react faster when inputs? prices increase than when they decrease (positive asymmetry), it means a capture of consumers? surplus by the firms. When firms? reaction is slowly when inputs? prices decrease than when they decreases (negative asymmetry), the surplus transfer is from firms to consumers. So far, studies regarding price asymmetry in Brazil used only aggregated database, which likely suffers by summation bias. In a hypothetical city with just two gas stations, one with positive asymmetric behavior and other with negative one, there is high chance that this city accepts the null of a symmetric behavior. The present study will try to overcome this problem with a gas station level dataset. The National Agency for Petroleum, Natural Gas and Biofuels (ANP) has a detailed database with weekly information for gas stations in an unbalanced database, where more than 40% of population is covered every week. This firm-level database has information as purchase and selling price for gasoline, name of gas stations, brand and complete address. This information allows answering if there is price asymmetry in Brazil at firm level. Because database has more than 2 million of observations for more than 17.000 different gas stations, it is also possible to obtain results of price asymmetry against fixed effects to check which of these effects matter to change the likelihood of firms to have price asymmetry. Results indicate that there is heterogeneity regarding price transmission among firms: 71% of gas stations had no asymmetry, 23% had a positive asymmetry pattern and 6% of them had negative asymmetry. Regarding which fixed effects could explain the probability to have a positive asymmetry, higher margins, and a minor number of rivals nearby and be a non-white flag increase the probability of having positive asymmetry. These results strength relations between market power and positive asymmetry and inaugurate a link between spatial competition and price asymmetry transmission.
Thursday, April 13, 2017
Tenth Annual Conference on Antitrust Economics and Competition Policy Call for Papers Friday, September 15, 2017—Saturday, September 16, 2017
Gil, Ricard; Riera-Crichton, Daniel and Ruzzier, Christian discuss As Seen on TV: Price Discrimination and Competition in Television Advertising.
ABSTRACT: In this paper we examine the empirical relationship between price discrimination and competition in television advertising. While most empirical papers on the topic document a positive relationship, we find that price discrimination is negatively related to competition (as measured by the number of competing firms), a result that is consistent with conventional wisdom. Our results also show that only incumbent stations (unlike entrants) respond by engaging less in price discrimination when faced with a more competitive environment. Our evidence suggests that incumbents may use price discrimination as a strategic tool to accommodate entry - a strategy that has received scant attention in the existing entry literature.
Kevin M. Murphy and Ignacio Palacios-Huerta offer A Theory of Bundling Advertisements in Media Markets.
ABSTRACT: Watching TV and other forms of media consumption represent, after sleeping and working, the main activity that adults perform in developed countries. We present a dynamic theory of commercial broadcasting where the media trade utility-raising goods (programs, information, and services) with audiences in exchange for their exposure to advertisements (utility-decreasing bads), and where goods are otherwise free to the audience except for their opportunity cost of time. Goods and bads are dynamically arranged, and as such traded in an intertemporal bundle. No monetary transfers take place between media and audiences, and this barter exchange is not contractually sustained. We study this dynamic problem in a model that captures the central characteristics of how commercial media markets operate. The model is rich enough to account for a variety of disparate evidence in television, radio, print media and the web.
Optimal Licensing of Non-Drastic and (Super-)Drastic Innovations: The Case of the Inside Patent Holder
Cuihong Fan (Shanghai University of Finance and Economics); Byoung Heon Jun (Korea University, Seoul); and Elmar G. Wolfstetter (Humboldt-University at Berlin and Korea University, Seoul) examine Optimal Licensing of Non-Drastic and (Super-)Drastic Innovations: The Case of the Inside Patent Holder.
ABSTRACT: We reconsider the inside innovators optimal licensing problem, assuming incomplete information and unit cost profiles that may or may not have the potential to propel a monopoly, taking into account restrictions concerning royalty rates and the use of exclusive licenses implied by antitrust rules. We analyze optimal licensing mechanisms using methods developed in the analysis of license auctions with downstream interaction. The optimal mechanism differs significantly from the mechanisms reported in the literature, which assumed complete information or particular cost profiles or probability distributions.
On the Use of Price-Cost Tests in Loyalty Discounts and Exclusive Dealing Arrangements: Which Implications from Economic Theory?
Chiara Fumagalli and Massimo Motta ask On the Use of Price-Cost Tests in Loyalty Discounts and Exclusive Dealing Arrangements: Which Implications from Economic Theory?
ABSTRACT: Recent cases in the US (Meritor, Eisai) and in the EU (Intel ) have revived the debate on the use of price-cost tests in loyalty discount cases. We draw on existing recent economic theories of exclusion and develop new formal material to argue that economics alone does not justify applying a price-cost test to predation but not to loyalty discounts. Still, the latter contain features (they reference rivals and allow to discriminate across buyers and/or units bought) that have a higher exclusionary potential than the former, and this may well warrant closer scrutiny and more severe treatment from antitrust agencies and courts.
Wednesday, April 12, 2017
Michael Funk and Christian Jaag offer The more economic approach to predatory pricing.
ABSTRACT: The “more economic approach” was introduced to antitrust in order to achieve a more effect-based and theoretically grounded enforcement. However, related to predatory pricing it resulted in systematic over- and under-enforcement: Economic theory does not require dominance for pre-dation to be a rational (and harmful) strategy while an ex ante dominant firm would often refrain from predation. Hence, within the current legal framework, a more effect-based and theoretically grounded antitrust enforcement with respect to predatory pricing will result in systematic over- and under-enforcement. Therefore, we suggest separating predatory pricing from exclusionary abuse of a dominant firm, both legally and analytically. Instead, predatory pricing should be analyzed along the same logic as a merger. In particular, we argue that three elements from merger control should be adopted: in absence of dominance, market share and/or turnover thresholds may serve as a de minimis rule; recoupment should be analyzed similarly to the competitive effect of a merger between the predator and its prey; and a stronger efficiency defense should be established.
Bonnet, Céline and Richards, Timothy offer Models of Consumer Demand for Differentiated Products.
ABSTRACT: Advances in available data, econometric methods, and computing power have created a revolution in demand modeling over the past two decades. Highly granular data on household choices means that we can model very specific decisions regarding purchase choices for differentiated products at the retail level. In this chapter, we review the recent methods in modeling consumer demand, and their application to problems in industrial organization and strategic marketing.
Halvor Mehlum (Dept. of Economics, University of Oslo) have written Another model of sales. Price discrimination in a differentiated duopoly market.
ABSTRACT: Using a model of horizontal differentiation where a variety dimension is added to Hotelling's (1929) "linear city" duopoly model, I show that even when costs and demand are symmetric, price discrimination may be an equilibrium phenomenon. In the model each customer have a preferred variety and a preferred firm. They have perfect information about all prices and may be induced to switch variety and firm given a sufficient price difference. Price discrimination equilibrium exists when a sufficient fraction of consumers are elastic both with respect to variety and firm.
Jean-Baptiste Tondji theorizes about Welfare Analysis of Cournot and Bertrand Competition With(out) Investment in R & D.
ABSTRACT: I consider the model of a differentiated duopoly with process R&D when goods are either substitute, complements or independent. I propose a non-cooperative two-stage game with two firms producing differentiated goods. In the first stage, firms decide their technologies and in the second stage, they compete in quantities or prices. I evaluate the social welfare within a framework of Cournot and Bertrand competition models with or without investment in research and development. I prove that the Cournot price can be lower than Bertrand price when the R&D technology is relatively inefficient; thus, Cournot market structure can generate larger consumer's surplus and welfare.
Tuesday, April 11, 2017
Patrick Rey (Toulouse) and Thibaud Verge (CREST) analyze Secret contracting in multilateral relations.
ABSTRACT: We develop a flexible and tractable framework of (secret) vertical contracting between multiple upstream suppliers and downstream retailers. This framework does not put any restriction on the tariffs that can be negotiated, and yet does take account of the impact of these tariffs on downstream firms'behavior. We show that equilibrium tariffs must be cost-based; as a result, retail prices are the same as with a multi-brand oligopoly. Interestingly, this finding is in line with the empirical analysis of a recent Norwegian merger. We then use this flexible framework to endogenize market structure as well as to analyze the e¤ects of various vertical restraints, such as resale price maintenance and retail price parity clauses. Finally, we show that our framework also applies to the agency relationships that characterize most online platforms.
Haucap, Justus ; Heimeshoff, Ulrich ; and Siekmann, Manuel discuss Selling gasoline as a by-product: The impact of market structure on local prices.
ABSTRACT: We use a novel data set with exact price quotes from virtually all German gasoline stations to empirically investigate how a temporary variance in local market structure - induced by restricted opening hours of specific players - affects price competition. We focus on stations selling gasoline as a by-product and find that, during their exogenously determined hours of opening, they have a significant negative price effect on nearby major-brand competitors. Applying a difference-in-difference framework with hourly average prices, our findings explicitly account for counterfactual market scenarios.
Zuzana FUNGACOVA (Bank of Finland) ; Anastasiya SHAMSHUR (University of East Anglia) and Laurent WEILL (LaRGE Research Center, Université de Strasbourg) ask Does bank competition reduce cost of credit ? Cross-country evidence from Europe.
ABSTRACT: Despite the extensive debate on the effects of bank competition, only a handful of single-country studies deal with the impact of bank competition on the cost of credit. We contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross-country setting. Using a panel of firms from 20 European countries covering the period 2001–2011, we consider a broad set of measures of bank competition, including two structural measures (Herfindahl-Hirschman index and CR5), and two non-structural indicators (Lerner index and H-statistic). We find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies. Our findings accord with the information hypothesis, whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit. This positive impact of bank competition is however influenced by the institutional and economic framework, as well as by the crisis.
When we think of Sweden, we think of ABBA (at least I do). However, we have interesting empirical work coming out of Sweden on Effects of Increased Competition on Quality of Primary Care in Sweden by Dietrichson, Jens (The Danish National Centre for Social Research (SFI)) ; Ellegård, Lina Maria (Department of Economics, Lund University); and Kjellsson, Gustav (Department of Economics, University of Gothenburg).
ABSTRACT: In the last decades, many health systems have implemented policies to make care providers engage in quality competition. But care quality is a multi-dimensional concept, and competition may have different impacts on different dimensions of quality. The empirical evidence on competition and care quality is scarce, in particular regarding primary care. This paper adds evidence from recent reforms of Swedish primary care that affected competition in municipal markets differently depending on the pre- reform market structure. Using a difference-in-differences strategy, we demonstrate that the reforms led to substantially more entry of private care providers in municipalities where there were many patients per provider before the reforms. The effects on primary care quality in these municipalities are modest: we find small improvements in subjective measures of overall care quality, but no significant effects on the rate of avoidable hospitalizations or patients’ satisfaction with access to care. We find no indications of quality reductions.
Monday, April 10, 2017
How Does Technological Change Affect Quality-Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations
Kristopher J. Hult; Sonia Jaffe and Tomas J. Philipson ask How Does Technological Change Affect Quality-Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations.
ABSTRACT: Medical innovations have improved survival and treatment for many diseases but have simultaneously raised spending on health care. Many health economists believe that technological change is the major factor driving the growth of the heath care sector. Whether quality has increased as much as spending is a central question for both positive and normative analysis of this sector. This is a question of the impact of new innovations on quality-adjusted prices in health care. We perform a systematic analysis of the impact of technological change on quality-adjusted prices, with over six thousand comparisons of innovations to incumbent technologies. For each innovation in our dataset, we observe its price and quality, as well as the price and quality of an incumbent technology treating the same disease. Our main finding is that an innovation’s quality-adjusted prices is higher than the incumbent’s for about two-thirds (68%) of innovations. Despite this finding, we argue that quality-adjusted prices may fall or rise over time depending on how fast prices decline for a given treatment over time. We calibrate that price declines of 4% between the time when a treatment is a new innovation and the time when it has become the incumbent would be sufficient to offset the observed price difference between innovators and incumbents for a majority of indications. Using standard duopoly models of price competition for differentiated products, we analyze and assess empirically the conditions under which quality-adjusted prices will be higher for innovators than incumbents. We conclude by discussing the conditions particular to the health care industry that may result in less rapid declines, or even increases, in quality-adjusted prices over time.
Zhijun Chen and Greg Shaffer ask Are Market-Share Contracts a Poor Man’s Exclusive Dealing?
ABSTRACT: Contracts that reference rivals have long been a focus of antitrust law and the subject of intense scholarly debate. This paper compares two such contracts, exclusive-dealing contracts and market-share contracts, in a model of naked exclusion. We discuss the different mechanisms through which each works and identify the fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure whereas exclusive dealing is better at minimizing a seller’s cost of foreclosure. We give settings in which each is the more profitable contract and show that welfare can be worse with market-share contracts.
Attar, Andrea ; Mariotti, Thomas and Salanié, François provide thoughts On Competitive Nonlinear Pricing.
ABSTRACT: We study a discriminatory limit-order book in which uninformed market makers compete in nonlinear tariffs to serve an informed insider. Our model allows for general nonparametric specifications of preferences and for arbitrary discrete distributions for the insider's private information. We show that adverse selection severely restricts possible equilibrium outcomes: in any pure-strategy equilibrium, tariffs must be linear and at most one type may trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances. The Bertrandlike logic underlying these results markedly differs from Cournot-like analyses of the limit-order book that postulate a continuum of types. We argue that these contrasting outcomes can be reconciled when one considers "-equilibria of either the game with a large number of market makers or the game with a large number of insider types. Mixed-strategy equilibria, by contrast, lead to a new class of equilibrium predictions that calls for further analysis.