Thursday, August 31, 2017
Ann L. Owen, Hamilton College - Economics Department and Javier Pereira, Hamilton College discuss 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.
Ki-Eun Rhee, Korea Advanced Institute of Science and Technology (KAIST) - College of Business has written on Price and Output Effects of Oligopoly Price Discrimination Under Best-Response Asymmetry.
ABSTRACT: When firms competitively price discriminate, best-response functions may exhibit either best-response symmetry (firms’ ranking of strong and weak markets coincide) or best-response asymmetry (one firm’s strong market is another firm’s weak market). It has been shown in Corts (1998) and many models of behavior-based price discrimination that prices of all firms may decrease in all markets with best-response asymmetry. While one may presume that total consumption will increase upon low prices by all firms in all markets, such output effect has not been explicitly shown. We provide conditions on demands that are necessary for an output to increase as a result of competitive price discrimination. In particular, we link the condition to cross-price elasticity between the firms and the industry-level elasticity to average market price.
Recent Developments Involving Standard-Development Organization Intellectual Property Rights Policies and Related Issues
Deputy Assistant Attorney General Roger Alford Delivers Remarks at China Competition Policy Forum. His remarks focused on transparency and due process. These core issues of procedural fairness are ones that are the basis of a new book that Andrew Guzman (USC) and I are editing. More on that as we get closer to press time.
Fordham University began one of the first globally-minded competition law and policy conferences in the world 43 years ago. In this interview with Skadden Antitrust and Competition partner, and Fordham Competition Law Institute Director, James Keyte, CPI explores how Fordham is reinventing itself to compete in what’s become a packed field. See here for details.
Joel Waldfogel (Minnesota) explains How Digitization Has Created a Golden Age of Music, Movies, Books, and Television .
ABSTRACT: Digitization is disrupting a number of copyright-protected media industries, including books, music, radio, television, and movies. Once information is transformed into digital form, it can be copied and distributed at near-zero marginal costs. This change has facilitated piracy in some industries, which in turn has made it difficult for commercial sellers to continue generating the same levels of revenue for bringing products to market in the traditional ways. Yet despite the sharp revenue reductions for recorded music, as well as threats to revenue in some other traditional media industries, other aspects of digitization have had the offsetting effects of reducing the costs of bringing new products to market in music, movies, books, and television. On balance, digitization has increased the number of new products that are created and made available to consumers. Moreover, given the unpredictable nature of product quality, growth in new products has given rise to su! bstantial increases in the quality of the best products. Although there were concerns that consumer welfare from media products would fall, the opposite scenario has emerged—a golden age for consumers who wish to consume media products.
Wednesday, August 30, 2017
Øyvind Thomassen, Howard Smith, Stephan Seiler and Pasquale Schiraldi explore Multi-category Competition and Market Power: A Model of Supermarket Pricing.
ABSTRACT: In many competitive settings, consumers buy multiple product categories, and some prefer to use a single firm, generating complementary cross-category price effects. To study pricing in supermarkets, an organizational form where these effects are internalized, we develop a multi-category, multi-seller demand model and estimate it using UK consumer data. This class of model is used widely in theoretical analysis of retail pricing. We quantify cross-category pricing effects and find that internalizing them substantially reduces market power. We find that consumers inclined to one-stop (rather than multi-stop) shopping have a greater pro-competitive impact because they generate relatively large cross-category effects.
Gyoung-Gyu Choi, Dongguk University describes The Beam Suntory Merger: Value Creation and Antitrust Effects.
ABSTRACT: This paper explores the merger between Beam and Suntory as well as the industry, history, and the anti-trust effects caused by the merger of the two companies. Using this case, we analyze Beam and Suntory’s merger strategy to meet the growing distribution needs of their business in making the best spirits in the world. By outlining the important aspects of the Beam Suntory merger, such as the two firms’ market positions, deal making, price adequacy, and financing, the purpose of this case study is to provide the background of a real merger case and to show its mechanism and complications. We also scrutinize the implications on antitrust in the merger. In fact, there were no contractual remedies in the merger agreement from the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) who approved the merger. This case also shows the opportunities and challenges in the growth of Beam Suntory with the combined firms’ competitive position. Even though losses after the cross-border merger incurred due to the change in management, Beam Suntory could regain its momentum and make up for its initial loss over time. Beam and Suntory both benefited from the merger because it can save time and money by using each other’s distribution centers and resources to expand globally.
Tomaso Duso, German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE), Jo Seldeslachts, University of Amsterdam; Tinbergen Institute, and Florian Szücs, Vienna University of Economics and Business study The Impact of Competition Policy Enforcement on the Functioning of EU Energy Markets.
ABSTRACT: We investigate the impact of competition policy enforcement on the functioning of European energy markets, and how sectoral regulation influences these outcomes. For this purpose, we compile a new dataset on the European Commission’s (EC) and EU member states’ competition policy decisions, and combine it with firm- and sector-level data. We find that EC merger policy has a positive and robust impact on (i) the level of competition; (ii) investment; and (iii) productivity. This impact, however, only shows up in low-regulated sectors. Other competition policy decisions – EC state aid and anti-trust interventions; as well as all individual Member State policy variables – do not have a uniform effect on energy markets’ functioning. Our findings are consistent with the idea that the EC’s merger policy actions have been used to overcome significant obstacles to a well-functioning EU energy sector and may well have shaped the overall development of gas and electricity markets in Europe.
Elaine Buckberg, Steven Herscovici, Branko Jovanovic and James Reitzes (all Brattle Group) argue that the Proposal To Remedy Horizontal Shareholding Is Flawed.
ABSTRACT: Recent studies claim to show that competition is adversely affected when institutional investors hold significant shares in multiple firms within a “concentrated” industry. Responding to these concerns, a recently proposed remedy would allow institutional investors to hold shares in only one company in an industry deemed to be concentrated, or limit their shareholdings to no more than one percent of the industry.
In their new article, Brattle economists describe how the proposed remedy would place increased burdens on investors, financial advisers, and intermediaries; raise transaction costs; and possibly force funds to hold more short-term assets while impairing many households’ ability to accomplish long‑term financial goals.
The authors acknowledge that further research is needed to determine whether common ownership results in anticompetitive effects in certain industries. However, even if that proves out, policy makers should seek a remedy that mitigates anticompetitive behavior while minimizing the costs associated with achieving efficiency-enhancing investment objectives. The proposed remedy does not meet those standards
Tuesday, August 29, 2017
Michal S. Gal, University of Haifa - Faculty of Law addresses Algorithmic Challenges to Autonomous Choice.
ABSTRACT: Human choice is a foundational part of our social, economic and political institutions. This focus is about to be significantly challenged. Technological advances in data collection, data science, artificial intelligence, and communications systems are ushering in a new era in which digital agents, operated through algorithms, replace human choice with regard to many transactions and actions. While algorithms will be given assignments, they will autonomously determine how to carry them out. This game-changing technological development goes to the heart of autonomous human choice. It is therefore time to determine whether and, if so, under which conditions, are we willing to give up our autonomous choice.
To do so, this article explores the rationales that stand at the basis of human choice, and how they are affected by autonomous algorithmic assistants; it conscientiously contends with the “choice paradox” which arises from the fact that the decision to turn over one’s choices to an algorithm is, itself, an act of choice. As shown, while some rationales are not harmed – and might even be strengthened – by the use of autonomous algorithmic assistants, others require us to think hard about the meaning and the role that choice plays in our lives. The article then examines whether the existing legal framework is sufficiently potent to deal with this brave new world, or whether we need new regulatory tools. In particular, it identifies and analyzes three main areas which are based on choice: consent, intent and laws protecting negative freedom.
Jeffrey T. Prince, and Daniel H. Simon Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) analyze The Impact of Mergers on Quality Provision: Evidence from the Airline Industry.
ABSTRACT: We examine how mergers affect quality provision by analyzing five U.S. airline mergers, focusing on on‐time performance (OTP). We find that airline mergers have minimal negative impacts on OTP, and likely result in long‐run improvements due to efficiencies. Importantly, we show that this finding is not driven by post‐merger changes in price that could affect OTP. Consequently, at least in the case of airlines, policymakers should not, as a rule, fear the negative quality effects of mergers.
Giulia Pavan, University of Toulouse 1 - Toulouse School of Economics (TSE), Andrea Pozzi, Einaudi Institute for Economics and Finance (EIEF), and Gabriele Rovigatti, University of Rome, Tor Vergata identify Strategic Entry and Potential Competition: Evidence from Compressed Gas Fuel Retail.
ABSTRACT: We study the effect of competition on preemption incentives. An unexpected change in regulation in the Italian retail market for compressed natural gas fuel allows us to identify the potential entrants and creates exogenous variation in their number. We document that markets with a larger pool of potential competitors experience faster entry. We provide evidence suggesting that this occurs because a larger number of potential entrants raises firms' incentives to preempt.
Prices, Locations and Welfare When an Online Retailer Competes with Heterogeneous Brick‐And‐Mortar Retailers
Wen‐Chung Guo, National Taipei University and Fu‐Chuan Lai, National Chengchi University (NCCU) have a paper on Prices, Locations and Welfare When an Online Retailer Competes with Heterogeneous Brick‐And‐Mortar Retailers.
ABSTRACT: This study proposes a novel spatial model in which an online retailer competes with heterogeneous brick‐and‐mortar retailers. Consumers are assumed to be non‐uniformly distributed along an urban‐rural line, and online transactions provide savings in transportation costs at the expense of distaste costs. Among other results, we show that the surviving brick‐and‐mortar retailers eventually move toward densely populated (urban) areas after the entry of the online retailer. Consumer welfare, the policy of not taxing online business, and the socially optimal number of retailers are also analyzed.
Monday, August 28, 2017
My eldest daughter said that there was a show called Friends on Netflix and asked if I could I explain it to her. In retrospect, the premise of the show was a bit silly as were most episodes after around Season 3. Nevertheless, we found a way to connect my pop culture with hers - Lisa Kudrow singing Smelly Cat with Taylor Swift!
The Extent of the Market and Integration Through Factor Markets: Evidence from Wholesale Electricity
R. Andrew Butters, Indiana University and Daniel F. Spulber, Northwestern University - Kellogg School of Management discuss The Extent of the Market and Integration Through Factor Markets: Evidence from Wholesale Electricity.
ABSTRACT: We document the influence of factor markets in determining the extent of the market, by appealing to the Mundell Hypothesis that trade in goods markets and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions are unable to trade electricity, inputs such as natural gas move freely across these regions. After finding co-movement amongst electricity and natural gas prices, we estimate a supply model for natural gas to show shocks propagate across regions. We conclude output markets institutionally in autarky are economically integrated through factor markets.
Kurt Richard Brekke, Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute), Luigi Siciliani, University of York, and Odd Rune Straume, University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute) examine Hospital Mergers with Regulated Prices.
ABSTRACT: We study the effects of a hospital merger in a spatial competition framework where semi‐altruistic hospitals choose quality and cost‐containment effort. Whereas a merger always leads to higher average cost efficiency, the effect on quality provision depends on the strategic nature of quality competition, which in turn depends on the degree of altruism and the effectiveness of cost‐containment effort. If qualities are strategic complements, then a merger leads to lower quality for all hospitals. If qualities are strategic substitutes, then a merger leads to higher quality for at least one hospital, and might also yield higher average quality provision and increased patient utility.
Sanjukta Paul, Wayne State University explores The Roots of the Sherman Act: Farmer-Labor Republicanism and Cooperation Among Workers.
ABSTRACT: This is a draft chapter in an in-progress volume entitled Solidarity in the Shadow of Antitrust, forthcoming from Cambridge University Press in 2018. The book argues that antitrust law ought to support rather than undermine economic cooperation among working people, as it has historically done and as it threatens to do again in today's so-called "gig economy." The Sherman Act was essentially the result of a popular movement from below, not of professional deliberation by lawyers and technical experts. Historians have shown that this movement was ignited by newly politicized farmers’ groups, animated by a farmer-labor coalition as it grew in strength, and eventually won public approval across most social sectors and both major political parties. This history ought to inform our reading of the legislative history and thus of the legislative intent. The popular movement that brought about the Act advocated two means of addressing the new concentrations of economic power: 1) cooperation among working people in order to bargain more effectively with the new “trusts,” whether as sellers, buyers, or both; and 2) direct containment of monopoly through federal legislation. Legislators considering what became the Sherman Act adopted both these elements of the farmer-labor republican program, as well as that movement's implicit account of monopoly, which unified the two. The notion of monopoly that is evident in legislators' discussions focuses on both wealth and market power, and has moral and political elements as well. On this account, economic cooperation among working people is perfectly consistent with the regulation of monopoly, to which it serves as a corrective. This understanding gives additional force to the well-known point that legislators never intended to curtail labor organizing by means of the Sherman Act. Of especial relevance today, it also shows that this legislative intent was not bounded in any way by the concept of the employment relationship, which became the keystone of the labor exemption to antitrust law later on.
Florin Maican, University of Gothenburg, Department of Economics; Research Institute of Industrial Economics (IFN) and Matilda Orth, Research Institute of Industrial Economics (IFN), Stockholm examine Productivity Dynamics and the Role of ‘Big‐Box’ Entrants in Retailing.
ABSTRACT: We use a dynamic model to measure the impact of the entry of large stores on incumbents’ productivity separate from demand while accounting for local markets and the endogeneity of entry. Using data on all retail food stores in Sweden, we find that incumbents’ productivity increases after the entry of large stores and that the magnitude of the increase declines toward the upper part of the productivity distribution. Our findings highlight that large entrants drive productivity.
Friday, August 25, 2017
Aaron Edlin, University of California, Berkeley, Catherine Roux, University of Basel, Armin Schmutzler, University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR), and Christian Thöni, University of Lausanne ask Hunting Unicorns? Experimental Evidence on Predatory Pricing Policies.
ABSTRACT: We study the anti-competitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin's (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare.