Antitrust & Competition Policy Blog

Network tower sharing and telecom infrastructure diffusion in Ghana - a Structure-Conduct-Performance approach

Osei-Owusu, Alexander ; Henten, Anders describe Network tower sharing and telecom infrastructure diffusion in Ghana - a Structure-Conduct-Performance approach.

ABSTRACT: The paper answers the following questions: whether infrastructure sharing policy been able to achieve its core objective of preventing network tower investment duplication in single locations? And whether pricing strategy employed by tower owners encourage sharing? The foundation of these issues is concerned with the structure of costs for providing sharing services, the nature of contracts or other conditions for commercialization, and the clash of different buyers (MNOs) of towers spaces. The implications for the diffusion of telecom infrastructure and services to poorly covered areas of these market conditions and the conduct of the market players constitute the primary focus of this research. For assessing the market structure, the behavior of market players, and the outcome of the sharing policy, a Structure-Conduct-Performance (SCP) framework is applied. A combination of qualitative and quantitative data were collected including ten (10) employees of the network companies, tower companies, internet service vendors and the regulatory agency (NCA) for interviews and reports on 2000 out of 5750 co-location tower sites (at the beginning of 2016) across the country were analyzed. Against the expectations of the regulator, infrastructure sharing is currently not effective. For rural communities, rather than sharing amidst non-pleasant market conduct from the incumbent operators, new entrant operators have chosen to build their own towers, holding back diffusion due to single cost ownership and also defeating the purpose of infrastructure sharing policy. Factors such as market size of firms and their degree of concentration will continue to affect conduct and performance, unless there is a strong institutional incentive for undertaking mandatory access strategies to challenge dominance to induce greater competition in markets.

The Story Behind the Making of Spandau Ballet’s ‘True’

Today's Wall Street Journal has the backstory to one of 80 synth pop's greatest songs (which also appeared in the classic film Sixteen Candles with Molly Ringwald - the Superbad of the 1980s).  Behind the paywall you can read The Story Behind the Making of Spandau Ballet’s ‘True’.

Identifying the Effect of Mobile Operating Systems on the Mobile Services Market

Kuroda, Toshifumi ; Koguchi, Teppei ; Ida, Takanori are Identifying the Effect of Mobile Operating Systems on the Mobile Services Market.

ABSTRACT: Modern economic theory predicts that tying can serve as a tool for leveraging market power. In line with this economic theory, competition authorities regulate the tying of Microsoft Windows with its Media Player or Internet browser in the EU and Japan. The authorities also take note of the market power of mobile handset operating systems (OSs) over competition in the app and services markets. However, no empirical evidence has thus far been presented on the success of government intervention in the Microsoft case. To assess the effectiveness of government intervention on mobile handset OSs, we identify the extent to which complementarity and consumer preferences affect the correlation between mobile handset OSs and mobile service app markets (mail, search, and map). We find significant positive complementarity between the mail, search, and map services, and mobile handset OSs. However, the elasticities of the mobile handset OS–mobile service correlations are rather small. We conclude that taking action to restrict mobile handset OSs is less effective than acting on mobile services market directly.

Bundling, consumer retention and entry: evidence from fixed broadband market

Grzybowski, Lukasz ; Liang, Julienne and Zulehner, Christine examine Bundling, consumer retention and entry: evidence from fixed broadband market.

ABSTRACT: This paper answers two empirical questions. First, we analyze how fixed-mobile (quadruple-play) bundling impacts retention of consumers in fixed broadband market. Second, we assess how bundling by the incumbent operator impacts the market share and number of entrants who provide broadband services using incumbent's infrastructure. To address these questions we use a complete database of about 9.5 million subscribers to incumbent fixed broadband operator in a European country between March 2014 and February 2015. This data is combined with information on the market share and number of entrants in about 36,000 municipalities in this country. We find that consumers who bundle fixed and mobile services from the same provider are less likely to churn. Without quadruple-play bundling the annual retention of fixed broadband consumers would increase from 8.4% to 9.2%. Next, we find that the share of consumers having quadruple-play bundles with the incumbent has a negative impact on the market share and number of entrants. In the absence of quadruple- play bundling, the market share of entrants would be higher by about 6.8 percentage points. Quadruple-play bundling has also negative impact on the number of LLU entrants, which is bigger in the case of small LLU operators who cannot provide bundled offers themselves. This suggests that firms which cannot sell fixed-mobile bundles are disadvantaged in competition.

Competition and vertical/agglomeration effects in media mergers: bagging bundle benefits

Howell, Bronwyn E and Potgieter, Petrus H. study Competition and vertical/agglomeration effects in media mergers: bagging bundle benefits.

ABSTRACT: Existing frameworks (such as used by the New Zealand Commerce Commission in its recent evaluation of the proposed merger between Sky Television and Vodafone) require, as a first step, the definition of the relevant markets affected by the merger or vertical integration activity. Historic precedents in the telecommunications sector have tended towards finding that vertical agglomeration effects when network operators integrate downstream into the provision of applications and services to end-consumers are harmful to competition. Such Structure-Conduct-Performance methods of evaluating mergers and other aspects of market performance are problematic when the firm(s) concerned supply many different products, both together in various different bundle forms and separately as individual components. Defining the markets for (merger) analysis on the basis of only one of the components in a possible bundle that the (merged) firm may supply risks overlooking the complex interactions that occur on the demand side when consumers make their purchase decisions. This is especially likely to be an issue in the supply of internet applications and content bundled with broadband internet access. Consumers have heterogeneous preferences for different applications and content (hereafter ‘content’), and will purchase (or access) many different content types. Even though ownership of rights to distribute one content may confer a degree of market power in for the owner-provider over those consumers with very strong preferences for this content over all others, it is not axiomatic that the firm will be able to exert this power over consumers whose preferences are more evenly distributed. The more variety there is in the content bundles available, and the more heterogeneous are consumers’ preferences across the various content types, the greater is the number of possible markets in which interaction is likely to occur and the more problematic it becomes to identify the relevant markets for analysis of mergers and antitrust cases. We propose that classic merger and antitrust analysis based on econometric cost-benefit analysis can be augmented by using simulation and numerical analysis of a range of bundle offers expected to be relevant in decision-making. We develop a simple model and use it to demonstrate how this approach could have informed the recent New Zealand Commerce Commission decision about the proposed Sky-Vodafone merger by offering some quantitative estimates of total and consumer welfare and provider profits under the proposed factual (with bundling) and counterfactual (individual component sales) cases. The approach may also inform other analyses, such as the assessment of the effects of two-sided markets and firm pricing decisions.

Single Till or Dual Till at airports: a Two-Sided Market Analysis

Estelle Malavolti (TSE - Toulouse School of Economics - Toulouse School of Economics, ENAC - Ecole Nationale de l'Aviation Civile) discusses Single Till or Dual Till at airports: a Two-Sided Market Analysis.

ABSTRACT: Big airports profits are more and more often coming from commercial activities such as retailing. However, commercial services are relatively far from the original mission of the airport: providing airlines with aviation services such as ground handling, terminal management or airside operations, and being regulated for that because of an obvious dominant position with respect to airlines. For this reason, one can advocate for the separation of the two activities, i.e. for a dual till approach, in which only the aeronautical activity is regulated. We, instead, suggest that a single till regulation, in which the total profit of the airport is examined, is relevant because it allows to take into account the externalities existing between retailing and aeronautical services. Using a two-sided market approach (Armstrong, 2006, Rochet-Tirole 2003, 2006), we show that the airport is a platform which makes the shops and the passengers meet. The retailing activity depends on how many passengers are circulating and connecting at the airport, as well as the time they spent in the airport, while passengers value the least connecting time as possible. We show that the aeronautical tax can be either higher or lower under single till depending on whether the impact of the passengers demand or of the waiting time is the more important for the shops.

How Efficient is Dynamic Competition? The Case of Price as Investment

Besanko, David ; Doraszelski, Ulrich ; Kryukov, Yaroslav ask How Efficient is Dynamic Competition? The Case of Price as Investment.

ABSTRACT: We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria of a learning-by-doing model to the first-best planner solution. We show that dynamic competition leads to low deadweight loss. This cannot be attributed to similarity between the equilibria and the planner solution. Instead, we show how learning-by-doing causes the various contributions to deadweight loss to either be small or partly offset each other

On the Profitability of Interfirm Bundling in Oligopolies

Sang-Hyun Kim (Yonsei University) and Jong-Hee Hahn (Yonsei University) offer thoughts On the Profitability of Interfirm Bundling in Oligopolies.

ABSTRACT: This paper examines the pro?tability of bundling or exclusive dealing among independent ?rms selling di¢´erentiated products. We show that, compared with separate sales, inter?rm bundling generally raises prices and is more pro?table provided the distribution of consumer valuations for products are su¡Ë ciently sym- metric and centered in the middle. Hence the ?rms have mutual incentives to o¢´er their products as a bundle or make exclusive dealing arrangements. We shed new light on the role of bundling in relaxing competition in oligopoly, the importance of which has been neglected in the previous literatures.

Price-Setting and Attainment of Equilibrium: Posted Offers Versus An Administered Price

Collins, Sean M. ; James, Duncan ; Servátka, Maroš ; Woods, Daniel investigate  Price-Setting and Attainment of Equilibrium: Posted Offers Versus An Administered Price.

ABSTRACT: The operation of the posted offer market with advance production environment (Mestelman and Welland, 1988), appropriately parameterized, differs from that of the market entry game (Selten and Gueth, 1982), appropriately presented, only in terms of price-setting. We establish the effect of this difference in price-setting on attainment of the competitive equilibrium allocation while controlling for effects relating to the presentation of the market entry game and to the stationarity or non-stationarity of environment. Free posting of prices promotes convergence to the competitive equilibrium allocation, while the typical market entry game data can be characterized as displaying cycling prices.

Handbook on Antitrust in Technology Industries

The ABA has produced the Handbook on Antitrust in Technology Industries.

BOOK ABSTRACT: 

In recent years, technology markets have been a major focus of antitrust policy, agency enforcement, and private litigation. Courts, agencies, commentators, and practitioners have grappled with whether technology industries are somehow different when it comes to antitrust. Antitrust analysis of technology markets has continued to evolve rapidly—it is arguably one of the least settled analytical areas in antitrust law. The Handbook on Antitrust in Technology Industries is intended to serve as a comprehensive review and analysis of the application of antitrust law and principles to the technology industry. It will serve as an important and useful tool for practitioners who seek an introduction to antitrust, as well as for antitrust practitioners who find themselves grappling with the complex but fascinating field of technology. This book guides the reader through the fundamental law and economics of technology industries that make analysis of antitrust issues in these sectors both unique and challenging (Chapter I), transitioning to a discussion of substantive antitrust law applicable to technology industries, including horizontal restraints (Chapter II) and vertical restraints (Chapter III). The book then deals extensively with the enforcement of antitrust principles in technology markets in the contexts of mergers and acquisitions (Chapter IV) and single-firm conduct (Chapter V).

Wholesale Pricing with Incomplete Information about Private Label Products

Johannes Paha (Justus-Liebig-University Giessen) address Wholesale Pricing with Incomplete Information about Private Label Products.

ABSTRACT: This article provides a theoretical model analyzing wholesale pricing tariffs set by a monopolistic manufacturer for its branded product that is sold to final customers by a monopolistic retailer. The bargaining power of the downstream retailer is strengthened by offering also a vertically differentiated private label product whose production costs are known only incompletely to the upstream manufacturer. The model shows that the manufacturer can avoid double marginalization and implement the full information outcome by combining a quantity discount with a market-share discount where only a retailer with a strong private label retroactively receives an allowance. Under these circumstances it is unprofitable for the manufacturer to impose exclusive dealing on the retailer.

Negative consumer value and loss leading

Stéphane Caprice and  Shiva Shekhar study Negative consumer value and loss leading.

ABSTRACT: Large retailers competing with smaller stores that carry a narrower range can exercise market power by pricing below cost for some of their products. Below-cost pricing arises as an exploitative device rather than a predatory device (e.g., Chen and Rey, 2012). Unlike standard textbook models, we show that positive consumer value is not required in these frameworks. Large retailers can sell products offering consumers a negative value. We use this insight to revisit some classic issues in vertical relations.

How to Build a Better Antitrust Policy

Herb Hovenkamp gives a very interesting interview on How to Build a Better Antitrust Policy.

The Mechanism behind Product Differentiation: An Economic Model

Harashima, Taiji provide The Mechanism behind Product Differentiation: An Economic Model.

ABSTRACT: The strategy of product differentiation has been viewed as very important in the field of business administration, but it has not necessarily been viewed as an important source of large differences in firms’ profits in the field of economics. In this paper, this apparent contradiction is examined based on the concepts of “ranking preference and value.” In the proposed model, if a product’s implicit rank is higher, households will purchase the product far more often than competing products even if their qualities are almost identical and the tastes of households are uniformly distributed. Even a slight difference in quality can result in a clear difference in implicit ranks and consequently large differences in firms’ profits. Therefore, the effects of differentiation are amplified by ranking preference, and product differentiation efforts are truly very important for firms.

Market Power and Welfare in Asymmetric Divisible Good Auctions

Manzano, Carolina and Vives, Xavier study Market Power and Welfare in Asymmetric Divisible Good Auctions.

ABSTRACT: We analyze a divisible good uniform-price auction that features two groups each with a Önite number of identical bidders. At equilibrium the relative market power (price impact) of a group increases with the precision of its private information and declines with its transaction costs. An increase in transaction costs and/or a decrease in the precision of a bidding groupís information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more price impact and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payo§ asymmetries. Price impact and the deadweight loss may be negatively associated. The results are consistent with the available empirical evidence. KEYWORDS: demand/supply schedule competition, private information, liquidity auctions, Treasury auctions, electricity auctions, market integration. JEL: D44, D82, G14, E58

Spillover and R&D Incentives under Incomplete Information in a Duopoly Industry

Chatterjee, Rittwik ; Chattopadhyay, Srobonti ; Kabiraj, Tarun address Spillover and R&D Incentives under Incomplete Information in a Duopoly Industry.

ABSTRACT: Spillover of R&D results in oligopolistic industries may affect the R&D decisions of firms. How much a newly eveloped technology by a firm gets spilled over to its rival firms may or may not be observable by the concerned firm. This paper considers a two stage game involving two firms. In the first stage the firms decide whether to invest in R&D and in the next stage they compete in a Cournot duopoly market. The R&D incentives of firms are compared under alternative assumptions of complete and incomplete information scenarios involving general distribution function of types. The results indicate that the impact of availability of more information regarding rival’s ability to benefit from spilled over knowledge on R&D activities of firms is ambiguous.

Deputy Assistant Attorney General Barry Nigro Delivers Remarks at The Capitol Forum and CQ's Fourth Annual Tech, Media & Telecom Competition Conference

Deputy Assistant Attorney General Barry Nigro Delivers Remarks at The Capitol Forum and CQ's Fourth Annual Tech, Media & Telecom Competition Conference.

The Landscape of US Generic Prescription Drug Markets, 2004-2016

Ernst R. Berndt, Rena M. Conti, and Stephen J. Murphy survey The Landscape of US Generic Prescription Drug Markets, 2004-2016.

ABSTRACT: Since the 1984 passage of the Waxman-Hatch Act, generic prescription drugs have become central to disease treatment and generic drug entry and price competition has been vigorous in the U.S. Nonetheless, recent policy concern has focused on potential supply inadequacy and price increases among selected generic drugs. Details regarding the supply of generic drugs throughout the product life cycle are surprisingly unstudied. Here, we examine manufacturer entry, exit, the extent of competition and the relationship between supply structure and inflation adjusted prices among generic drugs. Our empirical approach is descriptive and reduced form, following recent innovations on the older structure-conduct-performance tradition. We employ quarterly national data on quantities, wholesale dollar sales and manufacturers from QuintilesIMS National Sales Perspective data, 2004Q4–2016Q3. Defining a market as the molecule-dosage-form, we observe that median sizes of drug markets are predominantly small, with annual inflation adjusted sales revenues of less than $10 million but increasing over time. The median number of manufacturers in each market is about two, the mean about four. We find evidence to suggest decreasing numbers of suppliers over our study period, particularly following implementation of the Affordable Care Act in 2010 and the Generic Drug User Fee Amendments of 2012, attributable both to more exit and less entry. Approximately 40 percent of markets are supplied by one manufacturer; the share of markets supplied by one or two manufacturers is observed to increase over time and is more likely among non-oral drugs and those belonging to selected therapeutic classes. We find evidence to suggest prices of generic drugs are statistically significantly increasing over time, particularly following the implementation of the 2010 Affordable Care Act and the 2012 Generic Drug User Fee Amendments. Price increases are positively correlated with reduced manufacturer counts and alternative measures of increased supplier concentration, holding all else constant. Our results suggest the market for generic drugs is largely comprised of small revenue products the supply of which has tended towards duopoly or monopoly in recent years. Therefore, it is surprising generic drug prices have not been observed to be higher and potentially risen more over our study period. This issue merits further study; we suggest several testable hypotheses based in economic theory.

Competition and Product Misrepresentation

Daniel Goetz, Rotman School of Management explores Competition and Product Misrepresentation.

ABSTRACT: This paper examines the effect of competition on product quality when product quality is unobserved before purchase. Using a dataset that records the actual broadband internet speed consumers receive as well as the speed the provider claims is being delivered, I find that an additional broadband competitor raises the ratio of actual to claimed speeds for incumbents by between 23 and 32% within the first 6 months, but that this effect attenuates after 18 months. This increase is due to improvements in the actual speed, and not just reductions in the claimed speed. I recover the causal effect of competition on product misrepresentation by leveraging the launch of a broadband-capable satellite in mid-2012 and exploiting exogenous variation in suitability for satellite internet across U.S. counties. I provide suggestive evidence that the reduction in firms’ strategic misrepresentation of their products led to reduced misallocation of consumers across internet plans.

TECHNOLOGY-LED INNOVATION IN THE CANADIAN FINANCIAL SERVICES SECTOR: A MARKET STUDY

The Canadian Competition Bureau has released its final version report TECHNOLOGY-LED INNOVATION IN THE CANADIAN FINANCIAL SERVICES SECTOR: A MARKET STUDY. Worth reading!