Friday, March 30, 2018
Alan J Meese and Sarah L Stafford (both William & Mary) ask Were the 1982 Merger Guidelines Old News?
ABSTRACT: This paper examines the impact of the 1982 Department of Justice Merger Guidelines on the stock market prices of publicly traded firms in the United States. We argue that those Guidelines were perceived by the market as a real change in enforcement policy that would result in substantial deregulation of mergers throughout the economy. We conduct an event study of S&P 500 firms to test this hypothesis and find evidence of a significant positive effect on the stock prices of firms in moderately concentrated industries subject to antitrust regulation, the firms for which the 1982 Guidelines articulate a substantially less intrusive enforcement policy. However, the announcement does not have any significant effect on firms in less concentrated industries or those that are highly concentrated. These results are robust to a number of different sensitivity analyses and thus we conclude that market actors believed the 1982 Guidelines contained new information.
Hannah L. Buxbaum, Indiana University Bloomington Maurer School of Law describes Transnational Antitrust Law.
ABSTRACT: In beginning a discussion of transnational antitrust law, one immediately confronts multiple points on which there is no shared understanding across legal systems. First, to what body of substantive rules are we referring? “Antitrust law,” the term used primarily in the United States, is generally understood as the body of rules that address restraints on competition. “Competition law,” the term more frequently used elsewhere, is often used to refer to a broader set of norms — for instance, encompassing laws governing unfair business practices and consumer protection. Second, what purpose is antitrust law intended to serve? In many countries, the overarching objective would most commonly be identified as maximizing consumer welfare. In other countries, however, antitrust law may serve other economic objectives, such as promoting industrial development, protecting emerging industries, or improving the position of local firms in global markets. Third, what is the relationship between law and markets? In many parts of the world, governments, not markets, traditionally controlled economic production; in others, the market orientation eventually embodied in the Washington Consensus was dominant. The “market turn” that occurred in the 1990s has to some extent solidified a common foundation for the development and implementation of antitrust law, yet significant variability remains in the interplay between markets and law.
Against this backdrop, it is not surprising that efforts to develop a body of international antitrust law have failed. Instead, we rely on a diverse set of norms and transnational practices to regulate the increasingly globalized economy. This chapter discusses those practices, focusing on the actors and institutions involved. Part I addresses the production of substantive antitrust law at different levels (national, regional, and international) and discusses some of the ways in which these norms spread across legal systems. Part II turns to mechanisms for improving cooperation among legal systems in the enforcement of divergent regulatory norms, as well as to continuing sites of contestation among regimes. Part III concludes with an analysis of the prospects for increased convergence in the field of antitrust law and policy.
Victor Aguirregabiria, University of Toronto - Department of Economics and Margaret Slade, University of British Columbia (UBC) examine Empirical Models of Firms and Industries.
ABSTRACT: We review important developments in empirical industrial organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, interfirm contracts and auctions. We present models that are workhorses in empirical IO and describe applications. For each topic, we discuss at least one empirical application using Canadian data.
Thursday, March 29, 2018
Nathan Lee, Stanford University asks When Competition Plays Clean: Industrial Organization and Renewable Energy Politics.
ABSTRACT: Why do some governments adopt renewable energy policies while others do not? I argue that polities with deregulated energy markets are more likely adopt renewable energy policies because market competition undermines the political power of legacy producers. Using a generalized difference-in-differences analysis, I show that U.S. states that adopt electricity deregulation laws are subsequently 38 percentage points more likely to adopt a renewable portfolio standard and 15 points more likely to adopt a cap-and-trade program. I argue that this pattern is driven by a redistribution of industry interest-group power: deregulation leads to a 20 percentage point decline in the market share of legacy producers (utilities) and a corresponding increase in market share for independent producers. Following deregulation, independent producers become more politically active and also disproportionately invest in renewable energy. These findings have implications for both energy policy as well as the study of industrial interest-group competition more generally.
Wednesday, March 28, 2018
Aurélien Leroy and Yannick Lucotte investigate Competition and credit procyclicality in European banking.
ABSTRACT: This paper empirically assesses the effects of competition in the financial sector on credit procyclicality by estimating both an interacted panel VAR (IPVAR) model using macroeconomic data and a single-equation model with bank-level European banking data. The findings of these two empirical approaches highlight that an exogenous deviation of actual GDP from potential GDP leads to greater credit fluctuation in economies where both competition among banks and competition from non-bank financial institutions or direct finance (proxied by the fi- nancial structure) are weak. According to the financial accelerator theory, if lower competition strengthens the cyclical behavior of financial intermediaries, it follows that these "endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy" (Bernanke et al., 1999). Furthermore, since credit booms are closely associated with future financial crises (Laeven and Valencia, 2012), our results can also be read as evidence that greater competition in the financial sphere reduces financial instability, which is in line with the competition-stability view denying the existence of a trade-off between competition and stability
Dürr, Niklas S. and Hüschelrath, Kai offer Patterns of entry and exit in the deregulated German interurban bus industry.
ABSTRACT: We study patterns of entry and exit in the German interurban bus industry in the first three years after its deregulation in January 2013. Using a comprehensive data set of all firm and route entries and exits, we find that the industry grew much quicker than originally expected - with particularly a few new entrants being most successful in quickly extending their route networks from regional to national coverage. Although the clear majority of routes is operated on a monopoly basis, competition does play a key role on routes with a sufficiently large base of (potential) customers. From a spatial perspective, three years after deregulation, the entire interurban bus network connects 60 percent of all 644 larger German cities - with the intensity of entry being dependent on the number of inhabitants, average income, the share of under 24 years old and the presence of intermodal competition by intercity railway services.
Gregory S. Crawford (University of Zürich, CEPR and CAGE); Nicola Pavanini (Tilburg University and CEPR); and Fabiano Schivardi (LUISS University, EIEF and CEPR) examine Asymmetric Information and Imperfect Competition in Lending Markets.
ABSTRACT: We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects.
Tuesday, March 27, 2018
Miguel Antón (IESE Business School, Universidad de Navarra) ; Florian Ederer (Cowles Foundation, Yale University) ; Mireia Giné (IESE Business School, Universidad de Navarra) ; and Martin Schmalz (University of Michigan) discuss Common Ownership, Competition, and Top Management Incentives.
ABSTRACT: We show theoretically and empirically that managers have steeper financial incentives to expend effort and reduce costs when an industry’s firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steep incentives is more aggressive competition. These findings inform a debate about the objective function of the firm.
Siciliani, Paolo (Bank of England) ; Beckert, Walter (University of London) examine Spatial models of heterogeneous switching costs.
ABSTRACT: The presence of sticky, often labelled ‘unengaged’, consumers is arguably one of the most intractable issues faced by competition regulators, in that it entrenches incumbency advantage. We develop a spatial linear model of heterogeneous switching costs that allows for asymmetric distributions of heterogeneous switching costs. We not only model uniform pricing and history-based price discrimination, but also the impact of regulatory intervention aimed at making it easier for customers to be upgraded to a better tariff from their current service provider, something we call ‘leakage’. Finally, we analyse firms’ incentive to adopt history-based price discrimination and voluntarily permit ‘leakage’.
Øystein Foros and Hans Jarle Kind discuss Upstream Partnerships among Competitors when Size Matters.
ABSTRACT: In several industries downstream competitors form upstream partnerships. An important rationale is that higher aggregate upstream volume might generate efficiencies that reduce both fixed and marginal costs. Our focus is on the latter. We show that if upstream marginal costs are decreasing in sales volume, then a partnership between downstream rivals will make them less aggressive. However, a partnership might nonetheless induce both partners and non-partners to charge lower prices. We also show that it might be better for two firms to form a partnership and compete downstream than to merge. Somewhat paradoxically, this is true if they compete fiercely in the downstream market with a third firm. The reason is that a merger is de facto a commitment to set higher prices. Under aggressive competition from the third firm, the members will not want to make such a commitment when upstream marginal costs are decreasing in output.
Monday, March 26, 2018
Join IIEL and Top Global Antitrust Regulators for a Workshop on Antitrust Economic Analysis and the Law - Tuesday, April 10, 2018 ◊ 3:00-4:30 p.m.
Join IIEL and Top Global Antitrust Regulators for a Workshop on
Tuesday, April 10, 2018 ◊ 3:00-4:30 p.m.
Roger P. Alford
Location: Georgetown Law
Space will be limited - RSVP
About the IIEL:
IIEL hosts fora for policy debate and research with a wide range of international organizations, firms, NGOs and government agencies, and welcomes new partnerships. In 2017, we launched FinTech Week, a unique policy forum for nearly 500 market participants, regulators and thought leaders. Our executive education menu includes signature, annual programs such as the Global Trade Academy, now in its 12th year. We contribute to the analysis of today's most pressing global economic law and policy issues, via our Issue Brief Series, In the Know newsletter, and publications such as the Legal Aspects of Brexit. For additional information, please read IIEL's Annual Report and IIEL's One-Pager and visit us on the web at: http://iielaw.org/.
The Institute of International Economic Law (IIEL)
Caprice, Stéphane and Shekhar, Shiva explore 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 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 our insight to revisit some classic issues in vertical relations.
Elpiniki Bakaouka and Chrysovalantou Milliou examine 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.
Giulio Federico ; Gregor Langus ; Tommaso M. Valletti offer A Simple Model of Mergers and Innovation.
ABSTRACT: We analyze the impact of a merger on firms incentives to innovate. We show that the merging parties always decrease their innovation efforts post-merger while the outsiders to the merger respond by increasing their effort. A merger tends to reduce overall innovation. Consumers are always worse off after a merger. Our model calls into question the applicability of the inverted-U relationship between innovation and competition to a merger setting.
Nathan Miller (Georgetown University) and Joseph Podwol (U.S. Department of Justice) examine Forward Contracts, Market Structure, and the Welfare Eﬀects of Mergers.
ABSTRACT: We examine how forward contracts aﬀect economic outcomes under generalized market structures. In the model, forward contracts discipline the exercise of market power by making proﬁt less sensitive to changes in output. This impact is greatest in markets with intermediate levels of concentration. Mergers reduce the use of forward contracts in equilibrium and, in markets that are suﬃciently concentrated, this ampli-ﬁes the adverse eﬀects on consumer surplus. Additional analyses of merger proﬁtability and collusion are provided. Throughout, we illustrate and extend the theoretical results using Monte Carlo simulations. The results have practical relevance for antitrust enforcement.
Friday, March 23, 2018
Gerwin Van Gerven and Lodewick Prompers caution LG Electronics and Philips v Commission: Joint Venture Parents, Be Aware.
ABSTRACT: The Commission has unbounded discretion to pursue only a parent company based on parental liability, even if it was the subsidiary which participated in the cartel. Moreover, the Commission can hold the parents in an upstream input joint venture jointly and severally liable for indirect ‘transformed product’ sales by the downstream businesses of both parents, simply relying on the joint venture link.
Diverging Approaches in Europe for the Most Favoured-Customer Clauses: How Turkish Competition Authority’s Decision for the Online Food Ordering Market Contributed
Emin Köksal and Sahin Ardiyok describes Diverging Approaches in Europe for the Most Favoured-Customer Clauses: How Turkish Competition Authority’s Decision for the Online Food Ordering Market Contributed.
ABSTRACT: While new business models in the online world emerge at an unprecedented pace, interpretation of legal rules has lagged behind those innovations. In particular, interpretation of competition rules may be far from being a guide for the lawfulness of novel business models. On one hand, such an inadequacy leads to legal and business uncertainty, on the other hand it restricts the attorneys counselling clients contemplating the adoption of novel business models in the online world. The diverging approaches of competition authorities all around the world for most favoured-customer (MFC) clauses have been a recent example of this phenomenon.
Nathan Lee, Stanford explains When Competition Plays Clean: Industrial Organization and Renewable Energy Politics.
Abstract: Why do some governments adopt renewable energy policies while others do not? I argue that polities with deregulated energy markets are more likely adopt renewable energy policies because market competition undermines the political power of legacy producers. Using a generalized difference-in-differences analysis, I show that U.S. states that adopt electricity deregulation laws are subsequently 38 percentage points more likely to adopt a renewable portfolio standard and 15 points more likely to adopt a cap-and-trade program. I argue that this pattern is driven by a redistribution of industry interest-group power: deregulation leads to a 20 percentage point decline in the market share of legacy producers (utilities) and a corresponding increase in market share for independent producers. Following deregulation, independent producers become more politically active and also disproportionately invest in renewable energy. These findings have implications for both energy policy as well as the study of industrial interest-group competition more generally.