Tuesday, July 17, 2018

Spatial competition and quality: evidence from the English family doctor market

Hugh Gravelle (Centre for Health Economics, University of York, York, UK) ; Dan Liu (Centre for Health Economics, University of York, York, UK) ; Carol Propper (Imperial College London, UK) ; Rita Santos (Centre for Health Economics, University of York, York, UK) examine Spatial competition and quality: evidence from the English family doctor market.

ABSTRACT: We examine whether family doctor firms in England respond to local competition by increasing their quality. We measure quality in terms of clinical performance and patient-reported satisfaction to capture its multi-dimensional nature. We use a panel covering 8 years for over 8000 English general practices, allowing us to control for unobserved local area effects. We measure competition by the number of rival doctors within a small distance. We find that increases in local competition are associated with increases in clinical quality and patient satisfaction, particularly for firms with lower quality. However, the magnitude of the effect is small.

July 17, 2018 | Permalink | Comments (0)

Multimarket Linkages, Cartel Discipline and Trade Costs

Delina Agnosteva ; Constantinos Syropoulos ; and Yoto V. Yotov study Multimarket Linkages, Cartel Discipline and Trade Costs.

ABSTRACT: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.

July 17, 2018 | Permalink | Comments (0)

High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription

Richard G. Frank and Richard J. Zeckhauser investigate High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription.

ABSTRACT: Drug pricing in the U.S. is a persistently vexing policy problem. While there is agreement among many policy analysts that supra competitive prices are necessary to promote innovation; significant disagreements arise over how much pricing discretion prescription drug manufacturers should be permitted, and what portion of the sum of producer plus consumer surplus in the prescription drug market should be claimed by manufacturers relative to consumers and other payers. This paper focuses on an extremely costly component of the Medicare Part D program the region of coverage that kicks in once a consumer has spent $4,950 on drugs in a calendar year (roughly $8,100 in total drug spending). At that point there are high levels of insurance for the consumer and reinsurance for the prescription drug plan. Consumers pay 5% of costs; plans pay 15% and the government 80%. That design generates serious inefficiencies. The significant subsidies to plans in the reinsurance region combined with the launch of unique high cost prescription drugs could be expected to lead to and has led to substantial departures from cost-effective outcomes in treatments delivered. We investigate two, possibly complementary, strategies for reducing these inefficiencies. The first follows on the MedPac recommendation that the government reduce its share of risk bearing for the Part D reinsurance benefit. The second focuses on curbing price inefficiencies. It has two components: eliminating monopolistic overpricing, and rewarding the quality of drugs brought to market. It is grounded in the economics of two part tariffs, research on innovation prizes, performance-based contracts, and draws on the mechanism design literature.

July 17, 2018 | Permalink | Comments (0)

Automobile Prices in Market Equilibrium with Unobserved Price Discrimination

Xavier D'Haultfoeuille (CREST) ; Isis Durrmeyer (Toulouse School of Economics; Université Toulouse Capitole) ; Philippe Février (CREST) theorize about Automobile Prices in Market Equilibrium with Unobserved Price Discrimination.

ABSTRACT: In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This paper considers the structural estimation of a demand and supply model à la Berry et al. (1995) with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved by using supply-side conditions, provided that the marginal costs of producing and selling the goods do not depend on the characteristics of the buyers. The model can be estimated by GMM using a nested fixed point algorithm that extends BLP’s algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.

July 17, 2018 | Permalink | Comments (0)

Monday, July 16, 2018

6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going? Concurrences Review & The George Washington University Law School Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT) Washington, DC

6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going?

Concurrences Review & The George Washington University Law School

Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT)

Washington, DC

 

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Event Details

01.00 pm

Registration 

1:30 pm

Welcome Remark

William KOVACIC | Professor, George Washington University Law School, Washington, DC

2:15 pm

Opening Keynote Speech

Richard POSNER | Senior Lecturer, University of Chicago Law School, Chicago*

3.00 pm

"Populist" Antitrust: A Deviant Mutation or an Overdue Correction?

Einer ELHAUGE | Professor, Harvard Law School, Cambridge

Cristina CAFFARRA | Vice President, CRA, London/Brussels

William KOVACIC | Professor, George Washington Law, Washington, DC

Alex OKULIAR | Partner, Orrick, Washington, DC

Barry LYNN | Executive Director, Open Markets Institute, Washington, DC

Moderator: John BRIGGS | Partner, Axinn, Washington, DC

4.00 pm

Coffee Break

4:15 pm

Should the New Titans be Tamed? Lessons From the US, EU, and China

Bruce HOFFMAN | Director, Bureau of Competition, US FTC, Washington, DC*

Lynda K. MARSHALL | Chief of the Foreign Commerce Section, US DOJ, Washington, DC*

Luke FROEB | Professor, Vanderbilt University, Nashville*

Christopher YOO | Professor, University of Pennsylvania Law School, Philadelphia

Greg McCURDY | Director, Litigation and Global Competition Law, Uber, San Francisco

Peter DAVIS | Senior Vice President, Cornerstone Research, London

Alvaro RAMOS | Senior Director - Head of Global Antitrust, Qualcomm, San Diego

Moderator: Frédéric JENNY Chair, OECD Competition Committee, Paris

5:15 pm

A Judge's Eye View on Antitrust: Mergers, Cartels, Remedies...

Mark ISRAEL | Senior Managing Director, Compass Lexecon, Washington, DC

Mark GIDLEY | Partner, White & Case, Washington, DC

Maureen OHLHAUSEN | Judge, US Court of Federal Claims, Washington, DC

Colleen McMAHON | Judge, US District Court - Southern District of New York, New York

Michael BAYLSON | Judge, US District Court, Eastern District of Pennsylvania, Philadelphia

Kevin CASTEL | Judge, US District Court, Southern District of New York, New York*

Moderator: Douglas GINSBURG | Judge, US Circuit Court for the District of Columbia

6:15 pm

Closing Keynote Speech

Joseph SIMONS | Chairman, US FTC, Washington, DC*

 

Panel Sponsors

Axinn

Charles River Associates

Compass Lexecon

Cornerstone Research

Orrick

Qualcomm

White & Case

 

* To be confirmed

July 16, 2018 | Permalink | Comments (0)

The economic functioning of online drugs markets

Bhaskar, V. ; Linacre, Robin ; Machin, Stephen identify The economic functioning of online drugs markets.

ABSTRACT: The economic functioning of online drug markets using data scraped from online platforms is studied. Analysis of over 1.5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that, a priori, one might think would plague them. Only a small proportion of online drugs deals receive bad ratings from buyers, and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs. Furthermore, as with legal online markets, the market penalizes bad ratings, which subsequently lead to significant sales reductions and to market exit. The impact of the well-known seizure by law enforcement of the original Silk Road and the shutdown of Silk Road 2.0 are also studied, together with the exit scam of the market leader at the time, Evolution. There is no evidence that these exits deterred buyers or sellers from online drugs trading, as new platforms rapidly replaced those taken down, with the online market for drugs continuing to grow

July 16, 2018 | Permalink | Comments (0)

Endogenous and Selective Service Choices After Airline Mergers

By: Sophia Ying Li ; Joe Mazur ; Yongjoon Park ; James W. Roberts ; Andrew Sweeting ; and Jun Zhang study Endogenous and Selective Service Choices After Airline Mergers.

ABSTRACT: We estimate a model of service choice and price competition in airline markets, allowing for the carriers that provide nonstop service to be a selected subset of the carriers competing in the market. Our model can be estimated without an excessive computational burden and we use the estimated model to illustrate the effects of selection on equilibrium market structure and to show how accounting for selection can change predictions about post-merger market power and repositioning, in ways that are consistent with what has been observed after actual mergers, and possible merger remedies.

July 16, 2018 | Permalink | Comments (0)

A Note on Stable Cartels

Liang Mao offers A Note on Stable Cartels.

ABSTRACT: In non-cooperative open membership cartel formation games, it is usually assumed that cartel members will maximize their joint payoffs. Through an example, this note shows that this assumption is problematic, because it imposes some unnecessary restrictions on cartel members' actions. We recommend that the cartel agreement should be endogenously determined in future studies.

July 16, 2018 | Permalink | Comments (0)

Friday, July 13, 2018

Disclosure and Pricing of Attributes

Alex Smolin explains Disclosure and Pricing of Attributes.

ABSTRACT: A monopolist seller owns an object that has several attributes. A buyer is privately informed about his tastes and uncertain about the attributes. The seller can disclose attribute information to the buyer in a form of a statistical experiment. The seller offers a menu of call options varying in upfront payments, experiments, and strike prices. I study revenue-maximizing menus and show that optimal experiments belong to a simple class of linear disclosures. I fully characterize an optimal menu for a class of single-minded buyers. Surprisingly, the menu is nondiscriminatory and can be implemented by a single partial disclosure followed by a posted price.

July 13, 2018 | Permalink | Comments (0)

Removing geo-blocking: What are the effects on innovation for vertically differentiated goods?

Hamelmann, Lisa and Klein, Gordon J. ask Removing geo-blocking: What are the effects on innovation for vertically differentiated goods?

ABSTRACT: At present, there is a wide debate on regulating geo-blocking, an online practice that prevents consumers from buying or having access to products and services from another country. This practice is not only used by retailers, but is also of great importance in the market for digital visual broadcasting. We develop a model to identify the cases, in which firms have an incentive to include geo-blocking clauses in their licensing agreements. In addition, we analyze the effects of restricting geo-blocking on the level of innovation of two vertically differentiated goods and on the overall product variety. Our results show that the market outcome primarily depends on the level of competition between the two goods. For instance, regulatory changes do not have any impact if competition is very low or very high. However, if competition is sufficiently high, the removal of geo-blocking decreases the level of innovation of the good that is traded. The product quality of the other firm, instead, increases - as long as R&D costs are sufficiently high. Putting both effects together, it becomes evident that the quality gains do not compensate for the quality losses. In addition, the removal of geo-blocking affects the product variety as well - a lower level of competition increases the product variety and vice versa.

July 13, 2018 | Permalink | Comments (0)

Secret contracting in multilateral relations

Patrick Rey (Toulouse School of Economics, University Toulouse Capitole) and Thibaud Vergé (CREST; ENSAE) theorize about Secret contracting in multilateral relations.

ABSTRACT: We develop a general but tractable framework of multilateral vertical contracting between upstream and downstream ?firms, without any restriction on tariffs, and yet taking into account their impact on downstream competition. In equilibrium, tariffs are cost-based and replicate the outcome of a multi-brand oligopoly, a finding in line with the analysis of a recent merger. To illustrate its versatility, we use this framework to analyze the effect of vertical restraints (resale price maintenance and retail price parity clauses) and of alternative business models (resale vs. agency). Finally, we extend the framework so as to endogenize the market structure.

July 13, 2018 | Permalink | Comments (0)

Thursday, July 12, 2018

Product Differentiation with Multiple Qualities

Francesca Barigozzi (Department of Economics, University of Bologna) and Ching-to Albert Ma (Boston University) explore Product Differentiation with Multiple Qualities.

ABSTRACT: We study subgame-perfect equilibria of the classical quality-price, multistage game of vertical product differentiation. Each firm can choose the levels of an arbitrary number of qualities. Consumers' valuations are drawn from independent and general distributions. The unit cost of production is increasing and convex in qualities. We characterize equilibrium prices, and the effects of qualities on the rival's equilibrium price in the general model. We present necessary and sufficient conditions for equilibrium differentiation in any of the qualities.

July 12, 2018 | Permalink | Comments (0)

Signals Sell: Product Lines when Consumers Differ Both in Taste for Quality and Image Concern

Jana Friedrichsen (Humboldt-Universität zu Berlin) analyzes Signals Sell: Product Lines when Consumers Differ Both in Taste for Quality and Image Concern.

ABSTRACT: This paper analyzes optimal product lines when consumers differ both in their taste for quality and in their desire for social image. The market outcome features partial pooling and product differentiation that is not driven by heterogeneous valuations for quality but by image concerns. A typical monopoly outcome is a two-tier product line resembling a \"masstige\" strategy as observed in luxury goods markets. Products can have identical quality and differ only in price and image, thereby rationalizing quality-equivalent line extensions. Under competition, both average quality and market coverage are (weakly) higher but monopoly can yield higher welfare than competition.

July 12, 2018 | Permalink | Comments (0)

Collusion in Markets with Syndication

John William Hatfield, University of Texas at Austin, Scott Duke Kominers, Harvard University, Richard Lowery, University of Texas-Austin, and Jordan M. Barry, University of San Diego School of Law explore Collusion in Markets with Syndication.

ABSTRACT: Many markets, including the markets for IPOs and debt issuances, are syndicated, in that a bidder who wins a contract will often invite competitors to join a syndicate that will fulfill the contract. We model syndicated markets as a repeated extensive form game and show that standard intuitions from industrial organization can be reversed: Collusion may become easier as market concentration falls, and market entry may in fact facilitate collusion. In particular, price collusion can be sustained by a strategy in which firms refuse to join the syndicate of any firm that deviates from the collusive price, thereby raising total production costs. Our results can thus rationalize the apparently contradictory empirical facts that the market for IPO underwriting exhibits seemingly collusive pricing despite its low level of market concentration.

July 12, 2018 | Permalink | Comments (0)

Wednesday, July 11, 2018

The fall and rise of market power in Europe

John P. Weche (Leuphana University Lueneburg, Germany; Monopolies Commission, Bonn, Germany) and Achim Wambach (Monopolies Commission, Bonn, Germany; Centre for European Economic Research (ZEW), Mannheim, Germany) explore The fall and rise of market power in Europe.

ABSTRACT: This paper presents an analysis of the recent developments of average market power in Europe by using a broad firm-level database for EU member states. To indicate competitive pressure at the firm-level, markups are estimated following De Loecker (2011), and De Loecker and Warzynski (2012). The analysis reveals a sharp drop in markups during the crisis, followed by a post-crisis increase. The European average has not yet reached its pre-crisis level, which is in contrast to results for the US, where average markups have climbed to pre-crisis levels already in 2011. There is significant heterogeneity among European economies and the pre-crisis levels do have been exceeded in some countries.

July 11, 2018 | Permalink | Comments (0)

Market Structure and Investment in the Mobile Industry

François Jeanjean (Orange Labs - Orange Labs [Belfort] - France Télécom) and Georges Vivien Houngbonon (LGI - Laboratoire de Genie Industriel - CentraleSupélec) analyze Market Structure and Investment in the Mobile Industry.

ABSTRACT: The impact of market structure, that is the number of firms and asymmetry , on investment is an important topic in the mobile industry. However, previous literature remains ambiguous about the direction of the relationship. This paper provides an empirical evidence of the impact of market structure on investment in the European mobile industry. The empirical assessment is based on a Salop model with vertical differentiation. Consistently with the prediction of this model, we find that both the number of operators and market share asymmetry have significant effects on investment. In symmetric markets, investment per operator falls with the number of operators, with larger effects for operators that lose market share more than the average. The industry investment rises with the number of operators in the short run, but eventually falls in the long run due to significant adjustment costs of investment in the mobile industry. These findings suggest that investment should be taken into account when analysing the welfare effects of market structure in the mobile industry.

July 11, 2018 | Permalink | Comments (0)

Efficiency in large markets with firm heterogeneity

Dhingra, Swati and Morrow, John examine Efficiency in large markets with firm heterogeneity.

ABSTRACT:  Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the marketdetermined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups

July 11, 2018 | Permalink | Comments (0)

Tuesday, July 10, 2018

Bargaining over Collusion Profits under Cost Asymmetry and Demand Uncertainty

Ismael Saglam is Bargaining over Collusion Profits under Cost Asymmetry and Demand Uncertainty.

ABSTRACT: In this paper we borrow from Ciarreta and Gutierrez-Hita (2012) a duopolistic industry structure with cost asymmetry and demand uncertainty, and using this structure we build a bargaining model to study the division of collusion profits -obtained from the joint selection of supply functions- under the possibility of side payments. In our model, we consider potential disagreement points obtained from the non-cooperative equilibrium of either the quantity competition or the supply function competition, and potential bargaining solutions splitting the gains from agreement either equally or proportionally according to the relative disagreement payoffs of the duopolists. Given any of these disagreement points and any of these bargaining solutions, we find that each duopolist has always incentive to join a collusive agreement. On the other hand, irrespective of whether the bargaining solution splits the gains from agreement equally or proportionally respecting the relative disagreement payoffs, the more efficient firm (the less efficient firm) in the cartel always obtains a higher agreement payoff when the disagreement point is obtained from the equilibrium of supply function competition (quantity competition). Given the studied disagreement points and bargaining solutions, we also find that bargaining over collusion profits always makes the more efficient firm worse off and the less efficient firm better off in comparison to a collusive agreement equalizing the marginal costs of these two firms.

July 10, 2018 | Permalink | Comments (0)

A general model of price competition with soft capacity constraints

Cabon-Dhersin Marie-Laure (Université de Rouen Normandie ; CREAM) and Drouhin Nicolas (Ecole Normale Supérieure Paris-Saclay) offer A general model of price competition with soft capacity constraints.

ABSTRACT: We propose a general model of oligopoly with firms relying on a two factor production function. In a first stage, firms choose a certain fixed factor level (capacity). In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is "soft", implying a convex cost function in the second stage. We show that there is a unique equilibrium prediction in pure strategies, whatever the returns to scale, characterized by a price that increases with the number of firms up to a threshold. The main propositions are established under the general assumption that the production function is quasi-concave but the paper provides a general methodology allowing the model to be solved numerically for special parametrical forms.

July 10, 2018 | Permalink | Comments (0)

Price-Cost Tests and Loyalty Discounts

Giacomo Calzolari, University of Bologna and Vincenzo Denicolò, University of Bologna examine Price-Cost Tests and Loyalty Discounts. Worth downloading!

ABSTRACT: We analyze, by means of a formal economic model, the use of price-cost tests to assess the competitive effects of loyalty discounts. In the model, a dominant firm enjoys a competitive advantage over its rivals and uses loyalty discounts as a means to boost the demand for its product. We show that in this framework price-cost tests are misleading or, at best, completely uninformative. Our results cast doubts on the applicability of price-tests to loyalty discount cases.

July 10, 2018 | Permalink | Comments (0)