Monday, September 17, 2018

Price Strategies of Independent and Branded Dealers in Retail Gas Market. The Case of a Contract Reform in Spain

Pilar Cuadrado, Banco de España, Aitor Lacuesta, Banco de España, María de los Llanos Matea, Banco de España, and and F. Javier Palencia-González Universidad Nacional de Educacion a Distancia (UNED) study Price Strategies of Independent and Branded Dealers in Retail Gas Market. The Case of a Contract Reform in Spain.


This paper analyses how the contract structure between gas stations and the wholesale operator affects price strategies. Using daily data on prices of different gas stations the paper finds that independent dealers charge lower margins than other dealers with different contracts. One potential hypothesis is that this is the case because independent stations react more to the number of competitors. We use the introduction of a discretional regional excise duty (IVMDH) on gas stations to check the reaction of markups to changes in marginal costs of the actual number of competitors. Results are consistent with the idea that regardless the type of contract all dealers react notably to the increases in relative marginal costs by decreasing average markups. We use those results to interpret the inexistent reduction in markups that followed a change in the Spanish regulation that took place in 2013 fostering competition in the retail sector. One potential interpretation is that the big increase in independent stations following the reform was not considered an increase in actual competition for most of the incumbent stations.

September 17, 2018 | Permalink | Comments (0)

Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market

Bourreau, Marc; Sun, Yutec; Verboven, Frank study Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market.

ABSTRACT: We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbent firms. Using an empirical oligopoly model with differentiated products, we show that the incumbents' launch of the fighting brands can be rationalized only as a breakdown of tacit collusion. In the absence of entry the incumbents successfully colluded on restricting their product variety to avoid cannibalization; the new entry of the low-end competition made such semi-collusion more difficult to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety of the new entrant and the fighting brands, and to a lesser extent from the incumbents' price response to the entry.

September 17, 2018 | Permalink | Comments (0)

From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners

Haris Tabakovic, Harvard Business School and Thomas Wollmann, University of Chicago study From Revolving Doors to Regulatory Capture? Evidence from Patent Examiners.

ABSTRACT: Many regulatory agency employees are hired by the firms they regulate, creating a “revolving door” between government and the private sector. We study these transitions using detailed data from the US Patent and Trademark Office. We find that patent examiners grant significantly more patents to the firms that later hire them and that much of this leniency extends to prospective employers. These effects are strongest in years when firms are actively hiring, and these relationships hold for the intensive margin of intellectual property protection. Ultimately, this leads the agency to issue lower quality patents, which we measure in citations. Together with other supporting evidence, we argue these results are suggestive of regulatory capture.

September 17, 2018 | Permalink | Comments (0)

Does price competition damage healthcare quality?

Anne-Fleur Roos (ESHPM, Erasmus University Rotterdam); Eddy van Doorslaer (ESHPM, Erasmus University Rotterdam); Owen O'Donnell (Erasmus University Rotterdam, University of Macedonia); Erik Schutt (ESHPM, Erasmus University Rotterdam); and Marco Varkevisser (ESHPM, Erasmus University Rotterdam) ask Does price competition damage healthcare quality?

ABSTRACT: One of the reasons why regulators are hesitant about permitting price competition in healthcare markets is that it may damage quality when information is poor. Evidence on whether this fear is well-founded is scarce. We provide evidence using a reform that permitted Dutch health insurers and hospitals to freely negotiate prices for elective procedures. Unlike previous research that has relied on indicators of the quality of urgent treatments, we take advantage of the plausible absence of selection bias in our setting to identify the effect on quality of non-acute hip replacements. Using administrative data on all admissions to Dutch hospitals, we find no evidence that increased exposure to price competition reduces quality measured by readmission rates, despite the lack of publicly available information on this outcome. In fact, there is evidence of a temporary, positive impact on quality. Our estimated null effect over the full post-liberalization period is robust.

September 17, 2018 | Permalink | Comments (0)

Sunday, September 16, 2018

A New Way of Thinking About the Sisk Rankings - Inspired by a Starting 5 NBA Approach

The Sisk rankings, which rank US law faculties based on mean and median citation counts, came out last month.  Many Deans and faculty members spend lots of time discussing the most impactful faculties based on the rankings.  After having a conversation with a friend at another institution, I am convinced that the Sisk rankings have it (partially) wrong. While it is interesting to see which non-scholars bring down particular faculties in terms of school-wide rankings or which significant individual pickups lead to a big increase (Orin Kerr and Herb Hovenkamp, for example, this last time around), school-wide rankings do not accurately reflect the impact of a school.  The rankings tend to benefit schools with smaller faculties where one or two faculty members with high citations make up for a number of less productive or inactive scholars. 

I propose an alternative measurement to augment the Sisk rankings. I draw upon my NBA watching experience to explain.  The biggest difference between the NBA regular season and playoffs in the NBA is largely one of a shrinking rotation.  You want your better players on the floor longer because that is how you win games.  Typically, but not always, your starting five players are your best players on the team and get the most minutes.  Why don't we treat the faculty rankings in a similar way? 

The Sisk rankings provide the top 10 most cited people of the last five years of a given faculty.  Typically (and there are caveats why this is not always true), these people represent the most important scholars on a given faculty and the ones most responsible for the entire faculty's reputation.  For purposes of a competitive system, we don't know by name and we don't care about the marginal professor at a given school the way we don't care about the 11th person in the rotation on the Knicks.  The people who create the scholarly reputation for a school are the top performers, much the way that the most offensive value in the NBA as measured by win shares are the ones we care about the most.  

It would be interesting to see what such rankings would look like.  Sisk et al have this information and I would encourage them or Brian Leiter to run another comparison ranking as an appendix that uses this methodology.

September 16, 2018 | Permalink | Comments (1)

Judicial Deference in Competition Law 11 October 2018, University of Warsaw

Judicial Deference in Competition Law

11 October 2018, University of Warsaw, Krakowskie Przedmieście 32, Pałac Tyszkiewiczów-Potockich.

Registration by 24 Sep 2018 at, fee: 150 PLN (35 EUR)/50 PLN (12 EUR)·

It is crucial for contemporary democracies to respond efficiently to economic and social challenges. A major role in this respect is played by administrative authorities, to whom a legislator delegates the responsibility to design and implement policies in areas that require expert knowledge, such as financial markets’ supervision, sectorial regulation in energy and telecommunication, or the protection of competition. The challenge is to build such a system that administrative authorities can undertake their tasks efficiently while guaranteeing at the same that their activities are subject to controls. An adequate shape of judicial review is crucial here. On one hand, it is necessary for the courts to play their traditional role, namely to protect the lawfulness of administrative actions and individual rights. On the other hand, one can presume that courts should not replace expert administrative authorities in the fulfilment of the tasks delegated to the later by the legislator. Against this backdrop, the conference· aims to discuss the place for judicial deference in an area of law that requires expert knowledge and involves policy questions, namely competition law.


8:30-9:00 Registration


9:00-9:10 Opening of the Conference


9:10-9:20 Introductory remarks

Maciej Bernatt, University of Warsaw

9:20-10:00 Key Note Speech

Paul Craig, Oxford University, Explaining the Foundations of Judicial Deference


10:00-11:30 Judicial Deference: General Aspects

Rob Widdershoven, University of Utrecht, Judicial Deference and the Court of Justice

Kent H. Barnett, University of Georgia, U.S., Current Debates in Deference to U.S. Administrative Agencies

Miroslava Scholten, University of Utrecht, Judicial Deference from a Broader Perspective on Controls in the System of the Rule of Law

Chair: Professor Mirosław Wyrzykowski, Judge Emeritus, Constitutional Tribunal of Poland

11:45-13:30 Judicial Deference and Competition Authorities’ Economic Assessment

Ioannis Lianos, University College London, Judicial scrutiny of economic evidence and the direction of deference

Andriani Kalintiri, City University of London, The review of the European Commission’s economic assessments by the General Court

Heike Schweitzer, Free University Berlin, Intensity of Judicial Review of Competition Authorities Economic Assessment. German Perspective

Chair: Małgorzata Modzelewska de Raad, Modzelewska&Pasnik Law Firm

13:30-14:30 Lunch

14:30-16:15 Judicial Deference and Competition Authorities Fining Policy

Krystyna Kowalik-Bańczyk, Judge of the General Court, Intensity of Judicial Review of Fines in EU Competition Law

Dawid Miąsik, Judge of Polish Supreme Court, Intensity of Judicial Review of Fines in Poland

Csongor Nagy, Szeged University, Judicial Review of Fines in Hungarian Competition Law

Chair: Iwona Terlecka, Clifford Chance

16:30-18:20 Institutional Structure of Competition Authority and the Intensity of Judicial Review

Renato Nazzini, King’s College London, The European Commission’s Institutional Structure and the Intensity of Judicial Review

Katalin Cseres, University of Amsterdam, The Role of Consumers in Competition Proceedings and its Implication for Judicial Review

Maciej Bernatt, University of Warsaw, The Intensity of Judicial Review and the Competition Authority Institutional Structure, Findings from Central Europe, EU and the U.S.

David George, UK Competition and Market Authority, The Intensity of Judicial Review by CAT and the Institutional Model of UK Competition Law


Chair: Bernadeta Kasztelan-Świetlik, Gessel law firm, former vice-President of Polish Competition Authority

18:20-18:40 Summary of the Conference

Address by Spencer Waller, Loyola University Chicago

Conference is supported by:



  • The conference fee to be paid at the time of enrolment. Transfer description must include your full name along with phrase ‘CARS JUDICIAL DEFERENCE CONFERENCE’. Account details: Fundacja na rzecz Wydzialu Zarzadzania UW, IBAN: PL 07 1240 2887 1111 0000 3388 7461. SWIFT: PKOPPLPW. The reduced fee applies to academics, judges, public officials/administration employees. It is fully waived in case of Phd candidates and students.
  • The conference is organised in the framework of the research project ‘The Limits of Judicial Assessment in Competition Law’ (Polish National Science Centre, UMO-2014/15/D/HS5/01562).

September 16, 2018 | Permalink | Comments (0)

SSNIPpets (20) – Daniel Sokol on what to read

I have a guest blog post on the SSNIPpests blog.


September 16, 2018 | Permalink | Comments (0)

Friday, September 14, 2018

Multimarket Contact in Health Insurance: Evidence from Medicare Advantage

Haizhen Lin; Ian M. McCarthy have a paper on Multimarket Contact in Health Insurance: Evidence from Medicare Advantage.

ABSTRACT: Many industries, including health insurance, are characterized by a handful of large firms that compete in multiple geographic markets. Such overlap across markets, defined as multimarket contact (MMC), may facilitate tacit collusion and thus reduce the intensity of competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our estimation strategy exploits two plausibly exogenous changes to MMC: 1) a merger-induced change in MMC due to consolidations in other markets; and 2) reimbursement policy changes in which benchmark rates were increased in a subset of markets, encouraging additional entry into those markets and therefore affecting MMC even in markets otherwise unaffected by the policy itself. Across a range of estimates and alternative measures of MMC, our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and quality significantly lower as MMC increases. These results suggest MMC as one potential channel through which cross-market mergers and acquisitions could soften competitiveness in local markets.

September 14, 2018 | Permalink | Comments (0)

Competition agency guidelines and policy initiatives regarding the application of competition law vis-à-vis intellectual property: An analysis of jurisdictional approaches and emerging directions

Anderson, Robert D.; Chen, Jianning; Müller, Anna Caroline; Novozhilkina, Daria; Pelletier, Philippe; Sen, Nivedita; and Sporysheva, Nadezhda offer Competition agency guidelines and policy initiatives regarding the application of competition law vis-à-vis intellectual property: An analysis of jurisdictional approaches and emerging directions.

ABSTRACT: Competition agency guidelines, policy statements and related advocacy are an important vehicle for policy expression and the guidance of firms across the full spectrum of anti-competitive practices and market conduct. The role of guidelines and policy statements has, arguably, been particularly important in the context of the competition policy treatment of intellectual property rights, given the complexity of this area, the importance that competition agencies attach to it, and its importance for innovation, technology transfer and economic growth. As such, this important normative material also provides a useful empirical foundation for mapping relevant trends and the evolution of policy thinking over time and across jurisdictions. In this light, the paper examines the competition agency guidelines, policy statements and related initiatives regarding intellectual property (IP) of the following three sets of jurisdictions: (i) the United States, Canada, the European Union and Australia; (ii) Japan and Korea; and (iii) the BRICS economies (Brazil, China, India, Russia, and South Africa). It focuses, to the extent possible, on a common set of issues addressed in one way or another in the majority of these jurisdictions, comprising: (i) the treatment of licensing practices, including refusals to license; (ii) anti-competitive patent settlements; (iii) issues concerning standard-essential patents (SEPs); (iv) the conduct of patent assertion entities (PAEs); and (v) competition advocacy activities focused on the IP system. Additionally, while the primary focus of the paper is on competition agency guidelines, policy statements and advocacy activities relating to IP, reference is also made to enforcement and case developments where they are helpful in illustrating relevant approaches and trends. Overall, the analysis suggests, firstly, that, in contrast to the situation prevailing twenty or thirty years ago, interest in the systematic application of competition law vis-à-vis IP certainly is no longer a preoccupation of only a few traditional developed jurisdictions. Secondly, we find evidence of significant cross-jurisdictional learning processes and partial policy convergence across the jurisdictions surveyed. Thirdly, the analysis also reveals the continuing potential for coordination failures in regard to the approaches taken by national authorities in this area, for example where jurisdictions take different approaches to specific practices such as refusals to license and/or give differing weights to industrial policy as opposed to consumer welfare or other objectives in their policy applications.

September 14, 2018 | Permalink | Comments (0)

German Digital Market Power Modernization - Update

Justus Haucap, Wolfgang Kerber, Heike Schweitzer and Robert Welker have just finished a study on a potential reform of the German law on abuse of market power in digital times. It has received some public attention by the press in Germany and beyond, also because the minister for economic affairs has publicly endorsed some of the recommendations. There is no English version of it - but it is being prepared. In the meantime, this is an English language official summary.

Download Modernisation of abuse Summary of the recommendations FIN(3)

Rupprecht Podszun has written about the report on his blog.

here was an email sent out to an ABA listserve by Thomas Funke describing the report.  Based on that description, Heike Schweitzer  wrote me to offer some clarifying comments which I reproduce with her permission below:

According to Thomas Funke, our report suggests that data could be
treated like an essential facility or SEP that should be made available
to third parties where this is necessary to prevent market foreclosure.

This is not what we suggest. The report does not discuss "data as a SEP".

We do discuss the broader issue of access to data and what the role of
competition law can or should be. We make a number of points here - in
an attempt to insert a greater degree of differentiation into a debate
which is characterized by over-generalizations and overly sweeping

According to our view:

(1) it doesn't make much sense to talk about "data" -- there are so many
different types of data, data in the production of which you need to
invest, data which is produced as a mere by-product of use, personal/non
personal data, "raw" data and processed data etc. There are also so many
different uses to which data can be put. For some uses, there may be
substitutes. For others not. If we want to apply competition law to data
access issues, we need to look at these issues case by case and in context.

(2) we need to distinguish between different settings when we talk about
access to data: (a) access to huge "data reservoirs" - that may
sometimes be needed to compete effectively, in particular in areas where
competition is, to a large extent, competition about the best algorithms
and the relevant algorithms need to be trained on large data sets; (b)
access to data in vertical relationships - e.g. machine producer has
exclusive control over use data / machine user wants access to that
data; also: digital platform that has exclusive control over all the
data about platform use / businesses presenting offers on the platform
(but in this latter case, we have to be very careful about data access,
as competition-sensitive data may be at stake - granting access to such
data could result in a publicly orchestrated cartel!) (c) access to data
by third parties in value creation networks where the "monopolisation"
of specific types of data will imply reserving markets for value added

(3) the essential facilities doctrine (EFD) may play a role with regard
to (a) - if all the preconditions of the EFD are shown; in particular:
the essentiality of data access for effective competition/ lack of
substitutability for a given data use. Nonetheless: If this data is
personal data - difficult: the GDPR will apply. If the data sets can be
anonymized, and if the relevant data is of a kind that is produced as a
byproduct without much investment needed, and if the innovation effects
of granting access are strong - under these narrow conditions it may
make sense to apply the "essential facilities"-doctrine. We doubt,
though, that the EFD will, in the longer run, be a sufficient legal
basis to handle the data access issues that will arise efficiently. We
believe that, rather, sector-specific regulation will emerge (and is
already emerging). There is a debate in Germany about an "data for
all"-law, though - which takes up some of the ideas suggested by Victor


As regards the setting (b): that's probably best solved by contract law.
Setting (c) might again be a competition law problem that can already be
addressed under German competition law. It may also be the factual
setting that needs a much closer look and economic/legal analysis in the


September 14, 2018 | Permalink | Comments (0)

Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints

Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Faculty of Economics, Ryukoku University) identify Product Line Strategy within a Vertically Differentiated Duopoly under Non-negativity Outputs Constraints.

ABSTRACT: We consider product line strategies of duopolistic firms supplying two vertically differentiated products with non-negativity output constraint and its expectation on rival's product line reaction. We consider a game in which there exists a heterogeneous unit production costs in high quality goods but is homogeneous in low quality product between firms. We derive equilibria for the game and characterize graphically firms' product line strategies and the realized profits of both firms through quality superiority and relative cost efficiency ratios. We also show that the efficient cost firm earns more than the inefficient firm except for the special case where both firms specialize in low quality good. We also illustrate that firms can correctly conjecture the ex ante relationship between the quality superiority of both goods and the relative cost efficiency ratios of firms on high quality good ex post in equilibrium.

September 14, 2018 | Permalink | Comments (0)

Thursday, September 13, 2018

Missed Sales and the Pricing of Ancillary Goods

Gomes, Renato and Tirole, Jean examine Missed Sales and the Pricing of Ancillary Goods.

ABSTRACT: Firms often sell a basic good as well as ancillary ones. Hold-up concerns have led to ancillary good regulations such as transparency and price caps. The hold-up narrative, however, runs counter to evidence in many retail settings where ancillary good prices are set below cost (e.g. free shipping, or limited card surcharging in countries where the "no-surcharge rule" was lifted). We argue that the key to unifying these conflicting narratives is that the seller may absorb partly or fully the ancillary good's cost so as not to miss sales on the basic good. A supplier with market power on the ancillary good market then takes advantage of cost absorption and jacks up its wholesale price. Hold-ups occur only when consumers are initially uninformed or naïve about the drip price and shopping costs are high. The price of the basic good then acts as a signal of the drip price, since a high markup on the basic good makes the firm more wary of missed sales. Regardless of whether consumers are informed, uninformed-but-rational, or naïve, mandating price transparency and banning loss-making on the ancillary good leads to (i) an efficient consumption of the ancillary good, and (ii) a reduction of its wholesale price, generating strict welfare gains.

September 13, 2018 | Permalink | Comments (0)

An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking

Tsionas, Mike; Malikov, Emir; and Kumbhakar, Subal C. offer An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking.

ABSTRACT: We develop a novel unified econometric methodology for the formal examination of the market power -- cost efficiency nexus. Our approach can meaningfully accommodate a mutually dependent relationship between the firm's cost efficiency and marker power (as measured by the Lerner index) by explicitly modeling the simultaneous determination of the two in a system of nonlinear equations consisting of the firm's cost frontier and the revenue-to-cost ratio equation derived from its stochastic revenue function. Our framework places no a priori restrictions on the sign of the dependence between the firm's market power and efficiency as well as allows for different hierarchical orderings between the two, enabling us to discriminate between competing quiet life and efficient structure hypotheses. Among other benefits, our approach completely obviates the need for second-stage regressions of the cost efficiency estimates on the constructed market power measures which, while widely prevalent in the literature, suffer from multiple econometric problems as well as lack internal consistency/validity. We showcase our methodology by applying it to a panel of U.S. commercial banks in 1984-2007 using Bayesian MCMC methods.

September 13, 2018 | Permalink | Comments (0)

Leniency, Asymmetric Punishment and Corruption: Evidence from China

Maria Perrotta Berlin (SITE); Bei Qin (University of Hong Kong); and Giancarlo Spagnolo (SITE-Stockholm School of Economics, EIEF, Tor Vergata & CEPR) have written on Leniency, Asymmetric Punishment and Corruption: Evidence from China.

ABSTRACT: Fostering whistleblowing through leniency and asymmetric sanctions is regarded as a potentially powerful anti-corruption strategy in the light of its success in busting cartels. The US Department of Justice started a pilot program of this kind in 2016. It has been argued, however, that introduced in China in 1997, these policies did not help against corruption. We map the evolution of the Chinese anti-corruption legislation and aggregate enforcement data, documenting a large and stable fall in prosecuted cases after the 1997 reform. The fall is consistent with reduced corruption detection, but under specific assumptions also with improved deterrence. To resolve the ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point indeed at a negative effect of the 1997 reform on corruption detection and deterrence, but plausibly linked to its poor design: contrary to what theory prescribes, it increased leniency also for bribe-taking bureaucrats that cooperate after being denounced, enhancing their ability to retaliate against whistleblowing bribe-give rs.

September 13, 2018 | Permalink | Comments (0)

The Negative Effects of Mergers and Acquisitions on the Value of Rivals

Derrien, François; Frésard, Laurent; Slabik, Victoria; Valta, Philip identify The Negative Effects of Mergers and Acquisitions on the Value of Rivals.

ABSTRACT: Average stock price reactions of industry rivals in horizontal U.S. mergers and acquisitions around deal announcements are robustly negative. This finding is in contrast to the results in the existing literature, which focuses on smaller samples of deals involving mostly publicly listed firms. Rivals’ returns are more negative in growing and concentrated industries. Moreover, the negative rivals’ stock price reactions are related to future decreases in operating performance, increased probability of bankruptcy and challenges by antitrust authorities, and increased probability of rivals’ future acquisitions. Overall, these results suggest that M&As have strong competitive effects for the rivals of target companies.

September 13, 2018 | Permalink | Comments (0)

Wednesday, September 12, 2018

How Do Regulations of Entry and Credit Access Relate to Industry Competition? International Evidence

Deniz O Igan; Ali Mirzaei; and Tomoe Moore ask How Do Regulations of Entry and Credit Access Relate to Industry Competition? International Evidence.

ABSTRACT: We examine the extent to which regulations of entry and credit access are related to competition using data on 28 manufacturing sectors across 64 countries. A robust finding is that bureaucratic and costly entry regulations tend to hamper competition, as proxied by the price-cost margin, in the industries with a naturally high entry rate. Rigid entry regulations are also associated with a larger average firm size. Conversely, credit information registries are associated with lower price-cost margin and smaller average firm size in industries that rely heavily on external finance—consistent with access to finance exerting a positive effect on competition. These results suggest that incumbent firms are likely to enjoy the rent and market share arising from strict entry regulations, whereas regulations enhancing access to credit limit such benefits.

September 12, 2018 | Permalink | Comments (0)

Simulating Mergers in a Vertical Supply Chain with Bargaining

Gloria Sheu (U.S. Department of Justice) and Charles Taragin (U.S. Department of Justice) are Simulating Mergers in a Vertical Supply Chain with Bargaining.

ABSTRACT: We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction.

September 12, 2018 | Permalink | Comments (0)

Hospital Competition under Pay-for-Performance: Quality, Mortality and Readmissions

Domenico Lisi; Luigi Siciliani; Odd Rune Straume study Hospital Competition under Pay-for-Performance: Quality, Mortality and Readmissions.

ABSTRACT: Health outcomes, such as mortality and readmission rates, are commonly used as indicators of hospital quality and as a basis to design pay-for-performance (P4P) incentive schemes. We propose a model of hospital behaviour under P4P where patients differ in severity and can choose hospital based on quality. We assume that risk-adjustment is not fully accounted for and that unobserved dimensions of severity remain. We show that the introduction of P4P which rewards lower mortality and/or readmission rates can weaken or strengthen hospitals’ incentive to provide quality. Since patients with higher severity have a different probability of exercising patient choice when quality varies, this introduces a selection bias (patient composition effect) which in turn alters quality incentives. We also show that this composition effect increases with the degree of competition. Critically, readmission rates suffer from one additional source of selection bias through mortality rates since quality affects the distribution of survived patients. This implies that the scope for counterproductive effects of P4P is larger when financial rewards are linked to readmission rates rather than mortality rates. We also show that our results are robust in the presence of public reporting, and discuss welfare implicatio ns.

September 12, 2018 | Permalink | Comments (0)

Dynamic Airline Pricing and Seat Availability

Kevin R. Williams (Cowles Foundation, Yale University) writes on Dynamic Airline Pricing and Seat Availability.

ABSTRACT: Airfares are determined by both intertemporal price discrimination and dynamic adjustment to stochastic demand. I estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With model estimates, I disentangle key interactions between the arrival pattern of consumer types and remaining capacity under stochastic demand. I show that the forces are complements in airline markets and lead to significantly higher revenues, as well as increased consumer surplus, compared to a more restrictive pricing regime. Finally, I show that abstracting from stochastic demand leads to a systematic bias in estimating demand elasticiti es.

September 12, 2018 | Permalink | Comments (0)

Tuesday, September 11, 2018

Competition in dual markets: Implications for banking system stability

Tastaftiyan Risfandy (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges); Irwan Trinugroho (Faculty of Economics and Business - UNS - Universitas Sebelas Maret) study Competition in dual markets: Implications for banking system stability.

ABSTRACT: This paper examines the impact of market competition on the stability of Islamic and conventional banks in countries where these banks operate alongside one another. To investigate this issue, we use a sample of 100 Islamic and 390 conventional banks from 19 countries. Our baseline result shows that competition in a dual market erodes banks' stability. The heightened competitive pressure in a dual market encourages banks to engage in excessive risk-taking that can jeopardize their stability. However, the effect of competition is missing for Islamic banks, suggesting their superiority in having religious clients. Although our overall results support the 'competition-fragility' hypothesis, we find that competition can be beneficial for banks, especially at a low to medium competition level. Last, we also find that the adverse impact of competition can be reduced by having high capitalization, especially in the case of a conventional bank. Some policy implications are discussed in the paper.

September 11, 2018 | Permalink | Comments (0)