Antitrust & Competition Policy Blog

Common ownership and market entry: Evidence from the pharmaceutical industry

Melisa Newham; Jo Seldeslachts; and Albert Banal-Estañol analyze Common ownership and market entry: Evidence from the pharmaceutical industry.

ABSTRACT: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical research suggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the effect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We first provide a theoretical framework that shows that a higher level of common ownership between the brand firm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for sufficiently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.

Multiple Long-Run Equilibria in a Free-Entry Mixed Oligopoly

Haraguchi, Junichi and Matsumura, Toshihiro explore Multiple Long-Run Equilibria in a Free-Entry Mixed Oligopoly.

ABSTRACT: We investigate a free-entry mixed oligopoly with constant marginal costs. A privatization policy is implemented after private firms enter the market. We find that both full privatization and full nationalization are equilibrium policies, and the former is the worst privatization policy for welfare.

Optimal fines for cartel agreements: the case of Slovakia

Richard Kalis (Department of Economic Policy, University of Economics in Bratislava); Martin Labaj (Department of Economic Policy, University of Economics in Bratislava); Daniela Zemanovicova discuss Optimal fines for cartel agreements: the case of Slovakia.

ABSTRACT: The paper deals with theoretical and empirical aspects of optimal fines for cartel agreements with a special focus on the practices of the Antimonopoly Office of the Slovak Republic. First, we discuss the theoretical requirements in order to make fines for cartel agreements effective in the sense of preventive and repressive function. Then, we review the current literature on the empirics of fines for cartel agreements. In the empirical part, we evaluate the fines for cartel agreements in the Slovak Republic. The analysis is based on a unique dataset collected from publicly available information on cartel agreements cases of the Antimonopoly Office of the Slovak Republic.

An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly

Volker Nocke and Nicolas Schutz offer An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly.

ABSTRACT:  Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.

All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices

Montez, João; Schutz and Nicolas explore All-Pay Oligopolies: Price Competition with Unobservable Inventory Choices.

ABSTRACT: We study a class of games where stores source unobservable inventories in advance, and then simultaneously set prices. Our framework allows for firm asymmetries, heterogeneity in consumer tastes, endogenous consumer information through advertising, and salvage values for unsold units. The payoff structure relates to a complete-information all-pay contest with outside options, non-monotonic winning and losing functions, and conditional investments. In the generically unique equilibrium, stores randomize their price choice and, conditional on that choice, serve all their targeted demand---thus, some inventories may remain unsold. As inventory costs become fully recoverable, the equilibrium price distribution converges to an equilibrium of the associated Bertrand game (where firms first choose prices and then produce to order). This suggests that with production in advance, the choice between a Cournot analysis and a Bertrand-type analysis, as properly generalized in this paper, should depend on whether or not stores observe rivals' inventories before setting prices.

Spatial Pricing in Ride-Sharing Networks

Bimpikis, Kostas (Stanford University); Candogan, Ozan (University of Chicago); and Saban, Daniela (Stanford University) study Spatial Pricing in Ride-Sharing Networks.

ABSTRACT: We explore spatial price discrimination in the context of a ride-sharing platform that serves a network of locations. Riders are heterogeneous in terms of their destination preferences and their willingness to pay for receiving service. Drivers decide whether, when, and where to provide service so as to maximize their expected earnings, given the platform's prices. Our findings highlight the impact of the demand pattern on the platform's prices, profits, and the induced consumer surplus. In particular, we establish that profits and consumer surplus are maximized when the demand pattern is "balanced" across the network*s locations. In addition, we show that they both increase monotonically with the balancedness of the demand pattern (as formalized by its structural properties). Furthermore, if the demand pattern is not balanced, the platform can benefit substantially from pricing rides differently depending on the location they originate from. Finally, we consider a number of alternative pricing and compensation schemes that are commonly used in practice and explore their performance for the platform.

Inter-brand Competition in the Convenience Store Industry, Store Accessibility and Healthcare Utilization

Hung-Hao Chang and Chad D. Meyerhoefer explore Inter-brand Competition in the Convenience Store Industry, Store Accessibility and Healthcare Utilization.

ABSTRACT: We investigate the impact of access to convenience stores and competition between convenience store chains on medical care use and expenditures in Taiwan; the country with the highest density of convenience stores in the world. Our study makes use of insurance claims from 0.85 million individuals enrolled in Taiwan’s national health insurance program from 2002-2012 and administrative data on convenience store chain sales. While we find that both greater store accessibility and higher levels of inter-brand competition reduce the use and cost of outpatient medical services and prescription drugs, healthcare utilization is more responsive to changes in competition. Since convenience stores in Taiwan are typically the healthier option for ready-to-eat food, we postulate that the decline in medical care utilization is driven by a reduction in convenience store prices and increase in service quality relative to other food outlets. This is supported by findings from survey data indicating that convenience store competition is associated with greater consumption of more healthy foods, lower consumption of less healthy foods, and decreases in obesity rates. While the effects we find are precisely estimated, they are small in magnitude, with the increase in convenience store competition experienced by Taiwan over a 10-year period reducing medical expenditures on outpatient services and on prescription drugs by around one half of one percent.

Welfare Implications of Proprietary Data Collection: An Application to Telematics in Auto Insurance

Imke Reimers (Northeastern University) and Benjamin R. Shiller (Brandeis University) investigate Welfare Implications of Proprietary Data Collection: An Application to Telematics in Auto Insurance.

ABSTRACT: Concerns about anti-competitive effects of proprietary data collection have motivated recent European data portability laws. We investigate such concerns and search for evidence of direct benefits of data collection in the context of Pay How You Drive (PHYD) auto insurance, which offers tailored discounts to drivers monitored by telematics devices. We exploit the staggered entry of PHYD insurance across states and insurers in a difference-in-differences framework, and we replicate the main findings using state insurance regulations as instruments for entry timing. We find a meaningful impact of PHYD programs on fatal accidents, but we find no evidence of antitrust concerns.

FTC Announces Agenda for the Sixth Session of Its Hearings on Competition and Consumer Protection in the 21st Century

From the press release:

The Federal Trade Commission announced the agenda for the sixth session of its Hearings initiative, with two and a half days of sessions on November 6–8, 2018, to be held at American University Washington College of Law in Washington, DC.

The hearings at American University will examine the role that data plays in competition and innovation, and also will consider the antitrust analysis of mergers and firm conduct where data is a key asset or product. See detailed agenda.

The Commission invites public comment on these issues, including the questions listed below. Comments can be submitted online. Comments are due January 7, 2018. If any entity has provided funding for research, analysis, or commentary that is included in a submitted public comment, such funding and its source should be identified on the first page of any submitted comment.

1. What is “big data”? Is there an important technical or policy distinction to be drawn between data and big data?
    
2. How have developments involving data – including data resources, analytic tools, technology, and business models – changed the understanding and use of personal or commercial information or sensitive data?
    
3. Does the importance of data – or large, complex data sets comprising personal or commercial information – in a firm’s ordinary course operations change how the FTC should analyze mergers or firm conduct? If so, how? Does data differ in importance from other assets in assessing firm or industry conduct?
    
4. What structural, behavioral, or conduct remedies should the FTC consider when remedying antitrust harm in a market or industry where data or personal or commercial information are a significant product or a key competitive input?
    
5. Are there policy recommendations that would facilitate competition in markets involving data or personal or commercial information that the FTC should consider?
    
6. Does the presence of personal information or privacy concerns inform or change competition analysis?
    
7. Do state, federal, and international privacy laws and regulations affect competition, innovation, and product offerings in the United States and abroad? If so, how?

Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail

Thomas W. Quan (University of Georgia) and Kevin R. Williams (Cowles Foundation, Yale University) analyze Product Variety, Across-Market Demand Heterogeneity, and the Value of Online Retail.

ABSTRACT: Online retail gives consumers access to an astonishing variety of products. However, the additional value created by this variety depends on the extent to which local retailers already satisfy local demand. To quantify the gains and account for local demand, we use detailed data from an online retailer and propose methodology to address a common issue in such data- sparsity of local sales due to sampling and a signi?cant number of local zeros. Our estimates indicate products face substantial demand heterogeneity across markets; as a result, we ?nd gains from online variety that are 45% lower than previous studies.

Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI

Brito, Duarte; Osório, António (António Miguel); Ribeiro, Ricardo; Vasconcelos, Helder, offer Unilateral Effects Screens for Partial Horizontal Acquisitions: The Generalized HHI and GUPPI.

ABSTRACT: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose a generalization of the two most traditional indicators used to screen unilateral anti-competitive effects - the Herfindahl-Hirschman Index and the Gross Upward Price Pressure Index - to partial horizontal acquisition settings. The proposed generalized indicators are endogenously derived under a probabilistic voting model in which the manager of each firm is elected in a shareholder assembly between two potential candidates who seek to obtain utility from an exogenous rent associated with corporate office. The model (i) can cope with settings involving all types of owners and rights: owners that can be internal to the industry (rival firms) and external to the industry; and rights that can capture financial and corporate control interests, can be direct and indirect, can be partial or full, (ii ) yields an endogenous measure of the owners ultimate corporate control rights, and (iii ) can also be used - in case the potential acquisition is inferred to likely enhance market power - to devise divestiture structural remedies. We also provide an empirical application of the two proposed generalized indicators to several acquisitions in the wet shaving industry, with the objective of providing practitioners with a step-by-step illustration of how to compute them in antitrust cases. JEL Classification: L13, L41, L66. Keywords: Antitrust, Partial Horizontal Acquisitions, Oligopoly, Screening Indicators, HHI, GUPPI, Corporate Control, Banzhaf Power Index

Oligopoly Price Discrimination: The Role of Inventory Controls

James D. Dana Jr. (Northwestern University) and Kevin R. Williams (Cowles Foundation, Yale University) determine Oligopoly Price Discrimination: The Role of Inventory Controls.

ABSTRACT: Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls also facilitate intertemporal price discrimination. In our model, competing ?rms ?rst choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes more inelastic over time, as in the airline and hotel markets, a monopolist can easily price discriminate; however, we show that oligopoly ?rms generally cannot. Inventory controls let ?rms set increasing prices regardless of whether or not demand is uncertain.

Consumer Search and Retail Market Structure

Rhodes, Andrew and Zhou, Jidong investigate Consumer Search and Retail Market Structure.

ABTRACT: A puzzling feature of many retail markets is the coexistence of large multiproduct firms and smaller firms with narrow product ranges. This paper provides a possible explanation for this puzzle, by studying how consumer search frictions influence the structure of retail markets. In our model single-product firms which supply different products can merge to form a multiproduct firm. Consumers wish to buy multiple products, and due to search frictions value the one-stop shopping convenience associated with a multiproduct firm. We find that when search frictions are relatively large all firms are multiproduct in equilibrium. However when search frictions are smaller the equilibrium market structure is asymmetric, with di¤erent retail formats coexisting. This allows firms to better segment the market, and as such typically leads to the weakest price competition. When search frictions are low this asymmetric market structure is also the worst for consumers. Moreover due to the endogeneity of market structure, a reduction in the search friction can increase market prices and harm consumers.

Online Digital Services And Competition Law: Why Competition Authorities Should be More Concerned About Portability Rather than About Privacy

Stefano Lucchini, Jacques Moscianese, Irene de Angelis, and Fabrizio Di Benedetto argue Online Digital Services And Competition Law: Why Competition Authorities Should be More Concerned About Portability Rather than About Privacy.

ABSTRACT: In her highly quoted dissenting opinion in the Google/DoubleClick case in 2007, Commissioner Jones Harbour of the Federal Trade Commission (FTC) – citing Professor Swire’s testimony – included privacy as a non-price dimension of competition, assuming that (in the field of search engines) undertakings compete (also) on ‘privacy protections or related non-price dimensions’.

Common Ownership and Competition – The Current State of the Debate

Ulrich Schwalbe addresses Common Ownership and Competition – The Current State of the Debate.

ABSTRACT: Common ownership gives rise to competitive concerns as diversified investors have an incentive to soften competition in a market.  Whether minority shareholders are able to influence the behaviour of firms is currently under debate.  Empirical work about the effects of common ownership is still in its infancy and there is an intense discussion regarding conceptual and methodological approaches. The studies seem to justify the competitive concerns but further empirical and theoretical work is needed for a thorough assessment of the extent of common ownership and its effects on competition.

Upstream Bundling and Leverage of Market Power

Alexandre de Corniere, Toulouse School of Economics and Greg Taylor, University of Oxford - Oxford Internet Institute analyze Upstream Bundling and Leverage of Market Power.

ABSTRACT: Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive.

How Do Firms Build Market Share?

Doireann Fitzgerald, Federal Reserve Banks - Federal Reserve Bank of Minneapolis and Anthony Priolo, University of Minnesota - Twin Cities - Department of Economics ask How Do Firms Build Market Share?

ABSTRACT: The question of how firms build market share matters for firm dynamics, business cycles, international trade, and industrial organization. Using Nielsen Retail Scanner data for the United States, we document that in the consumer food industry, brands experience substantial growth in market share in the first four years after successful entry into a regional market. However, markups are flat with respect to brand tenure. This finding is at odds with a large literature on customer markets which argues that firms acquire customers by temporarily offering low markups, and later raise markups once customers are locked in. However, it is consistent with a literature which emphasizes the importance of marketing and advertising activities for building market share.

How Costly are Markups?

Chris Edmond, The University of Melbourne - Department of Economics, Virgiliu Midrigin, New York University (NYU) - Department of Economics and Daniel Yi Xu, Duke University ask How Costly are Markups?

ABSTRACT: We study the welfare costs of markups in a dynamic model with heterogeneous firms and endogenously variable markups. We find that the welfare costs of markups are large. We decompose the costs of markups into three channels: (i) an aggregate markup that acts like a uniform output tax, (ii) misallocation of factors of production, and (iii) an inefficiently low rate of entry. We find that the aggregate markup accounts for about two-thirds of the costs, misallocation accounts for about one-third, and the costs due to inefficient entry are negligible. We evaluate simple policies aimed at reducing the costs of markups. Subsidizing entry is not an effective tool in our model: while more competition reduces individual firms' markups it also reallocates market shares towards larger firms and the net effect is that the aggregate markup hardly changes. Size-dependent policies aimed at reducing concentration can reduce the aggregate markup but have the side effect of greatly increasing misallocation and reducing aggregate productivity.

14th CRESSE Conference on Advances in the Analysis of Competition Policy and Regulation Friday 5th July – Sunday 7th July, 2019

CRESSE www.cresse.info

14th CRESSE Conference on Advances in the Analysis of Competition Policy and Regulation Friday 5th July – Sunday 7th July, 2019        14th CRESSE Summer School on Competition Policy and Regulation Saturday 29th June – Thursday 11th July, 2019      2nd Advanced Short Courses Monday July 8th – Tuesday July 9th, 2019

6th CRESSE Lawyers’ Course on The Role of Economics in Competition Law and Practice Friday 5th July – Monday 8th July, 2019

Venue: Amathus Beach Hotel Rhodes, Greece (https://www.amathusrhodes.com/)

 

We are happy to announce the organization of the upcoming CRESSE 2019 Events that will take place in the AMATHUS BEACH HOTEL in Rhodes in Greece.

 

CRESSE has established itself as the top academic summer event in the areas of Competition and Regulation Policy in Europe. The CRESSE Scientific Committee is composed ofProf. Joseph Harrington (The Wharton School, Univerity of Pennsylvania), Prof. Yannis Katsoulacos (Athens University of Economics and Business) who acts also as a Coordinator, Prof. Pierre Regibeau (Charles River Associates), Prof. Patrick Rey (Toulouse School of Economics), Prof. Thomas Ross (Sauder School of Business, University of British Columbia) and Prof. David Ulph (University of St. Andrews).

 

 

     14^th CRESSE Summer School on Competition Policy and Regulation & 2^nd Advanced Short Courses

Saturday 29th June – Thursday 11th July, 2019

 

The Summer School is organized for 14th consecutive year and is designed for professionals working in the wider areas of Competition Policy and Network Industry Regulation. The School provides a comprehensive account of the most-up-to date developments in economic theory, empirical analysis, legislation and policy in the areas of Competition and Regulation. Participants of the Summer School join a vibrant community of motivated students from all over the world and a distinguished international faculty. The Contents are organised in 7 self-contained Modules of 12 to 16 hours duration each and a shorter Module (Module 8) of 4 hours duration. Particular emphasis is placed on the presentation and discussion of Case Studies.

 

CRESSE also offers a number of Advanced Short Courses in specific topics of Competition Policy (the topics may change from year to year). These are targeted to the more experienced professionals working in competition authorities or regulatory bodies or in consultancy companies who are trained in economics at undergraduate and postgraduate level (including chief economists, directors of economics, senior case handlers and senior analysts). They are also directed to those interested in competition economics who are already trained at postgraduate level in microeconomic theory and industrial organization, but may have had limited opportunity for focused study in the field. Advanced Short Courses can be taken on a stand alone basis or by Summer School participants substituting these courses for part of or for whole Module 6 of the regular Summer School program. 

 

 

     6^th CRESSE Lawyers’ Course on The Role of Economics in Competition Law and Practice

Friday 5th July – Monday 8th July 2019

 

The Lawyers’ Course is organized for 6^th consecutive year and is targeted to lawyers practicing in competition law as counsels, enforcers or judges or in another field of law in which knowledge of economics is helpful. The course is taught by some of the foremost competition economists in the world. It covers both an introduction to microeconomics, game theory and industrial organization theory, as well as, all the areas in the application of economics to competition policy. The Course is organized in 16 sessions of 2 academic hours each.

 

 

     14^th CRESSE Conference on Advances in the Analysis of Competition Policy and Regulation

Friday 5th July – Sunday 7th July 2019

 

The CRESSE Conference is organized together with the Summer School for 14 consecutive years and brings together many of the top European and USA economists and legal experts in Competition and Regulation.

 

CRESSE 2019 Keynote Speakers:

 Competition Policy Keynote Lecture by Prof. Richard Gilbert (University of California Berkeley)

 JJ Laffont Lecture by Prof. Robert Porter (Northwestern University)

Keynote Lawyers’ Lecture by Prof. Ariel Ezrachi (Pembroke College, Oxford)   

 

CALL FOR PAPERS:
We welcome submissions of theoretical, policy oriented or empirical papers related to any one of the main aspects of Competition Policy (dominance, collusion or mergers) or Sectoral Regulation or to issues of policy implementation, enforcement and Stade-Aid.
Submissions by legal experts are also encouraged.

Deadline for paper submission: 31st March, 2019.
Acceptance of papers by 6th May, 2019. 
Those who wish to present should send their papers electronically to [email protected]

 

 

Please find attached the Summer School and Conference Synopsis and the CRESS Lawyers Course Synopsis.

Application/Registration forms can be found here.

 

***IMPORTANT NOTE: For special room charges at the CRESSE Venue and information on nearby hotels please see link Accommodation (that is regularly updated) and book your room as soon as possible as early July is an extremely high touristic period for Rhodes.

 

For all further information on the CRESSE 2019 Event please access the CRESSE Website at www.cresse.info or contact:

 

Ms. Alexandra Sarafidou

CRESSE Secretariat

tel. +30 210 8203348

fax +30 210 8223259

E-mail: [email protected], [email protected]

The Effect of Institutional Ownership Types on Innovation and Competition

Paul Borochin, University of Connecticut - School of Business, Jie Yang, Board of Governors of the Federal Reserve System, and Rongrong Zhang, Georgia Southern University explore The Effect of Institutional Ownership Types on Innovation and Competition.

ABSTRACT: In common ownership, the type of the common owner matters. We document two countervailing effects of firms' ownership structures. Higher common ownership by focused, long-term financial institutions promotes innovation as measured by patent applications, well as more exploratory innovation. This effect is reversed for common ownership by diversified, short-termist financial institutions. Diversified, long-term quasi-indexer institutions share some similarities with both. These results contribute to, and potentially help resolve, an ongoing debate about the effects of common institutional ownership on competition.