Monday, February 11, 2019
Grau, Aaron Stephan Alexander; Hockmann, Heinrich are Estimating oligopsony power on two vertically integrated markets.
Abstract: The paper develops a new approach for the estimation of oligopsony power on two vertically integrated markets. The two subsequent markets with oligopsony power are structurally modelled. Deduced price equations are embedded in a VECM, transformed and estimated via the Kalman-Filter to allow for time-variation in the cointegration parameters. A dynamic factor model extracts common factors from the time-varying coefficients and thereby allows identification of buyers’ market power on both markets. The framework is applied to the German dairy supply chain. Results indicate lower levels of market imperfections on the raw milk and higher levels on the dairy output market.
Jaumandreu, Jordi; Lin, Shuheng explore Prices under Innovation: Evidence from Manufacturing Firms.
Abstract: We study how firms' innovations impact prices with endogenous productivity and markup, under imperfect competition and dynamic pricing. Absent innovation, productivity plus markup changes curb price growth to half of variable inputs cost growth. Innovation's additional impact on costs is negatively correlated with markup changes. We detect two prevalent strategies. When marginal cost goes down, firms cash-in innovation by increasing the markups to enlarge profits. When marginal cost goes u firms practice countervailing pricing by decreasing markups. With no innovation aggregate manufacturing price growth had multiplied by 1.4, but innovation without cash-in strategies had multiplied it by 0.8.
Holger Breinlichy (University of Surrey, CEP and CEPR); Volker Nockez (University of Mannheim, NBER and CEPR); Nicolas Schutzx (University of Mannheim and CEPR) study Merger Policy in a Quantitative Model of International Trade.
Abstract: In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to bene t domestic consumers is too tough or too lenient from the viewpoint of the foreign country. We calibrate the model to match industry-level data in the U.S. and Canada. Our results suggest that at present levels of trade costs, merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of di erent regimes of coordinating merger policies at varying levels of trade costs.
Saturday, February 9, 2019
Friday, February 8, 2019
Holger Breinlich; Volker Nocke; Nicolas Schutz investigate Merger Policy in a Quantitative Model of International Trade.
Abstract: In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. We calibrate the model to match industry-level data in the U.S.\ and Canada. Our results suggest that at present levels of trade costs, merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.
Johannes Boehm (Princeton University); Jan Sonntag (Sciences Po Paris) study Vertical Foreclosure in the Global Production Network.
Abstract: This paper studies the prevalence of market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. We establish causality using the prevalence of past vertical integration among related parties as an instrument. Foreclosure is more prevalent when suppliers have more market power. Furthermore, we find a substantial drop in performance among foreclosed firms.
Ying Fan (University of Michigan); Christopher Sullivan Estimate Markups with a Flexible Supply Model.
Abstract: This paper provides a theoretically founded empirical model to simultaneously investigate firm competition and estimate markups. The model nests the standard oligopoly model, but also allows for firm collusion. Different from conduct parameter models, our model is consistent with a series of theoretical models. We show that a nonparametric marginal cost function can be identified, which gives an estimate of markups. Through Monte Carlo simulations, we show that our approach works better in estimating markups than a standard oligopoly model or a conduct parameter model.
Thursday, February 7, 2019
Albert H. Choi, University of Virginia School of Law and Kathryn E. Spier, Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER) have written on Class Actions and Private Antitrust Litigation. Recommended
ABSTRACT: The paper analyzes the effect of private antitrust litigation on firms' ability to collude and charge supra-competitive market prices. When the cost of litigation is below a threshold, firms charge high market prices, accommodate lawsuits, and accept the litigation costs as just another cost of doing business. By contrast, when the cost of litigation is above the threshold, the firms charge lower market prices and deter litigation. We model the class action as a mechanism that allows plaintiffs to lower their litigation costs, and show that class actions may or may not be privately and socially desirable. We also show that the firms' private incentives to block class action lawsuits may be either aligned with the social incentives, socially excessive, or socially insufficient. Various extensions, such as settlement, contingent fee compensation, fee shifting (loser-pays-all rule), and damage multipliers (treble damages), are also examined.
Luis Cabral, NYU theorizes on Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives.
ABSTRACT: We develop a dynamic innovation model with three important features: (a) asymmetry between large and small firms ("giants" and "dwarfs"); (b) technology transfer by acquisition; and (c) the distinction between radical innovation (compete for the market) and incremental innovation (compete within the market). We provide conditions such that (a) greater asymmetry between giant and dwarfs decreases incremental innovation but increases radical innovation; and (b) allowing for technology transfer increases incremental innovation but decreases radical innovation. These results have several policy implications, including: (a) with weak markets for technology, a soft antitrust policy toward dominant firms leads to an increase in radical innovation but a decrease in incremental innovation; (b) a merger policy that restricts the acquisition of fringe firms by dominant firms leads to lower incremental innovation rates and higher radical innovation rates; © the effect of IP protection on innovation is mixed: by increasing the prize from patenting, it increases incremental innovation; but, by improving the market for technology, it reduces the rate of radical innovation.
Submit now to the NYSBA Section of Antitrust Law Annual Law Student Writing Competition 2018-2019 $5,000 cash prize for the winning paper
Antitrust Law Students:
Submit now to the NYSBA Section of Antitrust Law
Annual Law Student Writing Competition
$5,000 cash prize for the winning paper
How to Enter:
1.) Eligible papers must be written by a currently- enrolled or graduating student at a New York State Law School or by a New York State resident at any ABA-accredited law school outside of New York State.
2.) Eligible papers include notes, comments and articles and should generally be 20-30 pages in length, with footnotes. In no event may papers exceed 50 pages, with footnotes.
3.) Eligible papers may address any topic of general interest to the to antitrust law community, including topics relating to civil and criminal antitrust law, competition policy, consumer protection and international competition law.
4.) Jointly prepared papers are not eligible.
5.) Go to the Antitrust Section on the NYSBA website and click on the "Young Lawyers and Law Students" section and download an Entry Form. Submit an electronic copy of the paper, along with a completed Entry Form, by April 30, 2019 to:
Professor Edward D. Cavanagh
St. John’s University School of Law
8000 Utopia Parkway Queens, NY 11439 email@example.com
Winners and Awards:
The winner will be announced in July 2019. The first place winner will receive a check for $5,000.
If you have questions, contact Prof. Edward D. Cavanagh at 718 990-6621 or at firstname.lastname@example.org.
Log on at www.nysba.org/antitrust
Go to 'Student Writing Competition'
Jay Pil Choi; Martin Peitz suggest You Are Judged by the Company You Keep: Reputation Leverage in Vertically Related Markets.
Abstract: This paper analyzes a mechanism through which a supplier of unknown quality can overcome its asymmetric information problem by selling via a reputable downstream firm. The supplierâ€™s adverse-selection problem can be solved if the downstream firm has established a reputation for delivering high quality with the supplier. The supplier may enter the market by initially renting the downstream firmâ€™s reputation. The downstream firm may optimally source its input externally, even though sourcing internally would be better in terms of productive efficiency. Since an entrant in the downstream market may lack reputation, it may suffer from a reputational barrier to entry arising from higher input costsâ€“this constitutes a novel theory of downstream barriers to entry.
Correia da silva, Joao; Jullien, Bruno; Lefouili, Yassine; Pinho, Joana address Horizontal Mergers Between Multi-Sided Platforms: Insights from Cournot Competition.
ABSTRACT: This paper discusses the literature on horizontal mergers between multi-sided platforms and argues that the Cournot model can provide useful insights into the welfare effects of such mergers. To illustrate those insights, we develop a simple model in which two-sided platforms offer a homogeneous service and compete à la Cournot, and derive the effects of "average-marginal-cost-preserving" mergers on consumers on both sides of the market. We conclude with a discussion of several research avenues that could be explored to understand better the impact of horizontal mergers between multi-sided platforms.
Yongmin Chen (Department of Economics, University of Colorado Boulder, USA); Jianpei Li (School of International Trade and Economics, University of International Business and Economics, China); and Marius Schwartz (Department of Economics, Georgetown University, USA) discuss Competitive Differential Pricing.
ABSTRACT: This paper analyzes welfare under differential versus uniform pricing across oligopoly makes that differ in costs of service. We establish necessary and sufficient conditions on demand properties—cross/own elasticities and curvature—for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always—including why profit can fall, unlike for monopoly—and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with ‘simple’ demands such as linear.
Wednesday, February 6, 2019
Guillaume R. Fréchette; Alessandro Lizzeri; Tobias Salz offer Frictions in a Competitive, Regulated Market: Evidence from Taxis.
Abstract: This paper presents a dynamic general equilibrium model of a taxi market. The model is estimated using data from New York City yellow cabs. Two salient features by which most taxi markets deviate from the efficient market ideal are, first, matching frictions created by the need for both market sides to physically search for trading partners, and second, regulatory limitations to entry. To assess the importance of these features, we use the model to simulate the effect of changes in entry, alternative matching technologies, and different market density. We use the geographical features of the matching process to back out unobserved demand through a matching simulation. This function exhibits increasing returns to scale, which is important to understand the impact of changes in this market and has welfare implications. For instance, although alternative dispatch platforms can be more efficient than street-hailing, platform competition is harmful because it reduces effective density.
Allen, Jason; Clark, Robert; Houde, Jean-Francois explore Search frictions and market power in negotiated price markets.
Abstract: We provide a framework for empirical analysis of negotiated-price markets. Using mortgage market data and a search and negotiation model, we characterize the welfare impact of search frictions and quantify the role of search costs and brand loyalty for market power. Search frictions reduce consumer surplus by $12/month/consumer, 28% of which can be associated with discrimination, 22% with inefficient matching, and 50% with search costs. Large consumer-base banks have margins 70% higher than those with small consumer bases. The main source of this incumbency advantage is brand loyalty; however, price discrimination based on search frictions accounts for almost a third.
Ronayne, David studies Price Comparison website.
Abstract: The large and growing industry of price comparison websites (PCWs) or ‘web aggregators’ is poised to benefit consumers by increasing competitive pricing pressure on firms by acquainting shoppers with more prices. However, these sites also charge firms for sales, which feeds back to raise prices. I investigate the impact of introducing PCWs to a market for a homogeneous good. I find that introducing a single PCW increases prices for all consumers, both those who use the sites, and those who do not. Under competing PCWs, prices tend to rise with the number of PCWs. I also conduct various extensions and use the analysis to discuss relevant industry practices and policies.
Clark, Robert; Coviello, Decio; Gauthier, Jean-Francois; Shneyerov, Art offer Evidence from an investigation into collusion and corruption in Quebec.
Abstract: We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease.
Tuesday, February 5, 2019
Stuart Craig; Matthew Grennan; and Ashley Swanson have a fascinating paper on Mergers and Marginal Costs: New Evidence on Hospital Buyer Power.
ABSTRACT: We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.
Krueger, Alan B. (Princeton University) and Ashenfelter, Orley (Princeton University) offer Theory and Evidence on Employer Collusion in the Franchise Sector.
ABSTRACT: In this paper we study the role of covenants in franchise contracts that restrict the recruitment and hiring of employees from other units within the same franchise chain in suppressing competition for workers. Based on an analysis of 2016 Franchise Disclosure Documents, we find that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. The implications of these no-poaching agreements for models of oligopsony are also discussed. No-poaching agreements are more common for franchises in low-wage and high-turnover industries.