Monday, June 24, 2019
|By:||Matthew Backus; Christopher Conlon; Michael Sinkinson|
|Abstract:||When competing firms possess overlapping sets of investors, maximizing shareholder value may provide incentives that distort competitive behavior, affecting pricing, entry, contracting, and virtually all strategic interactions among firms. We propose a structurally consistent and scaleable approach to the measurement of this phenomenon for the universe of S&P 500 firms between 1980 and 2017. Over this period, the incentives implied by the common ownership hypothesis have grown dramatically. Contrary to popular intuition, this is not primarily associated with the rise of BlackRock and Van- guard: instead, the trend in the time series is driven by a broader rise in diversified investment strategies, of which these firms are only the most recent incarnation. In the cross-section, there is substantial variation that can be traced, both in the theory and the data, to observable firm characteristics – particularly the share of the firm held by retail investors. Finally, we show how common ownership can theoretically give rise to incentives for expropriation of undiversified shareholders via tunneling, even in the Berle and Means (1932) world of the “widely held firm.”|
Saturday, June 22, 2019
Acting Deputy Assistant Attorney General Jeffrey M. Wilder Delivers Remarks at the Hal White Antitrust Conference
In recognition of their outstanding contribution to antitrust scholarship, the authors listed below have been selected as recipients of the 17th Annual Jerry S. Cohen Memorial Fund Writing Award:
- Suresh Naidu, Professor at the School of International and Public Affairs, Columbia University;
- Eric A. Posner, Professor at the University of Chicago Law School;
- Glen Weyl, Principal Researcher at Microsoft Research;
- José Azar, Professor at IESE Business School, University of Navarra;
- Martin Schmalz, Professor at Saïd Business School, University of Oxford;
- Isabel Tecu, Principal at Charles River Associates.
The Award will be presented during the gala luncheon at the American Antitrust Institute’s 20th Annual Policy Conference on June 20, 2019 at the National Press Club in Washington, D.C.
Suresh Naidu, Eric A. Posner, and Glen Weyl will be honored for their article “Antitrust Remedies for Labor Market Power,” 132 Harv. L. Rev. 536 (2018). Although the antitrust laws prohibit firms from restricting competition in labor markets as in product markets, the government does little to address the labor market problem, and private litigation has been rare and mostly unsuccessful. One reason is that the analytic methods for evaluating labor market power in antitrust contexts are far less sophisticated than the legal rules used to judge product market power. To remedy this asymmetry, the authors propose methods for judging the effects of mergers on labor markets, and extend their approach to other forms of anticompetitive practices undertaken by employers against workers.
Jose Azar, Martin C. Schmalz, and Isabel Tecu will be honored for their article “Anticompetitive Effects of Common Ownership,” 73 J. of Finance 1513 (2018). Many competitors are jointly held by a small set of large institutional investors. Theory predicts that common ownership of competitors can reduce firms’ incentives to compete. Using an empirical study of the U.S. airline industry, the authors find that changes in common ownership concentration in a given airline route are associated with changes in ticket prices in the same route. By conducting a large number of placebo and robustness tests, the authors are able to reject many of the alternatives to the inference that common ownership causes higher prices. The authors conclude that a hidden social cost—reduced product market competition—accompanies the private benefits of diversification and good governance.
The six winners will share a $12,000 prize and will each receive an inscribed original artwork created by Lori Milstein.
In addition, this year’s award selection committee has conferred six category awards, as follows:
- Best Horizontal Mergers Article: Peter C. Carstensen and Robert H. Lande, “The Merger Incipiency Doctrine and the Importance of “Redundant” Competitors,” 18 Wis. L. Rev. 781 (2018)
- Best Buying Power in Mergers Article: C. Scott Hemphill and Nancy L. Rose, “Mergers that Harm Sellers,” 127 Yale L.J. 2078 (2018)
- Best Vertical Mergers Article: Steven C. Salop, “Invigorating Vertical Merger Enforcement,” 127 Yale L.J. 1962 (2018)
- Best Structural Presumptions in Merger Review Article: John Kwoka, “The Structural Presumption and the Safe Harbor in Merger Review: False Positives or Unwarranted Concerns?,” 81 Antitrust Law J. 837 (2018)
- Best Market Power Analyses Article: John B. Kirkwood, “Market Power and Antitrust Enforcement,” 98 B.U.L. Rev. 1170 (2018)
- Best Horizontal Shareholding Article: Fiona Scott Morton and Herbert Hovenkamp, “Horizontal Shareholding and Antitrust Policy,” 127 Yale L.J. 2026 (2018)
This year’s award selection committee consisted of Zachary Caplan, Associate at Berger & Montague, P.C.; Warren Grimes, Professor of Law at Southwestern Law School; John Kirkwood, Professor of Law at Seattle University School of Law; Robert Lande, Professor of Law at the University of Baltimore School of Law; Beth Farmer, Professor of Law at Pennsylvania State University; Roger Noll, Professor Emeritus of Economics at Stanford University; and Daniel A. Small,Partner at Cohen Milstein Sellers & Toll PLLC. Note: John Kirkwood and Robert Lande, though committee members, did not participate in the final deliberations because their own articles were under consideration.
About the Award:
The Jerry S. Cohen Memorial Fund Writing Award was created through a trust established in honor of the late Jerry S. Cohen, an outstanding trial lawyer and antitrust scholar. It is administered by the law firm he founded, Cohen Milstein Sellers & Toll PLLC.
The award honors the best antitrust writing published during the prior year that is consistent with the values that animated Jerry S. Cohen’s professional life: a genuine concern for economic justice, the dispersal of economic power, effective limitations upon economic power, and the vigorous enforcement of the antitrust laws.
Friday, June 21, 2019
|By:||David Spector (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)|
|Abstract:||Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.|
|By:||Laurent Gobillon (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Carine Milcent (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)|
Striking a Balance of Power between the Court of Justice and the EU Legislature: The Law on Competition Damages Actions as a Paradigm
|Abstract:||The framework of EU law on cartel damages actions consists in part of rules established by the ECJ based on arts 101 and 102 TFEU in conjunction with the principle of effectiveness. These rules are an integral part of EU primary law. The notion of institutional balance, however, requires the Court to consider its own inherent limits on democratic legitimacy, accountability and expertise. In particular, the Court has to ensure that adequate scope remains for the EU legislature to exercise its legislative power pursuant to art.103 TFEU. It is argued that the ECJ has disregarded these restrictions and overstretched the principle of effectivenessâ€“â€“for instance, in its adjudication on liability for umbrella pricing and on access to leniency files, respectively. Consequently, the EU legislature must not consider itself bound by these standards.|
Thursday, June 20, 2019
|By:||Massimo Motta; Emanuele Tarantino|
|Abstract:||We study the effects of mergers when firms offer differentiated products and compete in prices and investments. Since it is in principle ambiguous, we use aggregative game theory to sign the net effect of the merger: We find that only if it entailed sufficient efficiency gains, could the merger raise total investments and consumer surplus. We also prove there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments. Finally, we show that, from the consumer welfare point of view, a R&D cooperative agreement is superior to any consumer-welfare reducing merger.|
|By:||Jay Pil Choi; Martin Peitz|
|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.|
|By:||Mariassunta Giannetti; Nicolas Serrano-Velarde; Emanuele Tarantino|
|Abstract:||Using a unique dataset with information on 20 million inter-firm transactions, we provide evidence that suppliers offer cheap trade credit to ease competition in downstream markets. We show theoretically that trade credit allows suppliers to transfer surplus to high-bargaining-power customers while preserving sales to other buyers. Suppliers optimally choose a trade credit limit up to which customers can purchase on account. This contractual feature allows suppliers to target infra-marginal units and to leave unaffected customers' marginal costs. Empirically, we find that suppliers grant trade credit to high-bargaining-power customers only when they fear the cannibalization of sales to other low-bargaining-power customers. Exploiting a law that lowered the cost of offering trade credit, we show that higher provision of trade credit to high-bargaining-power customers leads to an expansion of the suppliers' customer base and higher growth of sales to low-bargaining-power customers.|
|By:||Pierre Dubois; Helena Perrone|
|Abstract:||Traditional demand models assume that consumers are perfectly informed about product characteristics, including price. However, this assumption may be too strong. Unannounced sales are a common supermarket practice. As we show, retailers frequently change position in the price rankings, thus making it unlikely that consumers are aware of all deals oÂ¤ered in each period. Further empirical evidence on consumer behavior is also consistent with a model with price information frictions. We develop such a model for horizontally diÂ¤erentiated products and structurally estimate the search cost distribution. The results show that in equilibrium, consumers observe a very limited number of prices before making a purchase decision, which implies that imperfect information is indeed important and that local market power is potentially high. We also show that a full information demand model yields severely biased price elasticities.|
|By:||Markus Reisinger; Emanuele Tarantino|
|Abstract:||Patent pools are commonly used to license technologies to manufacturers. Whereas previous studies focused on manufacturers active in independent markets, we analyze pools licensing to competing manufacturers, allowing for multiple licensors and non-linear tariffs. We find that the impact of pools on welfare depends on the industry structure: Whereas they are procompetitive when no manufacturer is integrated with a licensor, the presence of vertically integrated manufacturers triggers a novel trade-off between horizontal and vertical price coordination. Specifically, pools are anticompetitive if the share of integrated firms is large, procompetitive otherwise. We then formulate information-free policies to screen anticompetitive pools.|
Wednesday, June 19, 2019
|By:||Giovanni Cespa; Xavier Vives|
|Abstract:||We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies in a context of limited market participation. To this end we integrate a two-period market microstructure model with an exchange competition model with entry in which exchanges supply technological services, and have market power. We find that technological services can be strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better typically, platform fees may further increase welfare. The market may deliver excessive or insufficient entry. However, if the regulator is constrained to not making transfers to platforms then there is never insufficient entry.|
John Davies and Jorge Padilla (both Compass Lexecon) offer Another Look at the Role of Barriers to Entry in Excessive Pricing Cases.
ABSTRACT: In this paper we explain that an important screen for the assessment of excessive pricing allegations is the existence of very high and persistent barriers to entry. When this condition is not met, there is no justification for the use of competition law to penalize a firm’s pricing decisions ex post. Most importantly, this is because the market will self-correct, but also because demonstrating to the required standard that prices are excessive is likely to be impossible. When barriers to entry are low, therefore, it becomes undesirable to prosecute excessive pricing. Prosecuting firms for setting prices that encourage entry might chill competition and harm consumers.
Roman Inderst, Goethe University Frankfurt and Marco J.W. Kotschedoff, Goethe University Frankfurt - Faculty of Economics and Business Administration offer Cartel Damages in the Shadow of Store Brands: An Empirical Investigation.
ABSTRACT: When manufacturers collude to raise wholesale prices for national brands, the input prices of store brands may not be directly affected, either as they are procured competitively from different sources or as retailers are vertically integrated. In this article we explore both conceptually and empirically how the prices of store brands should still react to the infringement and thereby how consumer damages could increase while retailer damages are mitigated. We identify two effects on store brand prices, a “demand diversion effect” and a “margin effect,” which have opposite signs. In the analyzed case of the German coffee cartel, we find that store brand prices increased considerably in the shadow of the cartel and we estimate how this allowed retailers to mitigate damages. The latter finding raises the question of to what extent such mitigation should be accounted for in follow-on cases.
Philip G. Berger University of Chicago - Booth School of Business, Jung Ho Choi Stanford University Graduate School of Business and Sorabh Tomar Southern Methodist University (SMU) - Accounting Department investigate Breaking it Down: Competitive Costs of Cost Disclosures.
ABSTRACT: Does decomposing cost of goods sold entail significant competitive costs? We examine this question using a relaxation of disaggregated manufacturing cost disclosure requirements in Korea. Our survey evidence indicates managers perceive these disclosures to provide a competitive edge to competitors. Using archival data, we find firms with distinctive cost structures and high market shares are less willing to disclose, consistent with a desire to protect cost-leadership advantages embedded in production and sourcing. Firms experience higher gross profits and lower liquidity after withholding manufacturing cost details, suggesting these disclosure decisions involve trading off competitive costs (and not managers’ self-interests) against capital market benefits. At the aggregate level, industries with more nondisclosing firms subsequently experience greater profitability dispersion, suggesting uncertainty about competitors’ cost of goods sold helps drive the widely studied performance dispersion observed within industries.
Tuesday, June 18, 2019
|Differentiated Durable Goods Monopoly: A Robust Coase Conjecture|
|Francesco Nava and Pasquale Schiraldi|
|The paper analyzes a durable goods monopoly problem in which multiple varieties can be sold. A robust Coase conjecture establishes that the market eventually clears, with profits exceeding static optimal market-clearing profits and converging to this lower bound in all stationary equilibria with instantaneous price revisions. Pricing need not be efficient, nor is it minimal (equal to the maximum of marginal cost and minimal value), and can lead to cross-subsidization. Conclusions nest both classical Coasian insights and modern Coasian failures. The option to scrap products does not affect results qualitatively, but delivers a novel motive for selling high cost products.|
Alexander MacKay, Harvard Business School and Marc Remer, Swarthmore College - Economics Department identify Consumer Inertia and Market Power.
ABSTRACT: We study the pricing decision of firms in the presence of consumer inertia. Inertia can arise from habit formation, brand loyalty, switching costs, or search, and it has important implications for the interpretation of equilibrium outcomes and counterfactual analysis. In particular, consumer inertia affects the scope of market power. We show that the effects of competition on prices and profits are non-monotonic in the degree of inertia. Further, a model that omits consumer inertia tends to overstate the marginal effect of competition on price, relative to a benchmark that accounts for consumer dynamics. We develop an empirical model to estimate consumer inertia using aggregate, market-level data. We apply the model to a hypothetical merger of two major retail gasoline companies, and we find that a static model predicts price increases greater than the price increases predicted when accounting for dynamics.
Maciej Bernatt University of Warsaw, Centre for Antitrust and Regulatory Studies asks Illiberal Populism: Competition Law at Risk?
ABSTRACT: The aim of this working paper is to preliminary identify those processes triggered by the rise of illiberal populism which have a potential to adversely affect the competition law system. It is hypothesized that these processes may be of a three-fold nature:
1) they may involve limitations on the independence and expertise of the institutions responsible for the application of competition law (competition authorities and courts);
2) they may translate into a protectionist use of competition law; and
3) they may affect regional competition law systems.
To illustrate whether illiberal populism is capable of affecting the competition law system, the paper analyzes the situations in Poland and Hungary. The analyses cover some aspects of the functioning of competition agencies and the judiciary in these countries, as well as changes introduced to both existing laws and the practice of their enforcement. The paper speaks to the broader literature concerning the relationship between democracy and competition law systems.
Suresh Naidu, Columbia University and Eric A. Posner, University of Chicago - Law School discuss Labor Monopsony and the Limits of the Law.
ABSTRACT: Recent literature has suggested that antitrust regulation is an appropriate response to labor market monopsony. This article qualifies the primacy of antitrust by arguing that a significant degree of labor market power is “frictional,” that is, without artificial barriers to entry or excessive concentration of employment. If monopsony is pervasive under conditions of laissez-faire, antitrust is likely to play only a partial role in remedying it, and other legal and policy instruments to intervene in the labor market will be required.