Thursday, July 25, 2019

Exchange Competition, Entry, and Welfare

By: Cespa, GiovanniVives, Xavier
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.
   
   
   
URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13415&r=com

July 25, 2019 | Permalink | Comments (0)

Controlling Monopoly Power in a Classroom Double-Auction Market Experiment.

By: Giuseppe AttanasiKene Boun MyAndrea GuidoMathieu Lefevbre
Abstract: There is robust evidence in the experimental economics literature studying decentralized forms to control monopoly power via trading institutions. This strand provides evidence showing that double-auction trading institutions do affect monopoly power. In addition, recent experimental evidence shows that trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition,perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject experimental design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that i) prevailing prices in the first implemented market work as reference points in subsequent market structures, ii) the formation of reference points negatively impacts on monopolists' power in later market structures..
   
   
   
URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-08&r=com

July 25, 2019 | Permalink | Comments (0)

Wednesday, July 24, 2019

Organizing Competition for the Market

By: Iossa, Elisabetta (University of Rome Tor Vergata, GREEN-Bocconi and EIEF); Rey, Patrick (University of Toulouse); Waterson, Michael (University of Warwick)
Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tenderingis preferable, asitmaximizesthe competitivepressure that comes from the other firms.
   
   
   
URL: http://d.repec.org/n?u=RePEc:wrk:warwec:1188&r=com

July 24, 2019 | Permalink | Comments (0)

Preemptive Entry in Sequential Auctions with Participation Cost

By: Jeongwoo Lee (University of Florida); Jaeok Park (Yonsei University)
Abstract: This paper analyzes a scenario in which two objects are sold in sequence at two second-price auctions. There are two bidders, and each bidder's valuations of the two objects are affiliated. Participating in each auction is costly. Bidders decide whether to enter each auction, observing their entry decisions in any previous auction. We study the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation, a bidder's entering the first auction may signal his strong interest in the second object. Hence, a bidder with a higher valuation of the second object tends to participate in the first auction more aggressively in order to preempt the opponent's entry into the second auction. Because of this signaling motive, the sequential auction format can generate higher revenue in the first auction and lower revenue in the second auction than those obtained by the simultaneous counterpart.
   
   
   
URL: http://d.repec.org/n?u=RePEc:yon:wpaper:2019rwp-141&r=com

July 24, 2019 | Permalink | Comments (0)

Downstream competition and profits under different input price bargaining structures

By: Buccella, DomenicoFanti, Luciano
Abstract: In a vertically related duopoly with input price bargaining, this paper re-examines the downstream firms’ profitability under different market competition degrees. Downstream firms earn highest profits with semi-collusion whose level depends on product differentiation and relative parties’ bargaining power. Holding fixed the upstream suppliers’ bargaining power, the more the products are differentiated, the higher the downstream firms’ collusive level that maximize profits, regardless of the negotiations’ structure. On the other hand, holding fixed the product differentiation degree: 1) with uncoordinated bargaining, the higher the upstream suppliers’ bargaining power is, the lower the downstream firms’ collusive level is; 2) with upstream firms’ bargaining coordination, a U-shaped relation exists between the upstream firms’ power and the downstream firms’ collusive level that maximizes their profits.
   
   
   
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:92266&r=com

July 24, 2019 | Permalink | Comments (0)

Antitrust Procedural Fairness

I have a post up on the Oxford University Press blog about my new edited book Antitrust Procedural Fairness.  You can read the post here.

July 24, 2019 | Permalink | Comments (0)

Call for papers: AdC Competition Policy Award for papers in competition law (original, written in English or Portuguese) - 8 September

See here for details.

July 24, 2019 | Permalink | Comments (0)

Measuring multi-product banks' market power using the Lerner index

By: Sherrill ShafferLaura Spierdijk
Abstract: The aggregate Lerner index is a popular composite measure of multi-product banks’ market power, based on the assumption that banks’ single aggregate output factor is total assets. This study identifies three limitations of the aggregate Lerner index that potentially distort its interpretation as a composite measure of market power. We investigate the empirical relevance of these limitations for a sample of U.S. banks covering the years 2011–2017. We establish an economically relevant bias in the value of the aggregate Lerner index and show that this bias may also affect regressions that use the Lerner index as a dependent or explanatory variable.
Keywords: multi-product banks, market power, Lerner index, consistent aggregation
JEL: D43 L13 G21
Date: 2019–02
URL: http://d.repec.org/n?u=RePEc:een:camaaa:2019-17&r=com

July 24, 2019 | Permalink | Comments (0)

Tuesday, July 23, 2019

Two-sided Market, R&D and Payments System Evolution

By: Li, Bin Grace (International Monetary Fund); McAndrews, James J.(TNBUSA); Wang, Zhu (Federal Reserve Bank of Richmond)
Abstract: It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.
   
   
   
URL: http://d.repec.org/n?u=RePEc:fip:fedrwp:19-03&r=com

July 23, 2019 | Permalink | Comments (0)

The impact of price adjustment costs on price dispersion in E-commerce

By: René BöheimFranz HacklMichael Hölzl-Leitner
Abstract: We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity that might result from the selection of firms to certain product markets. We find that greater price adjustment costs result in greater price dispersion. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of the period. Our results are robust to many alternative empirical speciffications. We also test a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure.
   
   
   
URL: http://d.repec.org/n?u=RePEc:jku:econwp:2019_04&r=com

July 23, 2019 | Permalink | Comments (0)

Protecting vulnerable consumers in "switching markets"

By: Walter Beckert (Institute for Fiscal Studies and Birkbeck, University of London); Paolo Siciliani (Institute for Fiscal Studies)
Abstract: This paper studies regulatory policy interventions aimed at protecting vulnerable consumers who are disengaged and thus exposed to exploitation. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established rms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive, both with regard to the stated consumer protection objective and the complementary aim to promote competition.
   
   
URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:18/23&r=com

July 23, 2019 | Permalink | Comments (0)

INFORMATIVE ADVERTISING IN MONOPOLISTICALLY COMPETITIVE MARKETS

By: Creane, AnthonyManduchi, Agostino
Abstract: In their seminal paper Grossman and Shapiro (1984) find that informative advertising is socially excessive in an oligopoly (entry is also socially excessive). However, the analysis assumed that all consumers receive at least one advertisement. Christou and Vettas (2008), among others, present counter-examples in alternative settings, showing when the assumption does not hold, the equilibrium advertising may, instead, be inefficiently low. Christou and Vettas (2008) also show there may be non-existence due to discontinuities from undercutting, that quasiconcavity may not hold, and present examples in which the equilibrium does not exist as firms would deviate to a higher price. We revisit the question by modeling firms (like consumers) as a continuum, which mitigates the discontinuity that exists in both papers and allows the general analysis to include the cases when some consumers receive no advertisements. As a result, we are able to derive explicit and intuitive conditions for an equilibrium. More importantly, we find, instead, that advertising is socially insufficient regardless of the fraction of the consumers who receive an ad, including when all consumers receive at least one ad. We also find that there is insufficient entry instead of excess entry. We provide intuition for the difference between our and previous results.
   
   
   
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:92126&r=com

July 23, 2019 | Permalink | Comments (0)

Monday, July 22, 2019

Hotel rankings of online travel agents, channel pricing, and consumer protection

By: Hunold, MatthiasKesler, ReinholdLaitenberger, Ulrich
Abstract: We investigate whether online travel agents (OTAs) assign hotels worse positions in their search results if these set lower hotel prices at other OTAs or on their own websites. We formally characterize how an OTA can use such a strategy to reduce price differentiation across distribution channels. Our empirical analysis shows that the position of a hotel in the search results of OTAs is better when the prices charged by the hotel on other channels are higher. This is consistent with the hypothesis that OTAs alter their search results to discipline hotels for aggressive prices on competing channels, thereby reducing the search quality for consumers.
   
   
   
URL: http://d.repec.org/n?u=RePEc:zbw:zewdip:18059&r=com

July 22, 2019 | Permalink | Comments (0)

Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions

Riccardo Fadiga, Freshfields Bruckhaus Deringer describes Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions.

ABSTRACT: The literature shows that horizontal shareholding engenders significant anticompetitive effects and that no suitable instrument exists within European competition law which reliably and effectively can be applied to curtail such intrinsic effects. This Article analyses several proposals which have been put forward by the scholarship and the institutions in order to compare and contrast their advantages and disadvantages, and shows that enforcement against horizontal shareholding on the basis of Article 102 TFEU affords substantial benefits compared to other solutions, with no comparable disadvantages.

July 22, 2019 | Permalink | Comments (0)

Impact of Mandated Exclusive Territories in the US Brewing Industry: Evidence from Scanner Level Data

Jacob Burgdorf, University of Louisville - College of Business - Department of Economics has an interesting paper on Impact of Mandated Exclusive Territories in the US Brewing Industry: Evidence from Scanner Level Data. Worth reading!

ABSTRACT: I examine the competitive effects of mandated exclusive territories in the US beer industry. Theory is ambiguous as to the competitive impacts of this vertical practice. Using scanner data from a large number of grocery stores, I empirically examine the impact on beer prices, quantities, and number of brands sold after Wisconsin mandated that brewers must assign exclusive wholesale territories in 2006. Reduced form results from a differences-in-differences model using several control groups and a synthetic control show that the mandates increased prices and reduced quantity of craft beer. Overall number of brands sold decreased as well and craft brewers were the most negatively impacted. Findings suggest that the mandate gave protection to wholesalers and caused an increase in the costs of distribution and reduced competition in the brewing industry.

July 22, 2019 | Permalink | Comments (0)

The Strategic Impact of Voluntary vs. Mandated Vertical Restraints on Exclusion of Rivals

Jacob Burgdorf, University of Louisville - College of Business - Department of Economics studies The Strategic Impact of Voluntary vs. Mandated Vertical Restraints on Exclusion of Rivals.

ABSTRACT: It has been shown that manufacturers can employ vertical practices and restraints to prevent entry in markets where upstream entrants require downstream accommodation. I show that if downstream product investment is important and encouraged by the restraint, foreclosing entry this way may not be credible. Additionally, publicly mandated vertical restraints could prevent foreclosure, but if mandates reduce downstream product investment, mandates could have the opposite effect and decrease entry.

July 22, 2019 | Permalink | Comments (0)

Friday, July 19, 2019

Cheap talk, monitoring and collusion

By: David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris, 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.
   
URL: http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01983037&r=com

July 19, 2019 | Permalink | Comments (0)

Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth

By: Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University)
Abstract: This article considers the effect of a discrete entry barrier (i.e. an integer number of firms) in an endogenous growth model to draw conclusions about the relationship between contestability, innovation and growth. Sector-specific workers provide a tool for calibrating numerical examples. Sectors with lower entrepreneurial contestability have lower innovation and sectors characterized by Cournot oligopoly have lower innovation than sectors characterized by Bertrand. Wage inequality varies depending on the extent that the entry barrier is binding upon a marginal entrant. The model offers policy implications to support entrepreneurial entry, particularly in relatively small or isolated regional economies.
   
   
   
URL: http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1804&r=com

July 19, 2019 | Permalink | Comments (0)

Organizing Competition for the Market

By: Iossa, ElisabettaRey, PatrickWaterson, Michael
Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefi t from a cost advantage. The paper fi rst compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other fi rms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.
   
   
   
URL: http://d.repec.org/n?u=RePEc:tse:wpaper:33261&r=com

July 19, 2019 | Permalink | Comments (0)

Thursday, July 18, 2019

Horizontal product differentiation with limited attentive consumers

By: Saur, Marc P.Schlatterer, Markus G.Schmitt, Stefanie Yvonne
Abstract: We analyze the effects of consumers' limited attention on welfare in a model of horizontal product differentiation. We present a novel approach of modeling limited attention: an attention radius. Each consumer only notices goods that are within her attention radius, i.e., goods that are sufficiently similar to her preferred version of the good. Limited attention induces firms to differentiate their products in a way that is beneficial to consumers. In addition, prices may be lower under limited than under full attention. Consumer surplus and welfare are not maximized under full attention but increase for some degree of limited attention.
   
   
   
URL: http://d.repec.org/n?u=RePEc:zbw:bamber:143&r=com

July 18, 2019 | Permalink | Comments (0)