Thursday, October 31, 2019
Günter J. Hitsch, University of Chicago - Booth School of Business, Ali Hortaçsu, University of Chicago, and Xiliang Lin, University of Chicago - Booth School of Business investigate Prices and Promotions in U.S. Retail Markets: Evidence from Big Data.
ABSTRACT: We document the degree of price dispersion and the similarities as well as differences in pricing and promotion strategies across stores in the U.S. retail (grocery) industry. Our analysis is based on “big data” that allow us to draw general conclusions based on the prices for close to 50,000 products (UPC’s) in 17,184 stores that belong to 81 different retail chains. Both at the national and local market level we find a substantial degree of price dispersion for UPC’s and brands at a given moment in time. We document that both persistent base price differences across stores and price promotions contribute to the overall price variance, and we provide a decomposition of the price variance into base price and promotion components. There is substantial heterogeneity in the degree of price dispersion across products. Some of this heterogeneity can be explained by the degree of product penetration (adoption by households) and the number of retail chains that carry a product at the market level. Prices and promotions are more homogenous at the retail chain than at the market level. In particular, within local markets, prices and promotions are substantially more similar within stores that belong to the same chain than across stores that belong to different chains. Furthermore, the incidence of price promotions is strongly coordinated within retail chains, both at the local market level and nationally. We present evidence, based on store-level demand estimates for 2,000 brands, that price elasticities and promotion effects at the local market level are substantially more similar within stores that belong to the same chain than across stores belonging to different retailers. Moreover, we find that retailers can not easily distinguish, in a statistical sense, among the price elasticities and promotion effects across stores using retailer-level data. Hence, the limited level of price discrimination across stores by retail chains likely reflects demand similarity and the inability to distinguish demand across the stores in a local market.
A Panacea for Competition Law Damages Actions in the EU? A Comparative View of the Implementation of the EU Antitrust Damages Directive in Sixteen Member States
Barry James Rodger, University of Strathclyde - School of Law, Miguel Sousa Ferro, University of Lisbon Law School, and Francisco Marcos, IE Law School ask A Panacea for Competition Law Damages Actions in the EU? A Comparative View of the Implementation of the EU Antitrust Damages Directive in Sixteen Member States.
ABSTRACT: This paper makes an original contribution to the literature on the developing area of private enforcement of EU competition law. It delivers a significant, rigorous and comprehensive analysis of the transposition across a broad selection of Member States (MS) of a major EU Directive introduced with the aim of harmonizing and facilitating competition law damages actions across the EU. It looks at the implementation of the Directive 2014/104/EU in sixteen MS. It analyses the solutions followed by each of those MS in addressing the various issues raised by the Directive (liability and compensation, joint liability, statute of limitations, quantification of harm, passing-on defence and indirect purchasers claims, access to evidence and collective redress).
Nicolas de Roos, University of Sydney and Vladimir Smirnov, The University of Sydney - School of Economics theorize about Collusion, Price Dispersion, and Fringe Competition.
ABSTRACT: We study the optimal behaviour of a cartel faced with fringe competition and imperfectly attentive consumers. Intertemporal price dispersion obfuscates consumer price comparison which aids the cartel through two channels: it reduces the effectiveness of free riding by the fringe; and it relaxes the cartel’s internal incentive constraints. Our theory explains the survival of a price-setting cartel in a homogeneous product market, provides a collusive rationale for sales and Edgeworth cycles, and characterises the cartel's manipulation of its fringe rival through a double cut-off rule.
Wednesday, October 30, 2019
Ruohan Wu, University of North Georgia, Meng-Fen Yen, National Taiwan University - Department of Finance, and Mario Miranda, Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics explore The Wage Premium and Market Structure.
ABSTRACT: In this paper, we seek to understand why the “wage premium”, the percentage by which wages earned by skilled workers exceed those of unskilled workers, varies among industries featuring different market competitiveness. We construct a theoretical model with CES utility function and constant return to scale production function that allows us to examine the effects of different imperfect market structures (monopolistic competition and oligopoly) on the wage premium. We find that the wage premium is higher under oligopoly than under monopolistic competition. Our findings are supported by empirical evidence from Chilean manufacturers.
David S. Evans, Global Economics Group, Howard H. Chang, Global Economics Group, LLC, and Steven Joyce, Global Economics Group, LLC ask What Caused the Smartphone Revolution?
ABSTRACT: This paper examines the contribution of 3G and 4G cellular technologies to the smartphone revolution. It relies on quasi-natural experiments in which these technologies were launched at different times and deployed at different rates across countries while the availability of handsets, operating systems, and apps were similar. Using panel data regressions, we find that average smartphone connections per capita would have been at least 68 percent lower if the countries only had 2G cellular networks and average cellular data use would have been at least 41 percent lower if the countries had 3G coverage but did not have 4G coverage as of 2017. For the US, much of the adoption and online use of smartphones would not have occurred in the absence of 3G and 4G, leading to a substantial loss of consumer surplus. Other evidence indicates that Wi-Fi networks were not sufficient for the widespread adoption of smartphones, app development, or increased use of apps by consumers and that the development of major apps was an endogenous response to the deployment of advanced cellular technologies.
Itai Ater, Tel Aviv University - Coller School of Management and Oren Rigbi, Ben-Gurion University of the Negev study Price Transparency, Media and Informative Advertising.
ABSTRACT: We study the effects of a regulation passed in Israel that required supermarket chains to make the prices of all items sold in their brick-and-mortar stores publicly available online. Using a differences-in-differences research design and multiple complementary control groups, we show that prices have declined by 4% to 5% after the regulation. Price dispersion has also dropped as chains have begun setting identical prices across their stores. To uncover the underlying mechanisms, we test predictions from Robert and Stahl (1993). Consistent with their model, in the post-transparency period: (1) media outlets used freely available price information to conduct extensive price-comparison surveys; (2) hard-discount chains took advantage of the favorable media coverage they received by explicitly mentioning these surveys in their ads; (3) the use of media-based ads increased when prices declined; (4) consumers visited the price-comparison websites infrequently. Our findings highlight the importance of the media in facilitating informative advertising, and the pro-competitive role of advertising.
Diego Aparicio, Massachusetts Institute of Technology (MIT), Department of Economics and Alberto Cavallo, Massachusetts Institute of Technology (MIT) - Sloan School of Management identify Targeted Price Controls on Supermarket Products.
ABSTRACT: We study the impact of targeted price controls on supermarket products in Argentina between 2007 and 2015. Using web-scraping methods, we collected daily prices for controlled and non-controlled goods and examined the differential effects of the policy on inflation, product availability, entry and exit, and price dispersion. We first show that price controls have only a small and temporary effect on inflation that reverses itself as soon as the controls are lifted. Second, contrary to common beliefs, we find that controlled goods are consistently available for sale. Third, firms compensate for price controls by introducing new product varieties at higher prices, thereby increasing price dispersion within narrow categories. Overall, our results show that targeted price controls are just as ineffective as more traditional forms of price controls in reducing aggregate inflation.
Tuesday, October 29, 2019
John M. Connor, Purdue University; American Antitrust Institute (AAI) addresses Twilight of Prosecutions of the Global Auto-Parts Cartels.
ABSTRACT: The Auto-Parts Supercartel comprises 70 to 80 interconnected, international, automotive inputs, bid-rigging schemes discovered during 2008 to 2017. Almost half of the convicted companies were Japan-based parent firms or their subsidiaries. The connections among the cartels are provided by overlapping corporate memberships and by the targets of collusion, 17 Original Equipment Manufacturers (OEMs) of automotive vehicles.
Experienced antitrust officials have asserted that the Supercartel is the largest constellation of cartels ever tackled by the world’s antitrust authorities. The truth is that “it depends.” In terms of the number of firms and individuals convicted, it is indeed the biggest; measured by affected sales and monetary penalties, it appears to be a close second.
The origin of these cartels is rather mysterious. Most cartels are formed after a sustained period on falling prices and profits, but not Auto-Parts. Outside of East Asia, auto manufacturers have long placed strong pressures on their suppliers to reduce prices of their inputs through competitive bidding. In Japan, customary OEM loyalty to suppliers began to break down in 1999, and the great majority of the cartels were launched during 1999-2006. Did the assemblers push too hard on price reductions in the early 2000s, and thereby trigger supplier collusion to cope with an existential threat?
At last count 18 jurisdictions vigorously prosecuted this supercartel, which demonstrated exceptional duration, global reach, size, and injuriousness. Estimates for affected commerce of the Auto-Parts supercartel range from $3.2 to $5.0 trillion. There are few reliable estimates of overcharges, but averaging the few preliminary estimates suggests that injuries are in the range of $0.6 to $1 trillion.
Antitrust enforcement aimed at this supercartel is nearly complete as of early 2019. Canada has definitely closed all Auto-Parts cases. In the United States, because of the U.S. five-year statute of limitations, the DOJ’s investigations of auto-parts cartels began winding down in late 2015. Corporate indictments elsewhere appear to be over. Although it is possible that the DOJ may nab a couple of the 60 Auto-Parts fugitives and seek their extradition, further convictions of individuals in the United States are unlikely. The status of several mature EC investigations suggest that most have been closed. Brazil and Mexico still have 20-plus investigations open in 2019.
On the one hand, more than $20 billion in penalties has been imposed on nearly 300 corporate cartelists. About half of those penalties was extracted through private damages suits, which is high by historical standards. Nevertheless, the severity and deterrence power of corporate penalties are notably weak. Even if monetary penalties rise well above the current $20 billion total, deterrence of collusion is highly unlikely. On the other hand, indictments and sentencing of hundreds of individuals in the automotive industries may have lingering lessons for would-be cartel managers.
John Newman, U Miami discusses Reactionary Antitrust.
ABSTRACT: Antitrust is undergoing a renaissance. New voices have emerged. Issues long considered settled have been opened for re-examination. Lively debate has prompted antitrust stakeholders to re-evaluate familiar concepts like “consumer welfare.” Some have welcomed this opportunity for self-reflection. But others have responded with baseless attacks, fallacious criticisms, and a stubborn refusal to engage with progressives, whom they have labeled “Hipster Antitrust.”
What has been lacking thus far is an equivalent label for the anti-progressive end of the ideological spectrum. This essay proposes “Reactionary Antitrust.” Reactionary Antitrust is a grouping of flawed arguments designed to stifle debate, rather than truly engage in it. As this essay explains, Reactionary Antitrust employs a variety of rhetorical tactics. Examples include disparaging progressives as “political” and “populist,” erecting impossible burdens of proof as barriers to reform, attacking straw-man versions of actual arguments, and ignoring the most important internal critiques of the consumer-welfare framework. This essay urges an end to Reactionary Antitrust. Instead of seeking to bury the new critical movement, antitrust should welcome it.
David S. Evans, Global Economics Group discusses Deterring Bad Behavior on Digital Platforms.
ABSTRACT: This paper is about the regulation of bad behavior by participants on digital platforms. It shows that these platforms have private incentives to limit this bad behavior and, in fact, have rules, monitoring, and enforcement systems to do so. However, these private incentives may not provide motivation to limit harmful behavior enough. That may require the government to enhance public regulation of the perpetrators and better align the platform’s private incentives to engage in regulation with public incentives to do so. The paper uses the economic theory of the regulation of negative externalities to examine these issues and provide general guidance for devising interventions. It identifies issues that policymakers should consider in determining the optimal regulation of bad behavior on digital and applies these to current discussions over the regulation of speech, privacy, and copyright. Finally, it shows that these negative externalities, and governance systems to address them, also raise important issues for antitrust policy.
Monday, October 28, 2019
Thomas L. Greaney, UC Hastings College of the Law is Navigating the Backwater: Vertical Mergers in Health Care.
ABSTRACT: Antitrust enforcers are taking a second look at vertical mergers as a large body of theoretical and empirical work has undermined the economic foundations of the laissez-faire approach that has characterized government policies over the last thirty years. Health care markets, which exhibit many of the key pre-conditions for harm from vertical mergers, are experiencing rapid consolidation. This essay suggests that continued forbearance will result in consumer harm and close attention should be paid to vertical combinations involving the providers, payors and middlemen.
John E. Kwoka, Jr., Northeastern University - Department of Economics and Margaret Slade, University of British Columbia (UBC) offer Second Thoughts on Double Marginalization.
ABSTRACT: A longstanding economic proposition predicts that vertical integration between companies with market power can benefit both consumers and firms by eliminating the “double marginalization” that characterizes pricing by the firms separately. Too often, however, this proposition is cited without sufficient attention to its underlying assumptions, leading to the possibility of its misuse in antitrust and regulatory proceedings involving vertical integration. This note outlines the strong assumptions of the basic model, explains how the conclusions differ when those assumptions do not hold, and analyzes certain unique settings that require special analysis. It cautions that policy should pay closer attention to traditional supply and organization efficiencies of vertical integration rather than the double marginalization scenario.
David Bounie, Telecom ParisTech, Antoine Dubus, Telecom ParisTech, and Patrick Waelbroeck, Telecom ParisTech identify Data Intermediaries and Selling Mechanisms for Customized Consumer Information.
ABSTRACT: We investigate the strategies of a data intermediary selling customized consumer information to firms for price discrimination purpose. We analyze how the mechanism through which the data intermediary sells information influences how much consumer data he will collect and sell to firms, and how it impacts consumer surplus. We consider three selling mechanisms tailored to sell customized consumer information: take it or leave it offers, sequential bargaining, and simultaneous offers. We show that the more data the intermediary collects, the lower consumer surplus. Consumer data collection is minimized, and consumer surplus maximized under the take it or leave it mechanism, which is the least profitable mechanism for the intermediary. We argue that selling mechanisms can be used as a regulatory tool by data protection agencies and competition authorities to limit consumer information collection and increase consumer surplus.
Sunday, October 27, 2019
Friday, October 25, 2019
Sudipto Dasgupta, Lancaster University and Alminas Zaldokas, Hong Kong University of Science & Technology (HKUST) - Department of Finance have written on Anticollusion Enforcement: Justice for Consumers and Equity for Firms. Worth downloading!
ABSTRACT: We consider the case of changing competition that comes from stronger antitrust enforcement around the world to show that, as the equilibrium switches from collusion to oligopolistic competition, firms step up investment and increase equity issuance. As a result, debt ratios fall. These results imply the importance of financial flexibility in surviving competitive threats. Our identification relies on a difference-in-differences estimation based on the staggered passage of leniency programs in 63 countries around the world from 1990 to 2012.
Thomas Philippon provides thoughts On Fintech and Financial Inclusion.
ABSTRACT: The cost of financial intermediation has declined in recent years thanks to technological progress and increased competition. I document this fact and I analyze two features of new financial technologies that have stirred controversy: returns to scale, and the use of big data and machine learning. I argue that the nature of fixed versus variable costs in robo-advising is likely to democratize access to financial services. Big data is likely to reduce the impact of negative prejudice in the credit market but it could reduce the effectiveness of existing policies aimed at protecting minorities.
René M. Stulz addresses FinTech, BigTech, and the Future of Banks.
ABSTRACT: Banks are unique in that they combine the production of liquid claims with loans. They can replicate most of what FinTech firms can do, but FinTech firms benefit from an uneven playing field in that they are less regulated than banks. The uneven playing field enables non-bank FinTech firms to challenge banks for specific products whose success is not tied to what makes banks unique, but they cannot replace banks as such. In contrast, BigTech firms have unique advantages that banks cannot easily replicate and therefore present a much stronger challenge to established banks in consumer finance and loans to small firms. Both Fintech and BigTech are contributing to a secular trend of banks losing their comparative advantage as they have less access to unique information about parties seeking credit.
Thursday, October 24, 2019
Jorge L. Contreras, University of Utah - S.J. Quinney College of Law is Understanding 'Balance' Requirements for Standards Development Organizations.
ABSTRACT: Most technical standards-development organizations (SDOs) have adopted internal policies embodying “due process” criteria such openness, balance of interest, consensus decision making and appeals. Yet these criteria lack a generally-accepted definition and the manner in which they are implemented varies among SDOs. Recently, there has been a renewed interest in the principle that SDOs should ensure a balance of interests among their stakeholders. This article explores the origins and meaning of the balance requirement for SDOs. In doing so, it identifies four “tiers” of balance requirements, ranging from those required of all SDOs under applicable antitrust law, to those required of SDOs that wish to benefit from particular statutory and accreditation schemes, to those that are purely voluntary. Beyond first tier balance requirements, which prohibit anticompetitive attempts to skew decision making processes within an SDO, the imposition of greater degrees of balance among SDO stakeholders, whether through numerical quotas or affirmative participant recruitment efforts, are largely voluntary and dependent on an SDO’s policy preferences.
Competition, Asymmetric Information, and the Annuity Puzzle: Evidence from a Government-Run Exchange in Chile
|By:||Gaston Illanes; Manisha Padi|
|Abstract:||Purchasing an annuity insures an individual against the risk of outliving their money, by promising a steady stream of income until death. The value of annuities is high in theory, but in practice annuity markets tend to function poorly, with low annuitization rates and high markups. Chile provides an interesting counterexample to this phenomenon, as over 60 percent of eligible retirees purchase annuities from the private market and observed markups are low. This paper shows that Chilean Social Security policy promotes private annuitization, in contrast to U.S. Social Security policy. To study this effect, we build a lifecycle consumption-savings model and show through calibrations that the Chilean setting is likely to have lower welfare loss from adverse selection and is more robust to markets unraveling than the U.S. We then use a novel administrative dataset on all annuity offers made to Chilean retirees between 2004 and 2013 to estimate a flexible demand system built on top of the consumption-savings model. The model estimates allow us to simulate how the Chilean equilibrium would shift under alternative regulatory regimes. We find that reforming the Chilean system to more closely resemble the U.S. Social Security system would likely make the annuity market fully unravel. This result highlights the impact of the rules governing how retirees can access their pension balances on the annuity market equilibrium.|