Wednesday, March 18, 2020
Collusive Investments in Technological Compatibility: Lessons from U.S. Railroads in the Late 19th Century
|By:||Daniel P. Gross|
|Abstract:||Collusion is widely condemned for its negative effects on consumer welfare and market efficiency. In this paper, I show that collusion may also in some cases facilitate the creation of unexpected new sources of value. I bring this possibility into focus through the lens of a historical episode from the 19th century, when colluding railroads in the U.S. South converted 13,000 miles of railroad track to standard gauge over the course of two days in 1886, integrating the South into the national transportation network. Route-level freight traffic data reveal that the gauge change caused a large shift in market share from steamships to railroads, but did not affect total shipments or prices on these routes. Guided by these results, I develop a model of compatibility choice in a collusive market and argue that collusion may have enabled the gauge change to take place as it did, while also tempering the effects on prices and total shipments.|
|By:||Michele Bisceglia (Toulouse School of Economics and Università di Bergamo); Jorge Padilla (Compass Lexecon); Salvatore Piccolo (Università di Bergamo, Compass Lexecon and CSEF)|
|Abstract:||We consider a three-level supply chain where a monopolistic seller distributes its product both directly through its own distribution channel and indirectly through platforms accessed by intermediaries competing for final consumers. In this setting, we examine the welfare effects of platform parity agreements, namely contractual provisions according to which the seller cannot charge different prices for the same product distributed through different platforms. We find that these agreements mitigate the marginalization problem both in a wholesale and an agency model. However, only in the former model platform parity unambiguously increases consumer surplus; in the latter, it also increases the commissions paid by the monopolist to the platforms, whereby exacerbating the marginalization problem. On the net, platform parity benefits consumers in the agency model when competition between direct and indirect distribution is sufficiently intense. Interestingly, in both models consumers' preferences are always aligned with the platforms' but not with the seller's.|
Tuesday, March 17, 2020
Deputy Assistant Attorney General Michael Murray of the Antitrust Division Delivers Remarks to the New York State Bar Association March Meeting New York, NY ~ Tuesday, March 17, 2020
A stochastic frontier analysis approach for estimating market power in the major U.S. meat export markets
|By:||Panagiotou, Dimitrios; Stavrakoudis, Athanassios|
|Abstract:||The present study estimates the degree of market power in the major U.S. beef and pork export destinations. The recently developed stochastic frontier (SF) estimator is used. Estimations of market and time specific Lerner indices are provided. Balanced panel data between 1980-2011 were employed. The average Lerner index is 39% for the U.S. beef exports and is the highest in the markets of ASEAN, Hong Kong/China, Japan, South Korea and Taiwan. For the U.S. pork exports, the average Lerner index is 16% and is the highest in the markets of Mexico and Taiwan.|
New Release: Richard Whish Liber Amicorum: Taking Competition Law Outside the Box
This Liber Amicorum highlights the global reach of Professor Whish’s influence. Enforcers, academics and practitioners from around the world pay tribute to the mastery of competition law that Professor Whish embodies, and has shared with students with trademark erudition and enthusiasm. At this important juncture in the history of the EU and the UK, this tribute is a timely compendium of views from both sides. The legendary ‘object box’ is analysed anew, along with enforcement issues. It also includes voices from further afield, discussing recent developments in competition law. The diversity of topics covered is testament to the breadth of Professor Whish’s authority, and illustrates a legal landscape which he has helped shape through clarity and common sense.
It is official - our kids are both scared and bouncing off the walls. We are trying to provide them structure in their lives but it is hard going. They have a sense that things can get very bad, particularly for older people in town, whom they know and love. So far, nobody whom we know has come down with COVID 19 but it is just a matter of time.
My middle daughter has her bat mitzvah in May. We hope it still happens. She is very sad because for a 13 year old, this is devastating. We will watch the movie Sixty Six about the true life story of a bar mitzvah which takes place in London on the day of the 1966 World Cup final based on the true life bar mitzvah of director Paul Weiland. The movie starred Gregg Sulkin and Helena Bonham Carter. This, hopefully, will put things into perspective for her. It could always be worse. In terms of the bat mitzvah, as things stand, my parents would risk their lives if they were to attend so we told them not to come. My daughter cried. We all did.
At the moment, all gatherings of more than 50 people in Gainesville have been banned and all restaurants are moving to takeout only. Bars have been closed, which really means something in a college town. This did not prevent a frat house from having a keg party on Friday with a slip and slide and a big inflatable pool. I am sure that they spread more disease than any other gathering in Gainesville. Things are generally fine for now in some respects. There is food, though some types of food have disappeared from the shelf. Much like what Venezuelans have had to endure for years, there is no toilet paper in supermarkets in Gainesville.
|By:||Sylvain Benoit (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Yannick Lucotte (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans); Sébastien Ringuedé (LEO - Laboratoire d'Economie d'Orléans - Université - CNRS - Centre National de la Recherche Scientifique)|
|Abstract:||Using daily price quotes from about 8,000 French gas stations, this paper empirically analyses whether the level of competition determines the degree of price stickiness on the retail gasoline market. The degree of price rigidity is measured by the frequency of price changes, while the distance to the nearest station and the number of gas stations within a given radius are considered as proxies for local competition. The results confirm that local competition is an important determinant of the price-setting behavior of gas stations. Indeed, considering Ordinary Least Squares (OLS) and spatial regression models, we find that the degree of price rigidity is positively related to the distance to the nearest station, and negatively related to the concentration of firms in a given geographical area. This result can be notably explained by the fact that gas stations facing a high competitive pressure are more likely to adjust their prices more quickly and more frequently in response to crude oil price decreases than stations enjoying market power.|
|By:||Jesus Juan Pablo Atal (University of Pennsylvania); Jose´ Ignacio Cuesta (University of Chicago); Morten Sæthre (Norwegian School of Economics)|
|Abstract:||Quality regulation attempts to ensure quality and to foster price competition by reducing vertical di?erentiation, but may also have unintended consequences through its e?ects on market structure. We study these e?ects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant e?ect on observed outcomes related to drug quality. These adverse e?ects were concentrated among small markets. Our results suggest that the intended e?ects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive e?ects arising from the costs of complying with the regulation.|
|By:||Daron Acemoglu (Massachusetts Institute of Technology); Alireza Tahbaz-Salehi (Northwestern University)|
|Abstract:||This paper develops a theory of firm-level production networks, with firm-specific relationships, endogenous bankruptcies, and market power. Firms in each industry have access to a production technology that uses relationship-specific intermediate inputs produced by their “customized” suppliers, with prices determined via pairwise bargaining between suppliers and customers. Operating the customized technology, however, requires paying fixed costs of entry. Hence, negative shocks can result in a cascade of firm failures in the economy. We establish the existence of an equilibrium and provide comparative static results on how prices, firm failures, and macroeconomic aggregates respond to changes in parameters. We then study how the interplay between firm-level linkages and firm failures shape the propagation of shocks over the economy’s production network. Our theoretical results indicate that understanding network-originated aggregate fluctuations may require moving beyond models of sectoral linkages and focusing on how firm-level interactions can lead to chains of failures.|
Monday, March 16, 2020
|By:||Günter J. Hitsch; Ali Hortaçsu; Xiliang Lin|
|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.|
|By:||Danial Lashkari (Boston College); Arthur Bauer (ENSAE-CREST); Jocelyn Boussard (Banque de France)|
|Abstract:||This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifically helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocations toward low-labor-share firms.|
ABSTRACT: The application of Article 102 of Treaty on the Functioning of the European Union (TFEU) has been of continuous interest for academics, practitioners, and enforcers alike. This interest may be due, in good part, to the central role that the provision plays in ensuring effective competition in the internal market. It is also stimulated by the continuous need to develop and adapt the economic concepts underlying its application to the evolving understanding of how markets operate.
In for a Penny, in for a Pound? Legal Professional Privilege as a Shield Against Disclosure in Private Antitrust Litigation in Europe
ABSTRACT: Trust me, I’m a lawyer. Though more often than not intended as a joke, the phrase does in fact have a serious legal application. Legal professional privilege, in its most basic form, protects the confidentiality of communications between the lawyer and the client by precluding their compelled disclosure in legal proceedings. Under what circumstances it does so in practice can vary dramatically between jurisdictions, and within jurisdictions between criminal, civil and administrative proceedings. It can be a formidable parry in the cut and thrust of evidentiary sparring, ultimately determining whether certain information will be admissible as evidence.
Friday, March 13, 2020
Winand Emons, University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR), and Severin Lehnhard, University of Bern are Rebating Antitrust Fines to Encourage Private Damages Actions.
ABSTRACT: To encourage private actions for damages in antitrust cases some jurisdictions subtract a fraction of the redress from the fine. We analyze the effectiveness of this policy. Such a rebate does not encourage settlement negotiations that would otherwise not occur. If, however, the parties settle without the rebate, the introduction of the reduction increases the settlement amount, yet at the price of reduced deterrence for those wrongdoers who are actually fined. Under a leniency program the rebate has no effect on the leniency applicant: she doesn't pay a fine that can be reduced. The overall effect of a fine reduction on deterrence is, therefore, negative.
Monday’s Patent Masters event, which is free and webcast (no small feat in today’s crazy times), offers 90 minutes with DOJ AAG Makan Delrahim on Antitrust-I.P. interface issues. We therefore thought it may be of interest to I.P. committee members. See here.
Tilman Kuhn, White & Case asks The 15th anniversary of the SIEC test under the EU Merger Regulation – where do we stand?
ABSTRACT (in German): Bei der Verwendung der empirischen Evidenz in ökonomischen Gutachten ergeben sich mitunter gravierende Fehlinterpretationen. So wird mangelnde statistische Signifikanz zuweilen als Evidenz für die Abwesenheit jeglichen Effekts interpretiert oder die statistische Widerlegung eines Nulleffekts als Beleg für eine bestimmte Verstoßeffektshöhe angeführt. Um solchen Fehlinterpretationen vorzubeugen, stellt dieser Aufsatz zunächst die in der gutachterlichen Praxis verwendeten statistischen Konzepte (der Signifikanzniveaus, p-Werte, t-Tests und Konfidenzintervalle) als Variationen des stets gleichen Testverfahrens dar. Sieht man die Ergebnisse aus dieser Perspektive, werden auch die engen Grenzen einer Interpretation offensichtlich und die häufigen Fehlinterpretationen verständlich. Der Aufsatz geht allerdings darüber hinaus und stellt mit dem Konzept der „Severity“ (Schwere der Evidenz) ein einfaches zusätzliches Instrumentarium vor, mit dem die vorhandene Evidenz anschaulich dargestellt werden kann, um damit insbesondere verschiedene mögliche Verstoßeffekte auf ihre Kompatibilität mit der vorhandenen Evidenz hin zu prüfen.
Like many institutions, the University of Florida is now an online university. We have a shock that will have significant implications for the future of higher education. COVID-19 is forcing universities to move more rapidly in their provision of online education. While some classes and programs already have been moved online, faculties across fields typically have been resistant to online teaching. This is especially true in law.
Now that nearly every institution I know of has moved or is moving to online delivery, the battle against online education is lost and long term some aspects of online education will become permanent fixtures at nearly every institution. Faculty will need to adapt their pedagogy to online delivery- both synchronous and asynchronous delivery due to this exogenous shock. This move to online will be particularly disruptive for more senior faculty, particularly those whose last embrace of technology was to move from chalk to dry erase boards. I note a number of very tech savvy colleagues in their 70s but overall technology adoption seems to focus on more junior faculty.
It is a tough time at the moment as we focus on health and safety, in particular for senior faculty. These are faculty who have committed decades of their life to teaching and whose professional identities are tied to traditional education. They are some of my most cherished friends and colleagues in law, economics, and business schools. Many of them are also at higher risk for death from infection. A vaccine is likely 12-18 months away. In recent days, I have spoken to a number of academic colleagues at my institution and other institutions who are 70 and older. For the first time in their lives, these more senior colleagues are rethinking their long term teaching plans and careers. These colleagues understand that when classes begin in the fall and with a lack of vaccine at that time, assuming live classroom instruction, they will be exposing themselves daily to potentially fatal health risk. Some of my friends have spoken to me about potential retirement. It is not an easy decision for them. At this moment of great uncertainty, I hope that we can focus on the positive and appreciate our colleagues and mentors who have given so much of their adult lives to an educational mission.
Now is the time to get in touch with former professors and with more senior colleagues/mentors and let them know how much we appreciate all that they have done in shaping our careers. For those who are thinking about retirement due to a confluence of complex factors, letting them know how much they have meant to us is really important, whatever they decide. This is a tough time emotionally in particular for these faculty and we should be as empathetic as possible.
ABSTRACT: Judgment of 12 December 2019, Case C-435/18 Otis & Others v Land Oberösterreich & Others, EU:C:2019:1069. The European Court of Justice clarifies that an operator not active as a supplier or customer on the market affected by a cartel may request compensation for loss caused by that cartel.
ABSTRACT: The importance of the ‘platform economy’ in China is rising. WeChat (developed and owned by Tencent) affects virtually every aspect of Chinese people’s lives. Indeed, in China, this is one of the most common ways to communicate, make payments, play games, etc. The so-called ‘China tech trinity’, namely Baidu, Alibaba, and Tencent, collectively known as ‘BAT’, is seemingly expanding its businesses in every direction, ranging from retail to fintech.It has even been reported that Mark Zuckerberg plans to emulate WeChat’s business model. It seems that Apple, Google, and Facebook consider that the only way to remain competitive globally is to become some kind of super-platforms.
Thursday, March 12, 2020
Adrian Emch, Hogan Lovells and Lin Xie discuss Chinese Merger Control in the Agriculture Sector.
ABSTRACT: In the 11 years of enforcement of the Anti-Monopoly Law, the Chinese merger control authorities have cleared over 40 transactions subject to remedies. In the agriculture sector, remedies were imposed in two "crop protection" cases (Bayer/Monsanto and Dow Chemical/DuPont), two potash cases (Uralkali/Silvinit and Potash/Agrium), and Marubeni/Gavilon.
This paper analyses these cases, in particular to check how the various analytical steps in the merger review process have played out. Then, the paper examines if agriculture sectoral policies have surfaced in these cases, and how their influence has changed over time.