Monday, July 20, 2020

Rockets and Feathers Revisited: Asymmetric Retail Fuel Pricing in the Era of Market Transparency

Rockets and Feathers Revisited: Asymmetric Retail Fuel Pricing in the Era of Market Transparency

By:

Emmanuel Asane-Otoo (University of Oldenburg, Department of Economics); Bernhard Dannemann (University of Oldenburg, Department of Economics)

Abstract:

In this paper, we revisit the empirical observation that prices rise like rockets when input costs increase but fall like feathers when input costs decrease. The analysis draws on a novel dataset that include daily retail prices of gasoline and diesel from virtually all fuel stations in Germany over the period from January 1, 2014 to December 31, 2018. Our findings from the national, state-specific and station-level analyses based on an asymmetric error correction model indicate that asymmetric pricing is the norm rather than exception. Specifically, we find empirical evidence that points to a pervasive rockets-and-feathers pattern. We also find that asymmetric pricing in the German retail fuel market might partly be the consequence of tacit collusion among competitors as well as disparate search intensity on the part of consumers. We further show that temporal aggregation of station-level price data might lead to inaccurate inferences and could account for the contradictory findings in the extant literature.

URL:

http://d.repec.org/n?u=RePEc:old:dpaper:426&r=com

July 20, 2020 | Permalink | Comments (0)

The Specialness of Zero

The Specialness of Zero

By:

Joshua S. Gans

Abstract:

A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:26485&r=com

July 20, 2020 | Permalink | Comments (0)

The Effect of Horizontal Mergers on Efficiency and Market Power: An Application to the Argentine Hamburger Market

The Effect of Horizontal Mergers on Efficiency and Market Power: An Application to the Argentine Hamburger Market

By:

Germán Coloma

Abstract:

This paper analyzes the behavior of the Argentine hamburger market during the period 2013-2018, to see if an important merger that occurred by the end of 2015 (the BRF/MRP merger) had any discernable market-power or efficiency effects. To do this, we run an econometric demand-and-supply model, and we find that there is an appreciable cost reduction that more than counterbalances the price increases induced by the merger. This implies that total consumers’ surplus may have grown as a consequence of the merger.

URL:

http://d.repec.org/n?u=RePEc:cem:doctra:705&r=com

July 20, 2020 | Permalink | Comments (0)

The Effect of Leniency Rule on Cartel Formation and Stability: Experiments with Open Communication

The Effect of Leniency Rule on Cartel Formation and Stability: Experiments with Open Communication

By:

Maximilian Andres; Lisa Bruttel; Jana Friedrichsen

Abstract:

Cartels can severely harm social welfare. Competition authorities introduced leniency rules to destabilize existing cartels and hinder the formation of new ones. Empirically, it is difficult to judge the success of these measures because functioning cartels are unobservable. Existing experimental studies confirm that a leniency rule indeed reduces cartelization. We extend these studies by having a participant in the role of the competition authority actively participating in the experiment. Based on chat communication content and price setting behavior, this authority judges whether firms formed a cartel and decides on fines in real time. We find that a leniency rule does not affect cartelization in this setup.

URL:

http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1835&r=com

July 20, 2020 | Permalink | Comments (0)

Friday, July 17, 2020

Hospital Competition Under Patient Inertia: Do Switching Costs Stimulate Quality Provision?

Hospital Competition Under Patient Inertia: Do Switching Costs Stimulate Quality Provision?

By:

Luís Sá (NIPE and Department of Economics, University of Minho)

Abstract:

Recent empirical evidence establishes previous use as a strong predictor of patient choice of hospital and indicates that switching costs explain a significant share of inertia in the hospital industry. In a model of competition between two semi-altruistic and horizontally differentiated hospitals with inherited demand, I investigate the effect of lower switching costs on quality provision and show that it depends on the hospitals' production technology and degree of altruism. If cost substitutability (complementarity) between quality and output is sufficiently weak (strong) relative to altruism, lower switching costs reduce quality at the high-volume hospital, average quality, and patient welfare. While milder patient preferences increase the scope for an increase in quality at both hospitals, it can only occur if hospitals are semi-altruistic. Finally, I show that the distribution of patients between hospitals matters. Even if hospital-level quality and patient welfare increase, lower switching costs may lead to lower average quality.

URL:

http://d.repec.org/n?u=RePEc:nip:nipewp:16/2019&r=com

July 17, 2020 | Permalink | Comments (0)

The Surprising Hybrid Pedigree of Measures of Diversity and Economic Concentration

The Surprising Hybrid Pedigree of Measures of Diversity and Economic Concentration

By:

Paolo M. Adajar; Ernst R. Berndt; Rena M. Conti

Abstract:

Measures of economic concentration, such as the k-firm concentration index and the Hirschman-Herfindahl Index (HHI) are commonly used to ascertain the competitiveness of a product market. Within a Cournot model industry equilibrium, it is known a relationship exists between the HHI and the gap between industry price and marginal cost, but the economic theory foundations and intuition underlying the HHI formula are seemingly arbitrary. Here we document that there are indeed powerful and intuitive theoretical foundations to the HHI, but those foundations emanate from outside economics, namely, ecology, where the HHI is known as Simpson’s Diversity Index. We discuss the origins of the HHI and Simpson’s Diversity Index, summarize other measures of concentration, and link them to common measures of inequality. Based on a priori reasoning, we conclude there is little on which to base a choice between the HHI and non-HHI measures of market concentration. We empirically illustrate the implementation of the HHI and other concentration indexes as the statin drug LipitorTM lost patent protection and faced generic competition in 2012; we find very similar empirical trends and high correlations among them. Our research provides support for the continued use of HHI as a measure of concentration, provided one recognizes its link to market power is equivocal.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:26512&r=com

July 17, 2020 | Permalink | Comments (0)

Countervailing Market Power and Hospital Competition

Countervailing Market Power and Hospital Competition

Eric BarretteGautam GowrisankaranRobert Town

NBER Working Paper No. 27005
Issued in April 2020
NBER Program(s):Health CareIndustrial Organization

While economic theories indicate that monopsony power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque about whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the healthcare sector to evaluate whether insurer monopsony power does indeed limit hospitals' exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration.

July 17, 2020 | Permalink | Comments (0)

Thursday, July 16, 2020

Competition Laws, Norms and Corporate Social Responsibility

Competition Laws, Norms and Corporate Social Responsibility

Wenzhi DingRoss LevineChen LinWensi Xie

NBER Working Paper No. 27493
Issued in July 2020
NBER Program(s):Corporate FinanceEnvironment and Energy EconomicsIndustrial Organization

Theory offers differing perspectives and predictions about the impact of product market competition on corporate social responsibility (CSR). Using firm-level data on CSR from 2002 through 2015 and panel data on competition laws in 48 countries, we discover that intensifying competition induces firms to increase CSR activities. Analyses indicate that (a) intensifying competition spurs firms to invest more in CSR as a strategy for strengthening relationships with workers, suppliers, and customers and (b) the competition-CSR effect is stronger in economies where social norms prioritize CSR-type activities, e.g., treating others fairly, satisfying implicit agreements, protecting the environment, etc.

July 16, 2020 | Permalink | Comments (0)

Competition and Quality: Evidence from High-Speed Railways and Airlines

Competition and Quality: Evidence from High-Speed Railways and Airlines

Hanming FangLong WangYang Yang

NBER Working Paper No. 27475
Issued in July 2020
NBER Program(s):Development EconomicsIndustrial OrganizationPublic EconomicsProductivity, Innovation, and Entrepreneurship

The entry of High-Speed Railways (HSR) represents a disruptive competition to airlines, particularly for short- to medium-distance journeys. Utilizing a unique dataset that contains the details of all flights departing from Beijing to 113 domestic destinations in China since January 2009, we employ a difference-in-differences approach to examine the effects of HSR entry on the quality of service provided by airlines as proxied by their on-time performance, and to identify the channels through which competition leads to quality improvement. We document two main findings. First, the competition from the entry of HSR leads to significant reductions in the mean and variance of travel delays on the affected airline routes. Second, the reductions in departure delays--which are controlled mostly by airlines, and the duration of taxi-in time--which are controlled mostly by destination airports, are identified as the main sources of the improvement in the airlines' on-time performance.

July 16, 2020 | Permalink | Comments (0)

A reform too few or a reform too many: Judicial review, appeals or a prosecutorial system under the UK Competition Act 1998? 

This article discusses the Competition and Markets Authority’s (CMA) proposals to lower the standard of review of certain antitrust decisions in the Competition Appeal Tribunal (CAT) from a merits appeal to judicial review principles or some other limited basis, while retaining the CAT’s ‘full jurisdiction’ over fines, and to amend the CAT’s rules of procedure to restrict the admissibility of new evidence on appeal and the use of oral testimony. The argument developed in this article is that such proposals are: (i) in conflict with the constitutional principle of the rule of law; (ii) incompatible with the Human Rights Act 1998 (HRA98); (iii) a step back even from the often criticized standard of review applied by the Union Courts in respect of European Commission’s decisions; (iv) inappropriate as a matter of policy. If the current regime needs improving to reduce the cost and length of the proceedings, then three options should be considered: (i) moving from a merits appeal to a merits review (Option 1); (ii) strengthening the independence of the decision-making panel within the CMA (Option 2), while lowering the standard of review to judicial review principles; (iii) establishing a prosecutorial model (Option 3). Option 3 is the most radical but should be given serious consideration as it is likely to be the best suited to achieving the policy objective of reducing the cost and length of competition proceedings while at the same time retaining rigorous scrutiny of the facts and economic evidence, which is key to ensuring not only the fairness, and therefore the legitimacy, of the system, but also its effectiveness.

July 16, 2020 | Permalink | Comments (0)

Biden-Sanders Unity Task Force Recommendations Abandon Consumer Welfare Standard

I was reading the Biden-Sanders unity task force recommendation this morning and almost fell out of my chair when I got to the part about antitrust.  Quite explicitly, it calls for the abandonment of the consumer welfare standard that has guided antitrust for a generation.  I can think of nine Justices who think differently but that is a different matter.  I also note a change in emphasis - antitrust officials are now called "regulators" rather than "enforcers".  This too is a change as to what antitrust is supposed to do as regulation is far more about ex ante restrictions and control than enforcement.  

From the recommendation:

Antitrust: Charge antitrust regulators with systematically incorporating broader criteria into their analytical considerations, including in particular the impact of corporate consolidation on the labor market, underserved communities, and racial equity.

 

I lament that moderation in antitrust, as in other fields and in political discourse more generally, seems to be disappearing. In 2015, antitrust's goal was shared by all except fringes on the left and right.  I became a citizen of the United States in 1994.  Other than my wedding (technically two weddings as the civil and religious ceremonies were not held on the same day) and the birth of my children, my becoming a citizen is the proudest and happiest day of my life.  In 1994, I was active in the College Democrats of America and was happy about how Bill Clinton had moved the Democratic Party to a more center left and inclusive party than what it had been.  Today the populists of the right want to dismantle trade, fear technology, and believe in government intervention except when they don't.  The the populists of the left behave the same way. Discussion and collaboration has been replaced by name calling, poorly thought through take it or leave it demands, and anger (sometimes outright hatred) on both sides.  I think that we all can do better. 

July 16, 2020 | Permalink | Comments (2)

The Size of the Crypto Economy: Calculating Market Shares of Cryptoassets, Exchanges and Mining Pools

Cryptoassets and related actors such as crypto exchanges and mining pools are now fully integrated into mainstream economic activity. A necessary corollary is that they have attracted heightened regulatory and investor scrutiny. Although some rules and obligations apply uniformly across all economic actors in a given sector, many others, such as antitrust laws and some financial regulations as well as investor decisions are informed by actors’ relative economic size—meaning that those with larger market shares can become more attractive regulatory or investing targets. It is therefore a foundational issue to properly measure the economic footprint of economic actors in the crypto economy, for otherwise regulatory oversight and investor decisions risk being misled. This has proven a remarkably difficult exercise for multiple reasons including unfamiliarity with the underlying technology and role of involved actors, lack of understanding of the applicable metrics’ economic significance, and the unreliability of self-reported statistics, partly enabled by lack of regulation. Acknowledging the centrality of cryptoasset size in a number of regulatory and policymaking areas and the fact that previous attempts have been incomplete, simplistic, or even plainly wrong, this paper presents the first systematic examination of the economic footprint of cryptoassets and their constituent actors—mining pools and crypto exchanges. We aim to achieve a number of objectives: to introduce, identify, and organize all relevant and meaningful metrics of crypto economic actors market share calculation; to develop associations between metrics, and to explain their meaning, application, and limitations so that it becomes obvious in which context metrics can be useful or not, and what the potential caveats are; and to present rich, curated, and vetted data to illustrate metrics and their use in measuring the shares of crypto economic actors in their respective markets. The result is a comprehensive guidance into the size of the crypto economy.

July 16, 2020 | Permalink | Comments (0)

Wednesday, July 15, 2020

No Alarms and Many Surprises: Salience as a Basis For Excessive Pricing Intervention in an Antitrust Context

No Alarms and Many Surprises: Salience as a Basis For Excessive Pricing Intervention in an Antitrust Context

Journal of Competition Law & Economics, nhaa017, https://doi.org/10.1093/joclec/nhaa017
 

Abstract

This article explores how consumers’ bounded rationality can justify antitrust intervention when a firm becomes a monopoly and exploits a product attribute that was not policed by market forces when there was competition for the market. Behavioral economics predicts product complexity leads consumer demand to be a function of salient costs and benefits rather than of actual costs and benefits of products. The divergence between the former and the latter hinders and distorts competition. In fact, comparison shopping is costlier, and sellers can backload part of their prices to nonsalient product attributes. Consumers perceive only a distorted lower price by focusing on salient product features, which leaves room for inefficient matching and opportunistic behavior given the risk of ex post exploitation. These are behavioral limits of competition. In this work, I argue that when (i) there is a lock-in problem, (ii) consumers do not control the probability of triggering a hidden price, and (iii) a typical consumer could not have reasonably expected to find such a hidden price, antitrust intervention would not only deter ex post exploitation but would also enhance competition on the real price of goods. Antitrust would correct a behavioral market failure.

July 15, 2020 | Permalink | Comments (0)

On Equilibrium in Monopolistic Competition with Endogenous Labor

On Equilibrium in Monopolistic Competition with Endogenous Labor

Alexey Kushnir

Carnegie Mellon University - David A. Tepper School of Busines

Alexander Tarasov

National Research University Higher School of Economics

Robertas Zubrickas

University of Bath

Abstract

We consider a model of monopolistic competition with several heterogeneous sectors and endogenous labor supply. For low (high) values of the labor supply elasticity, we show that there is always a unique equilibrium. For medium values of the labor supply elasticity, the set of equilibria (if non-empty) can comprise of several equilibria, with the number of equilibria bounded by the number of sectors.

July 15, 2020 | Permalink | Comments (0)

Endogenous Quality Investments in the U.S. Hospital Market

Endogenous Quality Investments in the U.S. Hospital Market

Craig GarthwaiteChristopher OdyAmanda Starc

NBER Working Paper No. 27440
Issued in June 2020
NBER Program(s):Health CareIndustrial Organization

High and increasing hospital prices have led to calls for price regulation. If prices are high because of consolidation, regulating prices could enhance welfare. However, high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. If so, regulating prices could reduce quality. We present a model of strategic quality choice where hospitals make quality investments to increase private revenue. We confirm the model's predictions across numerous quality measures including patient satisfaction, hospital processes, risk adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times.

July 15, 2020 | Permalink | Comments (0)

Measuring the Antitrust Revolution

Measuring the Antitrust Revolution

D. Daniel Sokol

University of Florida Levin College of Law

Sara Bensley

University of Florida Levin College of Law

Maia Crook

University of Florida - University of Florida, Students

Date Written: June 6, 2020

Abstract

Though antitrust always evolved with the economics of its time, economic analysis was not central to the antitrust enterprise until Continental T.V. Inc. v. GTE Sylvania. In doing so, the Court abandoned the multiple goals of the prior era to embrace a singular economic goal. With a singular goal, antitrust had become revolutionary. How to measure the antitrust revolution has been difficult. In this article, we focus on published caselaw, which provides a broad set of observations that includes government enforcement actions and private antitrust suits. We use the Caselaw Access Project (“CAP”) database and its associated “Historical Trends” tool to track the usage of certain words and phrases in judicial opinions. This article is the first to measure antitrust terms in court cases that combines big data with data visualization techniques to better understand, based on usage of common antitrust terms, the impact economics has had on decided cases.

July 15, 2020 | Permalink | Comments (0)

Tuesday, July 14, 2020

On Equilibrium in Monopolistic Competition with Endogenous Labor

On Equilibrium in Monopolistic Competition with Endogenous Labor

Alexey Kushnir

Carnegie Mellon University - David A. Tepper School of Business

Alexander Tarasov

National Research University Higher School of Economics

Robertas Zubrickas

University of Bath

Abstract

We consider a model of monopolistic competition with several heterogeneous sectors and endogenous labor supply. For low (high) values of the labor supply elasticity, we show that there is always a unique equilibrium. For medium values of the labor supply elasticity, the set of equilibria (if non-empty) can comprise of several equilibria, with the number of equilibria bounded by the number of sectors.

July 14, 2020 | Permalink | Comments (0)

Platform Mergers: Lessons from a Case in the Digital TV Market

Platform Mergers: Lessons from a Case in the Digital TV Market

Marc Ivaldi

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Jiekai Zhang

Hanken School of Economics; Helsinki Graduate School of Economics

ABSTRACT: This paper contributes to the analysis of mergers in two-sided markets, notably those in which a platform provides its service for free on one side but obtains all its revenues from the other, as in the digital TV industry. Specifically, we assess a decision of the French competition authority which approved the merger of the broadcasting services of the TV channels involved but imposed a behavioral remedy prohibiting the merger of their respective advertising sales services. To do so, we build a structural model allowing for multi-homing of advertisers and, using a comprehensive dataset, we estimate the demand of viewers and advertisers. Our evaluation provides evidence that the remedy has been ineffective at limiting the increase in prices and amounts of advertising, due to the cross-side externalities between viewers and advertisers. Without resulting in significant positive effects on the viewers' surplus, the remedy has also drastically increased the advertisers' total cost. Nevertheless, the remedy has benefited the competitors of the merging channels. The main lesson of our analysis is that, in the process of designing competition or regulatory policy for two-sided markets, ignoring the interaction between the two sides of platforms can result in unexpected outcomes.

July 14, 2020 | Permalink | Comments (0)

Horizontal Cooperation on Investment: Evidence From Mobile Network Sharing

Anca Cojoc

Marc Ivaldi

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Frank P. Maier-Rigaud

IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; NERA Economic Consulting

Oliver März

NERA Economic Consulting, Berlin

Abstract

We present a structural model to investigate the effects of horizontal cooperation on investment in the context of telecommunication networks. More specifically, we estimate the effect of network sharing in the mobile telecommunications industry on prices, network quality and consumer welfare. The presented framework allows estimating the effects of different types of sharing agreements including common ownership of shared assets in a joint venture company or collaboration via geographical separation (geo-split principle). The proposed identification strategy relies on differences in the costs of network deployment of shared versus non-shared network infrastructure, with different costs affecting operators’ optimal choice of price and network quality. We apply the structural model to estimate the effects of a network sharing agreement in the Czech Republic, using a combination of unique datasets on prices, network quality measured as average download speed and operator’s costs of network deployment. The results of our model indicate that horizontal cooperation on investments may be beneficial for consumers. Specifically, the network sharing agreement under study generated cost savings for the sharing parties, which were passed-on to consumers in the form of lower prices and higher average download speed. Our findings are of relevance to the assessment of network sharing agreements, which, considering the substantial investment cost associated with the 5G technology, are likely to play an even greater role in the telecommunications industry in the future. The findings are also of relevance to the general literature on horizontal cooperation on investments.

July 14, 2020 | Permalink | Comments (0)

Monday, July 13, 2020

Changing the Rules of the Game Ex-post: SDO Governance and Why It Matters

Changing the Rules of the Game Ex-post: SDO Governance and Why It Matters

Kirti Gupta

Qualcomm, Inc.

Abstract

For many years, technical standards development has been a little-understood but critical step in producing the mobile technology crucial to everyday life. Developing new technologies and reaching consensus for their inclusion in international technical standards is no easy task; the standards development process can require hundreds of thousands of engineering person-hours in meetings alone (and multiple times this effort in R&D leading to those meetings), where typically the best technology is selected by consensus or majority votes. Typically, development of technical standards proceeds under principles of openness, transparency, balance, due process, and consensus-based decision-making. These principles promote competition by ensuring participation by a broad range of interested stakeholders in a process that takes into account the “views of all parties concerned” and seeks “to reconcile any conflicting arguments.” However, not all areas of standards development are as well-protected against bias; as has recently come to light, one of the areas least protected by safeguards is standards development organization (SDO) governance and, in particular, SDO intellectual property rights (IPR) policies. The goal of this paper is to examine the role governance rules played in the unbalanced policy changes that were adopted by certain SDOs while rejected by others during the same time period. Adopting good governance practice across all SDOs can avoid any interest groups changing the rules of the game ex-post -- after investment in the development of technologies and standards have been made, thus ensuring better success of the standards themselves.

July 13, 2020 | Permalink | Comments (0)