Thursday, March 25, 2021

Visa Acquiring Plaid: A Tartan Over a Killer Acquisition? Reflections on the Risks of Harming Competition Through the Acquisition of Startups Within Digital Ecosystems

Visa Acquiring Plaid: A Tartan Over a Killer Acquisition? Reflections on the Risks of Harming Competition Through the Acquisition of Startups Within Digital Ecosystems

Frédéric M. Marty

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis; OFCE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Thierry Warin

HEC Montreal; CIRANO

Abstract

The applicability of the notion of killer acquisition to digital platforms has long been debated. The case of the proceedings brought by the U.S. DoJ against Visa is even more interesting insofar as it makes it possible to illustrate and discuss its different facets ranging from the notion of competition suppression to that of consolidation and extension of the dominant position. The complaint analysis also makes it possible to question inter-digital ecosystem competition and shed light on the issues related to the monitoring of acquisitions undertaken by dominant companies in the sector.

March 25, 2021 | Permalink | Comments (0)

When and Who Do Platform Companies Acquire? Understanding the Role of Acquisitions in the Growth of Platform Companies

When and Who Do Platform Companies Acquire? Understanding the Role of Acquisitions in the Growth of Platform Companies

 

Milan Miric

University of Southern California, Marshall School of Business

Margherita Pagani

emlyon business school

Omar A. El Sawy

University of Southern California - Marshall School of Business

Abstract

The success of platform companies often depends on their ability to “scale” their customer and supplier base. Existing studies have focused on a variety of approaches that platforms may use to “scale” but have not systematically considered that platforms might acquire other companies as part of this growth strategy. In this paper, we study the acquisition patterns of digital platform companies and contrast these to the acquisition patterns of digital non-platform companies. We find that platform companies acquire earlier (shortly after founding) when compared with non-platform companies, and they often first acquire competing platform companies from the same market niche. As platform companies mature, they begin to acquire non-platform companies from other market niches. This contrasts to how acquisitions are made by non-platform companies, as shown in our analysis.

March 25, 2021 | Permalink | Comments (0)

Wednesday, March 24, 2021

Remarks on the forthcoming new edition of The Antitrust Paradox

 

 

March 24, 2021 | Permalink | Comments (0)

Competition and the Price Gap Between High and Low Rated Sellers

Competition and the Price Gap Between High and Low Rated Sellers

Evan Magnusson

Stanford University, Department of Economics

Abstract

This paper seeks to quantify the difference in prices between products sold by high and low reputation sellers, and how that difference is related to the degree of competition they face. While past empirical work has found that high reputation sellers can often charge more for their products than low reputation sellers, theory predicts that this difference decreases when the competitive landscape becomes fierce. Accordingly, I find that on Amazon.com, 5–star sellers charge up to 5.2% more than 4.5 star sellers when there are few sellers selling the same product. However, as the number of sellers increases, the price difference between 5–star sellers’ listings and those of 4.5 star sellers disappears.

March 24, 2021 | Permalink | Comments (0)

Scope, Scale and Competition: The 21st Century Firm

Scope, Scale and Competition: The 21st Century Firm

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Abstract

We provide evidence that over the past 30 years, U.S. firms have expanded their scope of operations. Increases in scope and scale were achieved largely without increasing traditional operating segments. Scope expansion significantly increases valuation and is primarily realized through acquisitions and investment in R&D, but not through capital expenditures. We show that traditional concentration ratios do not capture this expansion of scope and are upward biased. After accounting for scope, we do not find evidence that industry concentration is increasing. Our findings point to a new type of firm that increases scope through related expansion, which is highly valued by the market.

March 24, 2021 | Permalink | Comments (0)

Competition Policy in a Simple General Equilibrium Model

Competition Policy in a Simple General Equilibrium Model

Louis Kaplow, Harvard

ABSTRACT: The flow of resources across sectors to their best use, with concomitant entry and exit, is central to the functioning and welfare properties of a market economy. Nevertheless, most industrial organization research, including applications to competition policy, undertakes partial equilibrium analysis in a single sector, often with a fixed number of firms. This article examines competition policy in a simple, multi-sector, general equilibrium model with free entry and exit. Even partial equilibrium analysis yields some lessons, such as that accounting for free entry often makes strengthening competition policy more rather than less attractive. When admitting flows between sectors, familiar prescriptions readily reverse. But such results may be partially offset or overturned yet again when incorporating free entry and exit in nontargeted sectors. Finally, the analysis of efficiencies also changes qualitatively with free entry because even fixed costs are fully borne by consumers in equilibrium.

March 24, 2021 | Permalink | Comments (0)

Targeted Product Design

Targeted Product Design

Heski Bar-Isaac

University of Toronto - Rotman School of Management

Guillermo Caruana

CEMFI

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group

Abstract

We present a model of product design. In our framework, there is an inherent trade-off associated with choosing between broad or niche designs. More-targeted designs are able to excite specific types of consumers, but at the cost of alienating others. We adapt the familiar Salop (1979) circle by allowing firms to locate on the interior. In contrast to previous research that exogenously assumed extreme designs, we provide conditions that ensure extreme or intermediate designs in monopoly, monopolistic competition, and duopoly. We use the framework to qualify earlier findings in the literature and support the robustness of others.

 

March 24, 2021 | Permalink | Comments (0)

Tuesday, March 23, 2021

HeidelbergCement/Schwenk: When a Joint Venture’s Parents Are the ‘Real Actors’ Behind a Transaction

The parents of a full function joint venture can be the ‘real actors’ behind a transaction entered into by the joint venture even if the joint venture has its own strategic interest in the transaction and even if the joint venture is not just a ‘mere vehicle’ for the parents.

March 23, 2021 | Permalink | Comments (0)

Platform Takeoff and Self-Fulfilling Expectations: Field Experimental Evidence

Platform Takeoff and Self-Fulfilling Expectations: Field Experimental Evidence

Kevin Boudreau

Northeastern University; National Bureau of Economic Research (NBER)

Abstract

The theoretical literature on platforms and network effects predicts that initial growth of a platform depends on the market’s expectations of future installed base. This paper tests this claim, reporting on a field experiment in which invitations to join a newly launched platform were sent to 16,349 individuals and included randomized statements regarding the future expected installed base (along with disclosures of the current installed base). This study’s results affirm this theory, contribute greater understanding of the nature and importance of expectations, and reveal that market expectations can be influenced.

March 23, 2021 | Permalink | Comments (0)

Keystone Players and Complementors: An Innovation Perspective

Keystone Players and Complementors: An Innovation Perspective

Frédéric M. Marty

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis; OFCE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Thierry Warin

HEC Montreal; CIRANO

Abstract

In this article, we investigate the role of keystone players and consider their impact in terms of innovation rate in an industry. To do so, we build a theoretical framework that considers the innovation rate in the context of an industry with one keystone player and then with multiple keystone players. The results are threefold. First, the presence of a keystone player is incredibly important for innovation on a market. Second, however, our results also show that a biased market power in favor of the keystone player may hinder innovation in this industry, although the negative impact on the industry’s innovation rate may not be seen at first. Finally, we demonstrate that an industry obtains a higher innovation rate with multiple keystone players. This framework could inform decisions for the antitrust enforcers.

March 23, 2021 | Permalink | Comments (0)

The Implications of Radical Uncertainty: Decision‐Making Beyond the Numbers for Antitrust

The Implications of Radical Uncertainty: Decision‐Making Beyond the Numbers for Antitrust

Seth B. Sacher

Abstract

This essay considers the implications of the book, Radical Uncertainty: Decision-Making Beyond the Numbers, by John Kay and Mervyn King for the practice of antitrust, especially the use of sophisticated economic models and the role of the economist more generally in antitrust analysis.

March 23, 2021 | Permalink | Comments (0)

Monday, March 22, 2021

The Impact of Regulation on Innovation

The Impact of Regulation on Innovation

 

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Antonin Bergeaud

Banque de France

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Abstract

Does regulation affect the pace and nature of innovation and if so, by how much? We build a tractable and quantifiable endogenous growth model with size-contingent regulations. We apply this to population administrative firm panel data from France, where many labor regulations apply to firms with 50 or more employees. Nonparametrically, we find that there is a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Further, a dynamic analysis shows a sharp reduction in the firm's innovation response to exogenous demand shocks for firms just below the regulatory threshold. We then quantitatively fit the parameters of the model to the data, finding that innovation at the macro level is about 5.4% lower due to the regulation, a 2.2% consumption equivalent welfare loss. Four-fifths of this loss is due to lower innovation intensity per firm rather than just a misallocation towards smaller firms and lower entry. We generalize the theory to allow for changes in the direction of R&D, and find that regulation's negative effects only matter for incremental innovation (as measured by citations and text-based measures of novelty). A more regulated economy may have less innovation, but when firms do innovate they tend to "swing for the fence" with more radical (and labor saving) breakthroughs.

March 22, 2021 | Permalink | Comments (0)

PUBLIC ATTITUDE IN THE NETHERLANDS TOWARDS CARTELS IN COMPARISON TO OTHER ECONOMIC INFRINGEMENTS

We investigate the public attitude towards cartels in the Netherlands in comparison with other economic infringements. We examine this in a survey on several types of economic infringements. We find that cartels are considered serious offenses in the Netherlands. People generally think that cartels are not allowed, consider them immoral, and have negative consequences for society. However, on average, most other infringements are considered more serious, are less allowed, more immoral, and have more negative consequences for society than cartel behavior. Furthermore, we find that the considered seriousness of an infringement is explained by people’s personal norms, followed by the infringement’s consequences, whether people think the infringement is allowed and to what extent it has direct impact on people.

March 22, 2021 | Permalink | Comments (0)

The Antitrust Attack on Big Tech

The Antitrust Attack on Big Tech


George L. Priest 
 

The four major internet platforms – Google, Amazon, Apple, and Facebook – have in recent months been subjected to increasing attacks on antitrust grounds. These attacks have been generated by various entities in the federal legislature and by the threat of individual lawsuits, some by one of the platforms against another.  The subject of these attacks is the sheer size of the platforms themselves, though it is also alleged that various of the platforms engage in unfair practices that benefit their own products over those of competitors. This essay argues that these antitrust attacks ignore the character of the platforms as network industries.  Network industries are different from well-known monopolies because consumers benefit, rather than are harmed, as the network expands.  As a consequence, none of the attacks can demonstrate harm to consumers, the overriding standard of interpretation of the antitrust laws.

March 22, 2021 | Permalink | Comments (0)

Competitive Harm Crossing Borders: Regulatory Gaps and a Way Forward

Competitive Harm Crossing Borders: Regulatory Gaps and a Way Forward

 

Marek Martyniszyn

Queen's University Belfast - School of Law

Abstract

This article analyses the current regulatory framework governing transnational restrictive business practices. It identifies key gaps that provide room for anticompetitive practices to flourish, causing cross-border transfer of wealth, typically from less affluent states. The economic harm caused by cross-border anticompetitive conduct is significant; international cartels alone caused overcharges exceeding $1.5 trillion in the period 1990-2016. This article offers a series of pragmatic policy recommendations that could narrow existing regulatory gaps. The proposals require no international negotiations and can be implemented domestically. They call for enabling of more assertive and robust extraterritorial enforcement of domestic competition laws and facilitation of positive externalities in that context.

March 22, 2021 | Permalink | Comments (0)

The Impact of Early Digital Movie Releases on Box Office Revenue: Evidence from the Korean Market

The Impact of Early Digital Movie Releases on Box Office Revenue: Evidence from the Korean Market

Yangfan Liang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Gordon Burtch

Boston University - Questrom School of Business

Daegon Cho

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Michael D. Smith

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Abstract

Movie studios’ film distribution practices have undergone radical changes over the past decade with the rise of digital channels including Electronic-Sell-Through (EST) and Video-on-demand (VOD). However, one aspect of the release schedule has been remarkably stable. Most Hollywood movies are still released in theaters 1-3 months before they are made available on digital channels for in-home consumption. Given the rising importance of digital in-home channels, our research analyzes whether earlier digital in-home releases impact theatrical revenue, home entertainment revenue, and the overall revenue received by studios.

We address these questions using data from South Korea where, for a number of years, studios have pursued early digital release of many movies via an offering known as Super Premium (SP) Video on Demand (VOD). SPVOD was introduced in South Korea in 2012 and had been adopted by every major movie studio in Korea by the end of 2018. Traditional (non-SP) digital releases typically occur 90 days after the initial theatrical release, well after the movie has stopped showing in theaters. By contrast, SP releases typically occur just four to five weeks after a theatrical premiere, while the movie is typically still being shown in theaters.

We exploit cross-country differences in movies’ theatrical revenue over the duration of the box office window to investigate the extent to which an early digital release impacts box office revenue. In particular, we employ a difference-in-differences-in-differences (DDD) strategy, contrasting SP versus non-SP movie revenues over time, before versus after the Korean SP release, and in Korea versus the United States (where SP notably does not exist). This identification strategy enables us to empirically isolate the causal effect of the SP release, over and above any confounded, systematic differences in the box office performance of SP-assigned and non-SP-assigned movies.

With respect to theatrical revenue, we find that shortening the digital release window from 3 months to 3-5 weeks after the theatrical release causes a statistically and economically insignificant decline in theatrical revenue, equivalent to an approximate 0.8% drop in total theatrical revenue in Korea during the first eight weeks of the theatrical run. With respect to home entertainment revenue, using digital movie sales data in Korea and industry estimates of studio margins on theatrical and SPVOD revenue, we estimate that SPVOD releases increase the marginal revenue received by studios in the first eight weeks of a movie’s Korean release by approximately 12%. Finally, we find that while the data from torrent piracy suggest that early SPVOD releases lead to earlier global availability of high-quality piracy sources, we see no evidence that these early sources increase piracy demand for movies released in SPVOD windows in either the Korean or US markets.

March 22, 2021 | Permalink | Comments (0)

Optimal Destabilization of Cartels

Optimal Destabilization of Cartels

Ludwig von Auer

University of Trier - Faculty of Economics

Tu Anh Pham

Abstract

This paper introduces an oligopoly model that includes three actors: a cartel (comprising two or more firms that operate like one merged company), a group of competing fringe firms, and a welfare maximizing antitrust authority. The cartel is the Stackelberg quantity leader and the fringe firms are in Cournot competition with respect to the residual demand. The cartel is internally stable if none of its member firms finds it profitable to become a fringe firm. The antitrust authority can destabilize the cartel in the sense of making the cartel internally instable. To this end, the antitrust authority has three policy instruments at its disposal: its own effort, a fine for detected cartels, and a leniency program for cartel members that cooperate with the authority. Taking into account that the use of these instruments is not costless for society, a unique optimal antitrust policy is derived. The analysis reveals that both, the optimal force and mix of the antitrust authority's policy depend on market characteristics such as the efficiency of the authority's operations, the public respect for the rule of law, the ethical standards of the firms' managers, the market volume, and the number of firms operating on the market.

March 22, 2021 | Permalink | Comments (0)

Friday, March 19, 2021

State Aid and Competition in the European Banking Markets

State Aid and Competition in the European Banking Markets

Falk Hendrik Laser

Darmstadt University of Technology - Department of Law and Economics

Abstract

I investigate whether bank bailouts since the outbreak of the financial crisis affected competition in the European banking markets. Using a unique dataset on large bank rescues I compare the development of market power of rescued and non-rescued banks between 2000 and 2018. I find that bank bailout coincides with a substantial drop of six percentage points in the Lerner index. Effects are heterogeneous and driven by bank rescues directly after the outbreak of the financial crisis in 2008 and not by bank rescues triggered during the European sovereign debt crisis starting in 2010. My findings cast positive light on European competition policy as banks do not appear to have capitalized on rescue money in terms of market power. Protecting competition in European banking markets remains a topical policy issue in light of rising levels of market power and potential public interventions in the course of the ongoing COVID-19 pandemic.

March 19, 2021 | Permalink | Comments (0)

Casino, Guichard-Perrachon and AMC v Commission, Intermarché Casino Achats v Commission, Les Mousquetaires and ITM Entreprises v Commission: The Commission’s Powers of Inspection are Examined in the Light of the Charter

Casino, Guichard-Perrachon and AMC v Commission, Intermarché Casino Achats v Commission, Les Mousquetaires and ITM Entreprises v Commission: The Commission’s Powers of Inspection are Examined in the Light of the Charter

Judgments of 5 October 2020, Casino, Guichard-Perrachon and AMC v Commission, T-249/17, EU:T:2020:458, Intermarché Casino Achats v Commission, T-254/17, EU:T:2020:459, Les Mousquetaires and ITM Entreprises v Commission, T-255/17, EU:T:2020:460.

The General Court finds that the system of judicial remedies available to the addressee of an inspection decision complies with the demands of Article 47 of the Charter. Yet, in the light of Article 7 of the Charter, the judgments partially annul the contested inspection decisions, finding that the Commission has failed to show that it held sufficiently strong grounds for a suspicion of anticompetitive exchanges of information on future commercial strategies.

March 19, 2021 | Permalink | Comments (0)

General Equilibrium Oligopoly and Ownership Structure

General Equilibrium Oligopoly and Ownership Structure

 

Jose Azar

Princeton University - Department of Economics

Xavier Vives

University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Abstract

We develop a tractable general equilibrium framework in which firms are large and have market power with respect to both products and labor, and in which a firm's decisions are affected by its ownership structure. We characterize the Cournot-Walras equilibrium of an economy where each firm maximizes a share-weighted average of shareholder utilities-rendering the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing then an increase in "effective" market concentration (which accounts for common ownership) leads to declines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one are attained as the number of sectors in the economy increases. When firms have heterogeneous constant returns to scale technologies we find that an increase in common ownership leads to markets that are more concentrated.

March 19, 2021 | Permalink | Comments (0)