Antitrust & Competition Policy Blog

Gig Platforms as Hub-and-Spoke Arrangements and Algorithmic Pricing: A Comparative EU-US Antitrust Analysis

Gig Platforms as Hub-and-Spoke Arrangements and Algorithmic Pricing: A Comparative EU-US Antitrust Analysis

 

 

Max Huffman

Indiana University Robert H. McKinney School of Law

Maria José Schmidt-Kessen

Central European University (CEU) - Department of Legal Studies

 

Abstract

Gig platforms are a modern economy enterprise structure characterized by a firm matching service providers with consumers – prominent examples include ride-sharing platforms, like Uber; delivery platforms, like Wolt; and lodging rental platforms, like Airbnb. As all online platforms, gig platforms are data-driven business models that employ and develop algorithms and AI tools that learn from user behavior and adapt to make interactions increasingly efficient. In contrast to other online platforms, such as advertising exchanges or online market places for goods, gig platforms enable users to sell their labor or services to other users via the platform.

Scholarship has shown enterprises that contracts with their service providers, who are then by necessity operating as independent enterprises, are best analyzed as agreements implicating Art. 101 TFEU and Section 1 of the Sherman Act. Currently, the dominant legal treatment of service providers on platforms including Uber (ride-sharing) and Wolt (food delivery) is as contractors rather than employees. We employ here the lens of a hub-and-spoke arrangement, with the platform as the hub and the service providers as the spokes, and the algorithmically-established price terms representing a collection of parallel vertical agreements. We then engage in a comparative study of the legal implications under antitrust law in the US and the EU of hub-and-spoke arrangements.

The chapter proceeds to outline the hub-and-spoke structure of the service provider-platform agreements in a gig economy enterprise, including the universal agreement to abide by prices set by algorithm in contracting for services. It covers various design options for pricing algorithms that can be used by platforms to coordinate the transaction between its users. Next, the chapter considers the EU caselaw on hub-and-spoke arrangements, analyzing authorities from across the EU, and identifies the probable treatment of the gig economy agreements in the light of these authorities. The chapter then conducts a similar analysis of leading recent authorities in the US and likewise concludes the most probable treatment under US law. In the conclusion, the chapter compares and explains the likely legal treatment of an algorithmically defined hub-and-spoke agreement and suggests areas for change.

Algorithmic and Human Collusion

Algorithmic and Human Collusion

Tobias Werner

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Abstract

As self-learning pricing algorithms become popular, there are growing concerns among academics and regulators that algorithms could learn to collude tacitly on non-competitive prices and thereby harm competition. I study popular reinforcement learning algorithms and show that they develop collusive behavior in a simulated market environment. To derive a counterfactual that resembles traditional tacit collusion, I conduct market experiments with human participants in the same environment. Across different treatments, I vary the market size and the number of firms that use a self-learned pricing algorithm. I provide evidence that oligopoly markets can become more collusive if algorithms make pricing decisions instead of humans. In two-firm markets, market prices are weakly increasing in the number of algorithms in the market. In three-firm markets, algorithms weaken competition if most firms use an algorithm and human sellers are inexperienced.

Remedies, Sanctions and Commitments

Remedies, Sanctions and Commitments

 

Florian Wagner-von Papp

Abstract

Antitrust law enforcement serves goals as diverse as restoring competition, preventing future infringements, educating market participants about the content of the law, expressing social or moral condemnation, and deterring market participants from breaking the law, encouraging law-abiding conduct, punishing past infringements and curing their effects.

Enforcement uses different types of remedies and sanctions to achieve these goals. Remedies are primarily concerned with restoring competition. Sanctions primarily serve deterrence purposes, but also express condemnation.

Competition authorities have substantial powers of devising remedies, but courts impose limits to this remedial discretion (eg, in the 2021 US Supreme Court Decision AMG Capital Management, denying the FTC the power to order disgorgement or restitution). The courts primarily seek to protect due process rights by curtailing remedial discretion. Ironically, however, these limits result in a flight of competition authorities into negotiated commitments (settlements, consent decrees), where there are very few procedural protections, both for the parties and for ensuring that competition is sufficiently protected.

The result of this strict review of remedies in the adversarial procedure and the lax review in the negotiated procedure is an undesirable trade-off between the goals of competition law enforcement where abuses of dominant positions and monopolization are concerned: effective remedies may require sacrificing effective sanctions, because sanctions are generally not available where negotiated solutions are chosen.

This chapter discusses which remedies (behavioural and structural remedies, declaratory, negative and positive prohibitory, restorative and monetary, flanking, 'like-effects' and 'fencing-in' remedies) are, or should be, available in monopolization cases in the US and abuse of dominance cases in the EU. The chapter concludes that granting the competition authorities more remedial discretion in the adversarial procedure would, overall, result in more effective enforcement as well as protecting the alleged infringers’ rights better because the flight into negotiated commitments would be stemmed.

What Does Proposed Antitrust Legislation Mean in the Courtroom

Register to attend tomorrow's webinar, "What Does Proposed Antitrust Legislation Mean in the Courtroom?"

Moderator
Daniel Sokol, USC

Panelists
Eric Grannon, White & Case
Bruce Hoffman, Cleary
Amanda Reeves, Latham

Sponsored by the USC Marshall Initiative on Digital Competition, University of Southern California

Info: Jan 27 @ 09:00 AM PST/12:00 EST
Registration Link: https://bit.ly/3f37QWw

Big Data and Data-Related Abuses of Market Power

Big Data and Data-Related Abuses of Market Power

Tilman Kuhn

Kristen O'Shaughnessy

Tobias Pesch

Jaclyn Phillips

D. Daniel Sokol

USC Gould School of Law; USC Marshall School of Business

 

Abstract

This chapter analyzes Big Data and Big Data abuses of market power. The chapter provides an overview of developments under both EU and US case law relevant to such abuses as well as some of the economic underpinnings of such an analysis. While there are not many cases specific to this interface, a number of related areas of law both in the merger and conduct context provide a template for how competition authorities, courts, and academics should frame such issues.

Merger Review Regimes in the ASEAN Region and Case Analysis of Grab-Uber Merger

Merger Review Regimes in the ASEAN Region and Case Analysis of Grab-Uber Merger

By:	Jang, Yungshin (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Kang, Gu Sang (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP))
Abstract:	In 2018, the largest yet cross-border M&A deal between digital platforms in Southeast Asia was reached, namely the Grab-Uber M&A case. The local digital platform Grab consolidated the regional operations of San Francisco, California-based Uber, a development which had significant effects on competition and consumer welfares in the Southeast Asia digital market. The competition authorities in the region independently initiated their investigation and started to deliberate the merger case to determine the anti-competitive effects on their domestic market, and to decide whether this transaction should be restricted or approved. Even though the two merging and merged firms completed their transactions, each authority applied different logic and imposed different remedies in deciding the case. Authorities in some member states such as Singapore and the Philippines decided that the Grab-Uber merger was anti-competitive, while others such as Indonesia and Viet Nam considered the merger not anti-competitive. Upon this backdrop, this article reviews the competition policies and laws of four major ASEAN countries – Indonesia, Singapore, Viet Nam, and the Philippines – from institutional and legal perspectives, focusing on M&A review regimes. Then, we briefly introduce how these com-petition authorities decided on the Grab-Uber merger case, also analyzing the competition effects of the case on the ride-hailing market in the countries. Based on the analysis results, we propose overseas competition policies for Korea.

Optimal Price Targeting

Optimal Price Targeting

 

 

Adam N. Smith

University College London - UCL School of Management

Stephan Seiler

Imperial College Business School; Centre for Economic Policy Research

Ishant Aggarwal

Lloyds Banking Group

 

Abstract

We examine the profitability of personalized pricing policies that are derived using different specifications of demand in a typical retail setting with consumer-level panel data. We generate pricing policies from a variety of models, including Bayesian hierarchical choice models, regularized regressions, and classification trees using different sets of data inputs. To compare pricing policies, we employ an inverse probability weighted estimator of profits that explicitly takes into account non-random price variation and the panel nature of the data. We find that the performance of machine learning models is highly varied, ranging from a 21% loss to a 17% gain relative to a blanket couponing strategy, and a standard Bayesian hierarchical logit model achieves a 17.5% gain. Across all models purchase histories lead to large improvements in profits, but demographic information only has a small impact. We show that out-of-sample hit probabilities, a standard measure of model performance, are uncorrelated with our profit estimator and provide poor guidance towards model selection.

Relational Contracts and Trust in a High-Tech Industry

Relational Contracts and Trust in a High-Tech Industry

By:

Giacomo Calzolari; Leonardo Felli; Johannes Koenen; Giancarlo Spagnolo; Konrad O. Stahl

Abstract:

We study how informal buyer-supplier relationships in the German automotive industry affect procurement. Using unique data from a survey focusing on these, we show that more trust, the belief that the trading partner acts to maintain the mutual relationship, is associated with both higher quality of the automotive parts and more competition among suppliers. Yet both effects hold only for parts involving unsophisticated technology, not when technology is sophisticated. We rationalize these findings within a relational contracting model that critically focuses on changes in the bargaining power, due to differences in the costs of switching suppliers.

Monopsony in the Labor Market: New Empirical Results and New Public Policies

Monopsony in the Labor Market: New Empirical Results and New Public Policies

Orley C. Ashenfelter, David Card, Henry S. Farber & Michael Ransom

 

This paper summarizes the results of nearly a dozen new papers presented at the Sundance Conference on Monopsony in Labor Markets held in October 2018. These papers, to be published as a special issue of the Journal of Human Resources, study various aspects of monopsony and failures of competition in labor markets. It also reports on the new developments in public policies associated with widespread concerns about labor market competition and efforts to ameliorate competitive failures. The conference papers range from studies of the labor supply elasticity individual firms face to studies of local labor market concentration to studies of explicit covenants suppressing labor market competition. New policies range from private and public antitrust litigation to concerns about the effect of mergers and inter-firm agreements on labor market competition. We provide a detailed discussion of the mechanics of the Silicon Valley High Tech Worker conspiracy to suppress competition based on Court documents in the case. Non-compete agreements, which are not enforceable in three states already, have also come under scrutiny.

Optimal Price Targeting

Optimal Price Targeting

Adam N. Smith

University College London - UCL School of Management

Stephan Seiler

Imperial College Business School; Centre for Economic Policy Research

Ishant Aggarwal

Lloyds Banking Group

 

Abstract

We examine the profitability of personalized pricing policies that are derived using different specifications of demand in a typical retail setting with consumer-level panel data. We generate pricing policies from a variety of models, including Bayesian hierarchical choice models, regularized regressions, and classification trees using different sets of data inputs. To compare pricing policies, we employ an inverse probability weighted estimator of profits that explicitly takes into account non-random price variation and the panel nature of the data. We find that the performance of machine learning models is highly varied, ranging from a 21% loss to a 17% gain relative to a blanket couponing strategy, and a standard Bayesian hierarchical logit model achieves a 17.5% gain. Across all models purchase histories lead to large improvements in profits, but demographic information only has a small impact. We show that out-of-sample hit probabilities, a standard measure of model performance, are uncorrelated with our profit estimator and provide poor guidance towards model selection.

How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy

How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy

Ginger Zhe Jin, Mario Leccese & Liad Wagman

 

 

Some argue that large platforms, such as Alphabet/Google, Amazon, Apple, Facebook and Microsoft (or GAFAM), are unusual in their number, pace and concentration of technology mergers, with the potential to harm market competition. Using a unique taxonomy developed by S&P Global Market Intelligence, we compare the M&A activities of GAFAM to other top acquirers from 2010 to 2020. We find: (i) GAFAM completed more tech acquisitions per firm than other groups of top acquirers, and acquired younger and more consumer-facing firms on average. (ii) The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an “acquire-adjacent-and-then-expand” strategy. (iv) Over time, more and more GAFAM and other top acquirers acquire in the same categories. (v) No evidence suggesting that a GAFAM acquisition in a category, compared to similar categories without GAFAM acquisitions, is correlated with a slowdown in the number of new acquirers acquiring in that category. Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.

Empirical Perspectives on Auctions

Empirical Perspectives on Auctions

Ali Hortaçsu & Isabelle Perrigne

 

 

The empirical analysis of auction data has become a thriving field of research over the past thirty years. Relying on sophisticated models and advanced econometric methods, it addresses a wide range of policy questions for both public and private institutions. This chapter offers a guide to the literature by stressing how data features and policy questions have shaped research in the field. The chapter is organized by types of goods for sale and covers auctions of timber, construction and services procurement, oil and gas leases, online auctions, internet advertising, electricity, financial securities, spectrum, as well as used goods. It discusses the idiosyncrasies of each applied setting and the respective empirical findings.

What Creates Abnormal Profits: Collusion, Efficiency or Strategy?

What Creates Abnormal Profits: Collusion, Efficiency or Strategy?

 

 

Elizabeth Webster

Swinburne University of Technology; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

William E. Griffiths

University of Melbourne - Department of Economics

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

 

Abstract

The debate regarding the determinants of persistent abnormal profits is re-examined using a new approach to the measurement of profits which explicitly accounts for intangible capital. Abnormal profits are estimated using data on tangible and intangible capital for 2800 Australian firms over a 18-year period. The determinants of abnormal profits are then estimated using variables collated from separate accounting and administrative company records data as well as an in-house survey of innovation and management practices. Our results imply that firm-specific factors relating to efficiency and strategy are much larger than the industry-specific effects of collusion

The Application of Antitrust Law to Labor Markets — Then and Now

The Application of Antitrust Law to Labor Markets — Then and Now

 

 

Richard A. Epstein

New York University School of Law; Stanford University - Hoover Institution on War, Revolution and Peace; University of Chicago - Law School

 

Abstract

As of late, there has been a concerted push in the Biden administration, backed by prominent academics, to expand the application of antitrust law against major employers who exercise monopsony power that reduces aggregate demand and thus leaves too many workers on the sidelines. The effort chiefly occurs in two major areas: stricter attacks on covenants not to compete and more intense review of mergers under the Clayton Act. This paper begins with an historical account of the law in both areas, from which it concludes that there is no good reason to alter the status quo ante. The modern claims of antitrust violations are said to rest on the traditional consumer welfare standard. But the theoretical and empirical evidence on this point is thin. Turnover rates in labor markets are high, labor shortages are now common; wage growth varies by presidential administration that changes, and not antitrust law, which has been constant. Other labor policies like anti-discrimination laws, paid leave policies, and minimum wage and overtime laws exert a more direct power. No systematic evidence suggests the current (cautious) acceptance of non-compete clauses allows large numbers of major employers to extract monopsony profits. The only employers with market power work in markets (like hospitals subject to certificates of need), where these formal barriers to entry make these mergers suspect for excessive concentration in product markets, leaving it utterly unwise to pore over concentration ratios in thousands of discrete labor markets. Any concern with monopoly influence in labor markets should seek to weaken the hold of public and private unions, consistent with the consumer welfare standard.

Preemptive Entry and Technology Diffusion: The Market for Drive-in Theaters

Preemptive Entry and Technology Diffusion: The Market for Drive-in Theaters

Ricard Gil ([email protected]), Jean-François Houde, Shilong Sun and Yuya Takahashi

 

Abstract: This paper studies the role and incidence of entry preemption strategic motives on the dynamics of new industries, while providing an empirical test for entry preemption, and quantifying its impact on market structure. The empirical context is the evolution of the U.S. drive-in theater market between 1945 and 1957. We exploit a robust prediction of dynamic entry games to test for preemption incentives: the deterrence effect of entering early is only relevant for firms in markets of intermediate size. Potential entrants in small and large markets face little uncertainty about the actual number of firms that will eventually enter. This leads to a non-monotonic relationship between market size and the probability of observing an early entrant. We find robust empirical support for this prediction using a large cross-section of markets. We then estimate the parameters of a dynamic entry game that matches the reduced-form prediction and quantify the strength of the preemption incentive. Our counterfactual analysis shows that strategic motives can increase the number of early entrants by as much as 50 percent in mid-size markets without affecting the number of firms in the long run. By causing firms to enter the market too early, we show that strategic entry preemption leads on average to a 5% increase in entry costs and a 1% decrease in firms' expected value (relative to an environment without strategic investments).

Organizational Structure and Pricing: Evidence from a Large U.S. Airline

Organizational Structure and Pricing: Evidence from a Large U.S. Airline

Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg & Kevin R. Williams

 

ABSTRACT:

 

We study how organizational boundaries affect pricing decisions using comprehensive data from a large U.S. airline. We document that the firm's advanced pricing algorithm, utilizing inputs from different organizational teams, is subject to multiple biases. To quantify the impacts of these biases, we estimate a structural demand model using sales and search data. We recover the demand curves the firm believes it faces using forecasting data. In counterfactuals, we show that correcting biases introduced by organizational teams individually have little impact on market outcomes, but coordinating organizational outcomes leads to higher prices/revenues and increased dead-weight loss in the markets studied.

Can the FTC Turn Back the Clock?

Can the FTC Turn Back the Clock?

 

Gregory J. Werden

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

 

Abstract

Eager to shed constraints imposed by Sherman Act precedent, New FTC Chair Lina M. Khan issued a statement declaring her intention to attack “unfair methods of competition even if they do not violate a separate antitrust statute.” She has sought to distance herself from the Sherman Act’s rule of reason and find shelter in the incipiency concept. We argue that she misconstrues both concepts and that she will fail if she makes departure from Sherman Act precedent her rallying cry. But she can succeed by acting on fact-based, forward-looking assessments of competitive effects.

Consolidation on Aisle Five: Effects of Mergers in Consumer Packaged Goods

Consolidation on Aisle Five: Effects of Mergers in Consumer Packaged Goods

 

Jeremy Majerovitz

Massachusetts Institute of Technology (MIT) - Department of Economics

Anthony Yu

Harvard University, Department of Economics

Abstract

We study the effects of mergers in the consumer packaged goods industry, a sector that comprises approximately one-tenth of GDP in the United States. We match data on all recorded mergers between 2006 and 2017 with retail scanner data. In comparison to prior work, which focuses on case studies of large mergers, our approach allows us to estimate the effect of a typical merger. Most mergers we study are highly asymmetric (a large firm acquires a much smaller firm) and rarely challenged. By studying these mergers, we provide new evidence on the effects of mergers on prices, quantities, product availability, and exit. On average, mergers lead to a short-run price effect at the target of 1% and declines in total revenue of 7%. These average effects hide substantial heterogeneity across different groups of mergers. Our results highlight the importance of effects not captured in the canonical model, such as effects on consumer surplus through changes in product availability, and through inefficient firms' capital being repurposed by more productive acquirors.

EU Competition Law Volume II: Mergers and Acquisitions 3rd edition

EU Competition Law Volume II: Mergers and Acquisitions 3rd edition

Edited by Christopher Jones, Principal, Energy Regulatory and Antitrust, Baker McKenzie, Brussels, Part-time Professor, Energy Law and Policy, European University Institute, Italy and Lisa Weinert, Associate, European and Competition Law Practice, Baker McKenzie, Brussels, Belgium

Publication Date: January 2022 ISBN: 978 1 80220 345 5 Extent: 1680 pp

This book is a Claeys and Casteels title, now formally part of Edward Elgar Publishing.

With extensive updating in the decade since the publication of the second edition, and written by the key Commission and European Court officials in this area, as well as leading practitioners, the third edition of this unique title provides meticulous and exhaustive coverage of EU Merger Law.

A Retrospective Study of Recent U.S. Airline Mergers: What Can We Learn from Production Data?

A Retrospective Study of Recent U.S. Airline Mergers: What Can We Learn from Production Data?

Germán Bet

University of Florida

Abstract

I assess the effect of recent U.S. airline mergers on productive efficiency and market power. I recover productivity, markup, and marginal cost estimates for each airline using production and cost data. I then employ these estimates, a panel event study design, and synthetic control methods to estimate the effects of mergers on these outcomes. I find that in most cases, mergers have not significantly affected merging parties’ productive efficiency, and in a few cases, have increased marginal costs. Some mergers, such as the American-US Airways merger, have substantially increased the markups charged. The increase in markups is not explained by efficiencies, proportionally higher fixed costs, or changes in technology (i.e., a larger scale elasticity). Instead, the net profit rate has increased for these carriers after the mergers. Indirect evidence suggests that quality effects cannot account fully for the observed markup changes. Taken together, these findings point to an increase in market power.