Antitrust & Competition Policy Blog

Competition, Quality and Integrated Health Care

Competition, Quality and Integrated Health Care

Kurt Richard Brekke

Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luigi Siciliani

University of York - Department of Economics and Related Studies

Odd Rune Straume

CESifo (Center for Economic Studies and Ifo Institute); University of Minho - Economic Policies Research Unit (NIPE)

Abstract

Integration of health care services has been promoted in several countries to improve the quality and coordination of care. We investigate the effects of such integration in a model where providers compete on quality to attract patients under regulated prices. We identify circumstances under which integration either increases or reduces the quality of services provided. In the absence of synergies related to costs or benefits, integration generally leads to increases in quality for some services and reductions for others. The corresponding effect on health benefits depends largely on whether integration leads to quality dispersion or convergence across services.

Algorithmic Assortment Curation: An Empirical Study of Buybox in Online Marketplaces

Algorithmic Assortment Curation: An Empirical Study of Buybox in Online Marketplaces

Santiago Gallino

University of Pennsylvania - Operations, Information and Decisions Department

Nil Karacaoglu

Fisher College of Business, The Ohio State University

Antonio Moreno

Harvard University - Technology & Operations Management Unit

Abstract

Most online sales worldwide take place in marketplaces that connect sellers and buyers. The presence of numerous third-party sellers leads to a proliferation of listings for each product, making it difficult for customers to choose between the available options. Online marketplaces adopt algorithmic tools to curate how the different listings for a product are presented to customers. This paper focuses on one such tool, the Buybox, that algorithmically chooses one option to be presented prominently to customers as a default option. We leveraged the staggered introduction of the Buybox within a prominent product category in a leading online marketplace to study how the Buybox impacts marketplace dynamics. Our findings indicate that adopting Buybox results in a substantial increase in marketplace orders and visits. Implementing Buybox reduces the frictions customers and sellers face. On the customer side, we find a reduction of search frictions, evidenced by an increase in conversion rates and a higher impact of Buybox on the mobile channel, which has significantly higher search frictions than desktop channel. On the seller side, the number of sellers offering a product increases following the implementation of Buybox. Customers benefit from lower prices and higher average quality levels when competition in Buyboxes is high. After the introduction of the Buybox, the marketplace also becomes more concentrated. Our paper contributes to the burgeoning literature on the role of algorithms in platforms by examining how algorithmic curation impacts the participants of the marketplace as well as the marketplace dynamics.

The Double Helix of Rule of Law And EU Competition Law: An Appraisal

The Double Helix of Rule of Law And EU Competition Law: An Appraisal

 

Maciej Bernatt

University of Warsaw, Faculty of Management

Abstract

By discussing the experiences of two EU Member States: Hungary and Poland, the article aims to demonstrate that there are three layers of rule of law which are relevant for EU competition law. The first one is external: it relates to the legal system of EU Member States which competition law is part of. In national legal systems, rule of law safeguards need to be put in place in order to provide an adequate legal environment for the competition law system to perform its role. The second one is internal: it concerns rule of law safeguards in relation to the Member States’ competition authorities, in particular their independence. The third one is consequential: the weakening of the rule law within the external and internal layers affects the proper functioning of the competition law system. The effective functioning of a decentralised system of EU competition law enforcement is also becoming an issue. As a result, the effectiveness of Articles 101-102 TFEU is endangered and a vicious circle of mutually reinforcing competition law and rule of law crises unfolds. The article speaks to the recent developments in the EU case-law, i.e. the General Court’s judgment of 9 February 2022 in Sped-Pro case (T 791/19) and creeping mutual distrust within the European Union.

Quantifying Spatial and Non-Spatial Differentiation in Omnichannel Grocery

Quantifying Spatial and Non-Spatial Differentiation in Omnichannel Grocery

Jia Li

Wake Forest University

Charles C. Moul

Miami University of Ohio - Department of Economics

Abstract

Differentiation is arguably the most important business strategy, but optimal investment in differentiation requires understanding the magnitudes of its implications. We consider the extent and dimensions of differentiation in omnichannel grocery by examining the impacts of entry events on grocery sales. Specifically, employing data obtained from multiple companies covering all Carolina grocery markets for two years, we empirically quantify the maximum distances that consumers are willing to travel to a grocery store for in-store shopping and curbside pickup, and the extent of non-spatial differentiation between grocery chains and across the two channels. We utilize a recently suggested set of instrumental variables to address the possible concern of endogenous entry. Our empirical results reveal that some consumers are willing to travel four times farther for curbside pickup than for in-store groceries. Non-spatial differentiation is important in both the in-store shopping and the curbside pickup channel, but there is suggestive evidence that curbside pickup exhibits greater differentiation against rival-chains than the in-store shopping experience. These findings can have a direct managerial application in retailers’ geotargeting marketing communications program planning, and retailers’ future business establishment development.

Does Consumer Demand 'Pull' Scientifically Novel Drug Innovation

Does Consumer Demand 'Pull' Scientifically Novel Drug Innovation

 

David Dranove

Northwestern University - Kellogg School of Management

Craig Garthwaite

Northwestern University; National Bureau of Economic Research (NBER)

Manuel Hermosilla

Johns Hopkins University - Carey Business School

Abstract

Prior literature shows that stronger consumer demand leads to increased pharmaceutical R&D. However, how strong these “demand-pull” effects are for more scientifically novel drug innovation remains unknown. We address this question using comprehensive clinical trial data that include precise characterizations of the scientific approaches used in tested molecules. We characterize scientific novelty as the number of times each approach has been used in the past. Exploiting exogenous demand variation introduced by the introduction of Medicare Part D, we find strong evidence that demand-pull effects are markedly skewed in favor of non-novel or “follow-on” drug R&D.

A Commentary on Presenting Efficiencies in a Horizontal Merger Review

A Commentary on Presenting Efficiencies in a Horizontal Merger Review

Malcolm B. Coate

Independent

Arthur DelBuono

Government of the United States of America - Federal Trade Commission

Abstract

The rise of unilateral effects analysis has significantly increased the importance of presenting a comprehensive review of the efficiencies relevant to a potentially problematic merger. Although numerous articles address efficiencies from a theoretical point of view, few practical commentaries exist. This paper provides an extensive discussion intended to aid firms in their efficiency presentations. A range of options for addressing the cognizability of efficiencies (focused on validity, verification, and merger specificity) and the balancing of anticompetitive effects with efficiencies are considered. Although the merging parties might not be able to fully evaluate every issue noted in this overview, a good faith effort to provide a comprehensive analysis should enhance the consideration given to their claims by the enforcement agency.

How Does Vertical Integration Affect Incentives to Innovate?

How Does Vertical Integration Affect Incentives to Innovate?

Gaoyang Cai

Northwestern University, Kellogg School of Management

Daniel F. Spulber

Northwestern University - Kellogg School of Management

Abstract

We introduce a model of product innovation to examine how vertical mergers affect incentives to innovate. Incentives to innovate are the same for a vertically integrated platform that innovates in house and a product market gatekeeper that organizes an innovation tournament. A vertically integrated platform, however, has lower incentives to innovate than independent innovators. Competition between two vertically integrated platforms generates more innovation than a vertically integrated platform and less innovation than competing independent innovators. A monopoly upstream innovator with competing downstream sellers has lower incentives to innovate than a vertically integrated platform.

Dynamic Price Competition: Theory and Evidence from Airline Markets

Dynamic Price Competition: Theory and Evidence from Airline Markets

By:	Ali Hortaçsu; Aniko Oery; Kevin R. Williams
Abstract:	We introduce a model of oligopoly dynamic pricing where firms with limited capacity face a sales deadline. We establish conditions under which the equilibrium is unique and converges to a system of differential equations. Using unique and comprehensive pricing and bookings data for competing U.S. airlines, we estimate our model and find that dynamic pricing results in higher output but lower welfare than under uniform pricing. Our theoretical and empirical findings run counter to standard results in single-firm settings due to the strategic role of competitor scarcity. Pricing heuristics commonly used by airlines increase welfare relative to estimated equilibrium predictions.
JEL:	C70 C73 D21 D22 D43 D60 L13 L93
Date:	2022–08
URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:30347&r=

Consumer Demand with Social Influences: Evidence from an E-Commerce Platform

Consumer Demand with Social Influences: Evidence from an E-Commerce Platform

By:	El Hadi Caoui; Chiara Farronato; John J. Horton; Robert Schultz
Abstract:	For some kinds of goods, rarity itself is valued. "Fashionable'" goods are demanded in part because they are unique. In this paper, we explore the economics of rare goods using auctions of limited-edition shoes held by an e-commerce platform. We model endogenous entry and bidding in multi-unit auctions and construct demand curves from realized bids. We find that doubling inventory reduces willingness to pay by 7-15%. From the producer perspective, ignoring the value of rarity leads to substantial overproduction: auctioned quantities are 82% above the profit-maximizing level. From the consumer perspective however, the negative spillovers of restricting quantity more than offset the benefits of rarer goods.
URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:30351&r=

Platform pricing strategies when consumers web/showroom

Platform pricing strategies when consumers web/showroom

By:	Federico Navarra (University of Padova)
Abstract:	This paper studies the effects of price parity clauses (PPC) on consumer surplus and platform profit by investigating the strategic interactions among horizontally differentiated multi-channel retailers selling through online platforms as well as in their the direct channel. Consumers first choose which product to buy and then in which channel (online/direct) to finalize the purchase; platforms can decide about whether or not to impose PPCs. We show that the direct sales channel constrains platform pricing strategies such that PPCs have ambiguous effects on consumers. From the social welfare perspective, imposing PPCs is desirable when platforms are perceived as highly substitutable. Both platforms imposing price parity is always a Nash equilibrium but under certain conditions it can also arise another Nash equilibrium in which both platforms select an unrestricted pricing regime.
URL:	http://d.repec.org/n?u=RePEc:pad:wpaper:0281&r=

Market Power of Digital Platforms

Market Power of Digital Platforms

Jens-Uwe Franck

University of Mannheim - Department of Law

Martin Peitz

University of Mannheim - Department of Economics

Abstract

Digital platforms have reshaped many product markets and play an increasingly important role in economies around the globe. Some of these platforms have become powerful players and may possess a lot of market power. Economists use a number of indicators to assess market power. In this article we discuss to which extent these indicators are helpful in the context of digital platforms. In particular, we focus on assessing entrenched market power and the role of potential competition to constrain this power. Finally, we discuss some cross-border issues of platform market power.

Facebook Shadow Profiles

Facebook Shadow Profiles

Luis Aguiar

University of Zurich - Department of Business Administration

Christian Peukert

University of Lausanne (HEC)

Maximilian Schaefer

Yale University - Department of Economics; Alma Mater Studiorum University of Bologna

Hannes Ullrich

German Institute for Economic Research (DIW Berlin) - Innovation, Management, Service; University of Copenhagen - Department of Economics

Abstract

Data is often at the core of digital products and services, especially when related to online advertising. This has made data protection and privacy a major policy concern. When surfing the web, consumers leave digital traces that can be used to build user profiles and infer preferences. We quantify the extent to which Facebook can track web behavior outside of their own platform. The network of engagement buttons, placed on third-party websites, lets Facebook follow users as they browse the web. Tracking users outside its core platform enables Facebook to build shadow profiles. For a representative sample of US internet users, 52 percent of websites visited, accounting for 40 percent of browsing time, employ Facebook's tracking technology. Small differences between Facebook users and non-users are largely explained by differing user activity. The extent of shadow profiling Facebook may engage in is similar on privacy-sensitive domains and across user demographics, documenting the possibility for indiscriminate tracking.

Collusion through debt and managers

Collusion through debt and managers

 

Raffaele Fiocco

University of Bergamo

Salvatore Piccolo

Compass Lexecon

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: September 2022

Abstract

We investigate the anticompetitive effects of debt financing and managerial incentives in a framework where managers incur personal bankruptcy costs. We show that firms’ shareholders may resort to debt financing and managerial incentives as complementary strategic devices to sustain collusion in the product market, provided that managerial bankruptcy costs are sufficiently responsive to the severity of financial distress. Limited commitment to debt and managerial contracts exacerbates shareholders’ reliance on the amount of debt and managerial incentives for anticompetitive purposes. These results square with the well-documented features of firms’ debt structure and corporate governance in sectors plagued by collusion.

Transaction Costs in Common Ownership

Transaction Costs in Common Ownership

 

Kenneth Khoo

National University of Singapore (NUS) - Faculty of Law

Abstract

A phenomenon known as “Common Ownership” arises when shareholders hold substantial stakes in competing firms. Although recent empirical evidence has illustrated how common concentrated owners are associated with higher product market prices and lower output, scholars remain divided as to the precise mechanism through which common ownership can induce anti-competitive outcomes. In this article, I propose a novel framework to evaluate the plausibility of candidate mechanisms of anti-competitive harm in common ownership. I argue that all disagreements over the anti-competitive mechanisms of common ownership hinge on a central determinant: the transaction costs of internalizing pecuniary externalities between portfolio firms. I define two broad categories of transaction costs: information costs and coordination costs. Information costs relate to costs involved in implementing mechanisms of anticompetitive harm that rely on unilateral effects, while coordination costs relate to costs involved in implementing mechanisms that rely on coordinated effects. Where the transaction costs of internalizing such externalities are positive, common owners will tradeoff the gains from internalizing these externalities with the costs involved in doing so. I characterize this tradeoff by introducing a new parameter – “tailoring”. The degree of tailoring reflects the extent to which a common owner would rationally exert actual control. Highly tailored mechanisms internalize more pecuniary externalities, but incur more transaction costs. On the other hand, untailored mechanisms internalize fewer pecuniary externalities, but incur less transaction costs.

In the context of institutional investing, my analytical framework suggests that institutional investors who are also common owners face large transaction costs in implementing highly tailored mechanisms. These investors are far more likely to pursue relatively untailored mechanisms effects instead. Similarly, institutional investors face relatively large transaction costs in implementing mechanisms which induce unilateral effects, and are thus likely to prefer mechanisms that induce coordinated effects. I contend that optimal policy responses to the anti-competitive effects of common ownership should focus on mechanisms which institutional investors are likely to harness in reducing competition between their portfolio firms. Here, legal reforms can play a critical role in changing the incentives of common owners by increasing the transaction costs of implementing particular mechanisms of anti-competitive harm and in changing the incentives of non-common owners by decreasing the transaction costs of implementing pro-competitive mechanisms. These mechanism specific remedies have significant advantages when compared to competing proposals in the literature.

Horizontal Collusion and Parallel Wage-Setting in Labor Markets

Horizontal Collusion and Parallel Wage-Setting in Labor Markets

 

Jonathan S. Masur

University of Chicago - Law School

Eric A. Posner

University of Chicago - Law School

Abstract

Horizontal collusion among employers to suppress wages has received almost no attention in the academic literature, in contrast with its more familiar cousin, product market collusion. The similar economic analysis of labor and product markets might suggest that antitrust should regulate labor and product markets in the same way. But product markets and labor markets do not operate identically: people behave differently as employees and as consumers. Unlike consumers who can switch products relatively easily, employees face significant frictions in changing jobs. Other labor market frictions are created by the pay equity norm and downward nominal wage rigidity. These factors and related factors stabilize collusive arrangements and facilitate tacit coordination in labor markets. Antitrust law should therefore more aggressively regulate labor market collusion, including tacit coordination, than product market collusion.

Analyzing Vertical Mergers with Auctions Upstream

Analyzing Vertical Mergers with Auctions Upstream

 

Joseph Podwol

Antitrust Division, U.S. Department of Justice

Alexander Raskovich

George Mason University - Antonin Scalia Law School, Faculty

Abstract

We develop a model of vertical mergers with open auctions upstream. This setting may be appropriate for industries where inputs are procured via auction-like “requests for proposal.” For example, Drennan et al (2020) reports that a model of this type was used during the CVS-Aetna merger investigation. Our approach contrasts with a growing body of work on vertical mergers where input prices are determined through Nash bargaining. We discuss how the vertical merger effects of raising rivals’ costs and eliminating double markup might be quantified in our particular model.

A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets

A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets

By:	Aguirre, Iñaki; Yenipazarli, Arda
Abstract:	This paper analyzes the economic implications of oligopoly price discrimination when competition pressure varies across markets. We find that a necessary condition for price discrimination to enhance social welfare is satisfied when the number of firms is higher in the strong market compared to the weak market. We also investigate certain economic implications of the Robinson-Patman Act (RPA) associated with “meeting competition defense” (MCD). Using equilibrium models, we find a basic rationale for the MCD: in cases of primary-line injury, when competitive pressure is more pronounced in the strong market relative to the weak market, the use of MCD might allow price discrimination to enhance welfare by boosting consumer surplus in the weak market. This result holds true regardless of whether price discrimination occurs in the final good market or intermediate good market, and it is robust to the nature of competition. We also unravel that these results change drastically under secondary-line injury.
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:113746&r=

Dissatisfaction at the Federal Trade Commission: An Empirical Analysis of Size and Source

Dissatisfaction at the Federal Trade Commission: An Empirical Analysis of Size and Source

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Abstract

Recent press reports reveal that the Federal Trade Commission (“FTC”) has experienced a dramatic decline in employee engagement and satisfaction under Chair Lina Kahn, attributed largely to Chair Kahn’s mis-management and politicization of the once highly-respected agency. The results from employee satisfaction surveys are troubling. Using the summary level satisfaction measures from a pair of surveys, the FTC fell from the highest-ranking federal agency in 2020 to the bottom quartile of agencies in 2021—the largest decline of all agencies in 2021, and nearly the largest decline in satisfaction across agencies in the past twelve years. The surveys reveal the reduction in satisfaction is driven by a lack of respect for senior leadership due to a perceived lack of honesty and integrity among the agency’s senior leadership. Small increases in satisfaction are observed for agency supervisors, suggesting supervisors are trying to shield FTC staff from the mismanagement by senior leadership.

Courts, Regulators, and the Scrutiny of Economic Evidence

Courts, Regulators, and the Scrutiny of Economic Evidence

Despoina Mantzari

• Presents the first systematic examination of the integration of economic evidence in the regulatory and adjudicative decision-making process in the USA and the UK
• First book to comprehensively analyse the case law of the UK Competition Appeal Tribunal in the realm of economic regulation
• Utilises a unique data set of regulatory appeals in the USA and the UK courts to examine the judicial scrutiny of economic evidence. Methodologically rich: the book combines traditional doctrinal analysis with comparative and empirical analysis

Monopsony and Industrialization

Monopsony and Industrialization

 

Vincent Delabastita

Radboud University

Michael Rubens

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: September 9, 2022

Abstract

How competitive were labor markets during the long 19th century, and how did labor market competition change throughout the industrialization process? To answer these questions, we estimate the `markdown' wedge between the wage and marginal revenue product of labor in 227 Belgian coal firms from 1845 to 1913 using novel production and cost micro-data. We find evidence for moderate wage markdowns prior to the 1890s, and find that these were the result of wage-setting collusion between firms. Around the turn of the century, however, there was a strong and persistent increase in wage markdowns, which coincided with the introduction of a cartel. This had important consequences for the distribution of the productivity gains from industrialization between labor and capital. Before the cartel, wages grew at the same rate as the marginal labor product; afterwards, they grew merely half as fast.