Antitrust & Competition Policy Blog

Rising Markups or Changing Technology?

Rising Markups or Changing Technology?

By:	Lucia S. Foster; John C. Haltiwanger; Cody Tuttle
Abstract:	Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences.
URL:	http://d.repec.org/n?u=RePEc:nbr:nberwo:30491&r=

Competition and Quality: Evidence from the Entry of Mobile Network Service

Competition and Quality: Evidence from the Entry of Mobile Network Service

By:	Marc Bourreau (Telecom Paris, Department of Economics and Social Sciences, 19 place Marguerite Perey, 91120 Palaiseau, France); Yutec Sun (CREST-ENSAI, 51 Rue Blaise Pascal, 35170 Bruz, France)
Abstract:	We measure the impact of a new entry on quality supply and welfare in the French mobile service market, where the service providers compete on investing in network resources to meet fast-growing demand for mobile consumption. As network's quality is endogenous to strategic investments, it is unclear whether the entry led the market closer to the socially optimal level of quality supply and welfare. We develop a tractable approach to empirically analyze the dynamic oligopoly game of investment in the network resources in the market where consumers face substantial costs of switching among differentiated services. The counterfactual analysis finds that the quality may be oversupplied in oligopoly competition from the social welfare perspective, while the merger is predicted to yield undersupplied quality.
URL:	http://d.repec.org/n?u=RePEc:net:wpaper:2204&r=

Decentralized Market Power in Credit Markets

Decentralized Market Power in Credit Markets

By:	Silva, Thiago; Souza, Sérgio; Guerra, Solange; Tabak, Benjamin
Abstract:	The literature measures a bank's market power using aggregated data at the bank level. However, market power may be exercised in a decentralized way by each bank branch and for specific banking products. This article proposes a novel methodology for estimating a bank's market power at the branch level in each locality and for each banking product. We find significant heterogeneity in banks' market power by locality and product, even within the same bank. Our results suggest that aggregate measures of bank market power may be misleading and distorted. Accurate quantification of market power requires fine-grained measures, which are essential for enhancing financial regulation and competition.
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:114766&r=

Rising Markups or Changing Technology?

Rising Markups or Changing Technology?

By:	Lucia Foster; John Haltiwanger; Cody Tuttle
Abstract:	Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences.
URL:	http://d.repec.org/n?u=RePEc:cen:wpaper:22-38&r=

Towards a Technological Overhaul of American Antitrust

Towards a Technological Overhaul of American Antitrust

Ginger Zhe Jin (U Maryland), D Daniel Sokol (USC), and Liad Wagman (ITT)

ABSTRACT

Recent outcry for antitrust reform argues that U.S. markets have become more concentrated, that large firms’ profit margins have increased, and that part of these changes may be attributed to lax antitrust enforcement since the 1960s. While each of these arguments is part of an intense intellectual discourse, politicians have released numerous legislative proposals for what they presumably believe would fix antitrust practices. Despite the clamor, one tangible and factual reason for antitrust reform has not received adequate attention: the informational infrastructure within the U.S. antitrust system massively lags behind the development of the digital economy. That is, the federal antitrust agencies are improperly equipped to organize and operationalize knowledge in enforcement. As a result, the agencies may miss critical warning signs of potential anticompetitive conduct, since they are often unequipped to properly identify issues and do not allocate existing resources effectively (let alone ask Congress for the right kind of resources).

 

 

Tying under Double-Marginalization

Tying under Double-Marginalization

Roman Inderst

Goethe University Frankfurt

Fabian Griem

Goethe University Frankfurt

Greg Shaffer

University of Rochester - Simon Business School

Abstract

In a model of contractual inefficiencies due to double-marginalization, we analyze the practice of tied rebates that incentivizes retailers to purchase multiple products from the same manufacturer. We isolate two opposing effects: a surplus-sharing effect that enhances efficiency and a rent-extraction effect that reduces efficiency. The overall effect is more likely to be negative when the manufacturer has a particularly strong brand for which the retailers alternatives are much inferior. Foreclosure of a more efficient provider of the manufacturers weaker product is not a sufficient
condition for a welfare loss. Our key positive implication relates to the seemingly inefficient introduction of weaker products by the owners of particularly strong brands.

Personalised Pricing, Competition and Welfare

Personalised Pricing, Competition and Welfare

 

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Evgenia Motchenkova

VU University Amsterdam - Department of Economics; TILEC

Hui Wang

Beijing Zhengjiang Science and Technology Co., Ltd - Department of Economics

Abstract

Data-driven AI pricing algorithms in on-line markets collect consumer information and use it in their pricing technologies. In the simplest symmetric Hotelling's model such technologies reduce prices and profits. We extend Hotelling's model with vertically diferentiated products, cost asymmetries and arbitrary adjustment costs. We provide a characterization of competition in personalized pricing: Sellers compete in offering consumer surplus, personalized prices are constrained monopoly prices and social welfare is maximal. For linear adjustment costs, adopting personalized pricing technology is a dominant strategy for both sellers. We derive conditions under which the most efficient seller increases her profit through personalized pricing. While aggregate consumer surplus increases, consumers with high switching costs may be hurt. Finally, we discuss several extensions of our approach such as oligopoly.

Horizontal Mergers between Asymmetric Cournot Oligopolists

Horizontal Mergers between Asymmetric Cournot Oligopolists

Xiao Fu

Fudan University - School of Management

Ping Lin

Shandong University

Juan Lu

Guangdong University of Finance

Abstract

We analyze the profitability of horizontal mergers in Cournot markets, where firms are divided into two groups based on the extent to which their products are differentiated. We show that both within-group and cross-group mergers are more likely to occur when either products are more distant substitutes or the number of merger outsiders decreases. Moreover, the relative size of each group is a crucial factor that determines which type of merger is more profitable than the other. Therefore, our findings highlight the importance of taking outsiders’ free riding into account when assessing the profitability of mergers.

Sustainability Agreements

Sustainability Agreements

Roman Inderst

Goethe University Frankfurt

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Abstract

Recent changes in national competition laws and enforcement guidelines, including those of the European Commission, increase the scope for considering sustainability benefits in the assessment of horizontal cooperations. Abstracting from (standard) arguments that relate to cost sharing, spillovers, or strategic complements, we analyze the implications of such sustainability agreements in an otherwise standard model that, however, endows firms with preferences for sustainability that go beyond its monetization in the marketplace. We find that agreements lead to more sustainability when this is associated mainly with higher marginal but not higher fixed costs or when, in the presence of fixed costs, firms' own sustainability preferences are sufficiently large. Otherwise, agreements lead to lower sustainability. In both cases, however, consumers tend to be worse off, absent other benefits of the agreements. As a quick guidance to antitrust authorities, again absent any other efficiencies, sustainability should increase under a joint agreement if prior to the agreement, firms have shown willingness to increase sustainability even at the cost of becoming less competitive and thereby compromising profits. This is also when the greement further reduces firms' profits, which constitutes another test.

Will Blockchains Disintermediate Platforms? The Problem of Credible Decentralization in Daos

Will Blockchains Disintermediate Platforms? The Problem of Credible Decentralization in Daos

Yannis Bakos

New York University (NYU) - Department of Information, Operations, and Management Sciences

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business

Abstract

Blockchain technologies are designed to promote decentralization and self-governance in economic and social settings. In the context of platforms, an early claim of some proponents of these technologies was that blockchains would promote disintermediation, replacing intermediaries with decentralized governance, for instance leading to platforms governed by decentralized autonomous organizations (DAOs).

We have seen some elements of that (e.g., in DeFilDecentrilized Finance), but upon closer examination, most of the "decentralized" platforms are actually controlled by a small number of agents, or even a single agent, that effectively act as intermediaries. In this work we study the underlying dynamics and explore the potential for decentralized governance of blockchain-based platforms by modeling a simplified setting with a one-sided platform and comparing control by a centralized intermediary to control by a DAO that makes decisions via majority voting of its governance tokens.

We find that in the baseline case a "democratic" DAO with tokens equally distributed among potential users would set a low access price for the platform and maximize network size and total surplus. This is different from a profit maximizing centralized intermediary that would set a higher "monopoly price. If tokens can be traded, however, there is a strong tendency for concentration of control, which makes it challenging to maintain decentralized governance. Concentration in the ownership of governance tokens can be limited either by design or by regulations such as trading restrictions for the governance tokens, but implementing and enforcing such limitations is challenging. Intermediaries may be changed by blockchain technologies, but they are not likely to disappear.

When Should We Look Out for the Little Guy? An Examination of the Inconsistencies in Antitrust Enforcement of Monopsony Power in Canada and the United States

When Should We Look Out for the Little Guy? An Examination of the Inconsistencies in Antitrust Enforcement of Monopsony Power in Canada and the United States

Susan Hutton

Stikeman Elliott

Naime Isaj

affiliation not provided to SSRN

Laura Rowe

Stikeman Elliott

D. Daniel Sokol

USC Gould School of Law and Marshall School of Business

Abstract

Enforcement of competition/antitrust laws regarding the exercise of market power in respect of upstream markets (monopsony/oligopsony power) has been inconsistent in both Canada and the United States. This paper provides an overview of the competition/antitrust laws in Canada and the United States and how they have addressed (or not addressed) monopsony power both in legislation and in case law, and seeks to identify the interests that are protected by various enforcement rationales. An apparent pattern is that large suppliers seem not to be afforded the same degree of protection against monopsony as small suppliers—a pattern that is at odds with monopoly enforcement in Canada and the United States. However, this pattern is not consistently articulated or applied. The authors call for clarification by law-makers and enforcers as to what interests they are seeking to protect from the exercise of monopsony power, and when they will intervene to do so.

 

In Pursuit of Fairness? Infrastructure Investment in Digital Markets

In Pursuit of Fairness? Infrastructure Investment in Digital Markets

 

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR)

Abstract

Recent and ongoing investments into telecommunications infrastructure have facilitated the repeated waves of digitization, both in personal and professional life. I address the question of which actors should contribute to investment costs into telecoms infrastructure and how. One widely discussed proposal (made, for example, by ETNO, the European Telecom Network Operations’ Association) is to mandate a few select large firms that offer complementary applications and services through the telecom infrastructure to compensate infrastructure providers by way of a lump sum. I discuss and evaluate this proposal from the perspectives of incentives, risk sharing, fairness, and implementability. Given the undisputed positive external effects of infrastructure investments on different actors in the internet ecosystem, I outline two theoretical first-best solutions and argue that the current proposal from ETNO is far from realizing the potential benefits of these options.

Antitrust Presumptions for Digital Platforms

Antitrust Presumptions for Digital Platforms

 

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School; University College London

Abstract

Antitrust litigation often involves situations where important relevant information is limited or costly to obtain, behavior is complex and can have multiple explanations, or theory is not particularly well developed. As a result, legal and factual presumptions, evidentiary shortcuts, and assignment of the burden of proof can be critical and often decisive. This situation is common across all types of antitrust actions, including unilateral and collaborative conduct, as well as mergers. In general, the more complex an issue is or the market in which it occurs, the more valuable evidentiary shortcuts become, provided that they point us in the right direction. This paper considers how these constraints should be applied to large digital platform markets.

Uniquely harsh treatment threatens an error that antitrust policy has made before, which is excessive management of a part of the economy that is in fact notable for its superior performance. The need for and nature of presumptions or other evidentiary shortcuts should be partly based on our overall assessment of performance. If we believe that the markets dominated by large digital platforms are performing poorly, with a great deal of monopoly and low customer satisfaction, then stronger evidentiary biases against them might be warranted. However, if we think they are performing relatively well, then perhaps such presumptions should be weakened or not employed at all.

At the same time, however, the digital economy contains unique features that serve both to differentiate and to complicate antitrust analysis. Further, the opportunities for engaging in harmful exercises of market power are numerous. Large tech firms trade heavily, although not exclusively, in digital content; they have different cost structures than most traditional firms; they often operate on “two-sided” markets; and they are heavily involved in distribution with both direct and indirect network effects.

The Bipartisan Consensus on Big Tech

The Bipartisan Consensus on Big Tech

 

Roger Paul Alford

University of Notre Dame; Notre Dame Law School

Abstract

This Article contends that there is an emergent bipartisan consensus that Big Tech has grown too powerful and that action must be taken to address its abuse of power. That action takes the form of a variety of legislative proposals to enhance government enforcement powers, reform the merger laws, and address self-preferencing, data portability, and interoperability. Litigation efforts focus on Facebook and Google’s abuse of monopoly power, particularly with respect to Facebook’s elimination of competition through acquisitions and Google’s abuse of monopoly power in search and display advertising. While we are in the midst of one of the most divisive and polarizing periods in our nation’s history, there is a strong bipartisan consensus on the perils of Big Tech and a desperate need to do something about it.

Digital Privacy: GDPR and Its Lessons for Australia

Digital Privacy: GDPR and Its Lessons for Australia

Ratul Das Chaudhury

Monash University; Monash Business School

Chongwoo Choe

Monash University - Department of Economics

Abstract

Australia’s Privacy Act 1988 is under review with a view to bringing Australia’s privacy laws into the digital era, more in line with the European Union’s General Data Protection Regulation (GDPR). This article discusses how the GDPR can be refined and standardized to be more effective in protecting privacy in the digital era while not adversely affecting the digital economy that relies heavily on data. We argue that an ideal data policy should be informative and transparent about the potential privacy costs while giving consumers a menu of opt-in choices into which they can self-select themselves.

Mergers and Acquisitions in the Tech Industry: Are They Different?

Mergers and Acquisitions in the Tech Industry: Are They Different?

 

 

Andrea Asoni

Charles River Associates

Grace Luo

Charles River Associates (CRA) - Competition Practice

Abstract

This Article will compare mergers and acquisitions in the technology industry in the U.S. to mergers and acquisitions in other sectors of the U.S. economy, as well as other countries. This Article will show that the U.S. technology industry is not disproportionately prone to consolidation relative to other important sectors of the U.S. economy. Furthermore, while technology mergers and acquisitions were historically more common in the U.S. than in the rest of the world, other countries are rapidly catching up to the U.S. Lastly, evidence in this Article suggests that the mergers and acquisition activity in the U.S. technology sector is not driven by the largest firms nor by a handful of prolific buyers.

Overview of Privacy in Cases Relevant to Competition

Overview of Privacy in Cases Relevant to Competition

Christophe Carugati

Université Paris II - Panthéon-Assas; Bruegel

Abstract

Privacy in competition cases is becoming common due to the importance of data. The literature thus focuses on the role of data and privacy in antitrust and merger control laws. Yet, the literature does not offer an empirical overview of the cases to understand how countries investigate the issue. This paper fills the gap. From publicly available cases from the first cases in 2007 until September 2022 and online surveys sent to 91 competition authorities in January 2022 in the context of a database of antitrust cases related to privacy for the law journal Concurrences, it offers for the first time a comprehensive overview of the topic. The data collection focuses on competition cases and contains consumer protection and data protection cases relevant to competition. The paper found that several countries are investigating, or have investigated, privacy issues under the three legal regimes, mostly under antitrust laws in the digital sector. Several ongoing cases still pose unresolved questions, especially when competition and privacy conflicts. This requires a cooperation mechanism between competition and non-competition authorities to deal with cross-regulatory issues, in which authorities should deepen their knowledge of other legal regimes, and adapt and use the instruments of international cooperation between competition authorities.

Law, Policy, Expertise: Hallmarks of Effective Judicial Review in EU Competition Law

Law, Policy, Expertise: Hallmarks of Effective Judicial Review in EU Competition Law

Pablo Ibáñez Colomo

London School of Economics - Law School

Abstract

This article discusses the techniques – ‘hallmarks’ – that the EU courts have developed to ensure that judicial review remains effective in EU competition law. These hallmarks can be grouped into three main categories. Some of them concern the interpretation of substantive law, namely the definition of legal tests and their consistent use over time. Some, the need for administrative action to rely on the best available evidence (which comprises both reliance on the expert consensus and the careful examination of the economic and legal context). A third category relates to the scrutiny exercised over the policy statements through which the European Commission chooses to constrain its discretion.

Upstream Mergers with Divestitures in Vertical Markets

Upstream Mergers with Divestitures in Vertical Markets

 

Yann Delaprez

European University Institute

Morgane Guignard

Institut Polytechnique de Paris

Abstract

This paper analyses a large upstream joint venture with divestiture in the French coffee market. Contrary to previous approaches used to study the effect of upstream divestiture on prices and economic welfare, we model the vertical market structure. First, we show that divestiture can lead to marginal cost savings for the buyer of the divested brand. Second, our results reveal that, accounting for upstream bargaining, the standard policy recommendation corresponding to request divestiture to small recipient firms might not hold.

Antitrust Mergers and Regulatory Uncertainty

Antitrust Mergers and Regulatory Uncertainty

D. Daniel Sokol

USC Gould School of Law; USC Marshall School of Business

Marissa Ginn

Robert Calzaretta

Marcello Santana

Abstract

Estimating antitrust risk is fundamental to identifying, proposing, and pricing deals. A more informed understanding of what to expect when meeting with agency staff and leadership will help antitrust lawyers and economists (or other consultants) anticipate the critical questions and potential paths that should be addressed regarding antitrust merger risk. This article uses practitioner surveys to understand whether and how the change in the Biden administration’s antitrust agenda has affected merger review, investments, decision making, and counsel. The surveys also offer antitrust agencies an opportunity to think about the optimal design of the merger control system and various consequences of certain policy choices and institutional design changes. A quantitative online survey was conducted first, followed by qualitative discussions with practice group leadership across top antitrust law firms. Both studies were designed to identify whether respondents perceived any substantive shifts from prior administrations to the Biden administration, the impact of such shifts (if any) on merging parties, and any notable differences between the DOJ and FTC in enforcement and procedures. Our surveys indicate that practitioners have a more critical perception of the FTC and DOJ compared to prior administrations. Both agencies are perceived as less transparent and less fair in their interactions with merging parties. The enforcement process is seen as more demanding in terms of scope of data collected and is reported to take longer to complete. The agencies have also departed from precedent as they increasingly scrutinize labor issues and vertical deals.