Antitrust & Competition Policy Blog

Mergers and Acquisitions under Common Ownership

Mergers and Acquisitions under Common Ownership

Miguel Anton

University of Navarra, IESE Business School

Florian Ederer

Yale School of Management; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Yale University - Cowles Foundation

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Bruno Pellegrino

University of Maryland - Robert H. Smith School of Business

Date Written: January 11, 2023

Abstract

We provide new facts about the cross-section and evolution of mergers and acquisitions for U.S. public firms. Using a general equilibrium model with a hedonic demand system and data on institutional ownership, we document that mergers are increasingly concentrated among firm pairs with a high degree of product market interaction and a moderate-to-high degree of common ownership. We estimate how much mergers have raised aggregate corporate profits and reduced consumer surplus and quantify how the anti-competitive effects of mergers are affected by common ownership and shareholder value maximization motives.

The Dual Effects of Mergers on Peripheral Markets: Evidence from the U.S. Airline Industry

The Dual Effects of Mergers on Peripheral Markets: Evidence from the U.S. Airline Industry

 

Myongjin Kim

University of Oklahoma - Department of Economics

Lawrence Mazur

Purdue University

 

Abstract

Using data on four large mergers in the U.S. airline industry, we find consistent and significant effects of mergers on peripheral markets (i.e. those in which neither of the merging firms currently competes). Although such markets are rarely the focus of antitrust analysis, we demonstrate that they can experience considerable merger-induced changes in the probability of new entry (“entry-threat” effects), which may in turn influence market performance. Moreover, this probability change may be positive, negative, or nil, as each market faces two distinct, often opposing, effects: an increase in the merged firm’s likelihood of entry, and the merger’s elimination of a potential entrant. Ours is the first study to decompose entry threat effects in this way, and we document considerable heterogeneity in both components across markets. Average prices are found to respond non-monotonically to changes in entry probability, with an overall reduction in price for these four mergers on the order of 2% to 3%. Our results have clear relevance for antitrust policy in general, and merger remedies in particular.

Business-to-Business Data Sharing within the EU Digital Market’ 15 September 2023

The Centre for Antitrust and Regulatory Studies (CARS) of the Faculty of Management of the University of Warsaw invites contributions to the conference ‘Business-to-Business Data Sharing within the EU Digital Market’ which will be held in Warsaw (Poland) on 15 September 2023. The conference is carried out under the Opus grant by the Polish NCN National Science Centre (2018/31/B/HS5/01192).

We welcome abstract submissions from scholars conducting research related to the legal and regulatory aspects of data sharings. Anyone interested in being considered on the basis of this Call for Papers is requested to send an abstract (400-600 words) to [email protected] no later than 10 May 2023. 

Digital Platform Ecosystems and Conglomerate Mergers: A Review of the Brazilian Experience

Digital Platform Ecosystems and Conglomerate Mergers: A Review of the Brazilian Experience

 

 

Nicolo Zingales

Getulio Vargas Foundation (FGV)

Bruno Renzetti

Yale University, Law School; University of Sao Paulo (USP), Faculty of Law (FD)

 

Abstract

This paper highlights some of the key challenges for the Brazilian merger control regime in dealing with mergers involving digital platform ecosystems (DPEs). After a quick introduction to DPEs, we illustrate how conglomerate effects that are raised by such mergers remain largely unaddressed in the current landscape for merger control in Brazil. The paper is divided in four sections. First, we introduce the reader to the framework for merger control in Brazil. Second, we identify the possible theories of harm related to conglomerate mergers, and elaborate on the way in which their application may be affected by the context of DPEs. Third, we conduct a review of previous mergers involving DPEs in Brazil, aiming to identify the theories of harm employed (and those that could have been explored) in each case. Fourth and finally, we summarize and results and suggest adaptations to the current regime, advancing proposals for a more consistent and predictable analysis.

Common Ownership in Fintech Markets

Common Ownership in Fintech Markets

 

 

Anna Tzanaki

Lund University - Faculty of Law; University College London - Centre for Law, Economics and Society; Stigler Center at Chicago Booth Business School

Liudmila Alekseeva

University of Navarra, IESE Business School

José Azar

University of Navarra, IESE Business School; CEPR; ECGI

 

Abstract

Is common ownership in fintech companies an empirically significant phenomenon? What are its impact on competition and innovation in fintech markets and its implications for competition law enforcement? This chapter studies these questions providing evidence and insights on the extent of common shareholdings held by different types of investors in different types of firms and the likely concerns in selected fintech market segments and countries. It also comments on how the specific ownership and governance structures of fintech firms may materially influence the magnitude and systemic nature of effects associated with common ownership.

Fintech markets differ in a number of important ways from traditional markets that are usually less dynamic, and fintech firms are often not publicly listed companies over which the common ownership phenomenon has been empirically studied more extensively. This fact affects, on the one hand, the empirical and theoretical dimensions of potential competitive effects. On the other hand, it also creates distinct challenges and opportunities for competition law enforcement that have been under-theorised and underappreciated to date. By shedding light on these novel issues surrounding common ownership in fintech as well as the complex relationships between fintech competition, innovation, and investment, the chapter aims to deepen the analysis of the implications of common ownership for the operation of firms and markets. As such, it also aims to provide useful guidance to antitrust policymakers for appropriate future action.

The structure of the chapter is as follows. Section II presents empirical evidence on the extent of common ownership in fintech markets across various types of firms, investors and countries. Section III studies the potential impact of common ownership on fintech firms’ behaviour and market competition. Section IV concludes discussing the implications of the findings for competition law enforcement.

The Decline of Coordinated Effects and How to Reverse It

The Decline of Coordinated Effects and How to Reverse It

D. Daniel Sokol

USC Gould School of Law; USC Marshall School of Business

Sean Sullivan

University of Iowa College of Law

Abstract

Opposition to anticompetitive coordination once animated merger policy. But after consecutive decades of decline, evidence now suggests that coordinated effects cases are disfavored among enforcers and are rarely pursued. This change in merger enforcement is dangerous and puzzling. Coordinated effects challenges are antitrust law’s best and often only opportunity to prevent anticompetitive coordination in concentrated markets. Why are coordinated effects theories not being vigorously pursued?

In this Article, we seek to expose the decline in coordinated effects enforcement and the threat it poses to the maintenance of competitive markets. We do so in three steps. First, we explain the special significance of coordinated effects enforcement in the broader antitrust framework. Second, we document the empirical decline in coordinated effects enforcement using multiple data sources. Third, we trace the causes of this decline to discrete changes in antitrust law and enforcement policy; we expose the flaws in these changes, and we propose specific steps to reverse them.

 

Do Antitrust Disruptors Make Good Reformers?

Do Antitrust Disruptors Make Good Reformers?

 

 

Barak Orbach

University of Arizona

 

Abstract

Antitrust law is in the early phase of a badly needed correction. The prior correction—commonly known as the Chicago Revolution—established policy distortions and a need for a “Post-Chicago era.” The present correction is likely to follow the same path. The reason is straightforward. Historically, effective antitrust reform messengers have not been moderate policy wonks. They have been populists driven by zeal and political cynicism and some of their policy prescriptions have been flawed. As a result, antitrust law has evolved through a tension between the ability to generate political energy for antitrust reforms and the capacity to develop sound enforcement policies. Reform messengers depict this tension as a façade created by failed technocrats seeking to preserve their power. While this assertion has some truth, it does not imply that populist policy prescriptions are sound. Society—and specifically consumers—pay the price for misguided antitrust policies.

This Article explores two categories of misconceptions that present proposals for antitrust reform present: (1) the rejection of economics in favor of fairness and (2) a populist bipartisan coalition. The antitrust fairness ideal rests on the belief that society should sacrifice low prices, convenience, and efficiency to foster competition. In other words, society should arguably sacrifice the key benefits of competition to protect competition. The bipartisan populist coalition, in turn, rests on a shared instinct that the “enemy of my enemy is my friend.” Today, both progressive and Republican populists treat big businesses and corporate executives as enemies of the people but focus on strikingly different sets of grievances. Progressive populists have in mind a peaceful and fair marketplace where small businesses, farmers, workers, and entrepreneurs prosper collaboratively. In contrast, Republican populists hope to block what they consider anti-conservative biases of liberal-leaning corporate boards. The alleged biases refer to Corporate America’s condemnation of the nativism, denialism, bigotry, and authoritarian tendencies that the Republican Party represents today. It is far from clear that a bipartisan coalition of this kind is likely to protect competition or advance progressive values. However, the willingness of aspiring antitrust reformers to partner with lawmakers who are not committed to democratic norms sheds light on the qualities of the bipartisan initiatives.

The Illinois Brick Damages Edifice: Demolition or Destruction?

The Illinois Brick Damages Edifice: Demolition or Destruction?

 

 

Gregory K. Leonard

Charles River Associates

 

Abstract

As typically calculated in U.S. “overcharge” cases under existing law, a plaintiff’s damages can diverge substantially from its economic losses. There are two primary reasons for this. First, only direct purchasers may seek damages under Illinois Brick and related federal case law and only those indirect purchasers located in states with Illinois Brick “repealer” laws may seek damages under state law. Thus, some entities that sustained economic losses may not have an avenue for recovery. Second, damages in overcharge cases are typically calculated as the amount of overcharges the plaintiff paid, but this measure may diverge substantially from the plaintiff’s true economic losses and the divergence can go in either direction. The implication is that damages as typically calculated in overcharge cases are not necessarily compensatory. This article discusses these issues and explores the implications of changing the existing legal framework, e.g., overruling Illinois Brick, so that damages would align more closely with economic losses.

Lawful Cartels

Lawful Cartels

 

 

Or Brook

University of Leeds

 

Abstract

The prohibition on hard-core cartels unites competition law regimes across the globe. Nevertheless, not every agreement among competitors is unlawful. Rather, a wide array of acceptable cartel or cartel-like agreements are presumed to create efficiencies or promote industrial and social policies.

This chapter illustrates that there is no common framework that guides the assessment of lawfulness. Competition laws differ in the types of agreements they deem as lawful, the justifications invoked, and the assessment strategies (e.g., legal or economic analysis, exclusion rules, or enforcement discretion). In particular, it points to a disconnect between the underlining economic and non-economic benefits invoked to justify certain types of cartels and the strategies guiding their assessments. It calls to rationalise the assessment by aligning the justifications with the assessment strategies, thereby enhancing the effectiveness, transparency, legal certainty, democratic legitimacy, and political accountability of the competition law regimes.

23rd Annual Loyola Antitrust Colloquium

23rd Annual Loyola Antitrust Colloquium

April 14, 2023

Institute for Consumer Antitrust Studies
Loyola University Chicago
School of Law

8:45 AM	Continental Breakfast and Registration Loyola University Chicago School of Law Power Rogers & Smith Ceremonial Courtroom, 10th Floor 25 E. Pearson Street, Chicago
9:10 AM	Welcome Spencer Weber Waller Professor and Director, Institute for Consumer Antitrust Studies Loyola University Chicago School of Law
9:15 AM	Jennifer Sturiale, Delaware Law School, Widener University Fixing Litigating the Fix Commentators: Jack Kirkwood, Seattle University Law School Henry Su, Washington, DC
10:30 AM	Coffee Break
10:45 AM	Hiba Hafiz, Boston College of Law Law of Geographic Labor Market Inequality Commentators: Laura Phillips Sawyer, University of Georgia School of Law Sarah Allen, U.S. Department of Justice, Antitrust Division
12:00 PM	Lunch Faculty Lounge, 13th Floor
12:30 PM	Lunch Address Lina M. Khan, Chair, United States Federal Trade Commission (invited)
1:30 PM	Panel Discussion: How to Achieve Lasting Progressive Change in Antitrust? Darren Bush (on behalf of the Utah Project, University of Utah) Erik Peinert, American Economic Liberties Project Diana Moss, American Antitrust Institute Charlotte Slaiman, Public Knowledge Sandeep Vaheesan, Open Markets Institute
2:45 PM	Ice Cream Sundae Break
3:15 PM	Harry First, NYU School of Law Bespoke Antitrust (co-author Spencer Weber Waller) Commentators: Daniel Savrin, Morgan Lewis, Boston, MA
6:30 PM	Colloquium Dinner Francesca’s on Chestnut 200 E. Chestnut Chicago, IL 60611 https://www.miafrancesca.com/location/mia-francesca-chestnut/

The Effects of Antitrust Laws on Horizontal Mergers: International Evidence

The Effects of Antitrust Laws on Horizontal Mergers: International Evidence

 

 

Chune Young Chung

Chung-Ang University - College of Business & Economics

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Ji Hoon Hwang

University of Arizona, Eller College of Management, Department of Finance, Students

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship

 

Abstract

This study examines how antitrust law adoptions affect horizontal merger and acquisition (M&A) outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ five-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers' announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement (Baker (2003)). The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.

The Sale of Data: Learning Synergies Before M&As

The Sale of Data: Learning Synergies Before M&As

 

Antoine Dubus

ETH Zürich

Patrick Legros

Université Libre de Bruxelles (ULB)

 

Abstract

Firms may share information to discover potential synergies between their data sets and algorithms, eventually leading to more efficient mergers and acquisitions (M&A) decisions. However, as pointed out by Arrow, information sharing also modifies the competitive balance when companies do not merge, and a firm may be reluctant to share information with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing information. More sharing of information may increase industry expected profits both when there is head-to-head competition and when there is a M&A. Compared to a laissez-faire situation, a regulator in charge of allowing or refusing the M&A may decrease or increase the level of information sharing, as well as consumer surplus. A regulator who can also control the level of information sharing will allow firms to share information.

The Summary Judgment Revolution That Wasn't

The Summary Judgment Revolution That Wasn't

 

 

Jonathan Remy Nash

Emory University School of Law

D. Daniel Sokol

USC Gould School of Law; USC Marshall School of Business

Abstract

The U.S. Supreme Court decided a trilogy of cases on summary judgment in 1986. Questions remain as to how much effect these cases have had on judicial decision making in terms of wins and losses for plaintiffs. Shifts in wins and losses and what cases get to decisions on the merits impact access to justice. We assemble novel datasets to examine this question empirically in three areas of law that are more likely to respond to shifts in the standard for summary judgment: antitrust, securities regulation, and civil rights. We find that the Supreme Court’s decisions had a statistically significant effect in antitrust, an ambiguous effect in civil rights cases, and no effect in securities regulation. We also find that, in the trilogy’s wake, antitrust appellate cases were far more likely to cite trilogy cases—and in particular the one trilogy case that was an antitrust case—than appellate cases in the other areas. This suggests that the lone trilogy case that arose in antitrust had an effect on decision making in that field, but that the trilogy had a limited effect across other substantive areas. This finding differs from Twombly and Iqbal where an antitrust decision ultimately reshaped the entire body of law around motions to dismiss.

Content-Hosting Platforms: Discovery, Membership, or Both?

Content-Hosting Platforms: Discovery, Membership, or Both?

 

Ben Casner

Federal Trade Commission Bureau of Economics

Tat-How Teh

Chinese University of Hong Kong (Shenzhen)

 

Abstract

We develop a model that classifies platforms in the "creator economy"---e.g. Youtube, Patreon, and Twitch---into three broad business models: pure discovery mode (providing recommendations to help consumers search for creators); pure membership mode (enabling individual creators to monetize their viewers through direct transactions); and a hybrid mode which combines both. Creators respond to platforms' decisions by individually choosing to supply content designed along a broad-niche spectrum, which involves a trade-off between viewership size and per-viewer revenue. These design changes create a trade-off between advertising revenue and transaction commission revenue for the platform. In a monopoly platform benchmark moving from pure discovery to hybrid always increases platform revenue while making content weakly more niche. However, moving from pure membership to hybrid may reduce platform revenue if providing advertising is not sufficiently lucrative. In a duopoly setup these tradeoffs can change dramatically depending on the level of platform competition and homing behavior of creators and consumers.

Building Trust: A Dynamic Game of Collusive Price-fixing in the Chilean Pharmaceutical Retail Industry

Building Trust: A Dynamic Game of Collusive Price-fixing in the Chilean Pharmaceutical Retail Industry

 

Yu Hao

The University of Hong Kong - Faculty of Business and Economics

Jorge Alé-Chilet

Bar-Ilan University - Department of Economics

 

Abstract

We propose a dynamic pricing game of incomplete information where firms' beliefs about competitors' prices can be biased. These biases create a coordination problem to achieve a collusive outcome. We apply the model to study the initiation stage of a price-fixing cartel in the Chilean pharmaceutical retailing industry, where firms initially colluded to raise prices on a small set of markets and later expanded this collusion to a larger set of markets. We show that the coordination problems explain the slow transition of firms' pricing from a non-collusive to a collusive equilibrium: without accounting for the coordination problem, the firms raise prices on all markets instantly. We evaluate the effects of counterfactual antitrust policies, such as price caps and divestiture, on the initiation stage. Our results show the importance of accounting for coordination problems among members when setting policies to prevent cartels.

Product Differentiation and Oligopoly: A Network Approach

Product Differentiation and Oligopoly: A Network Approach

 

 

Bruno Pellegrino

University of Maryland - Robert H. Smith School of Business

 

Abstract

This paper develops a theory of oligopoly and markups in general equilibrium. Firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply. My model embeds a novel, highly tractable and scalable demand system (GHL) that can be estimated for the universe of public corporations in the USA, using publicly-available data. Using the model, I compute firm-level markups and decompose them into: 1) a new measure of firm productivity that accounts for product quality; 2) a metric of network centrality, which captures the extent of competition from substitute products. I estimate that, in 2019, public corporations produced consumer surplus in excess of 10 US$ trillions (against $3 trillions of profits). Oligopoly lowers total surplus by 11.5% and depresses consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively). These results should be interpreted with care due to data limitations.

Which Firms Gain from Digital Advertising? Evidence from a Field Experiment

Which Firms Gain from Digital Advertising? Evidence from a Field Experiment
Weijia Dai, Hyunjin Kim, and Michael Luca #30925

Abstract:

Measuring the returns of advertising opportunities continues to be a challenge for many businesses. We design and run a field experiment in collaboration with Yelp across 18,294 firms in the restaurant industry to understand which types of businesses gain more from digital advertising. We randomly assign 7,209 restaurants to freely receive Yelp’s standard ads package for three months. The scale of the experiment gives us a unique opportunity to assess the heterogeneity in advertising effectiveness across a variety of business attributes. We find that restaurants that receive advertising on Yelp observe on average a 7-19% increase in a wide range of purchase intention outcomes, as well as a 5% increase in customer reviews. We find that gains are heterogeneous across firms, with independent and higher-rated businesses observing larger gains, as well as those with more reviews and higher pre-experiment organic traffic.

The Corporate Governance Cartel

The Corporate Governance Cartel

Danielle Chaim

Bar-Ilan University - Faculty of Law

Abstract

This Article offers a novel — antitrust — perspective on a growing phenomenon in capital markets: institutional investor coalitions. It reveals the anticompetitive risks that investor coalitions pose and challenges the prevailing positive view of this development in capital markets. Traditionally, corporate law has encouraged investor cooperation, regarding it as the solution to the well-known collective-action problem facing public shareholders. As this Article shows, however, the recent evolution of investor alliances into powerful, orchestrated coalitions often emerge at the border between firms and markets, affecting not only the intra-firm governance arrangements of the companies held by the coalition members but also the capital markets themselves. At the firm–market border, cooperation among institutional investors — even around seemingly benign corporate governance issues — provides an opportunity for tacit collusion that grants members an unfair advantage in the markets in which they compete.

To demonstrate this contention, this Article adopts an antitrust lens to analyze the collective efforts of one particular group of institutional investors: the coalition to inhibit firms’ use of dual-class stock in initial public offerings (IPOs). This original account of the coalition against the dual-class structure exposes the significant anticompetitive effects that may arise when competing buyers of shares in the primary market coordinate their response to a governance term at the IPO juncture. Since the members of the coalition collectively account for most of the expected market demand for public offerings, their orchestrated efforts can be seen as an exercise of buyer-side power. The exploitation of such power effectively creates a cartel of buyers in the primary market, resulting in two potential economic distortions: (1) abnormal underpricing of dual-class offerings and (2) suboptimal governance arrangements. Both distortions point to overlooked perils associated with the mass-scale aggregation of power by institutional investors.

The potential anticompetitive effects of such investor coalitions — whose actions may be vigorous and sustained, yet difficult to pinpoint — require an immediate policy response. This Article thus proposes regulatory reforms aimed at preventing institutional investors from engaging in collective actions that limit competition. The proposed policies represent a means to achieve the necessary delicate balance between the goal of corporate law to encourage cooperation among shareholders and the goal of antitrust law to restrict collaboration among competitors.

Buyer Power and Exclusion: A Progress Report

Buyer Power and Exclusion: A Progress Report

 

Claire Chambolle

Ecole Polytechnique, Paris - Laboratoire d'Econometrie; National Institute for Agricultural Research (INRA)

Clémence Christin

Centre de Recherche en Économie et Management (CREM)

Hugo Molina

French National Institute for Agriculture, Food and Environment (INRAE); Paris-Saclay Applied Economics

Date Written: December 15, 2022

Abstract

This article presents recent advances in the analysis of buyer-seller networks, with a particular focus on the role of buyer power on exclusion. We first examine simple vertical structures and highlight that either upstream or downstream firms may have incentives to engage in exclusionary practices to counteract or leverage buyer power. We then review current work attempting to revisit this issue in “interlocking relationships”. Based on an ongoing research project, we show that the same exclusion mechanism arises when retail substitution is soft.

Innovation, Learning, and Killer Acquisitions

Innovation, Learning, and Killer Acquisitions

Yves Guéron

Seoul National University

Jihong Lee

Seoul National University

Abstract

We study dynamic market competition between a monopoly incumbent and an entrant experimenting with disruptive innovation. The monopolist can only pursue the uncertain innovation if it buys the disruptor, who is more efficient and privately knows its ability. Mergers generate synergies. We characterize perfect Bayesian equilibria in Markov strategies on bargaining and R&D. The equilibrium path is determined by market belief on the unobservable state and the distribution of private information. Mergers may happen too early or too late, depending on whether the merger reveals private information and the size of private returns to R&D. Buyout effects may worsen over-experimentation.