Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, January 15, 2021

Post-Merger Product Repositioning: An Empirical Analysis

Post-Merger Product Repositioning: An Empirical Analysis

By:

Enghin Atalay; Alan Sorensen; Christopher Sullivan; Wanjia Zhu

Abstract:

This paper investigates firms’ post-merger product repositioning. We compile information on conglomerate firms’ additions and removals of products for a sample of 61 mergers and acquisitions across a wide variety of consumer packaged goods markets. We find that mergers lead to a net reduction in the number of products offered by the merging firms, and the products that are dropped tend to be particularly dissimilar to the firms’ existing products. These results are consistent with theories of the firm that emphasize core competencies linked to particular segments of the product market.

URL:

http://d.repec.org/n?u=RePEc:fip:fedpwp:88726&r=com

January 15, 2021 | Permalink | Comments (0)

Thursday, January 14, 2021

Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá

Perishability, dynamic pricing and price discrimination: evidence from flower markets in Bogotá

By:

Ortiz, Santiago; Castelblanco, Geraldine; Mantilla, Cesar

Abstract:

Perishable products traded in informal markets might be subject to price variations in two opposite directions. Whereas the absence of posted prices opens the door for price discrimination based on some buyers' attributes, the reduction in quality over time might decrease prices to secure a transaction. We use an audit experiment to detect these pricing patterns in the informal flower markets nearby the cemeteries of Bogotá, Colombia. We analyze 441 price quotations. We interpret the lower prices in the afternoon than in the morning as evidence of dynamic pricing. Regarding price discrimination, we find that women are quoted a higher price than men, whereas attire (formal versus informal) does not affect prices. The price variations associated with the time of the day and the gender of the buyer appear to be independent of each other.

URL:

http://d.repec.org/n?u=RePEc:osf:socarx:pv5kz&r=com

January 14, 2021 | Permalink | Comments (0)

Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach

Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach

By:

Régis Chenavaz (LTCI - Laboratoire Traitement et Communication de l'Information - Télécom ParisTech - IMT - Institut Mines-Télécom [Paris] - CNRS - Centre National de la Recherche Scientifique); Corina Paraschiv (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche); Gabriel Turinici (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche)

Abstract:

Dynamic pricing of new products has been extensively studied in monopolistic and oligopolistic markets. But, the optimal control and differential game tools used to investigate the pricing behavior on markets with a finite number of firms are not well-suited to model competitive markets with an infinity of firms. Using a mean-field games approach, this paper examines dynamic pricing policies in competitive markets, where no firm exerts market power. The theoretical setting is based on a diffusion modeì a la Bass. We prove both the existence and the uniqueness of a mean-field game equilibrium, and we investigate mean tendencies and firms dispersion in the market. Numerical simulations show that the competitive market splits into two separate groups of firms depending on their production experience. The two groups differ in price and profit. Thus, high prices and profits do not have to signal anticompetitive practices, stimulating the debate on market regulation.

URL:

http://d.repec.org/n?u=RePEc:hal:journl:hal-01592958&r=com

January 14, 2021 | Permalink | Comments (0)

Start-up Acquisitions and Innovation Strategies

Start-up Acquisitions and Innovation Strategies

By:

Schmutzler, Armin; Letina, Igor; Seibel, Regina

Abstract:

This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We apply this theory to identify the effects of prohibiting start-up acquisitions. We differentiate between killer acquisitions (when the incumbent does not commercialize the acquired start-up's technology) and acquisitions with commercialization. A restrictive acquisition policy reduces the variety of research approaches pursued by the firms and thereby the probability of discovering innovations. Furthermore, it leads to strategic duplication of the entrant's innovation by the incumbent. These negative innovation effects of restrictive acquisition policy have to be weighed against the pro-competitive effects of preserving potential competition.

URL:

http://d.repec.org/n?u=RePEc:zbw:vfsc20:224631&r=com

January 14, 2021 | Permalink | Comments (0)

Platform Price Parity Clauses and Segmentation

Platform Price Parity Clauses and Segmentation

By:

Joan Calzada (Universitat de Barcelona); Ester Manna (Universitat de Barcelona); Andrea Mantovani (University of Bologna)

Abstract:

We investigate how the adoption of price parity clauses (PPCs) by established platforms affects the listing decisions of suppliers. PPCs have been widely adopted by online travel agencies (OTAs) to force client hotels not to charge lower prices in alternative sales channels. We find that OTAs adopt PPCs when they are perceived as highly substitutable, and in order to prevent showrooming. PPCs allow OTAs to charge hotels higher commission fees. However, hotels can respond by delisting themselves from some OTAs. Hence, our analysis reveals that the removal of PPCs enables more hotels to resort to OTAs. This is beneficial for consumers, as prices decrease in absence of PPCs.

URL:

http://d.repec.org/n?u=RePEc:ewp:wpaper:387web&r=com

January 14, 2021 | Permalink | Comments (0)

Wednesday, January 13, 2021

Drip pricing and its regulation: Experimental evidence

Drip pricing and its regulation: Experimental evidence

By:

Rasch, Alexander; Thöne, Miriam; Wenzel, Tobias

Abstract:

Drip pricing is the business practice of decomposing the price into multiple components which are presented sequentially to buyers. We experimentally examine the effects of this practice on seller strategies and buyer behavior as well as the implications for regulation. Sellers set two prices: a base price and a drip price. At first, buyers only observe the base prices and make a tentative purchase decision. Revealing the sellers' drip prices, however, comes at a cost. We find that sellers only compete in base prices and set the highest possible drip price. This makes the base price a reliable indicator for the lowest total price, and few consumers invest in drip-price search. A comparison with Bertrand competition reveals significant effects: With drip pricing, consumer surplus is lower, and seller profits are higher. When there is uncertainty over possible drip sizes, sellers also compete over drips, and consumers more frequently fail to identify the cheapest offer. Bertrand competition also leads to higher consumer surplus and lower firm profits in this case. Hence, our results point to positive effects of drip-price regulation.

Date:

2020

URL:

http://d.repec.org/n?u=RePEc:zbw:vfsc20:224638&r=com

January 13, 2021 | Permalink | Comments (0)

Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger

Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger

By:

Chiara Farronato; Jessica Fong; Andrey Fradkin

Abstract:

Digital platforms are increasingly the subject of regulatory scrutiny. In comparison to multiple competitors, a single platform may increase consumer welfare if network effects are large or may decrease welfare due to higher prices or reduction in platform variety. We study the net effect of this trade-off in the context of the merger between the two largest platforms for pet-sitting services. We exploit variation in pre-merger market shares and a difference-in-differences approach to causally estimate network effects at the platform and market level. We find that consumers are, on average, not substantially better off with a single combined platform than with two separate and competing platforms. On one hand, users of the acquiring platform benefited from the merger because of network effects. On the other hand, users of the acquired platform experienced worse outcomes. Our results highlight the importance of platform differentiation even when platforms enjoy network effects.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:28047&r=com

January 13, 2021 | Permalink | Comments (0)

Global giants and local stars: How changes in brand ownership affect competition

Global giants and local stars: How changes in brand ownership affect competition

By:

Vanessa Alviarez; Keith Head; Thierry Mayer

Abstract:

We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4-7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU.

URL:

http://d.repec.org/n?u=RePEc:cii:cepidt:2020-13&r=com

January 13, 2021 | Permalink | Comments (0)

Manufacturer Cartels and Resale Price Maintenance

Manufacturer Cartels and Resale Price Maintenance

By:

Hunold, Matthias

Abstract:

We provide a theory of how RPM facilitate upstream cartels absent any information asymmetries using a model with manufacturer and retailer competition. Because retailers have an effective outside option to each manufacturer's contract, the manufacturers can only ensure contract acceptance by leaving a sufficient margin to the retailers. This restricts the wholesale price level even when manufacturers collude. In this context, resale price maintenance may only be profitable for the manufacturers if they collude. We thus provide a novel theory of harm for resale price maintenance when manufacturers collude and illustrate the fit of this theory in various competition policy cases.

URL:

http://d.repec.org/n?u=RePEc:zbw:vfsc20:224645&r=com

January 13, 2021 | Permalink | Comments (0)

Tuesday, January 12, 2021

Coordinate to obfuscate? The role of prior announcements of recommended prices

Coordinate to obfuscate? The role of prior announcements of recommended prices

By:

Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics); Nguyen-Ones, Mai (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract:

Firms may want to coordinate industry-wide price jumps that are predictable for rivals, however, unpredictable for consumers. We show how such coordination is carried out in Norwegian gasoline retailing. Overnight, the market leader initiated an equilibrium transition from regular to non-regular price jumps. Prior announcements of a non-transaction price variable, recommended prices, are used to coordinate the timing and the level of industry-wide price jumps.

URL:

http://d.repec.org/n?u=RePEc:hhs:nhhfms:2020_014&r=com

January 12, 2021 | Permalink | Comments (0)

Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry

Competition, cost structure, and labour leverage: Evidence from the U.S. airline industry

By:

Wagner, Konstantin

Abstract:

I study the effect of increasing competition on financial performance through labour leverage. To capture competition, I exploit variation in product market contestability in the U.S. airline industry. First, I find that increasing competitive pressure leads to increasing labour leverage, proxied by labour share. This explains the decrease in operating profitability through labour rigidities. Second, by exploiting variation in human capital specificity, I show that contestability of product markets induces labour market contestability. Whereas affected firms might experience more stress through higher wages or loss of skilled human capital, more mobile employee groups benefit from competitions through higher labour shares.

URL:

http://d.repec.org/n?u=RePEc:zbw:iwhdps:212020&r=com

January 12, 2021 | Permalink | Comments (0)

Do energy efficiency standards hurt consumers?: evidence from household appliance sales

Do energy efficiency standards hurt consumers?: evidence from household appliance sales

By:

Brucal, Arlan; Roberts, Michael

Abstract:

We build novel welfare-based price indices for major household appliances that leverage changes in same-model prices and how consumers substitute between exiting, continuing and new models. We then evaluate how minimum energy efficiency requirements and changing criteria for Energy Star™ labels affected these indices in the U.S. between 2001 and 2011, a period of time when some appliances experienced standard changes while others did not. We find that prices declined while quality and consumer welfare increased, especially when standards become more stringent. We also find that much of the price index decline can be attributed to standards-induced innovation, or cannibalism, not to inter-manufacturer competition. Our results also add to a growing body of evidence that the Consumer Price Index exaggerates inflation due to inadequate account of quality and substitution to new goods.

URL:

http://d.repec.org/n?u=RePEc:ehl:lserod:100772&r=com

January 12, 2021 | Permalink | Comments (0)

Optimal Destabilization of Cartels

Optimal Destabilization of Cartels

By:

von Auer, Ludwig; Pham, Tu Anh

Abstract:

A model-based derivation of an effective antitrust policy requires an economic framework that includes three actors: a cartel, a group of competing fringe firms, and a welfare maximizing antitrust authority. In existing models of cartel behavior, at least one of these actors is always missing. By contrast, the present paper's oligopoly model includes all three actors. The cartel is the Stackelberg quantity leader and the fringe firms are in Cournot competition with respect to the residual demand. Taking into account that the antitrust policy instruments (effort, fine, and leniency program) are not costless for society, an optimal policy is derived.

URL:

http://d.repec.org/n?u=RePEc:zbw:vfsc20:224521&r=com

January 12, 2021 | Permalink | Comments (0)

Online Guest Seminars at the Oxford Centre for Competition Law and Policy

The CCLP will host a number of online lunchtime seminars this year. The full list of guest seminars is outlined below (and available online).

Guest seminars are open to all. Please register online to receive a link for each of the events.

Online Guest Seminars at the Oxford Centre for Competition Law and Policy

  1. Friday, 29 January 2021 - Fryderyk Hoffmann, Remedies in merger cases - a monitoring trustee's perspective
  2. Friday, 5 February 2021 - Alec Burnside, Fitbit/Google transaction
  3. Friday, 12 February 2021 - Tim Cowen, Searching the soul of antitrust: what is competition law for?
  4. Friday, 19 February 2021 - Rachel Brandenburger, US antitrust law - key decisions and current debate
  5. Friday, 26 February 2021 - Rachel Brandenburger, International cooperation and friction - competition and non-competition values
  6. Friday, 5 March 2021 - Cyril Ritter, Two-sided markets in EU competition law
  7. Friday, 12 March 2021 - Philip Marsden, Competition law: A European vision of the digital context
  8. Friday, 30 April 2021 - Angela Zhang, Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation

January 12, 2021 | Permalink | Comments (0)

Spilt Milk: COVID-19 and the Dangers of Dairy Industry Consolidation

Spilt Milk: COVID-19 and the Dangers of Dairy Industry Consolidation

By:

Eileen Appelbaum (Center for Economic and Policy Research); Jared Gaby-Biegle (Center for Economic and Policy Research)

Abstract:

Consolidation came later in the dairy industry than in other agricultural sectors. A long history of dairy farmer cooperatives owned by their farmer members and vertically integrated to produce and distribute fluid milk and cheese products staved off industrialized farming and horizontal consolidation. But by 1990, advances in technology and a change in antitrust regulation enabled investor-owned firms like Borden Dairy and Dean Food as well as large farmer cooperatives like DFA, Prairie Farm and Land O’Lakes to dominate the industry. Consolidation and the pursuit of economies of scale led to two inflexible and separate supply chains in dairy – one serving retail markets for consumers, the other serving commercial markets for institutional customers. The COVID-19 pandemic and economic lockdown revealed the lack of resilience and risks in a system dominated by a few large actors. Viable reforms in the dairy industry that limit the domination by powerful actors can achieve resilience and improve the ability of the dairy industry to respond to disruptions.

URL:

http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp134&r=com

January 12, 2021 | Permalink | Comments (0)

Selling Cross-Border in Online Markets: The Impact of the Ban on Geoblocking Strategies

Selling Cross-Border in Online Markets: The Impact of the Ban on Geoblocking Strategies

By:

Marc Bourreau; Fabio M. Manenti

Abstract:

We develop a model of strategic geoblocking, where two competing multi-channel retailers, located in different countries, can decide to block access to their online store from foreign consumers. We characterize the equilibrium when firms decide unilaterally whether to introduce geoblocking restrictions. We show that geoblocking results in a “puppy dog” strategy (Fudenberg and Tirole, 1984) for firms, which allows them to soften competition, but that it comes at the cost of lower demand. In the short term, a ban on geoblocking leads to lower prices, both offline and online. However, in the longer term, when firms can invest in increasing the demand from online shoppers, the ban may have adverse effects on investment and social welfare. We extend our analysis to account for price discrimination and investigate the role of shipping costs.

URL:

http://d.repec.org/n?u=RePEc:ces:ceswps:_8690&r=com

January 12, 2021 | Permalink | Comments (0)

National pricing with local quality competition

National pricing with local quality competition

By:

Tommy Staahl Gabrielsen (University of Bergen); Bjørn Olav Johansen (University of Bergen); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen)

Abstract:

We study the incentives of national retail chains to adopt national (uniform) prices across local markets that differ in size and competition intensity. In addition to price, the chains may also compete along a quality dimension, and quality is always set locally. We show that absent quality competition, the chains will never use national pricing. However, if quality competition is sufficiently strong there exist equilibria where at least one of the chains adopts national pricing. We also identify cases in which national pricing bene ts (harms) all consumers, even in markets where such a pricing strategy leads to higher (lower) prices.

URL:

http://d.repec.org/n?u=RePEc:nip:nipewp:09/2020&r=com

January 12, 2021 | Permalink | Comments (0)

Monday, January 11, 2021

Monopolization Remedies and Data Privacy

Monopolization Remedies and Data Privacy

 

Erika Douglas

Abstract

As a former agency head explains, antitrust litigation is like fishing: “everybody likes to catch them, but nobody wants to clean them.” Antitrust enforcers around the world are eager to catch digital platforms with monopolization cases, but little attention is being paid to the remedies that will follow.
This article examines a new source of complexity for those monopolization remedies — data privacy. In particular, it considers remedies that require access to, or disclosure of the information held by digital platforms, to restore online competition. How are such “data access” remedies impacted by the rise of consumer data privacy law?

As the article explains, neither current theory nor past monopolization cases answer this question. Existing theories on the interface between antitrust law and data privacy are focused on liability. Their application may therefore miss the distinct privacy impacts that arise at the remedies stage of a case. Past monopolization cases that ended in data access remedies often ordered disclosure of company, not consumer, information. Individual data privacy was simply not relevant. The rare historical cases that ordered disclosure of consumer information pre-date the rise of U.S. data privacy law from the mid- 1990s to present. For the first time, antitrust remedies may well have to contend with consumer privacy protection, and the control such protection can impart over competitively important data.

The article calls for antitrust analysis to consider data privacy in the design of remedies, particularly for digital platforms. Without such analysis, remedies may unwittingly cause privacy harms that outweigh the benefits to consumers from restored competition. A remedy that causes such a reduction in consumer welfare would undermine the purpose of bringing antitrust enforcement action.

The article concludes with discussion of two potential approaches for implementing the proposal. The first focuses on obtaining consumer consent to remedial disclosure and use of data. The second focuses on legislative or judicial definitions of data privacy interests that exclude remedial disclosure. Both demand careful consideration of consumer privacy, and the new complexity it creates for monopolization relief.

January 11, 2021 | Permalink | Comments (0)

Court denies DOJ’s bid to block acquitted FX trader from using certain evidence

With all the discussion on the importance of rule of law, note this article  from GCR on DOJ Antitrust:

A New York federal judge has denied the Department of Justice’s request to block former Citigroup trader Rohan Ramchandani from using admitted trial exhibits in civil proceedings before another government agency.  

I think that procedural fairness in antitrust is paramount not just in the US but globally.  After having led the procedural fairness efforts at the ICN and globally, this is not something that makes the United States look good.

For my take on antitrust procedural fairness, see

Cover for 

Antitrust Procedural Fairness

Antitrust Procedural Fairness

Edited by D. Daniel Sokol and Andrew T. Guzman

  • The only comparative reference work on procedural fairness in global antitrust law
  • Focuses on both common problems and distinct issues in particular jurisdictions
 

 

 

 

January 11, 2021 | Permalink | Comments (0)

Constraining Competition with State Mandated Facility Requirements

Constraining Competition with State Mandated Facility Requirements

 

David E. Harrington

Kenyon College - Department of Economics

Jaret Treber

Kenyon College - Department of Economics

Abstract

We find that state mandated facility requirements may constrain the size and location of funeral homes. Many states have funeral regulations that require funeral homes to have embalming rooms, chapels, and casket display rooms. Often these facilities go unused, providing no discernible benefit to consumers while imposing unnecessary costs on firms. Using a case study, we present evidence that Arizona's more extensive facility requirements reduce the number of small funeral homes relative to Florida and prevent them from locating in shopping centers. We estimate that eliminating Arizona's cumbersome facility requirements would save consumers approximately 14% on their funeral expenditures.

January 11, 2021 | Permalink | Comments (0)