Antitrust & Competition Policy Blog

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

Monday, July 27, 2020

Missing Missingness in Merger Analysis

Missing Missingness in Merger Analysis

Susan Smelcer Georgia State University - College of Law

Abstract: Data and statistical modeling have played an increasingly important role in analysis across disparate areas of law. But courts’ ability to assess the validity and reliability of the analyses that rely on these data has not kept apace. This mismatch between the law’s reliance on data and an ability to appropriately evaluate analyses using these data is especially acute in antitrust challenges to horizontal mergers by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). Whereas enforcement agencies and courts once applied relatively simple rules about the structure of a market, the analytical landscape has become more dependent on sophisticated economic theories and data analysis techniques. Increased reliance on such models presents opportunities for creating better economic outcomes on average. But the use of observational data also carries with it often unacknowledged hazards. This is a problem. Observational data often suffer from missingness, meaning these data may be randomly or systematically incomplete. Whereas random missingness creates imprecision, systematic missingness results in bias, which may lead a court or agency to improperly enjoin or allow a merger. This Article explores the conditions under which data vital to merger analysis may be missing, as well as its effects. As an illustration, this Article evaluates the court’s discussion of data in F.T.C. v. Sysco through the lens of missingness and conducts simulations to examine how more complete data would have altered the court’s analysis. Finally, this Article offers changes to current practice to both increase transparency of and public confidence in the courts’ use of these data in merger review.

July 27, 2020 | Permalink | Comments (0)

In Defense of Breakups: Administering a “Radical” Remedy

In Defense of Breakups: Administering a “Radical” Remedy

Rory Van Loo

Boston University - School of Law; Yale University - Yale Information Society Project

Date Written: June 30, 2020

Abstract

Calls for breaking up monopolies—especially Amazon, Facebook, and Google—have largely focused on proving that past acquisitions of companies like Whole Foods, Instagram, and YouTube were anticompetitive. But scholars have paid insufficient attention to another major obstacle that also explains why the government in recent decades has not broken up a single large company. After establishing that an anticompetitive merger or other act has occurred, there is great skepticism of breakups as a remedy. Judges, scholars, and regulators see a breakup as extreme, frequently comparing the remedy to trying to “unscramble eggs.” They doubt the government’s competence in executing such a difficult task, pointing to decision-making flaws dating back to the breakups of Standard Oil in 1911 and AT&T in 1984. Even many scholars calling for more vigorous antitrust enforcement recommend alternative remedies. This Article asserts that the pervasive hesitancy about administering breakups renders antitrust impotent in the face of monopolies—too often a statutory right without a remedy. More importantly, the Article challenges the perception of breakups as unadministrable. The intellectual foundations for the anti-breakup stance are weak, relying on outdated, anecdotal evidence. Moreover, antitrust needs a methodological shift toward paying greater attention to the breakup insights yielded by other disciplines. In particular, business scholars have studied how the world’s leading companies regularly break themselves up voluntarily. Additionally, administrative law scholarship has observed a broader evolution toward collaborative regulation that shows how the much-maligned historical approaches to antitrust remedies could be greatly improved by relying more on the business sector in designing and implementing breakups. In other words, insights from outside of antitrust address many critiques of breakups and show how that remedy is far from radical and messy. Antitrust observers should thus abandon the worldview that compares breaking up prior companies to unscrambling eggs. Or at a minimum they should recognize that scrambled eggs, once cooked, are regularly divided into smaller portions. A greater willingness to do the same to monopolies in the post-merger context and beyond would bring regulators more in line with the business sector, which sees divestitures as a routine part of effective governance.

July 27, 2020 | Permalink | Comments (0)

Common ownership and market entry: Evidence from the pharmaceutical industry

Common ownership and market entry: Evidence from the pharmaceutical industry

By:

Melissa Newham; Jo Seldeslachts; Albert Banal-Estanol

Abstract:

Common ownership - where two rms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical research suggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the e ect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical rms into drug markets opened up by the end of regulatory protection in the US. We rst provide a theoretical framework that shows that a higher level of common ownership between the brand rm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for su ciently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.

URL:

http://d.repec.org/n?u=RePEc:ete:msiper:623896&r=com

July 27, 2020 | Permalink | Comments (0)

Friday, July 24, 2020

Jon Bon Jovi to keynote DOJ Antitrust event (no joke)

My wife loved him on Ally McBeal.  I was in the 7th grade when Slippery When Wet came out and bought the album at record store Sam Goody's in fall 1986.  I got it on cassette.  It was an awesome album.  It was also the year that we first got cable and I saw the video for Livin' on a Prayer on MTV (historical reference for those of you under 40 - MTV actually played music videos back in the day).  I am so excited that Jon Bon Jovi will be providing a keynote at the DOJ music licensing workshop.  Clearly this must be the brainchild of the coolest person I know at DOJ - Jeff Wilder in EAG.  I am sure that Jeff listened to Van Halen and Bon Jovi back in 1986 and may have even been into glam rock like Poison and Motley Crue.  I just cannot imagine him as a British new wave sort of guy or someone who listened to Madonna.   

 

 

July 24, 2020 | Permalink | Comments (0)

Antitrust Division Announces Agenda For Workshop On Competition In The Licensing Of Public Performance Rights In The Music Industry

Antitrust Division Announces Agenda For Workshop On Competition In The Licensing Of Public Performance Rights In The Music Industry

Songwriters LeeAnn Rimes, Pharrell and Jon Bon Jovi to Deliver Special Keynotes

The Department of Justice has released a final agenda for the Antitrust Division’s July 28-29 public workshop on competition in the licensing of public performance rights in the music industry.  The workshop will provide a venue for industry stakeholders to further weigh in on the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) consent decrees and their implications for antitrust law enforcement and policy as music distribution continues to evolve through technological innovation.  

“We are fortunate to hear from some of the greatest talents and some of the most experienced executives in the music industry at our workshop. I anticipate an interesting and productive discussion among our esteemed panelists,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division.  “While the ASCAP and BMI consent decrees have governed licensing of performance rights for more than 75 years, the music industry has changed significantly in the meantime. We look forward to our panelists and speakers sharing their views on whether these decrees still offer songwriters and musicians the benefit of robust competition today.”

The released agenda includes remarks from Assistant Attorney General Makan Delrahim and distinguished panelists with a wide variety of perspectives on the ASCAP-BMI consent decrees.  Special keynotes will be delivered by LeeAnn Rimes, Pharrell and Jon Bon Jovi, who will share their experiences as songwriters within the current licensing system.  The announced panel topics will include whether or not certain terms of the ASCAP and BMI consent decrees should be modified, and whether the decrees are inhibiting innovative business models that may hurt consumers or artists.  The panels will include views from the performance rights organizations, songwriters, music publishers, music licensees, legal and economic experts, and other industry stakeholders.

The final agenda and more information on the event, including registration and instructions on accessing the webcast, can be found on the Competition in Licensing Music Public Performance Rights event page. The workshop is free and open to the public, and will be webcast from 12:30pm to 5:00pm on Tuesday July 28, and from 12:30pm to 4:00pm on Wednesday July 29.  After the workshop concludes, a recording will be available on the Division’s website.  Members of the press should email Brianna.Herlihy@usdoj.gov to register.

The Department of Justice invited public comments from the public on these topics on June 5, 2019 and the comments can be found on the Antitrust Consent Decree Review Public Comments 2019 page.

Reasonable accommodations for people with disabilities are available upon request. If you need such an accommodation, please contact the Antitrust Division at ATR.MusicLicensing-Workshop@usdoj.gov. Such requests should include a detailed description of the accommodations needed and a way to contact you if we need more information.

 

Public Workshop on Competition in Licensing Music Public Performance Rights

July 28-29, 2020

Workshop Agenda

July 28, 2020

12:30 p.m.

Opening Remarks

Makan Delrahim, Assistant Attorney General for Antitrust, U.S. Department of Justice

12:40 p.m.

Songwriter Keynote

LeeAnn Rimes

12:55 p.m.

Session 1: Remarks from Stakeholders on the Consent Decrees

David Israelite, President and CEO, National Music Publishers’ Association (NMPA)

Michelle Lewis, Executive Director, Songwriters of North America (SONA)

Elizabeth Matthews, CEO, American Society of Composers, Authors, and Publishers (ASCAP)

Michael O’Neill, President and CEO, Broadcast Music Inc. (BMI)

The Honorable Gordon Smith, President and CEO, National Association of Broadcasters (NAB)

DOJ Moderator: Karina Lubell, Assistant Chief, Competition Policy and Advocacy Section, Antitrust Division, U.S. Department of Justice

1:55 p.m.

Session 2: Public Performance Licensing Alternatives

Panelists will discuss the use and viability of alternatives to blanket licenses, including direct, adjustable-fee, per-program, and per-segment licenses under the Decrees. They will also address the use and viability of source and through-to-the-audience licenses and whether those types of licenses should be limited or expanded. Finally, the panel will discuss whether these alternatives present a “genuine choice” to music users or whether the genuine choice provision of the Decrees should be modified.

Panelists

Jackie Brenneman, General Counsel, National Association of Theatre Owners

Ted Cohen, Managing Partner, TAG Strategic

David Kokakis, Chief Counsel, Universal Music Publishing Group

Janet McHugh, Executive Director, TV Music License Committee

Mike Steinberg, Executive Vice President of Creative and Licensing, BMI

DOJ Moderator: Yvette Tarlov, Assistant Chief, Media, Entertainment, and Professional Services Section, Antitrust Division, U.S. Department of Justice

3:15 p.m.

Songwriter Keynote

Pharrell

3:30 p.m.

Session 3: Competition Between PROs for Songwriters and Publishers

The third session will discuss competition between the PROs for artists. Panelists will discuss the membership provisions of the ASCAP/BMI decrees, including provisions relating to eligibility to join a PRO, resignations, the maximum terms of membership agreements and music licenses, the use and transparency of licenses-in-effect, and member audit rights.

Panelists

Danielle Aguirre, Executive Vice President and General Counsel, NMPA

Jordan Bromley, Board Member, Music Artists Coalition

Bart Herbison, Executive Director, Nashville Songwriters Association International

Golnar Khosrowshahi, CEO, Reservoir Music Publishing

Clara Kim, Executive Vice President and General Counsel, Business and Legal Affairs, ASCAP

Jack Kugell, Board Member, SONA

DOJ Moderator: Owen Kendler, Chief, Media, Entertainment, and Professional Services Section, Antitrust Division, U.S. Department of Justice

July 29, 2020

12:30 p.m.

Opening Remarks

Owen Kendler, Chief, Media, Entertainment, and Professional Services Section, Antitrust Division, U.S. Department of Justice

12:35 p.m.

Songwriter Keynote

Jon Bon Jovi

12:50 p.m.

Session 4: Licensing Music to Users

The fourth session will discuss the licensing of music to end-users. Panelists will discuss potential modifications to the Decrees including the “similarly situated” and interim fee provisions of the Decrees. The panel also will address if there is a need for more robust disclosure of ASCAP’s and BMI’s repertoires to licensees and potential impediments to such disclosure. Finally, the panel will consider whether the Decrees are effective or ineffective, create efficiencies or inefficiencies, or inhibit innovative business models.

Panelists

John Bodnovich, Executive Director, American Beverage Licensees

Peter Brodsky, General Counsel and Executive Vice President, Business Affairs, Sony/ATV Music Publishing

Rick Kaplan, General Counsel and Executive Vice President, Legal and Regulatory Affairs, NAB

Stuart Rosen, Senior Vice President and General Counsel, BMI

Tres Williams, Executive Vice President, Business Affairs, iHeartMedia, Inc.

DOJ Moderator: Ben Matelson, Trial Attorney, Media, Entertainment, and Professional Services Section, Antitrust Division, U.S. Department of Justice

2:15 p.m.

Session 5: Economists’ Views and Wrap-up

The last session will provide a venue for economists to discuss the economic effects of the Decrees. Panelists will debate ASCAP’s and BMI’s market power and any constraints on that market power. Additionally, the panel will discuss whether the emergence of new PROs and new technologies, including streaming digital music and movie services, has made the Decrees obsolete.

Panelists

Dr. Adam B. Jaffe, Brandeis University

Dr. Kevin M. Murphy, University of Chicago

DOJ Moderator: Dr. Jeffrey Wilder, Deputy Assistant Attorney General for Economic Analysis, Antitrust Division, U.S. Department of Justice

3:40 p.m.

Closing Remarks

Rene Augustine, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice

July 24, 2020 | Permalink | Comments (0)

Multimarket Contact in Banking Competition in The United States

Multimarket Contact in Banking Competition in The United States

By:

David Coble

Abstract:

In this paper, I present a structural discrete-choice model for deposit services. This model produces estimates of different supply functions at the MSA and bank levels. Combining this information with detailed cost data per bank at the national level, I trace the degree of competition in the banking system and perform compensatory analysis. I derive and estimate the model under three different assumptions: Nash-Bertrand competition, perfect collusion, and partially collusive equilibrium. The findings show that multimarket contacts in the US banking system lead to highly competitive behavior. Also, I measure the variation in consumer welfare as if there was a Nash-Bertrand competition vis-à-vis the identified market equilibrium. I show this change to be between 1.5 to 3.8 cents per dollar deposited, which is equivalent to an increase in (stock) welfare of about 0.65 percent points of a one year US GDP.

URL:

http://d.repec.org/n?u=RePEc:chb:bcchwp:858&r=com

July 24, 2020 | Permalink | Comments (0)

With the Tech CEO hearing postponed, we should be focusing on the new Taylor Swift album that just came out

My daughters are very excited by it.

 

 

 

July 24, 2020 | Permalink | Comments (0)

Free Entry under Common Ownership

Free Entry under Common Ownership

By:

Sato, Susumu; Matsumura, Toshihiro

Abstract:

This study investigates the equilibrium and welfare properties of free entry under common ownership. We formulate a model in which incumbents under common ownership choose whether to enter a new market. We find that an increase in common ownership reduces entries, which may or may not improve welfare. Welfare has an inverted-U shaped relationship with the degree of common ownership. However, if firms do not have common ownership before the entry, after entry common ownership harms welfare.

URL:

http://d.repec.org/n?u=RePEc:pra:mprapa:97525&r=com

July 24, 2020 | Permalink | Comments (0)

The Impact of E-Commerce on Relative Prices and Consumer Welfare

The Impact of E-Commerce on Relative Prices and Consumer Welfare

By:

Yoon J. Jo; Misaki Matsumura; David E. Weinstein

Abstract:

This paper examines the impact of e-commerce on pricing behavior and welfare. Using Japanese data, we find that the entry of e-commerce firms significantly raised the rate of intercity price convergence for goods sold intensively online, but not for other goods. E-commerce also lowered relative inflation rates for goods sold intensively online. We overcome data challenges using long data series and historical catalog sales as an instrument for e-commerce sales intensity. We estimate that reductions in price dispersion raised welfare by 0.3 percent. E-commerce also lowered variety-adjusted prices on average by 0.9 percent, and more in cities with highly educated populations.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:26506&r=com

July 24, 2020 | Permalink | Comments (0)

Thursday, July 23, 2020

When does it pay off to participate in markets for technology?

When does it pay off to participate in markets for technology?

By:

Adrián Kovács

Abstract:

This paper examines the contribution of different technology acquisition strategies to the market value of firms. I exploit a large consolidated dataset on publicly listed US-firms to distinguish between the contributions of patented inventions that these firms acquired via acquisitions of other firms – embodied technology acquisition – and via the outright purchase of standalone technology – disembodied technology acquisition. I develop hypotheses relating firms ability to benefit from both strategies to the size of their internal knowledge stock and their degree of familiarity with the acquired technology. In line with my predictions, I find a positive contribution of embodied technology acquisition on market value, which increases with the size of firms’ internal knowledge stock as well as their familiarity with the acquired technology. Contrary to my predictions, I find a negative contribution of disembodied technology acquisition, except for firms having the largest internal knowledge stocks in my sample. Interestingly, my results reveal that firms are most likely to benefit from the acquisition of familiar technology via the embodied mode whilst at the same time indicating that the negative association between market value and the acquisition of standalone technology is most pronounced when this technology is novel to the acquiring firm. Overall, my findings suggest that the benefits associated with acquiring technology from external sources are only realized when firms possess a minimum degree of absorptive capacity, with the minimum needed to benefit from technology acquisition being significantly higher for technology acquired via the disembodied mode.

URL:

http://d.repec.org/n?u=RePEc:ete:msiper:638329&r=com

July 23, 2020 | Permalink | Comments (0)

A general model of price competition with soft capacity constraints

A general model of price competition with soft capacity constraints

By:

Marie-Laure Cabon-Dhersin (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); Nicolas Drouhin (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract:

We propose a general model of oligopoly with firms relying on a two factor production function. In a first stage, firms choose a certain fixed factor level (capacity). In the second stage, firms compete on price, and adjust the variable factor to satisfy all the demand. When the factors are substitutable, the capacity constraint is " soft " , implying a convex cost function in the second stage. We show that there is a unique equilibrium prediction in pure strategies, whatever the returns to scale, characterized by a price that increases with the number of firms up to a threshold. The main propositions are established under the general assumption that the production function is quasi-concave but the paper provides a general methodology allowing the model to be solved numerically for special parametrical forms.

URL:

http://d.repec.org/n?u=RePEc:hal:journl:halshs-01622930&r=com

July 23, 2020 | Permalink | Comments (0)

The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit

The Curse of Knowledge: Having Access to Customer Information Can be Detrimental to Monopoly’s Profit

By:

Laussel, Didier; Long, Ngo Van; Resende, Joana

Abstract:

We show that a monopolist's profit is higher if he refrains from collecting coarse information on his customers, sticking to constant uniform pricing rather than recognizing customers' segments through their purchase history. In the Markov-perfect equilibrium with coarse information collection, after each commitment period, a new introductory price is offered to attract new customers, creating a new market segment for price discrimination. Eventually, the whole market is covered. Shortening the commitment period results in lower profits. These results sharply differ from the ones obtained when the firm can uncover the exact willingness-to-pay of each previous customer.

URL:

http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-93&r=com

July 23, 2020 | Permalink | Comments (0)

Overlapping Ownership, Endogenous Quality,and Welfare

Overlapping Ownership, Endogenous Quality,and Welfare

By:

Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia and CEFAGE); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and CEF.UP)

Abstract:

This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms' profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms' profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.

URL:

http://d.repec.org/n?u=RePEc:cap:wpaper:052019&r=com

July 23, 2020 | Permalink | Comments (0)

Wednesday, July 22, 2020

  1. Spillover Effects of IP Protection in the Inter-war Aircraft Industry

By:

Walker Hanlon; Taylor Jaworski

Abstract:

Can granting IP protection to producers of one good affect the innovation rate in other related goods? To answer this question we exploit a unique policy experiment in the inter-war military aircraft industry. Airframe designs had little IP protection before 1926, but changes passed by Congress in 1926 provided airframe manufacturers with enhanced property rights over the new designs they produced. We show that granting property rights to airframe producers increased innovation in airframes, but slowed down innovation in aero-engines, a complementary good where there was no change in the availability of IP protection. We propose and test a simple theory that explains these patterns.

URL:

http://d.repec.org/n?u=RePEc:nbr:nberwo:26490&r=com

July 22, 2020 | Permalink | Comments (0)

Third-degree Price Discrimination Versus Uniform Pricing

Third-degree Price Discrimination Versus Uniform Pricing

By:

Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University)

Abstract:

We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly proï¬ ts. This revenue bound obtains for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight, and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.

URL:

http://d.repec.org/n?u=RePEc:cwl:cwldpp:2213&r=com

July 22, 2020 | Permalink | Comments (0)

Bidding on price and quality: An experiment on the complexity of scoring auctions

Bidding on price and quality: An experiment on the complexity of scoring auctions

By:

Riccardo Camboni (DSEA, University of Padova); Luca Corazzini (Department of Economics, University of Venice "Ca' Foscari"); Stefano Galavotti (DEMDI, University of Bari); Paola Valbonesi (DSEA, University of Padova and HSE-NRU, Moscow)

Abstract:

We run an experiment on procurement auctions in a setting where both quality and price matter. We compare two unidimensional treatments in which the buyer fixes one dimension (quality or price) and sellers compete on the other, with three bidimensional treatments (with different strategy spaces) in which sellers submit a price-quality bid and the winner is determined by a score that linearly combines the two offers. We find that, with respect to the theoretical predictions, the bidimensional treatments significantly underperform, both in terms of efficiency and buyer's utility. We attribute this result to the higher strategic complexity of these treatments and test this intuition by fitting a structural Quantal Response Equilibrium model with risk aversion to our experimental data. We find very similar estimates for the risk aversion parameter across all treatments; instead, the error parameter, which captures deviations between the observed bids and the payoff-maximizing ones, is larger in the bidimensional treatments than in the unidimensional ones. Our evidence suggests that increasing the dimensionality and the size of the suppliers' strategy space increases their tendency to make suboptimal offers, thus undermining the theoretical superiority of more complex mechanisms.

URL:

http://d.repec.org/n?u=RePEc:pad:wpaper:0243&r=com

July 22, 2020 | Permalink | Comments (0)

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

By:

Kyle F. Herkenhoff; Gajendran Raveendranathan

Abstract:

How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.

URL:

http://d.repec.org/n?u=RePEc:mcm:deptwp:2019-13&r=com

July 22, 2020 | Permalink | Comments (0)

Tuesday, July 21, 2020

Licensed to Pill

Rebecca Allensworth (Vanderbilt) has this fascinating read on state licensing. Highly recommended!

July 21, 2020 | Permalink | Comments (1)

Compatible Mergers: Assets, Service Areas, and Market Power

"Compatible Mergers: Assets, Service Areas, and Market Power"

By:

Tetsuji Okazaki (The University of Tokyo); Ken Onishi (Federal Reserve Board); Naoki Wakamori (The University of Tokyo)

Abstract:

This paper empirically examines the discrepancy between the incentive of firms to merge and the social value of mergers using detailed data on merger waves in the pre-WWII Japanese electricity industry when a competition authority did not yet exist. We find that firms could enjoy cost synergies when merging with firms with greater differences in production asset composition and/or reachable customers. Such mergers resulted in increases in capital utilization and total output. However, the sources of these cost synergies did not affect the merger decision of firms; instead, geographical proximity increased the likelihood of mergers. These results imply that the merger incentive may not align with social welfare and thus policy intervention to allow selective mergers for particular combinations of firms may help increase social welfare.

Date:

2019–12

URL:

http://d.repec.org/n?u=RePEc:tky:fseres:2019cf1134&r=com

July 21, 2020 | Permalink | Comments (0)

Assessment of the Vertical Merger Guidelines and Recommendations for the VMGs Commentary

Assessment of the Vertical Merger Guidelines and Recommendations for the VMGs Commentary

Koren Wong-Ervin

Abstract

This article provides an assessment of the key changes in the final DOJ-FTC Vertical Merger Guidelines (VMGs) from the January 2020 Draft Guidelines and offers recommendations for the VMGs Commentary--namely, additional details on how the Agencies will determine the industry-wide average retail price when weighing the upward price pressure created by raising rivals’ costs (RRC) and the downward price pressure created by elimination of double marginalization (EDM). We also recommend guidance on remedies. These are important because one of the most important roles of guidelines is to provide private parties with the ability to evaluate and price risk ex ante.

July 21, 2020 | Permalink | Comments (0)