Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Thursday, August 21, 2014

Supermarket Promotions and Food Prices

H. Lan, University of East Anglia, T.A. Lloyd, University of Nottingham and C.W. Morgan, University of Nottingham discuss Supermarket Promotions and Food Prices.

ABSTRACT: Using a sample comprising nearly a quarter of a million weekly prices from the largest seven supermarket chains in the UK, we present statistical evidence on two pricing practices that have attracted public interest. Analysing price dynamics before and after periods of promotional discounting the investigation finds first, no evidence of a general tendency for sales to disguise rises in the regular price, and second, some evidence for prices to rise prior to sales in a manner that is consistent with the exaggeration of the discount. As such, the results parallel the competition authority’s view of supermarkets use of promotions and also point to the useful contribution that retail price microdata might play in keeping prices in check.

August 21, 2014 | Permalink | Comments (0) | TrackBack (0)

Competition between firms in developing and developed countries

Koichiro Kimura, Institute of Development Economics investigates Competition between firms in developing and developed countries.

ABSTRACT: We analyze competition in emerging markets between firms in developing and developed countries from the viewpoint of the boundaries of the firm. Although indigenous firms generally face a disadvantage in technology compared with foreign firms, they have an advantage in marketing as local firms. Moreover, they have opportunities to leave weaker fields to independent specialized firms and use lower wages. On the other hand, foreign firms also have their own advantages and disadvantages for growth. Therefore, entry conditions for indigenous firms can vary greatly depending on the situation. We classify these conditions into eight cases by developing a model and showing each boundary choice for indigenous firms.

August 21, 2014 | Permalink | Comments (0) | TrackBack (0)

Financial decisions, market competition and firm performance: Empirical evidence for Ibero-American countries

Manuel Sanchez Valadez, Banco de Mexico provides Financial decisions, market competition and firm performance: Empirical evidence for Ibero-American countries.

ABSTRACT:  Economic literature had shown the existence of the interrelationship between the financial decisions of the firms and their competitive decisions; either by convenience or by data availability, most of empiric papers addressed separately the influence of both kinds of decisions over firm performance. With it, this paper through a cross-section model, which uses information of around 3,900 enterprises in 14 Iberoamerican countries, explores jointly the possible effects of both kinds of decisions of the firms (financial and competitive) over their performance. The results suggest the existence of differences in the relationships between variables accordingly the market competition intensity. Also the results suggest that the financial decisions of the firms could be used as an additional tool of the competitive strategy of the firms.

August 21, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 20, 2014

Competition and Environmental Externalities in the European Market of Municipal Waste

Francesco Silvestri (Dipartimento di Economia e Management, Universita di Ferrara) describes Competition and Environmental Externalities in the European Market of Municipal Waste.

ABSTRACT: The article focuses on the European Union Municipal Waste (MW) industry, exploring the effects of the conjoint implementation of Self Sufficiency Principle and of Proximity Principle (SSP/PP), that force local community to divert MW in the same district where it is generated. Since the number of disposing facilities allowed to operate in a district is regulated by (regional) public planning, forbidding through SSP/PP the opportunity to divert MW outside the district reduces the degree of competition in the whole sector. The rationale for a rule that denies a pillar of EU thinking such as competition policy seems to be to limit the end-of-the-pipe disposal of MW, and to favour the alternative strategy of selected collection and reuse-recycling. Setting an Industrial Organization model and solving it through backward induction, we show that in facts any increased competition in the industry leads to higher environmental externality, but even that the a compensation scheme from gainers to losers would be for effective than SSP/PP. This is true for any consistent value of the relevant variables, apart the case when the marginal external cost is over a specific threshold; in that unique case, the use of SSP/PP as a command and control environmental standard is justified.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

COST PASS-THROUGH IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER

Thore Holm, Christian-Albrechts- Universitat, Carsten Steinhagen, Christian-Albrechts- Universitat and Jens-Peter Loy, Christian-Albrechts- Universitat, Thomas Glauben Leibniz-Insititute IAMO analyze COST PASS-THROUGH IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER.

ABSTRACT: In food retailing a high degree of static price dispersion between and within stores and between brands has been documented, but at the brand and/or retail outlet level the dynamic behaviour of prices, as well as its causes, have not been analysed in the European food market context. In this paper we estimate the dynamic pricing behaviour of brands at various retail outlets to identify the role of private (low-price brands) and national (high-price brands) labels to explain the dispersion of retail price dynamics. The results indicate significant asymmetries in cost pass-through processes, which vary between brands and outlets. In particular, private labels (low-price brands) adjust prices faster than national labels (high-price brands). Moreover, cost pass-through is slightly more (positive) asymmetrical for private labels than for high-price national brands.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Administrative Antitrust

Justin (Gus) Hurwitz, University of Nebraska at Lincoln - College of Law has written on Administrative Antitrust. Worth downloading!

ABSTRACT: Antitrust has long been treated as exceptional by the courts. This article argues that the Supreme Court is moving away from this exceptionalist treatment of antitrust, and is working to bring antitrust within a normalized administrative law jurisprudence. That is, we are moving into an era of Administrative Antitrust, where, to the extent possible, antitrust matters are to be handled in the first instance by administrative agencies.
This transition to administrative antitrust results from three factors in the Supreme Court’s recent jurisprudence: the Court’s growing discomfort with the vicissitudes of economic theory; the Court’s preference for agencies, with Congressionally-delegated policy-making authority, to make policy decisions instead of the courts; and the Court’s growing preference for generalized administrative procedure over field-specific law. 
To make this argument, this article presents a new synthesis of the Court’s recent antitrust and regulatory cases, using them to argue that in the modern administrative state, our traditional approach to antitrust is backwards: where possible, courts should embrace agency jurisdiction over antitrust issues, and exercise the same procedural oversight over substantive agency decisionmaking that characterizes the relationship between agencies and the courts in every other area of regulatory law. In antitrust terms, this can be seen as a strong revitalization of the implied repeal doctrine; in Constitutional terms, this can be seen as based on a separation of powers understanding, one that is driving much of the Court's anti-exceptionalism agenda.
This argument is largely descriptive, describing the developing state of antitrust law under principles of modern administrative law. The normative conclusion is more complex: while the trajectory suggested in this article is sound as a matter of administrative and regulatory law, it paints a potentially troubling picture for the future of sound antitrust law.

 

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Bank Competition and Account Penetration: Evidence from Mexico

Ana Georgina Marin (Banco de Mexico) and Rainer Schwabe (Banco de Mexico) investigate Bank Competition and Account Penetration: Evidence from Mexico.

ABSTRACT: This paper documents a positive relation between bank competition and the penetration of bank accounts at the municipal level in Mexico. To account for potential biases in our regressions due to the endogeneity of market structure, we employ a two-stage estimation approach based on an equilibrium structural model. Our preferred estimate implies that moving from a monopoly to a duopoly will lead to an increase of 1,016 accounts per 10,000 adults, a 42% increase over the cross-municipality mean. This is comparable to the effect of large increases in per capita income and years of schooling, or the establishment of an additional branch by a bank who is already present in the local market. Our results suggest that competition policy should be given a prominent role in the financial inclusion agenda.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Welcome Le Concurrentialiste

There is a new French blog site on economic law, Le Concurrentialiste. Thibault Schrepel writes the monthly antitrust column.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Retail Pricing Patterns and Driving Factors of Price Variation

Chenguang Li, University College Dublin and Richard Volpe, United States Department of Agriculture analyze Retail Pricing Patterns and Driving Factors of Price Variation.

ABSTRACT: This study explores the strategic pricing behaviors across retail chains for produce products. We adopt a Panel-VAR model to identify the driving factors of retail price variation and find that retail price history, competition, product cost are among the key drivers of retail price change. Forecast Error Variance Decomposition (FEVD) is used to quantify the relative impact of driving factors to retail price changes and show how they affect prices differently across retail chains. We also find that higher responsiveness to competition may indicate superior management ability in price setting that associates with better profitability in practice.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2014

New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry

Federico Etro (Department of Economics, University of Venice Ca' Foscari) and Lorenza Rossi (Department of Economics and Management, University of Pavia) discuss New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry.

ABSTRACT: We derive a New Keynesian Phillips Curve under Calvo staggered pricing and price competition. Firms strategic interactions induce price adjusters to change their prices less when there are more firms that do not adjust. This reduces the slope of the Phillips curve and generates an additional source of real rigidity that magnifies the impact of monetary shocks on the economic activity. Endogenous entry amplifies the impact of both monetary and real shocks. We study the design of the optimal Taylor rule in the case of a fixed number of firms and we characterize the optimal monetary policy to restore the social planner allocation and the optimal Ramsey steady state in the case of endogenous entry.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)

The Structure and Evolution of Buyer-Supplier Networks

Takayuki Mizuno (National Institute of Informatics, Graduate School of Economics, University of Tokyo, The Canon Institute for Global  Studies), Wataru Souma (College of Science and Technology, Nihon University) and Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies) study The Structure and Evolution of Buyer-Supplier Networks.

ABSTRACT: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf’s law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that! firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks – shocks affecting only a particular firm – through customer-supplier chains.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Industry structure and pricing over the business cycle

Yossi Spiegel, Tel Aviv University and Konrad Stahl, Mannheim discuss Industry structure and pricing over the business cycle.

ABSTRACT: We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either pro- or countercyclical if the incumbent is a first mover. Moreover, our results show that entry deterrence by the incumbent firm can either amplify or dampen the effect of demand fluctuations on prices, price-cost margins, and capacity utilization.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Health Care Demand in the Presence of Discrete Price Changes

Michael Gerfin, University of Bern, Boris Kaiser, University of Bern and Christian Schmid University of Bern estimate Health Care Demand in the Presence of Discrete Price Changes.

ABSTRACT: Deductibles in health insurance generate nonlinear budget sets and dynamic incentives. This paper uses detailed individual claims data from a large Swiss insurance company to estimate the response in health care demand to the discrete price increase that is generated by resetting the deductible at the start of each calendar year. We use a regression discontinuity type framework based on daily data to estimate the change in health care demand right before and right after the turn of the year. We find that for individuals with high deductibles health care demand drops by 27%, which translates into an elasticity of -.21. The decrease is most pronounced for inpatient care and prescription drugs. By contrast, for individuals with low deductibles there is no significant change in health care demand (except for prescription drugs). A remaining open question is whether the observed behavioral responses can be attributed to intertemporal substitution or whether they constitute a classic moral hazard effect.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Monday, August 18, 2014

GCR has published The European Antitrust Review 2015

GCR has published The European Antitrust Review 2015.

August 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments

Liran Einav, Stanford, Amy Finkelstein, MIT and Heidi Williams, MIT address Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments.

ABSTRACT: We present a simple framework to illustrate the welfare consequences of a “top up” health insurance policy that allows patients to pay the incremental price for more expensive treatment options. We contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States), or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment than mastectomy, with similar average health benefits. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, our estimates suggest that the “to! p-up” policy, which achieves the efficient treatment decision, increases total welfare by $700-2,500 per patient relative to the current US “full coverage” policy, and by $700-1,800 per patient relative to the UK “no top up” policy. While we caution against putting much weight on our specific estimates, the analysis illustrates the potential welfare gains from more efficient reimbursement policies for medical treatments. We also briefly discuss additional tradeoffs that arise from the top-up and UK-style policies, which both lead to additional (ex-ante) risk exposure.

August 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Do Credit Associations Compete with Each Other in Japanese Regional Lending Markets?

Kazumine Kondo asks Do Credit Associations Compete with Each Other in Japanese Regional Lending Markets?

ABSTRACT: This paper examines whether credit associations in Japanese regional lending markets compete on price now that Japanese financial authorities have replaced the convoy system of financial regulation with the principle of competition. Specifically, the effects of the market share of credit associations in regional markets on their lending rates are empirically investigated. Accordingly, we determined that credit associations compete with each other in regional lending markets by using two different proxies for the market share held by credit associations in a region. The first proxy was the credit associations’ share of all deposits in a region and the second was the credit associations’ share of all branch offices in a region. In addition, credit associations that face more intense competition from regional banks in regional markets were found to face more intense competition from other credit associations.  

August 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Does bank market power affect SME financing constraints?

Robert M. Ryan (Central Bank of Ireland), Conor M. O'Toole (Central Bank of Ireland) and Fergal McCann (Central Bank of Ireland) ask Does bank market power affect SME financing  constraints?

ABSTRACT: This paper examines the extent to which bank market power alleviates or magnifies SME credit constraints using a large panel dataset of more than 118,000 SMEs across 20 European countries over the period 2005-2008. To our knowledge, this is the first study to examine bank market power and SME credit constraints in an international, developed economy setting. More- over, our study is the first to address a number of econometric considerations simultaneously, in particular by controlling for the availability of profitable investment opportunities using a structural Q model of investment. Our results strongly support the market power hypothesis, namely, that increased market power results in increased financing constraints for SMEs. Additionally, we find that the relationship exhibits heterogeneity across firm size and opacity in a manner that suggests that the true relationship between bank market power and financing constraints might not be fully explained by the existing theory. Finally, we find that the effect of bank market power on financing constraints increases in financial systems that are more bank dependent.

August 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Competition in lending and credit ratings

Javed I. Ahmed (Board of Governors of the Federal Reserve System (U.S.)) analyzes Competition in lending and credit ratings.

ABSTRACT: This article relates corporate credit rating quality to competition in lending between the public bond market and banks. In the model, the monopolistic rating agency's choice of price and quality leads to an endogenous threshold separating low-quality bank-dependent issuers from higher-quality issuers with access to public debt. In a baseline equilibrium with expensive bank lending, this separation across debt market segments provides information, but equilibrium ratings are uninformative. A positive shock to private (bank) relative to public lending supply allows banks to compete with public lenders for high-quality issuers, which threatens rating agency profits, and informative ratings result to prevent defection of high-quality borrowers to banks. This prediction is tested by analyzing two events that increased the relative supply of private vs. public lending sharply: legislation in 1994 that reduced barriers to interstate bank lending and the temporary shutdown of the high-yield bond market in 1989. After each event, the quality of ratings (based on their impact on bond yield spreads) increased for affected issuers. The analysis suggests that strategic behavior by the rating agency in an issuer-pays setting dampens the influence of macroeconomic shocks, and explains the use of informative unsolicited credit ratings to prevent unrated bond issues, particularly during good times. Additionally, the controversial issuer-pays model of ratings leads to more efficient outcomes than investor-pays alternatives.

August 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, August 15, 2014

Trolls, Hopping, Ambush and Hold-up: Emerging International Approaches to the Intersection of Competition and Patent Law

Does bank market power affect SME financing constraints?

Robert M. Ryan (Central Bank of Ireland), Conor M. O'Toole (Central Bank of Ireland) and Fergal McCann (Central Bank of Ireland) ask Does bank market power affect SME financing constraints?

ABSTRACT: This paper examines the extent to which bank market power alleviates or magnifies SME credit constraints using a large panel dataset of more than 118,000 SMEs across 20 European countries over the period 2005-2008. To our knowledge, this is the first study to examine bank market power and SME credit constraints in an international, developed economy setting. More- over, our study is the first to address a number of econometric considerations simultaneously, in particular by controlling for the availability of profitable investment opportunities using a structural Q model of investment. Our results strongly support the market power hypothesis, namely, that increased market power results in increased financing constraints for SMEs. Additionally, we find that the relationship exhibits heterogeneity across firm size and opacity in a manner that suggests that the true relationship between bank market power and financing constraints might not be fully explained by the existing theory. Finally, we find that the effect of bank market power on financing constraints increases in financial systems that are more bank dependent.

August 15, 2014 | Permalink | Comments (0) | TrackBack (0)