The U.S. Horizontal Merger Guidelines (“Guidelines”) include an enforcement standard specifying that, “If the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.” However, the Guidelines do not quantify the relative value of diverted sales (GUPPI) regarded as “proportionately small”. This article presents a novel quantification — calibrating a GUPPI safeharbor to existing Guidelines standards, which yields a GUPPI bound of 6% and a diversion-ratio limit of 20% under present Guidelines parameters — and characterizes the calibrated GUPPI safeharbor both graphically and in terms of “intrinsic clearance rates”, defined herein.
{"title":"Sound GUPPI Safe Harbor: A Calibrated Unilateral Effects Screen for Horizontal Mergers with Differentiated Products","authors":"Murthy Kambhampaty","doi":"10.2139/ssrn.3232136","DOIUrl":"https://doi.org/10.2139/ssrn.3232136","url":null,"abstract":"The U.S. Horizontal Merger Guidelines (“Guidelines”) include an enforcement standard specifying that, “If the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.” However, the Guidelines do not quantify the relative value of diverted sales (GUPPI) regarded as “proportionately small”. This article presents a novel quantification — calibrating a GUPPI safeharbor to existing Guidelines standards, which yields a GUPPI bound of 6% and a diversion-ratio limit of 20% under present Guidelines parameters — and characterizes the calibrated GUPPI safeharbor both graphically and in terms of “intrinsic clearance rates”, defined herein.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75538193","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the effects of mergers in the consumer packaged goods industry, a sector that comprises approximately one-tenth of GDP in the United States. We match data on all recorded mergers between 2006 and 2017 with retail scanner data. In comparison to prior work, which focuses on case studies of large mergers, our approach allows us to estimate the effect of a typical merger. Most mergers we study are highly asymmetric (a large firm acquires a much smaller firm) and rarely challenged. By studying these mergers, we provide new evidence on the effects of mergers on prices, quantities, product availability, and exit. On average, mergers lead to a short-run price effect at the target of 1% and declines in total revenue of 7%. These average effects hide substantial heterogeneity across different groups of mergers. Our results highlight the importance of effects not captured in the canonical model, such as effects on consumer surplus through changes in product availability, and through inefficient firms' capital being repurposed by more productive acquirors.
{"title":"Consolidation on Aisle Five: Effects of Mergers in Consumer Packaged Goods","authors":"Jeremy Majerovitz, A. Yu","doi":"10.2139/ssrn.3942967","DOIUrl":"https://doi.org/10.2139/ssrn.3942967","url":null,"abstract":"We study the effects of mergers in the consumer packaged goods industry, a sector that comprises approximately one-tenth of GDP in the United States. We match data on all recorded mergers between 2006 and 2017 with retail scanner data. In comparison to prior work, which focuses on case studies of large mergers, our approach allows us to estimate the effect of a typical merger. Most mergers we study are highly asymmetric (a large firm acquires a much smaller firm) and rarely challenged. By studying these mergers, we provide new evidence on the effects of mergers on prices, quantities, product availability, and exit. On average, mergers lead to a short-run price effect at the target of 1% and declines in total revenue of 7%. These average effects hide substantial heterogeneity across different groups of mergers. Our results highlight the importance of effects not captured in the canonical model, such as effects on consumer surplus through changes in product availability, and through inefficient firms' capital being repurposed by more productive acquirors.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84961986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Michele Bisceglia, Jorge Padilla, J. Perkins, S. Piccolo
Entrants often need to make considerable sunk investments with highly uncertain returns. The option to exit if returns are low reduces investment risks and stimulates innovation. We examine the interaction between exit policy and up-front investment by entrants, finding an inverted U-shaped relationship between innovation and exit value. Consumer welfare is shaped by a trade-off between encouraging firms to stay in the market through higher exit barriers, and stimulating investment through a more permissive exit policy. As future returns become more uncertain, consumer welfare maximization requires lower exit barriers. These insights are applied to optimal merger policy and bankruptcy law.
{"title":"Optimal Exit Policy with Uncertain Demand","authors":"Michele Bisceglia, Jorge Padilla, J. Perkins, S. Piccolo","doi":"10.2139/ssrn.3889226","DOIUrl":"https://doi.org/10.2139/ssrn.3889226","url":null,"abstract":"Entrants often need to make considerable sunk investments with highly uncertain returns. The option to exit if returns are low reduces investment risks and stimulates innovation. We examine the interaction between exit policy and up-front investment by entrants, finding an inverted U-shaped relationship between innovation and exit value. Consumer welfare is shaped by a trade-off between encouraging firms to stay in the market through higher exit barriers, and stimulating investment through a more permissive exit policy. As future returns become more uncertain, consumer welfare maximization requires lower exit barriers. These insights are applied to optimal merger policy and bankruptcy law.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86198681","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
By lowering transaction costs, digital platforms may foster complementary dynamics across offerings that compete in other settings. In a study of the Spotify music streaming platform, I study the effect of peer expansion on provider performance and consider when demand spillovers outweigh substitution across providers on a digital platform. I find that, on average, increases in peer demand improve provider performance on the Spotify platform, however provider characteristics moderate this effect. Expansion by popular peers improves provider performance, while expansion by niche peers does not generate sufficient spillovers to overcome the negative effects of substitution. I explore how platform recommendation systems magnify spillovers and consider the strategic implications of these market dynamics. In doing so, I highlight that digital platforms alter how firms compete and whom they compete with.
{"title":"Friends in High Places: Demand Spillovers and Competition on Digital Platforms","authors":"Manav Raj","doi":"10.2139/ssrn.3843249","DOIUrl":"https://doi.org/10.2139/ssrn.3843249","url":null,"abstract":"By lowering transaction costs, digital platforms may foster complementary dynamics across offerings that compete in other settings. In a study of the Spotify music streaming platform, I study the effect of peer expansion on provider performance and consider when demand spillovers outweigh substitution across providers on a digital platform. I find that, on average, increases in peer demand improve provider performance on the Spotify platform, however provider characteristics moderate this effect. Expansion by popular peers improves provider performance, while expansion by niche peers does not generate sufficient spillovers to overcome the negative effects of substitution. I explore how platform recommendation systems magnify spillovers and consider the strategic implications of these market dynamics. In doing so, I highlight that digital platforms alter how firms compete and whom they compete with.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81447698","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
K. Papadopoulos, E. Petrakis, Panagiotis Skartados
In a two-tier industry with an upstream monopolist supplier and downstream competition with differentiated goods, we show that passive partial forward integration (PPFI) has ambiguous effects on competition and welfare. When vertical trading is conducted via linear tariffs, PPFI is pro-competitive and welfare-increasing. While under two-part tariffs, it is anti-competitive and welfare-decreasing. These hold irrespectively of the degree of product differentiation, the observability or secrecy of contract terms, the mode of downstream competition, and the distribution of bargaining power between firms.
{"title":"The Ambiguous Competitive Effects of Passive Partial Forward Integration","authors":"K. Papadopoulos, E. Petrakis, Panagiotis Skartados","doi":"10.2139/ssrn.3933891","DOIUrl":"https://doi.org/10.2139/ssrn.3933891","url":null,"abstract":"In a two-tier industry with an upstream monopolist supplier and downstream competition with differentiated goods, we show that passive partial forward integration (PPFI) has ambiguous effects on competition and welfare. When vertical trading is conducted via linear tariffs, PPFI is pro-competitive and welfare-increasing. While under two-part tariffs, it is anti-competitive and welfare-decreasing. These hold irrespectively of the degree of product differentiation, the observability or secrecy of contract terms, the mode of downstream competition, and the distribution of bargaining power between firms.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85710723","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
While consumer sustainability benefits exhibit particular characteristics, e.g., as they are typically based on non-use value, they can be measured by standard instruments as applied in environmental cost-benefit analysis, such as conjoint analysis and contingent valuation. Their measurement may be particularly sensitive to provided context, which makes it necessary to be particularly careful when measuring consumers’ willingness-to-pay. This sensitivity, however, also allows to expand the scope for such benefits and enables an appropriate modelling of the counterfactual. While we advocate for a careful consideration of such more “reflective willingness-to-pay”, we are critical about a blank consideration of externalities and with it consumers’ willingness-to-pay for a change in the behaviour of other consumers.
{"title":"Measuring Consumer Sustainability Benefits","authors":"R. Inderst, Stefan Thomas","doi":"10.2139/ssrn.3916070","DOIUrl":"https://doi.org/10.2139/ssrn.3916070","url":null,"abstract":"While consumer sustainability benefits exhibit particular characteristics, e.g., as they are typically based on non-use value, they can be measured by standard instruments as applied in environmental cost-benefit analysis, such as conjoint analysis and contingent valuation. Their measurement may be particularly sensitive to provided context, which makes it necessary to be particularly careful when measuring consumers’ willingness-to-pay. This sensitivity, however, also allows to expand the scope for such benefits and enables an appropriate modelling of the counterfactual. While we advocate for a careful consideration of such more “reflective willingness-to-pay”, we are critical about a blank consideration of externalities and with it consumers’ willingness-to-pay for a change in the behaviour of other consumers.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77851894","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Airlines often route passengers on connecting flights through hubs. Despite the prevalence of connecting service, airline research focuses on nonstop routes. We estimate the propagation of shocks to fares on nonstop routes to fares on connecting routes that include those nonstop routes as a leg. We use seasonal variation in demand to identify and measure a positive pass-through rate across airline networks. We then study the impacts of mergers and nonstop route entry on connecting service that experienced a change in competition on one leg. Estimates of consumer surplus changes based on nonstop routes understate the impact of competitive changes, with a median understatement of 24% for recent mergers.
{"title":"Market Power Spillovers Across Airline Routes","authors":"Roi Orzach, R. Dix","doi":"10.2139/ssrn.3915484","DOIUrl":"https://doi.org/10.2139/ssrn.3915484","url":null,"abstract":"Airlines often route passengers on connecting flights through hubs. Despite the prevalence of connecting service, airline research focuses on nonstop routes. We estimate the propagation of shocks to fares on nonstop routes to fares on connecting routes that include those nonstop routes as a leg. We use seasonal variation in demand to identify and measure a positive pass-through rate across airline networks. We then study the impacts of mergers and nonstop route entry on connecting service that experienced a change in competition on one leg. Estimates of consumer surplus changes based on nonstop routes understate the impact of competitive changes, with a median understatement of 24% for recent mergers.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82786033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The author gives recommendations on implementation of modifications to the regulations on the state corporations in the Russian Federation.
作者就修改俄罗斯联邦国有企业条例的实施提出了建议。
{"title":"Assessment of the State Corporations","authors":"A. Shashkova","doi":"10.2139/ssrn.3912054","DOIUrl":"https://doi.org/10.2139/ssrn.3912054","url":null,"abstract":"The author gives recommendations on implementation of modifications to the regulations on the state corporations in the Russian Federation.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91508606","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-08-24DOI: 10.17159/1727-3781/2021/v24i0a10741
Justice Mudzamiri, P. Osode
This article argues that company takeover regulation regimes must carefully balance two opposing notions. On the one hand, the regime must be designed to enable or facilitate the initiation and successful implementation of takeovers and mergers in the interests of economic growth and technological advancement. On the other hand, such a regulatory framework ought to be sensitive to the ever-increasing need to protect national security interests, especially from veiled threats. These threats include cybercrimes, private data hacking and espionage, which are endemic to takeovers contemplated by foreign persons that possess technological sophistication and are leaders in the rapidly unfolding Fourth Industrial Revolution. Recently some jurisdictions, such as the United States of America and the United Kingdom, have been active in reforming their investment laws to particularly strengthen the protection of national security interests. Similarly, in South Africa the debut introduction of section 18A of the Competition Amendment Act 18 of 2018 has enabled the addition of a concurrent but parallel standard to the pre-existing merger control criteria prescribed under section 12A of the Competition Act 89 of 1998. This article evaluates the efficacy of South Africa's framework for national security interests' protection in the context of merger control using its US and UK counterparts as comparators. Ultimately, the article proposes reforming the existing statutory and institutional framework to effectively accommodate national security interests in South African merger control.
{"title":"Reconciling the 'Bittersweet Chemistry' between Technology and Corporate Takeovers through Reinforcing National Security Interests in Merger Control","authors":"Justice Mudzamiri, P. Osode","doi":"10.17159/1727-3781/2021/v24i0a10741","DOIUrl":"https://doi.org/10.17159/1727-3781/2021/v24i0a10741","url":null,"abstract":"This article argues that company takeover regulation regimes must carefully balance two opposing notions. On the one hand, the regime must be designed to enable or facilitate the initiation and successful implementation of takeovers and mergers in the interests of economic growth and technological advancement. On the other hand, such a regulatory framework ought to be sensitive to the ever-increasing need to protect national security interests, especially from veiled threats. These threats include cybercrimes, private data hacking and espionage, which are endemic to takeovers contemplated by foreign persons that possess technological sophistication and are leaders in the rapidly unfolding Fourth Industrial Revolution. Recently some jurisdictions, such as the United States of America and the United Kingdom, have been active in reforming their investment laws to particularly strengthen the protection of national security interests. Similarly, in South Africa the debut introduction of section 18A of the Competition Amendment Act 18 of 2018 has enabled the addition of a concurrent but parallel standard to the pre-existing merger control criteria prescribed under section 12A of the Competition Act 89 of 1998. This article evaluates the efficacy of South Africa's framework for national security interests' protection in the context of merger control using its US and UK counterparts as comparators. Ultimately, the article proposes reforming the existing statutory and institutional framework to effectively accommodate national security interests in South African merger control.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86578241","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The emergence and growth of a collection of large and global private networks operated by big tech companies like Google, Facebook, or Amazon have thoroughly disrupted the Internet ecosystem. Associated developments have shifted and blurred the lines between public and private networking and contributed to a seismic shift in the topology and industrial organization of the ecosystem. In this paper, we explore the growing complexity and evolution of the Internet ecosystem and analyze the causes, drivers, and implications of fractures and fragmentation in the ecosystem. We adopt a multidisciplinary perspective and synthesize our findings into a typology of different dimensions of fractures and fragmentations. Our findings provide empirically substantiated insights into the complex and evolving web of vertical and horizontal relationships such as collaborations or integration strategies, complementarities, and synergies, as well as altered ownership and governance structures and market positions. The insights gained provide evidence that informs policymaking in various current matters such as network neutrality regulation, data governance and sovereignty, and the regulation of big tech.
{"title":"The Rise and Evolution of Clouds and Private Networks – Internet Interconnection, Ecosystem Fragmentation","authors":"Volker Stocker, Guenter Knieps, C. Dietzel","doi":"10.2139/ssrn.3910108","DOIUrl":"https://doi.org/10.2139/ssrn.3910108","url":null,"abstract":"The emergence and growth of a collection of large and global private networks operated by big tech companies like Google, Facebook, or Amazon have thoroughly disrupted the Internet ecosystem. Associated developments have shifted and blurred the lines between public and private networking and contributed to a seismic shift in the topology and industrial organization of the ecosystem. In this paper, we explore the growing complexity and evolution of the Internet ecosystem and analyze the causes, drivers, and implications of fractures and fragmentation in the ecosystem. We adopt a multidisciplinary perspective and synthesize our findings into a typology of different dimensions of fractures and fragmentations. Our findings provide empirically substantiated insights into the complex and evolving web of vertical and horizontal relationships such as collaborations or integration strategies, complementarities, and synergies, as well as altered ownership and governance structures and market positions. The insights gained provide evidence that informs policymaking in various current matters such as network neutrality regulation, data governance and sovereignty, and the regulation of big tech.","PeriodicalId":11797,"journal":{"name":"ERN: Regulation (IO) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89636147","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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