Deutsch Abstract: Der Beitrag analysiert mögliche spezielle Wettbewerbsprobleme, die in Medienmärkten auftreten können, und ihre Implikationen für die Wettbewerbsordnung. Es wird beleuchtet, ob klassische medienspezifische Wettbewerbsprobleme in der Digitalwirtschaft noch bestehen und welche neuen Beschränkungen auftreten, wie bspw. der Zugang zum Publikum als neue Marktzutrittsschranke sowie Gatekeeping-Effekte aufgrund von vertikaler Integration und Selbstbevorzugungsstrategien. Die derzeit stattfindende Ausweitung der wettbewerbspolitischen Missbrauchsaufsicht wird begrüßt, allerdings wird eine hierzu komplementäre aktivere Zusammenschlusskontrolle eingefordert, insbesondere auch gegenüber nicht-horizontalen Fusionen, welche wettbewerbsgefährdende Strukturen in digitalen Ökosystemen schaffen. English Abstract: This paper analyses potential competition problems that are special to media markets and their implications for competition policy. It discusses whether traditional media-specific restraints of competition are still relevant in the digital economy and which new ones tend to surface in digital ecosystems, like e.g. access to the audience as a barrier to entry or gatekeeping effects as a consequence of vertical integration and self-preferencing strategies. The article welcomes the current enhancement and empowerment of antitrust policies combating market power abuses by companies with significant relevance within digital ecosystems. However, it additionally demands to invigorate merger control, in particular also against non-horizontal mergers within digital ecosystems.
抽象:文章分析了媒体市场可能出现的具体竞争问题，以及这些问题对竞争规则的影响。它考察了传统媒体在数字经济中是否还存在传统媒体的竞争问题以及类似bspw这样的新制约因素。作为新兴市场进入壁垒的网关效应通过垂直融合和自我偏好策略实现欢迎目前针对腐败监督的规模扩张，但将呼吁一种互补的合作控制，特别是针对非水平并购，它们在数字生态系统中形成威胁竞争力的结构。英国抽象:这篇论文中隐藏着信息市场与无路可查政策的问题。It discusses whether traditional media-specific restraints of竞赛是安静的相关《在数字经济和平衡的新超级tend to在想通过数字化生态系统,像是e.g. access to the怎么样as a堡礁to or gatekeeping entry花巧as a consequence of纵向一体化和self-preferencing strategies .石油公司威胁要“提高信心”政策的执行However你这反渗透的对手是无敌的防暴者
{"title":"Wettbewerbsordnung und digitale Medienmärkte (Competition Rules for Digital Media Markets)","authors":"Oliver Budzinski","doi":"10.2139/ssrn.3922947","DOIUrl":"https://doi.org/10.2139/ssrn.3922947","url":null,"abstract":"Deutsch Abstract: Der Beitrag analysiert mögliche spezielle Wettbewerbsprobleme, die in Medienmärkten auftreten können, und ihre Implikationen für die Wettbewerbsordnung. Es wird beleuchtet, ob klassische medienspezifische Wettbewerbsprobleme in der Digitalwirtschaft noch bestehen und welche neuen Beschränkungen auftreten, wie bspw. der Zugang zum Publikum als neue Marktzutrittsschranke sowie Gatekeeping-Effekte aufgrund von vertikaler Integration und Selbstbevorzugungsstrategien. Die derzeit stattfindende Ausweitung der wettbewerbspolitischen Missbrauchsaufsicht wird begrüßt, allerdings wird eine hierzu komplementäre aktivere Zusammenschlusskontrolle eingefordert, insbesondere auch gegenüber nicht-horizontalen Fusionen, welche wettbewerbsgefährdende Strukturen in digitalen Ökosystemen schaffen. English Abstract: This paper analyses potential competition problems that are special to media markets and their implications for competition policy. It discusses whether traditional media-specific restraints of competition are still relevant in the digital economy and which new ones tend to surface in digital ecosystems, like e.g. access to the audience as a barrier to entry or gatekeeping effects as a consequence of vertical integration and self-preferencing strategies. The article welcomes the current enhancement and empowerment of antitrust policies combating market power abuses by companies with significant relevance within digital ecosystems. However, it additionally demands to invigorate merger control, in particular also against non-horizontal mergers within digital ecosystems.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133820991","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}
Network externalities—i.e., effects on consumers' alternative-specific pay-offs of other consumers' decisions—arise in many economic settings. This paper considers the identification of discrete-choice models featuring network externalities and then uses such a model to analyze how network externalities in the market for dating websites in the United States contribute to the effects of consolidation in that industry. My identification analysis shows that discrete-choice models with network externalities are generally not identified with market-level data alone, but that microdata allows the researcher to construct instrumental variables that identify the model. Using rich online browsing data, I estimate a model of consumer choice of dating website and find evidence of considerable network externalities. In my preferred specification, an inframarginal user of a site values a 10% increase in the site's usership at $11.11/month, which is about one third of the most popular site's price. I use my estimates to assess whether the observed extent of network externalities imply that increased market concentration would benefit consumers. I find that welfare losses from decreased variety and increased prices outweigh the gains from network externalities associated with a move from the observed market structure to monopoly. Platform differentiation may explain why platform integration has not followed consolidation in the dating websites industry.
{"title":"Network Externalities and Consolidation in the Dating Website Industry","authors":"Michael Sullivan","doi":"10.2139/ssrn.3760700","DOIUrl":"https://doi.org/10.2139/ssrn.3760700","url":null,"abstract":"Network externalities—i.e., effects on consumers' alternative-specific pay-offs of other consumers' decisions—arise in many economic settings. This paper considers the identification of discrete-choice models featuring network externalities and then uses such a model to analyze how network externalities in the market for dating websites in the United States contribute to the effects of consolidation in that industry. My identification analysis shows that discrete-choice models with network externalities are generally not identified with market-level data alone, but that microdata allows the researcher to construct instrumental variables that identify the model. Using rich online browsing data, I estimate a model of consumer choice of dating website and find evidence of considerable network externalities. In my preferred specification, an inframarginal user of a site values a 10% increase in the site's usership at $11.11/month, which is about one third of the most popular site's price. I use my estimates to assess whether the observed extent of network externalities imply that increased market concentration would benefit consumers. I find that welfare losses from decreased variety and increased prices outweigh the gains from network externalities associated with a move from the observed market structure to monopoly. Platform differentiation may explain why platform integration has not followed consolidation in the dating websites industry.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121929180","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 common belief about the growing medium of livestreaming is that its value lies in its "live" component. In this paper, we leverage data from a large livestreaming platform to examine this belief. We are able to do this as this platform also allows viewers to purchase the recorded version of the livestream. We summarize the value of livestreaming content by estimating how demand responds to price before, on the day of, and after the livestream. We do this by proposing a generalized Orthogonal Random Forest framework. This framework allows us to estimate heterogeneous treatment effects in the presence of high-dimensional confounders whose relationships with the treatment policy (i.e., price) are complex but partially known. We find significant dynamics in the price elasticity of demand over the temporal distance to the scheduled livestreaming day and after. Specifically, demand gradually becomes less price sensitive over time to the livestreaming day and is inelastic on the livestreaming day. Over the post-livestream period, demand is still sensitive to price, but much less than the pre-livestream period. This indicates that the value of livestreaming persists beyond the live component. Finally, we provide suggestive evidence for the likely mechanisms driving our results. These are quality uncertainty reduction for the patterns pre- and post-livestream and the potential of real-time interaction with the creator on the day of the livestream.
{"title":"The Role of \"Live\" in Livestreaming Markets: Evidence Using Orthogonal Random Forest","authors":"Ziwei Cong, Jia Liu, Puneet Manchanda","doi":"10.2139/ssrn.3878605","DOIUrl":"https://doi.org/10.2139/ssrn.3878605","url":null,"abstract":"The common belief about the growing medium of livestreaming is that its value lies in its \"live\" component. In this paper, we leverage data from a large livestreaming platform to examine this belief. We are able to do this as this platform also allows viewers to purchase the recorded version of the livestream. We summarize the value of livestreaming content by estimating how demand responds to price before, on the day of, and after the livestream. We do this by proposing a generalized Orthogonal Random Forest framework. This framework allows us to estimate heterogeneous treatment effects in the presence of high-dimensional confounders whose relationships with the treatment policy (i.e., price) are complex but partially known. We find significant dynamics in the price elasticity of demand over the temporal distance to the scheduled livestreaming day and after. Specifically, demand gradually becomes less price sensitive over time to the livestreaming day and is inelastic on the livestreaming day. Over the post-livestream period, demand is still sensitive to price, but much less than the pre-livestream period. This indicates that the value of livestreaming persists beyond the live component. Finally, we provide suggestive evidence for the likely mechanisms driving our results. These are quality uncertainty reduction for the patterns pre- and post-livestream and the potential of real-time interaction with the creator on the day of the livestream.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127457744","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}
Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China (“China shock”) through firms’ internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel affects both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms’ internal networks has a sizable impact on industry-level employment dynamics.
{"title":"Import Competition and Firms' Internal Networks","authors":"Jay Hyun, Ziho Park, V. Smirnyagin","doi":"10.2139/ssrn.3882794","DOIUrl":"https://doi.org/10.2139/ssrn.3882794","url":null,"abstract":"Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China (“China shock”) through firms’ internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel affects both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms’ internal networks has a sizable impact on industry-level employment dynamics.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115441754","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}
This paper uses over two decades of Italian survey data on business managers' expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms' demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firm-level uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises.
{"title":"The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations","authors":"G. Fiori, Filippo Scoccianti","doi":"10.2139/ssrn.3896313","DOIUrl":"https://doi.org/10.2139/ssrn.3896313","url":null,"abstract":"This paper uses over two decades of Italian survey data on business managers' expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms' demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firm-level uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129277889","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}
Subsidy programs are widely used by governments to stimulate durable goods sectors. This paper investigates the impact of government subsidy on consumers' automobile replacement decisions in the context of the U.S. Car Allowance and Rebate System program in 2009. I develop and estimate a dynamic discrete-choice model of automobile replacement, and conduct counterfactual analysis to evaluate the effects of government subsidies. Results show that 65% of the households would replace their vehicles even without the subsidy, and the reductions in gasoline consumption and carbon emission are limited. To highlight the impact of subsidy design, I show that limiting the subsidy to low-income consumers would generate 85% of the sales with half amount of total government spending. These findings emphasize the importance of balancing policy stimulus with government spending and targeting consumers more efficiently in the design of subsidy programs.
{"title":"Automobile Replacement and Government Subsidy: An Analysis of the CARS Program","authors":"Junyan Guan","doi":"10.2139/ssrn.3873076","DOIUrl":"https://doi.org/10.2139/ssrn.3873076","url":null,"abstract":"Subsidy programs are widely used by governments to stimulate durable goods sectors. This paper investigates the impact of government subsidy on consumers' automobile replacement decisions in the context of the U.S. Car Allowance and Rebate System program in 2009. I develop and estimate a dynamic discrete-choice model of automobile replacement, and conduct counterfactual analysis to evaluate the effects of government subsidies. Results show that 65% of the households would replace their vehicles even without the subsidy, and the reductions in gasoline consumption and carbon emission are limited. To highlight the impact of subsidy design, I show that limiting the subsidy to low-income consumers would generate 85% of the sales with half amount of total government spending. These findings emphasize the importance of balancing policy stimulus with government spending and targeting consumers more efficiently in the design of subsidy programs.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121501466","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}
Owners of multi-sided platforms typically possess strong power over complementors. Such power asymmetry gives platform owners the edge on setting high platform fees to capture most of the surplus created on their platforms. While there is a heated debate on regulating these powerful platforms, the lack of empirical studies hinders the progress towards evidence-based policymaking. This research empirically investigates this regulatory issue in the context of on-demand delivery. Delivery platforms (e.g., DoorDash, Grubhub, and Uber Eats) charge restaurants a commission fee, which can be as high as 30% of the order amount. To support small businesses, recent regulatory scrutiny has attempted to cap the commission fees for independent restaurants. This research empirically evaluates the effects of platform fee regulations on restaurants, by investigating recent regulations across 14 cities and states in the United States. Our analyses show that independent restaurants in regulated cities (i.e., those paying reduced commission fees) experience a decline in orders and revenue, whereas chain restaurants (i.e., those paying the original fees) see an increase in orders and revenue. This intriguing finding suggests that chain restaurants, not independent restaurants, benefit from the regulations that were intended to support independent restaurants. We find that platforms’ responses to the regulations may explain the negative effects on independent restaurants. That is, after cities enact policies to cap platforms’ commission fees, delivery platforms become less likely to recommend independent restaurants to consumers, and instead turn to promote chain restaurants or nearby restaurants from non-regulated cities. Moreover, delivery platforms increase their delivery fees for consumers in regulated cities, suggesting that these platforms attempt to cover the loss of commission revenue by charging customers more. These findings provide empirical evidence for policymakers to evaluate the effectiveness of platform fee regulations.
{"title":"Regulating Powerful Platforms: Evidence from Commission Fee Caps in On-Demand Services","authors":"Z. Li, Gang Wang","doi":"10.2139/ssrn.3871514","DOIUrl":"https://doi.org/10.2139/ssrn.3871514","url":null,"abstract":"Owners of multi-sided platforms typically possess strong power over complementors. Such power asymmetry gives platform owners the edge on setting high platform fees to capture most of the surplus created on their platforms. While there is a heated debate on regulating these powerful platforms, the lack of empirical studies hinders the progress towards evidence-based policymaking. This research empirically investigates this regulatory issue in the context of on-demand delivery. Delivery platforms (e.g., DoorDash, Grubhub, and Uber Eats) charge restaurants a commission fee, which can be as high as 30% of the order amount. To support small businesses, recent regulatory scrutiny has attempted to cap the commission fees for independent restaurants. This research empirically evaluates the effects of platform fee regulations on restaurants, by investigating recent regulations across 14 cities and states in the United States. Our analyses show that independent restaurants in regulated cities (i.e., those paying reduced commission fees) experience a decline in orders and revenue, whereas chain restaurants (i.e., those paying the original fees) see an increase in orders and revenue. This intriguing finding suggests that chain restaurants, not independent restaurants, benefit from the regulations that were intended to support independent restaurants. We find that platforms’ responses to the regulations may explain the negative effects on independent restaurants. That is, after cities enact policies to cap platforms’ commission fees, delivery platforms become less likely to recommend independent restaurants to consumers, and instead turn to promote chain restaurants or nearby restaurants from non-regulated cities. Moreover, delivery platforms increase their delivery fees for consumers in regulated cities, suggesting that these platforms attempt to cover the loss of commission revenue by charging customers more. These findings provide empirical evidence for policymakers to evaluate the effectiveness of platform fee regulations.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131388604","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}
This study examines the merger announcement and post-announcement value effects of special purpose acquisition company (“SPAC”) transactions in the United States from January 2010 up to March 2021. It finds positive cumulative abnormal merger announcement returns (“CARs”) and negative long-term buy-and-hold abnormal returns (“BHARs”) post-announcement - consistent with previous research. The short-term effect is considerably larger (10.50%) for post-COVID SPACs, with faster deals, fewer redemptions, and more frequent PIPE involvement during bull markets with high market volatility and a low cost of debt. The BHARs are on average positive up until 15 months after merger announcement and negative afterwards. This study shows the effect of long-term performance is influenced by several SPAC characteristics. Firstly, the post-merger performance is better for SPACs with management with C-suite operational experience. Surprisingly though, prior experience of managers with SPAC transactions is not indicative of future results, as serial sponsors consistently underperform first-time sponsors. Secondly, SPAC deals with a higher proportion of PIPE financing show superior long-term performance, due to external deal validation leading to fewer redemptions. This study contributes to the limited existing literature on the post-merger effects of SPACs, by introducing new explanatory variables, performing multivariate regressions, and incorporating post-COVID SPAC mergers, leading to larger sample sizes. Given recent SPAC popularity, my findings have important implications for U.S. public market investors, corporate finance advisors, regulators and early-stage companies considering merging with a SPAC.
{"title":"Flipping the Coin: Are Spacs Post-Merger Value-Creating or Value-Destroying? An Empirical Study on the Value Effects of Special Purpose Acquisition Companies in the United States","authors":"Koen Bodewes","doi":"10.2139/ssrn.3872422","DOIUrl":"https://doi.org/10.2139/ssrn.3872422","url":null,"abstract":"This study examines the merger announcement and post-announcement value effects of special purpose acquisition company (“SPAC”) transactions in the United States from January 2010 up to March 2021. It finds positive cumulative abnormal merger announcement returns (“CARs”) and negative long-term buy-and-hold abnormal returns (“BHARs”) post-announcement - consistent with previous research. The short-term effect is considerably larger (10.50%) for post-COVID SPACs, with faster deals, fewer redemptions, and more frequent PIPE involvement during bull markets with high market volatility and a low cost of debt. The BHARs are on average positive up until 15 months after merger announcement and negative afterwards. This study shows the effect of long-term performance is influenced by several SPAC characteristics. Firstly, the post-merger performance is better for SPACs with management with C-suite operational experience. Surprisingly though, prior experience of managers with SPAC transactions is not indicative of future results, as serial sponsors consistently underperform first-time sponsors. Secondly, SPAC deals with a higher proportion of PIPE financing show superior long-term performance, due to external deal validation leading to fewer redemptions. This study contributes to the limited existing literature on the post-merger effects of SPACs, by introducing new explanatory variables, performing multivariate regressions, and incorporating post-COVID SPAC mergers, leading to larger sample sizes. Given recent SPAC popularity, my findings have important implications for U.S. public market investors, corporate finance advisors, regulators and early-stage companies considering merging with a SPAC.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116074587","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}
In many settings, behavioral economists have documented a price reference effect: the fact that a consumer's willingness to pay for a good is affected by difference between the observed price and the reference price they rationally expect. In this paper, we show that such preferences interact with vertical contracting in a way that can overturn standard textbook intuition. In particular, we show that if this price reference effect is sufficiently large, vertical integration between an upstream producer and a downstream retailer can decrease joint profits, unlike in the textbook case where vertical integration improves profits. The key intuition is that the increase in quantity is smaller when consumers expect lower prices in the new equilibrium. To test whether this force is large in a real-world setting, we develop a model of a downstream retailer who faces behavioral consumers and bargains with an upstream producer. We estimate this model using a novel dataset from a large online book retailer, where we observed retail prices, quantities sold and wholesale prices. Counterfactual simulations show that vertical integration would reduce joint profits by 11%. These findings highlight the importance of incorporating consumer expectations in the analysis of optimal pricing and firm profits.
{"title":"Price Reference Effects and Vertical Contracts in the Book Retail Market","authors":"Junyan Guan, Ting Wang","doi":"10.2139/ssrn.3861004","DOIUrl":"https://doi.org/10.2139/ssrn.3861004","url":null,"abstract":"In many settings, behavioral economists have documented a price reference effect: the fact that a consumer's willingness to pay for a good is affected by difference between the observed price and the reference price they rationally expect. In this paper, we show that such preferences interact with vertical contracting in a way that can overturn standard textbook intuition. In particular, we show that if this price reference effect is sufficiently large, vertical integration between an upstream producer and a downstream retailer can decrease joint profits, unlike in the textbook case where vertical integration improves profits. The key intuition is that the increase in quantity is smaller when consumers expect lower prices in the new equilibrium. To test whether this force is large in a real-world setting, we develop a model of a downstream retailer who faces behavioral consumers and bargains with an upstream producer. We estimate this model using a novel dataset from a large online book retailer, where we observed retail prices, quantities sold and wholesale prices. Counterfactual simulations show that vertical integration would reduce joint profits by 11%. These findings highlight the importance of incorporating consumer expectations in the analysis of optimal pricing and firm profits.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"91 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124158825","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}
Mergers in the pharmaceutical sector warrant special scrutiny not only because of concerns over affordability of medicines, but also because the institutional details of pharmaceutical markets complicate the economic analysis of merger effects. Standard anti-trust analysis of mergers, in pharmaceuticals as in other industries, focuses on the proposed merger’s potential to raise prices or reduce innovation by eliminating potential competitors in individual product markets defined by substitutability and geography. Ignored by this exclusive focus on individual markets is the potential for horizontal mergers to increase market power though leverage and cross-market effects enabled by large portfolios that span individual markets.
The thesis of this paper is that leverage and cross-market effects exist in pharmaceutical markets and can be exacerbated by mergers because larger firms have bargaining leverage and other advantages in dealing with reimbursement, marketing and selling in pharmaceutical markets. The relevant institutional details — and the potential risks to competition — differ across countries and between originator and generic drugs. An earlier paper outlined these potential cross-market effects in mergers of originator pharmaceutical firms in the US. This paper extends the analysis to examine how far similar cross-market effects are also a concern in mergers of originator firms in Europe and for generic firms in the US and Europe. It concludes that cross-market effects are potentially of greatest concern for originator pharmaceutical mergers and, to lesser extent, for generics mergers in the US, because the US healthcare system relies primarily on market forces rather than regulation to assure consumer welfare. While cross-market concerns could arise in pharmaceutical mergers in Europe, they are substantially mitigated by various regulatory features of European pharmaceutical markets.
{"title":"Firm Size and Pharmaceutical Mergers: A Cross-National, Cross-Sector Perspective","authors":"P. Danzon","doi":"10.2139/ssrn.3874139","DOIUrl":"https://doi.org/10.2139/ssrn.3874139","url":null,"abstract":"Mergers in the pharmaceutical sector warrant special scrutiny not only because of concerns over affordability of medicines, but also because the institutional details of pharmaceutical markets complicate the economic analysis of merger effects. Standard anti-trust analysis of mergers, in pharmaceuticals as in other industries, focuses on the proposed merger’s potential to raise prices or reduce innovation by eliminating potential competitors in individual product markets defined by substitutability and geography. Ignored by this exclusive focus on individual markets is the potential for horizontal mergers to increase market power though leverage and cross-market effects enabled by large portfolios that span individual markets. <br><br>The thesis of this paper is that leverage and cross-market effects exist in pharmaceutical markets and can be exacerbated by mergers because larger firms have bargaining leverage and other advantages in dealing with reimbursement, marketing and selling in pharmaceutical markets. The relevant institutional details — and the potential risks to competition — differ across countries and between originator and generic drugs. An earlier paper outlined these potential cross-market effects in mergers of originator pharmaceutical firms in the US. This paper extends the analysis to examine how far similar cross-market effects are also a concern in mergers of originator firms in Europe and for generic firms in the US and Europe. It concludes that cross-market effects are potentially of greatest concern for originator pharmaceutical mergers and, to lesser extent, for generics mergers in the US, because the US healthcare system relies primarily on market forces rather than regulation to assure consumer welfare. While cross-market concerns could arise in pharmaceutical mergers in Europe, they are substantially mitigated by various regulatory features of European pharmaceutical markets.","PeriodicalId":430354,"journal":{"name":"IO: Empirical Studies of Firms & Markets eJournal","volume":"254 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115768824","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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