Pub Date : 2024-05-03DOI: 10.1007/s11151-024-09957-x
Michael A. Salinger
Relying heavily on legal analysis, the 2023 Merger Guidelines argue for a fundamental shift in antitrust enforcement that places more emphasis on protecting competitors and less on protecting the beneficiaries of competition. It is up to courts, not economists, to ascertain whether this interpretation of antitrust law is correct. But economists can and should analyze the likely economic effects. Evidence that antitrust enforcement has permitted some markets to be overly concentrated justifies the tightening of horizontal merger enforcement that is signaled by these guidelines. Evaluating the elimination of double marginalization from vertical mergers as a part of an efficiency defense rather than as a primary economic effect reflects a fundamental misunderstanding of the economics of vertical mergers. At a minimum, these guidelines will further damage the reputation of the DOJ and FTC among competition policy enforcers in other countries. A potentially more serious cost will be if foreign competition authorities use these guidelines to justify enforcing their own laws to protect inefficient domestic firms against foreign competition.
{"title":"The 2023 Merger Guidelines and The Role of Economics","authors":"Michael A. Salinger","doi":"10.1007/s11151-024-09957-x","DOIUrl":"https://doi.org/10.1007/s11151-024-09957-x","url":null,"abstract":"<p>Relying heavily on legal analysis, the 2023 Merger Guidelines argue for a fundamental shift in antitrust enforcement that places more emphasis on protecting competitors and less on protecting the beneficiaries of competition. It is up to courts, not economists, to ascertain whether this interpretation of antitrust law is correct. But economists can and should analyze the likely economic effects. Evidence that antitrust enforcement has permitted some markets to be overly concentrated justifies the tightening of horizontal merger enforcement that is signaled by these guidelines. Evaluating the elimination of double marginalization from vertical mergers as a part of an efficiency defense rather than as a primary economic effect reflects a fundamental misunderstanding of the economics of vertical mergers. At a minimum, these guidelines will further damage the reputation of the DOJ and FTC among competition policy enforcers in other countries. A potentially more serious cost will be if foreign competition authorities use these guidelines to justify enforcing their own laws to protect inefficient domestic firms against foreign competition.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-05-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140886237","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-05-02DOI: 10.1007/s11151-024-09955-z
Konstantinos Charistos
Leniency Programs (LPs) reward cartel-participating firms that come forward with evidence that can be used as proof of the illegal conduct in which they have participated. The marker system allows a leniency applicant to reserve its position in the reporting queue before the names of the eligible applicants are announced. We show that markers can reduce the destabilizing effect of LPs: When cartels are established either with or without a marker system, self-reporting and cartel disruption are less likely with markers, as compared to without markers. In addition, the introduction of markers in LPs may further the sustainability of collusion.
{"title":"Marker Systems in Leniency Policies","authors":"Konstantinos Charistos","doi":"10.1007/s11151-024-09955-z","DOIUrl":"https://doi.org/10.1007/s11151-024-09955-z","url":null,"abstract":"<p>Leniency Programs (LPs) reward cartel-participating firms that come forward with evidence that can be used as proof of the illegal conduct in which they have participated. The marker system allows a leniency applicant to reserve its position in the reporting queue before the names of the eligible applicants are announced. We show that markers can reduce the destabilizing effect of LPs: When cartels are established either with or without a marker system, self-reporting and cartel disruption are less likely with markers, as compared to without markers. In addition, the introduction of markers in LPs may further the sustainability of collusion.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140834361","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-23DOI: 10.1007/s11151-024-09961-1
K. Kanjilal, Ana Espínola‐Arredondo, Félix Muñoz-García
{"title":"Strategic Merger Approvals Under Incomplete Information","authors":"K. Kanjilal, Ana Espínola‐Arredondo, Félix Muñoz-García","doi":"10.1007/s11151-024-09961-1","DOIUrl":"https://doi.org/10.1007/s11151-024-09961-1","url":null,"abstract":"","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140666448","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-09DOI: 10.1007/s11151-024-09959-9
Steven C. Salop
This article is designed to explicate the somewhat misunderstood analysis in the 2023 Merger Guidelines (MGs) and situate the MGs in the context of the legal as well as economic environment in which they operate. The MGs refine economic analyses in previous MGs, renew emphasis on certain competitive concerns and approaches, and add several emerging new competitive issues. They also integrate certain goals of post-Chicago and Neo-Brandeisian approaches to merger analysis. The MGs integrate the economic analysis into the traditional legal structure of the “prima facie” and “rebuttal” evidentiary stages and place greater weight on avoiding false negatives over false positives in various places, which is a principal element in both post-Chicago and Neo-Brandeisian approaches. An important theme that runs through the 2023 MGs is that competitive effects analysis should not be limited to static competitive effects analysis of the immediate unilateral or coordinated price effects of a merger. They stress that the analysis should also account for the dynamic effects that result from the change in market structure that follows from the merger as well as the changes in the incentives of the firms. As in the seminal Spence-Dixit models, the entrant would rationally anticipate that the lower marginal costs of the merged firm could produce more intense post-entry price competition and a higher likelihood that the entry would be unprofitable. Thus, higher barriers to entry or expansion may result, which means that the merged firm’s rebuttal burden of production under the sliding scale should be increased accordingly under the decision theory risk analysis that places greater weight on avoiding false negatives.
{"title":"The 2023 Merger Guidelines: A Post-Chicago and Neo-Brandeisian Integration","authors":"Steven C. Salop","doi":"10.1007/s11151-024-09959-9","DOIUrl":"https://doi.org/10.1007/s11151-024-09959-9","url":null,"abstract":"<p>This article is designed to explicate the somewhat misunderstood analysis in the 2023 Merger Guidelines (MGs) and situate the MGs in the context of the legal as well as economic environment in which they operate. The MGs refine economic analyses in previous MGs, renew emphasis on certain competitive concerns and approaches, and add several emerging new competitive issues. They also integrate certain goals of post-Chicago and Neo-Brandeisian approaches to merger analysis. The MGs integrate the economic analysis into the traditional legal structure of the “prima facie” and “rebuttal” evidentiary stages and place greater weight on avoiding false negatives over false positives in various places, which is a principal element in both post-Chicago and Neo-Brandeisian approaches. An important theme that runs through the 2023 MGs is that competitive effects analysis should not be limited to static competitive effects analysis of the immediate unilateral or coordinated price effects of a merger. They stress that the analysis should also account for the dynamic effects that result from the change in market structure that follows from the merger as well as the changes in the incentives of the firms. As in the seminal Spence-Dixit models, the entrant would rationally anticipate that the lower marginal costs of the merged firm could produce more intense post-entry price competition and a higher likelihood that the entry would be unprofitable. Thus, higher barriers to entry or expansion may result, which means that the merged firm’s rebuttal burden of production under the sliding scale should be increased accordingly under the decision theory risk analysis that places greater weight on avoiding false negatives.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140576041","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-06DOI: 10.1007/s11151-024-09956-y
Carl Shapiro
The 2023 Merger Guidelines make some notable improvements over the 2010 Horizontal Merger Guidelines. They give greater emphasis to the idea that predicting the competitive effects of a proposed merger is inherently difficult and that to block a merger the government need only show a risk that the merger may substantially lessen competition – not that it will do so. They also give greater emphasis to dynamic competition and innovation – especially with regard to acquisitions of potential entrants – and they add useful material on multi-sided platforms. However, the treatment of market definition in the 2023 Merger Guidelines may weaken horizontal merger enforcement by demoting the role of the “hypothetical monopolist test,” which is used to define markets for the purpose of measuring market shares, and by removing extensive material from prior guidelines that explained why market shares measured in narrower markets tend to be more informative than market shares measured in broader markets. The 2023 Merger Guidelines lower the market concentration thresholds that trigger a presumption by the antitrust enforcement agencies that a merger may substantially lessen competition, but the enforcement data suggest that change will have little effect in practice. The 2023 Merger Guidelines also may lead to less effective deterrence of harmful mergers because they are not well targeted at the mergers that are most likely to substantially lessen competition. One cannot prioritize everything.
{"title":"Evolution of the Merger Guidelines: Is This Fox Too Clever by Half?","authors":"Carl Shapiro","doi":"10.1007/s11151-024-09956-y","DOIUrl":"https://doi.org/10.1007/s11151-024-09956-y","url":null,"abstract":"<p>The 2023 Merger Guidelines make some notable improvements over the 2010 Horizontal Merger Guidelines. They give greater emphasis to the idea that predicting the competitive effects of a proposed merger is inherently difficult and that to block a merger the government need only show a risk that the merger may substantially lessen competition – not that it will do so. They also give greater emphasis to dynamic competition and innovation – especially with regard to acquisitions of potential entrants – and they add useful material on multi-sided platforms. However, the treatment of market definition in the 2023 Merger Guidelines may weaken horizontal merger enforcement by demoting the role of the “hypothetical monopolist test,” which is used to define markets for the purpose of measuring market shares, and by removing extensive material from prior guidelines that explained why market shares measured in narrower markets tend to be more informative than market shares measured in broader markets. The 2023 Merger Guidelines lower the market concentration thresholds that trigger a presumption by the antitrust enforcement agencies that a merger may substantially lessen competition, but the enforcement data suggest that change will have little effect in practice. The 2023 Merger Guidelines also may lead to less effective deterrence of harmful mergers because they are not well targeted at the mergers that are most likely to substantially lessen competition. One cannot prioritize everything.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140576245","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-04DOI: 10.1007/s11151-024-09952-2
Irina Baye, Philip Hanspach, Tim Reiz, Geza Sapi
We consider competing mobile marketers that complement geo-targeting with behavior-based pricing and send personalized offers to customers. Firms observe consumers’ locations and can infer their (heterogeneous) responsiveness to discounts from purchase histories. The overall profit effect of behavioral targeting is driven by firms’ discount factor and consumers’ transport cost and can be neutral, positive, or negative. We are the first to show that the profitability of behavioral data may depend on firms’ time preferences. We derive conditions for when firms prefer more rather than less behavioral targeting.
{"title":"Customer Recognition and Mobile Geo-Targeting","authors":"Irina Baye, Philip Hanspach, Tim Reiz, Geza Sapi","doi":"10.1007/s11151-024-09952-2","DOIUrl":"https://doi.org/10.1007/s11151-024-09952-2","url":null,"abstract":"<p>We consider competing mobile marketers that complement geo-targeting with behavior-based pricing and send personalized offers to customers. Firms observe consumers’ locations and can infer their (heterogeneous) responsiveness to discounts from purchase histories. The overall profit effect of behavioral targeting is driven by firms’ discount factor and consumers’ transport cost and can be neutral, positive, or negative. We are the first to show that the profitability of behavioral data may depend on firms’ time preferences. We derive conditions for when firms prefer more rather than less behavioral targeting.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140576011","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-03DOI: 10.1007/s11151-024-09943-3
Pablo Serra
This article discusses the auctioning of financial contracts by aggregations of consumers who aim to reduce the spot price of a concentrated industry’s product; this is a frequent arrangement in electricity markets. The contracts' underlying asset is the product; the auctions' bidding variable is the strike price; and the bidders are the producers. Using a three-stage complete-information game, we show that when all consumers belong to some group, in the subgame perfect Nash equilibrium, each group fully hedges its consumption, and total output reaches its efficient level. Otherwise, each group over-hedges its consumption, and total production is below the efficiency level.
{"title":"The Auction of Contracts by Consumer Groups and the Effect on Market Power","authors":"Pablo Serra","doi":"10.1007/s11151-024-09943-3","DOIUrl":"https://doi.org/10.1007/s11151-024-09943-3","url":null,"abstract":"<p>This article discusses the auctioning of financial contracts by aggregations of consumers who aim to reduce the spot price of a concentrated industry’s product; this is a frequent arrangement in electricity markets. The contracts' underlying asset is the product; the auctions' bidding variable is the strike price; and the bidders are the producers. Using a three-stage complete-information game, we show that when all consumers belong to some group, in the subgame perfect Nash equilibrium, each group fully hedges its consumption, and total output reaches its efficient level. Otherwise, each group over-hedges its consumption, and total production is below the efficiency level.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140576009","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-02DOI: 10.1007/s11151-024-09953-1
Abstract
Competition usually increases firm productivity; but in network industries, effective competition requires vertical separation, which might reduce productivity and lead to a potential trade-off. We analyze the combined effect of competition and vertical separation on inefficient costs for US electricity industry restructuring. We estimate firm-level inefficiencies with the use of different nonparametric models of the technology and calculate net benefits with the use of difference-in-differences. The results depend on how we model the production technology and the length of the post-treatment horizon. The more flexible is the production frontier, the greater is the net benefit from divestiture and competition. Across our models the combined effect of divestiture and competition is positive.
{"title":"The Effects of Vertical Separation and Competition: Evidence from US Electric Utility Restructuring","authors":"","doi":"10.1007/s11151-024-09953-1","DOIUrl":"https://doi.org/10.1007/s11151-024-09953-1","url":null,"abstract":"<h3>Abstract</h3> <p>Competition usually increases firm productivity; but in network industries, effective competition requires vertical separation, which might reduce productivity and lead to a potential trade-off. We analyze the combined effect of competition and vertical separation on inefficient costs for US electricity industry restructuring. We estimate firm-level inefficiencies with the use of different nonparametric models of the technology and calculate net benefits with the use of difference-in-differences. The results depend on how we model the production technology and the length of the post-treatment horizon. The more flexible is the production frontier, the greater is the net benefit from divestiture and competition. Across our models the combined effect of divestiture and competition is positive. </p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140602636","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-04-01DOI: 10.1007/s11151-024-09954-0
Abstract
We investigate whether the cost pass-through in the European retail gasoline market is the same regardless of whether cost changes are driven by exchange rate fluctuations or driven by fluctuations in the dollar spot price of gasoline. We find that the two cost pass-through rates are not the same: we find that the latter exceeds the former. The effect is quantitatively small, but robust and statistically significant. This pattern is not due to a lower persistence of exchange rate changes, refinery supply contracts, or economic fluctuations. The lower variability of exchange rates relative to that of oil prices explains a portion of the response gap. A possible explanation for the remaining gap is that consumers draw a direct link between the crude oil and retail gasoline prices, which affects their price expectations and their search intensity, and thus the retailers’ pass-through. Because pass-through is sometimes used to assess market competitiveness and contributes to the forecast of the Consumer Price Index, it is important to recognize that the source of variation in the underlying costs may have an effect on the assessment of market conduct and inflation.
{"title":"Price Pass-Through Dependence on the Source of Cost Increases: Evidence from the European Gasoline Market","authors":"","doi":"10.1007/s11151-024-09954-0","DOIUrl":"https://doi.org/10.1007/s11151-024-09954-0","url":null,"abstract":"<h3>Abstract</h3> <p>We investigate whether the cost pass-through in the European retail gasoline market is the same regardless of whether cost changes are driven by exchange rate fluctuations or driven by fluctuations in the dollar spot price of gasoline. We find that the two cost pass-through rates are not the same: we find that the latter exceeds the former. The effect is quantitatively small, but robust and statistically significant. This pattern is not due to a lower persistence of exchange rate changes, refinery supply contracts, or economic fluctuations. The lower variability of exchange rates relative to that of oil prices explains a portion of the response gap. A possible explanation for the remaining gap is that consumers draw a direct link between the crude oil and retail gasoline prices, which affects their price expectations and their search intensity, and thus the retailers’ pass-through. Because pass-through is sometimes used to assess market competitiveness and contributes to the forecast of the Consumer Price Index, it is important to recognize that the source of variation in the underlying costs may have an effect on the assessment of market conduct and inflation.</p>","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140576239","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-03-11DOI: 10.1007/s11151-024-09949-x
Wei Lin, Frank Mathewson, Junji Xiao
{"title":"Screening Through Investment: Evidence from the Chinese Automobile Industry","authors":"Wei Lin, Frank Mathewson, Junji Xiao","doi":"10.1007/s11151-024-09949-x","DOIUrl":"https://doi.org/10.1007/s11151-024-09949-x","url":null,"abstract":"","PeriodicalId":47454,"journal":{"name":"Review of Industrial Organization","volume":null,"pages":null},"PeriodicalIF":1.1,"publicationDate":"2024-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140252514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}