nep-ind New Economics Papers
on Industrial Organization
Issue of 2020‒02‒10
eight papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Big Tech Mergers By Massimo Motta; Martin Peitz
  2. Antitrust and Restrictions on Privacy in the Digital Economy By Nicholas Economides; Ioannis Lianos
  3. Learning by supplying and Competition Threat By Yi Fan Chen; Alireza Naghavi; Shin-Kun Peng
  4. Worker compensation schemes and product market competition By Stadler, Manfred
  5. Economists’ Tunney Act Reply Comments on the DOJ’s Proposed Remedy in the Sprint/T-Mobile Merger Proceeding By Nicholas Economides; John Kwoka; Thomas Philippon; Robert Seamans; Hal Singer; Marshall Steinbaum; Lawrence J. White
  6. Rebating Antitrust Fines to Encourage Private Damages Actions By Winand Emons; Severin Lenhard
  7. Event Studies in Merger Analysis: Review and an Application Using U.S. TNIC Data By Timo Klein
  8. Germany's market transparency unit for fuels: Fostering collusion or competition? By Horvath, Marco

  1. By: Massimo Motta; Martin Peitz
    Abstract: Big tech mergers are frequently occurring events. What are the competitive effects of these mergers? With the help of a simple model we identify the acquisition of potential competitors as a pressing issue for merger control in digital industries. We also sketch a few novel theories of harm of horizontal and conglomerate mergers that are potentially relevant in digital industries. Finally, we draw some policy recommendations on how to deal with mergers in such industries.
    Keywords: merger policy, digital markets, potential competition, conglomerate mergers
    JEL: L41 L13 K21
    Date: 2020–01
  2. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: We present a model of a market failure based on a requirement provision by digital platforms in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using traditional antitrust methodology. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information would create a functioning market for personal information that would benefit users. Even though market harm is established under the assumption that consumers are perfectly informed about the value of their privacy, we show that when users are not well informed, there can be additional harms to this market failure.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–01
  3. By: Yi Fan Chen (Singapore Management University); Alireza Naghavi (University of Bologna); Shin-Kun Peng (National Taiwan University)
    Abstract: This study proposes a model of learning by supplying in an international outsourcing framework, where the supplier of a relationship-specific input can reverse engineer and become a competitor to its partner in the final goods market. Transmitting knowledge to a more capable supplier therefore creates competitive threat despite the benefits it brings within an outsourcing relationship. In particular, in markets with less differentiated products and for standard inputs that require less knowledge to be shared, choosing an intermediate capability level supplier prompts a strategic expansion of output to deter supplier entry in the final goods market, resulting in higher profits and welfare. A highly capable supplier is instead accommodated as a rival and is a source of royalty income when the relationship specific input embeds more knowledge about the final product and when the competing varieties are differentiated.
    Keywords: International outsourcing; Supplier heterogeneity; Competitive threat; Reverse engineering; Strategic predation; Technological capability; Learning by supplying; Royalty payment; Knowledge intensity
    JEL: F12 F23 L13 L22 L24 D23 O34
    Date: 2019–12–20
  4. By: Stadler, Manfred
    Abstract: We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers' output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented.
    Keywords: worker compensation schemes,piece rates,contests,tournaments,product market competition
    JEL: C72 L22 M52
    Date: 2020
  5. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); John Kwoka (Neal F. Finnegan Distinguished Professor of Economics, College of Social Sciences and Humanities, Northeastern University); Thomas Philippon (Max L. Heine Professor of Finance, NYU Stern School of Business, New York, New York 10012); Robert Seamans (Associate Professor of Management and Organizations, NYU Stern School of Business, New York, New York 10012); Hal Singer (Managing Director at Econ One, Adjunct Professor at Georgetown McDonough School of Business); Marshall Steinbaum (Assistant Professor, Economics Department, University of Utah); Lawrence J. White (Robert Kavesh Professor of Economics, NYU Stern School of Business, New York, New York 10012)
    Abstract: Following up on our initial comments at the Tunney Act proceeding of the proposed merger between Sprint and T-Mobile, we discuss DOJ’s criticisms of these comments, explaining why these criticisms are baseless. Moreover, using evidence from the NY v. Deutsche Telecom trial, we provide new arguments showing that the DOJ proposed remedy will fail to restore the ex ante competitive conditions in the affected antitrust product markets to the detriment of users of mobile phones in the United States.
    Keywords: Telecommunications; Merger; Tunney Act; Sprint; T-Mobile; Dish; DOJ
    JEL: L1 L4 L5 L9
    Date: 2020–01
  6. By: Winand Emons; Severin Lenhard
    Abstract: To encourage private actions for damages in antitrust cases some jurisdictions subtract a fraction of the redress from the fine. We analyze the effectiveness of this policy. Such a rebate does not encourage settlement negotiations that would otherwise not occur. If, however, the parties settle without the rebate, the introduction of the reduction increases the settlement amount, yet at the price of reduced deterrence for those wrongdoers who are actually fined. Under a leniency program the rebate has no effect on the leniency applicant: she doesn’t pay a fine that can be reduced. The overall effect of a fine reduction on deterrence is, therefore, negative.
    Keywords: antitrust, damages, deterrence, leniency
    JEL: D43 K21 K42 L40
    Date: 2020–01
  7. By: Timo Klein (University of Amsterdam)
    Abstract: There is a growing concern that U.S. merger control may have been too lenient, but empirical evidence remains limited. Event studies have been used as one method to acquire empirical insights into the competitive effects of mergers. However, existing work suffers from strong identifying assumptions, unreliable competitor identification or small samples. After reviewing the use and challenges of event studies in merger analysis, I use a novel application of Hoberg-Phillips (2010, 2016) Text-Based Network Industry Classification (TNIC) data to readily proxy a ranking of competitors to 1,751 of the largest U.S. mergers between 1997 and 2017. I document that following a merger announcement, the most likely competitors experience on average an abnormal return of around one percent. These abnormal returns are also associated with concerns of market power, which suggests that results are at least in part driven by an anticipation of anti-competitive effects, and hence insufficient merger control.
    Keywords: Mergers, Antitrust, Event Studies, Text-Based Network Industry Classification
    JEL: G14 G34 L13 L40
    Date: 2020–01–27
  8. By: Horvath, Marco
    Abstract: To increase competition in the retail market for gasoline, Germany's Federal Cartel Office established the so-called Market Transparency Unit for Fuels (MTU). Drawing on a panel data set covering 6,834 stations in Germany and employing both fixed effect methods and a difference-in-difference approach, this study investigates the impact of the MTU on the price margins of gas stations. We find that the MTU fostered a more intense competition, with a reduction in price margins of 1-2 cents per liter.
    Keywords: retail gasoline,market transparency,price margin,competition
    JEL: Q41 D43 D83 L13
    Date: 2019

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