Staging Interventions
Antitrust in the Information Economy: Digital Platform Mergers
Robert Crandall & Thomas Hazlett
Journal of Law and Economics, November 2022, Pages S499–S518
Abstract:
The growth of large digital platforms has caused some observers to claim that merger policy has been too lax to protect consumer welfare, stating a predicate for antitrust policy reform. We address this by exploring the relative importance of past mergers to the current value of the five largest platforms (Google, Amazon, Facebook, Apple, and Microsoft). We find that mergers have not been as important to these platforms’ size compared with other large technology companies. Even so, it could be argued that the mergers engaged in by these platforms have harmed efficiency. Listing the combinations often used to advance this view, we find that such mergers cited by reform advocates have often been associated with competitive or benign outcomes rather than with adverse effects associated with creation of a monopoly. Further analysis (and government litigation) will likely inform this perspective.
Optimal Regulation of Noncompete Contracts
Liyan Shi
Econometrica, March 2023, Pages 425-463
Abstract:
I study regulation of noncompete employment contracts, assessing the trade-off between restricting worker mobility and encouraging firm investment. I develop an on-the-job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban.
100 Years of Rising Corporate Concentration
Spencer Yongwook Kwon, Yueran Ma & Kaspar Zimmermann
University of Chicago Working Paper, February 2023
Abstract:
We collect data on the size distribution of all U.S. corporations for 100 years. We document that corporate concentration (e.g., asset share or sales share of top businesses) has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. Furthermore, rising concentration in an industry aligns with greater technological intensity and more fixed costs. Industries with higher increases in concentration also exhibit higher output growth. Among the leading hypotheses for rising concentration, stronger economies of scale appear consistent with the long-run trends.
A Retrospective Analysis of the AT&T/Time Warner Merger
Dennis Carlton et al.
Journal of Law and Economics, November 2022, Pages S461–S498
Abstract:
This article provides a retrospective of a litigated vertical merger: the 2018 AT&T/Time Warner merger, which was challenged by the US Department of Justice, litigated, and permitted to proceed by the court. We describe and evaluate in detail the economic model used by the government’s expert and then focus our empirical work on the accuracy of the predictions made by that model. We also discuss evidence related to the Comcast/NBC Universal merger, which involved the same theory of harm and was allowed to proceed with a remedy similar to the contractual commitment that AT&T/Time Warner unilaterally adopted. We conclude that the evidence from the time of trial showed the theory of harm to be weak and the specific empirical predictions made by the government’s expert to be wrong. Postmerger evidence confirms that conclusion, as does new evidence from the earlier Comcast/NBC Universal merger.
Privacy and Market Concentration: Intended and Unintended Consequences of the GDPR
Garrett Johnson, Scott Shriver & Samuel Goldberg
Management Science, forthcoming
Abstract:
We show that websites’ vendor use falls after the European Union’s (EU’s) General Data Protection Regulation (GDPR), but that market concentration also increases among technology vendors that provide support services to websites. We collect panel data on the web technology vendors selected by more than 27,000 top websites internationally. The week after the GDPR’s enforcement, website use of web technology vendors falls by 15% for EU residents. Websites are relatively more likely to retain top vendors, which increases the concentration of the vendor market by 17%. Increased concentration predominantly arises among vendors that use personal data, such as cookies, and from the increased relative shares of Facebook and Google-owned vendors, but not from website consent requests. Although the aggregate changes in vendor use and vendor concentration dissipate by the end of 2018, we find that the GDPR impact persists in the advertising vendor category most scrutinized by regulators. Our findings shed light on potential explanations for the sudden drop and subsequent rebound in vendor usage.
One size fits all? The differential impact of federal regulation on early-stage entrepreneurial activity across US states
John Dove
Journal of Regulatory Economics, April 2023, Pages 57–73
Abstract:
Numerous studies evaluate how a jurisdiction’s institutional and specifically regulatory environment impact firm formation and entrepreneurial activity. This study adds to this by employing a dataset measuring the differential impact that federal regulations have on industries across US states. Specifically, the paper addresses how such differences affect several facets of early-stage entrepreneurial activity, including an index measure of early-stage entrepreneurship, opportunity entrepreneurship, job creation at startup, and new firm survival rates all derived from the Kauffman Index of Entrepreneurial Activity. Overall, the results suggest that early-stage entrepreneurial activity tends to be negatively correlated with a relatively more burdensome federal regulatory environment. While the channels do not indicate an effect through new firm formation or firm survival rates, both opportunity entrepreneurship and job formation are negatively and significantly affected. Implications are discussed.
Public Opinion about Regulation
Sam Peltzman
Journal of Law and Economics, November 2022, Pages S327–S353
Abstract:
The paper describes how ordinary citizens view economic regulation and summarizes answers to questions about regulation and regulators since the 1970s from the General Social Survey. The pattern is clear: ordinary citizens are skeptical and wary. They want less regulation and do not trust regulators to do what is right. The mistrust has become stronger over time. However, the public supports environmental and electricity rate regulation. These sentiments are shared across age, sex, race, education, and income groups and the left/right ideological spectrum. The public tends to oppose less traditional regulation, such as wage and price controls, government ownership of some industries, and regulation of steel prices. But there is less consensus across demographic groups: blacks, the less educated, and low-income groups are less hostile, or marginally friendly, to less conventional modes of regulation. The paper concludes by contrasting public opinion with the path of regulation since the 1970s.
The Dynamics of a Policy Outcome: Market Response and Bureaucratic Enforcement of a Policy Change
Steven Callander, Dana Foarta & Takuo Sugaya
American Journal of Political Science, forthcoming
Abstract:
Policy outcomes are determined not by the words in a statute but by the actions of private citizens. A policy's success or failure depends on how it shapes behavior and how that behavior shapes the future course of policy. To understand this process, we develop a model that combines the political and nonpolitical domains, focusing on competition policy and the regulation of markets. We show how the outcome of a policy change develops over time as firms respond in the market and interact with bureaucratic enforcement. We identify a critical threshold in market structure that determines whether a policy succeeds or fails, and discuss how the design of political institutions affects this level. The threshold represents a balancing of the path dependence of politics with the self-correcting nature of markets. It establishes when political forces dominate those in markets and, thus, when a policy change has lasting effects on society.
Merger Effects and Antitrust Enforcement: Evidence from US Retail
Vivek Bhattacharya, Gastón Illanes & David Stillerman
NBER Working Paper, April 2023
Abstract:
We document the effects of a comprehensive set of US retail mergers. On average, prices increase by 1.5% and quantities decrease by 2.3%, with significant heterogeneity in outcomes across mergers. Price changes correlate with the screens codified in the Horizontal Merger Guidelines. Through a model of enforcement, we find that agencies challenge mergers they expect would increase average prices more than 8–9%. Modest increases in stringency reduce prices and the prevalence of approved anti-competitive mergers, with minimal impacts on blocked pro-competitive mergers, at a significantly greater agency burden. Our findings inform the debate over whether antitrust enforcement has been lax.
When Do Firms Offer Higher Product Quality? Evidence from the Allocation of Inflight Amenities
Myongjin Kim, Qihong Liu & Nicholas Rupp
Review of Industrial Organization, March 2023, Pages 149–177
Abstract:
We examine how competition impacts the provision of product quality. Using a unique data set of inflight amenities provided by U.S. airlines, we find that the composition of competition matters. There is significantly higher product quality -- Wi-Fi, entertainment, and at-the-seat electrical power outlets -- on more competitive routes (with lower HHI). The presence of Southwest Airlines on the route, however, is shown to reduce product quality offerings. We also find significantly higher product quality on routes with more passengers, tourist destinations, and red-eye flights. We find lower posted base ticket prices on routes with Wi-Fi and entertainment amenities.
Does Uber Benefit Travelers by Price Discrimination?
Yenjae Chang, Clifford Winston & Jia Yan
Journal of Law and Economics, November 2022, Pages S433–S459
Abstract:
We use Uber fare data for passenger trips from Los Angeles, New York, and San Francisco airports to hotels in those metropolitan areas to test whether Uber engages in third-degree price discrimination by charging higher fares to travelers who originate from the same airports as other travelers but who stay at more expensive hotels. We find that fares are positively and statistically significantly related to the price of hotel rooms. Importantly, we also find that allowing ride-sharing companies to price discriminate improves travelers’ welfare, on average, by increasing their travel options.
Research Diversity and Invention
John Scott
Review of Industrial Organization, March 2023, Pages 179–197
Abstract:
This paper explains that when there is great uncertainty about which elements of knowledge must be combined to make an invention, the likelihood of invention increases markedly -- by many orders of magnitude -- when there are numerous diverse research organizations, rather than just a few. The paper examines the possibility that competition (antitrust) policy toward mergers would be improved if enforcement efforts placed more emphasis on protecting the diversity that is provided by numerous research rivals in a market.