| Summary: |
The research in Industrial Organization has been playing a central role in the identification of anticompetitive conducts and
enforcement of antitrust (or competition) law. Recently, Michael Whinston (Whinston, 2006) provided a detailed account of the most
recent developments in antitrust economics and highlighted three main areas that require further research: horizontal mergers,
collusion and practices wherein a competitor seeks to exclude a rival (exclusionary practices). This project aims at contributing to
each of these three areas and, hence, is divided in three main parts.
The first part of the project is already work in progress and studies the role of remedies in merger control. When a proposed
transaction raises competition concerns, the Antitrust Authority (AA) might block the merger. If, however, the parties modify the deal
in a suitable way, i.e., if they offer "commitments" (or "remedies"), then the AA might decide to clear the merger. In Europe, for
instance, a considerable and increasing proportion of completed mergers that faced review by the European Commission has been
approved after remedies have been offered. Despite the notorious scientific and practical interest attracted by merger remedies, their
consequences (especially, in terms of social welfare) are still poorly understood. This first part of the project will investigate what are
the (differential) effects that structural merger remedies have in comparison with a situation wherein merger policy consists of a
yes/no (i.e., clearance/prohibition) answer by the AA to the merger proposal in a setting where: (i) mergers are motivated by
prospective efficiency gains; and (ii) merger proposals must be submitted to the AA for approval.
The second part of the project will focus on collusion in geographically separated markets. In a typical collusive agreement,
coordinating on the allocation of the market between the constituent firms is as important as (if not more important than  |
Summary
The research in Industrial Organization has been playing a central role in the identification of anticompetitive conducts and
enforcement of antitrust (or competition) law. Recently, Michael Whinston (Whinston, 2006) provided a detailed account of the most
recent developments in antitrust economics and highlighted three main areas that require further research: horizontal mergers,
collusion and practices wherein a competitor seeks to exclude a rival (exclusionary practices). This project aims at contributing to
each of these three areas and, hence, is divided in three main parts.
The first part of the project is already work in progress and studies the role of remedies in merger control. When a proposed
transaction raises competition concerns, the Antitrust Authority (AA) might block the merger. If, however, the parties modify the deal
in a suitable way, i.e., if they offer "commitments" (or "remedies"), then the AA might decide to clear the merger. In Europe, for
instance, a considerable and increasing proportion of completed mergers that faced review by the European Commission has been
approved after remedies have been offered. Despite the notorious scientific and practical interest attracted by merger remedies, their
consequences (especially, in terms of social welfare) are still poorly understood. This first part of the project will investigate what are
the (differential) effects that structural merger remedies have in comparison with a situation wherein merger policy consists of a
yes/no (i.e., clearance/prohibition) answer by the AA to the merger proposal in a setting where: (i) mergers are motivated by
prospective efficiency gains; and (ii) merger proposals must be submitted to the AA for approval.
The second part of the project will focus on collusion in geographically separated markets. In a typical collusive agreement,
coordinating on the allocation of the market between the constituent firms is as important as (if not more important than)
coordinating on price. In addition, a common principle in a number of real world cartels was the adoption of the "home market
principle". By this principle, each cartel member is given preference in supplying its home market - a region, say, where its
production facilities are located- at the expense of supplying other regional markets. The implication of the adoption of this type of
allocation scheme is clear: firms raise prices and there will be less (costly) cross-hauling between geographic markets. When cartels
are dealing with homogeneous goods, one might expect optimal cartel agreements to favor full geographic segmentation. The same
is not necessarily true, however, when products are differentiated. Such a division may entail a loss of total surplus, as the
willingness of some consumers to pay for the product of one of the cartel members may be much lower than their willingness to pay
for the products of one of the other members. Therefore, such geographic restriction may reduce the surplus that the cartel can
extract. Indeed, in such an environment, it is not immediately clear whether and to what extent would the cartel choose to restrict
shipments of each member across geographic markets. In spite of the empirical relevance of geographic market division schemes,
the literature has devoted limited attention to this topic. Hence, the answer to this and other related questions is not yet known. This
part of the research project will then contribute to close this gap in the literature.
The third part of the project analyzes exclusionary practices in two-sided markets. It is well known in the literature that, given the
interdependence of demand on both sides of the market, businesses that participate in two-sided markets have to figure out ways to
get both sides on board. Clearly, one way to achieve this goal is to try and obtain a critical mass of consumers on one side of the
market by giving the good or service for free or even pay consumers on this side of the market to take it. It is widespread belief
among both economists and policy makers that setting prices below cost on one side of the market and above cost on the other may
be justified both in a start-up phase of a network and in the long-run. It should be noted, however, that the design by an incumbent
firm of a pricing structure that is biased to one side or the other may well aim at getting both sides of the market on board in such a
way that a more efficient entrant is excluded from the market. This alternative explanation has been neglected by the previous
literature and will be the focus of this last part of the research project. |