The Misguided Assault on the Consumer Welfare Standard in the Age of Platform Markets

In this paper, we discuss whether the consumer welfare (CW) standard needs to be replaced or revised in order for antitrust law to deal effectively with the economic challenges of the platform economy. We argue that both the general and platform-specific assaults on the CW standard are misguided, that the CW standard is capable of addressing the economic concerns that critics have raised, and that the proposed alternatives would make things worse—not better.

     

Attention Platforms,the Value of Content,and Public Policy

This paper shows that two related aspects of attention platforms are important for the sound economic analysis of public policy including antitrust: first, attention platforms generate valuable content. Even though people often don’t pay for content, we know from revealed preference that content is valuable because people spend a considerable amount of time—which has an opportunity cost—consuming it. Second, demand for advertising and the supply of content are interdependent. A decrease in the demand for advertising reduces the returns to supplying content and therefore the amount of content that is provided. Accounting for the value of content and these positive feedbacks cannot determine optimal interventions; but failing to do so can result in policies that reduce consumer—as well as advertiser—welfare. The paper then considers the implications of these considerations for public policy: particularly privacy regulation and antitrust enforcement. From the standpoint of promoting consumer welfare, the failure to account for the value of content and the ad-content interdependencies increases the chances that authorities do not intervene when they should and do intervene when they should not.

     

Product innovation with vertical differentiation: Is a monopolist's incentive weaker?

This paper compares the incentives for product innovation across different market structures when the new product is vertically differentiated and of lower quality, a common case empirically. We show that innovation incentive rankings across market structures can differ substantially when the new product is of lower rather than higher quality. In particular, the incentive to add the new product can be greater for a monopolist over the old product than for a firm that would face any degree of competition from the old product. This incentive ranking cannot occur when, instead, the new product is of higher quality as has been analyzed in previous work. Moreover, in that case, the incentive ranking is the same whether the market is covered or not covered, whereas in our setting the ranking can differ. With the market covered, our setting provides another environment where the monopolist can have the greatest incentive to innovate, as previously shown when the new product is horizontally differentiated. Together, both settings show that Arrow's famous result—a secure monopolist gains less from a nondrastic process innovation than would a competitive firm—does not always extend to nondrastic product innovations. However, in all the cases analyzed here, consumer welfare (though not total welfare) is always lower under monopoly, even when only the monopolist would add the new product.     

Antitrust in High-Tech Industries

Recent economic growth has been led by high-technology industries (See Jorgenson, Ho & Stiroh (2005) for a summary of the research on the recent acceleration of productivity growth). Many firms in these industries have achieved a dominant market position, thereby attracting the attention of competition authorities, often resulting in major monopolization cases. Unfortunately, this attention has not resulted in improved market outcomes. In this paper, we evaluate the effect of Section 2 Sherman Act cases brought against IBM, AT&T, and Microsoft. We conclude that these cases had limited effect on consumer welfare because they did not stimulate entry or innovation. In these industries, competition authorities cannot expect to promote simply an expansion of output and lower commodity prices; rather they should focus their remedies on promoting innovation—new products that replace or compete with the dominant firm’s products.     

An antitrust analysis of bundled loyalty discounts

Consider a monopolist in one market that faces competition in a second market. Bundled loyalty discounts, in which customers receive a price break on the monopoly good in exchange for making all purchases from the monopolist, have ambiguous welfare effects. Such discounts should not always be treated as a form of predatory pricing. In some settings, they act as tie-in sales. Existing tests for whether such discounts violate competition laws do not track changes in consumer surplus or total surplus. We apply a new test to an illustrative example based on SmithKline that assumes the “tied” market has homogeneous goods. If the tied market is characterized by Hotelling competition, bundling by the monopolist causes the rival firm to reduce its price. In numerical examples, we find that this can deter entry or induce exit.     

Reconsidering the political economy of farm animal welfare: An anatomy of market failure

Animal welfare is often cited as a classic public good, which implies market failure and, thus, that government intervention is required. However, the current literature does not provide an accessible account of how governed markets are supposed to cope with the issues of animal welfare. This paper seeks to fill this gap by re-considering the political economy of animal welfare. Conceptual analysis shows that the major cause of market failure in the case of farm animal welfare is a problem of consumption externalities. It is the specific regulation of animal welfare conditions which is a public good (or bad). Two important conclusions follow from this analysis, which are largely unexplored in the literature on animal welfare. First, measurement of potential market failure, through identifying actual willingness to pay (WTP) for animal welfare friendly products, is potentially misleading. The difference between citizen votes and consumer WTP for animal welfare is not prima facie evidence for either market failure or a gap in the market. Second, conventional arguments in favour of subsidies and assistance to producers for better animal welfare are misconceived and potentially counterproductive. A more rational policy is to subsidise the consumption of animal welfare friendly products.     

On Welfare Losses Due to Imperfect Competition

Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important—yet thus far unquantified—impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n⁴, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).     

Net Neutrality with Competing Internet Platforms

We propose a two‐sided model with two competing Internet platforms, and a continuum of Content Providers (CP's). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CP's which are willing to deliver their content on a fast lane. We find that under discrimination, investments in broadband capacity and content innovation are both higher than under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner's dilemma can arise. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.     

Economics of transgenic herbicide-tolerant canola: The case of western Canada

Canola that is genetically tolerant to specific types of herbicide is now coming on the market. This is one of the first transgenic products to be traded internationally. There are a number of economic and agronomic concerns with the use of this product, ranging from consumer rejection, gene introgression and the environmental effects of herbicide use. This paper analyzes the economic effects of these important issues using economic welfare analysis. We examine the case of canola in western Canada.     

Avoiding the Pitfalls of Net Uniformity: Zero Rating and Nondiscrimination

The current debate over network neutrality has not fully appreciated how service differentiation can benefit consumers and promote Internet adoption. On the demand-side, service differentiation addresses the primary obstacle to adoption, which is the lack of perceived need for Internet service, and reflects the growing heterogeneity of consumer demand. On the supply-side, monopolistic competition has long underscored how product differentiation can create stable equilibria with multiple providers—notwithstanding the presence of unexhausted economies of scale—by allowing competitors to target subsegments of the overall market that place a higher value on particular services. Conversely, prohibiting service differentiation would restrict competition to price and network size, which are factors that favor the largest players. These dynamics are well illustrated by global enforcement patterns with respect to a practice known as “zero rating”, which permits subscribers to access certain content without having that traffic count against their data caps. Of the six countries that have brought enforcement actions against zero rating, only India has categorically banned the practice. The other five countries (the United States, Chile, Canada, Slovenia, and The Netherlands) have adopted a more nuanced approach. A case-by-case approach is consistent with the empirical literature on vertical integration and restraints and the well-established principles for determining when to impose per se illegality and when to apply the “rule of reason”. The U.S. Supreme Court’s antitrust jurisprudence also helps identify factors that militate against liability, such as the lack of market power, nonexclusivity, and nonproprietary services.     

An unsung success story: A forty-year retrospective on U.S. communications policy

This paper looks back at forty years of U.S. communications policy, and concludes that all of the challenges that were salient when Telecommunications Policy published its first issue—the lack of competition in CPE, long distance, local telephone service, television networks, and multichannel video program distribution—have essentially been addressed. The other technology that has grown in importance since 1976—the Internet—is widely regarded as a raging success. Although no history is completely uniform, the past forty years illustrates the key considerations underlying the choice between whether to impose access regulations or whether to rely on facilities-based competition. Moreover, the paper considers the important role that U.S. courts have played in promoting competition and consumer welfare. In many cases, timely judicial intervention has forced regulators to retreat from positions that protected incumbents and limited competition. The paper concludes with outlooks on new issues and debates that will continue to arise.     

Supply,demand and ICT-based services: A local level perspective

While much of the economic development literature urges greater emphasis on demand-based strategies, policies designed to create economic development advantage by leveraging telecommunications investment continue to be supply side oriented. The rationale underlying telecommunications investment efforts is that if the technology is low cost, both financially and from a cognitive usability standpoint, then it will be used. This paper examines the use of supply side strategies by one small community, LaGrange Georgia. LaGrange sought to enhance its competitiveness in the knowledge economy through the deployment of an Internet television like service designed to be free and easy to use called LITV. Based on a survey of 494 households and selected case studies, the study found that a major group of households that took up the service already had an Internet computer at home. They adopted LITV primarily because it was free rather than because it was an upward path toward economic transformation, as was the case for a segment of African-American female-headed households that adopted LITV. In spite of the fact that LITV was free and nominally easy to use, many citizens did not adopt LITV. Nonadopters and those who initially adopted but then dropped the service spanned the socioeconomic spectrum—rich and poor, well educated and dropouts, with Internet computers at home and beyond. This finding suggests that reducing the cost of technology alone is not enough to raise demand. More attention must be paid to tailoring policies to stimulate demand through targeted applications and broader supporting policies.     

The Kaldor–Hicks Potential Compensation Principle and the Constant Marginal Utility of Income

The Kaldor–Hicks potential compensation principle underlies partial equilibrium welfare analysis in imperfectly competitive markets. It depends on the assumptions that changes in consumer and producer surplus are weighted equally and that the marginal utility of income is constant. I show that if the first assumption is followed but there is decreasing marginal utility of income, the potential compensation principle does not give satisfactory indications of market performance.

     

产品异质条件下市场势力估计与垄断损失测度——运用新实证产业组织方法对白酒制造业的研究

作为政府经济管制和反垄断的基础,市场势力的定量测度以及福利损失的有效估算是至关重要的基本问题。由于产品异质性带来的模型设定陷阱,之前陈甬军,周末(2009)使用的新实证产业组织模型仅适用于测度少数产品差异很小的产业的市场势力。本文在Klette和Desouza的基础上给出了一种更具一般性的,可以在异质性产品市场测度市场势力和垄断损失的方法,克服了不可观测的产品异质性和技术冲击导致的影响。随后,采用全国规模以上工业企业数据库数据,估计了产品差异非常大的白酒制造业市场势力溢价,并以此为依据,计算了由于市场势力溢价带来的福利净损失,验证了模型的有效性和稳健性。计量结果证明尽管白酒制造业市场结构较为分散,但是具有极强的市场势力,2008年白酒制造企业运用市场势力带来的福利净损失高达180.97亿元。     

Strategic factor markets,scale free resources,and economic performance: The impact of product market rivalry

This paper analyzes how scale free resources, which can be acquired by multiple firms simultaneously and deployed against one another in product market competition, will be priced in strategic factor markets, and what the consequences are for the acquiring firms' performance. Based on a game‐theoretic model, it shows how the impact of strategic factor markets on economic profits is influenced by product market rivalry, preexisting competitive (dis)advantages, and the interaction of acquired resources with those preexisting asymmetries. New insights include the result that resource suppliers will aim at (and largely succeed in) setting resource prices so that the acquiring firms earn negative strategic factor market profits—sacrificing some of their preexisting market power rents—by acquiring resources that they know to be overpriced. Copyright © 2014 John Wiley & Sons, Ltd.     

Copyright Protection in the Digital Single Market: Potential Consequences for Content Platform Competition

This paper scrutinizes the effects of the European Directive on Copyright in the Digital Single Market on platform competition. Platforms that are online content-sharing service providers must have a license agreement with collective management organizations that control the content platform that users may – or must not – upload to the platform. The paper shows that the new directive may imply market concentration and an aggregate welfare loss. The reason is that only users of the large platform (in a dual platform setting) will be allowed to upload content if the content assets are sufficiently valuable and if network effects are strong.

     

Egypt’s digital activism and the Dictator’s Dilemma: An evaluation

In recent years academics have used the term Dictator’s Dilemma to describe the impact of the Internet on undemocratic societies. The Dilemma says that if dictatorial rulers permit increased Internet penetration, they risk overthrow; if they do not, they isolate themselves from the global information economy, causing economic decline. Since Internet penetration world-wide has deepened, the Dilemma implies that dictatorships are bound to fall one by one. But how good is the Dilemma as an analytical device? Not very, this essay argues, using the Egyptian uprising of January 2011 as a case study. By examining the state’s Internet politics before 2011, the use of the Internet by Egyptian resistance activists, and the power relations that existed after the overthrow of the Dictator, this essay argues that the Dictator’s Dilemma blinds scholars to what really happens on the ground.     

State ownership of Chinese firms and their outward foreign direct investment: Political and economic contingencies

The extant literature offers inconsistent predictions and conflicting evidence regarding the relationship between state ownership and the internationalization of emerging market firms (EMFs). Drawing on institutional theory, we examine the moderating roles of political and economic institutions at the subnational and national levels in the link between state ownership and EMFs’ outward foreign direct investment (OFDI). Based on a sample of 1421 OFDI projects involving 286 Chinese listed firms in 115 host countries between 2003 and 2016, we find that state ownership can scale up OFDI when Chinese firms are headquartered in subnational regions with high institutional development or low economic development, or when political relationships between home and host countries are amicable or market growth in a host country is slow; otherwise, state ownership hinders OFDI. These findings offer new insights into the relationship between state ownership and the internationalization of EMFs.

     

国际贸易中的动物福利问题研究及我国的对策

动物福利的出现,一方面是经济发展和社会进步的表现;另一方面,是由于发达国家和发展中国家之间存在着巨大的差异。文章对动物福利和动物福利壁垒内涵作深入的剖析,从市场准入限制、产业竞争力影响和贸易抑制影响等方面分析了动物福利壁垒所产生的经济效应;指出动物福利壁垒对我国出口贸易的影响越来越明显。因此,正确认识动物福利问题、增强动物福利意识、加强动物福利立法、建立预警机制、改革农牧业的生产方式、加大投入和依法抵制新贸易保护主义是我国应对动物福利壁垒的主要策略和措施。     

Recent Developments at the CMA: 2018–2019

We discuss three important cases that the Competition and Markets Authority (CMA) has completed over the past year: The first two cases—the Experian/ClearScore merger and the Hotel Online Booking enforcement case—demonstrate our recent work on digital industries. We provide an overview of developments in this area and the CMA’s evolving approach to addressing such cases. The third case was a proposed merger between two of the UK’s largest grocery chains: Sainsbury’s and Asda. This proposed merger was ultimately prohibited by the CMA.