Economics at the Antitrust Division: 2017–2018

This article describes some of the work of Antitrust Division economists over the past year, with a focus on modeling. It begins by illustrating the mapping from evidence to prediction using tools for assessing the effects of mergers using Bertrand, Cournot, and auction models. It then turns to two hot topics in competition policy: the implications of claims of increasing margins for merger enforcement and the validity of claims of increasing concentration. Finally, it considers how mergers affect prices in bargaining models.     

Financial development and top income shares in OECD countries

We examine the causal impact of financial development (FD) on top income shares for a panel of 14 OECD countries—five Anglo‐Saxon countries, eight continental European countries, and Japan—over a 110‐year period. In our main General Method of Moments estimates, we find that a 1‐percentage‐point change in FD increases the top 1% income share by 0.2%. In distribution terms, a 1‐SD incr=ease in FD increases the top 1% income share by around 0.4 of an SD. The effects are robust to various measures of top income shares and FD and alternative estimation techniques, including nonparametric estimation. FD is typically viewed in positive terms in that it makes it easier to access credit and facilitates economic growth. Our results are important because they contribute to understanding of the potential negative effects of FD.     

Charitable bequest importance among donors to different types of charities

This paper explores differences in the self‐rated importance of charitable estate giving depending upon the type of charitable cause a person donates to during life. One theoretical motivation for lifetime giving is to personally enjoy benefits from improving a shared collective good. However, this motivation is not possible for bequests. Bequest transfers and resulting improvements occur after personal enjoyment of benefits is no longer possible. This paper hypothesizes that among donors to high personal benefit causes (those typically creating shared goods benefitting donors), interest in a charitable bequest (which offers no opportunity for receiving such benefits) will be relatively less than among donors to low personal benefit causes. In order to explore this, each charity type is categorized as providing high, low, or mixed personal benefits from shared collective goods. This hypothesis receives mixed support. Donors to international relief organizations, a low personal benefit charity type, do place a higher importance on charitable bequests than do donors to shared‐goods type causes such as neighborhood associations, service clubs, sports leagues, or “other” charities, including those focused on local public safety and crime. However, donors to arts organizations—a classic example of donors creating a shared good—have a relatively high interest in charitable bequests. One important exception to the exclusion of postmortem personal benefits could come from religious belief. Accordingly, donors to religious causes do place a higher importance on charitable bequests.     

Cost‐reflective pricing: empirical insights into irrigators’ preferences for water tariffs

Using prices to improve the efficiency with which water resources are allocated is now widely accepted in principle if somewhat difficult to achieve in practice. Whilst there are some technical difficulties associated with full‐cost recovery in irrigation, the lack of political will to tackle reform remains a significant impediment. This article reports the results of an empirical investigation into farmers’ preferences for changes to water prices and tariff structures. We conclude that some of the preferences of farmers are conducive to price reform. We also find evidence that public subsidy of infrastructure in irrigation is not always aligned with the preferences of farmers.     

Beer Uses and Attitudes in the Craft Era

Abstract

This article aims to address the shifts in uses and attitudes in the era of craft beer’s growth in the United States, where brand loyalty has diminished in importance; whereas the need for exploration and trial has increased in importance. These changes have implored a need for craft beer marketers to change tactics in regards to how customers learn about new beers to try, the most trusted sources and influencers of beer choice, and how to build loyalty in an increasingly brand dis-loyal customer. The gap in research being addressed is seeking to find the pathway from how traditional beer marketers have grown brands and loyal customers to where we are today, where the customer is increasingly fickle, enjoys the newness that comes from shifting loyalties, and tends to reject brands that become too strong in this arena.     

Childhood adversity and the propensity for entrepreneurship: A quasi-experimental study of the Great Chinese Famine

Studies on the determinants of entrepreneurship emphasize that challenged adults tend to become entrepreneurs. However, research has not addressed the childhood origins surrounding the propensity for entrepreneurship. This article links childhood adversity to the propensity of individuals to become migrant entrepreneurs later in life. We test hypotheses derived from this theory in the context of whether, and when, children who survived the Great Chinese Famine of 1959–1961 became migrant entrepreneurs. Results strongly indicate that those who survived greater hardship during the Famine are more likely to become entrepreneurs, especially when they were younger during the famine years. We also find that being younger at the time of migration increased the likelihood of becoming entrepreneurs in their new locale. Overall, this study casts light on why, how and when childhood adversity shapes the propensity for entrepreneurship.     

The Multiplicity of Performance Management Systems: Heterogeneity in Multinational Corporations and Management Sense‐Making

This field study examines the workings of multiple performance measurement systems (PMSs) used within and between a division and Headquarters (HQ) of a large European corporation. We explore how multiple PMSs arose within the multinational corporation. We first provide a first‐order analysis which explains how managers make sense of the multiplicity and show how an organization's PMSs may be subject to competing processes for control that result in varied systems, all seemingly functioning, but with different rationales and effects. We then provide a second‐order analysis based on a sense‐making perspective that highlights the importance of retrospective understandings of the organization's history and the importance of various legitimacy expectations to different parts of the multinational. Finally, we emphasize the role of social skill in sense‐making that enables the persistence of multiple systems and the absence of overt tensions and conflict within organizations.     

Valuing improvements in urban water security: evidence of heterogeneity derived from a latent class model for eastern Australia

In many Australian cities the response to drought has included the imposition of mandatory constraints over how water is used by households, often termed ‘water restrictions’. A similar rationing approach has been witnessed in California’s recent drought. The aim of water restrictions is to slow the depletion of water storage but restrictions have also been criticized for the costs they impose on specific water users. In order to gain insight into the potential magnitude of the cost of water restrictions, this study uses a choice experiment to investigate the non-market values for specific attributes associated with the outcomes of drought restrictions. This information was sought to understand the community’s willingness to pay for attributes related to the extent, frequency and duration of water restrictions. The article reports a latent class choice model for a major city in eastern Australia and investigates heterogeneity in preferences towards increasing water availability during drought. This study departs from the existing literature by conducting the choice experiment in a context where water supply is relatively abundant. This unique framing of the choice experiment allows for a useful comparison with existing studies and also raises challenges about the interpretation of the data for planning purposes.