Naked exclusion by a dominant input supplier: Exclusive contracting and loyalty discounts

Recent literature has shown that an incumbent can use exclusive contracts to maintain supra-competitive prices when buyers of the good are also competitors. Most of the models require the incumbent to completely prevent a more efficient potential entrant from entering, and assume that the entrant is exogenously prevented from making exclusive offers. Such models cannot explain how exclusive arrangements can lower welfare when they do not completely foreclose a small rival, when the rival can make exclusive offers, nor can they identify rudimentary relationships such as how a dominant supplier's size affects his incentive and ability to exclude and lower welfare. I extend the intuition of the literature by formally modeling competition between a dominant input supplier and a small rival selling to competing downstream firms. I show that a dominant supplier can pay downstream firms for exclusivity, allowing him to maintain supra-competitive input prices, even when a small rival that is more efficient at serving some portion of the market can make exclusive offers. I also show that exclusives need not completely exclude the small rival to cause competitive harm. The payment the dominant supplier makes for exclusivity equals the incremental rents that the rival's input could generate if exactly one downstream firm sold final goods using it.     

LARGE IS BEAUTIFUL: HORIZONTAL MERGERS FOR BETTER EXPLOITATION OF PRODUCTION SHOCKS*

The profitability of horizontal mergers is investigated in a situation in which firms face a production shock and therefore are uncertain about their future costs. I show that, due to production rationalization, small‐scale mergers can be profitable if the uncertainty is large. The efficiency gain in production also implies benign welfare consequences. Under cost uncertainty, a profitable merger always improves social welfare if no more than half of the industry's firms are allowed to merge. Finally, I show that the incentives to merge depend on the information structure. Firms are less likely to merge when they possess more information.     

Platform Competition With Cash-Back Rebates Under No Surcharge Rules

We analyze competing strategic platforms setting fees to a local monopolist merchant and cash-back rebates to end users, when the merchant may not surcharge platforms’ customers, a rule imposed by some credit card networks. Each platform has an incentive to gain transactions by increasing the spread between its merchant fee and user rebate above its rival's spread. This incentive yields non-existence of a pure strategy equilibrium in many natural environments. In some circumstances, a mixed strategy equilibrium exists where platforms choose fee structures that induce merchants to accept only one platform with equal probability, a form of monopolistic market allocation.     

Search engines: Left side quality versus right side profits

Search engines face an interesting tradeoff in choosing the way to display their results. While providing high quality unpaid, or “left side” results attracts users, doing so can also cannibalize the revenue that comes from paid ads on the “right side”. This paper examines this tradeoff, focusing, in particular, on the role of users' post-search interaction with the websites whose links are displayed. In the model, high quality left side results boost demand from users, causing them to tolerate a search engine on which advertisers do not offer the lowest possible prices for the goods that they sell. However, because websites appearing on the left side still have an incentive to compete in the same market as advertisers, an increase in quality on the left side may reduce advertisers' equilibrium prices. I analyze the circumstances under which this will occur and discuss the model's potential implications for antitrust policy.     

Regulatory options for cable TV in the UK

In this article the alternative methods of regulating the cable TV industry are compared in terms of efficiency and consumer welfare. The effectiveness of each regulatory option in limiting any market power that cable operators may be able to exercise is considered in a framework which recognizes that both the market and government regulations are imperfect, costly and often do not operate in the public interest.     

NEGATIVE EXTERNALITIES,COMPETITION AND CONSUMER CHOICE*

Consumers sometimes make choices that impose greater external costs on those who do not make the same choice. This paper examines how the selectivity of negative externalities in such situations affects the competitive equilibrium and the desirability of an externality‐reducing public policy. Selective negative externalities create network externalities, but outcomes may differ greatly from typical network effects. Price effects may cause the imposing product's sales to decline with the size of the negative externality. Consequently, a positive competitive effect may overwhelm the externality's negative direct effects on welfare, such that a policy that enlarges the externality may improve welfare.     

MERGERS WITH SUPPLY FUNCTIONS

I analyze the equilibrium effects of a merger in an industry when firms compete by submitting supply functions. Under the assumptions that the industry capital stock is fixed and production costs are quadratic and decreasing in capital, I find that any merger results in all firms reducing supply. The decrease in supply by non-participating firms makes any merger profitable. A merger from a symmetric industry lowers welfare.     

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.     

A theoretical and empirical study on China's transition to digital TV

This paper explores the impact of policies made by the State Administration of Radio, Film, and TV on China's transition to digital TV. The method of stakeholder analysis is used to present a theoretical study on the digital transition, with a quantitative model analyzing the welfare change of three segments of consumers. A simultaneous-equation model is used to study the characteristics of the demand and supply of digital TV in China. It is argued that the policy of uniform transition that ignores coordination among stakeholders does harm to consumers’ benefits, and the healthy and sustainable development of China's cable digital TV industry. In an introductory phase of digital TV, educating consumers with convenient and pleasing experience is essential, and restructuring cable operators in a market-oriented way is also critical for developing countries like China.     

Competitions between OTT TV platforms and traditional television in Taiwan: A Niche analysis

This study examines how OTT TV and cable TV compete in Taiwan through an online survey conducted in March 2016 that collected a total of 620 qualified responses. In terms of niche breadth, our findings indicate that OTT TV scores higher than traditional TV for all seven dimensions, with the greatest difference manifesting in the dimension of convenience. For the niche overlap, results show that OTT TV and traditional TV share a high level of similarity on amusement and ease of use. Overall, OTT TV's competitive superiority surpasses that of traditional TV in all dimensions. Finally, in light of program types, news, movies, and sports effectively predict users' gratification with cable TV, whereas dramas and movies are predictive of users' gratification with OTT TV. Implications for research and practices are discussed herein.     

VERTICAL MERGERS AND PRODUCT DIFFERENTIATION*

This paper presents an equilibrium theory of vertical mergers that incorporates strategic behaviors in the Hotelling‐type location model. This enables one to consider the relationship between downstream firms' strategies for product differentiation and vertical integration. I show that vertical integration enhances the degree of product differentiation of the integrated firm. Under some conditions, partial integration arises in equilibrium, which may increase the profit of the nonintegrated downstream firm. The paper also discusses the welfare implications of vertical integration.     

自制视频如何取院广告主

视频网站如何能够从电视广告中分得一杯羹？这是视频网站自诞生起就一直在思考的问题。     

Consequences of unintended food policies: Food price dynamics subject to the Israeli–Palestinian conflict

Israel’s imposition of military security measures in the Palestinian territories as a consequence of the long-lasting violent conflict between them has negative economic effects on all parties concerned. One crucial outcome is the limited ability to carry out trade, which brings about welfare losses. Conflict-induced policies such as security measures can result in sizable unintended externalities that shape the markets of and the trade in food. We assess the dynamics of daily wholesale prices of food produced in Israel and the West Bank that is traded between them and is therefore subject to restrictions on movement. To do so, we suggest a regime switching cointegration model which is estimated using a novel extension of the Johansen estimation method. We find that the two major wholesale markets of the two regions are integrated with regard to these main trading products. Deviations from price equilibria are quickly adjusted. The model suggests that movement restrictions temporarily cut off markets from each other. Implications of conflict-induced closures for welfare depend on the direction of trade and are harming both Palestinian and Israeli consumers.     

Regulatory decision errors,Legal Uncertainty and welfare: A general treatment

We provide a general treatment of the implications for welfare of various sources of legal uncertainty facing agents about the decisions made by a regulatory authority. We distinguish the legal uncertainty from the decision errors made by the authority. While an increase in decision errors will always reduce welfare, for any given level of decision errors, information structures involving more legal uncertainty can improve welfare. This holds always when sanctions are set at their optimal level. This transforms radically one's perception about the “costs” of legal uncertainty. We also provide general proofs for two results, previously established under restrictive assumptions.     

Consumer perceptions and the effects of country of origin labeling on purchasing decisions and welfare

The study develops a general analytical framework of heterogeneous consumer preferences to examine the effects of country of origin labeling (COOL) regulation on consumer purchasing decisions and welfare. We show that while differences in consumer perceptions about COOL information, namely, whether it is viewed as an attribute that differentiates products vertically or horizontally, do not alter the nature of the market and consumer welfare effects of mandatory COOL, the relative strength of consumer preferences for COOL are shown to be important in determining the magnitude of these effects. In addition, our results show that the benchmark used (a no COOL versus a voluntary COOL regime) is critical in evaluating the effects of the policy. We show that, under both horizontal and vertical product differentiation, a change from a no COOL to a mandatory COOL regime decreases (increases) the welfare of consumers with weak (strong) preference for COOL while a change from a voluntary to a mandatory COOL regime leads to an unambiguous loss in consumer welfare.     

An equilibrium approach to international merger policy

I treat international merger policy as a repeated veto game. I show that there exists a unique efficient equilibrium within a particular class of trigger strategy equilibria. I then consider a series of comparative statics and extensions: (a) if for some exogenous reason one of the countries becomes more lenient towards mergers, than the other country becomes more lenient as well; (b) merger remedies increase the probability that a merger is approved and increase total welfare; (c) the effects of a merger wave are magnified by the equilibrium approval policy.     

Welfare Changes in the Cournot Setting with an Empirical Application to the Telecommunications Industry

I characterize the efficiency of the Cournot equilibrium and provide bounds for the loss in consumer surplus, producer surplus and welfare when the number of firms in the market changes. I only assume that demand is decreasing in price and costs increasing in the quantity produced as long as equilibrium exists. I show how price, demand and average cost, before and after the number of firms in the market changes, can be used to compute these bounds. I apply these bounds to the Portuguese wireline market and conclude that welfare increased significantly when the monopolist was split in 2007.     

The Welfare Consequences of Mixed Environmental Policy Instruments with Voluntary Provision

This article evaluates the welfare consequences of a mixed regulatory framework with a voluntary cap‐and‐trade program and intensity standards using data from the Texas electricity industry. I construct and estimate a structural model of the compliance choices of power generating units to recover their abatement costs. Then I simulate for the counterfactual equilibrium under a mandatory cap‐and‐trade regulation. Results show that the mixed policy framework mainly benefits generating units with small capacity and high abatement costs. However, a mandatory cap‐and‐trade regulation with redistribution policies could bring in substantial Pareto improvement.     

ASSESSING THE IMPACT OF RETAILER STORE BRAND PRESENCE ON MANUFACTURER BRANDS IN AN EQUILIBRIUM FRAMEWORK*

This article assesses the impact of retailer store brand products on manufacturer brand prices, profitability and consumer welfare in Boston's white fluid milk market. Estimates from a random coefficients logit demand model are used to specify and test a set of pricing games. Under the selected model, milk manufacturers are Stackelberg leaders to retailers, and store brand milks are procured by retailers at cost. The model is used to investigate counterfactual markets without retailer store brand milks. Counterfactual Simulation results indicate that store brands increase channel profits, retailer profits and consumer welfare, while having mixed effects on equilibrium retail prices.     

Collusion between two-sided platforms

We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions.