Recent Developments at DG Competition: 2017/2018

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys some of the main achievements of the Directorate General for Competition over 2017/2018. The article then reviews: the Google Search (Shopping) case, the role of price discrimination in state aid cases; and the use of counterfactuals in merger cases where alternative transactions might have occurred absent the merger.     

Tareas,ocupaciones y salarios en países de la OCDE

En este artículo se investigan los vínculos entre ingresos, capital humano y tareas laborales, utilizando información internacionalmente comparable del PIAAC (OCDE) sobre competencias de adultos. Tomando el marco teórico de Autor y Handel (2013), se amplía el análisis empírico a 21 países de la OCDE. Los datos permiten tener en cuenta tanto el nivel de instrucción como una medida de las competencias cognitivas. Los resultados confirman que las tareas que implica cada ocupación tienen influencia en las diferencias salariales tanto entre ocupaciones como dentro de cada una y proporcionan pruebas empíricas del poder de predicción del modelo para un gran número de países.     

How to hire helpers? Evidence from a field experiment

How to hire voluntary helpers? We shed new light on this question by reporting a field experiment in which we invited 2859 students to help at the ‘ESA Europe 2012’ conference. Invitation emails varied non-monetary and monetary incentives to convince subjects to offer help. Students could apply to help at the conference and, if so, also specify the working time they wanted to provide. Just asking subjects to volunteer or offering them a certificate turned out to be significantly more motivating than mentioning that the regular conference fee would be waived for helpers. By means of an online-survey experiment, we find that intrinsic motivation to help is likely to have been crowded out by mentioning the waived fee. Increasing monetary incentives by varying hourly wages of 1, 5, and 10 Euros shows positive effects on the number of applications and on the working time offered. However, when comparing these results with treatments without any monetary compensation, the number of applications could not be increased by offering money and may even be reduced.     

Non-existence of competitive equilibria with dynamically inconsistent preferences

This paper shows the robust non-existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. Even allowing for negative prices, the market-clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.     

Moonlighting politicians

In most modern democracies elected officials can work in the private sector while appointed in parliament. We show that when the political and market sectors are not mutually exclusive, a trade-off arises between the quality of elected officials and the time they devote to political life. If high-ability citizens can keep earning money outside of parliament, they will be more likely to run for election; for the same reason, they will also be more likely to shirk once elected. These predictions are confronted with a dataset about members of the Italian Parliament from 1996 to 2006. The empirical evidence shows that bad but dedicated politicians come along with good but not fully committed politicians. There is in fact a non-negligible fraction of citizens with remarkably high pre-election income who are appointed in parliament. These citizens are those who gain relatively more from being elected in terms of outside income. At the same time, they are less committed to the parliamentary activity in terms of voting attendance.     

The effects of unification: markets,policy, and cyclical convergence in Italy, 1861–1913

This paper uses time-series evidence on construction movements to examine the convergence of regional business cycles in the decades that followed Italy’s unification. The aggregate series point to cyclical convergence, but a sector-level analysis traces this result to the decline in differentiated “regional-policy” shocks. The regional market cycles diverged, as regions specialized in different sectors of production; market-cycle convergence is observed only within the “industrial triangle,” the regions of which also developed different specializations. This suggests that the balance between growing interdependence and growing differentiation is not general, as the current literature presumes, but specialization-specific.     

Media negativity bias and tax compliance: experimental evidence

We study the impact of the media negativity bias on tax compliance. Through a framed laboratory experiment, we assess how the exposure to biased news about government action affects compliance in a repeated taxation game. Subjects treated with positive news are significantly more compliant than the control group. Instead, the exposure to negative news does not prompt any significant reaction compared to the neutral condition, suggesting that participants may perceive the media negativity bias in the selection and tonality of news as the norm rather than the exception. Overall, our results suggest that biased news provision is a constant source of psychological priming and plays a vital role in taxpayers’ compliance decisions.

     

Price discrimination and price dispersion in a duopoly

This paper analyses the problem of price discrimination in a market where consumers have heterogeneous preferences both over a horizontal parameter (brand) and a vertical one (quality). Discriminatory contracts are characterized for different market structures. It is shown that price dispersion, i.e. the observed range of prices for each class of customers, increases almost everywhere as competition is introduced in the market.     

Competition in Communication Networks: Pricing and Regulation

By any measure, the communication sector is important. It isno surprise, then, that the communication sector has attractedthe attention of both policy-makers and economists. In thispaper, we argue that four characteristics of the networks thatdeliver communication services make this area of particularinterest. We analyse the implications of networks' cost structures;the strong complementarity between their components; the demand-sideexternalities that arise from consumption of their services;and the social obligations attached to them. Despite the attentionthat the communication sector has received, many aspects ofcompetition between networks are still poorly understood. Weidentify some of the key issues that will continue to troubleregulators and interest academics.