Monoculture versus diversity in competition economics

Economics rightfully represents the major basis for competition policy. Next to generating knowledge about competition and its welfare effects, the currently popular 'more-economic approach' is charged with a number of additional hopes and expectations, leading to a reduction of the ambiguities of real-world competition policy. While this article highlights the benefits of economics-based competition policy, it takes a cautious stance towards excessive expectations in particular regarding the idea that a monocultural, 'unified' competition theory as an exact, objective, and unerring scientific approach to antitrust makes normative assessment and generalizations superfluous. In a combination of two lines of argumentation, diversity in competition economics is advocated. Firstly, competition economics is empirically characterized by a considerable pluralism of theories and policy paradigms. This includes deviating views on core concepts like the nature of competition, the meaning of efficiency, or the goals of antitrust. Secondly, it is demonstrated that diversity of theories represents no imperfection of the state of science. In contrast, it is theoretically beneficial for future scientific progress. Therefore, no ultimate competition theory can ever be expected. As a consequence, the 'more-economic approach' must be extended in order to embrace diversity. This does not decrease its meaning and importance but instead puts some of the related high hopes into perspective. --antitrust,more-economic approach,competition policy paradigms,industrial economics,methodology of science

The Oracle/PeopleSoft case: unilateral effects, simulation models and econometrics in contemporary merger control

An increasingly important part of contemporary merger control both in the US and the EU is unilateral effects analysis, particularly with regard to oligopolistic mergers. In practice, this requires econometric analyses of past market data and, above all, the construction of simulation models in order to quantify the price effects in each specific case. The review of the merger between the software firms Oracle and PeopleSoft in 2003/04 has been the most important instance of parallel application of these sophisticated economic tools by the EU and US authorities so far. This makes an in-depth study of the case going from the controversial issue of market definition to the specificities of the competitive assessment worthwhile. Therefore, we highlight certain similarities as well as (minor) differences between the EU and US proceedings. Interestingly, despite serious initial concerns the transaction was not blocked nor even required to be modified in the any of the two jurisdictions. We derive a number of interesting insights and, in particular, point out problems and lessons associated with the use of sophisticated economic tools in contemporary merger control. In addition to case-specific factors, the major insights encompass the continued relevance of market definition, the need to accompany predictive economic evidence with compatible reasoning and the benefits of including the economics of dynamic and evolutionary competition. --Merger control,unilateral effects,econometric analysis,simulation models,market definition

The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels

Positive effects of multimarket activities on cooperation between firms are widely acknowledged. We study these effects in a setting with home market asymmetries as is typical for global competition. In our multimarket duopoly experiment each firm has a home market but may also enter the other firm\u27s market. Without entry barriers, we observe a high level of mutual forbearance with firms serving their home markets exclusively. With short-term entry barriers, the competition rates decrease significantly, as expected. Surprisingly, with long-term entry barriers, firms exhibit higher levels of competition, entering each other\u27s market more often. We conjecture that in the latter case, bearing the cost of entry is perceived as a signal for the intention to compete and has an adverse effect on cooperation

A critique of the European Commission’s Impact Assessment on the legislative package for electricity and gas

A review of the Commission's Impact Assessment for its proposed legislation on gas and electricit

Merger Simulation in Competition Policy: A Survey

Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models in merger control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust and, therefore, its ‘technical’ potential is far from being comprehensively exploited and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art merger simulation models and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, merger simulation models represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other, more traditional instruments of competition policy in order to comprehensively unfold its beneficial effects. The authors thank Ulrich Schwalbe, Wolfgang Kerber, Arndt Christiansen and Niels Vestergaard for valuable comments on earlier versions of the paper, the participants of the 30th Hohenheimer Oberseminar (Nuernberg, April 2008) for helpful discussion, and Barbara Güldenring for valuable editorial assistance.Merger simulation, merger control, antitrust, oligopoly theory, auction models, mergers & acquisitions

The yield/quality trade-off and contractual choice

This paper provides an analysis of the choice of governance mechanism in agriculture using an integrated perspective based on agency theory. The main ways of organizing agriculture are compared: spot market and incentive contract. With the analytical development of both models, it is explored that the choice of the optimal mechanism depends on initial conditions such as uncertainty, the risk aversion of the agents or the number of competitors. Moreover, according to the predictions made by the economic literature on agrarian organization, the results support the coexistence of both governance alternatives.Crop Production/Industries,

Combating China’s Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?

Initially, the global financial crisis caused a surge of financial inflows to China, raising investment, but this abated in 2008, leaving a substantial contraction in export demand. The government’s key response was to commit to an unprecedented fiscal expansion. Two oftignored consequences are, first that government spending is on non-traded goods and services and so enlarges the consequent real appreciation and, second, that a more inward-looking economy causes firms to face less elastic demand and hence to increase oligopoly rents, further enlarging the real appreciation. Both are important for China because of the contribution of its real-exchange-rate sensitive, low-margin labour-intensive export sector to total employment. An economy-wide analysis is offered, using a model that takes explicit account of oligopoly behaviour. The results suggest that a conventional fiscal expansion would further contract the Chinese economy. On the other hand, notwithstanding the export contraction further industrial reform, emphasising the largely state-owned sectors, would reduce costs and foster growth in both output and modern sector employment.China, financial crisis, fiscal expansion, oligopoly, price caps, privatisation

Mergers and difference-in-difference estimator : why firms do not increase prices?

Difference-in-Difference (DiD) methods are being increasingly used to analyze the impact of mergers on pricing and other market equilibrium outcomes. Using evidence from an exogenous merger between two retail gasoline companies in a specific market in Spain, this paper shows how concentration did not lead to a price increase. In fact, the conjectural variation model concludes that the existence of a collusive agreement before and after the merger accounts for this result, rather than the existence of efficient gains. This result may explain empirical evidence reported in the literature according to which mergers between firms do not have significant effects on prices

Climate Change, Energy Demand and Market Power in a General Equilibrium Model of the World Economy

Future energy demand will be affected by changes in prices and income, but also by other factors, like temperature levels. This paper draws upon an econometric study, disentangling the contribution of temperature in the determination of the annual regional demand for energy goods. Combining estimates of temperature elasticities with scenarios of future climate change, it is possible to assess variations in energy demand induced (directly) by the global warming. We use this information to simulate a change in the demand structure of households in a CGE model of the world economy, in a set of assessment exercises. The changing demand structure triggers a structural adjustment process, influencing trade flows, regional competitiveness of industries and regions, and welfare. We also consider the possible existence of imperfect competition in the energy markets, analyzing the impact of changes in energy demand with an alternative model version, in which energy industries are modeled as Cournot oligopolies.Climate Change, Energy, Computable General Equilibrium Models, Imperfect Competition