Early Settlement and Errors in Merger Control

We develop a model of remedy offers made to an expert agency which has powers to act before any harm is experienced and is required to decide on the basis of tangible evidence. The model provides a relationship between the factors determining the probability of delay and the type of error in early settlements (i.e. insufficient versus excessive remedy). We apply the model using data from European Commission merger settlements. Our econometric analysis confirms the importance of delay costs and the uncertainty associated with the agency’s findings. Our results are also consistent with the prediction that delay is not systematically related to the inherent competitive harm of the merger proposal. We use our results to identify specific cases of insufficient remedy in early settlements

Collusion under imperfect monitoring with asymmetric firms

We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms’ sales and prices are private information. We show that all firms can infer when at least one firm’s sales are below some firm-specific ‘trigger level’. When firms use this public information to monitor the collusive agreement, price wars may occur on the equilibrium path. Symmetry facilitates collusion but, if price wars are sufficiently long, then the optimal collusive prices of symmetric capacity distributions are lower on average than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy

Collusion under imperfect monitoring with asymmetric firms

Collusion under imperfect monitoring with asymmetric firm

Early settlement in Euopean merger control

We analyse the determinants of early settlement between merging parties and the European Commission over remedies that remove concerns of anti- comeptitive effects. This extends the previously narrow range of econometric literature on early settlement. Consistent with the theory of early settlement, our results confirm the importance of delay costs and of uncertainty, measured by the complexity of the economic analysis required for each merger. We also find a non-monotonic effect of agency resourcing, which raises questions about the Commission's efficiency in times of high case load. Econometrically, we select a sample of merger decisions in which the European Commission intervened due to concerns of anticompetitive effects, and our selection model provides estimates of the factors determining intervention by the Commission. Conclusions are drawn for public policy

Collusion under private monitoring with asymmetric capacity constraints

Collusion under private monitoring with asymmetric capacity constraint

Collusion, Firm Numbers and Asymmetries Revisited

Despite the fact that competition law prohibits explicit cartels but not tacit collusion, theories of collusion often do not distinguish between the two. In this paper, we address this issue and ask: under which types of market structures are cartels likely to arise when firms can alternatively collude tacitly? To answer this question, we analyse an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information in an illegal cartel to avoid such price wars. However, this runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with the available empirical evidence, cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy

Collusion, Firm Numbers and Asymmetries Revisited

Despite the fact that competition law prohibits explicit cartels but not tacit collusion, theories of collusion often do not distinguish between the two. In this paper, we address this issue and ask: under which types of market structures are cartels likely to arise when firms can alternatively collude tacitly? To answer this question, we analyse an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information in an illegal cartel to avoid such price wars. However, this runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with the available empirical evidence, cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy

Written evidence submitted to ‘The Future of Banking Commission’ relating to three of their areas of investigation: appropriate structure of the banking system, competition and provision of suitable products for consumers

Written evidence submitted to ‘The Future of Banking Commission’ relating to three of their areas of investigation: appropriate structure of the banking system, competition and provision of suitable products for consumer

Price Advertising, Double Marginalisation and Vertical Restraints

Abstract The developing literature on consumer information and vertical relations has yet to consider information provision via costly retail price advertising. By exploring this, we show that the double marginalisation problem exists in equilibrium despite an upstream supplier offering a two-part tariff that is common knowledge to consumers. Intuitively, the supplier elicits higher retail prices to strategically reduce retailers' advertising expenditure in order to extract additional rents. We then demonstrate how vertical restraints, such as resale price maintenance, can increase supply-chain profits and consumer welfare by lowering retail prices despite paradoxically discouraging price advertising

Cartel Damages Claims, Passing-On and Passing-Back

Firms can mitigate the harm of an input cartel by passing on some of the overcharge to their customers through raising their own prices. Recent claims for damages have highlighted that firms may also respond by negotiating lower prices with their suppliers of other complementary inputs, thereby passing back some of the harm upstream. By analysing a model where downstream supply requires two inputs, we derive the equilibrium `passing-on' and `passing-back' effects when one input is cartelised. We show that the cartel causes a larger passing-back effect when there is greater market power in the complementary input sector. This reduces the passing-on effect. We find that the passing-back effect can inflict substantial harm on the complementary input suppliers and reduce the harm inflicted on direct and/or indirect purchasers