Selling customer information to competing firms

We consider a data broker that holds precise information about customer preferences. The data broker can sell this data set either exclusively to one of two differentiated competing firms, or to both of them. If a downstream firm obtains the data set, it can practice personalized pricing, else it has to offer a uniform price to customers. The first-best allocation can be achieved when data are sold non exclusively, but this never arises in equilibrium. The data broker instead sells the data set exclusively either to the high quality firm or to the low quality firm rival, according to their quality-adjusted cost differential. This leads to inefficient allocations

Mergers with differentiated products: where do we stand?

On the occasion of the 10th anniversary of the 2010 U.S. Horizontal Merger Guidelines, this article provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. Drawing on our experience with merger enforcement in Europe, we discuss both static and dynamic competition, with a special emphasis on the calibration of competitive effects. We also discuss the role of market shares and structural presumptions in differentiated product markets

Should profit margins play a more decisive role in merger control? A rejonder to Jorge Padilla

In a recent article in this journal,1 Dr Jorge Padilla discusses a speech that one of us had given on the interrelation between merger control and profit margins.2 The speech had pointed out that, according to empirical research, recent decades have been characterised by a secular trend towards higher profit margins, in particular in the US. From an economic perspective, increased pricing power implies that future horizontal mergers involving firms with high margins are more likely to be problematic than would otherwise be the case. Merger control should therefore be more vigilant when facing an expansion of profit margins in specific sectors or in the economy at large. In his paper, Dr Padilla questions these conclusions. Although he acknowledges that profit margins have a useful role to play in merger analysis, he argues that mergers involving firms with high margins should not be viewed more critically than other transactions. According to his paper, subjecting mergers in industries with high margins to stricter controls would lead to systematic enforcement errors and cannot be justified economically. We welcome the opportunity to continue discussing this important topic and, in this rejoinder, we respond to his arguments. Section II first summarises the economic implications of increased profit margins for merger enforcement. Section III then responds to Dr Padilla’s criticism and the arguments he puts forward to support a cautious application of margin analysis in merger control. Section IV, finally, concludes

The European framework for regulating telecommunications - a 25-year appraisal

The European telecommunications sector has been radically transformed in the past 25 years: from a group of state monopolies to a set of increasingly competitive markets. In this paper we summarize how this process has unfolded -- for both fixed and mobile telecommunications -- by focusing on the evolution of the regulatory framework and by drawing some parallels with the evolution of the sector in the US. Given the major strategic importance of the sector, we highlight some of the challenges that lie ahead

Exclusionary pricing in two-sided markets

This paper studies the incentives to engage in exclusionary pricing in the context of two-sided markets. Platforms are horizontally differentiated, and seek to attract users of two groups who single-home and enjoy indirect network externalities from the size of the opposite user group active on the same platform. The entrant incurs a fixed cost of entry, and the incumbent can commit to its prices before the entry decision is taken. The incumbent has thus the option to either accommodate entry, or to exclude entry and enjoy monopolistic profits, albeit under the constraint that its price must be low enough to not leave any room for an entrant to cover its fixed cost of entry. We find that, in the spirit of the literature on limit pricing, under certain circumstances even platforms find it profitable to exclude entrants if the fixed entry cost lies above a certain threshold. By studying the properties of the threshold, we show that the stronger the network externality, the lower the thresholds for which incumbent platforms find it profitable to exclude. We also find that entry deterrence is more likely to harm consumers the weaker are network externalities, and the more differentiated are the two platforms

The value of personal information in online markets with endogenous privacy

We investigate the effects of price discrimination on prices, profits, and consumer surplus when (a) at least one competing firm can use consumers’ private information to price discriminate yet (b) consumers can prevent such use by paying a “privacy cost.” Unlike a monopolist, competing duopolists do not always benefit from a higher privacy cost because each firm’s profit decreases—and consumer surplus increases—with that cost. Under such competition, the optimal strategy for an owner of consumer data that sells information in a single block is selling to only one firm, thereby maximizing the stakes for rival buyers. The resulting inefficiencies imply that policy makers should devote more attention to discouraging exclusivity deals and less to ensuring that consumers can easily protect their privacy