Your Weekly Digest | Issue 249

h by EVP M. Vestager at the Italian Antitrust Association Annual Conference - "A new era of cartel enforcement" - 2019-2024. Read more.

A competitive ad tech supply chain is important for Australian advertisers, publishers and ultimately consumers, ACCC Chair Rod Sims said today. Speaking at a Global Competition Review webinar about the ACCC’s Digital advertising services inquiry, Mr Sims said that without strong competition in the ad tech supply chain advertisers and publishers pay more for ad tech services. When publishers receive less for the advertising space on their websites or apps, this is likely to lead to less and poorer quality online content for consumers. Read more.

The CMA’s interim report on children’s social care has outlined significant concerns about the availability of placements and the profits of private providers. Read more.

Direct email communications seek to motivate third-party sellers to lobby their representatives. Read more.

Dispute with UK competition watchdog offered a near-perfect illustration of corporate arrogance... Read more.

As the legislative train carries on its journey towards the adoption of the Digital Markets Act (DMA), academics, stakeholders and consultants have produced a great deal of work examining how the... Read more.

In the post published on Wednesday, I covered the substantive reasons why the Digital Markets Act (DMA) is likely to underdeliver (and if it does, it will do so by design). There are, in addition, … Read more.

Picking up on our latest post on the direction of the Council with respect to the DMA, we would like to touch on an important issue that seems to have been overlooked by EU lawmakers: the role of… Read more.

Oliver Latham and Javier Brugués
Economic analysis of merger and competition cases has been shaped by the “credibility revolution” that revolutionised economics as a discipline and won Angrist, Card and Imbens this year’s Nobel Prize. 1 Tools like “difference-in-differences” are now widely used and antitrust authorities increasingly emphasise analysis that identifies causal relationships rather than mere correlations. Read more.

ERNEST LIU,  ATIF MIAN  and  AMIR SUFI
This study provides a new theoretical result that a decline in the long-term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for anti-trust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels. Read more.

Challenging anticompetitive acquisitions of nascent competitors is a top priority of the Antitrust Division of the U.S. Department of Justice. It is especially important that competition agencies remain vigilant of such acquisitions in platform markets, where indirect network effects and other market forces tend to preserve the status quo at the expense of smaller, more innovative rivals and potentially final consumers. This article discusses two such attempted acquisitions: (1) Visa’s acquisition of technology firm Plaid that threatened to disrupt Visa’s monopoly power in online debit; and (2) Sabre’s acquisition of Farelogix, which is a firm that allows airlines to connect directly to travel agencies and thereby disintermediates Sabre and other global distribution systems. Read more. 

Yaron Nili
U.S. academic discourse on director interlocks is not new. Yet, the increased attention to common ownership has also brought to light the increased tendency of interlocked directors to serve in the same industry. I termed these directors as horizontal directors in my earlier work—shining a light on the benefits they bring to investors and companies but also the risks they pose to governance and antitrust law. This article revisits the prevalence of horizontal directors armed with six additional years of data and shows that the prevalence of horizontal directors has remained steady, even as attention to common ownership has increased in recent years. These findings should serve as a clarion call to regulators—urging them to directly address horizontal directors. Read more.

Long Shi, Qihong Liu and Myongjin Kim
In contrast to the extensive literature on behavior bias by individuals, studies on behavior bias by firms have been relatively scarce. We explore the possibility of the latter in the context of U.S. airlines, where fuel hedging leads to lump sum gain or loss which is sunk to airlines' pricing decisions. Our results show that the (sunk) hedging gain or loss affects airlines' ticket prices. In particular, a 10% reduction in the reported fuel cost (due to hedging gain) leads to a 2.2% reduction in ticket prices. Moving onto non-price decisions, we find that hedging gain leads airlines to use larger aircrafts and reduce airtime of their flights, but has no impacts on the number of routes and flights which airlines operate. Our results provide empirical evidence that fixed/sunk costs can affect firms' price and non-price decisions, establish a link between financial market and product market competition, and have important welfare/policy and managerial implications. Read more.

Mark A. Israel and Daniel P. O'Brien
We extend the theory of bilateral vertical contracting to a double moral hazard setting where upstream and downstream firms make complementary investments that enhance demand, downstream firms make fixed investments to enter the downstream market, and contracts are private information and determined through simultaneous bilateral bargaining. We show that vertical mergers mitigate bilateral contracting externalities and hold-up, which leads to an increase in complementary investments. If downstream products are either sufficiently distant or sufficiently close substitutes, a vertical merger benefits the merging firm, consumers, and the unintegrated downstream firm. For intermediate degrees of product differentiation, a case with linear demand and quadratic investment costs shows that consumers benefit if the marginal cost of investment is sufficiently low as revealed, for example, by a high ratio of R&D investments to sales. We apply the model to a vertical merger in the computer industry. Read more.