No holds barred
Are Legacy Airline Mergers Pro- or Anti-Competitive? Evidence from Recent U.S. Airline Mergers
Dennis Carlton et al.
University of Chicago Working Paper, October 2016
Abstract:
Recent mergers have reduced the number of legacy airlines in the United States from six to three. We examine the effect of these legacy airline mergers on fares and output to determine whether the mergers have had an overall pro-competitive or anti-competitive effect. We focus on routes most likely to have been adversely affected by a reduction in competition. Our difference-in-differences regression analysis shows that those routes experienced no significant adverse effect on fares and significant increases in passenger traffic as well as capacity. These results indicate that the recent legacy mergers were pro-competitive.
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Evidence for the Effects of Mergers on Market Power and Efficiency
Bruce Blonigen & Justin Pierce
NBER Working Paper, October 2016
Abstract:
Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plant-level productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average. The results are robust to a range of approaches to address the endogeneity of firms’ merger decisions.
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Using Big Data to Estimate Consumer Surplus: The Case of Uber
Peter Cohen et al.
NBER Working Paper, September 2016
Abstract:
Estimating consumer surplus is challenging because it requires identification of the entire demand curve. We rely on Uber’s “surge” pricing algorithm and the richness of its individual level data to first estimate demand elasticities at several points along the demand curve. We then use these elasticity estimates to estimate consumer surplus. Using almost 50 million individual-level observations and a regression discontinuity design, we estimate that in 2015 the UberX service generated about $2.9 billion in consumer surplus in the four U.S. cities included in our analysis. For each dollar spent by consumers, about $1.60 of consumer surplus is generated. Back-of-the-envelope calculations suggest that the overall consumer surplus generated by the UberX service in the United States in 2015 was $6.8 billion.
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Do Ride-Sharing Services Affect Traffic Congestion? An Empirical Study of Uber Entry
Ziru Li, Yili Hong & Zhongju Zhang
Arizona State University Working Paper, August 2016
Abstract:
Sharing economy platform, which leverages information technology (IT) to re-distribute unused or underutilized assets to people who are willing to pay for the services, has received tremendous attention in the last few years. Its creative business models have disrupted many traditional industries (e.g., transportation, hotel) by fundamentally changing the mechanism to match demand with supply in real time. In this research, we investigate how Uber, a peer-to-peer mobile ride-sharing platform, affects traffic congestion and environment (carbon emissions) in the urban areas of the United States. Leveraging a unique data set combining data from Uber and the Urban Mobility Report, we examine whether the entry of Uber car services affects traffic congestion using a difference-in-difference framework. Our findings provide empirical evidence that ride-sharing services such as Uber significantly decrease the traffic congestion after entering an urban area. We perform further analysis including the use of instrumental variables, alternative measures, a relative time model using more granular data to assess the robustness of the results. A few plausible underlining mechanisms are discussed to help explain our findings.
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Information, competition, and the quality of charities
Silvana Krasteva & Huseyin Yildirim
Journal of Public Economics, December 2016, Pages 64–77
Abstract:
Drawing upon the all-pay auction literature, we propose a model of charity competition in which informed giving alone can account for the significant quality heterogeneity across similar charities. Our analysis identifies a negative effect of competition and a positive effect of informed giving on the equilibrium quality of charity. In particular, we show that as the number of charities grows, so does the percentage of charity scams, approaching one in the limit. In light of this and other results, we discuss the need for regulating nonprofit entry and conduct as well as promoting informed giving.
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Defaults, Decision Costs and Welfare in Behavioural Policy Design
Nicholas Chesterley
Economica, forthcoming
Abstract:
This paper studies the welfare effects of behavioural policies that change a consumer's default option or their cost of optimizing. I find that such policies, though increasingly popular, lead not just to changes in the welfare of optimizers or default-takers in the population — the payoff effect — but also to the membership of those groups — the composition effect. This can lead to costly and potentially counterintuitive effects: improving defaults may actually lower welfare, unlike decision simplification, which is unambiguously positive. Such approaches present a useful policy tool but are not always appropriate, and considerable knowledge of preferences is necessary for effective implementation.
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The Optimal Distribution of Population across Cities
David Albouy et al.
NBER Working Paper, November 2016
Abstract:
The received economic wisdom is that cities are too big and that public policy should limit their sizes. This wisdom assumes, unrealistically, that city sites are homogeneous, migration is unfettered, land is given freely to incoming migrants, and federal taxes are neutral. Should those assumptions not hold, large cities may be inefficiently small. We prove this claim in a system of cities with heterogeneous sites and either free mobility or local governments, where agglomeration economies, congestion, federal taxation, and land ownership create wedges. A quantitative version of our model suggests that cities may well be too numerous and underpopulated for a wide range of plausible parameter values. The welfare costs of free migration equilibria appear small, whereas they seem substantial when local governments control city size.
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On the Relevance of Market Power
Louis Kaplow
Harvard Law Review, forthcoming
Abstract:
Market power is the most important determinant of liability in competition law cases throughout the world. Yet fundamental questions on the relevance of market power are underanalyzed, if examined at all: When and why should we inquire into market power? How much should we require? Should market power be viewed as one thing, regardless of the practice under scrutiny and independent of the pertinent anticompetitive and procompetitive explanations for its use? Does each component of market power have the same probative force? Or even influence optimal liability determinations in the same direction? This Article’s ground-up investigation of market power finds that the answers often differ from what is generally believed and sometimes are surprising — notably, higher levels of certain market power measures or particular market power components sometimes disfavor liability. This gulf between conventional wisdom and correct understanding suggests the need to redirect research agendas, agency guidance, and competition law doctrine.
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Attribute Search in Online Retailing
Timothy Richards, Stephen Hamilton & Janine Empen
American Journal of Agricultural Economics, forthcoming
Abstract:
Online retailing has created an empirical opportunity to examine consumer search behavior using click stream data. In this article we examine the implications of greater variety online for consumer search intensity, and equilibrium prices. We test our hypothesis using consumer data on online search and purchase behavior from the comScore Web Behavior Panel. We find that search intensity systematically decreases in categories with broader product ranges, and equilibrium prices rise. Our findings suggests that broader product ranges in online retail markets can produce anti-competitive effects that are mediated through equilibrium responses in consumer search behavior.
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Power to the People: Does Ownership Type Influence Electricity Service?
Richard Boylan
Journal of Law and Economics, May 2016, Pages 441-476
Abstract:
After storm-related power outages, many have recommended municipalizing investor-owned utilities, claiming that profit-making utilities have insufficient incentive to prepare for storms. I provide empirical evidence that municipal utilities spend more on maintenance of their distribution network than investor-owned utilities. Nonetheless, I find that storms significantly disrupt electricity consumption in areas served by municipal utilities but do not disrupt areas served by investor-owned utilities. These results are based on a stratified random sample of 241 investor-owned, 96 cooperative, and 94 municipal utilities in the United States between 1999 and 2012. I conclude that municipal utilities’ in-efficiencies are more important in causing power outages than investor-owned utilities’ disincentives to spend on maintenance.
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Can Nudges Hurt? The Case of Tightwads and Spendthrifts
Linda Thunström, Ben Gilbert & Chian Jones Ritten
University of Wyoming Working Paper, August 2016
Abstract:
People have been found to experience pain when spending money, which can help regulate spending. For some, pain levels are optimal for managing spending (‘unconflicted’), but for others these levels are too low (‘spendthrifts’) or too high (‘tightwads’). We evaluate the effect of spending reminder nudges across subjects with different levels of pain of paying. To do so, we use a laboratory spending task where we vary the market context through treatments with different availability of product quality information (full, opt in, no information), and nudges designed to encourage rational spending (an opportunity cost reminder, an arbitrage reminder, no reminder). Two key results emerge. First, reminder nudges have undesired welfare effects. Tightwads, who already spend too little, significantly reduce their spending when reminded of opportunity costs, while spending by spendthrifts, who spend too much, is unaffected. Opportunity cost reminders therefore exacerbate the predisposition of tightwads to feel too much pain of paying, rather than encourage all types to make more rational decisions. Arbitrage reminders have similar effects, but results are mixed and weaker. Second, the context most helpful in reducing pain of paying for tightwads and increasing pain of paying for spendthrifts is the standard condition of an efficient market: fully-provided, costless information and no spending nudges.
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Regional Technology Dynamism and Noncompete Clauses: Evidence from a Natural Experiment
Thor Berger & Carl Benedikt Frey
Journal of Regional Science, forthcoming
Abstract:
In this paper, we examine the causal impact of enforceable covenants not to compete (CNCs) on labor market matching and the technological dynamism of regions. Exploiting the fact that the Michigan Antitrust Reform Act (MARA) of 1985 inadvertently repealed Michigan' s prohibition on CNC enforcement, we show that technical professionals in Michigan became increasingly likely to switch industry relative to similar workers in other U.S. states after prohibition. Workers switching industries after the introduction of MARA also earned lower wages, implying that they shifted into technical fields where their skills from previous employment were less productive. Estimates further show that the technological dynamism of Michigan declined in tandem, as fewer workers shifted into new types of jobs associated with recent technological advances. These findings are consistent with the view that skilled professionals that are subject to CNCs are more likely to leave their field of work postemployment to avoid lawsuits.
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Who Feeds the Trolls? Patent Trolls and the Patent Examination Process
Josh Feng & Xavier Jaravel
Harvard Working Paper, July 2016
Abstract:
Leveraging random examiner assignment and detailed patent prosecution data, we find that non-practicing entities (NPEs) purchase patents granted by examiners that tend to issue incremental patents with vaguely-worded claims. In comparison, practicing entities purchase a very different set of patents, but assert patents similar to those purchased by NPEs. These results show that on average NPEs purchase and assert patents productive for litigation but lacking technological merit, thus adding to overall litigation fees without providing incentives for high-quality innovations. Their activities are in part the symptom of a broader problem with the issuance of ill-defined intellectual property rights, which leads to (likely inefficient) litigation even among practicing entities. A cost-benefit calibration shows that investments in improving examination quality at the United States Patent Office would have large social returns.
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Robert Ellickson
American Law and Economics Review, Fall 2016, Pages 235-271
Abstract:
Alexis de Tocqueville and Robert Putnam are but two of the many admirers of the countless private associations that lie at the core of civil society. This article seeks to advance understanding of the law-like activities of these associations. Residential community associations and sports leagues, for example, make rules and levy fines on members who violate them. The New York Diamond Dealers Club and the Writers Guild of America, like many other associations, have established internal arbitral panels for the resolution of member disputes. Courts are highly likely to defer to the outcomes of these arbitrations. The article’s central positive thesis, hedged with qualifications, is that a private association tends to engage in social control when it is the most cost-effective institution for addressing the issue at hand. This thesis is used to illuminate some otherwise puzzling associational practices, such as the efforts of the National Football League and other professional sports leagues to control players' domestic violence off the field of play.
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Welfare Implications of Congestion Pricing: Evidence from SFpark
Pnina Feldman, Jun Li & Hsin-Tien Tsai
University of California Working Paper, September 2016
Abstract:
Congestion pricing provides an appealing solution to urban parking problems. By charging varying rates across areas based on their congestion levels, congestion pricing shifts demand and allows a better allocation of limited resources. It aims to increase the accessibility of highly desired public goods for commuters who value them, and reduce traffic caused by drivers searching for available parking spaces. Using data from the City of San Francisco both before and after a congestion pricing scheme was implemented in 2011, we estimate the welfare implications of the policy. We use a two-stage dynamic search model to estimate consumers' search costs, distance disutilities, price sensitivities and trip valuations. These estimates then allow us to conduct welfare comparisons. We find that congestion pricing increases consumer welfare in popular areas, but when implemented in less-congested areas, it may actually hurt consumer welfare. In one of the districts under study, consumers ended up searching more, parked further away and paid more. Interestingly, despite the improved availability, congestion pricing may actually increase traffic due to cruising (searching for parking), as price sensitive consumers start to search for inexpensive parking spaces, particularly when prices are highly dispersed geographically. Through counterfactual analyses, we find that a simple three-tier pricing policy, which eliminates the search for a lower price, can significantly increase welfare and achieve more than 50% of the welfare increase achieved by a full price information benchmark.