Kevin Lewis

July 11, 2018

Anticompetitive Effects Of Common Ownership
José Azar, Martin Schmalz & Isabel Tecu
Journal of Finance, forthcoming 


Many natural competitors are jointly held by a small set of large institutional investors. In the U.S. airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities. Within‐route changes in common ownership concentration robustly correlate with route‐level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost – reduced product market competition – accompanies the private benefits of diversification and good governance.

How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift
Germán Gutiérrez & Thomas Philippon
NBER Working Paper, June 2018


Until the 1990's, US markets were more competitive than European markets. Today, European markets have lower concentration, lower excess profits, and lower regulatory barriers to entry. We document this surprising outcome and propose an explanation using a model of political support. Politicians care about consumer welfare but also enjoy retaining control over industrial policy. We show that politicians from different countries who set up a common regulator will make it more independent and more pro-competition than the national ones it replaces. Our comparative analysis of antitrust policy reveals strong support for this and other predictions of the model. European institutions are more independent than their American counterparts, and they enforce pro-competition policies more strongly than any individual country ever did. Countries with ex-ante weak institutions benefit more from the delegation of antitrust enforcement to the EU level. Our model also explains why political and lobbying expenditures have increased much more in America than in Europe, and using data across industries and across countries, we show that these expenditures explain the relative rise of concentration and market power in the US.

Housing Market Regulation and Labor Market Dynamism
Christos Makridis
MIT Working Paper, June 2018


There is increasing evidence that the United States labor market has become less dynamic over the past three decades, marked by a decline in labor market mobility and job reallocation. This paper explores the contribution of housing market regulation towards declines in labor market dynamism. Using the Longitudinal Employer Household Dynamics (LEHD) and the Census Bureau between 2006 and 2016, I use the Saiz (2010) housing supply elasticity as a proxy for housing market regulation and the ratio of rental rates to income as a proxy for living costs to estimate their effects on labor market outcomes. First, the decline in hiring and job turnover has been much less pronounced in metropolitan areas with more elastic housing supplies. Second, increases in the ratio of rental rates to income are associated with declines in labor market dynamism and neighborhood amenities, consistent with compensating differentials: higher housing prices deter entry and exit since companies are required to pay higher wages. These results suggest that relaxing housing market regulation would improve the overall health of the U.S. labor market and raise resiliency.

Housing Productivity and the Social Cost of Land-Use Restrictions
David Albouy & Gabriel Ehrlich
Journal of Urban Economics, forthcoming


We use metro-level variation in land and structural input prices to test and estimate a housing cost function with differences in local housing productivity. Both OLS and IV estimates imply that stringent regulatory and geographic restrictions substantially increase housing prices relative to land and construction input costs. The typical cost share of land is one-third, and substitution between inputs is inelastic. A disaggregated analysis of regulations finds state-level restrictions are costlier than local ones and provides a Regulatory Cost Index (RCI). Housing productivity falls with city population. Typical land-use restrictions impose costs that appear to exceed quality-of-life benefits, reducing welfare on net.

Has Competition in the Market for Subscription Sports Broadcasting Benefited Consumers? The Case of the English Premier League
Robert Butler & Patrick Massey
Journal of Sports Economics, forthcoming


This paper investigates the peculiar nature of competition in the broadcasting market for live English Premier League matches in the United Kingdom. Following the movement from free-to-air to subscription television in 1992, British Sky Broadcasting secured a monopoly on live broadcasting rights. The exclusive arrangements were later found to be in breach of European competition law and resulted in competition from the start of the 2007-2008 season. However, competition has not reduced prices charged to consumers. Both the overall cost to consumers and the price per game are higher with competing broadcasters than under a monopoly.

Towards a Legal Theory of the Firm: The Effects of Enterprise Liability on Asset Partitioning, Decentralization and Corporate Group Growth
Sharon Belenzon, Honggi Lee & Andrea Patacconi
NBER Working Paper, June 2018


Limited liability is a key attribute of the corporate form and one of the most important institutional innovations of the nineteenth century. However, when the owner of a corporation is another corporation as in many corporate groups, an important justification for limited liability — to protect small, passive investors from unlimited losses — is severely weakened. Accordingly, countries differ considerably in their propensity to protect parent and sister companies from the liabilities incurred by other group affiliates, with some countries (e.g. Germany) viewing a subsidiary as an integral part of the group that controls it while others (e.g. Great Britain) emphasizing the legal rather than the economic substance. In this paper, we construct a novel country-level measure of enterprise liability, the propensity of courts to hold an entire group liable for the obligations of one of its subsidiaries. Using data from sixteen countries in Europe, the Americas, and Asia, we examine how enterprise liability affects firm boundaries, internal organization, and corporate group growth. We find that in countries where enterprise liability is weaker, groups tend to partition their assets more finely into distinct legally independent subsidiaries and grant their subsidiaries more autonomy. Groups also tend to grow faster. This paper highlights one underappreciated channel — risk compartmentalization through incorporation — through which legal systems affect economic outcomes.

Shared Prosperity (or Lack Thereof) in the Sharing Economy
Mohammed Alyakoob & Mohammad Saifur Rahman
Purdue University Working Paper, June 2018


This paper examines the heterogeneous economic spillover effects of a home sharing platform -- Airbnb -- on the growth of a complimentary local service -- restaurants. By circumventing traditional land-use regulation and providing access to underutilized inventory, Airbnb is attracting the visitors of a city to vicinities that are not traditional tourist destinations. Although visitors generally bring significant spending power, it is, however, not clear if the visitors use Airbnb primarily for lodging, thus, not contributing to the local economy. To evaluate this, we focus on the impact of Airbnb on the employment growth of New York City (NYC) restaurants. Our results indicate that if the intensity of Airbnb activity (Airbnb reviews per household) increases by 2%, the restaurant employment in that neighborhood grows by approximately 3%. We use algorithmic matching in combination with a difference-in-difference (DID) specification that utilizes the spatial and temporal differences in Airbnb entry into NYC neighborhoods. We validate the underlying mechanism behind this result by evaluating the impact of Airbnb on Yelp visitor reviews. In particular, neighborhoods with increasing Airbnb activity also experience a surge in their share of NYC visitor reviews. This result is further validated by evaluating the impact of a unique Airbnb neighborhood level policy recently implemented in New Orleans. We also investigate the role of demographics and market concentration in driving the variation. Notably, restaurants in areas with a relatively high number of Black residents do not benefit from the economic spillover of Airbnb activity.

Drivers of Disruption? Estimating the Uber Effect
Thor Berger, Chinchih Chen & Carl Benedikt Frey
European Economic Review, forthcoming


A frequent belief is that the rise of so-called “gig work” has led to the displacement of workers in a wide range of traditional jobs. This paper examines the impacts of the flagship of the gig economy —Uber — on workers employed in conventional taxi services. Our analysis exploits newly collected data on the staggered rollout of Uber across metropolitan areas in the United States and a difference-in-differences design to document that incumbent taxi drivers experienced a relative earnings decline of about 10 percent subsequent to Uber’s entry into a new market, while there are no significant effects on their labor supply. Additional evidence from a battery of placebo tests, event study estimates, and specifications using Google Trends data to capture differences in treatment intensity underlines these findings. A triple-differences design that compares changes among taxi drivers relative to bus, tractor, and truck drivers that were unaffected by the arrival of Uber, provides further supporting evidence that the diffusion of Uber has reduced the earnings potential of incumbent drivers in conventional taxi services in the United States.

An empirical analysis of taxi, Lyft and Uber rides: Evidence from weather shocks in NYC
Abel Brodeur & Kerry Nield
Journal of Economic Behavior & Organization, August 2018, Pages 1-16


Using all taxi, Lyft and Uber rides in New York City, we show that the number of Uber and Lyft rides is significantly correlated with whether it rained. The number of Uber (Lyft) rides per hour is about 22 (19)% higher when it is raining, while the number of taxi rides per hour increases by only 5% in rainy hours-suggesting that surge pricing (prime time) encourages an increase in supply. We show that while the number of taxi rides, passengers and fare income all significantly decreased after Uber entered the market in May 2011, taxis do not respond differently to increased demand in rainy hours than non-rainy hours since the entrance of Uber. Last, we test whether Lyft’s entry in the market affected Uber. Our estimates suggest that Uber was still growing after Lyft entered the market, but that Uber rides during rainy hours decreased by about 9%. Our findings suggest that dynamic pricing make Lyft and Uber drivers compete for rides when demand suddenly increases, i.e., during rainy hours.

The Effects of Horizontal Merger Operating Efficiencies on Rivals, Customers, and Suppliers
Gennaro Bernile & Evgeny Lyandres
Review of Finance, forthcoming


We study how operating efficiencies in horizontal mergers affect market reactions of merging firms' rivals, customers, and suppliers. We measure operating efficiency gains using projections disclosed by merging firms' insiders. Higher efficiency gains are associated with lower announcement returns to merging firms' rivals (due to increased equilibrium output of merging firms), higher returns to their customers (due to lower equilibrium price of merging firms' output), and higher returns to their suppliers (due to the merged firm's higher equilibrium demand for in-puts). Our results suggest that the pass-through of efficiency gains along merging firms' supply chains is as important as the effects of post-merger changes in market power.

Interest Rates: Prices Hidden in Plain Sight
Mary Zaki
University of Maryland Working Paper, April 2018


I study if the primary method we use to communicate price of credit, interest rates, obscures cost obligations from consumers and, if so, how this impacts consumer and firm behavior. In an experiment in an online labor market, consumers are overwhelmingly unable to translate interest rates into credit cost obligations and this causes insensitivity to price changes and over-purchasing of goods. Constructing a new record of credit prices from mail-order catalogs, I find that the innovation of credit instruments that only disclose interest rates allows less efficient creditors to exploit this myopia by raising prices while simultaneously experiencing increased sales.

Disclosure and Subsequent Innovation: Evidence from the Patent Depository Library Program
Jeffrey Furman, Markus Nagler & Martin Watzinger
NBER Working Paper, May 2018


How important is information disclosure through patents for subsequent innovation? Although disclosure is regarded as essential to the functioning of the patent system, legal scholars have expressed considerable skepticism about its value in practice. To adjudicate this issue, we examine the expansion of the USPTO Patent and Trademark Depository Library system between 1975 to 1997. Whereas the exclusion rights associated with patents are national in scope, the opening of these patent libraries during the pre-Internet era yielded regional variation in the costs to access the technical information (prior art) disclosed in patent documents. We find that after a patent library opens, local patenting increases by 17% relative to control regions that have Federal Depository Libraries. A number of additional analyses suggest that the disclosure of technical information in the patent documents is the mechanism underlying this boost in patenting: the response to patent libraries is significant and of important magnitude among young companies, library opening induces local inventors to cite more geographically distant and more technologically diverse prior art, and the library boost ceases to be present after the introduction of the Internet. We find that library opening is also associated with an increase in local business formation and job creation, which suggests that the impact of libraries is not limited to patenting outcomes. Taken together, our analyses provide evidence that the information disclosed in patent prior art plays an important role in supporting cumulative innovation.

Occupational Licensing and Accountant Quality: Evidence from the 150-Hour Rule
John Manuel Barrios
University of Chicago Working Paper, May 2018


I examine the effects of mandatory occupational licensure on the quality of Certified Public Accountants (CPAs) using the staggered state-level adoption of the 150-hour Rule (the Rule). Although the Rule reduces the number of entrants into the profession, an analysis of labor market outcomes shows that accountants subject to the Rule are more likely to be employed at a Big 4 public accounting firm and specialize in taxation. However, accountants subject to the Rule have the same likelihood of promotion, the same duration until promotion, and exit public accounting at faster rates than their non-Rule counterparts. Moreover, Rule accountants earn a wage premium relative to non-Rule accountants. These findings suggest that restrictive licensing laws reduced the supply of new CPAs and increased rents to the profession without drastically improving quality in the labor market.

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