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Слайды и текст к этой презентации:
№7 слайд
![Causes of declining](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img6.jpg)
Содержание слайда: Causes of declining competition
Mergers: in 2015,
Global M&A volume hit $5 trillion, U.S. M&A made up 50% of the total.
69 deals over $10 billion, and 10 deals over $50 billion.
Pfizer’s $160 billion acquisition of Allergan.
Anheuser-Busch InBev’s $117 billion acquisition of SABMiller.
Firm conduct
R&D
Advertising
Collusion
Erecting entry barriers
№16 слайд
![Welfare Welfare depends on](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img15.jpg)
Содержание слайда: Welfare
Welfare depends on both allocative efficiency and production efficiency
Allocative efficiency: there is no possible reallocation of resources that could make one agent better off without making at least one other agent worse off.
Requires the marginal benefit of an additional unit of output to be equal to the MC of production.
№17 слайд
![Welfare Productive efficiency](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img16.jpg)
Содержание слайда: Welfare
Productive efficiency is made of
Technical efficiency (x-efficiency): Producing as much output as is technologically feasible, given the inputs.
Economic efficiency: Best possible selection of factor inputs to produce the current output level at the lowest possible cost.
Welfare is conventionally measured by the total surplus
Total surplus = consumer surplus + producer surplus
№21 слайд
![Allocative efficiency](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img20.jpg)
Содержание слайда: Allocative efficiency: Quantifying the DWL
Harberger (1954): By examining 73 manufacturing industries, he calculated DWL to be around 0.1% of the US GDP.
Cowling and Mueller (1975) re-estimated deadweight losses in USA and UK taking with improved methodology
Empirical estimation of PED
Data at the firm level
They estimated DWL to be 3.9% of GDP in US and 3.8% in UK.
Bhuyan (2000). Estimates for the US:
DWL triangle = 5.5% of sales on average.
Wide range, e.g. 33.45% for cereal production, 10.2% for canned drinks, < 0.5% for pet food and sweets.
№22 слайд
![Allocative efficiency](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img21.jpg)
Содержание слайда: Allocative efficiency: Quantifying the DWL
Application to telecommunication in America.
In 1996 the ‘Telecommunication Act’ has opened the US long-distance to competition, ending the monopoly of AT&T.
What is the welfare gain associated with this decision?
Before : 232bn minutes, price $0.242/minute
After: 293bn minutes, price $0.151/minute
DWL = $2.78bn
№25 слайд
![Japan s export success](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img24.jpg)
Содержание слайда: Japan’s export success stories are in industries where there is domestic competition (automobiles, electronics). Industries with little competition (such as chemicals) have not been able to export.
Japan’s export success stories are in industries where there is domestic competition (automobiles, electronics). Industries with little competition (such as chemicals) have not been able to export.
US banking industry: X-inefficiency is positively related to market power. The DWL is several times larger than the inefficiency loss. [Berger and Hannan (1998)]
US retail markets: The entry of Wal-Mart leads existing firms to improve their productivity. Existing firms reduce stockouts by 24% thanks to investment in computers tracking inventories. [Matsa (2009)]
№27 слайд
![Welfare TS or CS? Pittman](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img26.jpg)
Содержание слайда: Welfare: TS or CS?
Pittman (2007): Wealth transfers from producers to consumers can be difficult to set up. In addition, the same amount of wealth means much more to consumers than to producers. Thus, the CS standard is more appropriate.
Majority of economist still consider the TS as the most appropriate standard for measuring welfare.
Using the CS standard, the negative impact of monopoly on welfare is even greater.
№28 слайд
![Welfare and competition](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img27.jpg)
Содержание слайда: Welfare and competition policy
Source: Shan et al. (2012).
United States antitrust policy (Sherman act):
Focus on the CS.
Efficiency gains are taken into account only if they are likely to increase the CS (via lower prices)
In practice, the CS standard has been translated into a price standard.
E.g. proposed merger of Staples and Office Depot
It was estimated that the merger would increase prices by 7.1%: +7.3% due to market power, and -0.15% due to efficiency gains
№29 слайд
![Welfare and competition](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img28.jpg)
Содержание слайда: Welfare and competition policy
China’s AML was adopted in 2007. What is the welfare standard used China?
AML article 1:
“This law will be enacted for the purpose of guarding against or ceasing monopolistic conduct, safeguarding and promoting the order of market competition, improving economic efficiency, protecting the consumer’s interest, protecting the public interest, and promoting the healthy development of the socialist market economy.”
Article 28 states that even if a merger eliminates or restricts market competition, the Anti-Monopoly Enforcement Authority may decide not to prohibit it if the advantages of implementing the merger exceed the disadvantages.
№30 слайд
![Welfare and competition](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img29.jpg)
Содержание слайда: Welfare and competition policy
Case 1: Coca-Cola/Huiyuan, 2009
Concern that the merged firm would leverage its strong position in the carbonate soft drink market to the fruit juice market.
Merger was blocked to prevent consumers from being harmed by higher prices in the future.
Case 2: Pfizer/Wyeth, 2009
The merged firm would have 49% market share.
Merger blocked, to prevent post-merger price increases. No evidence that efficiency gains have been considered
Overall, evidence that AML in China placed some weigh on the CS in cases where the M&A was rejected.
№32 слайд
![The Lerner index Perfect](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img31.jpg)
Содержание слайда: The Lerner index
Perfect competition: L=0
Monopoly: L>0
Market power is associated with low quantity and a smaller TS.
Example:
Supermarkets: PED of -10 L=0.1 (10% mark-up)
Convenience stores: PED of -5 L=0.2 (20% mark-up)
Drug pricing: PED of -1.1 L=0.9 (90% mark-up)
№33 слайд
![Competition and welfare More](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img32.jpg)
Содержание слайда: Competition and welfare: More than just prices…
How does competition benefits society (beyond quantity)?
Product variety
Product quality
Innovation
Rent-seeking
A firm with market power may develop monopsony power…
With suppliers (low price for inputs)
With specialized workers (low wages)
№34 слайд
![Rent seeking Additional](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img33.jpg)
Содержание слайда: Rent seeking
Additional welfare costs arise due to the efforts of firms to acquire and maintain monopoly.
Firms may lobby the government through the political action committees and campaign donations. Their objectives include:
Protect trade barriers
Obtain public contracts
Fight environment regulations
Rent seeking is wasteful: Resources spent on rent-seeking produce no social benefit.
Rent dissipation: Firms are willing to incur costs up to the value of the rents and the entire value of monopoly profit is wasted
№36 слайд
![Market power and entry](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img35.jpg)
Содержание слайда: Market power and entry threats
Entry threats play an important role in preventing firms from abusing market power.
Application: Entry deterrence in the Airlines industry [Goolsbee and Syverson, 2004].
Consider situations where Southwest begins operating in both endpoint airports of a route but before it starts flying the route itself.
№37 слайд
![Market power and entry](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img36.jpg)
Содержание слайда: Market power and entry threats
Incumbents drop average fares substantially on threatened routes before Southwest actually enters the route (or even if they do not enter at all by the end of our sample).
The fare cuts are only on the threatened route itself; prices do not fall on routes to nearby airports.
There is some evidence that airlines expand flight or seat capacity to deter entry.
№40 слайд
![Internet monopolies Q Does](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img39.jpg)
Содержание слайда: Internet monopolies
Q: Does the internet favour such quasi-monopolies?
Internet start-ups picked markets that are not yet mature. Although they were not first to enter the market, they had features that allowed them to gain a dominant position.
Facebook vs MySpace, Google vs AltaVista, Amazon
Valuation can increase rapidly
Uber launched in 2010 in San Francisco
Later raised $1.5bn in VC, giving it a valuation of $17bn
Later expanded to more cities, giving it a valuation of $60bn+
Difference with traditional industries: low trade barriers, online space allowing fast global growth.
№42 слайд
![Internet monopolies Once](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img41.jpg)
Содержание слайда: Internet monopolies
Once growth begins, network effects start to kick in. Examples:
Facebook: having more members increases the membership benefits.
Ebay: indirect effect: Having more buyers does not directly help existing buyers. But more buyers means a better market for sellers, and more sellers means a better market for buyers…
Uber: more drivers attract more passengers, and vice-versa – self-enforcing – may lead to a large market share fast, grow fast because of the simplicity and the network effect.
№43 слайд
![Internet monopolies Q Are](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img42.jpg)
Содержание слайда: Internet monopolies
Q: Are digital monopolies less harmful than traditional monopolies?
They are not ‘real’ monopolies, either because there is no selling going on (other than advertising), or because the market they dominate is not the whole story.
Google has no direct revenue from internet searches.
Google is dominant for online searches, but it competes with many other firms for online advertising. (issue of market definition) – does not have typical welfare implications;
№44 слайд
![Internet monopolies Network](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img43.jpg)
Содержание слайда: Internet monopolies
Network effects do not amount to barriers to entry. Facebook and Google faced competitors with many more users. Many small firms try to take on Google and Facebook.
Competition is only one click away, which limits Google ability to act anti-competitively. (same for Amazon, Skype etc.) if they do so, consumers will simply switch to other providers.
№45 слайд
![Internet monopolies Opposite](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img44.jpg)
Содержание слайда: Internet monopolies
Opposite arguments:
Internet giants have a huge advantage over competitors: Information. This allows them to have a profitable business.
Google, Amazon: Data on what people want to buy
Facebook: Data on the area of interests
Even though competition is one-click away, most users do not seem interested in taking the step. There are some switching costs (mail and map apps habits).
Different types of market power:
Traditional economy: power to increase prices without loosing (much) business
Digital Economy: power to stop innovating without loosing (much) business
№47 слайд
![Internet monopolies Q Do](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img46.jpg)
Содержание слайда: Internet monopolies
Q: Do internet giants abuse market power?
Google
Reserves top spots on its search-result pages for links to its own services. (Google Shopping, Google Maps)
Could it become the ultimate digital monopoly?
The business of mining any and all data it can for new profits streams.
Google could use its assets (data) to take control of other industries (it is entering the markets of self-driving cars, smart homes, robotics, health care).
№50 слайд
![Internet monopolies Tim WU](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img49.jpg)
Содержание слайда: Internet monopolies
Tim WU (FTC): Info-monopolies tend to be good in the short term and bad in the long term. For a time, firms deliver powerful efficiencies and dazzling innovations. Today, a single search engine has made virtually everyone’s life simpler, just as a single phone network did 100 years ago. Monopolies also generate profits that can be reinvested into research and even public projects: AT&T wired America and invented the transistor; Google is scanning the world’s libraries.
"The downside shows up later, as the monopolist ages and the will to innovate is replaced by will to power. In the 1930s, AT&T took the measure of suppressing its own invention of magnetic recording, for fear it would deter use of the telephone.
№51 слайд
![Summary More competition is](/documents_6/f9a02ee76fb1599b5dc773fe04f070c4/img50.jpg)
Содержание слайда: Summary
More competition is associated with higher welfare (allocative efficiency, productive efficiency).
The Lerner index as a proxy for market power.
Entry threats key in determining whether firms can abuse market power.
Internet monopolies: differences and similarities with traditional monopolies.
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