Competition policy

Philippe Jehiel, Laurent Lamy, 22 November 2016

Bid preferences and set-asides are popular discriminatory practices in US public procurement, but are prohibited in the EU. This column argues that discrimination can be cost-reducing provided it is targeted to favour those firms whose participation is more responsive to the auction procedure. Situations when set-asides may be cost-reducing are also discussed.

Peter Gal, Alexander Hijzen, 27 September 2016

Product market reforms are seen as a way to boost output in advanced economies, but we know little about their short-term impact. This column presents data from 18 advanced economies that reveal large differences in the potential upside of reform depending on the sector in which a firm operates, its size, and its financial health.

Roman Sittl, Arne Jonas Warnke, 18 September 2016

In sports economics, competitive balance refers to how well opponents are matched in terms of their ability to win. A lack of competitive balance implies that match outcomes will be more predictable and less interesting for fans. This column uses two decades of Bundesliga data to investigate whether competitive balance is decreasing in German football. Good players are increasingly playing for better teams, denoting a reduction in competitive balance. Although this reduction doesn’t seem to have affected fans’ interest, the results emphasise how revenue and regulations can affect competitive dynamics.

Katherine Ho, Robin Lee, 16 September 2016

The US health insurance market is becoming less competitive due to mergers and withdrawal of services from certain states. This column examines how this affects consumers through insurance premiums and hospital reimbursement rates. Using employer-sponsored insurance data from California, it finds that the relationship between insurer competition and health care spending depends on institutional and market structure.  If premiums can be constrained through effective regulation or negotiation, then reduced competition might lead to lower costs. Absent such constraints, consumers will likely be harmed.

Florin Bilbiie, Fabio Ghironi, Marc Melitz, 13 September 2016

Structural reform and deregulation are often promoted as ways to lower barriers to market entry. The Dixit-Stiglitz model provides an important benchmark – given specific preferences, there is a constrained-optimal amount of producer entry and product variety. This column reconsiders optimality of product creation, differentiating between consumer-producer and intertemporal inefficiencies and quantifying the welfare costs of inefficient entry. Monopoly profits should be preserved when product variety is endogenously determined by firm entry, as they play a crucial role in generating the welfare-maximising level of product variety in equilibrium.

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