Competition policy

Rod Sims, 24 June 2022

Australia’s news media bargaining code has been successful in achieving the single objective set for it: to address the imbalance in bargaining power between the country’s news media businesses and the digital platforms of Big Tech. The code is largely being copied in Canada, and its key components are in essence replicated in draft legislation under discussion in the UK and the US. Yet it is both misunderstood, because it is novel, and misrepresented, by those who do not wish to see the model extended beyond Australia. This column explains the economics behind the code’s inception and implementation, and deals with some of the misconceptions and misrepresentations.

José Azar, Xavier Vives, 15 June 2022

The rise of common ownership of publicly traded companies has important implications for competition in product markets. This column argues that it is important to distinguish inter-industry from intra-industry effects of common ownership. Using data from the airline industry, it shows that intra-industry common ownership is positively associated with prices, while inter-industry common ownership is negatively associated with prices. Antitrust regulation should take into account the procompetitive inter-industry effects of common ownership.

Frank Verboven, Biliana Yontcheva, 25 May 2022

Entry restrictions can help correct market failures, but also serve to maximise industry profits. This column studies how geographic entry regulation of the Latin notary system balances consumer and producer interests. Using a spatial demand model, it shows that the state places significantly more weight on industry profits than consumer surplus when granting entry licenses. Furthermore, it estimates high markups for notaries, particularly in real estate transactions. Reforms such as reducing fees and liberalising entry can have substantial welfare-improving effects.

Chiara Fumagalli, Massimo Motta, Emanuele Tarantino, 27 March 2022

The acquisition of potential competitors is a widespread phenomenon. This may be anti-competitive, as the incumbent kills off potential future competition, or welfare-improving, such as by easing financial constraints for the target. This column provides a framework to trade-off these effects. The authors find that antitrust agencies should prohibit takeovers whose transaction price is particularly high, as the high price signals that the takeover is not indispensable to the target firm’s success. This provides support for the proposals made by antitrust agencies to revise the current laissez-faire approach to mergers in digital markets.

Decio Coviello, Andrea Guglielmo, Clarissa Lotti, Giancarlo Spagnolo, 24 March 2022

Rules constraining bureaucratic discretion may limit the misuse of public funds but may also hinder government performance. Using Italian public works data, this column examines the prevalence and impact of procuring administrations manipulating the value of contracts. The authors find evidence suggesting that appointed administrations violate procedural rules to manipulate the value of contracts to retain discretion, and do it often enough to establish repeated interactions with less risky and better-performing suppliers so that, on average, procurement outcomes improve. They find no manipulation (and poorer procurement outcomes) for elected administrations, possibly due to stronger electoral discipline. 

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