Inferring the Effects of Vertical Integration from Entry Games : An Analysis of the Generic Pharmaceutical Industry

This paper introduces a novel method for examining the effects of vertical integration. The basic idea is to estimate the parameters of a vertical entry game. By carefully specifying firms' payoff equations and constructing appropriate tests, it is possible to use estimates on rival profit effects to make inferences about the existence of vertical foreclosure. I estimate the vertical entry model using data from the US generic pharmaceutical industry. The estimates indicate that vertical integration is unlikely to generate anticompetitive foreclosure effects. On the other hand, significant efficiency effects are found to arise from vertical integration. I use the parameter estimates to simulate a policy that bans vertically integrated entry. The simulation results suggest that such a ban is counterproductive; it is likely to reduce entry into smaller markets.

Impact evaluations of Federal Trade Commission vertical restraints cases /

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Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods

This paper studies the incentives for credence goods experts to invest effort in diagnosis if effort is both costly and unobservable, and if they face competition by discounters who are not able to perform a diagnosis. The unobservability of diagnosis effort and the credence characteristic of the good induce experts to choose incentive compatible tariff structures. This makes them vulnerable to competition by discounters. We explore the conditions under which honestly diagnosing experts survive competition by discounters; we identify situations in which experts misdiagnose consumers in order to prevent them from free-riding on experts' advice; and we discuss policy options to solve the free-riding consumers–cheating experts problem.

El precio de la gasolina en España: distribución con restricciones verticales

[ES] Hemos realizado un análisis estructural del mercado de la gasolina en España para conocer la manera en la que se establecen los precios de la gasolina en comparación con los de la Unión Europea. Para ello analizamos la cadena de valor de las empresas más destacadas del mercado, así como las distintas barreras de entrada que limitan la competencia. Por último, destacamos las restricciones verticales que estas imponen a sus distribuidores minorista y su incidencia en el precio final del producto.

Competition policy costs to firms

The existence of competition policy forces companies to adjust their behaviour. This is also costly. Using a database from a company on contracts, I will try to estimate if a specific competition policy disposition, supply contracts cannot be longer than 60 months, has costs for the coffee suppliers operating in the Portuguese “on-trade” coffee market. The estimation method used in this paper will be OLS. The results suggest that limiting the duration of exclusivity contracts to 60 months can be harmful to the coffee suppliers and it can even seriously affect the market functioning. Key

Restrições verticais no setor automotivo: barreiras à entrada de novos concessionários

Os objetivos deste trabalho são (i) revisar a literatura econômica sobre restrições verticais, destacando efeitos pró-eficiência e anticompetitivos de sua adoção; (ii) apresentar aspectos institucionais da adoção de restrições verticais na distribuição de automóveis novos nos Estados Unidos e no Brasil, analisando a evolução recente da relação entre montadoras e concessionárias de automóveis no país; e (iii) investigar, a partir de dados sobre a localização de concessionárias no Brasil e sobre os condicionantes da demanda e da oferta de automóveis no país, os efeitos da entrada de concessionárias em mercados previamente monopolizados. Com relação a este último objetivo, um modelo de escolha binária foi adaptado de Bresnahan e Reiss (1990), a partir do qual concluiu-se que os custos fixos de entrada de uma segunda concessionária parecem ser, em média, menores do que os custos fixos da entrada da primeira concessionária, e que os lucros de duopólio parecem ser significativamente menores do que os de monopólio, indicando, ao contrário do observado em Bresnahan e Reiss (1990) com relação ao mercado norte-americano, concorrência entre concessionárias. Finalmente, possíveis implicações destas conclusões são discutidas.

Restrições verticais e defesa da concorrência: a experiência brasileira

This article reviews the Brazilian competition policy with regard to vertical restraints. Although relatively short, the Brazilian experience is surprisingly rich and consistent, particularly in comparison with the quite volatile U.S. enforcement towards vertical restraints, which ranged from severe interventions to an absolutely lenient approach. A significant number of the most important antitrust cases in Brazil are related to vertical restraints, and one of them resulted in the highest fine ever applied to a company by Brazilian authorities. Moreover, the necessary conditions to characterize an antitrust offence are relatively well set, comprising three main steps of investigation: a) the existence of dominant position, b) the feasibility and economic rationality of market foreclosure and raising the costs of rivals, and c) the efficiencies related to vertical control. The article comprises a summary of the economic controversy regarding vertical restraints, and a summary of the main cases decided by the Brazilian Commission (Cade).

Monopoly in the UK:what determines whether the MMC finds against the investigated firms?

This paper draws on data from 73 UK Monopolies and Mergers Commission reports on monopoly between 1973 and 1995. It shows that there is a roughly two in three chance that the Commission will come to an adverse conclusion against the investigated firms in a given case. 75–80% of decisions can be explained purely in terms of the market share of the leading firm and knowledge of the broad nature of the alleged anti-competitive practice. An adverse finding is most likely in cases involving exclusive dealing, and least likely where other vertical restraints are involved.