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Topics in Industrial Organization

Paper Session

Sunday, Jan. 8, 2017 3:15 PM – 5:15 PM

Hyatt Regency Chicago, Burnham
Hosted By: Econometric Society
  • Chair: Aviv Nevo, Northwestern University

An Experimental Approach to Merger Evaluation

Julie Holland Mortimer
,
Boston College
Christopher Thomas Conlon
,
New York University

Abstract

The 2010 Department of Justice and Federal Trade Commission Horizontal Merger Guidelines lay out a new standard for assessing proposed mergers in markets with differentiated products. This new standard is based on a measure of upward pricing pressure (UPP), which relies on a diversion ratio that measures the fraction of consumers of one product that switch to another product when the price of the first product increases. Typically the diversion ratio is computed by estimating own- and cross-price elasticities from a demand system. We show that it is possible to reinterpret the diversion ratio as the treatment effect of removing a product from the consumer's choice set. We derive conditions on economic primitives under which one can obtain accurate estimates of the treatment effect in the presence of unobserved demand shocks, and conditions under which this treatment effect accurately represents the diversion ratio. We demonstrate our approach in a field experiment on snack foods.

The Tragedy of the Last Mile: Congestion Externalities in Broadband Networks

Aviv Nevo
,
Northwestern University
Jacob Malone
,
University of Georgia
Jonathan Williams
,
University of North Carolina-Chapel Hill

Abstract

We flexibly estimate demand for residential broadband accounting for congestion
externalities that arise among consumers due to limited network capacity and dy- namics arising from nonlinear pricing. To estimate demand, we build a dynamic model of consumer choice and rely on variation on exogenous variation in the tim- ing of network upgrades and nonlinear pricing to identify the model. Our high frequency data permits insight into temporal patterns in usage across the day that are impacted by network congestion, and how usage responds to efforts to mitigate congestion. We show that usage is highly responsive to reductions in congestion, and there is substantial heterogeneity in the response across consumers. Using the model estimates, we then calculate the welfare loss to consumers associated with the existing externalities and compare it to the cost of eliminating them.

Ownership Concentration and Strategic Supply Reduction

Michael Sinkinson
,
University of Pennsylvania
Ulrich Doraszelski
,
University of Pennsylvania
Katja Seim
,
University of Pennsylvania
Peichun Will Wang
,
University of Pennsylvania

Abstract

We explore ownership concentration as a means to seek rents in the context of the U.S.
government's planned acquisition of broadcast TV licenses in the ongoing incentive auction.
We document the significant purchases of licenses by private equity firms in the run-up to this
auction and perform a prospective analysis of the effect of firms controlling multiple licenses on
the outcome of the auction. Our results show that multi-license holders are able to earn large
rents from a supply reduction strategy where they strategically withhold some of their licenses
from the auction to drive up the closing price for the remaining licenses they own in a local
media market. Relative to the case where each license is bid into the auction independently,
total spectrum acquisition costs increase by 22% across local markets, although the increases
are concentrated in a small set of markets. Strategic behavior by multi-license holders reduces
economic efficiency as the set of licenses surrendered into the auction is distorted. We propose
a partial remedy that mitigates the effect of ownership concentration and reduces the distortion
in payouts to broadcast TV license holders by up to 80%. We further show that the impact of
lower participation of license holders and of strategic bidding beyond the local media market
could greatly increase the base level of payouts and exacerbate strategic effects.
Discussant(s)
Ralph Winter
,
University of British Columbia
Eugenio Miravete
,
University of Texas-Austin
Kei Kawai
,
University of California-Berkeley
JEL Classifications
  • L0 - General