Author Archives: DevelopingWorldAntitrust

Mobile payments, antitrust and socio-economic development

Digital Markets, Mobile Payments Systems, and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience

Abstract

The digitization of economic activity has important socio-economic development implications and at the same time creates challenges for antitrust analysis. These implications and challenges have been met differently in jurisdictions around the world. In this paper we analyze the different experiences in the EU and developing countries, focusing on mobile payments. We find that this market exhibits special characteristics that need to be taken into account in the analysis of competition conditions. First, it is enabled by mobile telecommunications infrastructure and is offered by network operators, which causes competition in both markets to be closely linked. Second, there are factors, such as the lack of interoperability and geographical reach, that make network effects in this industry different from those present in other platforms. Third, since mobile payments in developing countries serve a niche—the population underserved by mainstream banking—the definition of the relevant market is not straightforward. We propose the criteria to be applied when making such a definition. Finally, since mobile payments have associated financial services, there is an interaction between competition and financial stability that needs to be considered.”

You can download the paper here

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A contribution to the empirics of algorithmic pricing

An Empirical Analysis of Algorithmic Pricing on Amazon Marketplace

Abstract

The rise of e-commerce has unlocked practical applications for algorithmic pricing (also called dynamic pricing algorithms), where sellers set prices using computer algorithms. Travel websites and large, well known e-retailers have already adopted algorithmic pricing strategies, but the tools and techniques are now available to small-scale sellers as well. While algorithmic pricing can make merchants more competitive, it also creates new challenges. Examples have emerged of cases where competing pieces of algorithmic pricing software interacted in unexpected ways and produced unpredictable prices, as well as cases where algorithms were intentionally designed to implement price fixing. Unfortunately, the public currently lack comprehensive knowledge about the prevalence and behavior of algorithmic pricing algorithms in-the-wild. In this study, we develop a methodology for detecting algorithmic pricing, and use it empirically to analyze their prevalence and behavior on Amazon Marketplace. We gather four months of data covering all merchants selling any of 1,641 best-seller products. Using this dataset, we are able to uncover the algorithmic pricing strategies adopted by over 500 sellers. We explore the characteristics of these sellers and characterize the impact of these strategies on the dynamics of the marketplace.”

You can download the paper here

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What do computer scientists have to say about algorithmic collusion?

The importance of talking to computer scientists before making assumptions about what pricing algorithms can do:

Algorithms, Machine Learning, and Collusion

“Abstract

This paper discusses the question whether self-learning price-setting algorithms are able to coordinate their pricing behaviour to achieve a collusive outcome that maximizes the joint profits of the firms using these algorithms. While the legal literature generally as- sumes that algorithmic collusion is indeed possible and in fact very easy, the computer science literature on cooperation between algorithms as well as the economics literature on collusion in experimental oligopolies indicate that a coordinated and in particular tac- itly collusive behaviour is in general rather difficult to achieve. Many studies have shown that some form of communication is of vital importance for collusion if there are more than two firms in a market. Communication between algorithms is also a topic in ar- tificial intelligence research and some recent contributions indicate that algorithms may learn to communicate, albeit in a rather limited way. This leads to the conclusion that algorithmic collusion is currently much more difficult to achieve than often assumed in the legal literature and is therefore currently not a particularly important competitive concern. In addition, there are also several legal problems associated with algorithmic collusion, for example questions of liability, of auditing and monitoring algorithms as well as enforcement. The limited resources of competition authorities should rather be de- voted to more pressing problems as, for example, the abuse of dominant positions by large online-platforms.”

Download the paper at https://mikro.uni-hohenheim.de/please-change-url-alias-757369458/publikation/algorithmus-machine-learning-and-collusion

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Smarter solutions than breaking up Facebook

It’s time for Identity Portability

By Digitopoly

“You want people to be able to communicate across networks.

. . .

The solution . . . is to allow individuals to port their identity to other networks, With that identity comes a set of permissions associated with that identity and it is that which creates value here. A competitor to Facebook — call it, for the sake of argument, NoRussiaBook — could come in, offer a different ad policy and you could move there. Your friends and connections need not know the difference although I would not recommend that be hidden — just that defaults be set for ubiquity which can then be seen and adjusted at the discretion of individual users. To be sure, privacy is complicated here but that is because privacy is complicated, not because there is anything really special or risky about this proposal.

. . .

All of the other solutions — namely, breaking up Facebook — do nothing to resolve the underlying issue — network effects become barriers to entry. We need to start taking that seriously if we want to do something here.”

More at Digitopoly

Alternatives to market concentration as a measure of competition

Measuring Competition

By Chris Dillow

“[C]ompetition economists have known for some time – that you cannot necessarily measure competition by the number of firms in an industry: the Herfindahl index, for example, can be a bad measure.

. . .

But if you cannot measure competition by the number of firms, how can you?

One alternative, proposed (pdf) by Jan Boone, is profits elasticity. The idea here is that if profits fall sharply in response to a rise in marginal costs then the industry is competitive but if they don’t then it isn’t. A competitive market is one which punishes inefficiency.”

More at Stumbling and Mumbling

More on market concentration and wage levels

From the NBER:

“Stagnant wages and a declining share of labor income in GDP in recent decades have spawned a number of explanations. These include outsourcing, foreign competition, automation, and the decline of unions.

Two new studies focus on another factor that may have affected the relative bargaining position of workers and firms: employer domination of local job markets. One shows that wage growth slowed as industrial consolidation increased over the past 40 years; the other shows that in many job markets across the country there is little competition for workers in specific job categories.”

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The effects of market power over wages

More and more companies have monopoly power over workers’ wages. That’s killing the economy.

By Suresh Naidu, Eric Posner, and Glen Weyl

 Vox

“For a time, economists believed that labor markets were . . . competitive. But that conventional wisdom was vaporized by a series of empirical studies that suggest that labor market power is real and significant. A number of studies, summarized here, have found, for example, that when wages fall by 1 percent, only about 2 to 3 percent of workers leave, at most.

If labor markets were really competitive, we might expect the figure to be closer to 9 or 10 percent. Other studies have found that employer concentration has been increasing over time and that this concentration is associated with lower wages across labor markets.

. . . .

[G]rowing labor market power may well be a significant explanation of the host of maladies that have beset wealthy countries, notably the United States, in the past few decades: declining growth rates, falling labor share of corporate earnings, rising inequality, falling employment of prime-age men, and persistent and growing government fiscal deficits. It’s remarkable how well labor market power alone can simultaneously explain all these trends.

Many conservative economists blame high taxes for these problems. But inordinately high taxes cannot explain these trends, because tax rates have been cut several times during this period. Nor can globalization and automation. Globalization and automation can help explain why inequality has increased but not why economic growth rates have stagnated: On the contrary, globalization and automation should have increased economic growth (by expanding markets and by reducing the cost of production), not reduced it.”

Read the whole article at Vox

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Interesting links of the week

According to this video on Project Syndicate’s Facebook page, if you want to be a better economist you should read more novels. Stories are better at explaining life than math. https://www.facebook.com/plugins/video.php?href=https%3A%2F%2Fwww.facebook.com%2Fprojectsyndicate%2Fvideos%2F10155634206384481%2F&show_text=0&width=476

More on the inadequacy of GDP in measuring important aspects of development. https://www.project-syndicate.org/onpoint/is-it-time-to-abandon-gdp?barrier=accessreg. Some alternative measures, other than the Human Development Index, include Gross National Happiness (used in the Himalayan Kingdom of Bhutan) and the OECD’s Better Life Index. They have their own problems too.

Fabeook’s Internet.org project has some detractors. https://www.eff.org/deeplinks/2015/05/internetorg-not-neutral-not-secure-and-not-internet. The project enlists websites that people with lower incomes can access through their mobile devices without data charges. The article in the link applauds the purpose of the initiative but takes issue with some features that affect privacy.

Some interesting research in South Africa on competition law

The Economic Society of South Africa will hold its biennial conference starting on next Wednesday (30th of August). It will be a three-day event and competition policy presentations will be featured on Thursday. Even for our non-South African audience, we thought it a good idea to share with you the relevant parts of the program, as they include interesting research of which it is useful to be aware.

The talks on antitrust-related subjects include:

  • Oluwatobi Ogundele and Melissa Naidoo, Institutional mechanisms (IMs) for successful competition policy design and implementation in developing countries
  • Keabetswe Mojapelo, Testing For Structural Changes In Prices Due To Competition Policy Intervention: A Bai-Perron Approach
  • Joseph Akande, Does Competition reduce Stability? SFA and GMM Application to SSA Commercial Banks.
  • Willem Boshoff and Rossouw van Jaarsveld, Analysing Cartel Episodes: A Markov-Switching Application
  • Anmar Pretorius, Ewert Kleynhans and Reghard van Niekerk, The determinants of concentration in the South African manufacturing industry
  • Tapera G. Muzata, Overcharges and cartel deterrence in multi-product collusion
  • Albertus van Niekerk and Nicola Theron, Impact of competition enforcement in the cement industry in South Africa

We hope this information is of use.

 

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Democratic Party “Better Deal” Antitrust Proposals Would be a “Worse Deal” for the American Economy and Consumers

Last week we shared with you news about the Democratic Party’s plan in the US to revamp antitrust law and include considerations other than consumer welfare in the analysis of cases (e.g. wage stagnation due to increased comcentration). This post by Alden Abbott says it’s all nonsense. On the other hand, this Vox article takes a more favorable view: https://www.vox.com/policy-and-politics/2017/7/31/16021844/antitrust-better-deal. The US debate will definitely have global repercussions and we’re sure there’s still more to be said. We will keep you updated.

Truth on the Market

On July 24, as part of their newly-announced “Better Deal” campaign, congressional Democrats released an antitrust proposal (“Better Deal Antitrust Proposal” or BDAP) entitled “Cracking Down on Corporate Monopolies and the Abuse of Economic and Political Power.”  Unfortunately, this antitrust tract is really an “Old Deal” screed that rehashes long-discredited ideas about “bigness is badness” and “corporate abuses,” untethered from serious economic analysis.  (In spirit it echoes the proposal for a renewed emphasis on “fairness” in antitrust made by then Acting Assistant Attorney General Renata Hesse in 2016 – a recommendation that ran counter to sound economics, as I explained in a September 2016 Truth on the Market commentary.)  Implementation of the BDAP’s recommendations would be a “worse deal” for American consumers and for American economic vitality and growth.

The BDAP’s Portrayal of the State of Antitrust Enforcement is Factually Inaccurate, and it Ignores the Real Problems of…

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