Non-price Effects Research Articles

Identifying the transmission channels of credit supply shocks to household debt: Price and non-price effects

Using UK matched microdata, I show that credit supply shocks affect mortgage debt via two channels: one that operates through price conditions in credit markets; and another that operates through non-price credit conditions and affects the quantity of credit supplied by lenders. I find substantial heterogeneity in the different channels by household characteristics. Lower-income households and first-time buyers are especially sensitive to changes in the supply of riskier lending. Home-owners, higher-income households and older borrowers increase debt following shocks to either type of credit conditions, with loosening in mortgage spreads, maximum LTI limits and loan approvals being strongly correlated with their borrowing levels. In aggregate, household leverage responds more strongly to supply shocks that change the quantity of credit, as they affect households across the distribution, both at the intensive and at the extensive margin. But a loosening in price and non-price credit conditions simultaneously or a contraction in multiple price indicators at a time can also fuel rapid credit growth.

A fine is more than a price: Evidence from drought restrictions

This study evaluates whether financial penalties have non-price effects separate from any punishment avoidance behavior. I investigate the effects of a restriction termed ‘mandatory rationing’ on residential water consumers who face differential exposure to the content of the policy. I find a significant response among households who were likely to be fined, but also among households with low likelihood of facing penalties. I provide evidence that this occurs because the policy directly affected consumption through non-price channels. My findings show that fine-based policies can have impacts beyond the targeted population as a result.

The DOJ and FTC RFI on Merger Enforcement: Commentary on Labor Market and Non-Price Effects

The DOJ and FTC RFI on Merger Enforcement: Commentary on Labor Market and Non-Price Effects

Antitrust Law and Dominant-Firm Behavior in the Digital Technology Sector: Toward an Actionable Agenda for Policymakers

Antitrust Law and Dominant-Firm Behavior in the Digital Technology Sector: Toward an Actionable Agenda for Policymakers

Identifying the transmission channels of credit supply shocks to household debt: price and non-price effects

Using matched microdata for the UK, I estimate two distinct channels via which credit supply shocks affect mortgage debt: one that operates through price conditions in credit markets; and another that operates through non-price credit conditions and affects the quantity of credit supplied by lenders. I find substantial heterogeneity in the different channels by age, financial situation, borrower type and income. Young households and home-owners respond exclusively to non-price credit conditions, in particular to changes in the supply of riskier lending. First-time buyers, middle-income households and middle-aged borrowers increase debt following shocks to either type of credit conditions. Debt responses of financially constrained borrowers are amplified by a simultaneous loosening in mortgage spreads and in credit availability at high loan to value or high loan to income ratios. In aggregate, household leverage responds more strongly to supply shocks that change the quantity of credit, as they affect households across the distribution, both at the intensive and at the extensive margin. But a loosening in price and non-price credit conditions simultaneously or a contraction in multiple price indicators at a time can also fuel rapid credit growth.

Do demand curves for stocks slope down - new evidence from a unique event in India

The objective of this study is to examine the price and non-price effects of the constituent stocks following the change of the computation methodology of S&P CNX Nifty index from full market capit...

Sustainability as a Quality Dimension of Competition: Protecting Our Future (Selves)

It is considered by many that sustainability considerations should not be taken into account by competition authorities when analyzing the effects of a conduct or transaction. This short article maintains that the impact on sustainability of certain types of conduct or transactions can be considered in the analysis of their price or non-price effects on quality, choice and innovation. This approach has the advantage of bringing sustainability considerations within the traditional competitive assessment framework, as opposed to characterizing them as public policy considerations that are outside the realm of competition law. This can be done by means of a relatively light fine-tuning of the current analytical toolbox and of the design of competition investigations, and it can help ensure that competition on sustainability, when it affects demand and supply in a particular market, is preserved.

An Economic Perspective on Balancing Unquantified Harms and Benefits Under the Consumer Welfare Standard

Judge Ginsburg’s address on how to balance unquantified benefits and harms under the consumer welfare standard highlights two distinct roles for qualitative assessment. The first is the role of qualitative evidence in antitrust analyses. The second is the consideration of both price and non-price effects. While these two topics are related—e.g., analysis of non-price competitive effects often relies on qualitative evidence—they raise distinct issues. We provide an economic perspective on these topics as a complement to Judge Ginsburg’s learned legal commentary. Specifically, we explain the central role that sound qualitative evidence traditionally and properly plays in the economic analysis of both price and non-price effects of mergers and accused conduct. We also discuss the state of economic analysis when a broad economic interpretation of the consumer welfare standard would require balancing the welfare of one group against another.

Strengthening Antitrust Enforcement Within the Consumer Welfare Rubric

There is a chasm among the many who agree that antitrust law is underenforced. Some see the “consumer welfare” standard, which underpins contemporary antitrust, as so flawed that it should be abandoned. While I share their concerns about the market power problem, particularly in the digital platform markets, I believe that a complete shift in paradigm is neither necessary to reinvigorate antitrust enforcement, nor wise. A common critique of consumer welfare is that it supposedly focuses exclusively on consumers and on short-term price effects, ignoring non-consumers and nonprice effects. Other more “populist” critiques fault the standard for not addressing the social and political harms of market power. With respect to the first set of perceived limitations, I disagree that the standard is so limited and argue that it is capable of a broader reach if used to its full scope. Records of antitrust enforcement and court decisions show that it can take into account the harmful effects, caused by disruptions to competition, on non-consumer purchasers and even on sellers (including workers, who are sellers of labor). I argue that it is capable of reaching even harmful effects on competitors, despite the mantra that antitrust protects competition, not competitors. While antitrust enforcement has fallen short, I argue that it is due, not to legal deficiencies in the consumer welfare standard, but to other factors, including the inability of antitrust enforcers to fully keep up with the new markets, the difficulty of applying nonprice metrics in analysis, burdensome evidentiary standards, and the Court’s restrictive interpretation of a few important relevant antitrust doctrines. Finding practical solutions to these problems, which I believe is possible, should strengthen antitrust enforcement within the consumer welfare rubric, and would be less disruptive than abandoning a paradigm that is conceptually sound if not always applied well. The key to addressing the competitive challenges in today’s digital markets is not to change the consumer welfare paradigm but to make intelligent changes within it. With respect to the charge that consumer welfare does not address a panoply of social and political ills associated with concentration and the digital platforms, I agree that is true. However, I argue that antitrust law cannot be burdened with performing tasks for which it was not designed, and that doing so risks unintended and undesirable consequences. The more effective approach to tackling the serious but non-competition related problems of political power, economic inequality, privacy intrusions, data security breaches, “fake news,” and so forth is to do so directly, using other existing or new laws designed specifically for those purposes.

Non-price effects of mergers

The Competition and Markets Authority (‘CMA’) assesses both the price and the non-price effects of mergers. The relative importance of each depends on the process of rivalry between the merging firms and their competitors. Dynamic non-price effects, for instance on innovation, are potentially important, as the CMA found in the ICE/Trayport merger, which was prohibited. Non-price parameters such as quality, range and service are also important and are considered in particular when mergers occur in markets where price competition is limited, for example public services such as hospitals and regulated markets such as pharmacies.

Impact of the Changes in the Nifty Index Constituents

The objective of this study is to conduct an empirical examination of the S&P CNX Nifty index reconstitutions, between 2009 and 2018, focusing on both the price and non-price effects and the explanations surrounding them. The event methodology, with multiple abnormal return computational methods, is employed to improve the robustness and reliability of the results. The results show that the Nifty index additions (deletions) are associated with significant positive (negative) permanent abnormal returns. But the evidence of permanent abnormal volume is limited, unlike the developed markets. The evidence in this study favours the downward sloping demand curve hypothesis as the dominant explanation for the permanent abnormal return. This study extends the existing literature to a hitherto unexplored new sample period.

Does Nifty Index Inclusion (still) Convey Information? A Comprehensive Empirical Examination in the Indian Stock Market

The objective of this study is to conduct a comprehensive empirical examination of the S&P CNX Nifty index additions, for the complete period (2000 - 2018), first sub period (2000-2009) and second sub period (2010-2018), using both the price and non-price effects and the explanations surrounding them in the Indian stock market. This event methodology is used with three abnormal return computational methods, around the announcement and inclusion dates of index addition, in order to improve the robustness and reliability of the results. The results show that the Nifty index additions are associated with significant permanent abnormal returns in the complete, first and second period. However, the index effect has diminished in the second period. The information related explanations dominate in the complete and first period. The second period finds support for the downward sloping demand curve hypothesis. I extend the existing literature to a hitherto unexplored new sample period (2010-2018) in order to examine the price and non-price effects around Nifty index additions.

Non-Price Effects of Mergers

Mergers may impact price as well as non-price forms of competition in the form of product quality, variety, service, and innovation. This special issue of the Antitrust Bulletin examines the increasing importance of non-price dimensions of competition in merger analysis, the challenges that non-price effects pose for antitrust merger enforcement, and approaches for enhancing the analysis and role of non-price competition in merger enforcement decisions and competition policy responses. This is a critical discussion that informs the debate over the importance and adequacy of the consumer welfare standard, which is the prevailing standard for evaluating the competitive effects of mergers and nonmerger conduct.

Nonprice Effects of Mergers

Antitrust analysis of mergers focuses heavily—some would say, almost exclusively—on price effects. That focus does not reflect the lesser importance of quality, variety, cost, and technological progressiveness in mergers, but rather reflects better analytical tools and predictions for price effects. This article first provides an overview of the distinctive, often problematic, issues raised in evaluating nonprice effects. It then surveys the available empirical evidence on these from merger retrospectives. The evidence suggests that mergers on average may not cause either significant improvements or significant harms in terms of nonprice outcomes. While that might seem to suggest that policy need not be unduly concerned with nonprice effects, sufficient data do not exist for statistical testing. Moreover, variation in the average effects appears large, so that in particular cases nonprice concerns may dominate.

Considering Non-Price Effects in Merger Control: OECD Background Note

In a competitive market, firms and consumers make decisions based on several aspects of the product involved. While price is a fundamental aspect, it is not the only one: in many markets, innovation, quality, variety or even privacy may play at least some role in the competition between firms. This paper will introduce these characteristics, and the merger theories of harm associated with them. It will also describe some of the practical challenges involved in considering non-price dimensions of competition, namely identifying when they are important, and considering price and non-price effects together. Although the theoretical basis for the non-price effects of mergers is mixed, the consideration of these effects will be unavoidable in at least some cases. Competition authorities will therefore need to conduct a case-by-case, evidence intensive analysis when considering merger effects for markets with competition on non-price dimensions. Risks of introducing subjectivity to the process can be minimized with a focus on concrete evidence and an assessment of the probabilities of impact.

Impact of the phased abolition of co-payments on the utilisation of selected prescription medicines in Wales.

We have taken advantage of a natural experiment to measure the impact of the phased abolition of prescription co-payments in Wales. We investigated 3 study periods covering the phased abolition: from £6 to £4, £4 to £3, and £3 to £0. A difference-in-difference modelling was adopted and applied to monthly UK general practice level dispensing data on 14 selected medicines which had the highest percentage of items dispensed subject to a co-payment prior to abolition. Dispensing from a comparator region (North East of England) with similar health and socio-economic characteristics to Wales, and where prescription co-payments continued during the study periods, was used to isolate any non-price effects on dispensing in Wales. Results show a small increase in dispensing of 14 selected medicines versus the comparator. Compared with NE England, monthly average Welsh dispensing was increased by 11.93 items (7.67%; 95% CI [7.2%, 8.1%]), 6.37 items (3.38%; 95% CI [2.9%, 3.7%]) and 9.18 items (4.54%; 95% CI [4.2%, 4.9%]) per practice per 1,000 population during the periods when co-payment was reduced. Price elasticities of the selected medicines utilisation were -0.23, -0.13, and -0.04 in 3 analyses, suggesting the abolition of co-payment had small effect on Welsh dispensing.

TESTING MODELS OF DIFFERENTIATED PRODUCTS MARKETS: CONSOLIDATION IN THE CABLE TV INDUSTRY

Research on differentiated products markets often uses structural demand/supply models to identify firms' marginal costs as product‐level cost data are unavailable. Using unique demand and cost data from cable TV, I evaluate a differentiated products model's ability to identify marginal costs. I find firms systematically price below profit‐maximizing levels, leading to biases in the model's marginal cost estimates. I study the implications for merger simulations and find that these biases compromise estimates of merger‐related cost efficiencies, yet do not prevent these models from generating useful predictions of the price and nonprice effects of mergers.

The influence of price and non-price effects on demand for heating in the EU residential sector

This paper models energy demand for space and water heating from 1970 to 2005 in the residential sector of four EU countries (France, Italy, Sweden, and UK) using index decomposition, ARDL (autoregressive distributed lag) econometric models and cointegration analysis. The partial and temporal influences on energy demand in each country of the number of households, floor area per household (m2) and unit consumption for space and water heating (kWh/m2/year) are disaggregated. The long-run price elasticity of demand at the unit consumption level is found to be low (around −0.25 over the four countries) while the long-run income elasticity of floor area per household is found to be around 0.25 for Italy, Sweden and the UK but insignificant for France. In an exercise using the model to estimate demand to 2050 under annual increases in energy prices of between 0% and 3% it is found that non-price effects such as building codes and autonomous technical progress (represented in the model as a time trend) are equally or more important than the price effect in reducing demand. Thus achieving significant reductions in EU residential sector energy demand by 2050 would require additional non-price policies and measures for success.

Conservation that’s more than skin-deep: alligator farming

Wildlife farming is a contentious conservation measure. In Louisiana alligator farming has generated significant conservation gains. This case study is used to test several assumptions employed in debates about wildlife farming. These include whether farming ‘floods’ the market to depress prices and deter poaching, whether it encourages wild harvest and whether it can compete against wild harvest. Data from over three decades is used to model harvest behaviour with OLS and SUR models. This shows strong separation between the market between farmed and wild alligator skins. Immense rises in farmed output have not caused prices to collapse, however poaching has collapsed. This highlights that farming can have important non-price effects on poaching. Assumptions that are commonly used to debate wildlife farming are not supported in this example. Such assumptions, including open-access of the wildlife, inert and exogenous wildlife managers and excluding indirect benefits of wildlife farming tend to bias policy away from farming. Using these assumptions makes it harder to identify cases where wildlife farming could assist conservation objectives.

Design considerations for legalizing cannabis: lessons inspired by analysis of California's Proposition 19

No modern jurisdiction has ever legalized commercial production, distribution and possession of cannabis for recreational purposes. This paper presents insights about the effect of legalization on production costs and consumption and highlights important design choices. Insights were uncovered through our analysis of recent legalization proposals in California. The effect on the cost of producing cannabis is largely based on existing estimates of current wholesale prices, current costs of producing cannabis and other legal agricultural goods, and the type(s) of production that will be permitted. The effect on consumption is based on production costs, regulatory regime, tax rate, price elasticity of demand, shape of the demand curve and non-price effects (e.g. change in stigma). Removing prohibitions on producing and distributing cannabis will dramatically reduce wholesale prices. The effect on consumption and tax revenues will depend on many design choices, including: the tax level, whether there is an incentive for a continued black market, whether to tax and/or regulate cannabinoid levels, whether there are allowances for home cultivation, whether advertising is restricted, and how the regulatory system is designed and adjusted. The legal production costs of cannabis will be dramatically below current wholesale prices, enough so that taxes and regulation will be insufficient to raise retail price to prohibition levels. We expect legalization will increase consumption substantially, but the size of the increase is uncertain since it depends on design choices and the unknown shape of the cannabis demand curve.