Substantial Market Power Research Articles

A Critical Inquiry into ‘Abuse’ in EU Competition Law

Abstract Disagreement abounds on what exactly constitutes an ‘abuse’ within article 102 TFEU, EU competition law’s prohibition of an abuse of a dominant position. This situation is highly undesirable, given the important role this prohibition is expected to play in alleviating concerns about substantial market power and its use in important sectors, typified by actions against ‘Big Tech’. This article responds to this problem by analysing and synthesising the jurisprudence of the Court of Justice of the European Union and its evolution to establish the constituent elements of an exclusionary ‘abuse’. The article corrects crucial legal misconceptions, including the putative dichotomy between violations ‘by object’ and ‘by effect’; the assumed disparate legal tests for pricing and non-pricing conduct; and the lost distinction between the ‘as efficient competitor test’ and the ‘as efficient competitor standard’. This critical inquiry allows one to draw concrete predictions on the future development of this challenging, yet vital, area of law.

The Impact of Cross-Border Mergers and Acquisitions on Corporate Organisational Resilience: Insights from Dynamic Capability Theory

Utilising panel data from Chinese listed companies between 2008 and 2020, this study employs propensity score matching (PSM) in conjunction with a multi-temporal difference-in-differences (DID) model to examine the causal impacts of cross-border mergers and acquisitions (M&As) on the organisational resilience of enterprises. The findings reveal that while cross-border M&As augment company risk-taking and short-term financial volatility, they also bolster long-term growth, thereby enhancing overall organisational resilience. Cross-border M&As are particularly beneficial for bolstering organisational resilience in state-owned enterprises, non-manufacturing firms, and companies located in the eastern and central regions of China. Moreover, adhering to the principles of corporate social responsibility and possessing substantial market power are found to enhance the impact of cross-border M&As on organisational resilience. The results of this research hold important practical implications for companies seeking to improve organisational resilience and achieve sustainable development.

Gatekeeper Competition Policy

Antitrust policy in the United States has always had special rules for dominant firms. As Justice Scalia once observed: Where a defendant maintains substantial market power, his activities are examined through a special lens: Behavior that might otherwise not be of concern to the antitrust laws—or that might even be viewed as procompetitive—can take on exclusionary connotations when practiced by a monopolist.

Measurement of market power of agricultural industrial organizations in China: evidence from the Stochastic Frontier Approach

ABSTRACTThe growing agricultural industry organizations are reshaping agricultural competition, but there is little research analysing the market power of these organizations. This paper aims to bridge this gap by utilizing the Stochastic Frontier Approach (SFA) and data from the 2015 China Micro and Small Enterprise Survey (CMES) to estimate the market power of Chinese agricultural industry organizations. The research findings reveal that these organizations possess substantial market power, as evidenced by an average Lerner Index of 45%. When examining different regions, it is observed that the average Lerner Index in Shanxi and Shanghai surpasses 60%, while in other regions, the average Lerner Index is below 50%. Furthermore, when considering various types of organizations, the average Lerner Index for farmer cooperatives and agricultural enterprises is 45% and 46% respectively. This study provides empirical evidence from developing countries that supports the theory of agricultural imperfect competition and contributes to a deeper understanding of the development of these agricultural industry organizations.

Upstream market regulation between competitive tension and technological innovation

ABSTRACT The document examines challenges and innovations in telecommunications law, focusing on the European context. It highlights the importance of asymmetric regulation and ex ante identification of enterprises with substantial market power. The 2018 European Electronic Communications Code introduces pivotal changes, including co-investment agreements (Art. 76), aiming to foster cost and risk sharing among operators, benefiting smaller enterprises. Such agreements respond to the need for sustainable competition. Art. 72 introduces a new obligation: access to civil engineering infrastructures. This obligation can extend beyond the traditional market if necessary and proportionate to achieve competition and unhindered access objectives. The document emphasizes the regulations' efforts to balance the interests of economic operators and consumers, promoting competition and innovation in the telecommunications sector.

Market power in wholesale funding: A structural perspective from the triparty repo market

I model and structurally estimate the equilibrium rates and volume in the Triparty repo market to study imperfect competition in wholesale funding. Even in this systemically important market, where seemingly homogeneous repos trade, I document persistent rate differences paid by dealers. I characterize the Triparty market as cash-lenders allocating their portfolios among differentiated dealers who set repo rates. I find that cash-lenders’ aversion to portfolio concentration and preference for stable lending grant dealers substantial market power: between 2011 and 2017, dealers borrowed at rates that were 26 bps lower than their marginal value from intermediating the borrowed repo funds. Dealers’ market power makes the observed wholesale repo rate understate the financing rate available to market participants who rely on repo funding, and offers a novel explanation for funding spreads such as the Treasury cash-futures basis and the Treasury swap spread.

Women's participation on the boards of farmer-owned cooperatives.

Initiatives and specific measures aimed at increasing the presence of women on corporate boards have become widespread. However, not much academic attention has been paid to this subject up till now, when it comes to farmer-owned cooperatives. The article shows that farmer-owned cooperatives do have special problems when it comes to women on boards. The farmer-owned cooperatives in Denmark have been chosen as cases in this article, as they are quite big, exposed to international competition and have substantial market power. Based on annual reports from 25 farmer-owned cooperatives and two of their investor-owned subsidiaries in the years 2005-2022, inputs from present and former board members of farmer-owned cooperatives, CSR-reports etc. a number of conclusions are drawn. Cooperatives have particular challenges with regard to gender diversity on boards due to their specific structure and requirements-compared to investor-owned companies. Different types of barriers that limit women's representation on boards can be identified: (1) Institutional barriers in terms of statutes and cooperative principles. (2) Structural barriers in the form of a narrow or skewed recruitment base. (3) Historical and cultural barriers, where agriculture is typically a male-dominated business. Women's representation on boards of farmer-owned cooperatives is relatively low but increasing. From 2005 to 2021 the weighted average share of female board members has increased from about 1-20%. Gender diversity in farmer-owned cooperatives is consistently less than in listed companies. The increasing representativeness of women is primarily due to the presence of more female external members. Since 2013 the proportion of women has increased, and in 2021 there were more female than male external board members. Female board members are more common in the large farmer-owned cooperatives than in the small. A positive correlation between the size of the companies and the representation of women is identified. This is supported by large cooperatives' greater focus in annual reports and CSR strategies on women's representativeness. Based on the cooperatives' diversity policy, their explicit and specific goals for women's representativeness on boards, interviews with board members etc. a clear awareness of the challenge of gender diversity on the boards is identified.

Taxation and market power in the legal marijuana industry

AbstractWe study tax and regulatory policy in the legal marijuana market using unique administrative data from Washington state. Washington's retail entry restrictions have resulted in firms with substantial market power who behave like local monopolists. We show how the presence of market power causes tax and regulatory policy recommendations to differ from standard models that assume perfect competition. Combining structural demand models with measured pass‐through, we show that marijuana is not overtaxed at 37% but is still on the upward sloping region of the Laffer curve and that these taxes have high social costs and are mainly borne by consumers.

Improving liquidity in emission trading schemes

AbstractThis paper constructs a model of an Emission Trading Scheme (ETS) market using bid‐ask spreads. We show that when such a market is dominated by a small number of traders with substantial market power, they tend to maximize their profits by widening bid‐ask spreads, thereby reducing market liquidity. We argue that adding more market participants, including derivatives traders, can alleviate this illiquidity problem. Policy changes at the European Union's ETS illustrate our theory, as the market significantly increased liquidity by enacting liquidity‐provision policies to attract more participants as it transitioned from Phase 1 to Phase 2.

Response of Mexican life and non-life insurers to the low interest rate environment.

The purpose of this research is to examine whether insurers have improved their economic performance through efficiency as a reaction to the prolonged period of low interest rates. The results of an analysis of 22 years of data, using a two-stage data envelopment analysis approach (DEA), show that there is an inverse relationship between efficiency and interest rate. The non-life insurance group had a superior level of efficiency compared with that of the life insurance group. It seems that life insurance companies, to some extent, transferred their inefficiency to customers to maintain their solvency. Additionally, this research shows that companies with substantial market power and bancassurance exceeded the performance of the rest of the industry.

The Legality of Legacy Business Practices in Antitrust

There is void in the literature at the intersection of antitrust law and legacy business practices. This issue has come to forefront with Epic Games’ antitrust suit against Apple for its App Store policies, which have been in place ever since the online marketplace opened in 2008. The same issues are at the center of the current Apple v. Pepper litigation and in regulatory proposals to alter Apple’s business practices both at the state and federal levels. Legacy conduct has also played a role in the Supreme Court’s controversial Ohio v. American Express decision and the Ninth Circuit’s FTC v. Qualcomm decision. This raises a question as to how antitrust should treat long-standing business practices—practices that this Article labels “legacy conduct”—that initially were benign or even procompetitive, but which come under heavy scrutiny once the firm employing it obtains considerable market power. The fundamental question raised here is whether the fact that a product has become highly successful turns a previously legitimate business practice into one that antitrust should treat as objectionable. This Article contends that three fundamental considerations should govern the proper assessment of cases involving legacy conduct under a rule of reason analysis. Further, this Article advances a policy recommendation that legacy conduct instituted long before a firm achieves substantial market power (particularly at the time of entry) and is common across competitors who do not themselves possess substantial market power, should be considered probative evidence that the practice is procompetitive. When these conditions are satisfied, defendants should be afforded a substantially reduced burden in proving the restraint is procompetitive under a rule of reason analysis commensurate with the strength of the legacy evidence.

History and Turning the Antitrust Page

Present-day advocates of antitrust reform referred to as “New Brandeisians” have invoked history in pressing the case for change. The New Brandeisians bemoan the upending of a mid-twentieth-century “golden age” of antitrust by an intellectual movement known as the Chicago School. In fact, mid-twentieth-century enforcement of antitrust was uneven and large corporations exercised substantial market power. The Chicago School also was not as decisive an agent of change as the New Brandeisians suggest. Doubts about the efficacy of government regulation and concerns about foreign competition did much to foster the late twentieth-century counterrevolution that antitrust experienced.

Analysis of Competition Policies between U.S. And EU in the Era of Inter-Industry Convergence

In the era of inter-industry convergence, abuses of substantial market power by large digital platforms such as Google, Apple, Facebook, and Amazon, and their increasing number of acquisitions towards small- and medium-sized tech-firms suspicious of eliminating potential competitors are recent representative issues in the ICT sector. Alternative competition policies have been discussed to effectively deal with those firms’ anti-competitive behaviors in a changing environment of competition such as a digital platform economy instead of traditional policies. In this regard, we examine the U.S. and EU competition policy responses to ICT firms’ anti-competitive behaviors in order to provide policy implications to our competition authority. According to our case studies, the U.S. and EU competition and legal authorities consider characteristics of the digital platform economy when they conclude whether firm behaviors are anti-competitive. Furthermore, we find that Facebook's acquisition of WhatsApp leads to a tipping effect and harms market competition. Given these results, we suggest that our competition authority has to consider the balance between innovation and competition when they implement competition policies in the era of inter-industry convergence.

Concealed Data Practices and Competition Law: Why Privacy Matters

This article argues that the degradation of consumer data privacy in the digital environment causes objective detriment to consumers and undermines the competitive process, and should therefore be of critical concern to competition authorities. It is notorious that consumers are frequently unaware of the extent to which their personal data is collected, the purposes for which it is used, and the extent to which it is disclosed to others, particularly in digital markets. Researchers and regulators have observed that this is not simply a matter of consumer apathy, but that firms often understate and obscure their actual data practices, preventing consumers from making informed choices. This article defines, and provides examples of, a set of “concealed data practices”. These concealed data practices are not purely a concern for those with subjective preferences for greater privacy: they create objective costs and detriments for consumers, making them more susceptible to criminal activity, discrimination, exclusion, manipulation and humiliation. This article argues that these practices and their consequences are not only problematic in terms of consumer protection and privacy regulation. Concealed data practices should also be of concern to competition policy due to their role in chilling competition on privacy; preserving substantial market power by means other than superior efficiency; and deepening information asymmetries and imbalances in bargaining power. The article concludes by outlining five ways in which these factors should be taken into account by competition authorities.

Exploitative abuses in digital markets: between competition law and data protection law

Abstract Online platforms increasingly offer consumers services ‘for free’, in exchange for collecting consumers’ personal data. This business model is highly successful, leading some online platforms to gain substantial market power. This market power can cause consumer harm—not through higher prices, but in the form of privacy harm. This article considers what role competition law and data protection law can play in mitigating this harm to privacy. The article considers how we can conceptualize exploitative abuse of dominance cases in zero-price markets. The article calls into question if data protection laws should play a role in antitrust abuse assessments, against the background of the Bundeskartellamt antitrust investigation into Facebook’s data collection practices. The article argues that, even in digital markets that unequivocally link market power with data privacy concerns, competition law and data protection law have complementary but distinct roles to play.

Concealed data practices and competition law: why privacy matters

ABSTRACT The degradation of consumer data privacy in the digital environment causes objective detriment to consumers and undermines the competitive process. Consumers are frequently unaware of the extent to which their personal data is collected and disclosed, and purposes for which it is used. A key reason is that firms often understate and obscure their actual data practices, preventing consumers from making informed choices. This article defines, and provides examples of, “concealed data practices”, which create objective costs and detriments for consumers, making them more susceptible to criminal activity, discrimination, exclusion, manipulation and humiliation. Aside from consumer protection and privacy regulatory responses, these practices should be of critical concern to competition authorities given their role in chilling privacy competition; preserving substantial market power by means other than superior efficiency; and deepening information asymmetries and imbalances in bargaining power. The article outlines five ways competition authorities should take account of these factors.

How Big Data Confers Market Power to Big Tech: Leveraging the Perspective of Data Science

Data-hungry applications are central to the largest online platforms. Using a novel approach that leverages data science to inform the economics, we demonstrate how data is a source of market power. We highlight the importance of data heterogeneity, whereby small feature differences translate into large value differences. We examine how concept drift, the existence of a nonstationary relationship between the predictive and target variables, implies that access to a continuous stream of data is competitively advantageous. We analyze how an information bottleneck and high sample complexity in existing applications lead to increasing returns to data. Finally, we show how user interaction control enables personalization that raises switching costs. The combined effect is a potent data barrier to entry that endows substantial market power to only the largest online platforms. Competition policy should focus on enabling entrants unfettered access to vast continuous data streams similar to those available to platform incumbents.

Private Equity Buyouts in Healthcare: Who Wins, Who Loses?

Private equity firms have become major players in the healthcare industry. How has this happened and what are the results? What is private equity’s ‘value proposition’ to the industry and to the American people -- at a time when healthcare is under constant pressure to cut costs and prices? How can PE firms use their classic leveraged buyout model to ‘save healthcare’ while delivering ‘outsized returns’ to investors? In this paper, we bring together a wide range of sources and empirical evidence to answer these questions. Given the complexity of the sector, we focus on four segments where private equity firms have been particularly active: hospitals, outpatient care (urgent care and ambulatory surgery centers), physician staffing and emergency room services (surprise medical billing), and revenue cycle management (medical debt collecting). In each of these segments, private equity has taken the lead in consolidating small providers, loading them with debt, and rolling them up into large powerhouses with substantial market power before exiting with handsome returns.

Probability, Presumptions and Evidentiary Burdens in Antitrust Analysis: Revitalizing the Rule of Reason for Exclusionary Conduct

The conservative critique of antitrust law has been highly influential and has facilitated a transformation of antitrust standards of conduct since the 1970s and led to increasingly more permissive standards of conduct. While these changes have taken many forms, all were influenced by the view that competition law was over-deterrent. Critics relied heavily on the assumption that the durability and costs of false positive errors far exceeded those of false negatives. Many of the assumptions that guided this retrenchment of antitrust rules were mistaken and advances in the law and in economic analysis have rendered them anachronistic, particularly with respect to exclusionary conduct. Continued reliance on what are now exaggerated fears of “false positives,” and failure adequately to consider the harm from “false negatives,” has led courts to impose excessive demands of proof on plaintiffs that belie both established procedural norms and sound economic analysis. The result is not better and more reasonable antitrust standards, but instead an embedded ideological preference for non-intervention that creates a tendency toward false negatives, particularly in modern markets characterized by economies of scale and network effects. In this article, we explain how these erroneous assumptions about markets, institutions, and conduct have distorted the antitrust decision-making process and produced an excessive risk of false negatives in exclusionary conduct cases involving firms attempting to achieve, maintain, or enhance dominance or substantial market power. To redress this imbalance, we integrate modern economic analysis and the teaching of decision theory with the foundational conventions of antitrust law, which has long relied on probability, presumptions, and reasonable inferences to provide more effective means for evaluating competitive effects and resolving antitrust claims.

The impact of generator market power on the electricity hedge market

The incentive of an electricity generating firm with market power to influence the market price depends strongly on the volume the firm has pre-sold in the forward, or hedge, markets. However, the choice of hedge level may be a strategic decision in itself. In the normal case where participants in the hedge market cannot observe the hedge position of dominant generators, we show that the optimal choice of hedging for a dominant generator facing a linear demand curve is an all-or-nothing decision and there is no equilibrium level of hedging in pure strategies. This outcome may explain an observed lack of hedge market liquidity in wholesale electricity markets where individual generators have substantial market power. We perform the analysis for the monopoly and oligopoly cases and extend it for realistic cost functions and various degrees of competitiveness in the market. These results contribute to the extensive body of research on the price formation and strategic behavior in electricity forward and spot markets, as well as providing implications for transparency initiatives in market design.