‘Differentiated Taxation in Imperfectly Competitive Markets’

On Friday 28th February, CCP stalwarts Anna Rita Bennato (CCP) and Franco Mariuzzo (CCP, ECO) present their research at the Spring seminar series. They will be presenting their research on ‘Differentiated Taxation in Imperfectly Competitive Markets. Evidence from the Irish Automobile Industry‘, which they have undertaken alongside Paul Walsh (University College Dublin). An abstract for their seminar can be found below.

Abstract

Vehicle Registration Tax (VRT) is an ad-valorem tax charged on the registration of all new cars in Ireland, which is differentiated according to the engine size of a car. Accounting for this type of taxation we develop a simple theoretical model looking at the interaction of the taxation system with the product quality in an oligopolistic market. In particular, we study its incidence on producers and consumers, and using a panel dataset on new cars sold in Ireland for the period 2004-2008, we test our predictions estimating the primitives of demand and pricing. Then, a counterfactual simulation is used to numerically assess the impact of a differentiated ad-valorem taxation and the possibility of tax over-shifting. We show how a low degree of market power yields a higher incidence of taxation on consumers buying low-quality products.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 0.1.

‘Universal service and the liberalisation of network industries: what has experience taught us?’

The CCP’s Spring seminar series continues on Friday 21st February with Antje Kreutzmann-Gallasch (CCP) and Michael Harker (CCP and UEA Law School)  presenting their latest research entitled: ‘Universal service and the liberalisation of network industries: what has experience taught us?‘. An abstract for their seminar can be found below.

Abstract

In this paper we build upon projects commissioned by CERRE and Ofcom on universal service obligations (USOs). We explain the concept of universal service, and how it is secured in EU law. We are concerned in particular with the tensions that exist between USOs and liberalisation in the network industries. One particular issue is the rules which exist for compensating firms charged with the delivery of universal service. While EU law allows for mechanisms which may introduce some element of competition in their delivery, in the vast majority of cases it is the incumbent who remains the USO provider. USOs may also distort incentives for investment in new infrastructure. While all member states want to achieve greater access to high speed broadband, as yet they have not been able to agree on using the existing EU framework, preferring instead to pursue policies independently at a national level.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 0.1.

‘What Is “Exceptional” About Pharma? An Analysis of Recent EU Competition Policy’

Following on from our special midweek seminar, we are delighted to welcome Margaret Kyle (Toulouse School of Economics) as our guest at the Centre. On Friday 7th February, Margaret will be asking ‘What is “Exceptional” about Pharma? An Analysis of Recent EU Competition Policy‘. An abstract for Margaret’s seminar can be found below.

Abstract

As in most innovative sectors, balancing the incentives created by intellectual property rights with the static costs of market power is a challenge for competition authorities. I examine two areas in the pharmaceutical sector that have received considerable attention in recent years: patent thickets and associated responses, such as “pay for delay” and authorized generics, and reactions to parallel trade. I argue that patent settlements in pharmaceuticals should not be treated exceptionally, as they are very similar to settlements in other innovative industries. Rather than prohibiting all such settlements, antitrust authorities must assess the potential anticompetitive effects of each individual case. In contrast, the pharmaceutical sector does merit exceptional treatment in the case of parallel trade. Unlike other products, drugs face national-level price controls throughout the European Union. Such policies are inconsistent with the existence of a common European market, and parallel trade is an inefficient and inappropriate means of achieving the dubious goal of a common EU price.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.1.

Policy Briefing – ‘Mergers after cartels: How markets react to cartel breakdown’

Policy Briefing of CCP Working Paper 14-1:

Davies S, Ormosi P and Graffenberger M, ‘Mergers after cartels: How markets react to cartel breakdown‘ (Available to download from Working Papers 2014 on the CCP website).

BACKGROUND

  • Anti-cartel enforcement is widely heralded as the single most important part of antitrust activity. But there have been only a few studies analysing how markets react to the elimination of cartels.

METHODOLOGY

  • The authors approach cartel detection from a dynamic perspective by analysing what happens in markets in the years after a competition authority has detected a cartel. At issue is whether markets revert to competitive behaviour or whether firms find alternative ways of reinstating collusive equilibria (short of cartelisation) in the longer run.

  • Data was collected on mergers, acquisitions and joint ventures between firms involved in those cartels for which the European Commission issued decision documents between 1990 and 2012. The useable sample is 84 cartels that were detected between 1984 and 2009.

  • Three questions are posed:

1. Was there more intense merger activity amongst the former cartelists in the years immediately following breakdown?

2. Were certain types of cartel more likely than others to be followed by merger?

3. Is there evidence that the competition authority intervened in those proposed mergers which were most likely to raise potential anti-competitive concerns, or is there evidence of deterrence of such mergers?

  • The authors employ a novel application of survival analysis.

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‘Fizzy logic: How to measure competition between IRN BRU and Pepsi’

The Spring seminar series continues with a special mid-week edition on Wednesday 5th February, co-organised by CCP and our friends at the Norwich Business School.  The seminar sees the welcome return of Adrian Majumdar, an RBB Economics partner and CCP alumnus, who will be presenting ‘Fizzy logic: How to measure competition between IRN BRU and Pepsi‘. The seminar will take place from 13:00 in Room 2.01 of the Thomas Paine Study Centre, with Amelia Fletcher acting as discussant. An abstract for Adrian’s seminar can be found below.

Abstract

In 2013, the UK Competition Commission (CC) cleared unconditionally (i.e. without remedies) a merger between AG Barr (distributors of IRN BRU) and Britvic (distributors of Pepsi). Ultimately the merger did not proceed, not least due to the OFT (the Phase I merger body) having referred the merger to the CC for a Phase II review. This presentation summarises key points of the case and compares and contrasts the approach taken by the OFT and the CC. We highlight the pros and cons of the growing role of back-of-the-envelope simulations (price pressure tests) in the UK (and now DG Competition) in merger analysis. These measures employ measures of closeness of substitution (diversion ratios) and accounting margins in simple formulae to inform the competition authority about whether or not a merger may be harmful. We ask:

• Does the OFT measure diversion ratios correctly and does the OFT place excessive weight on accounting margins at Phase I?

• What evidence on substitution patterns should count the most – price pressure tests, econometric assessment of switching, surveys, customers’ views, delisting events, advertising policies?

• Is there a role left for market definition in mergers?

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