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Showing 9 of 36 Publications by Null Author, Eric Fruits

Vertical Mergers: Fast Food, Folklore, and Fake News

TOTM While the folklore of locking up distribution channels to eliminate double marginalization fits nicely with theory, the facts suggest a more mundane model of a firm scrambling to deliver shareholder wealth through diversification in the face of changing competition.

In the Federal Trade Commission’s recent hearings on competition policy in the 21st century, Georgetown professor Steven Salop urged greater scrutiny of vertical mergers. He argued that regulators should be skeptical of the claim that vertical integration tends to produce efficiencies that can enhance consumer welfare. In his presentation to the FTC, Professor Salop provided what he viewed as exceptions to this long-held theory.

Read the full piece here.

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Antitrust & Consumer Protection

A Review of the Empirical Evidence on the Effects of Market Concentration and Mergers in the Wireless Telecommunications Industry

ICLE White Paper The merger between T-Mobile and Sprint has been characterized as a “4-to-3 merger” because after the merger there will be 3 national mobile network operators. . . .

The merger between T-Mobile and Sprint has been characterized as a “4-to-3 merger” because after the merger there will be 3 national mobile network operators. Concerns have been raised regarding the effects of such mergers on competition and consumer welfare. Seeking to understand and evaluate the basis for these concerns, the International Center for Law and Economics (ICLE) undertook a comprehensive review of the economic effects of mergers and other factors affecting market concentration in the wireless telecommunications industry. The review found:

  1. In general, wireless mergers resulted in increased investment both by individual companies and by the industry as a whole. This finding suggests that such mergers have consumer benefits, due to the improvements in quality of service — including availability and speed — that result from such investments. 
  2. Levels of investment were highest in markets with three firms (although levels of investment in markets with four firms were not significantly lower).  
  3. While the effects of market concentration on prices were “conclusively inconclusive,” when mergers result in more symmetrical competition (i.e. the resultant firms are of more equal size), competition is enhanced and consumers benefit both from improvements in quality of service and price.
  4. There is no universal rule regarding the “optimal” number of mobile operators. But for a geographically large market like the U.S., with relatively low population density, it might well be three (and there is no good reason to believe that it is four).

When evaluating the merits of a merger, authorities are charged with identifying the effects on the welfare of consumers. On the basis of the studies that we review, “4-to-3 mergers” appear to generate net benefits to consumer welfare in the form of increased investment, while the effects on price are inconclusive.

Click here to download the report.

Click here to download the appendices.

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Antitrust & Consumer Protection

T-Mobile Sprints to the Finish Line: States Demand a Do-Over

TOTM T-Mobile/Sprint merger cleared with conditions, but some states keep pressing an unconvincing theory to block the merger. Why not view it as making a viable third national competitor which will benefit consumers across the country?

The Department of Justice announced it has approved the $26 billion T-Mobile/Sprint merger. Once completed, the deal will create a mobile carrier with around 136 million customers in the U.S., putting it just behind Verizon (158 million) and AT&T (156 million).

Read the full piece here.

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Antitrust & Consumer Protection

Merger Lore: Dispelling the Myth of the Maverick

TOTM The idea of the maverick firm requires that the firm play a critical role in the market. The maverick must be the firm that outflanks coordinated action or acts as a bulwark against unilateral action. By this loosey goosey definition of maverick, a single firm can make the difference between success or failure of anticompetitive behavior by its competitors.

There’s always a reason to block a merger:

  • If a firm is too big, it will be because it is “a merger for monopoly”;
  • If the firms aren’t that big, it will be for “coordinated effects”;
  • If a firm is small, then it will be because it will “eliminate a maverick”.

Read the full piece here.

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Antitrust & Consumer Protection

Deadweight loss from no monopoly

TOTM The once-mighty Blockbuster video chain is now down to a single store, in Bend, Oregon. It appears to be the only video rental store in Bend, aside from those offering “adult” features. Does that make Blockbuster a monopoly?

The once-mighty Blockbuster video chain is now down to a single store, in Bend, Oregon. It appears to be the only video rental store in Bend, aside from those offering “adult” features. Does that make Blockbuster a monopoly?

Read the full piece here.

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Antitrust & Consumer Protection

Telecom regulators: Don’t get rolled by Rewheel

TOTM Will the merger between T-Mobile and Sprint make consumers better or worse off? A central question in the review of this merger—as it is in all merger reviews—is the likely effects that the transaction will have on consumers.

Will the merger between T-Mobile and Sprint make consumers better or worse off? A central question in the review of this merger—as it is in all merger reviews—is the likely effects that the transaction will have on consumers. In this post, we look at one study that opponents of the merger have been using to support their claim that the merger will harm consumers.

Read the full piece here.

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Telecommunications & Regulated Utilities

Boom, bust, and collusion: Does it really matter?

TOTM A recent working paper by Hashmat Khan and Matthew Strathearn attempts to empirically link anticompetitive collusion to the boom and bust cycles of the economy.

A recent working paper by Hashmat Khan and Matthew Strathearn attempts to empirically link anticompetitive collusion to the boom and bust cycles of the economy.

Read the full piece here.

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Antitrust & Consumer Protection

Economies of scale in homeless camp cleanups with some fishy results

TOTM “Our City has become a cesspool,” according Portland police union president, Daryl Turner. He was describing efforts to address the city’s large and growing homelessness crisis.

“Our City has become a cesspool,” according Portland police union president, Daryl Turner. He was describing efforts to address the city’s large and growing homelessness crisis.

Read the full piece here.

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Innovation & the New Economy

Drifting toward nonsense on EU vs. US competitiveness: The profits puzzle

TOTM A recent NBER working paper by Gutiérrez & Philippon has attracted attention from observers who see oligopoly everywhere and activists who want governments to more actively “manage” competition.

A recent NBER working paper by Gutiérrez & Philippon has attracted attention from observers who see oligopoly everywhere and activists who want governments to more actively “manage” competition. The analysis in the paper is fundamentally flawed and should not be relied upon by policymakers, regulators, or anyone else.

Read the full piece here.

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Antitrust & Consumer Protection