Suchergebnisse

This dissertation consists of three loosely related essays resident in the industrial organization literature. All three analyze recent policies, namely, a prohibition of disposal, a reduction in fine for convicted cartelists, and the recent loose monetary policy. I study how these policies affect firms' strategies and their consequences for consumers. The structure follows the timeline of the policies' adoption. In the first chapter, I study the loi anti-gaspillage (anti-waste law) recently debated in France, expected to come into effect in 2023. According to a government estimate, each year new products worth $900 million are discarded all over France. The policy aims at mitigating the waste of resources: unsold products have to be donated or recycled, and it is prohibited to dispose of them in one way or another. The less firms dispose of, the more products are on the market and prices are lower, thereby benefiting consumers. However, firms do not intentionally manufacture products to discard them: disposal typically results from a lower than expected demand. By forcing firms to recycle or donate their produced goods, firms' disposal costs increase; otherwise, cost minimizing firms would have already donated or recycled their products without the regulation. With higher costs for unsold products, firms reduce their production, resulting in a lower trade volume. Moreover, the policy may affect the production timing on top of quantities produced. Firms may outsource their production for cost reasons. Goods produced abroad have to be transported to the home market and therefore require to be produced earlier. Take, for example, the fashion industry: The biggest players on the European market are Hennes & Mauriz (H&M) and Inditex, which holds Zara, Pull&Bear, Massimo Dutti, and more. H&M mainly produces in Asia and ships its products to the European market; Inditex largely manufactures in Europe, close to the market. It claims that within two weeks of the original design clothes are in retail. Merely the shipment from Asia to Europe takes more time. In the fast fashion industry, multiple products are introduced on a weekly basis. Accordingly, H&M produces earlier to compete with Inditex. As a consequence, firms that produce later to manufacture with more information benefit from the policy. Their competitors decrease their production to mitigate costs if demand is lower than expected, resulting in a competitive advantage for the former. Depending on disposal costs, firms postpone their production leading to a change in the market structure. In general, the policy accomplishes to decrease disposal, yet at the consumers' cost. In the second chapter with Winand Emons, we analyze a policy encouraging private settlement negotiation following anti-competitive convictions. Victims of an anti-competitive infringement may claim for damages. Private damage actions enforce antitrust rules in addition to the public enforcement by competition authorities. They are, however, rare in Europe compared to the US. To encourage private damage action, the EU recommends subtracting a part of the redress paid to the victim from the fine. Some jurisdictions have followed this recommendation. In 2014, the Israeli Antitrust Tribunal approved a consent decree reached between Israeli banks and the Israeli Antitrust Authority to subtract the entire settlement payment from the wrongdoers' fine. Likewise, the Swiss Competition Commission subtracted half of the bid-rigging construction companies' settlement payment to the victim, the canton of Graubünden, from the wrongdoers' fines in 2019. The rebate has two effects. First, the surplus created by an out of court agreement goes up. Second, the defendant's marginal costs decrease: for each unit the plaintiff receives the defendant only pays a share of it. Since negotiations are voluntary, both parties get a share of the surplus. The first effect thus benefits the plaintiff and the defendant. The second affects the defendant's bargaining behavior: the defendant settles for larger amounts. In our framework, the first effect dominates the second resulting in a lower payment for the defendant. A leniency program is the most important investigative tool for detecting cartel activity. The leniency applicant does not pay a fine. Consequently, there is no fine that can be reduced; the measure does not affect a leniency applicant. However, it decreases the other cartelists' payment, thereby reducing the relative advantage of blowing the whistle. Overall, a leniency program may be weakened due to this policy. Cartelists typically know the damage caused by their illegal activity better than consumers. Consequently, a defendant has an information advantage compared to the plaintiff when it comes to a trial. We study the case when the plaintiff has all the bargaining power yet an information disadvantage. Due to the information asymmetry, some cases end up in court, although this is ineffcient. Rebating part of the fine decreases the number of cases resulting in a ruling and thereby relieves courts. Nonetheless, the defendant's expected payment decreases due to the redress. The policy accomplishes an increase in the settlement amount, thereby benefiting victims of anti-competitive conducts, yet it also lowers deterrence. Consumers may therefore suffer from augmented anti-competitive manner. In the third chapter, I study how the current monetary policy affects firms' collusive behavior. Low interest rates mark the last decade: as a reaction to the financial crisis, central banks worldwide lowered the nominal interest rate to boost the economy. The real interest rate peaked around 2009 and has declined since. Nowadays, with the additional challenge of a pandemic, central banks are expected to continue their loose monetary policy. It is well known that the interest rate determines the time value of money. When interest rates are low, a dollar today has almost the same value as a dollar tomorrow; future values are little discounted. Colluding firms set higher prices than if they competed to make additional profits to the detriment of consumers. A cartelist could, however, deviate from the collusive agreement: by undercutting the price, the deviating firm could capture a large market share and ensure an even higher profit. Yet, when a cartelist undercuts the collusive price, the cartel breaks down. After a firm's deviation, firms no longer collude and start competing, resulting in lower future profits. Consequently, if interest rates are low, a large immediate profit does not outweigh constant high future profits, and cartels are stabilized. In my framework, an additional effect comes into play. Typically, firms finance their production with outside capital borrowed on the financial market. The interest rate thereby directly affects a firm's balance sheet: the higher the interest rate, the higher the firm's costs. If costs are high, it is not profitable to serve a large market share. Thus, it does not pay to undercut the cartel price to increase demand. By contrast, if interest rates are low and thus costs are low, firms can inexpensively invest in their production. They have the financial means to serve large parts of the market. Thus, deviating from the collusive agreement is more profitable. Accordingly, cartels are destabilized if interest rates are low. While the former effect facilitates cartel formation in times of low interest rates, the latter fosters break-ups. The time value of money is most affected by low interest rates: it is doubled if the interest rate moves from 1% to 2%, yet less than doubled if it increases from 2% to 3%. By contrast, the latter effect is small for low interest rates. The cost increase cause firms to serve fewer customers. The lost consumers are, however, the ones with the lowest willingness to pay, i.e., the least valuable customers. Accordingly, for a low interest rate the first effect dominates, and for a relatively high interest rate, the second effect dominates, resulting in a U-shaped relation between a cartel's stability and the interest rate. Analyzing a dataset of 615 firms active in 114 cartels convicted by the European Commission yields empirical evidence supporting the theory. Cartels are stable if interest rates are low or relatively high and are vulnerable for intermediate values. More precisely, stability is measured as the probability that a cartel does not break-up or, alternatively, as the duration of a firm's participation in the cartel. The empirical evidence has to be treated with caution since only convicted cartels are in the dataset resulting in a biased sample. The current loose monetary policy is, thus, accompanied by the adverse effect of stabilizing existing cartels and encouraging new ones' formations.