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  5. Firm Responses to Changing Competitive Landscapes
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Firm Responses to Changing Competitive Landscapes

Paper Session

Sunday, Jan. 8, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Canal
Hosted By: American Economic Association
  • Chair: Tania Babina, Columbia University

Intellectual Property Protection Lost and Competition: An Examination Using Machine Learning

Utku U. Acikalin
,
TOBB University
Tolga Caskurlu
,
University of Amsterdam
Gerard Hoberg
,
University of Southern California
Gordon Phillips
,
Dartmouth College and NBER

Abstract

We examine the impact of lost intellectual property protection on innovation, competition, mergers and acquisitions and employment agreements. We consider firms whose ability to protect intellectual property (IP) using patents is potentially invalidated following the Alice vs. CLS Bank International Supreme Court decision. This decision has impacted patents in multiple areas including business methods, software, and bioinformatics. We use state-of-the-art machine learning techniques to identify firms’ existing patent portfolios’ potential exposure to the Alice decision. While all affected firms decrease patenting post-Alice, we find an unequal impact of decreased patent protection. Large affected firms benefit as their sales and market valuations increase, and their exposure to lawsuits through patent trolls decrease. They also acquire fewer firms post-Alice. Small affected firms lose as they face increased competition, product market encroachment, and lower profits and valuations. They also increase R&D and have their employees sign more nondisclosure and noncompete agreements. Our results show that there are both costs and benefits of IP protection.

Product Proliferation, Strategic Entry, and the North Dakota Railroad War of 1905

Chad Syverson
,
University of Chicago

Abstract

A theoretical literature has explored motives for an incumbent to respond to threatened entry by product proliferation; i.e., introducing additional varieties with the intent of limiting submarkets available to the entrant. Empirical analyses of this phenomenon are scant and often lack sharp measures of product attributes. This paper analyzes an as-yet unexplored yet perhaps one of the best empirical cases of product proliferation in response to entry, the North Dakota Railroad War of 1905. The Soo Line sought to build a new line through what had been territory monopolized by the Great Northern Railway (GN). The GN responded by building and extending a series of branch lines. The Soo, undeterred, proceeded to build the line and race to set up towns along it. The two railroads built hundreds of miles of track and founded 51 towns in five months. Soo’s entry and GN’s response helped some farmers by improving access to markets, but there are also clear signs of wasteful proliferation, as many towns failed and branches were abandoned. The paper explores these outcomes quantitatively.

Does Antitrust Enforcement Affect Industry Dynamics? Evidence from 40 Years of U.S. Department of Justice Lawsuits

Tania Babina
,
Columbia University
Simcha Barkai
,
Boston College
Jessica Jeffers
,
University of Chicago
Ezra Karger
,
Federal Reserve Bank of Chicago
Ekaterina Volkova
,
University of Melbourne

Abstract

We construct a comprehensive dataset of antitrust lawsuits led by the Department of Justice (DOJ) between 1980 and 2018, that includes the geographic scope and industries of the targeted companies. We find a continued secular decline in the number of antitrust lawsuits led by the DOJ relative to the early 1980s, with wide variation across industries. We use this new dataset to study the systematic effect of antitrust lawsuits on industry dynamics such as employment growth and firm entry. We compare outcomes in a non-tradable industry located in a particular state that is the target of a DOJ lawsuit with the same non-tradable industry located in other states. In an event-study framework, we find that employment is stable in the years leading up to an antitrust lawsuit, but increases in the years immediately following the lawsuit. The effect is stronger for local lawsuits and lawsuits remedying older violations. Our results suggest that antitrust enforcement has an important role in curbing anticompetitive behavior by firms and has a positive effect on aggregate outcomes.

The Welfare Consequences of Regulating Amazon

German Gutierrez
,
New York University

Abstract

Amazon acts as both a platform operator and seller on its platform, designing rich fee policies and offering some products direct to consumers. This flexibility may improve welfare by increasing fee discrimination and reducing double marginalization, but may decrease welfare due to incentives to foreclose rivals and raise their costs. This paper develops and estimates an equilibrium model of Amazon's retail platform to study these offsetting effects, and their implications for regulation. The analysis yields four main results: (i) Optimal regulation is product- and platform-specific. Interventions that increase welfare in some categories, decrease welfare in others. (ii) Fee instruments are substitutes from the perspective of the platform. Interventions that ban individual instruments may be offset by the endogenous response of (existing and potentially new) instruments. (iii) Regulatory interventions have important distributional effects across platform participants. (iv) Consumers value both the Prime program and product variety. Interventions that eliminate either of the two decrease consumer as well as total welfare. By contrast, interventions that preserve Prime and product variety but increase competition – such as increasing competition in fulfillment services – may increase welfare.

Discussant(s)
Joshua Lerner
,
Harvard Business School
Jonathan Vogel
,
University of California-Los Angeles
Thomas Philippon
,
New York University
Leon Andreas Musolff
,
Microsoft Research
JEL Classifications
  • L4 - Antitrust Issues and Policies
  • L1 - Market Structure, Firm Strategy, and Market Performance