Vertical Contracting and Vertical Restraints
Paper Session
Sunday, Jan. 8, 2023 10:15 AM - 12:15 PM (CST)
- Chair: Julie Holland Mortimer, University of Virginia
The Price of Liquor is Too Damn High: The Welfare Cost of Post and Hold Regulations
Abstract
In many product markets with negative externalities, regulations structure markets to limit competition. Intuition from the single-product case suggests that whether output is restricted via corrective taxes or by limiting competition represents only a transfer among parties and does not affect aggregate welfare. However, when products are differentiated, firms with market power may not only reduce aggregate purchases, but distort the purchase decisions of inframarginal consumers. We look at a regulation known as post-and-hold (PH) used by a dozen states for the sale of alcoholic beverages. Theoretically PH eliminates competitive incentives among wholesalers selling identical products. Empirically, we use a unique dataset on distilled spirits from Connecticut, including matched manufacturer and wholesaler pricing, to evaluate the welfare consequences. For similar levels of ethanol consumption, PH leads to significantly lower consumer welfare (and government revenue) when compared to various tax measures (excise taxes, sales taxes, and Ramsey taxes) by distorting the set of products away from high-quality/premium brands and towards low-quality/noname brands.Are Hospital Acquisitions of Physician Practices Anticompetitive?
Abstract
In recent decades, vertical integration (VI) between hospital systems and physicians has transformed US provider markets. During 2008-16, the fraction of physicians employed by hospitals increased from 27% to 47%. Nearly all hospital-physician mergers were below antitrust reporting thresholds, and were likely completed without regulatory scrutiny. We combine a new comprehensive measure of VI with administrative claims data from a large US commercial health insurer. Our results for orthopedic surgeons indicate that post-VI, the average physician increased surgeries performed at acquiring hospitals by nearly 20 percentage points. Moreover, physician and facility prices increased by about 5-8%. We also find positive correlations between hospital price effects and the magnitudes of shifts in patient flows to hospitals, consistent with newly VI-ed entities foreclosing rivals. Finally, we find positive correlations between physician price effects and pre-merger hospital market shares, consistent with newly VI-ed entities benefiting from an improved bargaining position.Heterogeneity in Vertical Foreclosure: Evidence from the Chinese Film Industry
Abstract
How do vertically integrated firms’ pricing and product provision decisions change with upstream and downstream competition? We answer this question in the context of the Chinese movie industry where there is pervasive vertical integration. Weekly variation in the set of available films generates changes in the vertical structure of local markets. We exploit this variation to measure the effect of vertical integration on prices and showings, finding that theaters allocate significantly more showings to vertically integrated films. This effect is diminished when there is greater downstream competition. We then estimate a model of demand that accounts for potential direct effects of integration on consumer utility. Preliminary results suggest that the marginal revenue of an additional showing is 3% lower on average for vertically integrated films. This suggests that our findings are driven by theaters’ internalizing the upstream revenue share for integrated films.Discussant(s)
Ying Fan
,
University of Michigan
Jacob Burgdorf
,
U.S. Department of Justice
Leemore Dafny
,
Harvard Business School
Julie Holland Mortimer
,
University of Virginia
JEL Classifications
- L1 - Market Structure, Firm Strategy, and Market Performance
- L4 - Antitrust Issues and Policies