EMPIRICAL EVIDENCE ON ON VERTICAL FORECLOSURE

Recent papers have shown conditions under which vertical mergers can result in anticompetitive foreclosure of unintegrated rivals. One implication of these models is that a necessary condition for anticompetitive foreclosure is that unintegrated rival firms are less profitable after a vertical merger. We test this hypothesis by examining the stock prices of unintegrated rivals at the time of a vertical merger announcement and at the time of a government antitrust complaint. We find no evidence to support the foreclosure hypothesis.     

OPTIMAL ENFORCEMENT OF NONCOMPETE COVENANTS

Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement. (JEL J24, J41, J63, K31)     

DO STATES FREE RIDE IN ANTITRUST ENFORCEMENT?

Recent research has documented a substantial role in antitrust enforcement by U.S. states. While many of the cases litigated involve small local firms, a nontrivial portion encompasses multiple‐state issues. Some previous literature has investigated whether states engage in free‐riding behavior in environmental regulation, and whether governments free ride on private decisions in provision of public goods. In this paper, we analyze a sample of antitrust cases involving cross‐state impacts (from the Multi‐State Antitrust Database, provided by the National Association of Attorneys General) and explain the determinants of free riding (which we define as participating in a case, but not as a lead plaintiff). (JEL L40, H41, H77)     

Institutional Conditions of Economic Globalization: Effects of Antitrust and Merger Laws on the Global Integration of the Acquisition Market1

A central insight from institutional theory about markets is that they cannot operate without governing rules to guide interactions among actors. Because most of these rules are made and enforced within national borders, international economic transactions are said to suffer from an “institutional abyss,” the lack of institutional arrangements for economic exchanges. Scholars have found that the abyss can be filled by two factors: network connectedness, such as inter-governmental organizations, and intercountry economic agreements, such as the World Trade Organization or free trade. This article proposes a third factor: the global diffusion of governmental regulations. When countries adopt highly standardized regulations on a particular transaction, it provides legal familiarity for foreigners and reduces procedural uncertainty surrounding how the transaction should be executed. Using fixed-effects models on longitudinal data, I show that the adoption of antitrust and merger laws increases the volume of cross-border mergers—the transaction the laws are meant to regulate. This result stands in direct opposition to financial scholars’ predictions that antitrust and merger laws will reduce cross-border mergers because the laws are meant to restrain, not liberate, the transaction. This article theorizes how the diffusion of regulations, not the elimination of regulations, can facilitate global market integration.     

Health care consolidation and the changing health care marketplace. A review of the literature and issues

This Issue Brief examines the academic literature and issues in consolidation of the hospital sector in the context of responses to changes in the competitive environment. It analyzes the motivations for consolidation as well as its effects. Hospital merger activity has increased dramatically in recent years. The current wave of mergers is primarily a reaction to a competitive environment that is placing a greater emphasis on controlling costs and forcing high-cost providers out of the market. The growth of managed care has placed considerable pressure on providers of health care and, in particular, on hospitals. The evolution of insurance companies' behavior helps explain the recent hospital consolidation movement. As managed care has become the dominant type of coverage in the last decade, insurance companies have become more active in trying to control costs--a reversion to their previous practices before the advent of managed care. Insurance companies have placed cost constraints on providers, both in the early years of health insurance and currently, when there are strong competitive forces. Hospitals claim that their primary merger motives are improving efficiency and the quality of care. The empirical evidence on this claim is mixed. Vertical integration (between suppliers and buyers of health care services, such as between hospitals and physicians) has appealed to hospitals because of their need to obtain more patients. More research is needed to explore the effects of vertical integration in the health care sector. In one of the more significant recent legal rulings, the U.S. Justice Department lost a 1997 case challenging the merger of two hospitals in the New York City metropolitan area. This, along with other recent losses by the antitrust authorities, does not bode well for the government's ability to prevent hospital mergers in metropolitan areas. It is difficult to generalize on an appropriate antitrust policy for hospital mergers. Hospital consolidation is likely to continue at a rapid pace. Since some developments may reduce the cost of employee benefits while others may increase the cost of these benefits, the final effect on the provision of health care benefits by employers is uncertain. Employers must pay close attention to the hospital consolidation movement because it will lead to important changes in the provision of health care benefits.     

ANTITRUST and COMPETITION, HISTORICALLY CONSIDERED

Although antitrust laws enjoy wide support among economists, there was almost no such support during the early years of the Sherman Act. One reason for this transformation is a change in the theory of competition. Until the 1920s most economists viewed competition as a dynamic, rivalrous process that would be stifled by antitrust laws. Once the perfect competition model–which largely ignores rivalry–was accepted, economists' opinions of antitrust grew more favorable. To the extent that antitrust interferes with rivalry and enterprise, the competitive model has very likely misdirected the profession, at least as far as antitrust policy is concerned.     

TRADING UNCERTAINTY, ENFORCEMENT AND LABOR UNIONS

It is shown that when contracts can be perfectly enforced, trading uncertainty leads to discrimination among workers with the same skills and experience. In this case anti-discrimination laws lead to inefficiencies. In the absence of perfect enforcement, anti-discrimination practices may be used as enforcement devices and need not lead to inefficiencies. In particular, firms may wish to precommit to an anti-discrimination policy, say by inviting in a labor union, in order to offer credible insurance to its workers. This leads to an equilibrium in which union workers get a higher wage than non-union workers, but unions do not have monopoly power.     

A longitudinal analysis of mergers and acquisitions patterns of U.S. public relations agencies between 1984 and 2004

This study was designed to examine the trends of M&As (mergers and acquisitions) in the public relations industry from 1980 to 2004. The results revealed that although M&A activities in the public relations industry increased in the decade between the early 1980s and early 1990s, they began to drop in the early 1990s. Also, it was found that public relations firms acquired or were acquired by other public relations firms.     

Declining Share of Small Firms in U.S. Output: Causes and Consequences

We develop a dynamic general equilibrium model, with large and small firms, to examine possible causes and welfare implications of a declining trend in small firms' share of U.S. output since 1958. Numerical experiments indicate that recent technological advances and government tiering policies that have reduced fixed setup costs of production benefit the emergence of small firms, but lower their output share due to competition for resources among firms. However, this outcome is welfare improving. Therefore, if the policy objective is to raise small firms' output share and economic welfare simultaneously, it is desirable to concentrate on increasing antitrust and deregulatory efforts.     

关于会计师事务所合并的文献综述

会计师事务所合并会产生一系列经济后果,国内外学者目前已从多个角度考察了这些经济后果及其产生的各方面影响。目前,我国学术界针对事务所合并的实证研究逐渐增多,但所得到的研究结论却与国外学者不尽相同。考虑到中国与其他国家尤其是西方国家在制度环境、法律层面等存在的差异,我国学术界关于会计师事务所合并的实证研究结果可能异于西方。这启示我国未来关于事务所扩张的研究应该立足于我国特有的制度环境与法律体系。     

Effective tax rates and firm size in Ethiopia

The literature on Effective Tax Rates (ETRs) focuses on high‐ and middle‐income countries, but there is very little evidence on low‐income countries. This article addresses this gap with new evidence from Ethiopia. We investigate corporate ETRs in Ethiopia and whether the distributional effects they have in practice are in line with the corporate tax policy design. We calculate ETRs in line with the literature in this field, using profit tax at the numerator and gross profit at the denominator. We then analyse ETRs not only using panel data, focusing particularly on their relation to firm size, but also including other explanatory variables. Our main result is that, despite a proportional tax rate, small firms face a higher effective tax burden than larger firms, while middle‐sized firms face the lowest burden of all. We highlight that tax systems can have practical implications that differ largely from their policy design, due to compliance costs and imperfect enforcement. Measures to reduce compliance costs for small firms are particularly recommended.     

HOW MANY CHEERS FOR ANTITRUST'S 100 YEARS?

This article describes the ambiguity inherent is U.S. antitrust policy, arguing that it is a necessary consequence of the true, but not commonly understood, task of antitrust policy. Competition is multidimensional in form, and its different dimensions cannot be maximized together. Therefore, antitrust policy cannot maximize competition per se, but aims to achieve an efficient mix of competitive forms. Inadequate knowledge of the technical and preference tradeoffs involved guarantees that questions about the appropriate competitive mix will remain open to debate. The resulting policies, in the author's opinion, merit one cheer out of a possible three.     

ALTERNATIVES FOR RESTRUCTURING THE RAILROADS: END-TO-END OR PARALLEL MERGERS?

The U.S. railroad industry has seen considerable merger activity over the past two decades and more mergers are expected in the near future, but little is presently known about the relative social benefits of alternative merger configurations. Using traffic data for origin-destination pairs affected by recent mergers, this paper examines the impact of end-to-end and parallel mergers on increases in the market share of merged firms. To the extent that increases in market share reflect social benefits in the form of improved service and lower costs, end-to-end mergers are found to outperform parallel mergers.     

ANTITRUST TREATMENT OF NONPROFITS: SHOULD HOSPITALS RECEIVE SPECIAL CARE?

Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale suggests that nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals because suppression of competition may also allow nonprofits to cross-subsidize care for the poor. Using detailed California data, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care or offer unprofitable services in response to an increase in market power. Therefore, we find no empirical justification for applying, as some courts have suggested, different antitrust standards for nonprofit hospitals. (JEL I11, L1, L44)     

STRATEGIC ENFORCEMENT,INTELLECTUAL PROPERTY RIGHTS,AND CONTRACTUAL R&D

This study examines the role of intellectual property rights (IPRs) in contractual research and development (R&D) in developing countries. We find that strong IPRs provide incentives for firms, both multinational and local, to specialize in R&D activities in which they have competitive advantage (the specialization effect). They also facilitate the switching process from imitators to potential innovators for local firms (the switching effect). Moreover, we also demonstrate that a multinational firm's strategic IPRs enforcement behavior can be an effective instrument for subsidizing contractual R&D in developing countries (the subsidizing effect). We further illustrate how a policy mix of IPRs and a foreign direct investment subsidy in these countries affects R&D activities by adding an offshore R&D subsidiary as an additional organizational form. (JEL L13, O31, O34)     

PRODUCT BUNDLING AND INCENTIVES FOR MERGERS AND STRATEGIC ALLIANCES

This paper analyzes firms' choice of a merger or a strategic alliance in bundling their products with other complementary products. Tying two products of unequal value makes them equally valuable as they become inseparable for purchase. Consequently, firms can charge a higher price for the bundled products than before. If foreclosure is not the main purpose of bundling, firms would prefer strategic alliances to mergers because mergers only intensify competition by internalizing the complementarities of two products. In equilibrium, bundling occurs only through strategic alliances. (JEL L4, L11, L13, L23)     

THE INFLUENCE OF ECONOMICS ON ANTITRUST LAW

Economists today play prominent roles in formulating antitrust policy and litigating antitrust cases. This paper explains why economics influences antitrust law and describes how economic theories enter and shape the antitrust system. Antitrust policy and doctrine change over time in response to developments in economic theory, and the decentralization of the antitrust adjudication system and the wide latitude accorded judges in interpreting antitrust statutes ensure that legal rules will reflect advances in the economic literature concerning the appropriate content of standards governing business conduct.     

EMPIRICAL EVIDENCE ON FTC ENFORCEMENT OF THE MERGER GUIDELINES

The Justice Department's 1982/1984: merger guidelines identify various factors – concentration, entry barriers, ease of collusion, efficiency –that would thereafter determine whether the government will challenge a merger. Analysts have criticized enforcement agencies, however, for not following the guidelines, and criticize the guidelines themselves for not identifying the weights attached to the factors. Using a 1982-86 sample of seventy horizontal mergers, we examine which factors influenced Federal Trade Commission decisions to challenge mergers. The relative importance of the guidelines and other factors in merger challenges is measured, and related empirical issues are also explored.     

Demand cross elasticity without substitutability: An experiment

We study a market in which goods are produced under low marginal costs with a poor degree of substitutability among products. In this environment we ran an experiment to explain why prices are interdependent even when preferences are independent. We compare our results to previous theoretical and laboratory experimental literature on price fairness. We find that even in the absence of interaction among subjects, price fairness/unfairness does play a major role in the decision to accept or reject a deal. Subjects tend to be more resistant to a price increase and reject a deal when the preferred product is not referenced to price increases of not substitute products, if these products are considered to be a benchmark for fair conduct. Thus demand cross elasticity can arise between products that are not substitutes. This result has important implications for antitrust policy. In delineating a market perimeter, fairness concerns suggest that products that are similar but not interchangeable should be included in the relevant antitrust market.     

Making parents pay: The unintended consequences of charging parents for foster care

Most families in the child protective services system also interact with the child support enforcement system. This study exploits a natural experiment in Wisconsin, created by the state's large regional variation in child support referral policy, to estimate a potentially important effect of child support enforcement on the duration of out-of-home foster care placement. The effect we examine is whether requiring parents to pay support to offset the costs of foster care delays children's reunification with a parent or other permanent placement. We find evidence of this unintended effect, which is important not only because longer foster care spells are expensive for taxpayers, but also because extended placements in foster care may have consequences for child well-being. Our results highlight the potential importance of cross-systems analysis and the potential consequences when the policies and fundamental objectives of public systems are inconsistently coordinated. We discuss the implications of our findings for child support and child protective services policy.