Essays on Antitrust and Regulatory Economics
Kulick, Robert Brian
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This dissertation consists of three essays on antitrust and regulatory economics. In chapter one, I estimate the price and productivity effects of horizontal mergers in the ready-mix concrete industry using plant and firm-level data from the US Census Bureau. Horizontal mergers involving plants in close proximity are associated with price increases and decreases in output, but also raise productivity at acquired plants. While there is a significant negative relationship between productivity and prices, the rate at which productivity reduces price is modest and the effects of increased market power are not offset. I then present several additional new results of policy interest. For example, mergers are only observed leading to price increases after the relaxation of antitrust standards in the mid-1980s; price increases following mergers are persistent but tend to become smaller over time; and, there is evidence that firms target plants charging below average prices for acquisition. Finally, I use a simple multinomial logit demand model to assess the effects of merger activity on total welfare. At acquired plants, the consumer and producer surplus effects approximately cancel out, but effects at acquiring plants and non-merging plants, where prices also rise, cause a substantial decrease in consumer surplus. In chapter two, I introduce a model of anticompetitive exclusive dealing that provides a unified treatment of two of the major categories of potentially anticompetitive single-firm conduct recognized by the FTC: refusal to deal and exclusive purchase agreements. The exclusionary mechanism succeeds by turning the incentives of a pivotal buyer or a pivotal coalition of buyers against the incentives of the group when buyers attempt to coordinate on their preferred equilibrium. However, since all buyers acquiesce to the exclusionary strategy, no pivotal buyer or pivotal coalition of buyers emerges that can gain a competitive advantage and all buyers are strictly worse off. I argue that this approach provides a simple economic framework for evaluating a number of real-world antitrust cases, including the seminal cases Lorain Journal and Denstply, which do not fit neatly into the structure of the main body of economic research focused on exclusive dealing, the Naked Exclusion literature. I then show that by redefining exclusive contracts, this approach can be embedded within a Naked Exclusion style model, yielding a number of new results with implications for both the economic literature on exclusive dealing and antitrust jurisprudence. Finally, in 1970, Congress added Section 36(b) of the Investment Company Act, which authorized suits against mutual fund managers for charging “excessive fees.” In 1979, the SEC prosecuted the first case invoking this law in its enforcement action against Fundpack. Although the law and its economic consequences have been the subject to extensive debate, including the high profile case Jones v. Harris Associates which pitted Judge Frank Easterbrook and Judge Richard Posner against each other in the 7th Circuit before going the U.S. Supreme Court, the law has been subject to scant rigorous empirical analysis. Along with my co-author Ken Ueda, I use program evaluation techniques and the Center for Research in Security Price’s mutual fund data to analyze the consequences of the onset of 36(b) enforcement on mutual fund fees, fund flows, fund returns, and exit rates before and after SEC v. Fundpack. We find that high-fee mutual funds reduced their fees substantially in response, but we find no evidence of reduced mutual fund quality or consumer choice as indicated by fund flows, returns, or exit rates.