Three Essays in Competition Policy

The thesis comprises three chapters on competition policy. In the first chapter, entitled Pricing Strategies and Vertical Contracts in a Monopolistic E-Book Market, I draw from the e-book antitrust case against Apple and five major international publishers, in order to study the rationality behind the use of different types of vertical contracts in a market with complement products. Apple and five major book publishers have been accused by Antitrust Authorities of price fixing. One of the main argument was that the use of the agency model helped Apple and the publishers to collude. Interestingly, when Amazon was the only retailer for e-books, it chose a wholesale model. When Apple entered the market, it adopted instead an agency model, and soon after Amazon switched to an agency model too. The theoretical question is whether collusion is the only reason behind the use of an agency model or whether using such a vertical contract can be more profitable than a wholesale contract even absent a collusive intent. This chapter contributes to addressing this question by investigating whether the agency model is more profitable for publishers and distributors than the wholesale model in a distributor monopolistic market (thus addressing the question of why Amazon initially chose such a contract). Using a theoretical model, I focus on the effects of two main factors: competition, and complementarity between e-books and e-readers. I consider two upstream firms, each producing e-books, and a downstream firm, selling both e-books and e-readers to final consumers. I show that a downstream monopolist always prefers the wholesale model to the agency model. In fact, once the downstream firm can choose the price of both e-readers and e-books, it can exploit better substitution and complementarity effects between goods to maximize profits. The second chapter, co-authored with my supervisor Prof. Lapo Filistrucchi and Dr. Stefan Behringer, is entitled Price Wars in Two-Sided Markets: the Case of the UK Quality Newspapers in the ’90s. This chapter too starts from a real-word competition policy case: the price war among the UK quality newspapers in the ’90s, which was at the time discussed as a possible case of predatory pricing by the Times against the Independent. We observe that in those years — a period of economic boom in the UK — the share of advertising revenues in the financing mix of the newspapers increased drastically. We develop a monopoly, oligopoly and collusive model of the newspaper market to derive conditions under which the optimal share of advertising financing increases when the size of the advertising market increases. Using data on the financing mix of the single newspaper and on GDP in the UK in those years, we conduct some preliminary econometric tests which confirm that, both for each newspaper and overall, there is a significant negative relationship between the observed financing mix and the level of GDP. Finally, the third chapter, entitled MFN Clauses and Quality Disclosure on Online Platforms, also draws from real-world cases, namely those concerning the imposition of Most Favored Nation (MFN) clauses by Expedia and Booking.com. Antitrust Authorities decisions across Europe have made MFN clauses (partly or wholly) illegal. In this chapter I study the effects of a MFN clause imposed by a booking platform on the quality of a hotel. I consider two possible scenarios, depending on whether an MFN clause is allowed or forbidden. I show that when the clause is allowed, a platform will always adopt it to prevent hotel’s free riding behaviors and make positive profits. This chapter points out three key findings. Firstly, with MFN clause in place, a hotel facing low costs for quality chooses the maximum quality and sells through the platform, whereas the hotel with high costs for quality chooses the minimum quality and sells only through its own channel. Secondly, a platform prefers to set a percentage fee rather than a non-percentage fee. Finally, when the MFN clause is forbidden, the hotel might choose a listing fee. In such a case, it chooses the minimum quality irrespective of the costs.