Elena Argentesi

Ex-Post Merger Evaluation in the UK Retail Market for Books

This paper empirically evaluates the price effects of the merger of two major book retail chains in the UK: Waterstone’s and Ottakar’s. We employ differences-in-differences techniques and use a rich dataset containing monthly scanner data information on a sample of 200 books sold in 60 stores in 50 different local markets for a period of four years around the merger. Since retail mergers may have either local or national effects (or both) according to the level at which retail chains set prices, we undertake an ex-post assessment of the impact of the merger at both levels. At the local level, we compare the changes in the average price charged before and after the merger in the shops located in overlap areas –i.e. areas where both chains were present before the merger– and in non-overlap areas –i.e. areas where only one chain was present before the merger. At the national level, we employ two distinct control groups to evaluate the merger, namely the competitors and the top-selling titles. We find that the merger did not result in an increase in prices either at the local or at the national level. We also perform heterogeneous treatment effects estimations in order to assess whether the effect of the merger differs along various dimensions of heterogeneity that are present in our data.

They Played the Merger Game: A Retrospective Analysis in the UK Videogames Market

We study the effect of a merger in a dynamic high-technology industry–the videogame market– which is characterized by frequent introduction of new products. To assess the impact of the merger between two large specialist retailers in the UK, we perform a difference-in-differences analysis comparing the price evolution of the merging parties to that of their 7 major competitors on an original sample of 196 videogames belonging to six different consoles. The results of our econometric analyses suggest that there has been a reduction in the general level of prices of both new and pre-owned games after the merger. This decline has been more marked for the merging parties, which suggests that the merger between Game and Gamestation did not lead to a substantial lessening of competition; rather it is consistent with the existence of efficiency gains.

Piracy and Quality Choice in Monopolistic Markets

We study the impact of piracy on the quality choices of a monopolist. In the absence of piracy, the monopolist has no incentive to differentiate its products. With piracy the monopolist might instead produce more than one quality, so that differentiation arises as the optimal strategy. This is because the producer wants to divert consumers from the pirated good to the original one. Differentiation involves either producing a new, low-quality good such that piracy is either eliminated or still observed in equilibrium.

Acquisition of Information and Share Prices: An Empirical Investigation of Cognitive Dissonance

Abstract This paper deals with the determinants of agents’ acquisition of information. Our econometric evidence shows that the general index of Italian share-prices and the series of Italy’s financial newspaper sales are cointegrated, and the former series Granger-causes the latter, thereby giving support to the cognitive dissonance hypothesis: (non-professional) agents tend to buy the newspaper when share prices are high and not to buy it when share prices are low. Instead, we do not find support for the hypothesis that the agents acquire information in order to trade in the stock market: we find no relationship between quantities exchanged in the market and newspaper sales, nor between stock market volatility and newspaper sales.

A Retrospective Evaluation of the GDF/Suez Merger: Effects on Gas Hub Prices

We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006 created one of the world’s largest energy companies. We perform an econometric analysis, based on Difference-in-Difference techniques on the market for trading on the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analysis shows a price decline after the merger. This decline suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, the remedies may have done more than simply mitigate the potential anticompetitive effects of the merger; they may have effectively created competition.

The economic impact of the enforcement of competition policies on the functioning of EU energy markets

This study was prepared by ICF Consulting Services in association with DIW Berlin at the request of DG COMP. The objective was to examine whether EU competition policy enforcement has led to stronger competition in European gas and electricity markets and hence to better market outcomes at both the wholesale and retail level. The study includes a descriptive analysis of energy market functioning, an econometric analysis of the impact of competition policy enforcement at the sector level and two case studies using quantitative ex-post evaluation methods.

Piracy and Product Differentiation in the Market of Digital Goods

We analyse how piracy affects the choice of quality of a monopolist producing a digital good. A digital good is a special kind of information good, for example a music CD, a DVD or an electronic magazine available online. An important feature of digital goods is that they can be copied without a decline in the copys quality. We define piracy as both the production and the sale of illegal copies and the practice of file sharing through the Internet. Recently, the introduction of fast Internet connections and peer-to-peer technologies (like Napster and Gnutella) has caused a huge increase in the copies and firms are adopting various measures to counteract this phenomenon. In this paper we focus on a firms incentive to vertically differentiate the quality of its products in the presence of piracy. We show that without piracy and in the absence of production costs the monopolist never differentiates its product. With piracy, the monopolist might introduce a second, lower-quality good in order to induce consumers who acquire a pirated copy to buy the original. Hence differentiation may arise in equilibrium. This type of vertical differentiation is relatively widespread in the software market (consider the practice of distributing versions of a software with less features) and also in the music market (for example, selling music online). We consider a model of vertical differentiation where consumers differ in two aspects. They have both different will-ingness to pay for quality and different costs of accessing a pirated copy. Moreover, those with a greater cost of pirating also have a higher willingness to pay for quality. In this framework we show that the monopolist has two different strategies. On the one hand it can produce just one quality and sell it only to consumers with a high willingness to pay whereas those with low willingness to pay for quality obtain a pirated copy. On the other hand, the monopolist can produce two different qualities, pricing them so that consumers with high willingness to pay buy both whereas those with low willingness to pay either buy the low quality or acquire a pirated copy. The introduction of protection devices that prevent copying or the enforcement of copyright laws increases quality levels, prices and therefore profits. Given that the monopolist sets a higher price for the low quality, the most interesting aspect of protection is to render differentiation more attractive, so that the main impact of protection is on product differentiation rather than on the extent of illegal demand.

Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing

Assortment decisions are key strategic instruments for firms responding to local market conditions. We assess this claim by studying the effect of a national merger between two large Dutch supermarket chains on prices and on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables when defining our control group through a matching procedure. We show that the local change in competitive conditions due to the merger did not affect individual products’ prices but it led the merging parties to reposition their assortment and increase average category prices. While the low-variety and low-price target’s stores reduced the depth of their assortment when in direct competition with the acquirer’s stores, the latter increased their product variety. By analyzing the effect of the merger on category prices, we find that the target most likely dropped high priced products, while the acquirer added more of them. Thus, the merging firms reposition their product offerings in order to avoid cannibalization and lessen local competition. Further, we show that other dimensions of heterogeneity, such as market concentration, whether a divestiture was imposed by the Dutch competition authority, and the re-branding strategy of the target stores, are important for explaining the post-merger dynamics. A simple theoretical model of local-market variety competition explains most of our findings.