Rosa M. Abrantes-Metz

A Variance Screen for Collusion

In this paper, we examine price movements over time around the collapse of a bid-rigging conspiracy. While the mean decreased by sixteen percent, the standard deviation increased by over two hundred percent. We hypothesize that conspiracies in other industries would exhibit similar characteristics and search for “pockets” of low price variation as indicators of collusion in the retail gasoline industry in Louisville. We observe no such areas around Louisville in 1996-2002.

Tracking the Libor rate

With an eye to providing a methodology for tracking the dynamic integrity of prices for important market indicators, in this paper we use Benford second digit reference distribution to track the daily London Interbank Offered Rate (Libor) over the period 2005-2008. This reference, known as Benford’s law, is present in many naturally occurring numerical data sets as well as in several financial data sets. We find that in two recent periods Libor rates depart significantly from the expected Benford reference distribution. This raises potential concerns relative to the unbiased nature of the signals coming from the sixteen banks from which the Libor is computed and the usefulness of the Libor as a major economic indicator.

Pharmaceutical Development Phases: A Duration Analysis

This paper estimates a duration model of late stage drug development in the pharmaceutical industry using publicly available data. The paper presents descriptive results on the estimated relationship between a particular drugs characteristics such as therapy category, route of administration and originators size, and that drugs pathway through the three stages of human clinical trials and regulatory review. The results suggest that drugs with longer durations are less likely to succeed, drugs from larger firms are more likely to succeed and faster in the later phases of development, and that durations fell between 1995 and 2002.

Antitrust Screening: Making Compliance Programs Robust

One of the prime issues in the antitrust and competition law1 compliance field is how to deal with the risk of collusive or cartel behavior which involves willful violations of the law. In the past much of antitrust compliance work has focused on training, perhaps accompanied by an antitrust compliance manual. But regardless of the amount of employee training they conduct and the existence of written materials, it is likely that most practitioners feel they do not have a handle on this area of risk. In this paper we discuss the role that empirical screens for conspiracies and manipulations can play in assisting compliance programs, by looking at certain quantifiable red flags and applying statistical analysis to determine priority areas which merit further focus.

Before and After the EMU: Financial Integration, Monetary Policy and Welfare Changes

This paper studies the welfare impact of a common monetary policy in the context of a two-country, general equilibrium model with liquidity effect and nominal wage contracts, heterogeneous agents, imperfect competition in the labor market, trade in goods, immobility of labor and mobility of capital. Considering different types of shocks, agents are in general better off under the single currency regime, aside from predominantly technological and idiosyncratic shocks for which they prefer the national currencies regime with a floating exchange rate. I also find the welfare gains of the monetary policy to be smaller under the single currency.

The Determinants of Cartel Duration

In this paper we model cartel duration as a mixed proportional hazard model and condition on cartel characteristics such as the agency first detecting the cartel, industry, if it is a bid rigging or price fixing cartel, the number of countries affected, the affected sales, and measures of the economic cycle and trend. Results are intuitive and fairly consistent across models, and conform well with theory and prior empirical work. We also found that the model results are sensitive to the presence of unobserved heterogeneity.Among other results, we find that cartels first detected by United States or European Union agencies tend to be longer-lived, likely because those detected by other jurisdictions are primarily follow-ups of related larger and older cartels first uncovered in the United States or Europe. Bid rigging cartels tend to be longer-lived than others, while cartels distributed across geographies tend to be shorter-lived. Cartel durations are increasing in the size of a cartel’s affected sales and sanctions. Industries such as Petroleum & Coal, Finance & Insurance, and Food, Feed, Tobacco & Transportation have shorter-lived cartels, while industries such as Electronic Products have longer-lived cartels. The state of the economy can impact the duration of a cartel as well. Cartels where the leading firm has a market share of at least 40% have longer durations. However, the wide variation in the unobserved frailty factor suggests that additional, significant covariates remain unaccounted for in our information set.

Screening for Conspiracies: Applications for Litigation, Pre-Litigation, Regulation and Internal Monitoring

A screen is a statistical test designed to detect conspiracies aimed at illegally manipulating a market. Competition authorities, academics and consultants have designed a variety screens to detect competition problems, and the use of such screens is increasing. In this paper, we first describe screens designed to detect bid rigging, price fixing, market allocation schemes and commodity market manipulation. Next, we discuss the ways in which screens can be used by plaintiffs and defendants in antitrust cases. These include (i) class certification, (ii) disproving the existence of a cartel; (iii) establishing the immateriality of a cartel; (iv) estimating the effects and damages of collusion; (v) assisting companies in deciding when and whether to file a leniency application; and (vi) assisting managers in large companies to monitor for data manipulation (e.g. falsified reimbursement or accounting statements) and price fixing in purchasing.

Enhancing Financial Benchmarks: Comments on the OICU-IOSCO Consultation Report on Financial Benchmarks

In this comment we advance a number of guiding principles on matters of benchmark formation, administrative governance, screening, transparency and regulation, in response to the OICU-IOSCO Consultation Report on Financial Benchmarks dated January 2013 (“Report”). We are looking for practical solutions which discourage, to the extent possible, attempts at manipulation or fraud while providing the most useful information to the market.

What’s to be Done with Rating Agencies? Understanding the Problem to Find a Solution

Credit Rating Agencies (CRA’s) were at the center of the recent financial crisis. Some have gone so far as to hold them responsible for it. A common argument is that the CRA’s, either due to avarice or incompetence, inflated the ratings of securities related to residential mortgages and in so doing abetted lower and lower underwriting standards in the origination of mortgages. They lulled market participants, including large and sophisticated banks, into a false sense of security, and when house prices fell and people began to default on their mortgages, those securities which had been deemed “AAA” safe began to take losses. Banks were not adequately capitalized against their tremendous exposures to such securities, and they quickly found themselves exposed to large, unanticipated losses. The rest, as they say, is history. This article identifies the antitrust problem in the structured finance ratings market and explains why most of the policy proposals put forward would not address the problem to be solved.