Essays on Competition and Regulation

This doctoral thesis consists of three essays related to competition and regulation. Competition is a central mechanism through which markets can achieve efficiency and increase welfare. In practice, however, perfectly competitive markets rarely exist; instead, firms may gain market power through, for example, concentration, entry barriers, or collusive behavior. In such settings, a regulatory intervention may be justified.

My first essay studies statistical methods that competition authorities can use to detect cartels from procurement data. In the essay, we study the bidding behavior of two convicted cartels that operated in the Finnish and Swedish asphalt paving markets. We find that the cartels altered the distribution of bids in a way that could be captured with statistical methods. We then apply two statistical methods to predict collusion from the data. The methods show good predictive power, suggesting that such methods can be useful for competition authorities in screening for cartels.

My second essay studies the effects of potential entry deregulation in the Finnish pharmacy sector, which is subject to strict regulation that limits the number and location of pharmacies. The results indicate that deregulation would increase the number of pharmacies substantially. We find that 98% of consumers would benefit from deregulation, mainly due to shorter travel distances. As such, deregulation would not lead to a widespread loss of pharmacy services in rural areas. Furthermore, the current regulation seems to benefit incumbent pharmacies at the expense of consumers and potential entrants. However, as new pharmacies do not significantly increase pharmaceutical sales, the losses in industry profits and government's tax revenue exceed the gains in consumer surplus, indicating that deregulation would lead to excessive entry from a total welfare perspective.

My third essay studies how alcohol taxation affect prices, consumption, and government revenue in the Swedish beer market. The analysis relies on both historical tax hikes as well as a simulation of consumer purchasing behavior and manufacturers' pricing. The results show that beer prices respond strongly to tax increases and often increase by more than the tax itself. The consumption response to higher prices is moderate, and despite the decrease in consumption, a tax increase still increases government revenue.

Contact Antto Jokelainen

Email: antto.jokelainen@aalto.fi

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