Imperial College London

ProfessorTommasoValletti

Business School

Head of the Department of Economics and Public Policy
 
 
 
//

Contact

 

+44 (0)20 7594 9215t.valletti Website CV

 
 
//

Location

 

417City and Guilds BuildingSouth Kensington Campus

//

Summary

 

Publications

Publication Type
Year
to

116 results found

Kwoka JE, Valletti TM, 2021, Scrambled Eggs and Paralyzed Policy: Breaking Up Consummated Mergers and Dominant Firms, Industrial and Corporate Change, ISSN: 0960-6491

Entrenched dominant firms and anticompetitive consummated mergers pose growing problems forantitrust agencies throughout the world. A lot of thought is being given as to how to address thesesituations but perhaps the most obvious idea--breaking up such firms—is generally dismissed asimpractical, the equivalent of trying to unscramble eggs. We disagree. We show that there havebeen a substantial number of successful breakups of firms, some in antitrust, more in regulatedindustries, and even more in the private sectors of the U.S. and U.K. as firms initiate their ownrestructuring. We believe that a policy of breakups can have a much greater chance at successcompared to efforts to regulate such firms through rule-making conduct remedies. And we arguethat breaking up such firms is facilitated by the fault lines that reveal the natural break points ofthese heavily merged firms We recommend that breakups be on the policy menu for competitionagencies.

Journal article

Koca E, Valletti T, Wiesemann W, 2021, Designing digital rollovers: managing perceived obsolescence through release times, Production and Operations Management, ISSN: 1059-1478

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuadeits existing customer base to upgrade. This is commonly achieved through arollover strategy, which comprisesthe price of the new product as well as the decision to discontinue the sale of the existing product (solorollover) or to sell the existing product at a discounted price (dual rollover). In this paper, we argue thatthe timing of the new product release is an important—but commonly overlooked—third lever in the designof a successful rollover strategy. The release timing influences the consumers’ perception of obsolescence, bywhich an existing product is considered obsolete merely by reference to a new product. This reinforces theupgrading behavior of existing customers, but it also necessitates deep discounts of the existing product tokeep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rolloversin markets for digital goods (i.e., where production costs are negligible) that are composed of naive andsophisticated consumers. Under the assumption that both the old and the new product would offer a similarutility if there was no perceived obsolescence, we show that in both markets a firm selecting the release timesfrom a continuous timeline can induce sufficiently large parts of its existing customer base to upgrade so thata solo rollover is optimal. We also characterize the resulting market segmentation, and we offer managerialas well as policy advice.

Journal article

Prat A, Valletti T, 2021, Attention Oligopoly, American Economic Journal: Microeconomics, ISSN: 1945-7669

We model digital platforms as attention brokers that have proprietary information about their users' product preference and sell targeted ad space to retail product industries. Retail producers - incumbents or entrants -compete for access to this attention bottleneck. We discuss when increased concentration among attention brokers results in a tightening of the attention bottleneck, leading to higher ad prices, fewer ads being sold to entrants, and lower consumer welfare in the product industries. The welfare effect is characterized in terms of patterns of individual usage across platforms. A merger assessment that relies on aggregate platform usage alone can be highly biased.

Journal article

Valletti T, Zenger H, 2021, Mergers with Differentiated Products: Where Do We Stand?, Review of Industrial Organization, Vol: 58, Pages: 179-212, ISSN: 0889-938X

On the occasion of the 10th anniversary of the 2010 U.S. Horizontal Merger Guidelines, this article provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. Drawing on our experience with merger enforcement in Europe, we discuss both static and dynamic competition, with a special emphasis on the calibration of competitive effects. We also discuss the role of market shares and structural presumptions in differentiated product markets.

Journal article

de Montjoye Y-A, Ramadorai T, Valletti T, Walther Aet al., 2021, Privacy, adoption, and truthful reporting: A simple theory of contact tracing applications, Economics Letters, Vol: 198, Pages: 1-4, ISSN: 0165-1765

This paper analyzes the trade-offs associated with the deployment of contact tracing applications to support policy responses in a pandemic. In many jurisdictions, the government cannot force individuals to adopt such applications. We therefore analyze a simple model that highlights the importance of individuals’ incentives to voluntarily adopt a reporting application and reveal their infection status to the government who can then undertake contact monitoring. We discuss the consequences of various policy options, such as security, communication and anonymization policies, in terms of the size and representativeness of the sample of infection data that contract tracing applications generate.

Journal article

Valletti T, Hans Z, 2020, Mergers with differentiated products: where do we stand?, Review of Industrial Organization, ISSN: 0889-938X

On the occasion of the 10th anniversary of the 2010 U.S. Horizontal Merger Guidelines, this article provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. Drawing on our experience with merger enforcement in Europe, we discuss both static and dynamic competition, with a special emphasis on the calibration of competitive effects. We also discuss the role of market shares and structural presumptions in differentiated product markets.

Journal article

Amelio A, Karlinger L, Valletti T, 2020, Exclusionary pricing in two-sided markets, International Journal of Industrial Organization, Vol: 73, ISSN: 0167-7187

This paper studies the incentives to engage in exclusionary pricing in the context of two-sided markets. Platforms are horizontally differentiated, and seek to attract users of two groups who single-home and enjoy indirect network externalities from the size of the opposite user group active on the same platform. The entrant incurs a fixed cost of entry, and the incumbent can commit to its prices before the entry decision is taken. The incumbent has thus the option to either accommodate entry, or to exclude entry and enjoy monopolistic profits, albeit under the constraint that its price must be low enough to not leave any room for an entrant to cover its fixed cost of entry. We find that, in the spirit of the literature on limit pricing, under certain circumstances even platforms find it profitable to exclude entrants if the fixed entry cost lies above a certain threshold. By studying the properties of the threshold, we show that the stronger the network externality, the lower the thresholds for which incumbent platforms find it profitable to exclude. We also find that entry deterrence is more likely to harm consumers the weaker are network externalities, and the more differentiated are the two platforms.

Journal article

Valletti T, Hans Z, 2020, Increasing market power and merger control, Competition Law & Policy Debate, Vol: 5, Pages: 40-49, ISSN: 2405-481X

A significantbody of empirical research has documented a structural increase in margins across a wide range of industriesand countries.1On average, firms enjoy appreciably greater pricing power today than used to be the casein prior decades.2 Research also showed that this increase in mark-ups coincided with a decline in the labour share of output, higher aggregate concentration, larger corporate profitability, and a slump in business dynamism (as measured by indicators such as entry, investment andinnovation).3 The broader phenomenon of increasedpricing power appears largely (though not unanimously) accepted among researchers. Even so, there is substantial disputeabout its underlying causesand implications.Some researchers have attributed recent margin trendsprimarily to the growth of so-called “superstar firms”—highly profitablecompanies thathave successfully seized the opportunities generated by globalization and technological change (such asdigitization and automation).4Others have linked increasing mark-upsto a lack of competition, e.g., caused by overly permissive merger control.5 Since our earlier workon this topic,6 also antitrust practitioners and agency representatives have started to weigh in on the debate.7 Moreover, both the FTC and the OECD have held public hearings on market power and concentrationto discuss the significance of recent academic findingsfor competition policy.

Journal article

Kokkoris I, Valletti T, 2020, Innovation considerations in horizontal merger control, Journal of Competition Law and Economics, Vol: 16, Pages: 220-261, ISSN: 1744-6414

This paper focuses on the assessment of mergers and in particular on unilateral effects analysis where innovation plays an important role. The paper discusses the economic theories behind innovation, how we move from the traditional product-by-product market definition to pipeline competition and innovation competition and the concept of innovation space. The paper provides a structural analysis of unilateral effects in such markets analyzing how competition authorities should assess a transaction where the main theory of harm is based on innovation considerations.

Journal article

Valletti T, Wu J, 2020, Consumer profiling with data requirements: structure and policy implications, Production and Operations Management, Vol: 29, Pages: 309-329, ISSN: 1059-1478

We consider a model where a monopolist can profile consumers in order to price discriminate among them, and consumers can take costly actions to protect their identities and make the profiling technology less effective. A novel aspect of the model consists in the profiling technology: the signal that the monopolist gets about a consumer’s willingness‐to‐pay can be made more accurate either by having more consumers revealing their identities, or by spending larger amounts of money (e.g., on third‐party complementary data or data analytics capabilities). We show that both consumer surplus and social welfare are convex in the ability of consumers to conceal their identities. The interest of this result stems from the fact that consumers’ concealing cost can be interpreted as a policy tool: a stricter privacy law would make the concealing cost lower, and vice‐versa. Consequently, a policymaker who promotes total welfare should either make data protection very easy or very costly. The right direction of data regulations depends on data requirements. In particular, a higher (lower) data requirement is an instance when more (less) consumers are needed to achieve the same signal precision. We show that a strict data privacy law is preferable under a high data requirement so that firms are less likely to invest in profiling inefficiently, whereas there is less concern with little or no data regulations under a low data requirement. We also discuss when greater data protection may be beneficial to the firm.

Journal article

Kotzeva R, Kovo D, Lorincz S, Sapi G, Sauri L, Valletti Tet al., 2019, Recent Developments at DG Competition: 2018/2019, Review of Industrial Organization, Vol: 55, Pages: 551-578, ISSN: 0889-938X

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys some of the main achievements of the Directorate General for Competition over 2018/2019. The article then reviews the Siemens/Alstom merger, the Google Android case, as well as two state aid cases that related to a public service compensation for obligations that involved press delivery in France and Italy.

Journal article

Gavazza A, Nardotto M, Valletti T, 2019, Internet and politics: Evidence from U.K. local elections and local government policies, Review of Economic Studies, Vol: 86, Pages: 2092-2135, ISSN: 1467-937X

We empirically study the effects of broadband internet diffusion on local election outcomes and on local government policies using rich data from the U.K. Our analysis shows that the internet has displaced other media with greater news content (i.e. radio and newspapers), thereby decreasing voter turnout, most notably among less-educated and younger individuals. In turn, we find suggestive evidence that local government expenditures and taxes are lower in areas with greater broadband diffusion, particularly expenditures targeted at less-educated voters. Our findings are consistent with the idea that voters’ information plays a key role in determining electoral participation, government policies, and government size.

Journal article

Cave M, Genakos C, Valletti T, 2019, The European framework for regulating telecommunications – a 25-year appraisal, Review of Industrial Organization, Vol: 55, Pages: 47-62, ISSN: 0889-938X

The European telecommunications sector has been radically transformed in the past 25 years: from a group of state monopolies to a set of increasingly competitive markets. In this paper we summarize how this process has unfolded—for both fixed and mobile telecommunications—by focusing on the evolution of the regulatory framework and by drawing some parallels with the evolution of the sector in the US. Given the major strategic importance of the sector, we highlight some of the challenges that lie ahead.

Journal article

Amaral-Garcia S, Nardotto M, Propper C, Valletti Tet al., 2019, Mums go online: Is the internet changing the demand for healthcare?, The Review of Economics and Statistics, ISSN: 0034-6535

We study the effect of internet diffusion on childbirth procedures performed in England between 2000 and 2011. We exploit an identification strategy based on geographical discontinuities in internet access generated by technological factors. We show that broadband internet access increased Cesarean-sections: mothers living in areas with better internet access are 2.5 percent more likely to have a C-section than mothers living in areas with worse internet access. The effect is driven by first-time mothers who are 6 percent more likely to obtain an elective C-section. The increased C-section rate is not accompanied by changes in health care outcomes of mothers and newborns. Health care costs increased with no corresponding medical benefits for patients. Heterogeneity analysis shows that mothers with low income and low education are those more affected: thanks to the internet, they progressively close the C-section gap with mothers with higher income and education. We show evidence documenting the growing importance of the internet as a source of health related information, and we argue that patient’s access to online information is changing the relationship between health care providers and patients.

Journal article

Montes R, Sand-Zantman W, Valletti T, 2019, The Value of Personal Information in Online Markets with Endogenous Privacy, MANAGEMENT SCIENCE, Vol: 65, Pages: 1342-1362, ISSN: 0025-1909

Journal article

Amelio A, Buettner T, Hariton C, Koltay G, Papandropoulos P, Sapi G, Valletti T, Zenger Het al., 2018, Recent developments at DG Competition: 2017/2018, Review of Industrial Organization, Vol: 53, Pages: 653-679, ISSN: 0889-938X

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys some of the main achievements of the Directorate General for Competition over 2017/2018. The article then reviews: the Google Search (Shopping) case, the role of price discrimination in state aid cases; and the use of counterfactuals in merger cases where alternative transactions might have occurred absent the merger.

Journal article

Federico G, Langus G, Valletti T, 2018, Reprint of: Horizontal mergers and product innovation, International Journal of Industrial Organization, Vol: 61, Pages: 590-612, ISSN: 0167-7187

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the “price coordination” channel and the internalization of the “innovation externality”. We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

Journal article

Federico G, Langus G, Valletti T, 2018, Horizontal mergers and product innovation, International Journal of Industrial Organization, Vol: 59, Pages: 1-23, ISSN: 0167-7187

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the “price coordination” channel and the internalization of the “innovation externality”. We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

Journal article

Flores-Fillol R, Iozzi A, Valletti T, 2018, Platform pricing and consumer foresight: the case of airports, Journal of Economics and Management Strategy, Vol: 27, Pages: 705-725, ISSN: 1058-6407

We analyze the optimal behavior of a platform providing essential inputs to do-wnstream firms selling a primary and a second complementary good. Final demandis affected by consumer foresight, i.e., consumers may not anticipate the ex post sur-plus from the secondary good when purchasing the primary good. We first set up areduced-form platform model and evaluate the effects of consumer foresight on theplatform’s optimal decisions. Then, we specialize the analysis in the context of ai-rports, which derive revenues from both aeronautical and, increasingly, commercialactivities. An airport sets landing fees and, in addition, it chooses the retail marketstructure by selecting the number of retail concessions to be awarded. We find that,with perfectly myopic consumers, the airport chooses to attract more passengers vialow landing fees, and also sets the minimum possible number of retailers in order toincrease the concessions’ revenues. However, even a very small amount of anticipa-tion of the consumer surplus from retail activities changes significantly the airport’schoices: the optimal policy is dependent on the degree of differentiation in the retailmarket. When consumers instead have perfect foresight, the airport establishes a verycompetitive retail market. This attracts passengers and it is exploited by the airportby charging higher landing fees, which then constitute the largest share of its profits.Overall, the airport’s profits are maximal when consumers have perfect foresight.

Journal article

Valletti T, Zenger H, 2018, Should profit margins play a more decisive role in merger control? A rejonder to Jorge Padilla, Journal of European Competition Law and Practice, Vol: 9, Pages: 336-342, ISSN: 2041-7764

In a recent article in this journal,1 Dr Jorge Padilla discusses a speech that one of us had given on the interrelation between merger control and profit margins.2 The speech had pointed out that, according to empirical research, recent decades have been characterised by a secular trend towards higher profit margins, in particular in the US. From an economic perspective, increased pricing power implies that future horizontal mergers involving firms with high margins are more likely to be problematic than would otherwise be the case. Merger control should therefore be more vigilant when facing an expansion of profit margins in specific sectors or in the economy at large.In his paper, Dr Padilla questions these conclusions. Although he acknowledges that profit margins have a useful role to play in merger analysis, he argues that mergers involving firms with high margins should not be viewed more critically than other transactions. According to his paper, subjecting mergers in industries with high margins to stricter controls would lead to systematic enforcement errors and cannot be justified economically.We welcome the opportunity to continue discussing this important topic and, in this rejoinder, we respond to his arguments. Section II first summarises the economic implications of increased profit margins for merger enforcement. Section III then responds to Dr Padilla’s criticism and the arguments he puts forward to support a cautious application of margin analysis in merger control. Section IV, finally, concludes.

Journal article

Federico G, Langus G, Valletti TM, 2018, Horizontal mergers and product innovation

We set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus. The model incorporates two competitive channels for merger effects: the "price coordination" channel and the internalization of the "innovation externality". We solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation, while internalization of the innovation externality depresses it. The latter effect is stronger in our simulations and, as a result, the merger leads to lower innovation incentives for the merged entity, absent cost efficiencies and knowledge spillovers. In our numerical analysis both overall innovation and consumer welfare fall after a merger.

Working paper

Valletti T, Genakos C, Verboven F, 2018, Evaluating market consolidation in mobile communications, Economic Policy, Vol: 33, Pages: 45-100, ISSN: 0266-4658

We study the dual relationship between market structure and prices and between market structure and investment in mobile telecommunications. Using a uniquely constructed panel of mobile operators’ prices and accounting information across 33 OECD countries between 2002 and 2014, we document that more concentrated markets lead to higher end user prices. Furthermore, they also lead to higher investment per mobile operator, though the impact on total investment is not conclusive. Our findings are not only relevant for the current consolidation wave in the telecommunications industry. More generally, they stress that competition and regulatory authorities should take seriously the potential trade-off between market power effects and efficiency gains stemming from agreements between firms.

Journal article

Buehler B, Coublucq D, Hariton C, Langus G, Valletti Tet al., 2017, Recent Developments at DG COMP: 2016/17, Review of Industrial Organization, Vol: 51, Pages: 397-422, ISSN: 0889-938X

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys the main achievements of the Directorate General for Competition over 2016/2017. The article then reviews the economic work undertaken in one merger case between Dow/DuPont, which raised specific issues related to innovation, as well as in an antitrust case on parity clauses related to Amazon e-books.

Journal article

Valletti T, Ahlfeldt G, Koutroumpis P, 2017, Speed 2.0: Evaluating access to universal digital highways, Journal of the European Economic Association, Vol: 15, Pages: 586-625, ISSN: 1542-4766

This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. Our empirical strategy combines a boundary discontinuity design with controls for time-invariant effects and arbitrary macro-economicshocks at a very local level to identify the causal effect of broadband speed on property prices from variation that is plausibly exogenous. Applying this strategy to a micro data set from England between 1995 and 2010 we find a significantly positive effect, but diminishing returnsto speed. Our results imply that disconnecting an average property from a high-speed first generation broadband connection (offering Internet speed up to 8 Mbit/s) would depreciate its value by 2.8%. In contrast, upgrading such a property to a faster connection (offering speeds upto 24 Mbit/s) would increase its value by no more than 1%. We decompose this effect by income and urbanization, finding considerable heterogeneity. These estimates are used to evaluate proposed plans to deliver fast broadband universally. We find that increasing speed andconnecting unserved households passes a cost-benefit test in urban and some suburban areas, while the case for universal delivery in rural areas is not as strong.

Journal article

Federico G, Langus G, Valletti T, 2017, A simple model of mergers and innovation, Economics Letters, Vol: 157, Pages: 136-140, ISSN: 1873-7374

We analyze the impact of a merger on firms’ incentives to innovate. We show that the merging parties always decrease their innovation efforts post-merger while the outsiders to the merger respond by increasing their effort. A merger tends to reduce overall innovation. Consumers are always worse off after a merger. Our model calls into question the applicability of the “inverted-U” relationship between innovation and competition to a merger setting.

Journal article

Valletti T, Clavora' F, 2016, Selling customer information to competing firms, Economics Letters, Vol: 149, Pages: 10-14, ISSN: 0165-1765

We consider a data broker that holds precise information aboutcustomer preferences. The data broker can sell this data set eitherexclusively to one of two differentiated competing firms, or to bothof them. If a downstream firm obtains the data set, it can practicepersonalized pricing, else it has to offer a uniform price to customers.The first-best allocation can be achieved when data are sold non exclusively,but this never arises in equilibrium. The data broker insteadsells the data set exclusively either to the high quality firm or to thelow quality firm rival, according to their quality-adjusted cost differential.This leads to inefficient allocations.

Journal article

Valletti T, Peitz M, Greenstein S, 2016, Net Neutrality: A Fast Lane to Understanding the Trade-offs, Journal of Economic Perspectives, Vol: 30, Pages: 127-150, ISSN: 1944-7965

The “net neutrality” principle has triggered a heated debate and advocates have proposed policy interventions.In this paper, we provide perspective by framing issues in terms of the positive economic factors at work. We stress the incentives of market participants, and highlight the economic conflicts behind the arguments put forward by the different parties. We also identify several key open questions.

Journal article

Reggiani C, Valletti T, 2016, Net neutrality and innovation at the core and at the edge, International Journal of Industrial Organization, Vol: 45, Pages: 16-27, ISSN: 0167-7187

How would abandoning Internet net neutrality affect content providers that have different sizes? We model an Internet broadband provider that can offer a different quality of service (priority) to heterogeneous content providers. Internet users can potentially access all content, although they browse and click ads with different probabilities. Net neutrality regulation effectively protects innovation done at the edge by small content providers. Prioritization, instead, increases both infrastructure core investment and welfare only if it sufficiently stimulates innovation from the large content provider.

Journal article

Peitz M, Valletti T, 2015, Reassessing Competition Concerns in Electronic Communications Markets, Telecommunications Policy, Vol: 39, Pages: 896-912, ISSN: 1879-3258

Central features of today’s electronic communications markets are complementarities between the different layers of the value chain, substitutability between some applications, network effects in the provision of content and services, two-sided business models that partly involve indirect revenue generation (such as advertising and data profiling), and a patchwork of regulated and unregulated segments of the market. This complexity requires a fresh look at the market forces shaping the industry and a rethinking of market definitions and of the assessment of market power. This article presents the state of play in European electronic communication markets, with a particular emphasis on the recent development of “over the tops”. We also use a stylised model of an electronic communications market to draw some central lessons from economic theory and to elaborate on market definition and market power.

Journal article

Genakos C, Valletti T, 2015, Evaluating a decade of mobile termination rate regulation, Economic Journal, Vol: 125, Pages: F31-F48, ISSN: 1468-0297

We re-consider the impact that regulation of call termination on mobile phones has had on mobilecustomers’ bills. Using a large panel covering 27 countries, we find that the ‘waterbed’ phenomenon,initially observed until early 2006, becomes insignificant on average over the 10-year period, 2002–11.We argue that this is related to the changing nature of the industry, whereby mobile-to-mobile trafficnow plays a much bigger role compared to fixed-to-mobile calls in earlier periods. Over the samedecade, we find no evidence that regulation caused a reduction in mobile operators’ profits andinvestments.

Journal article

This data is extracted from the Web of Science and reproduced under a licence from Thomson Reuters. You may not copy or re-distribute this data in whole or in part without the written consent of the Science business of Thomson Reuters.

Request URL: http://wlsprd.imperial.ac.uk:80/respub/WEB-INF/jsp/search-html.jsp Request URI: /respub/WEB-INF/jsp/search-html.jsp Query String: respub-action=search.html&id=00306346&limit=30&person=true