A QUASI-NATURAL EXPERIMENT TO ESTIMATE CARTEL EFFECTS

Transcription

1 BERLIN, ACE CONFERENCE 2009 A QUASI-NATURAL EXPERIMENT TO ESTIMATE CARTEL EFFECTS The Case of Temporary Workers in France Francesco ROSATI francesco.rosati@rbbecon.com Note: The views expressed here are my own and do not necessarily represent those of VediorBis

2 THE TEMPORARY WORKERS CASE OVERVIEW 1. Two approaches: During-and-After v Difference-in-Differences 2 2. Difference-in-Differences: is the control group a good benchmark? 3. During-and-After: is the post-infringement period a good benchmark? 4. Conclusions

3 3 BERLIN, DURING-AND-AFTER V DIFFERENCE-IN-DIFFERENCES (1) To estimate the alleged cartel over-charge, cartel prices have to be compared to a competitive price benchmark The D-and-A approach compares price levels during the cartel and after the end of the cartel (inter-temporal comparison); it is the most commonly used approach The D-in-D approach compares the evolution of prices across different types of customers (the treatment group and the control group ) FRANCESCO ROSATI Which method provides the most accurate results? Note: references to a cartel made in this presentation are for illustrative purposes only and cannot be taken to imply the existence of a competition law infringement.

4 Price 1. DURING-AND-AFTER V DIFFERENCE-IN-DIFFERENCES (2) Price to cartel customers 4 Price to non-cartel customers Dawn raids Time

5 5 1. DURING-AND-AFTER V DIFFERENCE-IN-DIFFERENCES (3) Which method works best depends on the facts of the case and on the available data The During-and-After approach relies on the assumption that the model perfectly controls for all variables that cause prices to change over time The D-in-D approach tries to account for inter-temporal differences not explicitly controlled for by the model, by using a control group But does the control group react to shocks in the same way as the study group (after controlling for observable differences)? D-in-D works better than D-and-A if the impact on prices of unexplained shocks is more important than the impact on price of unexplained differences between control group and study group

6 THE TEMPORARY WORKERS CASE 6 1. DATA AND MODELS An exceptionally accurate and extensive database (VediorBis) Over 200,000 data points, by year, customer and worker s qualification VediorBis model (): The price used in this industry is the coefficient K = price / salary; this was explained by Social security charges / salary Cost of credit / salary Rebates on social security charges / salary Ln (salary) Customer X Qualification fixed effects Year fixed effects D-in-D variable (=1 on the study group in the cartel years) Clusters (by customer) were used to estimate std. errors Results were very precise: std. errors <0.07% of average price The Authority used the same model, but restricted it to the treatment group and re-interpreted the year fixed effects as the cartel overcharge

7 7 2. TEMPORARY WORKERS: THE DIFFERENCE-IN-DIFFERENCES APPROACH We used local customers as a control group to estimate the effect of collusion on national customers: do local customers provide a good benchmark for competitive prices? The cartel did not affect local customers (as recognised by the decision): BERLIN, FRANCESCO ROSATI No factual evidence of coordination on local customers Economic analysis shows that coordination on local customers could not be achieved Prices differ substantially across customers, across worker qualifications, and over time Over 25,000 local customers per year: customer-bycustomer agreement would have been unfeasible Substantial competition from smaller firms (50% mkt. share)

8 8 BERLIN, ARE LOCAL CUSTOMERS A GOOD CONTROL GROUP? (1) The key economic characteristics of national and local customers are the same They buy the same service: workers are not specialised by customer type They have the same variable costs: salaries and social security charges (possible differences in fixed costs cannot affect prices) FRANCESCO ROSATI They both negotiate prices: although negotiations with national customers are longer and more complex, there is no structural difference (e.g. there is no price list for local customers)

9 9 2. ARE LOCAL CUSTOMERS A GOOD CONTROL GROUP? (2) We explicitly controlled for the following differences between local customers and national customers: All differences between the two groups that are constant over time (e.g. different bargaining power) Customer fixed effects Different mix of workers skills Customer X Skill fixed effects Differences in salary, social security contributions, credit costs and social security rebates Control variables We also verified that the control variables had the same impact on prices in both customer groups (same regression coefficients)

10 10 2. ARE LOCAL CUSTOMERS A GOOD CONTROL GROUP? (3) The main exogenous shocks are likely to have a similar effect on national and local customers Shortages and gluts of workforce for specific qualifications (the same workers are used by both types of customers) The economic cycle Changes to labour laws and regulation: e.g. the level of the minimum wage, taxes on overtime, the amount and conditions for receiving unemployment benefits, etc.

11 11 3. TEMPORARY WORKERS: THE DURING-AND-AFTER APPROACH Methods based on inter-temporal comparison (i.e. during-andafter the alleged cartel) are likely to yield biased results in markets where exogenous shocks are important BERLIN, FRANCESCO ROSATI The bias problem is particularly serious in the temporary workers case because The time period analysed is very short: annual data from 2003 to 2007 (but discarded because of potential inertia ) The Authority estimated the effect of the cartel separately for each year (with year dummies) instead of testing for a structural break (with a cartel period dummy) In essence, the approach used by the Authority assumes that exogenous shocks are negligible

12 12 BERLIN, IS THE POST-INFRINGEMENT PERIOD A GOOD BENCHMARK? (1) Exogenous shocks in the labour market are not negligible! The labour market is known to be strongly affected by factors such as: The business cycle The level of social security charges The level of the minimum wage The amount and conditions for receiving unemployment benefits The EU enlargement, allowing workers from new member states to work in France (since1 May 2006) FRANCESCO ROSATI More generally, labour laws and employment policies change frequently, having an impact on workers and firms incentives The market for temporary workers is particularly affected by such shocks

13 13 3. IS THE POST-INFRINGEMENT PERIOD A GOOD BENCHMARK? (2) Ignoring exogenous shocks leads to biased estimates. But can we estimate the likely direction of the bias? The Authority: the decrease of the gross margin coefficient cannot be explained by exogenous shocks: 1. Demand would not have decreased, as volume sold increased over the period 2. Supply would not have increased, as unemployment rate declined However, these arguments are incorrect: Changing labour regulation can strongly affect both demand and supply Margin coefficients decreased for local customers too! Although the margin coefficient decreased, margins in / hour increased, because salaries increased substantially (+10%): Price = Coefficient X Salary

14 14 3. IS THE POST-INFRINGEMENT PERIOD A GOOD BENCHMARK? (3) 1. There is no clear evidence on the evolution of demand: The fact that the volume of hours sold increased does not demonstrate that demand shifted outwards, but only that the equilibrium of demand and supply changed For example, changes to charges and regulation on overtime and on the use of trainees affected firms incentives to hire temps, potentially reducing demand for temps 2. The supply curve may well have shifted right, thereby explaining both the larger volume and the lower prices: The duration of unemployment benefits was reduced from 2004, thereby increasing labour offer Rebates on employer s social security charges increased from 8% of the salary in 2003, to 11% in 2007, thereby reducing the cost of temps for Vedior and other suppliers

15 Price 3. GOVERNMENT POLICY RATHER THAN THE CARTEL LIKELY EXPLAINS THE PRICE DYNAMICS Demand Supply 15 A B Government policies shift the supply curve to the right, resulting in lower prices and larger volume sold Volume

16 THE TEMPORARY WORKERS CASE CONCLUSIONS Traditionally, cross-market comparisons have been viewed with scepticism in anti-trust and therefore rarely used Yet approaches based on inter-temporal comparisons are potentially equally problematic, if not more problematic The D-in-D approach compares prices both across markets and over time. It is likely to be more reliable than the inter-temporal comparison (D-and-A) if the impact on prices of unexplained shocks is more important than the impact on prices of unexplained differences between control group and study group In the temporary workers case, neglecting differences between national and local customers is likely to yield less biased results than neglecting exogenous shocks