ANALYSIS OF THE MARKET

Start Day: Mon 29 April
End Day: Sat 4 May

Module description:

The module on the Economic Analysis of the Market will outline the evolution of economic theories and policy approaches towards the ‘management’ of the market as a complex institution. After an overview on the evolution of the notion of mrket and competition in economic theory, the Module will focus on the evolution of competition policies in the European Union and in OECD countries, through an interdisciplinary law and economics approach to the design of antitrust policy. The Module will thus introduce to the notion of relevant market, abuse of dominance, mergers and Cartels, combining economic thoeries with the analysis of the most relevant case studies. The final part of the module will in particular focus on the analysis of procurement design under the perspective of competition law. Again, comparing economic theories with the analysis of relevant case studies will outline the main trade-offs between effectiveness of competition and other policies targets, such as universal service obligations.

 

Lecturer 1

 Antonio Nicita

Date  April 29, 30  hours: 10.00-1.00 and 2.00-5.00

           May 2,  hours: 10.00-1.00 and 2.00-5.00

           May 3  hours: 10.00-1.00 and 2.00-6.00

Lecture content

 

Lecturer 2

Marzia Balzano

Date  April 29,   hours: 10.00-1.00 and 2.00-5.00

           May 2   hours: 10.00-1.00 and 2.00-5.00

           May 3   hours: 10.00-1.00 and 2.00-6.00

Lecture content

 

Lecturer 3

Gian Luigi Albano

Date  May 4    hours: 10.00-1.00 and 2.00-4.00

Lecture content

 

EXAM MODALITY:

Available time: 2 hours


During the exam students will be required to answer 3 questions (one question for each Professor: 1 question for Prof. Nicita, 1 question for Prof. Balzano, 1 question for Prof. Albano) from the set of the following:

 

Prof. Nicita (1 out of these 5 questions):

1. Define and discuss the following concepts: relevant markets, dominant positions, abuse of dominance
2. Comment on this proposition: "two is enough for having competitive outcomes"
3. Price discrimination and abuse of dominance. When and how
4. Bundling, efficiency and competition. Discuss their connection through an example.
5. Are monopolies always inefficient?

 

Prof. Balzano (1 out of these 5 questions):

1. The concept of undertaking in the context of European competition law
2. Agreements and concerted practices
3. Bid rigging practices and competition law
4. Leniency programs
5. Art. 102 TFEU: purposes and relevant behaviors

 

Prof. Albano (1 out of these 5 questions):

Question 1.
Suppose that you are asked to award two procurement contracts. You can choose between two strategies: i) awarding the two contracts separately; ii) bundling the two contracts into a bigger one (whose value is just the sum of the two separate contracts).

 

Procurement contract 1: €150.000

 

Potential participants                Yearly turnover
   
Firm A €1.000.000
Firms B €500.000
Firm C €200.000

 

Procurement contract 2: €200.000

 

Potential participants                 Yearly turnover
Firm A €1.000.000
Firm B €500.000
Firm D €300.000
Firm E €250.000

Participation requirements are such that each tenderer’s yearly turnover has to be greater or equal than the value of the procurement contract. Under what broad circumstances would you choose the bundling strategy? Would you envisage any form of collusion among participating firms under the bundling strategy? Explain.

 

Question 2.

Foodstuff is to be purchased and delivered to school refectories that are scattered all over the country. Market analysis reveals the existence of two big suppliers, A and B. Firm A has a larger market share in the northern part of country, whereas firm B is the leader in the southern part of the same country. Procurement officials have to decide whether to split the contract into 2 lots (North and South) or to have just one national contract.

Suppose that, due to warehouse location, firm A bears a distribution cost equal to €2 for lot N (North) and €10 for lot S (South). Firm B, instead, bears production costs equal to €8 for lot N and €4 for lot S. That is, firm A has competitive advantage in the North, whereas firm B has a competitive advantage in the South which would explain different market shares in the two regions. To make the exposition simple, assume that both competitors know each well, namely they are aware of each other’s cost structure since they have been competing for quite a while.
a. Suppose that you are asked to minimize the purchasing cost for procuring foodstuff by using the lowest-price criterion. Which procurement option would you choose? Explain.
b. Suppose that you are asked to pursue an efficient allocation of the contract, namely to award each lot to the more efficient firm (that is, the one with lower distribution cost) by using the lowest-price criterion. Which procurement option would you choose? Explain.


Question 3.

Consider a stylized procurement market for medical equipment (say, x-ray machines). There are 5 bid competitors in the market and 100 of public buyers (say, public hospitals), each one entitled to run a procurement process independently of each other.
Argue that aggregating, at least partially, public demand - that is, running a single procurement process on behalf of more than one public buyer - may reduce the risk of collusion among firms in the relevant market.

 

Question 4.

Consider a procurement contract to be awarded according to the “average bid” criterion whereby the contractor is the firm submitting  closest bid to the (simple) average of all submitted bids. Explain i) why this awarding method may favour collusion among firms; and ii) why the sustainability of an active cartel increases with the cartel’s size, that is, each firm in the cartel has weaker incentives to deviate as the number of firms in the cartel increases.

 

Question 5.

Explain intuitively why in a procurement market with a fixed number of identical competitors the risk collusion among them i) increases if public demand expands over time; ii) decreases if public demand shrinks over time.

Department of Economics and Finance
University of Rome "Tor Vergata"
Via Columbia 2, 00133 Roma

Director
Prof. Gustavo Piga
gustavo.piga@uniroma2.it

Executive Director
Prof. Annalisa Castelli
annalisa.castelli@uniroma2.it

Distance Learning Coordinator
Prof. Andrea Appolloni
andrea.appolloni@uniroma2.it

Secretariat
Cristina Cerri / Simona Rippo
cerri@economia.uniroma2.it
simona.rippo@uniroma2.it

Phone: +39 06 7259 5942
Fax: +39 06 2020 500
public.procurement@uniroma2.it.

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