Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, September 25, 2018

Mixed Bundling in Retail DVD Sales: Facts and Theories

Luis M. B. Cabral, New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR) and Gabriel Natividad, Universidad de Piura have an interesting paper on Mixed Bundling in Retail DVD Sales: Facts and Theories.

ABSTRACT: Many DVD titles are sold in retail stores in bundles, typically a bundle of two different titles with common characteristics: same lead actor/actress, same director, same genre, etc. This suggests that consumer valuations are positively correlated across the bundle components, which in turn runs counter to the received wisdom that bundling is most profitable when valuations are negatively correlated. In this paper, we propose a solution to this puzzle, one that is based on the observation that DVDs are sequentially released durable goods. At the time the second title is released, it is likely that high-valuation buyers will have bought the first one. For this reason, even though ex-ante valuations are positively correlated, ex-post -- that is, at the time the second title is released -- valuations are negatively correlated. We provide sufficient conditions such that mixed bundling increases revenues and the revenue increase is greater the more positively correlated valuations are. We also provide empirical confirmation of this prediction as well as an independent estimate from a calibrated analytical model.

September 25, 2018 | Permalink | Comments (0)

Distortions of Competition by Contracting Authorities — Bringing Some of the Pieces Together

Albert Sanchez-Graells, University of Bristol - School of Law describes Distortions of Competition by Contracting Authorities — Bringing Some of the Pieces Together.

ABSTRACT: This paper stresses that public procurement regulation and practice can result in distortions of competition and offers stylised economic analysis of the ways in which they can unfold. Against that backdrop, the paper provides updated analysis of the distortions of competition that can derive from the exercise of administrative discretion by public buyers and their treatment under EU competition and public procurement law. The paper concentrates, in particular, on a proposal to boost the role of the principle of competition of Article 18(1)II of Directive 2014/24/EU as a tool to promote pro-competitive public procurement regulation and practice.

September 25, 2018 | Permalink | Comments (0)

Do Firms Strategically Announce Capacity Expansions to Deter Entry?

Matthew J. Bloomfield, The Wharton School of the University of Pennsylvania and Marcel Tuijn, Erasmus University Rotterdam (EUR); University of Chicago - Booth School of Business ask Do Firms Strategically Announce Capacity Expansions to Deter Entry?

ABSTRACT: Using plausibly exogenous variation in entry threats, we provide evidence that firms strategically preannounce capacity expansions to deter entry into their product markets. To do so, we first construct a novel text-based measure of voluntary disclosure that reflects firms’ explicit forward-looking statements about capacity expansion plans. We validate our measure, and demonstrate that such disclosures are credible, by showing that it accurately predicts increases in capacity, as captured by CAPEX, PP&E, sales, COGS, and inventories. We then show that firms respond to heightened entry threats by announcing capacity expansions. Consistent with our predictions, larger firms are more likely to respond in this fashion, while firms with more private information about industry prospects are less likely to respond in this fashion. Capacity expansion announcements appear to be effective at deterring entry.

September 25, 2018 | Permalink | Comments (0)

Monday, September 24, 2018

Digital Markets, Mobile Payments Systems and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience

Jörg Hoffmann, Max Planck Institute for Innovation and Competition, Mor Bakhoum, Max Planck Institute for Innovation and Competition, and Francisco Beneke, Max Planck Institute for Innovation and Competition address Digital Markets, Mobile Payments Systems and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience.

ABSTRACT: The digitization of economic activity has important socio-economic development implications and at the same time creates challenges for antitrust analysis. These implications and challenges have been met differently in jurisdictions around the world. In this paper we analyze the different experiences in the EU and developing countries, focusing on mobile payments. We find that this market exhibits special characteristics that need to be taken into account in the analysis of competition conditions. First, it is enabled by mobile telecommunications infrastructure and is offered by network operators, which causes competition in both markets to be closely linked. Second, there are factors, such as the lack of interoperability and geographical reach, that make network effects in this industry different from those present in other platforms. Third, since mobile payments in developing countries serve a niche—the population underserved by mainstream banking—the definition of the relevant market is not straightforward. We propose the criteria to be applied when making such definition. Finally, since mobile payments have associated financial services, there is an interaction between competition and financial stability that needs to be considered.

September 24, 2018 | Permalink | Comments (0)

Neither Populist Nor Neoclassical: The Classical Roots of the Competition Principle in American Antitrust

Nicola Giocoli University of Pisa - Department of Law describes Neither Populist Nor Neoclassical: The Classical Roots of the Competition Principle in American Antitrust.

ABSTRACT: Much of the current critical views on American antitrust law focus on a supposed misinterpretation by modern, welfare-driven antitrust enforcers of the true meaning of the competition principle. The paper contributes to the debate by reconstructing the principle’s historical origin. While it did not feature in the Sherman Act, the competition principle was introduced by the Supreme Court during the formative era of antitrust law. Between 1897 and 1911 the Court proposed alternative versions of the principle; the one which eventually prevailed was neither populist nor neoclassical, as it was based on classical political economy and, in particular, on freedom of contract and “natural” values. Yet, this historical circumstance is not necessarily bad news for recent proposals to reform antitrust law.

September 24, 2018 | Permalink | Comments (0)

Collective Certification in UK Competition Law – Commonality, Costs and Funding

Cento Veljanovski, Case Associates; Institute of Economic Affairs identifies Collective Certification in UK Competition Law – Commonality, Costs and Funding.

ABSTRACT: The certifications of the first two opt-out collective (class) actions - Gibson v. Pride Mobility Scooter and Merricks v MasterCard - were dismissed by the Competition Appeal Tribunal (CAT) under the new UK competition law ‘class action’ regime. Here a critical assessment of the CAT’s two judgments is undertaken focusing on common issues, pass-on, distribution of damages, costs and funding of the emerging UK collective certification process.

September 24, 2018 | Permalink | Comments (0)

Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing

Elena Argentesi, University of Bologna - Department of Economics, Paolo Buccirossi, LEAR, Roberto Cervone, Tomaso Duso, German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE) and Alessia Marrazzo, Lear - Laboratory of Economics, Antitrust, Regulation ask Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing.

ABSTRACT: Assortment decisions are key strategic instruments for firms responding to local market conditions. We assess this claim by studying the effect of a national merger between two large Dutch supermarket chains on prices and on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables when defining our control group through a matching procedure. We show that the local change in competitive conditions due to the merger did not affect individual products’ prices but it led the merging parties to reposition their assortment and increase average category prices. While the low-variety and low-price target’s stores reduced the depth of their assortment when in direct competition with the acquirer’s stores, the latter increased their product variety. By analyzing the effect of the merger on category prices, we find that the target most likely dropped high priced products, while the acquirer added more of them. Thus, the merging firms reposition their product offerings in order to avoid cannibalization and lessen local competition. Further, we show that other dimensions of heterogeneity, such as market concentration, whether a divestiture was imposed by the Dutch competition authority, and the re-branding strategy of the target stores, are important for explaining the post-merger dynamics. A simple theoretical model of local-market variety competition explains most of our findings.

September 24, 2018 | Permalink | Comments (0)

Friday, September 21, 2018

On the Geographic Scope of Retail Mortgage Markets

Dean F. Amel, Elliot Anenberg, Board of Governors of the Federal Reserve System and Rebecca Jorgensen provide thoughts On the Geographic Scope of Retail Mortgage Markets.

ABSTRACT: In this note, we first discuss why markets for mortgage originations are likely to be national in scope. We then show that even if mortgage markets were local, they would be unconcentrated. Finally, we test for an empirical relationship between the local concentration of mortgage lending and changes in mortgage rates and find essentially no correlation of concentration and rates.

September 21, 2018 | Permalink | Comments (0)

Competition Policy and Sector-Specific Regulation in the Financial Sector

Martin F. Hellwig, Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics describes Competition Policy and Sector-Specific Regulation in the Financial Sector

ABSTRACT: Reforms of financial regulation after the crisis of 2007-2009 raise the question of what is the relation between financial regulators and competition authorities. Should competition authorities play a role in financial regulation? Should they co-operate with financial regulators? Or should they keep at a distance? The paper gives an overview over some of the issues that are involved in the discussion. Drawing on the experience of the network industries, the first part of the paper discusses the relation between competition authorities and sector-specific regulators more generally. Whereas competition policy involves the application of legal norms involving prohibitions that are formulated in abstract terms, sector-specific regulation involves authorities actually prescribing desired modes of behavior. The ongoing nature of relations makes regulators more prone to capture than competition authorities. In the financial sector, the potential for capture is particularly great because everyone is tempted by the idea that banks should fund their pet projects. Following an overview over the evolution of regulation and competition in the financial industry, the paper discusses various issues that are relevant for competition policy: Technological and regulatory barriers to entry, distortions of competition by explicit or implicit government guarantees, distortions of competition by bailouts making for artificial barriers to exit. Guarantees and bailouts in particular pose special challenges for merger control and for state aid control.

September 21, 2018 | Permalink | Comments (0)

Theory and Evidence on Employer Collusion in the Franchise Sector

Alan B. Krueger and Orley Ashenfelter offer Theory and Evidence on Employer Collusion in the Franchise Sector.

ABSTRACT: In this paper we study the role of covenants in franchise contracts that restrict the recruitment and hiring of employees from other units within the same franchise chain in suppressing competition for workers. Based on an analysis of 2016 Franchise Disclosure Documents, we find that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. The implications of these no-poaching agreements for models of oligopsony are also discussed. No-poaching agreements are more common for franchises in low-wage and high-turnover industries.

September 21, 2018 | Permalink | Comments (0)

Thursday, September 20, 2018

Empirical Properties of Diversion Ratios

Christopher T. Conlon and Julie Holland Mortimer offer Empirical Properties of Diversion Ratios.

ABSTRACT: A diversion ratio, which measures the fraction of consumers that switch from one product to an alternative after a price increase, is a central calculation of interest to antitrust authorities for analyzing horizontal mergers. Two ways to measure diversion are: the ratio of estimated cross-price to own-price demand derivatives, and second-choice data. Policy-makers may be interested in either, depending on whether they are concerned about the potential for small but widespread price increases, or product discontinuations. We estimate diversion in two applications -- using observational price variation and experimental second-choice data respectively -- to illustrate the trade-offs between different empirical approaches. Using our estimates of diversion, we identify candidate products for divestiture in a hypothetical merger.

September 20, 2018 | Permalink | Comments (0)

On the relevant cost standard for price–cost test in abuses of dominance

Pietro Crocioni providers thoughts On the relevant cost standard for price–cost test in abuses of dominance.

ABSTRACT: In price-based (exclusionary) abuse of dominance cases, price–cost tests often tend to be the main, if not only, a piece of evidence relied upon to conclude whether or not an infringement has taken place. Although we consider that this assigns too much weight and relevance to this element of the analysis, this article focuses on a few open questions on the relevant cost standard for price-based abuses of dominance. It puts forward six main practical suggestions starting from the observation that the key question a price–cost test seeks to answer is whether a dominant firm by expanding its output incurs losses.

September 20, 2018 | Permalink | Comments (0)

Assistant Attorney General Makan Delrahim Delivers Remarks at IAM’s Patent Licensing Conference in San Francisco ~ Tuesday, September 18, 2018

See his speech on Antitrust Law and Patent Licensing in the New Wild West here.

Some highlights:

First, courts have recognized that not every type of conduct that may enhance a business’s market power is actionable, such as when the application of Section 2 would impose a duty that contravenes the policies of the antitrust laws themselves. 

Second, the Supreme Court has cautioned against antitrust standards that would create an unacceptable risk of “false positives” or condemnations of lawful pro-competitive conduct. 

There is no duty under the antitrust laws for a patent holder to license on FRAND terms, even after having committed to do so.  A FRAND commitment is a contractual representation that a patent holder will license on “fair,” “reasonable,” and “non-discriminatory” terms.  It is not the same as a promise to pay a specific price in a final contract.  Indeed, commentators have noted that by failing to specify a specific price, a FRAND commitment is an incomplete contract term.

To be clear, a FRAND commitment may create a duty under contract law to fulfill that obligation, and courts may be tasked with determining the relevant FRAND rate where parties disagree over this contract term.  Section 2, however, is agnostic to the price that a patent-holder seeks to charge after committing to such a term.  Breaking down “FRAND” by its component terms makes clear why this is so.

First, the Sherman Act does not police “fair” prices or competition; it protects the competitive process.  Judge Easterbrook once asked, “Who says that competition is supposed to be fair, that we judge the behavior of the marketplace by the ethics of the courtroom? . . . When economic pressure must give way to fair conduct . . . rivals will trim their sails”; introducing conceptions of “fairness” into the Sherman Act “is to turn antitrust law on its head.”

Second, having undertaken a contractual duty to charge “nondiscriminatory” rates, the Sherman Act does not compel a patent-holder to abide by this promise.  The Sherman Act is indifferent to price discrimination; indeed, in some circumstances price discrimination may be pro-competitive.

Third, the Sherman Act does not authorize courts to determine “reasonable” licensing rates.  The Supreme Court has emphasized repeatedly that antitrust law does not recognize a cause of action that would “require[] antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited.”

It, therefore, would be a mistake to infer that a contractual FRAND commitment somehow establishes a duty under the antitrust laws to license on terms demanded by a licensee or that violations of an ambiguous FRAND term become an antitrust violation.

September 20, 2018 | Permalink | Comments (0)

Coty, Clarifying Competition Law in the Wake of Pierre Fabre

Denis Waelbroeck and Zachariah Davies address Coty, Clarifying Competition Law in the Wake of Pierre Fabre.

ABSTRACT: On 6 December 2017, the EU Court of Justice delivered a long awaited ruling on selective distribution systems and third-party platforms in Coty. In the context of a dispute between luxury cosmetics producer Coty and one of its selected distributors Parfümerie Akzente, the Frankfurt Higher Regional Court posed a number of questions on the application of Article 101(1) TFEU and the Vertical Block Exemption Regulation (the ‘VBER’) to Coty’s selective distribution system.

September 20, 2018 | Permalink | Comments (0)

German Monopolies Commission translates reports into English on AI collusion, common ownership and inter-sectoral market power development

The German Monopolies Commission just published English translations of its Biennial Report's sections on price algorithms, common ownership, and inter-sectoral market power developments:

 

Algorithms and collusion: http://www.monopolkommission.de/images/HG22/Main_Report_XXII_Algorithms_and_Collusion.pdf

 

Common ownership: http://monopolkommission.de/images/HG22/Main_Report_XXII_Common_Ownership.pdf

 

Inter-sectoral market power developments: http://www.monopolkommission.de/images/HG22/Main_Report_XXII_Market_Power.pdf

September 20, 2018 | Permalink | Comments (0)

Alcogroup v Commission: More on Inspections and the Concept of a Reviewable Act

Julie Vandenbussche and Susanna Kärkelä have written on Alcogroup v Commission: More on Inspections and the Concept of a Reviewable Act.

ABSTRACT: The General Court (‘GC’) dismissed as inadmissible an action for annulment against a Commission inspection decision and a letter refusing to end investigative measures.

September 20, 2018 | Permalink | Comments (0)

Wednesday, September 19, 2018

Competition Lore - episodes 9 and 10

Episode 9 with Prof Colin Bennett on the political economy of privacy and Episode 10 with Prof Michal Gal on algorithmic collusion are now up.

Transcripts are now available for each episode on the website

September 19, 2018 | Permalink | Comments (0)

The Quiet Death of Secondary-Line Discrimination as an Abuse of Dominance: Case C-525/16 MEO

Robert O’Donoghue QC discusses The Quiet Death of Secondary-Line Discrimination as an Abuse of Dominance: Case C-525/16 MEO.

ABSTRACT: Price discrimination by a dominant firm between its (non-associated) customers only be an abuse if strict conditions are met, notably an impact on competition.

September 19, 2018 | Permalink | Comments (0)

The Proof on the Quantification of the Damage in Assumptions of Defense of Competition. (Spanish Law)

Enrique Sanjuan, University of Malaga - Facultad de Derecho analyzes The Proof on the Quantification of the Damage in Assumptions of Defense of Competition. (Spanish Law).

ABSTRACT: In the present work, we focus on the test on the quantification of damages in cases of private actions for infringements of competition law and on the adaptation of the Spanish regulations to the Damage Directive of 2014. In the first part, we analyze the quantification of damages and the burden of proof distinguishing the cases of evidentiary burden with respect to the infringement and evidentiary burden with respect to the quantification. From there, the ordinary assumptions of those that establish some type of exceptions are discriminated. In the second part, we focus on the test on quantification and the different aspects that the latter can offer us in terms of the existence of leniency programs, resolutions of other courts, direct purchases, indirect or third-party damages, etc. The objective is to determine the existence of differences in each of the sections that we point out and the judicial criteria that should preponderate in each of them.

September 19, 2018 | Permalink | Comments (0)

Did the Swedish Tobacco Monopoly Set Monopoly Prices?

Marcus Asplund London Business School - Department of Economics; Göteborg University - School of Business, Economics and Law; Centre for Economic Policy Research (CEPR) asks Did the Swedish Tobacco Monopoly Set Monopoly Prices?

Abstract: Empirical evidence is scarce on whether firms set profit‐maximizing prices, as these typically depend delicately on details of difficult‐to‐observe strategic interactions. To avoid this problem, this paper provides a detailed case study of the Swedish Tobacco Monopoly's pricing with data from 1916 to 1959. Prices are found to be below those that maximize the expected net present value of profits. However, the difference between actual and optimal price diminishes over time, and towards the end of the period the two are almost indistinguishable. The net present value of actual profits is approximately 60% of what could have been obtained. Overall, the pricing patterns appear more consistent with the firm learning about demand conditions than being the result of maximization of something other than profits.

September 19, 2018 | Permalink | Comments (0)