Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, January 30, 2015

Third-degree Price Discrimination in the Presence of Congestion Externality

Achim I. Czerny (VU University Amsterdam, the Netherlands) and Anming Zhang (The University of British Columbia, Canada) explain Third-degree Price Discrimination in the Presence of Congestion Externality.

ABSTRACT: This paper analyzes third-degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served. The model features the business-passenger and leisure-passenger markets where business passengers exhibit a higher time valuation, and a less price-elastic demand, than leisure passengers. Our main result is the identification of the time-valuation effect of price discrimination, which can work in the opposite direction as the well-known output effect on welfare. This time-valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output.

January 30, 2015 | Permalink | Comments (0) | TrackBack (0)

Low-Cost Entry, Inter-Firm Rivalry, and Welfare Implications in US Large Air Markets

Hideki Murakami (Graduate School of Business Administration, Kobe University) examines Low-Cost Entry, Inter-Firm Rivalry, and Welfare Implications in US Large Air Markets.

ABSTRACT: This paper empirically analyses the patterns of inter-firm rivalry between low-cost and full service carriers by carrier and airport bases, and demonstrate welfare implication of LCC, using 1163 US cross-sectional data of 1998 when LCCs were purely no-frilled carriers. Our main findings are: (1) that both LCC and full service carriers keep higher price-cost margins when LCCs enter in the secondary airport, while especially full service carriers suffer from low price-cost margin when LCCs enter the same markets, (2) that total gains of welfare are 25.5 million USD for our dataset, and 90% of welfare gains come from the gain in consumer' s surplus. LCCs' cumulative profit is 4.45 million USD, but full service carriers lost 1.92 million USD in total due to the competition by LCCs, (3) that LCCs sometimes provide unreasonably small (i.e, less-than-monopoly) capacities instead of profit-maximizing ones when they have no information about own demand curves.

January 30, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 29, 2015

Due Process, Transparency and Procedural Fairness in Asian Antitrust

In case you missed it, today CPI ran my essay for its Asia Antitrust column.

D. Daniel Sokol, University of Florida discusses Due Process, Transparency and Procedural Fairness in Asian Antitrust.

ABSTRACT: This essay begins with a discussion on defining procedural fairness. Then it explains why this is a particularly hot topic for Asian antitrust in 2015. Finally, this essay explores the benefit for increased procedural fairness in Asian antitrust. The push for increased transparency and due process comes not merely from the business community but from antitrust authorities themselves. Best practices involving due process and transparency are emerging and these best practices seem to clash with the practices of some jurisdictions in Asia. Some of these pressure points may become explosive in 2015, but Asian antitrust authorities have time and opportunity to improve their systems of due process and transparency before such concerns reach a crisis point.

 

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

Productivity and welfare: an application to the Spanish banking industry

Alfredo Martin Oliver (Universitat de les Illes Balears), Sonia Ruano Pardo (Banco de Espana), and Vicente Salas Fumas (Universidad de Zaragoza) analyze Productivity and welfare: an application to the Spanish banking industry.

ABSTRACT: This paper examines the links between productivity and social welfare, with an application to the banking industry. It models spatial price competition between bank branches jointly with banks’ decisions on the opening or closing of branches based on profit expectations. The model predicts that more productive banks set lower (higher) interest rates on loans (deposits) and increase their market share through both higher demand per branch and a larger network of branches. Specifically, the paper i) uses a new measure of bank productivity; ii) provides a productivity differences-based explanation of the distance between bank branches and bank customers; and iii) shows how the intensity of market competition may be unaffected when the number of banks decreases, provided that banks continue expanding their branch network. The empirical implementation of the model uses Spanish banks over the period 1993-2007 and it confirms the theoretical predictions of the paper

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

Professor Letter on Net Neutrality

A number of professors submitted a letter to the FTC today regarding net neutrality.  I attach both the letter and the press release. 

Please note: I was not involved in this letter directly or indirectly.

 

Download Professor letter to FTC 20150129

Download Press Release for FTC Letter 1.29.15 FINAL

 

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

Antitrust, Legal Standards and Investment

Giovanni Immordino and Michele Polo theorize on Antitrust, Legal Standards and Investment.

ABSTRACT: We study the interaction of a firm that invests in research and, if successful, undertakes a practice to exploit the innovation, and an enforcer that sets legal standards, fines and accuracy. In this setting deterrence on actions interacts with deterrence on research. When the practice increases expected welfare the enforcer commits not to intervene by choosing a more rigid per-se legality rule to boost investment, moving to a more flexible discriminating rule combined with type-I accuracy for higher probabilities of social harm. Patent and antitrust policies act as substitutes in our setting; additional room for per-se (illegality) rules emerges when fines are bounded. Our results on optimal legal standards extend from th! e case of (uncertain) investment in research to the case of (deterministic) investment in physical assets.

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

offers A Critical Review of Recent Substantive and Procedural Developments in EU Cartels

Anca Daniela Chirita, Durham University - Department of Law offers A Critical Review of Recent Substantive and Procedural Developments in EU Cartels.

ABSTRACT: The aim of this article is to explore the most recent appeals concerning illegal cartels under Article 101 TFEU, i.e., anti-competitive agreements in restraint of trade, by revealing the relevant principles underpinning both the substantive and the procedural review of cartels, namely, the industrial organization criteria and the legal use of evidentiary presumptions respectively. Arguments advancing a perceived ‘criminalisation’ of the EU fines on cartels coupled with the success rate of appeals on the basis of an erroneous calculation of the level of fines, as well as the overall length of cartel proceedings, raise other pertinent issues regarding the need for institutional reform, in particular, a specialised EU Competition Tribunal. The present contribution is backwards limited to appeals from 2014 to 2013. It seeks to highlight several hurdles in appeals as reflected by the interpretation of the EU Charter of Fundamental Rights, in particular, the right to good administration of justice before an independent and impartial tribunal, the right to a fair presentation of evidence through the sending of a Statement of Objections (SO), the right to have access to the file, the right to a reasoned decision and within a reasonable time, and the proportionality of the administrative fine. Therefore, such rights of defence as are enjoyed by corporations and mirrored by the human rights catalogue enshrined in the EU Charter make them even more contestable before the EU Courts.

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

Incentive for adoption of new technology in duopoly under absolute and relative profit maximization

Etienne Billette de Villemeur, Richard Rubley, and Bruno Versaevel offer Incentive for adoption of new technology in duopoly under absolute and relative profit maximization.

ABSTRACT: We study entry in a growing market by ex-ante symmetric duopolists when sunk costs differ for the innovating and imitating firm. Strategic competition takes the form either of a preemption race or of a war of attrition, the latter being likelier when demand uncertainty is high. Industry value is maximized when rms seek neither to race nor to delay investment. Free imitation is socially costly, and if the consumer surplus resulting from imitation is not too large the socially optimal imitation cost, as may be induced by patent protection, involves preemption. Finally, we discuss endogenous entry barriers and contractual alternatives that increase the likelihood of preemption regimes, with di ering implications for imitator entry. When the cost of imitation is low for instance, innovators are shown to rely more heavily on trade secrecy and patents. Welfare-enhancing takeovers and licensing are also shown to occur.

January 29, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 28, 2015

Innovation and imitation incentives in dynamic duopoly

Etienne Billette de Villemeur and Richard Ruble and Bruno Versaevel analyze Innovation and imitation incentives in dynamic duopoly.

ABSTRACT: We study entry in a growing market by ex-ante symmetric duopolists when sunk costs differ for the innovating and imitating firm. Strategic competition takes the form either of a preemption race or of a war of attrition, the latter being likelier when demand uncertainty is high. Industry value is maximized when firms seek neither to race nor to delay investment. Free imitation is socially costly, and if the consumer surplus resulting from imitation is not too large the socially optimal imitation cost, as may be induced by patent protection, involves preemption. Finally, we discuss endogenous entry barriers and contractual alternatives that increase the likelihood of preemption regimes, with differing implications for imitator! entry. When the cost of imitation is low for instance, innovators are shown to rely more heavily on trade secrecy and patents.

January 28, 2015 | Permalink | Comments (0) | TrackBack (0)

Monitor and the Competition and Markets Authority

Albert Sanchez Graells, University of Leicester - School of Law describes Monitor and the Competition and Markets Authority.

ABSTRACT: As part of its enforcement duties under the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, and in exercise of the powers assigned to it by the Health and Social Care Act 2012, the health care sector regulator for England (Monitor) is co-competent with the competition watchdog (Competition and Markets Authority) to enforce competition law in health care markets. Oddly, though, unlike other sector regulators, Monitor does not have a duty to promote competition but ‘simply’ to prevent anti-competitive behaviour. Monitor is also competent to carry out reviews and to decide bid disputes concerning procurement carried out by health care bodies, provided there is no formal challenge under the Public Contracts Regulations 2006.

This paper contends that such a concentration of regulatory, competition enforcement and procurement review powers puts Monitor in a unique situation of (potential) structural conflict of interest that can diminish significantly its ability to act as an effective (co-competent) competition authority. This paper focusses on this difficult structure for the enforcement of competition law in the health care sector in England, in particular due to the asymmetrical, sui generis concurrency regime created by the Enterprise and Regulatory Reform Act 2013 and the Concurrency Regulations 2014. As examples of such conflict of interest and its implications, the paper assesses Monitor’s incentives to bend the interpretation of both art.101(3) TFEU and the new special regime on procurement of social services (arts.72-77 dir 2014/24). The paper concludes that this situation requires regulatory reform to devolve powers to the Competition and Markets Authority.

January 28, 2015 | Permalink | Comments (0) | TrackBack (0)

Evaluating Appropriability Defenses for the Exclusionary Conduct of Dominant Firms in Innovative Industries

Jon Baker (American University) is Evaluating Appropriability Defenses for the Exclusionary Conduct of Dominant Firms in Innovative Industries.

ABSTRACT: In response to antitrust cases challenging the exclusionary conduct of dominant firms, some dominant firms offer an “appropriability defense.” This defense is the claim that prohibiting the challenged conduct would lessen the dominant firm’s return to investment in research and development (R&D), undermine that firm’s incentive to innovate, and, in consequence, harm the prospects for industry innovation. An appropriability defense should be questioned, and often rejected, if the dominant firm would be expected to increase its own R&D effort in response to increased R&D by its rivals. An analytical framework for determining whether a dominant firm would behave this way is provided, based on evaluating the firm’s likely incremental gain from new product development if its rivals also introduce new products relative to its gain if its rivals do not upgrade their products, and potentially observable factors relevant to making this assessment are identified. The application of the framework in individual cases is illustrated using the facts of three classic antitrust monopolization cases involving new product development: the Microsoft case involving Netscape and Java, the IBM plug compatibility cases (treated as a single case), and the FTC’s patent portfolio case against Xerox.

January 28, 2015 | Permalink | Comments (0) | TrackBack (0)

Horizontal Mergers in the Presence of Vertical Relationships

Arghya Ghosh, UNSW Australia Business School, School of Economics, Hodaka Morita, University of New South Wales - School of Economics, and Chengsi Wang, Department of Economics, University of Mannheim theorize about Horizontal Mergers in the Presence of Vertical Relationships.

ABSTRACT: We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from cost-inefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

January 28, 2015 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 27, 2015

Antitrust Arbitration and Illinois Brick

Mark A. Lemley, Stanford Law School and Christopher R. Leslie, University of California, Irvine School of Law analyze Antitrust Arbitration and Illinois Brick.

ABSTRACT: For nearly forty years, since the Supreme Court decision in Illinois Brick, federal antitrust law has prevented indirect purchasers from complaining of overcharges caused by antitrust violations. The Court reasoned that direct purchasers are the best and most motivated antitrust plaintiffs. But in its 2013 Italian Colors decision, the Court made it extremely difficult for direct purchasers to bring an antitrust claim in federal court. In doing so, it undermined the policy rationale for Illinois Brick, opening the way for courts to reconsider the ban on antitrust enforcement by indirect purchasers.

January 27, 2015 | Permalink | Comments (0) | TrackBack (0)

Search Costs, Information Exchange and Sales Concentration in the Digital Music Industry

Nestor Duch-Brown (European Commission - JRC - IPTS) and Bertin Martens (European Commission - JRC - IPTS) identify Search Costs, Information Exchange and Sales Concentration in the Digital Music Industry.

ABSTRACT: It is often assumed that consumers benefit from the internet because it offers a “long tail” with more variety of products to choose from. However, search costs may block the long tail effect and result in the dominance of superstars. This paper examines the variety hypothesis in the entire online market for digital music downloads in 17 countries over the period 2006-2011. First, we show that the entire distribution of legal music downloads is heavily skewed. Second, we hypothesise that a wide range of online information channels (sales and discovery platforms) play a role in this market. We find that the reduction of search costs implied by the generalisation of online information t! ools transforms demand as a result of changes in the dispersion of preferences. Ubiquitous and very popular discovery channels such as Facebook and iTunes tend to push consumers towards the superstars by shifting the demand curve but also towards the long-tail since they also generate rotations that promote niches. Conssequently, both the superstar and the long tail effects emerge even in mature digital markets.

January 27, 2015 | Permalink | Comments (0) | TrackBack (0)

American Antitrust Institute (AAI) is seeking a senior Ph.D. economist

Title:Senior Economist
Location: United States (full time)
Salary Range: $100,000 - $135,000
Position Closing Date: March 6, 2015

The American Antitrust Institute (AAI) is seeking a Ph.D. economist with exceptional skills and interests in applied microeconomics and industrial organization. Successful candidates will have a minimum of five (5) years non-academic work experience in state or federal antitrust enforcement, sector regulation, the legislative branch, consulting, the public interest community, or industry. We will consider candidates from academia if there is a substantial record of applied work and policy analysis.

AAI is the leading non-profit competition advocacy group in the U.S., with a growing influence in the international competition community. Based in Washington DC, but with Staff members in a number of locations, our work spans three major channels: legaleconomic advocacy, education and training, and research. We work with legal-economic practitioners, competition enforcement, industry, Congress, and the public interest community to develop positions based on objective, rigorous, high quality, and persuasive analysis, writing, and verbal communication that reflects progressive thinking about competition policy. We advocate through white papers and commentaries, regulatory interventions, testimony before legislators and regulators, and amicus briefs.

Through the advocacy program, AAI provides analysis of competition issues in specific, industries and on particular topics, evaluates the competitive implications of proposed mergers and alleged anticompetitive conduct, and comments on proposed regulations and legislation.

Through our education, training, and research programs, AAI provides valuable legal and economic information, analysis, and perspective on U.S. and international antitrust law, litigation, and legislation, with a particular focus on the effects of anticompetitive practices on consumers. AAI covers a wide range of industries and topics, including, but not limited to: transportation, energy, healthcare, agriculture and food, telecommunications, intellectual property, and innovation.

AAI offers an intellectually stimulating and rewarding work environment. We have a collegial culture and benefit from close collaboration with thought leaders and policy makers in law, economics, and business. The Senior Economist will work on challenging and high profile competition issues. Candidates will have strong data, analytical, and quantitative skills and the ability to tailor problem-solving approaches to specific issues.

They will stay up to date on the current theoretical and empirical literature and provide insight on its implications for policy analysis. Equally important are strong skills in writing clear, concise, and logical documents, and in oral communications -- particularly in explaining complex competition issues to a variety of audiences. Interest and expertise in specific industries are also highly valuable. A high level of proficiency in working both independently and in teams with other economists, attorneys, and institutional experts is highly valuable. Finally, the Senior Economist can expect to be involved in some AAI fundraising and development efforts; and to take advantage of opportunities to present AAI and independent research at conferences, and publish in law and economics journals.

AAI is an equal opportunity employer.

For more information about the AAI, please visit antitrustinstitute.org.

Application Requirements:

In order to determine minimal qualifications, candidates should submit a cover letter, resume, list of three (3) references, and a current research sample. Once minimal qualifications are determined, and if a candidate advances to the next stage of consideration, additional writing samples and interviews will be required.

Application Instructions:

Please submit application materials and inquiries to Sarah Frey, Communications Manager, at sfrey@antitrustinstitute.org.

January 27, 2015 | Permalink | Comments (0) | TrackBack (0)

Competition Policy and Intellectual Property: Insights from Developed Country Experience

F. M. Scherer (Harvard University) and Jayashree Watal (World Trade Organization) examine Competition Policy and Intellectual Property: Insights from Developed Country Experience.

ABSTRACT: This paper, written for a World Trade Organization compendium, investigates the possibilities open to developing nations for controlling the abuse of intellectual property rights, and in particular patents, under Articles 31 and 40 of the Uruguay Round TRIPS (trade-related aspects of intellectual property) treaty. Article 40 authorizes nations to use their competition policy laws to combat abuses of intellectual property rights, among other things, by invoking the compulsory licensing provisions of Article 31. This paper reviews historically the experience of competition policy authorities in dealing with patent and other intellectual property abuses in the United States, the European Community, Japan, Canada, South Africa, and other jurisdictions and reviews the known consequences of compulsory licensing orders inter alia for companies' continuing efforts to advance technology. Currently controversial fields such as pharmaceuticals and information technology are accorded special attention.

January 27, 2015 | Permalink | Comments (0) | TrackBack (0)

Does Competition make Banks more Risk-seeking?

Stefan Arping (University of Amsterdam) asks Does Competition make Banks more Risk-seeking?

ABSTRACT: This article presents a model in which, contrary to conventional wisdom, competi- tion can make banks more reluctant to take excessive risks: As competition intensifies and margins decline, banks face more-binding threats of failure, to which they may respond by reducing their risk-taking. Yet, at the same time, banks become riskier. This is because the direct, destabilizing effect of lower margins outweighs the disciplining effect of competition; moreover, a substantial rise in competition reduces banks’ incentive to build precautionary capital buffers. A key implication is that the effects of competition on risk-taking and on failure risk can move in opposite directions.

January 27, 2015 | Permalink | Comments (0) | TrackBack (0)

Monday, January 26, 2015

University of Chicago Alums in Antitrust - Save the Date, Hot Topics in Antitrust Law, Competition, and Global Economics, Wednesday, April 15, 2015 - 7:30am - 10:00am

University of Chicago Panel: Hot Topics in Antitrust Law, Competition, and Global Economics

Date: 

                     Wednesday, April 15, 2015 - 7:30am - 10:00am       
             
Location: 
                    Skadden, Arps, Slate, Meagher & Flom, LLP, DC Office 1440 New York Avenue, N.W.  Washington , D.C. 20005        

              Contact info (email or phone): 
                    

University Staff Liaison Ally Michelle Schultz affinity@uchicago.edu 773.702.2158

The University's Alumni Law Society Washington, DC chapter presents:

"Hot Topics in Antitrust Law, Competition, and Global Economics"

Whether interacting with competitors, exploring market domination strategies, or engaging in strategic alliances or m&a activity, firms and legal practitioners need a solid understanding of antitrust rules to effectively compete in today's global economy.

Moderator: Ingrid Vandenborre (LL.M.’99), Partner, European Union and International Competition Law at Skadden, Arps, Slate, Meagher & Flom LLP, Brussels.

Panelists:
Ingrid Vandenborre Deborah Garza (J.D.’81), Partner, Covington & Burling, LLP, and former Acting Assistant Attorney General for Antitrust Division, DOJ.
The Honorable Douglas H. Ginsburg (J.D.’73), Senior Judge, U.S. Court of Appeals, DC, and former Assistant Attorney General for Antitrust Division, DOJ.
Professor Randal C. Picker (A.B.’80, A.M.’82, J.D.’85), University of Chicago Law School. Professor Kevin Murphy (Ph.D. ’86), University of Chicago Booth School of Business. Professor Robert H. Topel, University of Chicago Booth School of Business.

Register here

January 26, 2015 | Permalink | Comments (0) | TrackBack (0)

Banking Competition and Stability: The Role of Leverage

Xavier Freixas, Universitat Pompeu Fabra, Barcelon GSE and CEPR and Kebin Ma, Warwick Business School Banking Competition and Stability: The Role of Leverage.

ABSTRACT: This paper reexamines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. By means of a simple model we show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on banks’ liability structure, on whether banks are financed by insured retail deposits or by uninsured wholesale debts, and on whether the indebtness is exogenous or endogenous. In particular we suggest that, while in a classical originate-to-hold banking industry competition might increase financial stability, the opposite can be true for an originate-to-distribute banking industr! y of a larger fraction of market short-term funding. This leads us to revisit the existing empirical literature using a more precise classification of risk. Our theoretical model therefore helps to clarify a number of apparently contradictory empirical results and proposes new ways to analyze the impact of banking competition on financial stability.

January 26, 2015 | Permalink | Comments (0) | TrackBack (0)

Market Structure and the Pricing of New Products: A Nested Logit Approach with Asymmetric Firms

Sylvia Bleker (VU University Amsterdam, the Netherlands), Christiaan Behrens (VU University Amsterdam, the Netherlands), Paul Koster (VU University Amsterdam, the Netherlands), and Erik T. Verhoef (VU University Amsterdam, the Netherlands) analyze Market Structure and the Pricing of New Products: A Nested Logit Approach with Asymmetric Firms.

ABSTRACT: This article investigates competition in a market with an emerging technology using a discrete choice model to analyze demand and welfare. We focus on industry structure and investigate the impact of different market structures on demand for the new technology and on welfare. The car market serves as a prime example of such a market, where electric vehicles (EV’s) represent the new technology competing with standard cars with internal combustion engines (ICV’s). To analyze such a market, we use a nested logit model. In contrast to earlier literature, we allow firms to be asymmetric and active in multiple nests, with different numbers of variants in each nest, which can add ! up to any market share. Additionally, we add to existing literature by considering the case where substitutability between firms is stronger than between technologies, by nesting products by technology instead of by firm. We find implicit analytical solutions for the equilibrium mark-ups which can be used when there are two nests in the market; within that restriction firms can be asymmetric. Numerically, we find that EV sales are higher if offered by a new entrant only selling EV’s as opposed to when it is supplied by a firm selling variants of both types. We present an index based on mark-up differences between variants in the market, which can be used to a priori determine whether a change in market structure would increase or decrease welfare. These results are general to the nested logit model, and the index can thus be used in any market, as long as the market is sufficiently accurately described by the nested logit model.

January 26, 2015 | Permalink | Comments (0) | TrackBack (0)