Antitrust & Competition Policy Blog

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

Tuesday, September 19, 2017

Merger Control in Georgia – National Legislation and Case Law Review

Solomon Menabdishvili, Tbilisi State University (TSU) describes Merger Control in Georgia – National Legislation and Case Law Review.

ABSTRACT: Georgia has amended its Law on Competition in 2014 in order to fulfill its obligations set out by the Association Agreement with the European Union. Despite further approximations of its laws with those of the EU, some serious flaws remain. Merging parties are obliged to submit a prior notification to the Competition Agency of Georgia if their total turnover exceeds 20 million Georgian lari (GEL) or if the value of their assets exceeds 10 million GEL (7,692,307 EUR). One of the most interesting aspects of the Georgian merger control system rests in what the Competition Agency is authorised to do in case of a failure to fulfill the notification duty. This paper will discuss Georgian rules on concentrations as well as two of its recent merger cases.

September 19, 2017 | Permalink | Comments (0)

13 and 14 October, UniSA School of Law will hold the 15th edition of its Competition Law and Economics Workshop (CLEC) in Adelaide

On 13 and 14 October, the UniSA School of Law will hold the 15th edition of its Competition Law and Economics Workshop (CLEC) in Adelaide. The programme is available here.
 
The workshop will be held in partnership with the Australian Competition and Consumer Commission (“ACCC”).  This year, emphasis is placed on the domestic and international context. On both fronts, the tides are rising for Australian competition policy.
 
MARKET INVESTIGATIONS AND NEW LEGISLATIVE POWERS
At domestic level, the Federal Government has requested the ACCC to conduct a market investigation into the retail electricity pricing sector. The topic is politically sensitive.  Polls have singled out energy prices as a top priority for Malcolm Turnbull’s government.Failure to deliver quick and effective solutions  to this matter could  prove divisive when it comes to public support for  green energies and fossil fuel emission targets.  In addition, this investigation could pose an administrative challenge for the ACCC. It comes on the heels of an array of ongoing market investigations in the dairy sector, new car retailing and communications sectors. As such, this additional investigation could potentially stretch the resources of the ACCC.
At the same time, however, the ACCC could soon assume new powers.  Draft legislation released in 2016 proposes to introduce an express prohibition of “concerted practices” in the Competition and Consumer Act (“CCA”) of 2010. This amendment purports to fill a gap. Under the 2010 CCA, the law only prohibits “contracts, arrangements and understandings” that substantially lessen competition, thereby leaving beyond the ambit of the law  less formal instances of collusion, such as price signaling and information exchanges.  The new amendment to the CCA, could allow the ACCC to operate more efficiently and confidently in such cases, with lower risks of review before the Australian competition tribunal. Yet the CCA amendment implies an additional  workload for the ACCC.  Firms involved in “concerted practices” will certainly seek protection under the leniency programme by reporting their conduct to the ACCC. Moreover, the prohibition of concerted practices could burden administrative and judicial proceedings with endless quarrels among economists. All competition systems with a similar provision have, at some point in their history, had to address the issue of whether conscious parallelism amongst oligopolists – think, for example, to two petrol stations on either side of a street  – could (and should) be enjoined as a concerted practice short of any explicit agreement.  This hard question is contentious.  Short of an agreement, there is nothing to remedy. Unless of course one requires oligopolists to behave irrationally…
 
TRUMP, BREXIT AND INDUSTRIAL POLICY?
On the international scene, last year’s election of President Trump in the US may well be a game changer in an area where international convergence had until then been a stable equilibrium. President Trump’s “America first” rhetoric, and the early withdrawal of the Trans-Pacific Partnership augur a non-trivial possibility that antitrust laws could be used to protect and promote US businesses.  At the same time, Republicans have traditionally supported minimalist antitrust enforcement.  The Party may thus be reticent to embrace the idea of reinvigorating antitrust in pursuit of a trade agenda.  As for other policies, the policy line of the new US administration remains to date in limbo.  And key functions within the US antitrust agencies (the FTC and the DOJ) remain to be filled.
 
Besides, Brexit could also prove a disruptive force. At present, the European Union (EU) internal market rules leave no space for industrial policy interventions in the form of State subsidies, restrictions on  foreign takeovers, and discriminatory regulations.  But this outlook could be entirely different in a “hard Brexit” world, where UK competition policy has taken back control over market regulation.  Should we conjecture a revival of industrial policy in the UK? Theresa May’s Government has already announced it will review the public interest regime in UK merger control and consider greater controls on foreign investment. And the Labour opposition has expressly advocated industrial subsidies and public ownership. Whoever ends up at Downing Street UK post Brexit, the prospect of a “United Kingdom first” is not entirely fictional.
 
With all this, the tides are rising for Australian competition policy. Large trade partners in the Anglo-American world are increasingly leaning towards a view of competition policy as a trade instrument. And this new policy vision is one that subjects competition policy to a degree of political authority. In contrast, the EU in 2016 reaffirmed its commitment to independent competition policies, suggesting that enforcement agencies be further insulated from executive power. Whilst all those policy developments happen abroad, they create a novel intellectual context that will no doubt inform, and possibly influence (in one way or the other) the conduct of competition policy in Australia in the years to come.  These issues are tabled for discussion at the CLEC.  They are of concern to all of us as legal practitioners, consumers and global citizens.

September 19, 2017 | Permalink | Comments (0)

How Product Innovation Can Affect Price Collusion

Andrew Smyth, Marquette University - Department of Economics suggests How Product Innovation Can Affect Price Collusion.

ABSTRACT: Price conspiracies appear endemic in many markets. This paper conjectures that low expected returns from product innovation can affect price collusion in certain markets. This conjecture is tested---and supported---by both archival and experimental data. In particular, average market prices in low innovation experiments are significantly greater than those in high innovation, but otherwise identical experiments, because price collusion is more successful in the low innovation experiments.

September 19, 2017 | Permalink | Comments (0)

Monday, September 18, 2017

University of Virginia Creates Kenneth G. Elzinga Professorship in Economics and the Law (and no, Ken is neither dead nor retiring)

Ken Elzinga, one of the greatest teachers globally of his generation (there is always a waiting list for his 1,000 person undergraduate class) and a scholar who has made an important impact in antitrust economics, law, and policy now has an endowed Chair named after him at the University of Virginia.  An "endowed" chair only begins to tell you how magical Ken is.  He is smart, interesting, kind and a humble person who "trembles" before G-d (see Isaiah 66:2).  For those who know Ken, his religious observance, his love of beer, teaching, antitrust, and of fiction writing, you will join me in saluting Ken for an incredible career that continues strong.  The holder of the Elzinga Chair has big shoes to fill.

September 18, 2017 | Permalink | Comments (0)

Two Screening Tests for Tacit Collusion: Evidence from the Airline Industry

Federico Ciliberto, University of Virginia - Department of Economics; Centre for Economic Policy Research (CEPR), Eddie Watkins, University of North Carolina (UNC) at Chapel Hill - Department of Economics, and Jonathan W. Williams, University of North Carolina (UNC) at Chapel Hill - Department of Economics offer Two Screening Tests for Tacit Collusion: Evidence from the Airline Industry.

ABSTRACT: We formulate two screening tests for tacit collusion in the US airline industry. The first test, based on Werden and Froeb [1994], studies the relationship between pair-wise differences in prices across competitors within a market and the extent of their multimarket contact. The second test, based on Athey, Bagwell, and Sanchirico [2004], investigates whether the variance of prices across pairs of firms over time within a market is associated with multimarket contact. Together, the theories predict that pair-wise differences in fares within a market should be smaller and less variable if firms tacitly collude. Our empirical results confirm both predictions, and suggest that the two screening tests can be valuable tools to identify tacit collusion.

September 18, 2017 | Permalink | Comments (0)

Competition Law and State Aid for Failing Banks in the EU and Its Specific Implications for CEE Member States

Virag Ilona Blazsek, Central European University (CEU), Department of Legal Studies examines Competition Law and State Aid for Failing Banks in the EU and Its Specific Implications for CEE Member States.

ABSTRACT: The bank bailouts following the global financial crisis of 2008 have been subject to prior approval of the European Commission (EC), the competition authority of the European Union. The EC was reluctant to reject rescue efforts directed at failing banks and so it consistently approved all such requests submitted by Member States. Out of the top twenty European banks, the EC authorized State aid to at least twelve entities. In this context, the paper outlines the gradually changing interpretation of EU State aid rules, the “temporary and extraordinary rules” introduced starting from late 2008, and the extension of the “no-State aid” category. The above shifts show that the EC itself deflected from relevant EU laws in order to systemically rescue important banks in Europe and restore their financial stability.

The paper argues that bank bailouts and bank rescue packages by the State have led to different effects on market structures and consumer welfare in the Eurozone and non-Eurozone areas, mostly the Eastern segments of the European Union. As such, it is argued that they are inconsistent with the European common market. Although the EC tried to minimize the distortion of competition created as a result of the aforementioned case law primarily through the application of the principle of exceptionality and different compensation measures, these efforts have been at least partially unsuccessful.

Massive State aid packages, the preferential treatment of the largest, or systemically important, banks through EU State aid mechanisms – almost none of which are Central and Eastern European (CEE) – may have led to the distortion of competition on the common market. That is so mainly because of the prioritization of the stability of the financial sector and the Euro. The paper argues that State aid for failing banks may have had important positive effects in the short run, such as the promotion of the stability of the banking system and the Euro. In the long-run however, it has contributed to the unprecedented sovereign indebtedness in Europe, and contributed to an increased economic and political instability of the EU, particularly in its most vulnerable CEE segment.

September 18, 2017 | Permalink | Comments (0)

Call for papers, Clasf workshop, Graz Thursday 19 April 2018, Antitrust at the intersection of law and economics

Call for Papers
The Competition Law Scholars Forum (CLaSF) and the Institute of Corporate and International Commercial Law of the University of Graz invite contributions to a workshop on

“Antitrust at the intersection of law and economics”

at the University of Graz (Austria) on Thursday, 19 April 2018

The Competition Law Scholars Forum (CLaSF) will be running its XXXth workshop on Thursday, 19 April 2018, at the Law Faculty of the University of Graz. The subject of the workshop will be the broad theme of ‘Antitrust at the intersection of law and economics.’
We invite abstract paper proposals from researchers, scholars, practitioners and policy-makers in relation to any issue within this broad theme. We welcome theoretical, economics-driven, practice-based or policy-focused papers, and we are interested in receiving abstracts for papers which may be focused on perspectives or experience at national, regional (eg EU), or international levels, or a combination.

Suggestions are invited particularly in the field of the following matters:

 The role of economics in the development of antitrust legal doctrines (eg, influence of different antitrust schools on specific abuses of dominance, conceptual questions, etc);

 The role of economists in antitrust law theory and practice;

 Comparative analysis on the role of economics in different competition law jurisdictions and traditions;

 The interplay and possible tensions between competition law and competition economics on a theoretical and a practical level;

 The application of law & economics methodology to specific competition law issues as an insight into antitrust between law and economics;

 The EU’s “more economics” approach revisited (is it time for “less economics”?)

The Workshop will consist of a mix of invited speakers and contributions chosen following this call for papers.

 Any person interested in being considered on the basis of the call for papers at the workshop is asked to contact Professor Barry Rodger at barry.j.rodger@strath.ac.uk. An abstract is required of approximately 500-1,000 words, to be submitted by no later than 15 January 2018, and decisions on successful submissions will be taken by 29 January 2018. Submission of presentation/draft paper is also required a week prior to the workshop.

Papers presented at the conference can be submitted to the Competition Law Review editorial board with a view to being published in the Review. Note that the Review is a fully refereed scholarly law journal: submission does not guarantee publication.

September 18, 2017 | Permalink | Comments (0)

The Sokol Family Picks the Best Apple Varietals for Rosh Hashana

This weekend we had tastings of different honeys and apples for Rosh Hashana.  Our top picks in order of preference:

  1. Zestar (hard to get in Florida)
  2. Honeycrisp
  3. SweeTango
  4. Cortland
  5. McIntosh
  6. Granny Smith
  7. Fuji
  8. Braeburn

Our least favorite:

Red delicious - red but not delicious. Lacks flavor

 

 

 

 

 

September 18, 2017 | Permalink | Comments (0)

A Comparative Analysis of the Collective Dominance Definition in Ukrainian and European Law – The Electricity Market Case

Kseniya Smyrnova, Taras Shevchenko National University of Kyiv offers A Comparative Analysis of the Collective Dominance Definition in Ukrainian and European Law – The Electricity Market Case.

ABSTRACT: This paper follows a comparative approach to the analysis of collective dominance doctrine and practice in the EU and the enforcement practice in Ukraine. The aim of this paper is to assess the compliance of the Ukrainian competition authority’s (AMCU) analysis of the national electricity market with EU law enforcement practice. The latter arises from Ukraine’s wider duty to fulfill its international law obligation to comply with EU competition rules, based on Article 18 of the Treaty establishing the Energy Community also taking into account the interpretative criteria developed in EU case law (according to Article 94 of the Association Agreement between Ukraine and the EU). Article 255 of the Association Agreement, which clearly provides for the use of the principle of transparency, non-discrimination and neutrality when complying with the procedures of fairness, justice and the right of defence, also illustrates the necessity of carrying out research in this field.

September 18, 2017 | Permalink | Comments (0)

Tying, Exclusivity, and Standard-Essential Patents

Erik Hovenkamp, Harvard Law analyzes Tying, Exclusivity, and Standard-Essential Patents. Erik, a JD/PhD is on the entry level law market this year and I think that his work is very good.  I strongly would encourage hiring committees to take a look at him.

ABSTRACT: When a technological standard is adopted, implementers must pay to license all “standard-essential” patents (SEPs)—those covering core features of the standard—although the particular price terms usually cannot negotiated beforehand. To allay implementers’ fear of being “held up,” SEP owners usually make commitments to offer licenses on “fair, reasonable, and nondiscriminatory” (FRAND) terms. Among other things, this acts as a contractual price control for SEP licenses—albeit an imprecise one that is subject to judicial interpretation.

Aside from licenses, an SEP holder may further supply an important “collateral input”—one that is not subject to the FRAND pledge, but which implementers nevertheless require in order to market a viable product. For example, this might be a physical component of the final product. The SEP holder might tie its SEP rights to the collateral input. It might also engage exclusive dealing or related practices, such as a “loyalty discounting” arrangement that imposes larger royalties on implementers who buy the input from competing providers. Importantly, FRAND’s operation as a price control significantly alters the economic analysis: here the primary impetus for tying may be to circumvent the price control by shifting the desired overcharge to the tied good—a concern that does not arise when a seller has complete autonomy over its pricing (as is usually the case). The natural result may be to foreclose competitors’ input sales.

Such restraints have received little attention in the FRAND literature, but they are an emerging concern for innovation and competition policy. They have recently been attacked in two high-profile complaints filed against Qualcomm—one by the Federal Trade Commission, and the other by Apple. Against this backdrop, this article provides a legal and economic evaluation of tying and exclusive dealing arrangements in FRAND licensing. Such practices may act to undermine the FRAND price control, potentially violating the SEP holder’s commitment. The case for antitrust intervention is harder to make, but in principle the arrangement could act to exclude actual or potential competition in the collateral input market, bringing it within antitrust’s reach. I conclude by offering several policy recommendations for how courts and standard setting organizations might address these tying and exclusivity arrangements.

September 18, 2017 | Permalink | Comments (0)

Friday, September 15, 2017

Injunctions for Standard-Essential Patents in the European Union

Urska Petrovcic, Criterion Economics examines Injunctions for Standard-Essential Patents in the European Union.

ABSTRACT: Injunctions for standard essential patents (SEPs) — that is, patents that are essential to practice an industry standard — have been at the center of the antitrust debate for more than a decade. In July 2015, the Court of Justice of the European Union (CJEU) issued its long awaited decision in Huawei Technologies. Co. v. ZTE Corp., in which it addressed, for the first time, the question of whether an SEP holder’s request for an injunction could violate Article 102 of the Treaty on the Functioning of the European Union (TFEU) — the provision of EU competition law that prohibits a dominant company from abusing its market position. In this article, I analyze the implications of the CJEU’s judgment for SEP holders that seek to enforce their SEPs in the European Union. Huawei confirmed that an SEP holder faces a stricter level of antitrust scrutiny in the European Union than in some other jurisdictions, such as the United States. In practical terms, however, the developments that followed Huawei showed that the judgment limited Article 102 TFEU’s scope in addressing an SEP holder’s behavior, when compared with the approach that the European Commission had adopted in its previous investigations. After Huawei, an SEP holder’s request for an injunction is less likely to trigger antitrust liability under Article 102 TFEU. In addition, Huawei raised the barrier that an SEP holder must overcome to obtain an injunction. Yet, the requirements established in Huawei are not so strict as to preclude obtaining that remedy. Unlike in the United States, where, as of August 2017, no SEP holder has obtained an injunction, several SEP holders have requested and obtained injunctions against infringers in the European Union.

September 15, 2017 | Permalink | Comments (0)

Workers in the 'Gig' Economy: The Case for Extending the Antitrust Labor Exemption to Them

Marina Lao, Seton Hall has a paper on Workers in the 'Gig' Economy: The Case for Extending the Antitrust Labor Exemption to Them.

ABSTRACT: Consumers are the clear winners in the fast-growing sharing economy (and, more specifically, the “gig” economy), as are the technology companies that conceived and developed the digital platform models and that serve as the intermediaries. Though workers on the platforms have also benefited, particularly those who value flexibility, there is a sense that they are not receiving an appropriate share of the joint surplus that their “partnership” with the platforms is producing. For those troubled by this disparity, the challenge is to find a principled solution that would allow the benefits to be distributed more equitably, but would not upend the innovative business model and thereby lose the associated efficiencies and other benefits.

In this Essay, I argue for the extension of the antitrust labor exemption, currently limited to labor activities of employees, to encompass gig-economy workers. That would allow them to negotiate collectively with the platform/intermediary over compensation and benefits issues without exposure to antitrust liability. Gig-economy workers straddle the line between employee and independent contractor and do not currently receive the benefits and protections that are tied to employment. I explain why it would be consistent with the philosophies underlying the antitrust law and the exemption to extend the exemption to gig-economy workers, and why that can be reconciled with more recent refusals to apply the exemption to non-employee professionals—mostly independent physicians.

The Essay additionally addresses the drawbacks of different solutions proposed by others also concerned about the precarious circumstances of gig-economy workers, focusing in particular on a proposal to legislatively redefine “employment” broadly to cover gig-economy workers. My concern with this proposal is that it risks jeopardizing the very business model that has facilitated online intermediated work, and could also have the unintended effect of diminishing platform competition, which is troubling from a competition policy perspective. Given the uncertainties and risks, the simpler approach of extending the antitrust labor exemption to permit collective action by gig-economy workers, proposed in this Essay, seems to be the better path.

The exemption is not a perfect solution, and I address its weaknesses. But it is a means to advance the workers’ interests in securing an appropriate share of the surplus that has been jointly created by the platform and the workers, without as much risk of dismantling the business model in the process.

September 15, 2017 | Permalink | Comments (0)

Acting Assistant Attorney General Andrew Finch Delivers Keynote Address At Annual Conference On International Antitrust Law And Policy

A highlight from Day 1 at Fordham was this speech by Acting Assistant Attorney General Andrew Finch.  Some highlights include:

"First, we have spoken and will continue to speak forcefully about the importance of rule of law, and procedural fairness and transparency, in effective antitrust enforcement... [I]n a world where businesses increasingly operate across multiple jurisdictions and are subject to different antitrust enforcement regimes, transparency that increases understanding and confidence in each agency’s processes and decision-making will minimize the impact of such differences. Finally, transparency, together with strong procedural fairness protections, enables us to keep to the path of fair and non-discriminatory enforcement and foster the conditions for economic growth."

"We have also begun to engage regarding the need for greater international cooperation and coordination on cartel cases."

"We must keep in mind that there are pro-competitive benefits to technological innovations in the marketplace."

"The Division is also continuing its commitment to help newer agencies develop strong evidence-based enforcement policies and practices."

 

 

 

September 15, 2017 | Permalink | Comments (0)

Fordham Competition Law Institute conference continues today

See here for the conference agenda and CLE materials.

September 15, 2017 | Permalink | Comments (0)

Is Margrethe Vestager championing consumers or her political career?

The Economist asks Is Margrethe Vestager championing consumers or her political career?

Perhaps their answer is clear in the last lines of the story - "But mixing politics with trustbusting so overtly is a dangerous game. The competition directorate’s standing as a neutral arbiter may get damaged in the process."

September 15, 2017 | Permalink | Comments (0)

The Social Contract at the Basis of Competition Law

Michal Gal, Haifa argues for The Social Contract at the Basis of Competition Law.

ABSTRACT: Competition law constitutes an important part of the social contract that stands at the basis of market economies, which conceptualizes the relationship between the state and its citizens, as well as among citizens, and legitimizes state action. This article seeks to unveil the social contract that stands at the basis of competition laws by shedding light on the assumptions at its basis. It then explores whether these assumptions indeed further the goals of the social contract, namely total and individual welfare. In particular, in light of recent challenges to the welfare effects of market economies, this short article seeks to determine whether equality and inclusive growth goals should play a more pronounced role in the competition laws of developed jurisdictions, and if so, by what means.

September 15, 2017 | Permalink | Comments (0)

Thursday, September 14, 2017

Righting the Course: What the DOJ Should Do About the IEEE Business Review Letter

Koren W. Wong-Ervin, George Mason University, Scalia Law School - Global Antitrust Institute is Righting the Course: What the DOJ Should Do About the IEEE Business Review Letter.

ABSTRACT: Standard-development organizations (SDOs) “vary widely in size, formality, organization and scope,” and therefore individual SDOs may need to adopt different approaches to meet the specific needs of their members. Critically, to balance the needs of both contributors and implementers, SDO policies must be developed through transparent and consensus-based processes. Issuance of best practices by a government agency may unduly influence private SDOs and their members to adopt policies that might not otherwise gain consensus support within a particular SDO and that may not best meet the needs of that SDO, its members, and the public. Accordingly, the U.S. antitrust agencies have taken the position that they do “not advocate that [SDOs] adopt any specific disclosure or licensing policy, and the [a]gencies do not suggest that any specific disclosure or licensing policy is required.”

September 14, 2017 | Permalink | Comments (0)

ANTITRUST AND THE DESIGN OF PRODUCTION

Herb Hovenkamp (Penn) has written on ANTITRUST AND THE DESIGN OF PRODUCTION.

ABSTRACT: Both economics and antitrust policy have traditionally distinguished “production” from “distribution.” The former is concerned with how products are designed and built, the latter with how they are placed into the hands of consumers. Nothing in the language of the antitrust laws suggests much concern with production as such. Although courts do not view it that way, even per se unlawful naked price fixing among rivals is a restraint on distribution rather than production. Naked price fixing assumes a product that has already been designed and built, and the important cartel decision is what should be each firm’s output, or the price charged to buyers. At the same time, however, many price agreements among rivals are in fact a part of design or production rather than distribution.

Many of the difficulties that antitrust law has had with vertical restraints arose because antitrust courts mistakenly viewed a practice as part of distribution when it was really part of design or production. Agreements that seem nominally to be about distribution or price are in fact mechanisms by which firms share design and production activities. For example, tying arrangements are not simply ways of pricing finished goods. Rather, as the long history of tying-like practices in patent law illustrates, most tying is the consequence of a design or production choice or else a mechanism for sharing entrepreneurial risk. Particularly misunderstood are variable proportion, or metering, ties. Ignoring incentive effects, when the seller has a monopoly in the tying product and the tied product is perfectly competitive, such ties may reduce short run consumer welfare from the single monopoly price, at least if they also reduce output of the durable good. However, that result is trivial across the range of litigated variable proportion tying cases. The sellers in these cases are virtually never monopolists or even close. When metering ties are imposed by non-monopolists the welfare effects are unambiguously positive.

An antitrust policy driven by concerns for consumer welfare should favor design and production initiatives but disfavor restraints on pricing. Indeed, it is more important for antitrust policy to get the innovation question right than to be right on price, because innovation has the potential to affect economic development much more dramatically, and in both directions. That is, just as innovation benefits the economy by a greater amount than price competition under constant technology, so too a restraint on innovation can do greater harm.

By focusing so much on price, antitrust policy has often missed the point of some arrangements, particularly those that involve new technologies or innovations in business organization. In the process, it has confused innovation with monopoly. For example, antitrust’s long war with tying arrangements occurred because litigants and courts were obsessed with pricing and either never queried or else did not appreciate how tying relates to innovation and production. By their nature, innovations upset a market’s equilibrium, producing temporarily higher returns. As a result, a common feature of innovation is short-run prices that are above cost and welfare reducing to the myopic eye. These are essential features of innovation-intensive markets, however, and in such cases the social cost of false condemnation is high.

September 14, 2017 | Permalink | Comments (0)

Bank Stability and Competition: Evidence from Albanian Banking Market

Gerti Shijaku analyzes Bank Stability and Competition: Evidence from Albanian Banking Market.

ABSTRACT: This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.

September 14, 2017 | Permalink | Comments (0)

On the relationship between bank market concentration and stability of financial institutions: Evidence from the Italian banking sector

Barra, Cristian ; Zotti and Roberto offer thoughts On the relationship between bank market concentration and stability of financial institutions: Evidence from the Italian banking sector.

ABSTRACT: This paper explores the relationship between bank market concentration and financial stability of financial institutions relying on highly territorially disaggregated data taken at municipality level in Italy between 2001 and 2012. Firstly, we test the existence of a U-shaped relationship between market concentration and financial stability. Secondly, we estimate the impact of the level of concentration of the banking system and other explanatory variables, such as size, level of capitalization and credit insolvency of financial institutions, on a proxy of risk taking behavior such as the banking ‘‘stability inefficiency’’ derived simultaneously from the estimation of a stability stochastic frontier. The paper concludes that the inefficiency of financial stability is U-shaped relationship with respect to the measure of market concentration. Boosting market power increases bank failure in very concentrated markets while leads to higher financial stability in already competitive markets. Bank size is an essential factor in explaining this relationship as the effect of size on the inefficiency of stability is an inverse U-shaped as a function of the market share indicator; results also suggest that high, low and average concentration levels do not change the positive effects that the level of capitalization has on the stability inefficiency.

September 14, 2017 | Permalink | Comments (0)