Monday, July 23, 2018
José Azar, University of Navarra, IESE Business School and Xavier Vives, University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) research Oligopoly, Macroeconomic Performance, and Competition Policy.
ABSTRACT: We develop a macroeconomic framework in which firms are large and have market power with respect to both products and factors. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one sector economy, if returns to scale are non-increasing, then an increase in effective market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when labor market oligopsony power is low relative to product market oligopoly power. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification.
Friday, July 20, 2018
D. Daniel Sokol, University of Florida has written on Vertical Mergers and Entrepreneurial Exit.
ABSTRACT: The idea that tech companies should be permitted to acquire nascent start-ups is under attack from antitrust populists. Yet, this debate on vertical mergers has overlooked important empirical contributions regarding innovation related mergers in the strategic management literature. This Essay explores the extant empirical management literature, which identifies a pro-competitive basis that supports vertical mergers as efficiency enhancing. This literature solidifies the current general vertical merger presumption that favors a a pro-competitive vertical merger policy for purposes of government merger enforcement. However, the pro-competitive benefit for a presumption of merger approval for most vertical mergers does not end with the synthesis of an under-explored literature. Rather, the broader implications of vertical mergers and presumptions of legality have another overlooked implication – a change of policy may dampen entrepreneurial investment and innovation. Entrepreneurial exit is critical to a well-functioning entrepreneurial ecosystem, as the possibility of entrepreneurial exit via vertical merger is now the most usual form of liquidity event/exit for founders and venture capitalists. Vertical merger policy that would unduly restrict large tech firms from undertaking acquisitions in industries as diverse as finance, pharmaceuticals, medical devices, technology hardware, and internet platforms, would hurt incentives for innovation in the economy by chilling business formation in startups. Increased difficulty in the exit for founders and ventures capitalists makes investment in such ventures less likely, since the purpose of such investment is to reap the rewards of scaling a venture to exit. Thus, a general inference that makes vertical acquisitions, particularly in tech, more difficult to undertake leads to precisely the opposite of the purpose of the role of antitrust in promoting competition and innovation. This Essay explores how entrepreneurial exit for founders and venture capitalists is best served by promoting a robust vertical merger policy, though one that intervenes in cases of specific anti-competitive harm.
Michael A. Carrier, Rutgers Law School describes The Rule of Reason in the Post-Actavis World.
ABSTRACT: Though known more as U.S. President and Supreme Court Chief Justice, William Howard Taft played an important role in the development of antitrust law. As Sixth Circuit judge, his ruling in the Addyston Pipe case can be linked to modern antitrust law, including the Supreme Court’s 2013 decision in FTC v. Actavis on drug patent settlements. This essay, which builds on a lecture given to the NY State Bar Association's Antitrust Section, draws lessons from Addyston Pipe for these settlements, explains how courts today apply the Rule of Reason, and explores the analysis of settlements after Actavis.
José Azar, University of Navarra, IESE Business School, Martin C. Schmalz, University of Michigan, Stephen M. Ross School of Business; CEPR; CESifo; European Corporate Governance Institute (ECGI), and Isabel Tecu, Charles River Associates (CRA)offer a Reply to: 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry'.
ABSTRACT: Dennis, Gerardi, and Schenone (2017) (DGS) claim to replicate the data construction and results of Azar, Schmalz, and Tecu (forthcoming) (AST). While their implementation of the main specifications in AST generates qualitatively similar results, they claim that AST’s baseline results are driven 1) by the use of passenger volume as regression weights and 2) largely by the top fifth percentile of markets in the passenger count distribution.
In this note, we show that these claims are factually incorrect. First, because DGS do not in fact replicate the data construction described in AST, their paper is of limited usefulness in showing the effect of deviations from AST’s empirical specifications. Second, we show that AST's results are qualitatively robust to not weighting regressions. Third, AST's results also hold on subsamples excluding the top fifth percentile of markets by passenger count. Additional evidence we present in this note suggests that DGS's erroneous conclusions are driven by an incorrect treatment of ownership data as well as other differences in their sample's characteristics compared to AST's.
Jay Pil Choi, Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute), Doh-Shin Jeon, Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR), and Byung‐Cheol Kim, University of Alabama - Department of Economics, Finance and Legal Studies examine Net Neutrality, Network Capacity, and Innovation at the Edges.
ABSTRACT: We study how net neutrality regulations affect a high‐bandwidth content provider (CP)'s investment incentives to enhance its quality of services in content delivery to end users. We find that the effects crucially depend on whether the CP's entry is constrained by the Internet service provider's network capacity. If the capacity is relatively large, the prioritization reduces the investment as CP's investment and prioritization form substitutes. With limited capacity, however, they become complements and the prioritization can facilitate the entry of congestion‐sensitive content. Our analysis suggests that the optimal policy may call for potentially asymmetric regulations across mobile and fixed networks.
Thursday, July 19, 2018
Zhiqi Chen, Carleton University - Department of Economics, and Gang Li, Nanjing University - Department of Economics ask Do Merger Efficiencies Always Mitigate Price Increases?
ABSTRACT: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post‐merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.
Is a Big Entrant a Threat to Incumbents? The Role of Demand Substitutability in Competition Among the Big and the Small
Makoto Hanazono, Nagoya University - Graduate School of Economics and Lijun Pan, Nanjing University - Department of Economics ask Is a Big Entrant a Threat to Incumbents? The Role of Demand Substitutability in Competition Among the Big and the Small.
ABSTRACT: We establish a model of market competition between large and small firms and investigate the way in which demand substitutability affects how the entry of big firms impacts incumbents. We focus on the relative strength of two opposing effects of entry on large incumbent firms’ demand: the direct substitution effect among large firms (negative) and the indirect feedback effect through the change in small firms’ aggregated behavior (positive). If the substitutability between large and small firms is sufficiently high, the indirect effect dominates the direct effect and large incumbents’ equilibrium prices and profits increase. We show that welfare effects are ambiguous, which calls for careful assessment when regulating large firms’ entry.
Competition in a digital economy is a new frontier
Join Caron Beaton-Wells, Professor in Competition Law at the University of Melbourne, to tackle what it means to participate as a competitor, consumer or citizen in a digital economy and society.
Featuring regular cut-through interviews with leading thinkers, movers and shakers, Competition Lore is a podcast series that engages us all in a debate about the transformative potential and risks of digitalised competition.
About Caron Beaton-Wells
I’m a Professor specialising in competition law at the University of Melbourne Law School, Director of the University’s Competition Law & Economics Network and Global Competition and Consumer Law program.
Over 15 years steeped in researching and teaching in competition law, I’ve become increasingly concerned by the exclusion or marginalisation of academic contributions in important public debates.
On average an academic journal article is “read completely by no more than ten people”.
With Competition Lore, one of my aims is to entice academics out of the ivory tower and into the public discourse to engage as broadly as possible on a set of issues that pose opportunities and challenges for us all.
ABSTRACT: Fire brigades have long since stopped seeing their job as simply putting out fires. They realised that one of the most effective ways that they can save lives and property is to spend time and money on fire prevention. This does not mean that they stop fighting fires; but it does reduce the number of fires they have to fight, which is better for society as a whole.
Wednesday, July 18, 2018
ABSTRACT: As with all other questions within competition law, the answer is: ‘it depends…’.
First and foremost, from the point of view of a competition enforcer I see digitalisation as a massive opportunity. In short, digitalisation can lead to new business models, the rise of new competitors, better, and/or lower-priced products and services. Often the most important role we as competition enforcers have to play in this area is that of being an advocate for digitalisation e.g. advocating for the abolishment of unnecessary legislation standing in the way of disruptive competition.
But, certainly, digitalisation and some of its key features such as network effects, big data and algorithms, raise a number of competition related risks.
One such risk is that digitalisation and the use of algorithms, price robots and artificial intelligence may facilitate both explicit and tacit collusion.
Francesco Marchionne (Indiana University) ; Alberto Zazzaro (University of Naples Federico II; CSEF & MoFiR (Italy)) study Risk and competitiveness in the Italian banking sector.
ABSTRACT: In this paper, we analyse the relationship between risk and competition in the Italian banking sector over the period from 2006 to 2010. We employ OLS and panel estimators to estimate the impact of the Lerner index, a measure of bank market power, on the Altman Z-score, a proxy of the insolvency probability. Our results are consistent with the traditional charter value paradigm and reject the new risk-shifting paradigm proposed by Boyd-De Nicolo' (2005). We find that the relationship between bank risk and competition becomes more tightening during the financial crisis. Our results are robust to different definitions of crisis and different specifications.
Thibault Schrepel, shows Utrecht University School of Law; a Research Associate at the Sorbonne Business & Finance Institute, University of Paris I Panthéon Sorbonne explains The EC is undermining innovation: here's how to change it.
ABSTRACT: On July 18, 2018, the European Commission fined Alphabet (Google) 4.34 billion euros. This decision confirms the Commission’s willingness to deter companies from engaging in anticompetitive practices. It also confirms that the European competition authority is missing the big picture by imposing disproportionate fines with regard to the specifics of the digital economy.
According to Article 23(2) of Regulation No 1/2003, the fines imposed by competition authorities cannot exceed 10% of the overall annual turnover of the concerned company. This limit is intended to avoid disproportionate sanctions that would jeopardize the company’s future. In fact, however, while this turnover threshold is useful, it is insufficient. The digital economy requires companies to compete by innovating. R&D investments have become the lifeblood of the digital economy and the very essence of competition. The specific competitive dynamics of the industry should also be taken into account in considering the extent to which fines imposed by competition authorities can disrupt the investment capacity of companies.
This article introduces an empirical study conducted over the period 2004 to 2018 (Android included) on all the fines imposed by the European Commission on the basis of Article 102 TFEU. We show that the European Commission’s decisions may have the effect of slowing down R&D for numerous sanctioned companies. For this reason, an innovation protection mechanism should be incorporated into the calculation of the fine. We propose doing so by introducing a new limit that caps Article 102 fines at a certain percentage of companies’ investment in R&D.
What Level of Competition Intensity Maximises Investment in the Wireless Industry?Georges Vivien Houngbonon (LGI - Laboratoire de Genie Industriel - CentraleSupélec) ; François Jeanjean (Orange Labs - Orange Labs [Belfort] - France Télécom) ask What Level of Competition Intensity Maximises Investment in the Wireless Industry?
ABSTRACT: This paper investigates the relationship between competition and investment in the wireless industry from a dynamic perspective. Using firm level data and instrumental variable estimation strategy, it finds that the relationship is inverted-U shaped. The investment maximising intensity of competition is reached when operators' gross profits represent 37 or 40 percent of their revenues, depending on whether capital expenditures are normalised by the number of subscribers. This finding means that investment increases with competition as long as operators' profits are above the thresholds of 37 or 40 percent of their revenues. Under these thresholds, there is a tradeoff between competition and investment. The paper also finds a significant long run effect of competition on investment which amplifies the short run effect by a factor of 3 to 4.
Tuesday, July 17, 2018
Hugh Gravelle (Centre for Health Economics, University of York, York, UK) ; Dan Liu (Centre for Health Economics, University of York, York, UK) ; Carol Propper (Imperial College London, UK) ; Rita Santos (Centre for Health Economics, University of York, York, UK) examine Spatial competition and quality: evidence from the English family doctor market.
ABSTRACT: We examine whether family doctor firms in England respond to local competition by increasing their quality. We measure quality in terms of clinical performance and patient-reported satisfaction to capture its multi-dimensional nature. We use a panel covering 8 years for over 8000 English general practices, allowing us to control for unobserved local area effects. We measure competition by the number of rival doctors within a small distance. We find that increases in local competition are associated with increases in clinical quality and patient satisfaction, particularly for firms with lower quality. However, the magnitude of the effect is small.
Richard G. Frank and Richard J. Zeckhauser investigate High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription.
ABSTRACT: Drug pricing in the U.S. is a persistently vexing policy problem. While there is agreement among many policy analysts that supra competitive prices are necessary to promote innovation; significant disagreements arise over how much pricing discretion prescription drug manufacturers should be permitted, and what portion of the sum of producer plus consumer surplus in the prescription drug market should be claimed by manufacturers relative to consumers and other payers. This paper focuses on an extremely costly component of the Medicare Part D program the region of coverage that kicks in once a consumer has spent $4,950 on drugs in a calendar year (roughly $8,100 in total drug spending). At that point there are high levels of insurance for the consumer and reinsurance for the prescription drug plan. Consumers pay 5% of costs; plans pay 15% and the government 80%. That design generates serious inefficiencies. The significant subsidies to plans in the reinsurance region combined with the launch of unique high cost prescription drugs could be expected to lead to and has led to substantial departures from cost-effective outcomes in treatments delivered. We investigate two, possibly complementary, strategies for reducing these inefficiencies. The first follows on the MedPac recommendation that the government reduce its share of risk bearing for the Part D reinsurance benefit. The second focuses on curbing price inefficiencies. It has two components: eliminating monopolistic overpricing, and rewarding the quality of drugs brought to market. It is grounded in the economics of two part tariffs, research on innovation prizes, performance-based contracts, and draws on the mechanism design literature.
Delina Agnosteva ; Constantinos Syropoulos ; and Yoto V. Yotov study Multimarket Linkages, Cartel Discipline and Trade Costs.
ABSTRACT: We build a model of tacit collusion between firms that operate in multiple markets to study the effects of trade costs. A key feature of the model is that cartel discipline is endogenous. Thus, markets that appear segmented are strategically linked via the incentive compatibility constraint. Importantly, trade costs affect cartel shipments and welfare not only directly but also indirectly through discipline. Using extensive data on international cartels, we find that trade costs exert a negative and significant effect on cartel discipline. In turn, cartel discipline has a negative and significant impact on trade flows, in line with the model.
Xavier D'Haultfoeuille (CREST) ; Isis Durrmeyer (Toulouse School of Economics; Université Toulouse Capitole) ; Philippe Février (CREST) theorize about Automobile Prices in Market Equilibrium with Unobserved Price Discrimination.
ABSTRACT: In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This paper considers the structural estimation of a demand and supply model à la Berry et al. (1995) with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved by using supply-side conditions, provided that the marginal costs of producing and selling the goods do not depend on the characteristics of the buyers. The model can be estimated by GMM using a nested fixed point algorithm that extends BLP’s algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.
Monday, July 16, 2018
6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going? Concurrences Review & The George Washington University Law School Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT) Washington, DC
6th Bill Kovacic Antitrust Salon: Where is Antitrust Policy Going?
Monday, September 24, 2018 from 1:00 PM to 6:30 PM (EDT)
|Free Registration more info
In case of over registration, attendance will be limited to three representatives per institution. Substitute delegates are welcome at any time.
|Sep 21, 2018||Free||Ticket Quantity Select123|
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William KOVACIC | Professor, George Washington University Law School, Washington, DC
Opening Keynote Speech
Richard POSNER | Senior Lecturer, University of Chicago Law School, Chicago*
"Populist" Antitrust: A Deviant Mutation or an Overdue Correction?
Einer ELHAUGE | Professor, Harvard Law School, Cambridge
Cristina CAFFARRA | Vice President, CRA, London/Brussels
William KOVACIC | Professor, George Washington Law, Washington, DC
Alex OKULIAR | Partner, Orrick, Washington, DC
Barry LYNN | Executive Director, Open Markets Institute, Washington, DC
Moderator: John BRIGGS | Partner, Axinn, Washington, DC
Should the New Titans be Tamed? Lessons From the US, EU, and China
Bruce HOFFMAN | Director, Bureau of Competition, US FTC, Washington, DC*
Lynda K. MARSHALL | Chief of the Foreign Commerce Section, US DOJ, Washington, DC*
Luke FROEB | Professor, Vanderbilt University, Nashville*
Christopher YOO | Professor, University of Pennsylvania Law School, Philadelphia
Greg McCURDY | Director, Litigation and Global Competition Law, Uber, San Francisco
Peter DAVIS | Senior Vice President, Cornerstone Research, London
Alvaro RAMOS | Senior Director - Head of Global Antitrust, Qualcomm, San Diego
Moderator: Frédéric JENNY | Chair, OECD Competition Committee, Paris
A Judge's Eye View on Antitrust: Mergers, Cartels, Remedies...
Mark ISRAEL | Senior Managing Director, Compass Lexecon, Washington, DC
Mark GIDLEY | Partner, White & Case, Washington, DC
Maureen OHLHAUSEN | Judge, US Court of Federal Claims, Washington, DC
Colleen McMAHON | Judge, US District Court - Southern District of New York, New York
Michael BAYLSON | Judge, US District Court, Eastern District of Pennsylvania, Philadelphia
Kevin CASTEL | Judge, US District Court, Southern District of New York, New York*
Moderator: Douglas GINSBURG | Judge, US Circuit Court for the District of Columbia
Closing Keynote Speech
Joseph SIMONS | Chairman, US FTC, Washington, DC*
Charles River Associates
White & Case
* To be confirmed
Bhaskar, V. ; Linacre, Robin ; Machin, Stephen identify The economic functioning of online drugs markets.
ABSTRACT: The economic functioning of online drug markets using data scraped from online platforms is studied. Analysis of over 1.5 million online drugs sales shows online drugs markets tend to function without the significant moral hazard problems that, a priori, one might think would plague them. Only a small proportion of online drugs deals receive bad ratings from buyers, and online markets suffer less from problems of adulteration and low quality that are a common feature of street sales of illegal drugs. Furthermore, as with legal online markets, the market penalizes bad ratings, which subsequently lead to significant sales reductions and to market exit. The impact of the well-known seizure by law enforcement of the original Silk Road and the shutdown of Silk Road 2.0 are also studied, together with the exit scam of the market leader at the time, Evolution. There is no evidence that these exits deterred buyers or sellers from online drugs trading, as new platforms rapidly replaced those taken down, with the online market for drugs continuing to grow