Wednesday, June 28, 2017
Schwardmann, Peter and Ispano, Alessandro address Competitive pricing and quality disclosure to cursed consumers.
ABSTRACT: We study the disclosure decision and price-setting behavior of competing firms in the presence of cursed consumers, who fail to be sufficiently skeptical about a firm's quality upon observing non-disclosure of quality-relevant information. We show that neither competition nor the presence of sophisticated consumers necessarily offer protection to cursed consumers. Exploitation arises if markets are vertically differentiated, if there are many sophisticated consumers, and if it is more likely ex ante that product quality is high. Information campaigns that seek to educate consumers may encourage exploitation and decrease social welfare. Mandatory disclosure laws restore efficiency, but at the cost of redistributing rents from consumers to firms. Our simple model delivers a rich set of positive results, captures important markets, like those for food and consumer finance, and speaks to several recent policy initiatives aimed at consumer protection.
Stracke, Rudi ; Hörtnagl, Tanja and Kerschbamer, Rudolf explain Competing for Market Shares: Why the Order of Moves Matters Even When It Shouldn't.
ABSTRACT: This paper analyzes a contest for market shares where two homogeneous firms compete by investing either simultaneously or sequentially. Standard theory predicts that equilibrium investments and payoffs are independent of the order of moves. To test this prediction, we implement two treatments in the lab, one where firms chose investments simultaneously, and one where they invest sequentially. Our results suggest that it is an inherent advantage to move second rather than first even in the absence of strategic concerns. This is so because first movers face strategic uncertainty, while second movers have the power to ultimately determine relative payoffs through their investment choices. This power is particularly valuable in our experiments, since many first movers try to establish a collusive outcome and second movers not only care about own monetary earnings, but also about relative standing vis-\`a-vis the first mover.
Tuesday, June 27, 2017
My friend Pinar Akman (we wrote a recent paper on online RPM and MFNs togther) asked me to post her initial thoughts on the Google search decision.
Initial Reactions to the Infringement Decision in Google Search*
Professor Pinar Akman
University of Leeds
Pending a full review of the Commission’s decision which is yet to be published, some preliminary observations can be offered on the Google Search decision which saw the largest antitrust fine ever to be imposed on Google. The infringement, according to the European Commission, is that Google abused its dominant position on the internet search market to favour its own comparison shopping service over those of its rivals (ie comparison shopping sites).
The first striking aspect of the decision is the ‘remedy’ that the Commission proposes (or fails to propose): the Commission states that Google must stop its illegal conduct within 90 days and it can do so by ‘respecting a simple principle: [i]t has to give equal treatment to rival comparison shopping services and to its own’. This is nothing but simple. Ordering a company which vehemently argues that it does treat all equivalent services equally, falls well short of what would have been expected of the Commission in terms of identifying with sufficient legal certainty what the company should do to stop infringing the law. Further, once one appreciates the fact that Google’s shopping results are simply ads for products and Google treats all ads with the same ad-relevant algorithm and all organic results with the same organic-relevant algorithm, the Commission’s order becomes impossible to comprehend. Is the Commission imposing on Google a duty to treat non-sponsored results in the same way that it treats sponsored results? If so, does this not provide an unfair advantage to comparison shopping sites over, for example, Google’s advertising partners as well as over Amazon, eBay, various retailers, etc which are the competitors of the comparison shopping sites but which do not receive such favourable treatment from Google but compete with them?
The second striking aspect of the decision is that, we still do not know what the relevant abuse is. On what existing law the case has been built is unclear. The theory of harm is also unclear. The Commissioner in the Press Conference has alluded to the practice not being a novel type of abuse, but as this author has argued elsewhere, it is impossible to fit the existing facts of this case within existing case law. This leads to the third striking aspect of the decision, which is the record fine. Fining a company more than twice as much any other company has been fined for an abuse of a dominant position in the history of EU competition law in a case where the practice is at least arguably a novel type of abuse does not follow previous practice of the EU Commission where no fine was imposed due to the practice being a novel abuse. The previous practice is preferable for legal certainty purposes.
Finally, it is sad to see that the decision appears to revolve around harm to a group of competitors and in particular, how Google’s practice led to a loss of traffic to some websites. There is practically no discussion of how the practice has affected Google’s only trading partners – advertisers – and there is little convincing discussion of how the users – consumers – (might) have been harmed as a result of Google’s practice. The suggestion that the practice leads to lack of innovation on both Google’s and the comparison shopping sites’ part and thereby harms consumers by reducing choice does not hold water. First, according to the EU’s own statistics, Google is the world’s fourth R & D investor, which has increased its investment in R & D by over 20% in 2016. Second, the comparison shopping sites – sites which merely comprise ads – have likely lost business as a result of the normal dynamics of competition as they could not innovate to catch up with Amazon’s numerous offerings to consumers. Third, comparison shopping sites remain fully accessible to consumers who value their offerings, irrespective of where Google ranks them in its results. All in all, a robust theory of harm that demonstrates harm to consumers from Google’s practices in this case appears to be still missing.
* This piece has not been commissioned or funded by any entity. The author has previously conducted research commissioned by Google on the Google Search case. That research is available here https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811789.
 ‘Antitrust: Commission fines Google €2.42 billion for abusing dominance as search engine by giving illegal advantage to own comparison shopping service’ 27/6/2017 http://europa.eu/rapid/press-release_IP-17-1784_en.htm.
 See P Akman ‘The Theory of Abuse in Google Search: A Positive and Normative Assessment Under EU Competition Law’ (forthcoming) (2017) Journal of Law, Technology and Policy, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811789.
 See Case AT.39985—Motorola—Enforcement of
GPRS Standard Essential Patents, Comm’n Decision (Motorola) (summary at 2014 O.J. (C 344)
 http://iri.jrc.ec.europa.eu/documents/10180/1030082/The%202016%20EU%20Industrial%20R%26D%20Investment%20Scoreboard as noted in N Petit ‘My 2 cents on the EC decision against Google’ https://medium.com/@nicolaspetit_89712/my-2-cents-on-the-ec-decision-against-google-683651adeee.
Sokol disclosure: I do Google client work in my capacity as Senior Of Counsel at Wilson Sonsini Goodrich and Rosati. I did not work on the European case. I also in no way solicited or edited Pinar's thoughts. I saw Pinar briefly at the Oxford JAE symposium this weekend (good conference). We spoke about our respective families and that is it.
Daryl Lim, John Marshall Law, is Retooling the Patent-Antitrust Intersection: Insights from Behavioral Economics.
ABSTRACT: Behavioral economics has been embraced in finance and implemented by the government. In IP law, scholars have argued it can inform non-obviousness analyses, decipher patent damages, and develop a more nuanced narrative for incentivizing innovation. In antitrust law, scholars have argued for a larger role for behavioral economics in antitrust law more generally. Yet to date, there has been no consideration of the role of behavioral economics at the patent-antitrust intersection.
In presenting pioneering work on the issue, this Article explains the role heuristics and biases play at the patent-antitrust intersection, and identifies specific ways that courts can take them into account. If antitrust law based on neoclassical economics were analogized to an app, behavioral economics would be a patch, not an overhaul of the status quo. A court that understands how patentees, licensees, consumers, and enforcers decide can more accurately contextualize and assess competing narratives and articulate more effective remedies. In other words, behavioral economics can help judges better understand how to use the rule of reason to achieve more dynamically efficient outcomes.
Through the lens of patents, Part II traces how the discretion given to courts in applying the rule of reason has empowered them to treat patents first with disdain, and then with veneration under antitrust law. This shift parallels the ascendance of the importance of IP industries to the national economy and the rise of neoclassical economics. It also explains how the quest for dynamic efficiency has resulted in antitrust ennui, before mounting three challenges to the belief that antitrust policy deference toward patent owners promotes innovation. These challenges are that (1) deference underestimates anticompetitive harm and undervalues the value of gains from intervention, (2) courts are inconsistent about their insecurities in regulating innovation through antitrust: they worry about getting it wrong in exclusionary abuses and yet approach vertical restraints and merger analysis with surprising confidence, and (3) patent deference is suspect as a matter of patent policy.
Part III explains how Actavis’s requirement to scrutinize permissible patent conduct through the rule of reason also creates the challenge of developing a coherent and predictable framework of doing so. It argues that Kimble empowers courts to incorporate insights from behavioral economics. In doing so, courts can become more aware of their own cognitive biases and those of the parties appearing before them, giving them a chance to reach more dynamically efficient outcomes.
Part IV addresses the three criticisms against behavioral economics most pertinent to the patent-antitrust intersection: (1) that irrational conduct is irrelevant to antitrust analysis, (2) that behavioral economics fails to provide predictability to antirust analysis, and (3) behavioral economics experiments are anecdotal and fail to provide antitrust with a generalizable organizing principle.
Part IV then identifies four areas where behavioral economics can help courts reach better outcomes: (1) analyzing anticompetitive harm and procompetitive justifications, by contrasting the Court of Appeals for the D.C. Circuit’s approaches in Microsoft and Rambus, as well as the Supreme Court’s approaches in Actavis and Kimble, (2) empowering judges by enlarging the role of intent, with lessons drawn from cases such as Aspen Skiing, McWane, and Intellectual Ventures, (3) determining market power and lock-ins in aftermarkets, with lessons drawn from Kodak and FRAND (fair, reasonable, and nondiscriminatory) litigation, and (4) crafting smarter remedies by looking at the EU’s Microsoft decision. The discussion draws on past, recent, and ongoing cases to illustrate each area. Part V identifies areas for future research and concludes.
Ignacio Herrera Anchustegui, University of Bergen - Faculty of Law addresses Joint Bidding and Object Restrictions of Competition: The EFTA Court's Take in the ‘Taxi Case’.
ABSTRACT: On December 22, 2016, the EFTA Court handed its Advisory Opinion in Ski Taxi SA, Follo Taxi SA og Ski Follo Taxidrift AS v Staten v/Konkurransetilsynet. In this case, the EFTA Court dealt with a preliminary question concerning the applicable test to determine whether a joint bid for a public contract constitutes an object restriction of competition under Section 10 of the Norwegian Competition Law, corresponding to Article 53 EEA – the equivalent to Article 101 TFEU.
The Opinion discusses three issues. Firstly, it confirmed that for a conduct to qualify as an object restriction of competition it must reveal a sufficient degree of harm as determined by a limited context assessment, and be capable of having some market impact. Also, the ‘object’ concept must be given a restrictive interpretation – adding that this is only applicable for conducts “easily identifiable, in the light of experience and economics”. Thus, it is not sufficient that the conduct is simply capable of resulting in the prevention, restriction or distortion of competition. To constitute an object restriction a conduct must both reveal a sufficient degree of harm and be capable of having some market impact.
Secondly, the EFTA Court offered guidance whether the submission of joint bids may restrict competition by object as a type of price fixing. To assess this, regard must be had to the nature of the cooperation, its objectives and its economic and legal context. Additionally, it must be determined if the parties are actual or potential competitors and whether the joint price setting may constitute an ancillary restraint with respect to a wider not anticompetitive operation.
Lastly, it found that, although openly submitting a joint tender may reveal a lack of an anticompetitive intention, this is in itself not a prerequisite for determining whether an agreement restricts competition by its object.
Constitutional challenges in Europe– the impact and role of competition law Thursday 14th September 2017
The Competition Law Scholars Forum (CLaSF) and the Amsterdam Centre for European Law and Governance
“‘Constitutional challenges in Europe– the impact and role of competition law’.”
At the University of Amsterdam (details venue tbc), on Thursday 14th September 2017
Mandatory prior registration by 7th September at email@example.com
09:30 – 10.00: Registration
10.00: Introduction: Prof Barry Rodger (CLaSF), Dr. Kati Cseres (Amsterdam Centre for European Law & Governance)
10.10-10.50 Keynote Speaker, tbc
11.15-12.15 Rule of Law Challenges and the Role of National Parliaments- Chair: TBC
Kati Cseres, Rule of Law Challenges and the Enforcement of EU Competition Law, a case-study of Hungary and its Implications for EU Law, ACELG
Mary Guy, The Role of the EU and National Parliaments in shaping competition policy in healthcare- experiences from the Netherlands and England, Lancaster University,
12.15-13:15 NCA Independence and Accountability- Chair: TBC
Barry Rodger, Rule of Law or Rule of Politics: Competition Authority Independence and Accountability, the UK’s CMA University of Strathclyde
Javier Guillen Carames, Combining Various Regulatory Bodies Into One Multisector Body: The Problem with Independence of NCAs; Universidad Rey Juan Carlos, Madrid
14:30- 16.00 Competition Law, Constitutionalism and Particular Case Studies:- Chair:TBC
Jotte Mulder, The constitutional implications of the economisation and modernisation of EU competition law: a case study from the Netherlands Utrecht University
Antoine Duval, Competition law as Constitutional Law: Counter-democratizing the lex sportive through EU Competition law control, Asser Institute, The Hague
David Reader, Understanding the ‘uneasy bedfellows’: The prospects for foreign investment review and merger control in the UK CCP, UEA
16.00-16:15 Coffee Break
16:15-17:15 Constitutional Challenges: Effectiveness and Private Actions:- Chair: TBC
Cristina Volpin, Constitutional Challenges in Europe- The Impact and Role of Competition Law QMU, London
Bruce Wardhaugh, The More Economic Approach and Private Actions: A Rule of Law Threat in the EU?
University of Manchester
17:15-17:30 Closing remarks: Kati Cseres, Prof Barry Rodger (CLaSF)
17.30 Drinks and dinner for participants sponsored by Amsterdam Centre for European Law & Governance and ACCESS EUROPE
Scott Hemphill, NYU provides an overview of Intellectual Property and Competition Law.
ABSTRACT: This chapter, prepared for the Oxford Handbook of Intellectual Property Law, surveys the intersection of competition law — or antitrust law, as it is known in the United States — with intellectual property (IP). It examines whether and how IP rights alter the substantive scope of antitrust law, either by operation of statute or as a matter of economic policy. It discusses a wide variety of antitrust claims, alleging collusion, exclusion, or both, that have been raised against IP rights holders. The examples are drawn mainly from the United States, although European developments are also included where relevant. The analysis supports the conclusion that, beyond a rights holder’s core ability to assert a valid, infringed right against a rival, IP restricts antitrust law less than one might expect. Moreover, the restrictions that do exist are often subtle.
José Azar, University of Navarra, IESE Business School Martin C. Schmalz, University of Michigan, Stephen M. Ross School of Business and Isabel Tecu, Charles River Associates (CRA) have written on the Anti-Competitive Effects of Common Ownership.
ABSTRACT: Many natural competitors are jointly held by a small set of large institutional investors. In the US airline industry, taking common ownership into account implies increases in market concentration that are ten times larger than what is "presumed likely to enhance market power" by antitrust authorities. We find a robust correlation between within-route changes in common ownership concentration and route-level changes in ticket prices, also when we only use variation in ownership due to the combination of two large investors. We conclude that a hidden social cost - reduced product market competition - accompanies the private benefits of diversification and good governance.
Monday, June 26, 2017
Matthew Sipe, Yale has a thought provoking paper on The Sherman Act and Avoiding Void-for-Vagueness.
ABSTRACT: Recent Supreme Court jurisprudence has reaffirmed the viability of the void-for-vagueness doctrine, including the use of facial challenges. This Article demonstrates that, under prevailing doctrine, the Sherman Act could not survive such a challenge. Although previous high-profile attempts to invalidate this core statute of antitrust law as unconstitutionally vague were unsuccessful, the landscape has changed considerably since then. Longstanding deficiencies in the statutory text in terms of notice and consistency have been exacerbated by a pattern of judicial gloss that tolerates and maintains ambiguity — both categorical and substantive. The Sherman Act’s penalties and enforcement, moreover, have been enhanced and increased, making the cost of good-faith missteps particularly high. Additionally, the Sherman Act’s tension with activities protected by the First Amendment has increased considerably, not only directly, but indirectly through the proliferation of information and communication markets. Finally, the attempt to incorporate a limiting mens rea requirement into the law — a saving grace in other vague statutory schemes — has proved unworkable and incomplete, if not entirely mooted in this context. In light of these trends, the Sherman Act requires some form of alteration to maintain constitutionality moving forward. This Article concludes by briefly exploring such potential solutions, and likely outcomes with respect to antitrust law’s vagueness problem for the years ahead.
Miguel Cantillo, Universidad de Costa Rica asks Villains or Heroes? Private Banks and Railroads after the Sherman Act.
ABSTRACT: This paper analyzes and measures the value that American private banks added as directors of non financial companies. Using data between 1874 and 1913, and an event study from 1906, I find that bank directors added about 20% of a firm's market capitalization. Collusive practices encouraged by private banks accounted for 65% of this value, and were the equivalent of creating a three player market among railroads. About 35% of the value added by banks came from better governance. I argue that although policymakers were partly right in sidelining private banks as activist investors, this helped entrench managers.
Josh Wright, George Mason has written an op-ed on how Democrats must end fiery rhetoric against AT&T Time Warner merger.
Perhaps the very best comment on Makan Delrahim appears courtesy of David Balto in an op-ed for The Hill titled Time to get Trump’s new antitrust cop on the beat:
"Just as the 1979 Los Angeles Lakers needed Magic Johnson as its leader as soon as he was drafted, the division needs a strong leader to guide its vital mission. It’s time for the Senate to move promptly and confirm Delrahim."
Margherita Colangelo, University of Rome III - Department of Law explores Parity Clauses and Competition Law in Digital Marketplaces: The Case of Online Hotel Booking.
ABSTRACT: Recent case law concerning intermediation activity in digital markets shows that one of the key concerns of competition authorities is the use by online platforms of a type of agreement generally traced to the category of Most Favoured Nation clause (MFN), typically included in B2B long-term contracts, where the supplier undertakes to guarantee the best price conditions to the intermediary concerned as compared with any other dealer. The competitive assessment of such clauses (also known as parity clauses) is controversial in both traditional and digital markets. At first sight, they appear to offer potential benefits to consumers, at least in terms of price transparency and reduction of transaction costs; however, they also give rise to competition concerns, as they may serve to acquire or strengthen monopoly pricing. Their recurrence in the digital environment has revitalized an ongoing debate on the likely effects of these clauses on competition.
The article first analyzes the business models adopted by intermediaries in e-commerce and the concerns that have arisen under competition law, with particular regard to the increasing use of some forms of MFN clauses. The analysis is conducted in the light of several cases in the field of online hotel booking brought before national competition authorities (NCAs) for alleged violation of competition rules. The article then questions the theories of harm and the main critical issues deriving from such case law, highlighting the difficulties hidden in the adoption of a generalized approach in the competitive assessment of the clauses at issue.
Martin Gaynor, Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation, Farzad Mostashari, Aledade Inc. and Paul B. Ginsburg, Center for Studying Health System Change discuss Making Health Care Markets Work: Competition Policy for Health Care.
ABSTRACT: The U.S. health care system does not work as well as it could, or should. Prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of our economy. The dearth of competition in our health care markets is a key reason for this dysfunction.
There is a growing understanding that comprehensive efforts to control health care costs and improve the quality of care must address the functioning of the markets that undergird the health care system and the prices paid to providers. Ensuring that markets function efficiently is central to an effective health system that provides high quality, accessible, and affordable care. A large body of evidence shows that patients, employers, and private insurers pay more for health care in highly consolidated provider markets — for instance, where only one or two hospital systems exist. Higher health care costs lead to higher premiums, making insurance more expensive and less affordable. Even in public programs, such as Medicare, a lack of competition among providers is associated with lower quality care. The same is true of health insurance — it has been extensively documented that less competition leads to higher premiums.
Each of us has been concerned about competition for quite some time. Earlier this fall, we convened a meeting supported by the Robert Wood Johnson Foundation, and co-sponsored by the American Enterprise Institute, the Brookings Institution, and Carnegie Mellon’s Heinz College, to formulate ideas for actionable policies that public and private stakeholders can implement to improve the functioning of health care markets. Approximately 40 academics, industry stakeholders, and federal and state government officials participated in the meeting, which produced focused, practical proposals. This white paper reflects the authors’ recommendations, taking the discussion at the meeting into account, without any attempt either to summarize the meeting or to associate the participants with these views.
We propose a new “competition policy” for health care that involves multiple actors at the federal and the state level: the White House and state governors, federal and state executive agencies, and federal and state legislatures, as well as the federal and state antitrust enforcement agencies traditionally focused on competition. Inattention to the impact of policies on consolidation may have unwittingly put the U.S. on a path to less competition in health care markets; addressing it will require broader action and attention beyond antitrust enforcement as well. Pursuing this agenda will allow health care markets to function more efficiently, leading to higher quality, more accessible, and lower-cost care. We focus on policies to enable and support competition by health care organizations.
We propose specific, actionable policies to maintain and enhance the competitiveness of health care markets, promote entry by new competitors and remove barriers to entry, and prevent anticompetitive practices. We think these policies can have an immediate and meaningful impact. We note that these are non-partisan policies that can elicit support from across the political spectrum.
Friday, June 23, 2017
Elisabetta Iossa (CEIS & DEF, University of Rome "Tor Vergata",Proxenter,CEPR,IEFE-Bocconi) and Michael Waterson (University of Warwick) have written Maintaining Competition in Recurrent Procurement Contracts: A case study on the London Bus Market.
ABSTRACT: Under recurrent procurement, the awarding of a contract to a firm may put it in an advantageous position in future tenders, which may reduce competition over time. The objective of this paper is to study the dynamics of competition for tendered contracts, focusing on factors that may generate incumbent advantage. Particular attention is given to learning economies, sunk costs of entry and switching costs for the procurer. The paper then applies these insights to analyse empirically the evolution of competition in the market for local bus services in London.
Exclusionary Practices in Two-Sided Markets: The Effect of Radius Clauses on Competition between Shopping Centers
Götz, Georg and Brühn, Tim discuss Exclusionary Practices in Two-Sided Markets: The Effect of Radius Clauses on Competition between Shopping Centers.
ABSTRACT: This paper analyzes exclusionary conduct of platforms in two-sided markets. Motivated by recent antitrust cases against shopping centers introducing radius restrictions on their tenants, we provide a discussion of the likely positive and normative effects of exclusivity clauses, which prevent tenants from opening outlets in other shopping centers covered by the clause. In a standard two-sided market model, we analyze the incentives of an incumbent shopping center to introduce exclusivity clauses when faced by entry of a rival shopping center. We show that exclusivity agreements are especially profitable and detrimental to social welfare if competition is intense between the two shopping centers. We argue that the focus of courts on market definition is misplaced in markets determined by competitive bottlenecks.
Schmutzler, Armin ; Edlin, Aaron ; Roux, Catherine ; Thoeni, Christian are Hunting Unicorns? Experimental Evidence on Predatory Pricing.
ABSTRACT: The paper provides an experimental analysis of above-cost predatory pricing in a multi-period interaction between a monopolistic incumbent and a potential entrant. It shows that, without policy interventions, the threat of post-entry price cuts discourages entry without forcing incumbents to abstain from monopoly pricing. A policy suggested by Edlin that curtails such price cuts encourages entry and reduces the prices set by monopolistic incumbents. An alternative policy suggested by Baumol that prohibits post-exit price increases does less to encourage entry, and it does not prevent high pre-entry prices. However, as expected, it keeps post-exit prices low.
Thursday, June 22, 2017
Angelov, Aleks and Vasilev, Aleksandar offer Microeconomic Simulator of Firm Behavior under Monopolistic Competition.
ABSTRACT: Computer simulators are proving to be indispensable education tools as they enable their users to readily apply theoretical knowledge and to automatically receive immediate feedback, which is invaluable both to learners and to their instructors. Yet at present, there is virtually no publically available software for teaching economics to people who are new to this discipline. The Microeconomic Simulator of Firm Behavior under Monopolistic Competition is an interdisciplinary project which tries to fill this niche by providing an interactive means of strengthening and assessing a person’s grasp of fundamental economic concepts. It simulates the dynamic conditions of real-world markets that exhibit characteristics both of monopoly and of perfect competition, and demonstrates how choices made by a company’s executives affect its profitability. This is done in an intuitive manner through a user-friendly web application, which can be accessed from any device with an HTML5-compliant browser. The application is based on a proprietary algorithm which transforms the abstract economic model of monopolistic competition into a series of easy-to-follow steps and supplies diagrams and pop-ups, which help users comprehend the consequences of their actions. The parameters of the model are fully customizable so that different economic environments can be explored. After the end of a simulation, users are presented with a summary of their performance, which they can use to measure their progress over time, or to see how they rank among their peers.
Keishun Suzuki revisits Competition, Patent Protection, and Innovation in an Endogenous Market Structure.
ABSTRACT: This study revisits the relationship between competition and innovation by incorporating an endogenous market structure (EMS) in a dynamic general equilibrium model. We consider that both innovative and non-innovative followers engage in Cournot competition with free entry. A competition-enhancing policy, which reduces entry cost, can stimulate the entry of innovative followers when the entry cost is high. However, when the entry cost is sufficiently low, the entry of non-innovative followers crowd-out innovative followers from the market. As a result, there is a non-monotonic relationship (inverted-V shape) between competition and innovation. Furthermore, we show that, while strengthening patent protection positively affects innovation when competition is sufficiently intense, the effect may be negative under milder competition. This suggests that a competition policy could complement a patent policy.
Nilinjan Roy has written on Action revision, information and collusion in an experimental duopoly market.
ABSTRACT: We report on an experiment designed to study a dynamic model of quantity competition where firms continuously revise their production targets prior to the play of the "one-shot" game. We investigate how the observability of rival firm's plans and the technology for implementation of revised actions affect market competitiveness. Under a real-time revision game where payoffs are determined only by the quantities prepared at the end, play converges to the Cournot-Nash output when rival's plans are unobservable. If plans cannot be hidden from competitors, choices are even more competitive than the static Nash equilibrium, thereby showing a negative value of information with lower profits. With stochastic revision, where opportunities to revise arrive according to a Poisson process and the quantities selected at the last opportunity are implemented, collusion is much frequent. This shows, more generally, that cooperation can be observed even when individuals interact only once.