Antitrust & Competition Policy Blog

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

Saturday, August 25, 2007

Why Such a High Mark-Up on Corn Flakes?

Posted by D. Daniel Sokol

In the wake of the crushing setback for the FTC in the Whole Foods/Wild Oats merger case, I thought it might be interesting to look through some of the agricultural economics literature on supermarket competition.  In the forthcoming issue of  the American Journal of Agricultural Economics, there is a great article by Benaissa Chidmi and Rigoberto Lopez of the University of Connecticut Department of Agricultural and Applied Economics that explains competition in breakfast cereals in Brand-Supermarket Demand for Breakfast Cereals and Retail Competition.

The Berry, Levinsohn, and Pakes (1995) market equilibrium model is extended to the supermarket chain level to examine consumer choices and retail competition for thirty-seven brands of breakfast cereals in Boston. Estimated taste parameters for product characteristics vary significantly across consumers. Although consumers are price-sensitive with respect to their chosen cereals, they exhibit strong brand and supermarket loyalty. Retail markups increase and marginal costs decrease with grocery market shares, attesting to oligopoly power with efficiencies. Markups decrease with the own-price elasticity of demand, with Corn Flakes having the highest markups. A detailed picture of consumer response and supermarket competition is provided.

August 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Friday, August 24, 2007

Why Tie A Product Consumers Do Not Use?

Posted by D. Daniel Sokol

Dennis W. Carlton (University of Chicago Graduate School of Business), Joshua S. Gans (Melbourne Bsuiness School), and Michael Waldman (Cornell Department of Economics)has just authored an insightful new paper Why Tie A Product Consumers Do Not Use?  On Dennis, let us congratulate him on his recent appointment to be a member of the President's Council of Economic Advisors.

ABSTRACT: This paper provides a new explanation for tying that is not based on any of the standard explanations -- efficiency, price discrimination, and exclusion.  Our analysis shows how a monopolist sometimes has an incentive to tie a complementary good to its monopolized good in order to transfer profits from a rival producer of the complementary product to the monopolist.  This occurs even when consumers -- who have the option to use the monopolist's complementary good -- do not use it.  The tie is profitable because it alters the subsequent pricing game between the monopolist and the rival in a manner favorable to the monopolist.  We show that this form of tying is socially inefficient, but interestingly can arise only when the tie is socially efficient in the absence of the rival producer.  We relate this inefficient form of tying to several actual examples and explore its antitrust implications.

August 24, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 23, 2007

Spielberg, Lucas, Scorsese and the American Antitrust Institute

Posted by D. Daniel Sokol

What do Spielberg, Lucas, Scorsese and the American Antitrust Institute have in common?  All have won the coveted CINE Golden Eagle, which recognizes "excellence in documentary and other informational film and video production."  AAI won the award for its half hour documentary "Fair Fight in the Marketplace" which will appear on WETA Channel 26 in the Washington DC area on August 26 at 4 p.m. and midnight.  See here for more details. 

August 23, 2007 | Permalink | Comments (0) | TrackBack (0)

The Impact of Schneider Electric SA v. Commission

Posted by D. Daniel Sokol

In one of the most iomportant decisions this year,  the Court of First Instance of the European Communities found that the European Commission improperly blocked the merger of Schneider Electric SA v. Commission. This is a significant blow to DG Comp and they will appeal the decision.  John Schmidt and Sebastian McMichael of Shepherd & Wedderburn provide an analysis of the decision for eCCP.

August 23, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 22, 2007

Competition Policy Conference in Peru

Posted by D. Daniel Sokol

For those of you who want yet another reason to travel to Peru (and there are many) on September 4-5, 2007 the Faculty of Law of the University of Lima, INDECOPI and the Revista de Derecho Advocatus are organizing the “Congreso Internacional de Derecho de la Competencia: Nuevas Perspectivas Mundiales del Derecho de la Competencia” in Lima.

Details are available below.

Download programa_final_congreso_derecho_competencia.doc Download anuncio_congreso_derecho_competencia.JPG 

August 22, 2007 | Permalink | Comments (0) | TrackBack (0)

Mergers in Consumer Search Markets

Posted by D. Daniel Sokol

New work from Maarten Janssen and José Luis Moraga-González of Erasmus University Rotterdam titled On Mergers in Consumer Search Markets suggests that understanding search costs is critical to understanding why firms may choose to merge as well as the welfare implications of such mergers.

ABSTRACT: We study mergers in a market where N firms sell a homogeneous good and consumers search sequentially to discover prices. The main motivation for such an analysis is that mergers generally affect market prices and thereby, in a search environment, the search behavior of consumers. Endogenous changes in consumer search may strengthen, or alternatively, offset the primary effects of a merger. Our main result is that the level of search costs are crucial in determining the incentives of firms to merge and the welfare implications of mergers. When search costs are relatively small, mergers turn out not to be profitable for the merging firms. If search costs are relatively high instead, a merger causes a fall in average price and this triggers search. As a result, non-shoppers who didn't find it worthwhile to search in the pre-merger situation, start searching post-merger. We show that this change in the search composition of demand makes mergers incentive-compatible for the firms and, in some cases, socially desirable.

August 22, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 21, 2007

GE/Honeywell: The U.S. Merger that Europe Stopped - A Story of the Politics of Convergence

Posted by D. Daniel Sokol

Fox_2Eleanor Fox of NYU School of Law just posted her chapter in her forthcoming edited volume of Antitrust Stories (co-authored with Dan Crane) of the most contentious trans-Atlantic merger of all time, GE/Honeywell.  Her chapter is titled GE/Honeywell: The U.S. Merger that Europe Stopped - A Story of  the Politics of Convergence.  Fox's description and analysis of this story is a real page turner and helps to shed light on a case that we continue to discuss as much for its political implications as for its antitrust analysis.  To date, we have yet to see trans-Atlantic divergence since GE/Honeywell.  However, the European Court of First Instance will issue its ruling on the Microsoft Case (due September 17) and we may see trans-Atlantic fireworks again.  I will not speculate at the moment about the forthcoming Microsoft ruling but will note that there were some troubling elements to the initial EU Microsoft decision. 

August 21, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, August 20, 2007

Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index

Posted by D. Daniel Sokol

Jerry A. Hausman of MIT's Department of Economics and J. Gregory Sidak of Georgetown University Law Center provide an interesting alternative to HHI to measure market power in Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index.

ABSTRACT: Whenever feasible, market power determinations should rest on competitive benchmark prices rather than the typical market concentration approach. Government regulators in many countries have issued guidelines on the evaluation of market power in the merger context and other areas that define relevant markets and calculate market shares - along with a summary measure of market concentration, usually the Hirschman-Herfindahl index (HHI). However, competition authorities recognize that high concentration measures are generally not a sufficient condition to infer market power. Use of other structural factors in a market often does not lead to any clearer conclusion.

We show that prices that consumers pay for the product in question often offer a superior quantitative measurement that leads to a clearer conclusion than the HHI approach. Further, because prices form the basis for the evaluation of consumer welfare (consumers surplus), they also provide important information for competition authorities, whose goal is typically the protection of consumer welfare. To demonstrate our argument, we examine a decision by the Irish telecommunications regulator, ComReg, which used the EU competition guidelines and the HHI approach to determine that Ireland's two largest mobile providers, Vodafone and O2, had joint dominance and were exercising significant market power. We demonstrate how our benchmark prices approach is superior to the HHI approach. We thank the ABA for granting permission to post the article.

August 20, 2007 | Permalink | Comments (0) | TrackBack (0)