Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, October 20, 2007

Bundled Discounts, Leverage Theory, and Downstream Competition

Posted by D. Daniel Sokol

With so much recently in policy circles on unilateral conduct (ICN unilateral working group, US AMC Report and Section 2 hearings, and EU Article 82 white paper to name just a few), John Simpson (FTC) and Abraham L. Wickelgren (Northwestern University Law School) provide some insights into Bundled Discounts, Leverage Theory, and Downstream Competition in the latest issue of the American Law and Economics Review.

ABSTRACT: Under plausible circumstances, a monopolist in one market can use its control of prices in that market to force competing downstream buyers to sign tying contracts that will lever its monopoly into another market. Specifically, the monopolist of the tying good can place each downstream buyer in a prisoner's dilemma by offering them more favorable pricing on the tying good if they sign a requirements-tying contract covering the tied good. Since a buyer benefits on receiving more favorable pricing on the tying good and the competitors do not, and suffers if the competitors receive more favorable pricing on the tying good and the buyer does not, buyers will sign the tying contract even when they would earn higher profits if they all refused to sign. This enables a monopolist in one market to inefficiently exclude an entrant in another market.

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

Friday, October 19, 2007

Product Markets in Merger Cases: The Whole Foods Decision

Posted by D. Daniel Sokol

A new article by Carlton Varner and Heather Cooper of law firm Sheppard Mullin puts into a larger context the meaning of the Whole Foods decision regarding product market definition  in Product Markets in Merger Cases: The Whole Foods Decision.

Download Oct07-Varner.pdf

October 19, 2007 | Permalink | Comments (0) | TrackBack (0)

Tacit Collusion: The Neglected Experimental Evidence

Posted by D. Daniel Sokol

Engel Does academic work on collusion shed light on how we should think about antitrust policy?  Christoph Engel of the Max Plank Institute thinks that it does and writes about it in his paper Tacit Collusion: The Neglected Experimental Evidence.

ABSTRACT: Both in the US and in Europe, antitrust authorities prohibit merger not only if the merged entity, in and of itself, is no longer sufficiently controlled by competition. The authorities also intervene if, post merger, the market structure has changed such that tacit collusion becomes disturbingly more likely. It seems that antitrust neglects the fact that, for more than 50 years, economists have been doing experiments on this very question. Almost any conceivable determinant of higher or lower collusion has been tested. This paper standardises the evidence by way of a meta-study, and relates experimental findings as closely as possible to antitrust doctrine.

October 19, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 18, 2007

Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation

Posted by D. Daniel Sokol

How to address innovation in antitrust remains a critically important topic and one for which we do not have definative answers.  Weighing in on the debate is American University Law Professor Jonathan Baker with his piece Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation.

ABSTRACT: The relationship between competition and innovation is the subject of a familiar controversy in economics, between the Schumpeterian view that monopolies favor innovation and the opposite view, often associated with Kenneth Arrow, that competition favors innovation. Taking their cue from this debate, some commentators reserve judgment as to whether antitrust enforcement is good for innovation. Such misgivings are unnecessary. The modern economic learning about the connection between competition and innovation helps clarify the types of firm conduct and industry settings where antitrust interventions are most likely to foster innovation. Measured against this standard, contemporary competition policy holds up well. Today's antitrust institutions support innovation by targeting types of industries and practices where antitrust enforcement would enhance research and development incentives the most. It is time to move beyond the on-the-one-hand Schumpeter, on-the-other-hand Arrow debate and embrace antitrust as essential for fostering innovation.

October 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 17, 2007

Is Antitrust Economics Not Sexy for the AEA?

Posted by D. Daniel Sokol

For the second year in a row, I have reviewed the American Economics Association Annual Meeting Program (this year to be held January 4-6 in New Orleans) and note with some disappointment the paucity of papers on antitrust economics.  As this blog's many postings can attest, there is lots of interesting work being done in this area by academics from around the world.  Yet, why the poor showing at the AEA?

Any explanations would be welcomed.

October 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured U.S. Electricity Markets

Posted by D. Daniel Sokol

Let I forget that over half of the readers of this blog are from the United States, there is interesting new electric energy competition scholarship in the US market as well.  The team of James B. Bushnell (Berkeley Haas School of Business), Erin T. Mansur (Yale School of Management), Celeste Saravia (Berkeley Electrical Engineering) have just authored the study Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured U.S. Electricity Markets.

ABSTRACT: This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure.

October 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Introducing Competition and Deregulating the British Domestic Energy Markets: A Legal and Economic Discussion

Posted by D. Daniel Sokol

Energy deregulation is a hot topic in many jurisdictions.  Michael Harker and Catherine Waddams of the University of East Anglia (Norwich Law School and School of Management respectively) analyze the British experience in this area in their paper Introducing Competition and Deregulating the British Domestic Energy Markets: A Legal and Economic Discussion.

ABSTRACT: In this article we chart the development of competition and deregulation of the British retail energy markets, explaining the evolution of competitive constraints when consumers are introduced to supplier choice for the first time. In the context of rising real energy prices for consumers, and continued market power on the part of incumbents, we address the question of whether the control of pricing practices through the ex post provisions of the general competition law is sufficient to protect consumers. We also explore the issue of whether reliance solely on these provisions is desirable given the uncertainty which surrounds the application of the Chapter II prohibition (governing abuse of dominance), specifically in respect of price discrimination in final markets. We conclude that the outcome of the liberalisation experiment in terms of delivering benefits for consumers is unclear.

October 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition Law of Panama: Structure, Enforcement and Recent Reforms

Posted by D. Daniel Sokol

As a Panamanian national, I always take great interest in articles regarding Panamanian competition policy.  The latest such article is Competition Law of Panama: Structure, Enforcement and Recent Reforms by Juan D. Gutierrez of Pontificia Universidad Javeriana of Colombia.

ABSTRACT: Competition policies were established in Panama, for the first time, through the enactment of the Law 29 of 1996 that constitutes their general consumer protection and competition regime. After the enactment of the Law 29 there has been an important regulatory development and issuance of Guidelines that instruct the citizens regarding the compliance of the competition rules.

This document, written in Spanish, presents the structure of the competition regime in Panama and the content of the recent reforms, especially the Decree Law No. 9 of 2006, current since May 2 of 2006. Additionally, the features of the enforcement of the statutes are explained in the context of the performance of the antitrust authorities.

October 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 16, 2007

Voice, Video and Broadband: The Changing Competitive Landscape and Its Impact on Consumers

Posted by D. Daniel Sokol

The Antitrust Division will host a public symposium to discuss competition in telecommunications services and video programming delivery, including the prospects for additional competition and whether regulatory changes or other government action would promote more competition.

Date: Thursday, November 29, 2007

Time: 9:00 a.m. to 5:30 p.m.         

Place: Ronald Reagan Building, Horizon Room, 1300 Pennsylvania Avenue NW, Washington, DC All attendees will be required to show a valid form of photo identification, such as a driver’s license, to be admitted.   

October 16, 2007 | Permalink | Comments (0) | TrackBack (0)

Anarchy, Monopoly, and Predation

Posted by D. Daniel Sokol

Peter Leeson of George Mason University's Department of Economics has written on Anarchy, Monopoly, and Predation in the latest issue of the Journal of Institutional and Theoretical Economics.

ABSTRACT: The 'folk theorem' suggests that the shadow of the future coupled with the threat of lost business can create cooperation without government. Although institutions rooted in this theorem can support self-enforcing exchange in a wide variety of contexts, their potential to create cooperation is not limitless. In particular, the folk theorem may break down when some agents are physically stronger than others. Stringham's (2006) system of vertically integrated proprietary communities relies on the folk theorem to prevent proprietors from preying on their customers. I show that while innovative, this system does not work. A monopoly proprietor maximizes profits by optimally extorting his tenants in violation of voluntary contracts. The result is a predatory rather than voluntary system.

October 16, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, October 15, 2007

Call For Papers: American Economics Association

Posted by D. Daniel Sokol

The American Economics Association has put out a Call for Papers or Sessions for the January 2009 American Economic Association Annual Meeting.  Given the number of interesting ideas in IO and competition economics, hopefully there will be a number of papers submitted in these areas.

Members wishing to give papers or organize complete sessions for the program for the meetings to be held in San Francisco, CA, January 3-5, 2009, are invited to submit their proposals to Professor Angus Deaton, American Economic Association, only electronically (click either Individual Paper Form or Session Form). To be considered, abstracts should contain only one Journal of Economic Literature bibliographic code and must be received by February 1, 2008. At least one author of each paper must be an AEA member*. Proposals for complete sessions have a much higher probability of inclusion than papers submitted individually. (Non-economist authors of papers on a complete session proposal organized by a member must join the AEA only if the session is selected for the Program.) Proposals for a complete session should be submitted only by the session organizer. Sessions normally do not contain more than four papers.

October 15, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, October 14, 2007

Monday Morning Antitrust Quarterback

Posted by D. Daniel Sokol

This being football season, there is plenty of Monday morning quarterback syndrome in which we the fans second guess the decisions of teams that we have viewed over the weekend.  The same goes on in antitrust- people question a government agency's prosecutorial discretion in terms of cases brought, cases not brought or cases settled by consent decree where the consent decree terms were either too harsh or not harsh enough.  I open it up to readers to second guess their favorite antitrust agency of decisions of the past year. Note: because of constant spamming (I didn't realize how much I needed to enhance various parts of my body or how much I may be paying for certain pharmaceuticals), we have a high level of spam protection for this blog so your comments will not appear immediately.  Only submit once and I will update the results every few hours every few hours.

My own pick- I think that the consent agreement reached in the Monsanto/Delta Pine Land by DOJ did not go far enough.

October 14, 2007 | Permalink | Comments (1) | TrackBack (0)

Interoperability and Foreclosure in the European Microsoft Case

Posted by D. Daniel Sokol

The number of Microsoft papers continues to grow.  The latest foray into this field is by Kai-Uwe Kuhn of the University of Michigan's Department of Economics and John Van Reenen of the London School of Economics' Centre for Economic Performance in their paper Interoperability and Foreclosure in the European Microsoft Case.

ABSTRACT: In this paper we discuss some of the most important economic issues raised in European Commission vs. Microsoft (2004) concerning the market for work group servers. In our view, the most important economic issues relate to (a) foreclosure incentives and (b) innovation effects of the proposed remedy. We discuss the economic basis for the Commission's claims that Microsoft had incentives to exclude rivals in the work group server market through degrading the interoperability of their server operating systems with Windows. We also examine the impact of compulsory disclosure of information on interoperability and argue that the effects on innovation are not unambiguously negative as Microsoft claim. We conclude with some general implications of the case for anti-trust enforcement in high innovation sectors.

October 14, 2007 | Permalink | Comments (0) | TrackBack (0)