Antitrust & Competition Policy Blog

Price Transparency and Consumer Naivety in a Competitive Market

Luke Garrod, University of East Anglia - ESRC Centre for Competition Policy and School of Economics addresses Price Transparency and Consumer Naivety in a Competitive Market.

ABSTRACT: Despite intense price competition firms obfuscate product information when it is relatively costless to reveal, contrary to neoclassical predictions. This paper considers whether firms can profitably conceal (part of) their prices for a homogeneous product when consumers differ in their ability to form expectations of market prices. The model shows that the ability to conceal prices but still attract naïve consumers dampens competition and allows prices to be set above marginal cost. This suggests that the European Commission was correct to pass regulations that require airlines to set prices inclusive of taxes, fees and charges, because alternative policies of educating a proportion of naïve consumers to become sophisticated or assisting consumers to search the market more effectively could increase prices in some situations.

New Issue of Boletín Latinoamericano de Competencia

Posted. by D. Daniel Sokol

The EU has published the a new issue of the Boletín Latinoamericano de Competencia.

Articles are as follows:

ALBANIA: COMPETITION LAW AND POLICY IN ALBANIA: PERSPECTIVES OF APPROXIMATION TO EU COMPETITION LAW
Teuta Disani

ARGENTINA: MODIFICACIONES A LA LEY DE DEFENSA DEL CONSUMIDOR
Andrea Fabiana Mac Donald
ANÁLISIS DEL DERECHO DE LA COMPETENCIA EN ARGENTINA
Mauricio Ochoa Urioste

BRASIL: LA DECISIÓN DEL CADE EN EL CARTEL DE LAS EMPRESAS DE VIGILANCIA
Murilo Otávio Lubambo de Melo

COLOMBIA: AGOTAMIENTO DEL DERECHO DE MARCA Y SU RELACION CON EL DERECHO DE COMPETENCIA
Mauricio Velandia

MEXICO: EL PROCEDIMIENTO DE NOTIFICACION DE CONCENTRACIONES
J. Alejandro Mendiola Díaz

PARAGUAY: PROYECTO DE LEY DE DEFENSA DE LA COMPETENCIA RESUMEN SITUACION Y OBJETIVOS
Bruno Hug de Belmont Valdovinos

PERU: DECLARACION DE LIMA: “RESPONDIENDO JUNTOS A LAS PRIORIDADES DE NUESTROS PUEBLOS”. V CUMBRE ALC – U E. EURO–LAT "INTEGRAR LO DIVERSO PARA PROGRESAR JUNTOS"

VENEZUELA: CAMBIO DEL PARADIGMA REGULATORIO EN EL SECTOR BROADCASTING
Enrique González Porras

RUSSIA: ANTIMONOPOLY REGULATION ISSUES
Natalja Chetvergova

EL SALVADOR: LA REVISION DE LA LEY DE COMPETENCIA SALVADOREÑA
Por: Douglas Umaña
LA CONSTITUCIONALIDAD DEL REGISTRO POR ORDEN JUDICIAL Y DE LAS MEDIDAS CAUTELARES EN EL DERECHO DE COMPETENCIA
Aldo Enrique Cáder Camilot

UNIÓN EUROPEA: STRATEGIC PATENTING AND ANTITRUST LAW
Por: Helena Cardoso
LIBRO BLANCO DE ACCIONES DE DAÑOS Y PERJUICIOS
Comisión Europea
LA POLITICA DE COMPETENCIA ANTE LAS CRISIS GLOBALES
Juan Antonio Rivière

Patent Trolls: Broad Brush Definitions and Law Enforcement Ideas

Posted by D. Daniel Sokol

FTC Commission Tom Rosch discussed Patent Trolls:  Broad Brush Definitions and Law Enforcement Ideas in a recent speech.

Some Thoughts on Bundled Rebates and Exclusionary Policies

Posted by D. Daniel Sokol

H.E. Frech III (University of California at Santa Barbara Department of Economics) offers Some Thoughts on Bundled Rebates and Exclusionary Policies.

ABSTRACT: Bundling and related exclusionary practices are both common in the economy and often challenged under the antitrust laws. The following remarks highlight a few issues. This is not a complete discussion of these issues, let alone a complete treatise on the economics of bundling.

This paper is organized as follows:

Section I: Bundling practice that raise antitrust concerns rarely involve sales to final consumers Section II: The main underlying economic issue is exclusive dealing—broadly defined Section III: Exclusive dealing practices can have pro-competitive, anticompetitive, or neutral effects Section IV: The Antitrust Modernization Commission's three-pronged test Section V: Exclusionary practices often have a cumulative effect Section VI: The "equally efficient rival" idea is tricky in practice Section VII: Distinguishing procompetitive from anticompetitive exclusive dealing is difficult Section VIII: Conclusion

The Empirical Evidence on the Pass-Through of Firm-Specific Cost Changes to Prices: What Implications for Merger Reviews?

Posted by D. Daniel Sokol

Simon Evenett, University of St. Gallen discusses The Empirical Evidence on the Pass-Through of Firm-Specific Cost Changes to Prices: What Implications for Merger Reviews?

ABSTRACT:  Mergers and acquisitions represent two important means by which resources are reallocated within capitalist economies. Such combinations can result in lower costs of supply, which are often referred to as efficiencies. However, mergers and acquisitions can also result in the greater exercise of market power by the parties concerned. The latter typically results in higher prices while (marginal or incremental) cost reductions may have the opposite effect. Central to the assessment of the overall likely effect of a merger or acquisition on prices is the extent to which any potential cost reductions of the parties are passed on to customers, the so-called cost pass-through rate. The emphasis in many jurisdictions' merger regulations on combination-specific cost efficiencies and on consumer welfare in evaluating proposed trans-actions puts at a premium our understanding of the degree and determinants of firm-specific cost pass-through to prices. The purpose of this chapter is to describe the available evidence on such pass-through and to consider the implications of this evidence for the conduct of merger reviews.

Supermarkets and Planning Regulation

Posted by D. Danie Sokol

Rachel Griffith, University College London, Institute for Fiscal Studies (IFS) discusses Supermarkets and Planning Regulation in her latest paper.

ABSTRACT: We are interested in evaluating the impact of restrictive planning regulation on entry into the UK grocery retail industry. We estimate a model similar to Bresnahan and Reiss (1991) where we allow for multiple store formats. We find that more restrictive planning regulation reduces the number of large format supermarkets in equilibrium. However, the impact is overstated if variation in demographic characteristics across markets is not also controlled for. Our estimates suggest that restrictive planning regulation leads to a loss to consumers of up to £10m per annum. This cost must be offset against any benefits that arise, e.g. due to reduced congestion.

Antitrust Economics for Attorneys: Economics Fundamentals of Innovation and Intellectual Property

Posted by D. Daniel Sokol

For those that will be in DC, a free and very worthwhile lecture to attend is Antitrust Economics for Attorneys: Economics Fundamentals of Innovation and Intellectual Property.

American Bar Association’s Section of Antitrust Law Economics and Intellectual Property Committees

Present a Brown Bag

July 23, 2008
9:00AM -12:30PM

"Antitrust Economics for Attorneys: The Economics of Innovation and Intellectual Property "

This is another of our continuing programs on Antitrust Economics for Attorneys.

Our panel of experts will cover the fundamental economics of innovation and intellectual property rights, highlighting issues of importance to antitrust attorneys.  The session will begin with a primer on the economics of innovation, including the incentives for innovation, and how the appropriability of the fruits of innovation affects those incentives.  Then the various forms of IP protection will be discussed from an economics perspective, including common law, copyright, trademark, patents, and trade secrets.  The rest of the program will cover the basic economic issues arising from innovation and intellectual property, with an emphasis on their antitrust implications.  We will conclude the session with an economic evaluation of the 1995 IP Antitrust Guidelines and the 2007 update.

MODERATOR: Clay Everett, Morgan Lewis

“FACULTY”:   Anne Layne-Farrar, LECG
                     Lauren Stiroh, NERA

LOCATION      Morgan Lewis
                     1111 Pennsylvania Ave., NW

**You can attend this program in person ONLY.**

RSVP Terria Mayo, LECG, tmayo@lecg.com, 202-973-0299.  (We will need your name for security clearance).

John Clay Everett, Jr. is a partner in Morgan Lewis’s Antitrust Practice. Mr. Everett’s practice spans a wide range of antitrust matters, from civil and criminal antitrust litigation, to representing clients in merger and non-merger investigations before the FTC and DOJ, to counseling clients in diverse industries on a wide variety of practices. Mr. Everett’s practice has a particular focus on counseling and litigating issues at the intersection of antitrust and intellectual property law. He has represented plaintiffs and defendants in antitrust counterclaims asserted in patent litigation and has written and spoken extensively on the application of the U.S. antitrust laws to the acquisition, licensing, and enforcement of intellectual property rights.

Dr. Anne Layne-Farrar is a Director in LECG’s Global Competition Policy Group. She specializes in antitrust matters where the core issues are at the intersection of intellectual property economics and competition policy. She advises clients on competition, regulatory, and intellectual property issues across a range of industries with a focus on high-tech.  Her advisory work for industry leading clients has included: analyzing RAND licensing practices within an antitrust context; assessing technology markets for mergers; evaluating intellectual property issues for pharmaceuticals; and assessing incentives and firm behavior within standard setting organizations. She has published widely on the economics of
intellectual property.

Dr. Lauren Stiroh is a Senior Vice President with NERA Economic Consulting. She specializes in the economics of antitrust, intellectual property, and commercial damages. Dr. Stiroh has written and testified on the subject of intellectual property value and valuation. She has assessed and critiqued damages from patent, copyright, and trademark infringement in industries including semiconductors, biotechnology, pharmaceuticals, medical devices, and consumer products. Much of Dr. Stiroh's work and research focuses on the intersection of antitrust and intellectual property litigation. She has analyzed market power in technology markets and evaluated licensing arrangements, including tying and patent pooling. In addition, she is a co-editor and contributing author of Economic Approaches to Intellectual Property Policy, Litigation and Management, published in 2005. In 2002, Dr. Stiroh took part in the US Department of Justice and Federal Trade Commission joint hearings on "Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy."

Can Lobbying Prevent Anticompetitive Outcomes? Evidence on Consumer Monopsony in Telecommunications

Posted by D. Daniel Sokol

Dino Falaschetti of Florida State Law School asks and answers, Can Lobbying Prevent Anticompetitive Outcomes? Evidence on Consumer Monopsony in Telecommunications.

ABSTRACT: When basic competition rules cannot preclude market power abuses, industry-specific regulations can improve economic performance. But regulations are also more immediately exposed to political pressures than are judicially administered antitrust laws, and this exposure can cause regulations to serve distributional rather than efficiency goals. Instead of supporting a Chicago School hypothesis where these distributional forces tend to favor producers, however, I find evidence that regulations can inefficiently expand consumer surplus when producers lack a political voice. In particular, local exchange carriers maintain significantly smaller capital stocks in states that restrict campaign contributions from regulated utilities. This relationship is difficult to rationalize as either a statistical artifact or evidence that campaign finance laws discourage producers from restraining trade. Indeed, rather than endowing producers with political currency to capture regulators, allowances for campaign contributions appear to have strengthened competition by discouraging regulatory takings and balancing monopsonistic pressures from consumer-voters. These results highlight an empirically important potential for regulations to overly favor consumers, and strengthen arguments against consumer surplus as an objective for competition policies.

Luxury Markets, Antitrust, and Intellectual Property: An Introduction

Posted by D. Daniel Sokol

Ben Kleinman offers Luxury Markets, Antitrust, and Intellectual Property: An Introduction.

ABSTRACT: In this paper I look at markets for luxury goods and begin exploring the interplay among trademark law, antitrust law, luxury goods, and copies of luxuries. In the absence of empirical data and economic theories directly on point, I informally extend a model of luxury markets to account for copies of luxury goods and then look to trademark law cases for indications of how courts might evaluate luxury markets in an antitrust context.

 

Entry Barriers in Retail Trade

Posted by D. Daniel Sokol

Fabiano Schivardi, Universita di Cagliari - Department of Economics and Eliana Viviano, Bank of Italy - Economic Research provide some research on Entry Barriers in Retail Trade.

ABSTRACT:  The 1998 reform of the Italy's retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on firms' performance for a representative sample of retailers. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and substantially lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT. Consistently, more stringent entry regulation results in higher inflation: lower productivity coupled with larger margins results in higher consumer prices.

Kroes on Being Open About Standards

Posted by D. Daniel Sokol

Neelie Kroes, European Commissioner for Competition Policy gave a speech last week about Being Open About Standards that is worth reading as it sets up her justifications for an EC preference for Open-Source over Microsoft.  Some might argue that her appraoch should be retitled "Being Open[ly Partisan] About Standards."    

Bertrand-Edgeworth Equilibrium in Oligopoly

Posted by D. Daniel Sokol

Daisuke Hirata (Graduate School of Economics, The University of Tokyo) has written on Bertrand-Edgeworth Equilibrium in Oligopoly. 

ABSTRACT: This paper investigates a simultaneous move capacity constrained price competition game among three firms. I find that equilibria in an asymmetric oligopoly are substantially different from those in a duopoly and symmetric oligopoly. I characterize mixed strategy equilibria and show there exist possibilities of i) the existence of a continuum of equilibria ii) the smallest firm earning the largest profit per capacity and iii) non-identical supports of equilibrium mixed strategies, all of which never arise either in the duopoly or in the symmetric oligopoly. In particular, the second finding sheds light on a completely new pricing incentive in Bertrand competitions.

The Antitrust Burden: Can American Companies Still Compete Fairly Abroad?

Posted by D. Daniel Sokol

The other week the American Enterprise Institute hosted a conference titled The Antitrust Burden: Can American Companies Still Compete Fairly Abroad? that had Tom Barnett (DOJ), Randy Tritell (FTC) and Theodore Ullyot (Kirkland & Ellis) as panelists.  You can watch the video of the talk at the link above.

Competition Policy for the Media Sector

Posted by D. Daniel Sokol

Maurice Stucke (University of Tennessee Law) and Allen Grunes (Brownstein Hyatt) have some recommendations for the next administration on Competition Policy for the Media Sector.

The recommendations include:

• more empirical analyses of how media markets work,
• that any antitrust policy toward media mergers be in furtherance of, and driven by, a national media policy, as set by Congress. Sole reliance on enforcement by the Federal Communications Commission or federal antitrust agencies has proven to be too ad hoc, too haphazard, and not particularly effective. Aside from political and ideological concerns about lax or zealous antitrust enforcement, conventional antitrust policy is not easy to apply in media markets, and
• a combination of new legislation and more informed antitrust enforcement to: (1) promote, or at least not diminish, the media’s contribution to the marketplace of ideas; (2)have antitrust merger policies complement FCC policy, which together should provide some of the necessary legal frameworks for a vibrant marketplace of ideas; and (3) understand from a 21st Century perspective, all of the values, including non-economic values, such as localism and diversity that are important to preserving a healthy marketplace of ideas. Antitrust will play only one part in implementing the overall media policy.

Elizabeth - The Golden Age (of Brazilian Competition Policy)

Posted by D. Daniel Sokol

In the 2007 movie Elizabeth the Golden Age, Cate Blanchett reprises her role as Queen Elizabeth I during some of England's most important events.  In the contemporary world, we are about to witness the end of the term of Elizabeth Farina, the President of Brazil's CADE.  Indeed, 4 of the 5 CADE Commissioners will soon be replaced due to the end of their terms.  If we look back at the term of Farina, my sense is that her term has been the Golden Age of Brazilian competition policy at CADE (coinciding with a Golden Age in the other two Brazilian competition authorities SDE and SEAE).  What changed?  If you compare CADE now vs pre-Farina, CADE is more transparent and provides better reasoned decisions.  Farina helped solve some of the institutional problems in terms of relations and overlap with the other Brazilian competition authorities.  Moreover, she helped to make Brazil the premier competition jurisdiction in Latin America-- one that has served as a model for newer agencies in the region.  Within global antitrust circles, she has made Brazilian antitrust an important voice in international antitrust institutions.  This is not to suggest that more cannot be done to improve competition policy in Brazil or that there are not institutional malfunctions remains in the structure of Brazilian competition policy.  Rather, if one compares the world of pre-Farina CADE with the immediate post-Farina world, one should be impressed with the results.  Given the high turnover of CADE Commissioners in the very near term, my hope is that institutional memory and effectiveness will not be lost with a new set of CADE Commissioners.

The Importance of Antitrust in Standard Setting

Posted by D. Daniel Sokol

Mark Nelson (Cleary Gottlieb) has a short piece on The Importance of Antitrust in Standard Setting.

ABSTRACT: Ensuring the interoperability of products can be critical to the success of many industries, in particular to encourage the rapid uptake of new technologies.

To achieve such interoperability and the efficiencies that come with it, industries often use standard-setting organizations (“SSOs”) to select a particular technology as the “standard” to which all products must conform. By creating uniform standards, SSOs advance the pro-competitive goals of encouraging competition among manufacturers of products that use new technologies and allowing for accelerated development of new technologies or new generations of existing technologies.

On the other hand, in deciding which technologies should comprise a standard, cooperative standard-setting efforts replace the forces of competition that would otherwise determine which technologies will be deployed in the market. In short, the function of most SSOs is to evaluate alternative technologies and select a single “winner” to become the new standard and, as a result, foreclose alternative technologies.

While such efforts are typically pro-competitive and efficiency-enhancing, it is critical for antitrust law to play a role in policing standard-setting conduct to ensure that the process is not abused through improper collusion or deceptive efforts to obtain monopoly power.

Overruling Dr. Miles: The Supreme Trade Commission in Action

Posted by D. Daniel Sokol

Richard Brunell of Boston College Law School writes on Overruling Dr. Miles: The Supreme Trade Commission in Action.

ABSTRACT: This article sharply criticizes the Supreme Court's decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. on jurisprudential and policy grounds. Placing Leegin in historical context, the article explores the role of the Supreme Court in making antitrust policy and considers the per se rule against resale price maintenance under a decision-theoretic framework.

Shifting Paradigms, Changing Contexts: Need for a New Competition Law in India

Posted by D. Daniel Sokol

Rahul Singh of India University - National Law School discusses Shifting Paradigms, Changing Contexts: Need for a New Competition Law in India in his latest work.

ABSTRACT: This paper is set against the backdrop of the formulation and adoption of a new, modern competition law in India. The paper argues that, unlike the old enactment, which was enacted way back in 1969, the new competition law is arguably robust and takes care of several consumer protection concerns. The paper analyses the socio-economic background of adoption of the old competition law and compares the older enactment with the new legislation. Besides delineating the need for a new competition law, the paper deals with concomitant changes needed along with competition law and policy in order to sustain high economic growth. In conclusion, the paper notes that, in spite of the passage of half a decade since the new competition law was enacted, it is not yet in force. The paper calls for early implementation of the new competition law so that the avowed purpose of consumer welfare can be achieved.

Credit Card Interchange Fees: Debunking Six Myths

Posted by D. Daniel Sokol

Steven Semeraro, Thomas Jefferson School of Law, offers Credit Card Interchange Fees: Debunking Six Myths.

ABSTRACT: The Visa and MasterCard credit card networks require the banks (known as acquiring banks) to pay a portion of all purchases made with a credit card to the bank that issued the card. This fee, known as the interchange fee, is ultimately passed on by the acquiring bank to the merchants that accept credit cards. Because interchange fees are set collectively by all of the banks that issue Visa and MasterCard cards, and because they constitute about 75% of the fee paid by retailers to accept cards, they have long been suspect under the antitrust laws. In recent years, debate over interchange fees has intensified as competition authorities in other countries have begun regulating these fees, and merchants in the United States have filed a series of class actions challenging them under the antitrust laws. The cases have been consolidated by the Panel on Multi-District Litigation for pre-trial purposes. This article responds to six myths that have been advanced about credit card interchange fees that have the common theme of suggesting either that these fees raise no competitive concerns or that any valid concern could be easily remedied through cost-based regulation or merchant surcharging. This article demonstrates that these myths are untrue and that interchange fees raise serious competitive concerns for which there is no quick fix.

Standards and Market Power

Posted by D. Daniel Sokol

Cecilio Madero Villarejo & Nicholas Banasevic (European Commission, DG Competition) write on Standards and Market Power.

ABSTRACT: Standards play an increasingly significant role in the modern economy, in particular in the high-tech sector. They ensure that products in an increasingly inter-connected world can work together properly, and therefore allow companies to concentrate on producing innovative products to the benefit of consumers.

However, standardization may also confer market power on an essential patent holder which he may not otherwise have possessed. This paper therefore examines what the associated antitrust implications are, and what lessons antitrust regulators and standards bodies might draw.