Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, May 9, 2009

The Microsoft Case: Antitrust, High Technology, and Consumer Welfare

Posted by D. Daniel Sokol

Now in paperback is the excellent The Microsoft Case: Antitrust, High Technology, and Consumer Welfare by Bill Page (aka, my colleague and Associate Dean at the University of Florida Levin College of Law) and John Lopatka (Penn State Dickinson College of Law).

I cannot recommend this book strongly enough.  It is the definitive book on the most important antitrust case of this generation.

May 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, May 8, 2009

Google Hits Antitrust Concerns

Posted by D. Daniel Sokol

Today's Wall Street Journal Reports that As Google Grows, So Too Do its Antitrust Issues.  Just 10 years ago, Microsoft was the big bad antitrust monster.  Today it seems to be Google except that the legal and economics professoriate seem to use kid gloves for Google relative to Microsoft.

May 8, 2009 | Permalink | Comments (0) | TrackBack (0)

Merger Trials: Looking for the Third Dimension

Posted by D. Daniel Sokol

Vaughn R. Walker (U.S. District Court, Northern California), the judge who wrote the important Oracle/Peoplesoft opinion, has written on Merger Trials: Looking for the Third Dimension.

ABSTRACT: I do not argue here that concern about judicial competence regarding complex economic evidence is without substance. Nor do I contend that mergers are best committed in the final analysis to generalist judicial officers who lack expertise in issues of industrial organization although, as will be noted, this provides some check against complete capture of merger policy for purely political purposes.

Rather, accepting that in the United States we have committed important decisions about mergers to generalist judges, I argue that a judge’s task in a merger case does not entail recondite analysis. Rather, the judge’s task is less one of economic learning than it is of using the economic analysis to bring the evidence into sufficient focus to reach a decision.

May 8, 2009 | Permalink | Comments (0) | TrackBack (0)

Issues at the Forefront of Monopolization and Abuse of Dominance

Posted by D. Daniel Sokol

Loyola Chicago Law School and the University of Haifa Law School present:

Issues at the Forefront of Monopolization and
Abuse of Dominance

May 24-26, 2009

 

Event Schedule for Sunday, May 24, 2009

9:30 a.m.

Registration and Welcoming Reception


10:00 a.m.

Opening Remarks

Eli Salzberger, Dean, University of Haifa Faculty of Law

Spencer Weber Waller, Loyola University of Chicago School of Law

Michal S. Gal, University of Haifa Faculty of Law

Session 1: Theories of Harm

Chair: Michal S. Gal, University of Haifa Faculty of Law

10:30 a.m.

Dan Crane, Cardozo School of Law, "Monopoly Broth Makes for Bad Soup"

Commentator: Adi Ayal, Bar Ilan University School of Law

11:00 a.m.

Josef Drexl, Max Planck Institute, "Real Knowledge is to Know the Extent of One's Ignorance: On the Consumer Harm Approach in IP-related Cases"

Commentator: Fred Jenny, Cour de cassation

11:30 a.m.

Ioannis Lianos, University College London, "Classification of Abuses in Article 82 EC: A "Straight Story"?"

Commentator: Ariel Ezrachi, Oxford University Faculty of Law

12:30 p.m.

Lunch

2:00 p.m.

Guided Tour of the Hecht Museum, University of Haifa

Session II: Exclusionary Practices I

Chair: Avishalom Tor, University of Haifa Faculty of Law

3:30 p.m.

Steve Salop, Georgetown Law Center, "Section 2 in a Time of Transition: Refusals to Deal and Price Squeezes"

Commentator: Pamela Jones Harbour, Federal Trade Commission

4:00 p.m.

Spencer Weber Waller, Loyola University Chicago School of Law, "A Comparative Look at Essential Facilities and Refusals to Deal"

Commentator: Josef Drexl, Max Planck Institute

4:30 p.m.

Philip Marsden, British Institute of International & Comparative Law, "Attraction vs. Suction: How Goes the Trans-Atlantic Divide on Fidelity Rebates?"

Commentator: David Gilo, Tel Aviv University Facult of Law

5:00 p.m.

Coffee Break


Session III: Exclusionary Practices II

Chair: Spencer Weber Waller, Loyola University Chicago School of Law

5:30 p.m.

Pamela Jones Harbour, Federal Trade Commission, "Section 2 in a Web 2.0 World: An Expanded Vision of Relevant Product Markets"

Commentator: Spencer Weber Waller, Loyola University Chicago School of Law

6:00 p.m.

Adi Ayal, Bar Ilan University School of Law, "Voluntary Network Effects"

Commentator: Jorge Padilla, LECG

7:00 p.m.

Gala Dinner, University of Haifa

Event Schedule - Monday, May 25, 2008

Session IV: Exclusionary Practices III

Chair: Michal S. Gal, University of Haifa Faculty of Law

9:30 a.m.

Maurice Stucke, University of Tennessee College of Law, "How Do (or Should) Countries Treat a Dominant Firm's Deceptive Conduct?"

Commentator: Steve Salop, Georgetown Law Center

10:00 a.m.

Avishalom Tor, University of Haifa Faculty of Law, "Anticompetitive Acquisitions of Market Power: Evaluating the US and EU Approaches"

Commentator: Ioannis Lianos, University College London

10:30 a.m.

Coffee Break


Session V: Exploitative Practices

Chair: Avishalom Tor, University of Haifa Faculty of Law

11:00 a.m.

Fred Jenny, Cour de cassation, "Exploitative Abuses of Dominance"

Commentator: Bill Kovacic, Federal Trade Commission

11:30 a.m.

Ariel Ezrachi & David Gilo, Oxford University Faculty of Law & Tel Aviv University Faculty of Law, "Are Excessive Prices Really Self-Correcting?"

Commentator: Dan Crane, Cardozo School of Law, Yeshiva University

12:30 p.m.

Lunch


Session VI: Enforcement Challenges I

Chair: Spencer Weber Waller, Loyola University Chicago School of Law

2:30 p.m.

Michal S. Gal & Jorge Padilla, University of Haifa Faculty of Law & LECG, "The Follower Effect and Error Costs: Implications for Monopolization"

Commentator: Maurice Stucke, University of Tennessee College of Law

3:00 p.m.

Ariel Ezrachi, Oxford University Faculty of Law, "The European Commission's Guidance on Article 82 EC - The uncertain future of the Effect-Based Approach"

Commentator: David Gerber, Chicago-Kent School of Law

3:30 p.m.

Coffee Break


Session VII: Enforcement Challenges II

Chair: Michal S. Gal, University of Haifa Faculty of Law

4:15 p.m.

Bill Kovacic, Federal Trade Commission, "Federal Trade Commission Administrative Adjudication and the Development of Standards for Dominant Firm Behavior"

Commentator: Michal S. Gal, University of Haifa Faculty of Law

4:45 p.m.

David Gerber, Chicago-Kent School of Law, "Abuse of Sominance, Monopolization and the Institutional Imbeddedness of Economics"

Commentator: Philip Marsden, British Institute of International & Comparative Law

5:15 p.m.

Closing Remarks

Spencer Weber Waller, Loyola University Chicago School of Law

Avishalom Tor, University of Haifa Faculty of Law

7:00 p.m.

Conference Dinner, Haifa

 


May 8, 2009 | Permalink | Comments (0) | TrackBack (0)

The Vertical Horizontal Dichotomy in Competition Law: Some Reflections with Regard to Dual Distribution and Private Labels

Posted by D. Daniel Sokol

A_lianos Ioannis Lianos of University College London - Law discusses The Vertical Horizontal Dichotomy in Competition Law: Some Reflections with Regard to Dual Distribution and Private Labels.

ABSTRACT: The vertical/horizontal distinction is an important feature of modern competition law.This paper will first examine the genealogy of the vertical/horizontal dichotomy in the United States (US) and in European Communities (EC) competition law. It will then analyse the application of the dichotomy in situations of hybrid practices, dual distribution practices, and private labels, where the relation between the supplier and the distributor presents a vertical and a horizontal dimension. The vertical/horizontal dichotomy may find its limits in these situations. After highlighting the reasons and distinct principles that led to the formulation of these specific categories, the study will delve into the utility of the vertical/ horizontal dichotomy and will suggest alternative interpretations of these categories which are both analytically rigorous and consistent with the objectives of EC competition law.

May 8, 2009 | Permalink | Comments (0) | TrackBack (0)

When is Concentration Beneficial? Evidence from U.S. Manufacturing

Posted by D. Daniel Sokol

Rigoberto A. López (Agricultural and Resource Economics, University of Conneticut) Elena López (Economics - Universidad de Alcalá) and Carmen Liron-Espana (System Planning, ISO-NE) ask and answer When is Concentration Beneficial? Evidence from U.S. Manufacturing.

ABSTRACT: This article estimates the impact of industrial concentration on market power and cost and then links the ensuing welfare changes to market structure characteristics using a sample of 232 U.S. manufacturing industries. Empirical results indicate that further increases in concentration would enhance welfare in 70% of the industries due to widespread efficiency gains, although these would generally not be passed on to consumers. From a social standpoint, further concentration is more likely to be beneficial in industries with economies of size, high export intensity, which are engaged in consumer-oriented goods, face larger markets, and have low or moderate levels of initial concentration.

May 8, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, May 7, 2009

Through the Looking Glass: Ruminations on Improving the Current U.S. Merger Enforcement Guidelines

Posted by D. Daniel Sokol

Ilene Gotts (Wachtell) and Étienne Renaudeau (Darrois Villey Maillot Brochier) provide their thoughts on merger guidelines in Through the Looking Glass: Ruminations on Improving the Current U.S. Merger Enforcement Guidelines.

ABSTRACT: The time has arrived for the U.S. agencies to re-examine their merger enforcement guidelines to ensure that they are not misleading and remain the gold standard model for other jurisdictions. This article discusses numerous areas in which the current U.S. merger enforcement guidelines (MEGs) might be revised. In addition, the article considers the advantages and disadvantages of revising the MEGs, alternatives to issuing new MEGs, and some procedural considerations for developing new MEGs.

May 7, 2009 | Permalink | Comments (0) | TrackBack (0)

An Institutional Assessment of Antitrust Policy: The Latin American Experience

Posted by D. Daniel Sokol

Ignacio de Leon (Econlex) has published An Institutional Assessment of Antitrust Policy: The Latin American Experience.

BOOK ABSTRACT: Antitrust policy nominally plays an instrumental public interest role. The generally accepted notion is that it is a government instrument designed to intervene in relatively unregulated markets in order to preserve rivalry among independent buyers and sellers. Competition authorities are supposed to restrain business conduct that exercises monopoly power aimed at excluding competitors or exploiting consumers and clients. Thus it can be said – although few pro-market theorists make the insight explicit – that antitrust provisions reveal mistrust of the capacity of markets to promote social welfare. The inner logic, enforcement mechanisms, and practical outcomes of antitrust provisions are all intrinsically contradictory to the natural dynamic course of market functioning.

In Dr. De Leon’s challenging thesis, this mistrust of the market lies at the root of antitrust policy, giving rise always to a preference towards ‘predicting’ the result of impersonal market forces rather than interpreting the entrepreneurial behaviour which creates those forces. And it is in Latin America that he finds the powerful evidence he needs to support his case. From the formative years of Latin American economic institutions, during the Spanish Empire, economic regulations – far from being driven by the pursuit of promoting free trade and economic freedom – have been conceived, enacted and implemented in the context of deeply anti-market public policies, trade mercantilism and government dirigisme. The so-called “neoliberal” revolution of the 1990s triggered by the Washington Consensus did not really change the interventionist innuendo of these policies, but merely restated the social welfare goal to be achieved: the pursuit of economic efficiency. Dr. De Leon presents his case against the assumption that consumer welfare orientated policies such as antitrust do really promote entrepreneurship and market goals. Paradoxically, antitrust enforcement has undermined the transparency of market institutions, in the name of promoting market competition.

The author’s provocative analysis marshals several sets of facts in support of his thesis, including the actual functioning of antitrust policy as reflected in case law in various Latin American countries, the preference of merger control over other less intrusive forms of market surveillance, the constrained role of competition advocacy against government acts, and the ineffective institutional structure created to apply the policy. Among the many specific topics treated are the following:


  • government immunity;
  • strategic industries;
  • state-owned enterprises;
  • politically influential groups;
  • measurement of market concentration;
  • the burden of proof of social welfare benefits;
  • the role of joint trade associations and professional guilds;
  • institutional arrangements that favour collusion;
  • selective distribution;
  • sector regulation;
  • erosion of property rights;
  • marginal role of courts in the antitrust system;
  • leniency programs; and
  • privatized public utilities.

The growing significance of Latin America in the context of economic globalization endows this book with huge international interest. Written by a leading authority on the topic, this is the first book that presents a detailed description of Latin American antitrust law and policy as it has been developed through numerous judicial opinions. A wide variety of audiences around the world will find it of extraordinary value: competition law specialists, scholars and students of the subject, policymakers and politicians in Latin America, as well as all interested lawyers, jurists, and economists.

May 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Remarks by Assistant Attorney General for Antitrust Christine Varney

Posted by D. Daniel

The US Chamber's Antitrust Council and the International Competition Policy Working Group is pleased to welcome 

 

Christine A. Varney
Assistant Attorney General for Antitrust, Department of Justice


Tuesday, May 12, 2009 1:45 pm - 3:00 pm (Eastern Time)

U.S. Chamber of Commerce
1615 H Street NW
Washington , DC 20062


Registration is available here.

 

May 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Patent Pools and Cross-Licensing in the Shadow of Patent Litigation

Posted by D. Daniel Sokol

Jay Pil Choi (MSU - Economics) has a new paper on Patent Pools and Cross-Licensing in the Shadow of Patent Litigation.

ABSTRACT: This paper develops a framework to analyze the incentives to form a patent pool or engage in cross-licensing arrangements in the presence of uncertainty about the validity and coverage of patents that makes disputes inevitable. It analyzes the private incentives to litigate and compares them with the social incentives. It shows that pooling arrangements can have the effect of sheltering invalid patents from challenges. This result has an antitrust implication that patent pools should not be permitted until after patentees have challenged the validity of each otherfs patents if litigation costs are not too large.

May 7, 2009 | Permalink | Comments (0) | TrackBack (0)

A Hard Landing in the Soft Drink Market —MOFCOM’s Veto of the Coca-Cola & Huiyuan Deal

Posted by D. Daniel Sokol

Fei Deng (NERA), Adrian Emch (Sidley Austin) & Gregory Leonard (NERA) explain A Hard Landing in the Soft Drink Market —MOFCOM’s Veto of the Coca-Cola & Huiyuan Deal.

ABSTRACT: On March 18, 2009, China’s Ministry of Commerce (“MOFCOM”) issued its decision to block the proposed takeover by The Coca-Cola Company (“Coca-Cola”) of China Huiyuan Juice Group Limited (“Huiyuan”). This is the first time that MOFCOM has prohibited a transaction under the Anti-Monopoly Law (“AML”), in effect since August 1, 2008.

We will examine several interesting aspects of MOFCOM’s decision. In Section 2, we will discuss the insufficient degree of transparency which characterizes the Coca-Cola/Huiyuan and other cases. Section 3 will examine MOFCOM’s substantive reasoning in the prohibition decision, to the extent that the agency’s findings can be discerned. In Section 4, our focus will lie on the influx of policy objectives other than antitrust.      

May 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 6, 2009

Product Innovation Incentives: Monopoly vs. Competition

Posted by D. Daniel Sokol

Marius Schwartz (Georgetown - Economics) focuses his inquiry into Product Innovation Incentives: Monopoly vs. Competition.

ABSTRACT: Arrow (1962) showed that a secure monopolist (unconcerned with preemption) has a weaker incentive than would a competitive firm to invest in a patentable process innovation. This paper shows that the ranking can be reversed for product innovations. Only the innovator sells the new product, a differentiated substitute for the old. Under alternative market structures considered, the old product is sold only by that same firm (two-product monopoly), only by a different firm (post-innovation duopoly), or in perfect competition. In an asymmetric Hotelling model, the innovation incentive under monopoly is greater than under duopoly if and only if the new product has the higher quality, and is always greater than under perfect competition.

May 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Bundling and Competition for Slots: On the Portfolio Effects of Bundling

Posted by D. Daniel Sokol

Doh-Shin Jeon (Universitat Pompeu Fabra - Economics) and Domenico Menicucci (Università degli Studi di Firenze) focus their newest paper on Bundling and Competition for Slots: On the Portfolio Effects of Bundling.

ABSTRACT: We consider competition among n sellers when each of them sells a portfolio of distinct products to a buyer having limited slots (or shelf space). We study how bundling affects competition for slots. When the buyer has k number of slots, efficiency requires the slots to be allocated to the best k products among all products. We first find that without bundling, equilibrium often does not exist and hence the outcome is often inefficient. Bundling changes competition between individual products into competition between portfolios and reduces competition from rival products. Therefore, each seller has an incentive to bundle his products. Furthermore, under bundling, an efficient equilibrium always exists. In particular, in the case of Digital goods, all equilibria are efficient if firms do not use slotting contracts. However, inefficient equilibria can exist if firms use slotting contracts. In the case of physical goods, pure bundling also can generate inefficient equilibria. Finally, we identify portfolio effects of bundling and analyze the consequences on horizontal merger.

May 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Antitrust Professors on the Move - 2009 Edition

Posted by D. Daniel Sokol

Below is a list of antitrust professors on the move to new schools:

Dan Crane - University of Michigan (from Cardozo)
Abe Wickelgren - University of Texas (from Northwestern)
Christopher Leslie - UC Irvine (from Chicago Kent)
Howard Shelanski - Georgetown (from Berkeley)



May 6, 2009 | Permalink | Comments (1) | TrackBack (0)

FTC v. CCC Holdings: Message Received

Posted by D. Daniel Sokol

Peter Love (Jones Day) and Ryan Thomas (Jones Day) write on the topic of FTC v. CCC Holdings: Message Received.

ABSTRACT: Cirroc, the Unfrozen Caveman Lawyer from Saturday Night Live, consistently employed the same successful litigation tactic. While confessing confusion about many aspects of modern life, he could still say, “there is one thing I DO know . . .” as a lead‐in to his argument that his client was entitled to a favorable judgment. There was some question following the D.C. Circuit’s splintered decision in FTC v. WholeFoods about how much value the case might have as precedent and whether it would affect how district court judges decide FTC preliminary injunction cases. Like Cirroc, we still are not sure how to reconcile the statutory language and case law, but after the recent district court decision in FTC v. CCC Holdings, “there is one thing we DO know . ..”—at least in the D.C. Circuit, the FTC probably can get a preliminary injunction if it can make out a prima facie structural case, almost whatever the facts.

The court in CCC Holdings (1) unambiguously followed Whole Foods (despite there being no majority opinion), (2) received the message that lower courts really should apply “serious questions” as the standard for FTC requests for a preliminary injunction, and (3) concluded that this standard sets a relatively low bar for the FTC to obtain a preliminary injunction.

May 6, 2009 | Permalink | Comments (0) | TrackBack (0)

China's Anti-Monopoly Law: An Early Report Card

Posted by D. Daniel Sokol

Lester Ross (WilmerHale) provides his thoughts on China's Anti-Monopoly Law: An Early Report Card.

ABSTRACT: China's AML has been in effect for less than a year. The enforcement authorities are progressing with respect to structure and regulations. The Coca-Cola-Huiyuan decision has aroused concern that the competition provisions are being applied in a manner that is biased against foreign acquirers of Chinese companies.

This should not be construed as a more general trend to disfavor foreign investment, however, as MOFCOM in particular has recently promulgated measures to simplify some foreign investment approval procedures and the Chinese government has spoken out strongly against protectionism. The AML moreover appears to be having a pro-competitive impact in some respects as shown with regard to the insurance industry.

May 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 5, 2009

Comments on “An Economic Analysis of the Use of Selective Distribution by Luxury Goods Suppliers”

Posted by D. Daniel Sokol

A team from Sidley (Stephen Kinsella, Hanne Melin and Simon Schropp) recently published a piece in the European Competition Journal titled Comments on the CRA Paper Entitled “An Economic Analysis of the Use of Selective Distribution by Luxury Goods Suppliers”.  This article responds to a CRA submission An Economic Analysis of the Use of Selective Distribution by Luxury Goods Suppliers for a Commission roundtable on Opportunities in online goods and services.

ABSTRACT: In this paper, we bring together the views of lawyers and economists in an effort to formulate a practical approach to a real problem. The assertions made by the CRA paper are remarkable. The CRA paper, part of an exercise conducted on behalf of the LVMH Group, purports to discuss the “economic foundations of competition policy towards vertical restraints on distribution, as applied to the selective distribution of luxury goods” The paper is not a market study; it is a discussion based on selected literature and an interpretation of economic theory. Nevertheless, the paper asserts that regulators should assume that unspecified and largely speculative consumer benefits from “brand image” outweigh the well-recognised consumer welfare flowing from effective market competition. Basically, the proposition is that regulators should trust that supplier-imposed vertical restraints always and inevitably serve the consumer interest. In order to make their point, the CRA authors find themselves arguing that resale price maintenance by a monopolist can be presumed beneficial to consumers.  The reality, however, is that vertical restraints can easily be imposed to geographically segment markets, raise barriers to entry for competitors and reduce competition between suppliers upstream, resulting in higher prices and less choice—to the unambiguous detriment of consumers.  This response looks at the CRA paper’s arguments regarding vertical restraints and finds that its conclusions should not be attributed to mainstream economics. In contrast to the CRA paper, this comment also looks at what is happening in the real world. It questions the blanket justification for vertical restraints in general and online restrictions in particular.

May 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Optimal Product Proliferation in Monopoly: A Dynamic Analysis

Posted by D. Daniel Sokol

Luca Lambertini (Department of Economics, University of Bologna) explains Optimal Product Proliferation in Monopoly: A Dynamic Analysis.

ABSTRACT: The monopolist’s incentives towards product proliferation are evaluated in an optimal control model considering three alternative regimes: profit-seeking; social planning; and a hybrid case with monopoly pricing and a regulator setting product innovation to maximise welfare. In equilibtium, the profitseeking firm supplies a socially suboptimal number of varieties to reduce cannibalisation while the social planner exploits the same effect to satisfy consumers’ love for variety and decrease the market price of all products. In terms of the Schumpeter vs Arrow debate on the relationship between market structure and innovation incentives, the results obtained in this model have a definite Arrovian flavour.

May 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Antitrust and the New Economy

Posted by D. Daniel Sokol

The Center for American Progress Presents

Antitrust and the New Economy

May 11, 2009, 9:30am – 11:30am

About This Event

The new administration faces profound challenges in antitrust and competition policy. The Bush administration adhered to a minimalist approach to antitrust based on the "Chicago School" theory that government regulation, including antitrust enforcement, more often makes mistakes and the self-correction of private markets almost always leads to the best result. The collapse of the U.S. and global economies challenges this fundamental premise on many fronts, not the least of which is antitrust. But it also leads to calls to weaken antitrust standards to sustain distressed industries. Other challenges include the novel issues raised by application of antitrust principles to technologies in the "new economy."

In light of these profound issues, what should the Obama administration's competition policy and antitrust enforcement agenda look like?

Newly confirmed Assistant Attorney General Christine Varney will offer her preliminary thoughts on the challenges ahead for and objectives of the new administration in antitrust, followed by a panel of distinguished experts.

Keynote Speaker:
Christine Varney, Assistant Attorney General for Antitrust, Department of Justice

Featured Panelists:
Caroline Holland, Chief Counsel and Staff Director, Antitrust Subcommittee, Senate Judiciary Committee
Ed Black, President, Computers and Communication Industry Association
Bert Foer, President, American Antitrust Institute
Andrew Pincus, Partner, Mayer Brown LLP
Peter Swire, Senior Fellow, Center for American Progress; C. William O'Neill Professor, Moritz College of Law of the Ohio State University

Discussion moderated by:
David Balto, Senior Fellow, Center for American Progress

Coffee will be served at 9:00 a.m.

RSVP

Click here to RSVP for this event
For more information, call 202-682-1611

Location

Center for American Progress
1333 H St. NW, 10th Floor
Washington, DC 20005

May 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunk Entry Costs, Sunk Depreciation Costs, and Industry Dynamics

Posted by D. Daniel Sokol

Adelina Gschwandtner (U. Vienna - Econ) and Val E. Lambson (BYU - Econ) have written on Sunk Entry Costs, Sunk Depreciation Costs, and Industry Dynamics

Abstract: Dynamic competitive models of industry evolution predict higher variability of firm value over time and lower variability of firm activity over time in industries where sunk entry costs are higher. These predictions have done well empirically. Here we extend the theory to allow an additional category of sunk costs---depreciation---and argue that this generates countervailing effects. We test this assertion empirically and find the results are consistent with the theory.

May 5, 2009 | Permalink | Comments (0) | TrackBack (0)