Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, July 28, 2009

A Fundamental Power Price Model with Oligopolistic Competition Representation

Posted by D. Daniel Sokol

Miguel Vazquez, Universidad Pontificia Comillas and Julian Barquan, Pontifical University Comillas of Madrid describe A Fundamental Power Price Model with Oligopolistic Competition Representation.

ABSTRACT: Most popular approaches for modeling electricity prices rely at present on microeconomics rationale. They aim to study the interaction between decisions of agents in the market, and usually represent the impact of uncertainty in such decisions in a simplified way. The usual methodology of microeconomics models is the study of the interaction between the profit-maximization problems faced by each of the firms. On the other hand, there is a growing literature that describes the power price dynamics from the financial standpoint, through the statement of a more or less complex stochastic process. However, this theoretical framework is based on the assumption of perfect competition, and therefore the stochastic process may not capture important features of price dynamics. In this paper, we suggest a mixed approach, in the sense that the price is thought of as the composition of a long-term component, where the strategic behavior is represented, and a short-term source of uncertainty that agents cannot take into account when deciding their strategies. The complex distributional implications of the oligopolistic behavior of market players are then given by the long-term-component dynamics, whereas the short-term component captures the uncertainty related to the operation of power systems. In addition, this modeling approach allows for a direct description of the long-term volatility of power markets, which is usually hard to estimate through statistical models.

July 28, 2009 | Permalink | Comments (1) | TrackBack (0)

The Overcharge as a Measure for Antitrust Damages

Posted by D. Daniel Sokol

Martijn A. Han, University of Amsterdam - Amsterdam Center for Law & Economics, Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics, and Jan Tuinstra, University of Amsterdam - Department of Quantitative Economics have an important and interesting new paper out on The Overcharge as a Measure for Antitrust
Damages.

ABSTRACT: Victims of antitrust violations can recover damages in court. Yet, the quantification of antitrust damages and to whom they accrue is often complex. An illegal price increase somewhere in the chain of production percolates through to the other layers in a ripple of partial pass-ons. The resulting reductions in
sales and input demands lead to additional harm to both downstream (in)direct purchasers and upstream suppliers. Nevertheless, U.S. civil antitrust litigation is almost exclusively concerned with direct purchaser claims for (treble) damages calculated on the basis of the overcharge. Similar best practice rules are emerging in Europe. In this paper, we show that there is no structural relationship between the direct purchaser overcharge and the true harm inflicted by an antitrust violation on all of the direct and indirect purchasers and sellers in the chain of production.

July 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Buyer Groups and Buyer Power: The Effect on Outsiders

Posted by D. Daniel Sokol

Stephen P. King, Faculty of Business and Economics, Monash University addresses Buyer Groups and Buyer Power: The Effect on Outsiders.

ABSTRACT: A buyer group is a subset of downstream firms that pool their demand for an upstream input to negotiate a better deal with suppliers. This paper develops a simple model that shows how a buyer group changes market behavior, focusing on the impact on downstream firms outside the buyer group. This impact critically depends on the ability of input suppliers to commit to a "list" or "market" price. If the input supplier can commit to a market price before bargaining, it will manipulate this price to control the "outside options" in the bargaining process. Firms outside the buyer group pay a higher marginal price for the key input, compared to both the price paid by the members of the buyer group and the market price that arises absent the buyer group. However, a rise in the bargaining power of the buyer group lowers the market price. In contrast, if the upstream monopolist cannot commit to a market price before bargaining, then the formation of a buyer group may raise or lower the market price. The distribution of bargaining power is irrelevant in this situation. We illustrate these results using a simple example and discuss the implications for the debate on buyer power and competition.

July 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Review of the competition rules applicable to vertical agreements

Posted by D. Daniel Sokol

The European Commission has asked for comments on vertical restraints.  From the press release:

The current Block Exemption Regulation on vertical restraints expires in May 2010. When the currently applicable Regulation and its associated Guidelines were adopted ten years ago, the aim was to considerably reduce the regulatory burden on firms, in particular firms with no market power, like SMEs, and to introduce an effects-based approach to the assessment of vertical restraints. In the Commission's assessment, these objectives and concerns remain valid today.

Two major developments have marked the ten-year period following the adoption of the current rules: an increase in large distributors' market power and the evolution of sales on the Internet. The draft revised rules on which stakeholders are consulted have been adapted to take account of these two developments.

While the consultation obviously covers all of the issues dealt with by the Block Exemption Regulation and the Guidelines, the Commission seeks in particular comments on the overall functioning of the current rules and the extent that recent market developments should impact the scope of the review. The Commission is also inviting comments on the specific way that it is proposing to deal with the issue of buyers' market power and restrictions on online sales.

July 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Designing Competition in Health Care Markets

Posted by D. Daniel Sokol

Dag Morten Dalen (BI Norwegian School of Management), Espen R Moen (BI Norwegian School of Management), and Christian Riis (BI Norwegian School of Management) go through the process of Designing Competition in Health Care Markets.

ABSTRACT: In this paper we propose a simple, market based mechanism to set prices in health care markets, namely a system where the patients are auctioned out to the hospitals. Our aim is to characterize principles as to how such an auction should be designed. In the case of elective treatment, health authorities thus organize a competition between hospitals. The hospital with the lowest price signs a contracts with authority (or the insurer) that commits him to treat a given number of patients within a predetermined period. However, this is not a simple mechanism that identifies the hospital with the lowest
treatment cost. Due to potentially rapid and unpredictable shifts in demand, treatment capacity may be hard to know in advance. There is always a risk that treatment must be canceled due to arrival of patients that require acute treatment. This calls for a market design that accounts for the risk of default.

Our main result is that the expected cost for the government is reduced if the government chooses to ”subsidize” default. This could be thought of as a system in which the government buys treatment in the spot market in the case of default, and let the hospital pay a default fee that is lower than the spot price. The reason why this reduces expected costs for the government is that the e¤ect on the bids is asymmetric: The second lowest bid is on average reduced more than the winning bid. Hence, the winner’s profit tends
to shrink. This is due to what we characterize an endogenous correlation. Since the cost of treatment increases in the default risk (as the hospital must pay a penalty if it defaults), high cost hospitals typically have larger default risks than low costs hospitals.

July 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, July 27, 2009

The N-Effect: More Competitors, Less Competition

Posted by D. Daniel Sokol

Stephen M. Garcia (University of Michigan - Ross School of Business) and Avishalom Tor (University of Haifa - Faculty of Law) explore The N-Effect: More Competitors, Less CompetitionThe paper makes a provocative claim, relying on both field and lab studies, that as the number (N) of competitors increases, motivation and performance decline, even when expected payoffs remain constant. (They also show the effect is driven, at least in part, by a reduction in social comparison concerns.) It has already been covered by the Boston Globe in January (http://www.boston.com/bostonglobe/ideas/articles/2009/01/04/surprising_insights_from_the_social_sciences/) and the Economist (http://www.economist.com/sciencetechnology/displaystory.cfm?story_id=13983332) among others.

ABSTRACT: The present analysis introduces the N-Effect - the discovery that increasing the number of competitors (N) can decrease competitive motivation. Studies 1a-b found evidence that average test scores (e.g., SAT scores) fall as the average number of test-takers at test-taking venues increases. Study 2 found that individuals trying to finish an easy quiz among the top 20 percent in terms of speed finished significantly faster if they believed they were competing in a pool of 10 versus 100 other people. Using a social comparison orientation (SCO) scale, Study 3 showed the N-Effect occurs strongly among those high in SCO and weakly among those low in SCO. Study 4 directly linked the N-Effect to social comparison, ruling out the "ratio-bias" and finding that social comparison becomes less important as N increases. Finally, Study 5 found the N-Effect is mediated by social comparison. Limitations, future directions, and implications are discussed.

July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Antitrust Gets Worse for Qualcomm in Asia

Posted by D. Daniel Sokol

Things looked bad for Qualcomm last week with the KFTC fined Qualcomm US$208 million for Korean antitrust violations.  This week things got worse for the San Diego based company as the Japanese JFTC has ordered Qualcomm to stop abusing its market dominance.


July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Hospital Competition, Technical Efficiency, and Quality

Posted by D. Daniel Sokol

C. L. Chua; Alfons Palangkaraya; Jongsay Yong (all Melbourne Institute of Applied Economic and Social Research, University of Melbourne) address Hospital Competition, Technical Efficiency, and Quality.

ABSTRACT: This paper studies the link between competition and technical efficiency of public hospitals in the State of Victoria, Australia by accounting both quantity and quality of hospital output using a two-stage semi-parametric model of hospital production and Data Envelopment Analysis. On the one hand, it finds a positive relationship between efficiency and competition measured by the Hirschman-Herfindahl Index (HHI). On the other, it finds that efficiency and the number of competing hospitals, in particular the number of competing private hospitals, to be negatively correlated. More importantly, it finds that whether or not quality is treated as an endogenous output variable, as opposed to as an exogenous control variable, may impact on the statistical estimates of the link between efficiency and competition. Also, how the effect of competition on efficiency is modelled empirically may matter, though the impact of the treatm! ent of quality as described above appears to be more important. Overall, the results highlight the importance of quality consideration in assessing the effects of competition on efficiency and points to possibly undesirable resource allocation effects when public hospitals are made to compete with a large number of private hospitals.

July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

New Revisions to the Chilean Competition Law

Posted by D. Daniel Sokol

One hot topic in Chile while I was teaching are the new revisions to the Chilean Competition law.  The most important new feature has been the introduction of leniency for cartels.

July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

State Antitrust Practice and Statutes (Fourth)

Posted by D. Daniel Sokol

State Antitrust Practice and Statutes (Fourth)

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Add to Cart

The Fourth Edition of this three-volume treatise concisely sets forth the substantive civil and criminal antitrust case law, procedure, practice, and statutes for each of the 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands.  In addition to updating the 2003 edition, this edition facilitates access to the sources of state antitrust law and related enforcement issues.

Written by antitrust practitioners, and incorporating valuable comments and suggestions from attorneys in the offices of the various state attorneys general, this useful resource gives you a practical look at substantive state antitrust law as well as recent government and private enforcement trends.

 

Product Details: 5030532
Regular Price: $499.00
AT Section Member Price: $449.00
©2009
7 x 10 - 3-Volume, Hardcover,  2,400 pages,

July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Aims of Antitrust, Prohibition of Restrictive Agreements and Exemptions

Posted by D. Daniel Sokol

Hina Sarfaraz, University Institute of European Studies, discusses Aims of Antitrust, Prohibition of Restrictive Agreements and Exemptions.

ABSTRACT: Aims of antitrust law, its sources and main purpose in the European Union are essential to understand the underlying notion and need for a restriction on trade practices. The formulation of legislation in this regard is essential to ensure fair economic freedom. Antitrust legislation interchangeably called Competition Law delineates the prohibitions of restrictive agreements in trade under Article 81 EC. The scope of this paper is confined to Article 81 (1) & (3) EC, which deal with prohibitions of agreements between undertakings and exceptions to the rule of prohibition and restrictions also, thereof- popularly known as 'Block Exemptions'.

July 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, July 26, 2009

Chinese Merger Statistics Now Available

Posted by D. Daniel Sokol

MOFCOM posted a brief note regarding merger review statistics. From implementation to the end of June 2009 MOFCOM had received 58 pre-merger notifications. Of these work on 48 has been completed with 43 of them receiving unconditional approval. Two more were conditionally approved and one was not approved.

 

Text (in Chinese): http://fldj.mofcom.gov.cn/aarticle/zcfb/200907/20090706409831.html

HT: Paul Jones

July 26, 2009 | Permalink | Comments (0) | TrackBack (0)

Bill Gates Quits Facebook

Posted by D. Daniel Sokol

A news article reports that Bill Gates quit Facebook because he had too many friends.  Alas, none worked for the European Commission.

July 26, 2009 | Permalink | Comments (0) | TrackBack (0)