Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, September 26, 2009

Call for Papers - Indian Journal of International Economic Law

Posted by D. Daniel Sokol

The Indian Journal of International Economic Law (IJIEL) of the National Law School of India University (NLSIU) has posted a call for papers.

Download WEB CALL LETTER

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

Meet the New Federal Trade Commission Bureau Directors

Posted by D. Daniel Sokol

American Bar Association Section of Antitrust Law's Federal Civil Enforcement Committee

Presents:

Meet the New Federal Trade Commission Bureau Directors



A Brown Bag Program to be held

Thursday, October 8, 2009
12:00 p.m. - 1:30 p.m. ET
DrinkerBiddle, 1500 K Street, NW
Washington, DC 20005

With the change in political administrations there are new enforcers at the antitrust agencies.  The Federal Trade Commission Bureau Directors have settled in to their positions and we now have the opportunity to learn more about their enforcement and policy priorities.

Panelists:

Richard A. Feinstein, Director of the Bureau of Competition
Mr. Feinstein rejoined the FTC from Boies, Schiller & Flexner LLP, where he focused on antitrust litigation and counseling.  Previously at the FTC, he served as an Assistant Director in the Bureau of Competition's Health Care Services and Products Division.

David C. Vladeck, Director of the Bureau of Consumer Protection
Prior to the FTC, Mr. Vladeck was a Professor of Law at Georgetown University Law Center.  In addition, he co-directed the Center's Institute for Public Representation.  Before Georgetown, Mr. Vladeck spent almost 30 years with Public Citizen Litigation Group.

Joseph Farrell, Director of the Bureau of Economics
Before joining the FTC, Mr. Farrell was a Professor of Economics at the University of California, Berkeley.  He also has served as Deputy Assistant Attorney General and Chief Economist for the Antitrust Division of the U.S. Department of Justice.

Moderator:

Andrea Agathoklis, Freshfields Bruckhaus Deringer

Register now by email to donna.fleming@dbr.com or by phone to Donna Fleming at (202) 230-5627.  Please indicate whether you plan to attend in person or to dial in.  We will distribute the call-in number by email to all registrants in advance.  There is no charge.

The Section will post a downloadable recording of this program in MP3 format in the Members Only area of its website, http://www.abanet.org/antitrust/at-bb/bb-audio.shtml.



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

Friday, September 25, 2009

Market Shares in Two-Sided Media Industries

Posted by D. Daniel Sokol

Hans Jarle Kind, Norwegian School of Economics & Business Administration (NHH), and Frank Stähler, University of Otago - Department of Economics explain Market Shares in Two-Sided Media Industries.

ABSTRACT: This paper generalizes the frequently used Hotelling model for two-sided markets in order to determine the equilibrium market shares. We show that advertisement levels depend neither on the media price nor on the location of the media firm. An increase in advertising revenues does not change location but only the media price. If the distribution of consumers is asymmetric, market shares will be asymmetric as well, and the media firm with the larger market share charges the higher media price. The larger firm makes a higher profit per reader and in aggregate compared to its smaller rival.

September 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance

Posted by D. Daniel Sokol

Aldo Spanjer, Leiden Law School asks Long-Term Contracts and Competition on European Gas Markets - Has the Commission Struck the Right Balance.

ABSTRACT: This article examines whether the balance currently struck by the European Commission between long-term contracting and the introduction of competition will ensure a sustainable level of competition on European gas markets, i.e. competition that not impedes investments. It examines whether this balance – which can be derived from a recently closed antitrust case against Distrigas – takes proper account of the benefits of long-term contracting. The current balance recognizes the possibility of efficiencies related to long-term contracts. This article uses the transaction cost economics framework to assess this balance, because this science of contract explicitly focuses on contracts and their ex-post properties. It turns out that the Commission’s balance is inadequate because the advantages of long-term contracting in terms of mitigating opportunistic regulatory behaviour are not acknowledged. One likely consequence is that the Commission will intervene, and force adaptations to long-term contracts, more often than efficient.

September 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Why Airline Antitrust Immunity Benefits Consumers

Posted by D. Daniel Sokol

Daniel Kasper & Darin Lee (LECG) explain Why Airline Antitrust Immunity Benefits Consumers.

ABSTRACT: Any analysis of immunized airline alliances must begin by recognizing that, unlike most other global businesses, airlines are precluded by a host of laws and regulations in the United States and abroad from acquiring control of foreign airlines and from carrying domestic traffic in other countries. These barriers to investment and market entry effectively preclude any single carrier from building a global network using its own network resources and aircraft and thus pose a particular problem for the airline industry, which has become an increasingly network-based business since deregulation. As a result, the only way a U.S. airline can provide convenient connections, common service standards, lounge access, and frequent flyer credits for its customers traveling internationally to points that the U.S. carrier cannot itself serve is by forming an alliance with a foreign carrier. Likewise, foreign carriers must rely on alliances with U.S. carriers to provide their customers access to routes that the foreign carrier cannot serve for legal or economic reasons.

Because these joint ventures involve cooperation between actual or potential competitors, airlines must obtain a grant of antitrust immunity (“ATI”) from the U.S. Department of Transportation (“DOT”) and foreign competition authorities before implementing their alliance.

September 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 24, 2009

Reform and Competitive Selection in China: An Analysis of Firm Exits

Posted by D. Daniel Sokol

Qing Gong Yang (New Zealand Commerce Commission) and Paul Temple (University of Surrey) write on Reform and Competitive Selection in China: An Analysis of Firm Exits.

ABSTRACT: This paper considers aspects of the competitive selection process in China - firm entry, survival, and exit - in an important sector of manufacturing, looking in particular for changes resulting from the latest stage of reforms. Using industry survey data from a province in North-East China, we find substantial differences in the process between ownership types. By conducting a simple decomposition of the aggregate productivity growth and exploring the determinants of firm’s exit using a hazard rate model, we observe a substantial rate of churning of enterprises in the sector, and find that the competitive selection processes operate, for small and collectively owned enterprises (COEs), in a manner consistent with a private market economy. In contrast, such processes appear not to be functioning for state owned enterprises (SOEs). We conclude that competitive selection in China is not providing a sufficiently strong su! bstitute for corporate governance based on ownership.

September 24, 2009 | Permalink | Comments (0) | TrackBack (0)

The Impact of Firm Size and Market Size Asymmetries on National Mergers in a Three-Country Model

Posted by D. Daniel Sokol

Luis Santos-Pinto (HEC - Business School) explains The Impact of Firm Size and Market Size Asymmetries on National Mergers in a Three-Country Model.

ABSTRACT: This paper studies the impact of firm and market size asymmetries on merger decisions. To do that I consider a model where a small and a large country compete in a third (world) market. Each of the two countries has two firms (with potentially different costs) that supply the domestic market and export to the third market. Merger decisions in the two countries are modeled as a simultaneously move game. The paper finds that firms in the large country have more incentives to merge than firms in the small country. In contrast, the government of the large country has more incentives to block a merger than the government of the small country. Thus, the model predicts that conflicts of interest between governments and firms concerning national mergers are more likely in large countries than in small ones.

September 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Our Progress Towards International Convergence

Posted by D. Daniel Sokol

Christine Varney (DOJ) gave a recent speech on Our Progress Towards International Convergence at the Fordham conference.

September 24, 2009 | Permalink | Comments (0) | TrackBack (0)

The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing

Posted by D. Daniel Sokol

Sandeep Mazumder (Wake Forest - Econ) explains The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing.

ABSTRACT: This paper estimates the price-marginal cost markup for US manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on Hall's (1988) framework involving the manipulation of the Solow Residual. However this paper argues that this notion is based on the unreasonable assumption that labor can be costlessly adjusted at a fixed wage rate. By relaxing this assumption, we are able to derive a generalized markup index, which when estimated using manufacturing data is highly countercyclical and decreasing in trend since the 1960s. When we then seek to explain what causes the manufacturing markup to behave in this way, the most important determinant is the share of imported goods in the industry. Thus, increasing foreign competition in manufacturing has led to a decline in the industry's markup over time.

September 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Carve-Outs Under Airline Antitrust Immunity: In the Public Interest?

Posted by D. Daniel Sokol

Jan Brueckner (University of California, Irvine) & Stef Proost (KU Leuven, Brussels) address Carve-Outs Under Airline Antitrust Immunity: In the Public Interest?

ABSTRACT: Prohibitions on cross-border airline mergers preclude full integration of U.S. and foreign carriers, but a grant of antitrust immunity (“ATI”) allows substantial cooperation between a U.S. airline and its foreign alliance partners. Immunity allows collaboration in the provision of international service in two principal types of markets. One market type involves travel between smaller U.S. and foreign cities, which requires an “interline” trip that crosses the networks of the two alliance partners. The other market type involves nonstop travel between the partners' (larger) hub cities, where overlapping service allows the trip to be made using either the U.S. airline or its partner. Immunity has often been granted in conjunction with an open-skies agreement between the United States and the home country of a partner airline.

The effects of alliances and ATI on airfares have been extensively investigated in the economics literature...but despite the centrality of carve-outs in the latest ATI decisions, the economics literature on alliances offers no treatment whatsoever of this topic.

September 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 23, 2009

The Kinked Demand Model and the Stability of Cooperation

Posted by D. Daniel Sokol

Sergio Currarini (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari") and Marco Marini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino) analyze The Kinked Demand Model and the Stability of Cooperation.

ABSTRACT: This paper revisits a particular behaviour for rms competing in imperfect competitive markets, underlying the well known model of kinked demand curve. We show that under some symmetry and regularity conditions, this asymmetric behaviour of rms sustains monopoly pricing, and possesses therefore some "rationality" interpretation. We also show that such a behaviour can be generalized and interpreted as a norm of behaviour that sustains efficient outcomes in a more general class of symmetric games.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Markets for Heterogeneous Products: a Boundedly Rational Consumer Model

Posted by D. Daniel Sokol

Marco Valente (Economics - Università degli Studi dell'Aquila) has a new paper on Markets for Heterogeneous Products: a Boundedly Rational Consumer Model.

ABSTRACT: The paper is based on the acknowledgement that properties of markets stemming from features of demand are too frequently overlooked in the economic literature, and a re-balancing is necessary to properly account for theoretical and empirical phenomena. We sustain that one of the most relevant reasons for the neglect of the role of demand is the lack of an adequate representation of consumers. This claim is particu- larly relevant for evolutionary economics since its critique to the mainstream approach stopped at the representation of firms. The standard utility maximization approach to consumers' theory is even less defensible than the related assumption of producers' rationality, given the lack of competitive pressure on consumers. As a contribution to this theoretical gap, the paper presents a model for consumer based on the assumption of bounded rationality and inspired to the literature on experimental psychology. The proposed model can be applied to multi-dimensional products/services and relies on intuitive and potentially observable parameters, allowing for a wide range of theoretical and empirical applications. Moreover, the intrinsic structure of the model provides a clear definition of preferences, meant as ex-ante decisional criteria, distinguished from post-hoc justification of any decisional result. Though structurally simple, the proposed model is very flexible and allows for a clear exploration of the impact of specific demand features on the produced results. Several experiments show that the model can be successfully applied both to generate standard results and to implement complex configurations such as those of generated by large markets with heterogeneous products. Among the results presented, the most relevant concerns the identification of two classes of market segmentation, generated by the identical suppliers and demand's exogenous factors, but different consumers' decisional mechanisms. The results produced are observationally equivalent, but are shown to have radically different properties, and are proposed as initial elements of a taxonomy for the classification demand classes, likely to explain common properties across different markets.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Final Descent? The Future of Antitrust Immunity in International Aviation

Posted by D. Daniel Sokol

Benjamin Bradshaw (O'Melveny & Myers) & Bimal Patel (O'Melveny & Myers) ask, Final Descent? The Future of Antitrust Immunity in International Aviation.

ABSTRACT: It is no secret that the Department of Justice (“DOJ”) and the Department of Transportation (“DOT”) traditionally have not seen eye to eye on the issue of antitrust immunity in international aviation. This year is no different. Indeed, 2009 has brought arguably the widest rift between the agencies since the modern era of immunity grants began following the conclusion of the U.S.-Netherlands Open Skies agreement in 1992. The lightning rod of course was Continental Airlines’ bid to join the Star Alliance, including its request to team with United in the so-called Atlantic Plus-Plus (“A++”) joint venture—an integrated and (now) immunized agreement involving Air Canada, Continental, Lufthansa, and United.

The A++ agreement not only elevated the serious disagreements between DOJ and DOT on whether, and in what circumstances, air carriers should be immune from the antitrust laws, but it saw the rise of significant Congressional opposition to the mere concept of antitrust immunity, with a key Member of Congress proposing legislation to phase out current grants of antitrust immunity.

Meanwhile, carriers remain caught in the middle of the agency positions, arguing on the one hand that competing carriers’ immunity requests should be limited or denied, but not so forcefully as to jeopardize their own calls for immunity. Given DOJ’s and DOT’s deep-seated and very public differences of opinion over antitrust immunity, as well as Congress’s readiness to jump into the fray, antitrust immunity in international aviation finds itself at a crossroads.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Technical Standards Setting Organizations & Competition: A Case for Deference to Markets

Posted by D. Daniel Sokol

IP specialist Raymond T. Nimmer (University of Houston - Law Center) has posted Technical Standards Setting Organizations & Competition: A Case for Deference to Markets.

ABSTRACT: There exists a risk of standards-setting organizations (SSO's) becoming improper surrogates for the marketplace by attempting to choose between two or more competing standards supported entities that are or aspire to be competitors in the relevant market. While the theory of most SSO's is that they make neutral, technologically sound decisions, the reality is often far different. Instead, competitors predictably bring their competition into the SSO setting, seeking the market advantages that winning a standard achieves. The technocrats involved in the standards-setting cannot help but be affected. The solution lies not in regulation, antitrust rule, or purported mandates from the SSO, but in mounting an SSO process that defers to the market, avoiding standards-setting where the market has yet to settle on a choice or, when the market remains unsettled, structuring standards that avoid foreclosing competition among competing technologies or assisting one over the other.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 22, 2009

The Kroes Legacy Coming to a Close

Posted by D. Daniel Sokol

Check out the following story in the NY Times about the last months of Kroes' tenure at the Commission in terms of case load with a global ramification including speculation of a Microsoft settlement.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Varney on Merger Guidelines Workshops

Posted by D. Daniel Sokol

Christine Varney (DOJ) explained the Merger Guidelines Workshops at today's Third Annual Georgetown Law Global Antitrust Enforcement Symposium.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Mixed Duopoly with Price Competition

Posted by D. Daniel Sokol

Prabal Roy Chowdhury has written on Mixed Duopoly with Price Competition.

ABSTRACT: This paper examines coalition-proof Nash equilibria (CPNE) of a mixed duopoly with price competition where the public firm meets all the demand coming to it. If the private firm is free to supply less than demand, then the unique CPNE involves the competitive price. If however the private firm also has to supply all its demand, then the set of CPNE prices turns out to be an interval, with prices ranging from the socially optimal one, to the price under complete privatization.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Refusals to Deal

Posted by D. Daniel Sokol

The OECD has published Refusals to Deal.

ABSTRACT: The term “refusal to deal” describes a situation in which one firm refuses to sell to another firm, or is willing to sell only at a price that is considered “too high” or only under conditions that are deemed unacceptable. RTDs may harm competition by preventing entry that would have eroded or eliminated the dominant firm’s position. They may also restrict competition in markets where the dominant firm’s product is an input or a complement.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Department of Justice and Federal Trade Commission to Hold Workshops Concerning Horizontal Merger Guidelines

Posted by D. Daniel Sokol

The Department of Justice and the Federal Trade Commission (FTC) announced today that they will solicit public comment and hold joint public workshops to explore the possibility of updating the Horizontal Merger Guidelines that are used by both agencies to evaluate the potential competitive effects of mergers and acquisitions.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Railroad Antitrust Reform—A Train to Nowhere?

Posted by D. Daniel Sokol

Don Baker (Baker & Miller PLLC) & Bill Mullins (Baker & Miller PLLC) ask Railroad Antitrust Reform—A Train to Nowhere?

ABSTRACT: There is an obvious déjà vu quality in today’s loudly promoted “Railroad Antitrust Enforcement Act of 2009” bills that have been introduced by Senator Herbert Kohl (D-WI) (S. 146) and his Wisconsin colleague, Congresswoman Tammy Baldwin (D) (H.R. 233). But it seems that they may well have arrived at the station quite a while after the antitrust train had pulled out..

Will the removal of the few antitrust exemptions currently granted to the rail industry be likely to result in the type of antitrust relief required to curtail what the shippers view as an abuse of market power?.

September 22, 2009 | Permalink | Comments (0) | TrackBack (0)