Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, February 6, 2009

Double Marginalization in Two-Sided Markets

Posted by D. Daniel Sokol

E. Glen Weyl, Harvard Society of Fellows has posted Double Marginalization in Two-Sided Markets.

ABSTRACT: Should banks (through Visa) be allowed to own debit clearing networks? This problem combines the classic Cournot (1838)-Spengler (1950) double marginalization problem with the more recent literature on two-sided markets (Rochet and Tirole, 2003). Because both the double marginalization (Weyl, 2008a) and two-sided markets (Weyl, 2008b) problems depend crucially on the pass-through rate, the analysis is natural and leads to strong over-identification given simple assumptions. Vertical integration does not generally erode (and often enhances) platform mark-ups. Therefore its (price level benefits) are more robust than those of competition in two-sided markets.

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

Managing Strategic Buyers

Posted by D. Daniel Sokol

Johannes Horner (Yale, Economics) and Larry Samuelson (Yale, Economics) think about Managing Strategic Buyers.

ABSTRACT: We consider the problem of a monopolist with an object to sell before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. We show that the monopolist can always secure at least the larger of the static monopoly profit and the revenue from a Dutch auction with a zero reserve price. When there are only a few buyers, her profits are higher than this bound, and she essentially posts unacceptable prices up to the very end, at which point prices collapse to a "reservation price" that exceeds marginal cost. When there are many buyers, the seller abandons this reservation price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time. With more units to sell, prices jump up after each sale.

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

Thursday, February 5, 2009

Waiting to Merge

Posted by D. Daniel Sokol

Eileen Fumagalli (IEFE, Universita  Bocconi) and Tore Nilssen (Economics, University of Oslo) discuss Waiting to Merge.

ABSTRACT: We set up a sequential merger to study a firm's incentives to pass up on an opportunity to merge with another firm. We find that such incentives may exist when there are efficiency gains from a merger, firms are of different sizes, there is an antitrust authority present to approve mergers, and there is sufficient alignment of interests between the antitrust authority and the firms. We point out three distinctive motives for not merging: the external-effect motive, the bargaining-power motive, and the pill-sweetening motive.

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

Bundling and Licensing of Genes in Agricultural Biotechnology

Posted by D. Daniel Sokol

Imageaaewiscedu Guanming Shi of the University of Wisconsin, Department of Applied Economics has written a very interesting piece on Bundling and Licensing of Genes in Agricultural Biotechnology.

ABSTRACT: We examine the strategic incentive for gene holders to vertically integrate with seed companies and chemical input companies. With homogeneous conventional seeds, we find that a pure bundling strategy (produce the genetically modified seed only) is dominant. When the gene holder and breeder are, respectively, the monopolistic producers of genetically modified and conventional seeds, they may commit to mixed bundling (supply both genetically modified and conventional seed) to deter potential entry to the conventional seed market. A vertical merger may solve the credibility issue of the mixed bundling commitment through third party licensing agreements in the conventional seed market.

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

Tie-In Contracts with Downstream Competition

Posted by D. Daniel Sokol

Sreya Kolay, Paul Merage School of Business, University of California, Irvine writes on Tie-In Contracts with Downstream Competition.

ABSTRACT: A tie-in contract has recently come under scrutiny for its role as an exclusionary device. A firm that is a monopolist in a primary market can utilize such contracts to exclude a more efficient rival in a secondary market. When the firms sell through competing retailers, the leveraging firm may offer tie-in contracts to the retailers inducing them to purchase both primary and secondary products entirely from it such that the rival is excluded. Assuming both upstream firms to be strategic, we find that whether such tie-in contracts are profitable or not depends on the type of competition at the downstream level. When retailers compete in prices, a tie-in strategy becomes strictly more profitable regardless of commitment status and the difference in costs of the upstream firms. This results holds even when retailers are differentiated and price competition is less intense. When retailers compete in quantities, commitment and cost status become relevant. Under commitment, a tie-in strategy can be strictly inferior if the rival firm's cost is significantly lower. Absent commitment, a tie-in contract is not feasible.

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

Wednesday, February 4, 2009

The Case for Different Preliminary Injunction Standards in Merger Challenges

Posted by D. Daniel Sokol

Justin Halkala (Wayne State - Law) provides his analysis of The Case for Different Preliminary Injunction Standards in Merger Challenges.

ABSTRACT: Much is made of the different standards that the Federal Trade Commission and the Antitrust Division of the Department of Justice must meet when seeking a preliminary injunctions against a merger on antitrust grounds. The differing standards that apply reflect the different natures of the agencies, and were designed for the same reasons that the agencies were designed as concurrent enforcers. Why, then, do the agencies divide pre-merger reviews under the Hart-Scott-Rodino across industry lines? This system subjects the merging companies to different standards because of their industry affiliations. If, as critics maintain, the standards are indeed different, industries will consistently be subjected to more or less stringent merger review based upon which side of the line they fall.

This article argues that the problem isn't that the agencies are different and make use of different preliminary injunction standards, but instead it is that the division of merger review between the agencies by industry inappropriately splits the merger review market, and undermines the purpose of decentralizing antitrust enforcement generally between the DOJ and FTC.

February 4, 2009 | Permalink | Comments (0) | TrackBack (0)

On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis

Posted by D. Daniel Sokol

Yannis Katsoulacos (Athens University of Economics and Business, Economics)and David Ulph (St. Andrews, Economics) provide thoughts On Optimal Legal Standards for Competition Policy: A General Welfare-Based Analysis.

ABSTRACT: We present a new welfare-based framework for optimally choosing legal standards in a variety of regulatory contexts. We formalise the decision-theoretic considerations widely discussed in the existing literature by capturing the quality of the underlying analysis and information available to a regulatory authority, and we obtain a precise set of conditions for determining when a Rule of Reason approach would be able to effectively discriminate between benign and harmful actions and consequently dominate Per Se as a decision-making procedure. We then show that in a welfare-based approach the choice between legal standards must additionally take into account (i) indirect (deterrence) effects of the choice of standard on the behaviour of all firms when deciding whether or not to adopt a particular practice; and (ii) procedural effects of certain features of the administrative process in particular delays in reaching decisions; and the coverage rate of the actions taking place. We therefore derive necessary and sufficient conditions for adopting discriminating rules (such as Rule of Reason). We also examine what type of discriminating rule will be optimal under different conditions that characterise different business practices. We apply our framework to two recent landmark decisions “ Microsoft vs. EU Commission (2007) and Leegin Vs. PSKS (2007)" in which a change in legal standards has been proposed, and show that it can powerfully clarify and enhance the arguments deployed in these cases.

February 4, 2009 | Permalink | Comments (0) | TrackBack (0)

Two Hospital Mergers on Chicago’s North Shore: A Retrospective Study

Posted by D. Daniel Sokol

Deborah Haas-Wilson (FTC) and   Christopher Garmon (FTC) discuss Two Hospital Mergers on Chicago’s North Shore: A Retrospective Study in their latest working paper, one of a series of working papers to address hospital merger retrospectives.

ABSTRACT:  We provide an in-depth analysis of the price effects of two hospital mergers that occurred in the north shore suburbs of Chicago in early 2000: Evanston Northwestern Healthcare’s (ENH) purchase of Highland Park Hospital (HPH) and the merger of St. Therese Medical Center (STMC) and Victory Memorial Hospital (VMH). Using standard difference-indifferences methods with data from multiple sources, including health insurance data with actual transactions prices, we find that the ENH/HPH merger led to a large and statistically significant post-merger price increase. We find no evidence of a price increase after the STMC/VMH merger. These results are robust across data sources, control groups, and case mix adjustment methods.

February 4, 2009 | Permalink | Comments (0) | TrackBack (0)

Extra-territorial Application of Antitrust – The Case of a Small Economy (Israel)

Posted by D. Daniel Sokol

Michal Gal of the University of Haifa Law School writes on Extra-territorial Application of Antitrust – The Case of a Small Economy (Israel).

ABSTRACT: International trade has changed some of the challenges faced by antitrust authorities: it has added an international dimension. Under the current system of international antitrust, the backbone of enforcement is unilateral: each country applies its own tools to deal with international antitrust issues within the constraints imposed upon it by public international law. This enforcement pattern is sometimes coupled with cooperation agreements which are based on the realization that while cooperation among firms might be anti-competitive, this is generally not true for cooperation among countries. Yet such cooperation is often limited.

This paper, which is part of a book on Cooperation, Comity And Competition Policy (Oxford University Press, 2009), analyzes the effects that a unilateral enforcement system has on a small economy, by focusing on a specific case study: Israel. The case of Israel is interesting not only as a stand-alone case study, but mostly because it provides useful insights into the reality of enforcing antitrust in a globalized world by a small economy. As the paper indicates, even when it possesses the legal tools to tackle international antitrust issues, Israel often suffer from serious practical deficiencies. Most importantly, it frequently cannot create a credible threat to large, multinational firms that engage in anti-competitive conduct which harms its economy. It also has limited resources and incentives to deal with international anti-competitive conduct, especially when such conduct is addressed by other jurisdictions. As a result, despite the sometimes severe effects of anti-competitive conduct on its markets, Israel, like other small economies, is a marginal player in the globalized antitrust regime and is generally a passive bearer of the effects of international anti-competitive conduct and of the enforcement actions of larger jurisdictions rather than proactive confronters of such issues and actions. This observation has important implications for a globalized antitrust regime.

The paper also analyzes some intriguing issues which arise from public international law doctrines of extraterritoriality. For example, it analyzes the issue of whether the effects doctrine acts as a pre-condition for a finding of an anti-competitive conduct if some of the parties are foreign or does it apply only if there is a finding of an anti-competitive conduct that has direct legal implications for a foreign firm. It also analyzes the issue of whether presumptions of illegality can apply in cases which involve foreign firms and in which jurisdiction is based on proof of "a significant and direct" anti-competitive effect.

February 4, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 3, 2009

Know the Rules or Pay the Price – Firms and Competition Law Enforcement

Posted by D. Daniel Sokol

2 March 2009
16:30-19:30
The Assembly House, Norwich

Know the rules or pay the price: Firms and competition law enforcement
A collection of short talks by members of the ESRC Centre for Competition Policy

A number of cases over the last few years have illustrated the potential costs to businesses and individuals of ignoring competition law.

· In the case of mergers, some cases which might have been resolved at an early stage have ended up being referred to the Competition Commission at large extra costs to both the firms involved and to society.

· Talking to your rivals can land not just the company you work for, but also yourself, in trouble. Conversations about fuel surcharges have left BA with a large public fine, both Virgin and BA with large private damages liability and in addition led to the criminal prosecution of four former BA executives. Criminalisation in the UK of some competition law infringements is new, but we have already had the first such conviction with three executives from Lincolnshire sent to prison for between 30 and 36 months.

Firms can be victims as well as perpetrators of competition abuses. Sometimes knowing what the rules are can protect a firm from harmful actions by others. If a powerful buyer or supplier places a huge financial burden on a firm, it may be able to turn to the competition authorities for relief.

· Competition law puts restraints on what a dominant firm can do vis-à-vis customers. A firm may even take direct action itself, pursuing a private action either for damages or to stop a dominant firm using abusive practices.

· The first competition case to reach the House of Lords as well as the European Court of Justice, Crehan vs Courage, arose because a publican felt he was the subject of abusive behaviour by another firm.
To protect themselves from inadvertently violating competition law as well as from the abuses of others, firms need to be aware of what the law says and aims to achieve. Firms also need to consider whether their staff training is adequate: Should it introduce a compliance programme? If one is already in place, is it adequate to meet current and future challenges?

This event is aimed at providing such information. We start the event with a to elicit the views of the audience on a range of actions and whether they are allowed under existing competition law. We will return to the results from these, after highlighting the dangers which inadequate knowledge of competition law can bring and a short introduction to current legislation. The audience’s own initial responses (and those from other surveys) will form the basis for a general discussion at the end of the event. The event is especially aimed at businesses and law practitioners.

February 3, 2009 | Permalink | Comments (0) | TrackBack (0)

Tilburg Law and Economics Center Seeks Postdoctoral Researcher

Posted by D. Daniel Sokol

TILEC, THE TILBURG LAW AND ECONOMICS CENTER                     
Postdoctoral Researcher (Full time)                       (vac. nr. 300.2009.04)               
See: http://www.tilburguniversity.nl/vacancies/               

At TILEC, the Tilburg Law and Economics Center, a position for a postdoctoral researcher is available. The position is      fixed term for 2 years (starting September 2009), with a possible extension for another 2-3 years.               

JOB DESCRIPTION/QUALIFICATIONS: The position is open for promising researchers in economics      or law who are working within the context of the TILEC Research Programme, see: http://www.tilburguniversity.nl/tilec/research/researchprogramme. Preference will be given to researchers who already have worked on competition issues, preferably in the context of dynamically competitive industries. The position carries a very light teaching load, including supervision of MSc and MPhil students (either in economics or law). Candidates for the position must evidence the following      qualifications: (i)  A PhD or equivalent degree in law or economics (or an approved PhD manuscript before September 2009); (ii)  Research experience and publications commensurate with the stage at which the candidate finds him- or herself in his or her career; (iii) Interest and ability to carry out inter-disciplinary research; (iv)  Strong command of English.               

APPLICATION PROCEDURE: Applications and accompanying documents should be submitted      by email to: TILEC@uvt.nl before 15 February 2009. Applications should include a curriculum vitae, copies of (or links to) some written work and three letters of reference. Candidates that are only interested in a one-year position are also invited to apply. Please indicate which vacancy number applies to your      application. The most promising candidates will be invited to Tilburg in late February 2009 to present their work and to meet with TILEC members.               

FURTHER INFORMATION: For further questions please contact Ms. Ilse van der Haar                     Academic Manager of TILEC      Email: ilse.vanderhaar@uvt.nl

February 3, 2009 | Permalink | Comments (0) | TrackBack (0)

Last-In First-Out Oligopoly Dynamics

Posted by D. Daniel Sokol

Jaap H. Abbring (Tilburg - Economics) and Jeffrey R. Campbell (University of Chicago - Economics) address Last-In First-Out Oligopoly Dynamics.

ABSTRACT: This paper extends the static analysis of oligopoly structure into an infinite-horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first-out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, sequences of thresholds describe firms' equilibrium entry and survival decisions. Bresnahan and Reiss's (1993) empirical analysis of oligopolists' entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game-theoretic foundation for that structure.

February 3, 2009 | Permalink | Comments (0) | TrackBack (0)

The Regulatory Challenge to Branding: An Interpretation of UK Competition Authority Investigations 1950-2007

Posted by D. Daniel Sokol

John Ashton (Norwich Business School and the ESRC Centre for Competition Policy, University of East Anglia) and Andrew Pressey (Management School, Lancaster University) analyze The Regulatory Challenge to Branding: An Interpretation of UK Competition Authority Investigations 1950-2007.

ABSTRACT: This study examines if, and how, branding constitutes an anticompetitive act. These questions are assessed through an examination of UK competition cases undertaken over the period 1950-2007. From this assessment it is observed that branding can facilitate excessive pricing, requires vertical restraints, and can lead to consumer confusion. Competition cases focused on branding issues are demonstrably different from cases without branding concerns and involve larger, often manufacturing, firms, which operate in more concentrated markets. It is concluded that competition law needs to be disseminated more widely amongst business communities. This will require greater prominence for competition policy within business school syllabi and greater reference to business and management theory on the part of competition law agencies would assist the comprehension of business techniques such as branding.

February 3, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, February 2, 2009

Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power

Posted by D. Daniel Sokol

Jchevall Julien Chevallier (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre) has a new working paper on Intertemporal Emissions Trading and Allocation Rules: Gainers, Losers and the Spectre of Market Power.

ABSTRACT: Stemming from politically given market imperfections in a tradable permits system, this paper develops a Stackelberg game with two types of non-cooperative agents to describe how a large -potentially dominant- agent may exercise market power at the expense of a competitive fringe. In a dynamic framework with full forward and backward temporal flexibility (i.e. 1:1 Intertemporal Trading Ratio), this intra-industry model then suggests an optimal allocation criterion for grandfathered permits based on recent emissions. This paper contributes to the permit trading literature by shedding some light on the decision to allow banking and borrowing, a debate which is typically overlooked by the debate to introduce the permits market itself among other environmental regulation tools. Provisional results are presented under perfect information.

February 2, 2009 | Permalink | Comments (0) | TrackBack (0)

EU and Pharmaceutical Patents

posted by Shubha Ghosh

Readers may be interested in this analysis of the EU Competition Commission's preliminary report on the pharmaceutical industry, published last December. 

Intellectual Property Rights: The View from Competition Policy by Shubha Ghosh (Wisconsin Law).

ABSTRACT: Three propositions inform the debate over the relationship between intellectual property rights and competition policy.  The first involves concerns over how the anticompetitive uses of intellectual property will increase as intellectual property rights become stronger.  The second is that the uses of competition norms to loosen intellectual property rights will diminish the incentives for innovation.  Finally, there is the belief that the tension between competition policy and intellectual property rights can be reconciled by recognizing how market competition is consistent with innovation and by acknowledging the competition norms that shape the scope of intellectual property rights.  In this Essay, I examine these three propositions and their application to the preliminary report on the pharmaceutical industry released by the European Commission on November 28, 2008.

February 2, 2009 | Permalink | Comments (0) | TrackBack (0)

Do Auctions and Forced Divestitures Increase Competition? Evidence for Retail Gasoline Markets

Posted by D. Daniel Sokol

Adriaan R. Soetevent, Amsterdam School of Economics, Tinbergen Institute, Marco A. Haan, University of Groningen - Economics, and Pim Heijnen, University of Amsterdam - Faculty of Economics and Business (FEB) ask Do Auctions and Forced Divestitures Increase Competition? Evidence for Retail Gasoline Markets.

ABSTRACT: Where markets are insufficiently competitive, governments can intervene by auctioning licenses to operate or by forcing divestitures. The Dutch government has done exactly that, organizing auctions to redistribute tenancy rights for high-way gasoline stations and forcing the divestiture of outlets of four majors. We evaluate this policy experiment using panel data containing detailed price information. Accounting for non-randomness of the sites are auctioned, we find that an obligation to divest lowers prices by over 2% while the auctioning of licenses without such an obligation has no discernible effect. We find no evidence for price effects on nearby competitors.

February 2, 2009 | Permalink | Comments (0) | TrackBack (0)

Exploitative Abuse in Article 82EC: Back to Basics?

Posted by D. Daniel Sokol

Pinar_akman3 Pinar Akman (Centre for Competition Policy, University of East Anglia) writes on Exploitative Abuse in Article 82EC: Back to Basics?

ABSTRACT: For the last few years, the EC Commission has been reviewing its application of Article 82EC which prohibits the abuse of a dominant position on the Common Market. The review has resulted in a Communication from the EC Commission which for the first time sets out its enforcement priorities under Article 82EC. The review had been limited to the so-called ‘exclusionary’ abuses and excluded ‘exploitative’ abuses; the enforcement priorities of the EC Commission set out in the Guidance (2008) are also limited to ‘exclusionary’ abuses. This is, however, odd since the EC Commission expresses the objective of Article 82EC as enhancing consumer welfare: exploitative abuses can directly harm consumers unlike exclusionary abuses which can only indirectly harm consumers as the result of exclusion of competitors. This paper questions whether and under which circumstances exploitation can and/or should be found ‘abusive’. It argues that ‘exploitative’ abuse can and should be used as the test of anticompetitive effects on the market under an effects-based approach and thus conduct should only be found abusive if it is ‘exploitative’. Similarly, mere exploitation does not demonstrate harm to competition and without the latter, exploitation on its own should not be found abusive.

February 2, 2009 | Permalink | Comments (0) | TrackBack (0)