Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, April 10, 2010

Strategic Accessibility Competition

Posted by D. Daniel Sokol

E. Bacchiega, E. Randon and L. Zirulia (all University of Bologna - Econ) offer thoughts on Strategic Accessibility Competition.

ABSTRACT: We analyze the effect of competition in market-accessibility enhancement among quality-differentiated firms. Firms are located in regions with different ex-ante transport costs to reach the final market. We characterize the equilibrium of the two-stage game in which firms first invest to improve market accessibility and then compete in prices. Efforts in accessibility improvement crucially depend on the interplay between the willingness to pay for the quality premium of the median consumer and the ex-ante difference in accessibility between regions. From the social standpoint, all the accessibility investment should be carried out by the high-quality firm. Finally quality choice is endogenized.

April 10, 2010 | Permalink | Comments (0) | TrackBack (0)

Global Antitrust Enforcement: the Perspective from Latin America

Posted by D. Daniel Sokol

Global Antitrust Enforcement: the Perspective from Latin America

A conference co-presented by the IBA Antitrust Committee and the Brazilian Institute of Studies on Competition, Consumer Affairs and International Trade (IBRAC) and supported by the IBA Latin American Regional Forum

13–14 May 2010, Unique Hotel, São Paulo, Brazil

Sessions include:
• Mergers remedies
• Loyalty programmes/rebates
• Pharmaceutical pay-for-delay settlements
• Cartels/leniency/settlements
• An interview with John Fingleton, CEO, Office of Fair Trading, London; Chair, International Competition Network

Download Document2

April 10, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, April 9, 2010

Changes to Mexico's Competition Law May be Coming Soon

Posted by D. Daniel Sokol

See here.

April 9, 2010 | Permalink | Comments (1) | TrackBack (0)

The Role of Negative Intra-Side Externalities in Two-Sided Markets

Posted by D. Daniel Sokol

Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich), Markus Lang (Institute for Strategy and Business Economics, University of Zurich), and Panlang Lin (Institute for Strategy and Business Economics, University of Zurich) explain The Role of Negative Intra-Side Externalities in Two-Sided Markets.

ABSTRACT: This paper presents a theoretical model of two-sided markets with both positive inter-side externalities and negative intra-side externalities. It analyzes the net impact of negative intra-side externalities on platform prices, demands and profits in three scenarios: (i) monopoly platforms, (ii) competing platforms with two-sided single-homing, and (iii) competitive bottlenecks. The paper shows that a monopoly platform will produce lower equilibrium profits in the presence of negative intra-side externalities. By contrast, competing platforms with two-sided single-homing enjoy a higher equilibrium profit, whereas the net impact of negative intra-side externalities on the equilibrium profit of competing platforms with one-sided multi-homing (competitive bottlenecks) remains ambiguous. Based on the analysis, we derive implications for platform owners on how to manage negative intra-side externalities.

April 9, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 8, 2010

Welfare-Enhancing Hard Core Cartels

Posted by D. Daniel Sokol

Iwan Bos (Maastricht - School of Business) and Erik Pot (Maastricht - School of Business) write on Welfare-Enhancing Hard Core Cartels.

ABSTRACT: The conventional wisdom is that cartels are bad. In particular, cartels that merely lead to lower production levels and higher prices are thought to be exclusively detrimental to social welfare. This is reflected in the fact that most capitalist societies have declared such so-called hard core cartel arrangements illegal per se. In this paper, we question this rather rigid approach to hard core cartels. In a simple but fairly general setting, we provide necessary and sufficient conditions for the existence of a hard core cartel that is beneficial for firms and society at large. We consider both strong (with side payments) and weak (without side payments) hard core cartel contracts and find that (i) both strong and weak welfare-enhancing cartels exist when at least one firm makes a loss on part of its sales in competition, (ii) a welfare-enhancing strong cartel exists whenever there is a difference in unit costs at competitive production levels, and (iii ) a welfare-enhancing weak cartel exists when this difference is sufficiently large.

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

But don't monopolists raise prices?

Posted by D. Daniel Sokol

Today's WSJ reports that "Monsanto Co. signaled that it plans to lower prices of some crop seeds, retreating from its long-range profit goal amid farmers' resistance to seed-price hikes and a 19% drop in fiscal second quarter earnings."  Having to lower prices amid resistance to higher prices suggests a competitive market rather than one that raises antitrust concerns.

Given the beating that Monsanto and Big Ag took at the DOJ Antitrust/Department of Agriculture Iowa hearings last month, might this sort of news constitute a rethink about Monsanto's ability to hurt consumer welfare?

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

On efficiency, concentration and welfare

Posted by D. Daniel Sokol

Nicolas Boccard (Departament d'Economia, University of Girona, Spain) has thoughts On efficiency, concentration and welfare.

ABSTRACT: The welfare impact of a merger involves the market power offense and the efficiency defense. Salant et al. (1983) show that mergers among symmetric firms are unprofitable except for monopolization. We characterize the limit to this merger paradox in a simple linear Cournot oligopoly with asymmetric costs. Farrell and Shapiro (1990) provide sufficient conditions for a profitable merger to increase welfare but leave open whether it exists. We characterize the degree of cost asymmetry making a merger both profitable and socially desirable. Comparing rationalization and synergy within the efficiency defense, we show that for most industry structures, a rationalization merger is more likely to be welfare enhancing but a synergy merger is more likely to be profitable.

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition and Firm Productivity: Evidence from Firm-Level Data

Posted by D. Daniel Sokol

Sandra Ospina (IMF) and Marc Schiffbauer (World Bank) explain Competition and Firm Productivity: Evidence from Firm-Level Data.

ABSTRACT: This paper presents empirical evidence on the impact of competition on firm productivity. Using firm-level observations from the World Bank Enterprise Survey database, we find a positive and robust causal relationship between our proxies for competition and our measures of productivity. We also find that countries that implemented product-market reforms had a more pronounced increase in competition, and correspondingly, in productivity: the contribution to productivity growth due to competition spurred by product-market reforms is around 12-15 percent.

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Behavioral Economics, Consumer Protection, and Antitrust

Posted by D. Daniel Sokol

Michael Salinger (Boston University) provides his thoughts on Behavioral Economics, Consumer Protection, and Antitrust.

ABSTRACT: In both consumer protection and antitrust, the use of standard economic analysis has generally been to limit the scope of government intervention. The interest in behavioral economics (and some of the resistance to it) stems from the belief that it justifies intervention that conventional economic analysis suggests is unwarranted. Proponents see behavioral economics as the antidote to the Chicago School poison. Opponents see it as a mutated bacterium, resistant to the economic medicine that has led to improved policy. In this article, I will provide some background on behavioral economics and assess what insights it provides for consumer protection and antitrust policy.

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Bring on the Antitrust Enforcers! United and US Air to Discuss a Potential Merger

Posted by D. Daniel Sokol

Didn't we see this potential merger between United and US Air a few years ago?  DOJ correctly raised concerns in the past.  Unless something fundamental has changed since that time (and there has been some more consolidation with Delta/Northwest so I am not sure what the pro-competitive spin can be), I hope and assume that DOJ will move to block this merger should it become official.

April 8, 2010 | Permalink | Comments (1) | TrackBack (0)

The Standard of Proof in EC Merger Control: Conclusions for the Sony BMG Saga

Posted by D. Daniel Sokol

Ben Van Rompuy, Institute for European Studies, Free University of Brussels (VUB) explores The Standard of Proof in EC Merger Control: Conclusions for the Sony BMG Saga.

ABSTRACT: One of the most important developments in EC competition policy during 2006 was the Court of First Instance’s (CFI) Impala v. Commission judgment annulling the European Commission’s approval of the merger between the music units of Sony and Bertelsmann. It harshly criticized the Commission’s Decision because it found that the evidence relied on was not capable of substantiating the conclusion. This was the first time that a merger decision was annulled for not meeting the requisite legal standard for authorizing the merger. Consequently, the CFI raised fundamental questions about the standard of proof incumbent on the Commission in its merger review procedures. On July 10, 2008, the European Court of Justice overturned Impala, yet it did not resolve the fundamental question underlying the judicial review of the Sony BMG Decision; does the Commission have the necessary resources and expertise to meet the Community Court’s standard of proof? This paper addresses the wider implications of the Sony BMG saga for the Commission’s future handling of complex merger investigations. It argues that the Commission may have set itself an impossible precedent in the second approval of the merger. While the Commission has made a substantial attempt to meet the high standard of proof imposed by the Community Courts, it is doubtful that it will be able to jump the fence again in a similar fashion under normal procedural circumstances.

April 8, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 7, 2010

Price Competition under Limited Comparability

Posted by D. Daniel Sokol

Michele Piccioney (LSE) and Ran Spiegler (UCL and Tel Aviv University) explore Price Competition under Limited Comparability.

ABSTRACT: This paper studies market competition when firms can influence consumers' ability to compare market alternatives, through their choice of price "formats". We introduce random graphs as a tool for modelling limited comparability of formats. Our main results concern the interaction between firms' equilibrium price and format decisions and its implications for industry profits and consumer switching rates. We show that narrow regulatory interventions that aim to facilitate comparisons may have adverse consequences for consumer welfare. Finally, we argue that our limited-comparability approach provides a new perspective into the phenomenon of product differentiation.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

Product differentiation and vertical integration in presence of double marginalization

Posted by D. Daniel Sokol

Skerdilajda Zanaj (Université du Luxembourg, CREA) explores Product differentiation and vertical integration in presence of double marginalization.

ABSTRACT: In this paper, we present a model of endogenous vertical integration and horizontal differentiation. There exists two output brands and two versions of the input. The only mean for output differentiation is the input version used in output production. Firms may choose to vertically integrate to produce internally the required input version at marginal cost, rather then to buy it at the market price, if that version is made available. We show that vertical mergers increase the possibility that output goods are differentiated. Moreover, this occurs when the cost to differentiate the input is high. On the other hand, vertical integration is detrimental for brand variety if the cost to differentiate inputs is negligible.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

Downstream Mode of Competition With Upstream Market Power

Posted by D. Daniel Sokol

Constantine Manasakis (Department of Economics, University of Crete, Greece) and Minas Vlassis (Department of Economics, University of Crete, Greece) describe a Downstream Mode of Competition With Upstream Market Power.

ABSTRACT: In contrast with previous studies we assume no ex-ante commitment over the ─price or quantity─ type of contract which downstream firms will independently offer consumers in a two-tier oligopoly. Under competing vertical chains, we propose that the downstream mode of competition which in equilibrium emerges is the outcome of independent implicit agreements, between each downstream firm and its exclusive input supplier, in each vertical chain. Our findings suggest that input suppliers may thus act as commitment devices sufficient to endogenously sustain the quantity (Cournot) mode of competition.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

Do Islamic Banks Have Greater Market Power?

Posted by D. Daniel Sokol

Laurent Weill, Université Robert Schuman Strasbourg III, University of Strasbourg - LaRGE Research Center asks Do Islamic Banks Have Greater Market Power?

ABSTRACT: The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. An Islamic bank, for example, might enjoy enhanced market power if a captive clientele adhering to religious principles permits it to charge higher prices. To measure market power, we compute Lerner indices for a sample of banks from 17 countries where Islamic and conventional banks coexist. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks over the period 2000-2007. When including control variables, regression of Lerner indices even suggests that Islamic banks have less market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are no less competitive than conventional banks. Thus, any reduced market power of Islamic banks can be attributed to differences in norms and incentives.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

On the Feedback Solution of a Differential Oligopoly Game with Hyperbolic Demand and Capacity Accumulation

Posted by D. Daniel Sokol

KLuca Lambertini provides his thoughts On the Feedback Solution of a Differential Oligopoly Game with Hyperbolic Demand and Capacity Accumulation.

ABSTRACT: I characterise the subgame perfect equilibrium of a differential market game with hyperbolic demand where firms are quantity-setters and accumulate capacity over time à la Ramsey. I show that the open-loop solution is subgame perfect. Then, I analyse the feasibility of horizontal mergers, and compare the result generated by the dynamic setup with the merger incentive associated with the static model. It appears that allowing for the role of time makes mergers more likely to occur than they would on the basis of the static setting.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

Starr v. SONY BMG Music Entertainment: The Second Circuit’s Misapplication of Twombly in a Section 1 Sherman Act Conspiracy Case Alleging Parallel Conduct

Posted by D. Daniel Sokol

Kenneth Logan & Jonathan Youngwood (Simpson Thacher & Bartlett) discusses Starr v. SONY BMG Music Entertainment:  The Second Circuit’s Misapplication of Twombly in a Section 1 Sherman Act Conspiracy Case Alleging Parallel Conduct.

ABSTRACT: This article provides an overview of plaintiffs’ allegations, Judge Preska’s opinion, the Second Circuit’s decision, and outlines the authors’ views on the Second Circuit’s errors and the implications Starr will have on antitrust pleading standards in the Second Circuit and elsewhere.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

The value of switching costs

Posted by D. Daniel Sokol

Gary Biglaiser University of North Carolina, Chapel Hill, Jacques Cemer Toulouse School of Economics (GREMAQ, CNRS and IDEI), and Gergely Dobos Gazdasgi Versenyhivatal (GVH) explain The value of switching costs.

ABSTRACT: We study the consequences of heterogeneity of switching costs in a dynamic model with free entry and an incumbent monopolist. We identify the equilibrium strategies of the incumbent and of the entrants and show that the strategic interactions are more complex and more interesting than either in static models or in models where all consumers have the same switching costs. In particular, we prove that even low switching cost customers have value for the incumbent: when there are more of them its prots increase. Indeed, their presence hinders entrants who nd it more costly to attract high switching cost customers. This leads to dierent comparative statics: for instance, an increase in the switching costs of all consumers can lead to a decrease in the prots of the incumbent.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

When Does a Joint Venture Act as a Single Economic Entity?

Posted by D. Daniel Sokol

Greg Werden (DOJ) asks When Does a Joint Venture Act as a Single Economic Entity?

ABSTRACT: The "Sherman Act contains a 'basic distinction between concerted and independent action.'"  The concerted action of several competing firms could be unlawful under Section 1 of the Act, perhaps even unlawful per se, when the same action, if independently taken by a single firm, undoubtedly would be lawful under Section 2 of the Act. Hence, a joint venture and its participants defending a Section 1 claim are apt to assert the absence of the plurality of actors required for a contract, combination, or conspiracy under Section 1. Rather, they could argue, the challenged action was taken by a single economic entity--the venture itself, and its participants acted, if at all, in their roles as the venture's directors.

In 1982 the Supreme Court invited joint ventures to make the single-entity argument by observing in Maricopa County that a "joint arrangement[] in which persons who would otherwise be competitors pool their capital and share risks of loss as well as the opportunities for profit" is "regarded as a single firm competing with the other sellers in the market."  Later that year, Justice Rehnquist encouraged the NFL to make the argument by opining that the NFL teams "compete with one another for home game attendance and local broadcasting revenues. In all other respects the league competes as a unit against other forms of entertainment."

After 1982, the NFL often made the single-entity argument unsuccessfully.  In American Needle, however, the NFL relied on the argument in obtaining summary judgment against a plaintiff asserting that an exclusive license for all the teams' logos and trademarks was the product of a horizontal agreement among the teams.  The district court's grant of summary judgment was affirmed by the court of appeals,  and the Supreme Court will soon decide whether the lower courts were right.

April 7, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 6, 2010

Jones Harbour from FTC to Fulbright & Jaworski

Posted by D. Daniel Sokol

See here.

April 6, 2010 | Permalink | Comments (0) | TrackBack (0)