Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, April 16, 2010

Dynamic Price Competition with Fixed Capacities

Posted by D. Daniel Sokol

Kalyan Talluri (IESE Business School,) and Víctor Martínez de Albéniz ( ICREA and Universitat Pompeu Fabra) have a new paper on Dynamic Price Competition with Fixed Capacities.

ABSTRACT: Many revenue management (RM) industries are characterized by (a) fixed capacities in the short term (e.g., hotel rooms, seats on an airline flight), (b) homogeneous products (e.g., two airline flights between the same cities at similar times), and (c) customer purchasing decisions largely influenced by price. Competition in these industries is also very high even with just two or three direct competitors in a market. However, RM competition is not well understood and practically all known implementations of RM software and most published models of RM do not explicitly model competition. For this reason, there has been considerable recent interest and research activity to understand RM competition. In this paper we study price competition for an oligopoly in a dynamic setting, where each of the sellers has a fixed number of units available for sale over a fixed number of periods. Demand is stochastic, and depending on how! it evolves, sellers may change their prices at any time. This reflects the fact that firms constantly, and almost costlessly, change their prices (alternately, allocations at a price in quantity-based RM), reacting either to updates in their estimates of market demand, competitor prices, or inventory levels. We first prove existence of a unique subgame-perfect equilibrium for a duopoly. In equilibrium, in each state sellers engage in Bertrand competition, so that the seller with the lowest reservation value ends up selling a unit at a price that is equal to the equilibrium reservation value of the competitor. This structure hence extends the marginal-value concept of bid-price control, used in many RM implementations, to a competitive model. In addition, we show that the seller with the lowest capacity sells all its units first. Furthermore, we extend the results transparently to n firms and perform a number of numerical comparative statics exploiting the uniqueness of the! subgame-perfect equilibrium.

April 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Price and Quality Competition

Posted by D. Daniel Sokol

Ioana Chioveanu (UCL) describes Price and Quality Competition.

ABSTRACT: This study considers an oligopoly model with simultaneous price and quality choice. Ex-ante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium firms use mixed strategies that randomize both price and quality, and obtain strictly positive profits. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards.

April 16, 2010 | Permalink | Comments (0) | TrackBack (0)

The Failed Resurrection of the Single Monopoly Profit Theory

Posted by D. Daniel Sokol

Einer Elhauge (Harvard Law School) describes The Failed Resurrection of the Single Monopoly Profit Theory.

ABSTRACT: Professor Paul Seabright claims that an absence of empirical proof supports the single monopoly profit theory. This claim fails because the single monopoly profit theory is an impossibility theorem. It also fails because my recommended exception applies to whatever empirical extent the necessary conditions for the single monopoly profit theory actually exist.

Seabright likewise claims that a lack of empirical proof favors critics of current tying doctrine. This claim fails because it is the critics that favor a categorical rule that requires empirical proof across the category: namely critics favor cate- gorical legality either for all ties or for all ties that lack substantial foreclosure. In contrast, current tying doctrine uses no categorical rule, but rather weighs efficiencies against anticompetitive effects in each case and permits ties to whatever extent it turns out to be empirically true that the efficiencies outweigh the anticompetitive effects. Current tying doctrine is thus preferable to the critics’ recommended alternatives whether the standard is consumer welfare or total welfare, and whether one thinks most ties flunk that standard or not.

Seabright also makes the more minor claim that, absent empirical proof that most ties harm welfare, the law should shift the burden of proof on efficiencies away from defendants. But this claim fails for four reasons. First, the burden of empirical proof on legal issues is on those who want to overrule precedent. Second, the fact that defendants have better access to evidence on tying efficiencies favors giving defendants the burden to prove those efficiencies, regardless of what one assumes about the welfare effects of most ties. Third, in allocating this burden of proof, the relevant set of ties are those for which defendants would have the burden to prove efficiencies, which is not all ties, but rather is only ties of separate products with tying market power where my recommended exception does not apply. The relevant category thus excludes: (1) ties of items deemed a single product because they are routinely bundled in competitive markets, (2) ties without market power, and (3) ties without a substantial foreclosure share that bundle products lacking separate utility in a fixed ratio. Fourth, even without general empirical proof, theoretical considerations indicate that ties in the relevant set will usually reduce both consumer wel- fare (the actual antitrust standard) and ex ante total welfare.

Professors Daniel Crane and Joshua Wright claim that bundled discounts cannot credibly threaten unbundled prices that exceed but-for prices. This claim conflicts with the fact that firms demonstrably can credibly threaten the refusal to sell at any price that is necessary to get buyers to agree to tying and monopoly pricing. This claim also ignores the fact that, in markets with many buyers, buyers have collective action problems that make them price takers.

Professor Barry Nalebuff offers models on ties that achieve intra-product price discrimination by metering use of the tying product that confirm my model’s conclusions on that subset of ties. To the extent our models diverge on some details, I think it is more accurate to model metering ties by assuming that buy- ers purchase a whole number of tied units, rather than infinitely divisible fractions of tied units (as he assumes). I also think it is more accurate to assume that buyers have varying valuations, rather than the same valuation for tied product usage over the relevant range (as some of his models assume).

My legal conclusions are also generally confirmed by the conclusions that Professor Harry First reaches with a multi-goal approach. However, I prefer a welfarist analysis because I find that the multi-goal approach and its non-welfarist components are conclusory and unpersuasive when they conflict with welfare.

April 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Behavioral Economics as Applied to Firms: A Primer

Posted by D. Daniel Sokol

Mark Armstrong & Steffen Huck (University College London) provide the usefulBehavioral Economics as Applied to Firms: A Primer.

ABSTRACT: We discuss the literatures on behavioral economics, bounded rationality, and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and satisficing behavior by firms, outcomes when managers care about their position relative to peers, the benefits of employing managers whose objective diverges from profit-maximization (including managers who are overconfident or base pricing decisions on sunk costs), the impact of social preferences on the ability to collude, and the incentive for profit-maximizing firms to mimic irrational behavior.

April 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 15, 2010

Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google

Posted by D. Daniel Sokol

Geoffrey A. Manne, Executive Director, International Center for Law & Economics (ICLE), Lecturer in Law, Lewis & Clark Law School and Joshua D. Wright, George Mason University School of Law explain Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google.

ABSTRACT:

The antitrust landscape has changed dramatically in the last decade. Within the last two years alone, the United States Department of Justice has held hearings on the appropriate scope of Section 2, issued a comprehensive Report, and then repudiated it; and the European Commission has risen as an aggressive leader in single firm conduct enforcement by bringing abuse of dominance actions and assessing heavy fines against firms including Qualcomm, Intel, and Microsoft. In the United States, two of the most significant characteristics of the “new” antitrust approach have been a more intense focus on innovative companies in high-tech industries and a weakening of longstanding concerns that erroneous antitrust interventions will hinder economic growth. But this focus is dangerous, and these concerns should not be dismissed so lightly.

In this article we offer a comprehensive cautionary tale in the context of a detailed factual, legal and economic analysis of the next Microsoft: the theoretical, but perhaps imminent, enforcement action against Google. Close scrutiny of the complex economics of Google’s technology, market and business practices reveals a range of real but subtle, pro-competitive explanations for features that have been held out instead as anticompetitive. Application of the relevant case law then reveals a set of concerns where economic complexity and ambiguity, coupled with an insufficiently-deferential approach to innovative technology and pricing practices in the most relevant precedent (the D.C. Circuit’s decision in Microsoft), portend a potentially erroneous - and costly - result.

Our analysis, by contrast, embraces the cautious and evidence-based approach to uncertainty, complexity and dynamic innovation contained within the well-established “error cost framework.” As we demonstrate, while there is an abundance of error-cost concern in the Supreme Court precedent, there is a real risk that the current, aggressive approach to antitrust error, coupled with the uncertain economics of Google’s innovative conduct, will nevertheless yield a costly intervention. The point is not that we know that Google’s conduct is procompetitive, but rather that the very uncertainty surrounding it counsels caution, not aggression.


 

April 15, 2010 | Permalink | Comments (0) | TrackBack (0)

April 2010 Antitrust Source is Out

Posted by D. Daniel Sokol

See here.

April 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Criminal Antitrust Law Enforcement in Germany: ‘The Whole Point is Lost If You Keep it a Secret! Why Didn’t You Tell the World, Eh?’

Posted by D. Daniel Sokol

Florian Wagner von Papp (UCL - Law) has a new chapter on Criminal Antitrust Law Enforcement in Germany: ‘The Whole Point is Lost If You Keep it a Secret! Why Didn’t You Tell the World, Eh?’

ABSTRACT: This is an abbreviated version of a chapter in Caron Beaton-Wells & Ariel Ezrachi (eds) Criminalising Cartels: Critical Studies of an Interdisciplinary Regulatory Movement (Oxford, Hart Publishing, forthcoming 2010). The full version of the paper will be published under the title: ‘What If All Bid-Riggers Went To Prison and Nobody Noticed? Criminal Antitrust Law Enforcement in Germany’.

The paper starts with a brief outline of the recent development of cartel criminalisation in Germany, and describes the experience with the bid-rigging offense introduced in 1997. Contrary to public perception, criminal prosecutions for bid-rigging are quite frequent in Germany, with more than 260 prosecutions and 180 convictions until 2008. Recently, the courts have begun to impose severe sanctions, including at least one unsuspended prison sentence of two years and ten months (in addition to a criminal fine of €100,000). However, the effectiveness of deterrence crucially depends on the perceived level of enforcement; and in this respect, the German experience has been disappointing to date.

The paper then turns to the discussion about the further criminalisation of competition law. Current legislation in Germany limits criminal sanctions to cases of bid-rigging. The German government does not at present perceive a need for a more encompassing cartel offense. However, the legal literature, which also tended to be skeptical of criminal enforcement in the context of competition law, appears to reconsider its position. The paper considers the scope for further criminalisation with regard to the institutional context in Germany.

April 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Réforme des restrictions verticales: Les enjeux de l'entrée en vigueur du nouveau règlement communautaire

Posted by D. Daniel Sokol

Réforme des restrictions verticales:

Les enjeux de l'entrée en vigueur

du nouveau règlement communautaire

 

 

 08.30         Inscription & Petit-déjeuner

 

08.45 Présentation du nouveau règlement et des lignes directrices

Katja VIERTIODG Concurrence, Commission européenne, Unité A2

Didier FERRIERProfesseur à la faculté de Montpellier


09.30     Une analyse économique renforcée : Pouvoir de marché,

gains d’efficience… La nouvelle approche change-t-elle la donne ?

Thibaud VERGEChef économiste, Autorité de la concurrence

Laurence IDOTProfesseur de droit, Université Paris II Panthéon-Assas

  Peter EBERL, Case Manager, DG Concurrence, Commission européenne

  Laurent FLOCHEL, Vice-Président, CRA Charles River Associates

 

Café


11.15  L’ouverture de la distribution sur Internet : 

Quelles conséquences pour les réseaux ?

Anne PERROTVice-Présidente de l’Autorité de la concurrence

Regula WALTERHead of Legal e-Commerce and Antitrust, Richemont International SA

Dominique FERREAvocat, Fidal

Benoît TABAKADirecteur des affaires juridiques et réglementaires, Groupe Price Minister

 

Déjeuner

 

14.30   La qualification des contrats : Distribution sélective/exclusive, franchise… Où sont les frontières ?

Paolo CESARINIChef d’unité, DG Concurrence

Louis VOGELProfesseur, Président de l’Université Paris II Panthéon Assas

       Guy GRASPrésident de la Fédération Française de la Franchise

       Michel DEBROUX, Avocat, Hogan & Hartson

 

 

Café

 

16.30 L’avenir de l’agence : Mandataires-commissionnaires, commissionnaires affiliés… Des statuts à risque ?


Fabio BORTOLOTTIAvocat, Professeur à l’Université de Turin


Francesco ROSATIEconomiste, RBB Economics

Yves LECLERCQ, Directeur du département Concurrence, Total Raffinage Marketing

Nicolas GENTYAvocat, Fidal

 

18.30 Synthèse

                Daniel TRICOTProfesseur à la faculté de Dijon

                Président honoraire de la chambre commerciale de la Cour de cassation

 

18.45 Réception

April 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Suspension of EC Merger Investigations: For Better or Worse

Posted by D. Daniel Sokol

Peter L. Ormosi, ESRC Centre for Competition Policy, University of East Anglia describes the Suspension of EC Merger Investigations: For Better or Worse.

ABSTRACT: This paper looks at the main source of procedural delay in EC merger cases, the suspension of investigations. Although the ECMR refers to the suspension of investigations as an exceptional instrument, it is used in a high proportion of cases. As the ECMR does not set a time limit for suspension, it can lead to significant delay in the assessment of mergers. To understand the causes of delay, this article relies on the fact that the suspension of the investigation is a consequence of merging parties’ failure to provide the necessary information to the Commission. Two main causes of this behaviour are identified. Firstly, merging parties may decide to intentionally withhold information in order to cause the suspension of the investigation, which allows them more time to do whatever is necessary to avoid a lengthy second phase investigation. Secondly, failure to provide the required information to the Commission may be a result of merging parties’ negligence towards the regulatory assessment of their merger. Whereas the first case may be socially beneficial, identifying the second type of behaviour may help in filtering out inefficient mergers.

April 15, 2010 | Permalink | Comments (1) | TrackBack (0)

Goals of Competition Law

Posted by D. Daniel Sokol

The 5th ASCOLA Conference
“Goals of Competition Law”
May 27-29, 2010
Rheinische Friedrich-Wilhelms-Universität Bonn
Bonn, Germany

Download ASCOLA_Bonn_Final_Program

April 15, 2010 | Permalink | Comments (0) | TrackBack (0)

The Automobile Aftermarket: Crash Parts, Design Patents, and the Escape from Competition

Posted by D. Daniel Sokol

Norman W. Hawker, Western Michigan University - Haworth College of Business explores The Automobile Aftermarket: Crash Parts, Design Patents, and the Escape from Competition.

ABSTRACT: Automobile manufacturers have increasingly relied on design patents to prevent competition in the aftermarket for collision repair parts. This trend has competitive ramifications for consumers and other stakeholders in a number of related markets, including automobile insurance companies and collision repair services.

The proposed “Access to Repair Parts Act” would create a limited exception to design patent law to promote competition in the collision repair parts aftermarket. This paper provides an overview of design patents, describes the aftermarket, elaborates on the anticompetitive effects design patents when enforced by the OEMs against third party parts distributors, and evaluates the proposal.

Ultimately, this paper concludes that the proposal need not deny automobile manufacturers the profits that a design patent entitles them to receive, although it would shift their collection of that profit away from the aftermarket and toward the primary market. More importantly, the proposal would likely increase price competition in the aftermarket and benefit consumers in a variety ways, including improved transparency in the lifetime costs of different automobiles in the primary market.

April 15, 2010 | Permalink | Comments (2) | TrackBack (0)

Wednesday, April 14, 2010

Learning in an Antitrust Network

Posted by D. Daniel Sokol

Yane Svetiev, Brooklyn Law School describes Learning in an Antitrust Network.

ABSTRACT: The article examines the operation of the International Competition Network, a broad forum for antitrust enforcers from around the world. The ICN is one of many international regulatory networks that have emerged over the past few decades, providing an alternative to international treaties and organizations as the standard mode for cooperation and harmonization. While as a descriptive matter, such networks are less formal than a treaty regime, it is argued that they cannot and should not be viewed as purely informal phenomena. This approach pays insufficient attention to the question of how group norms are formed in those networks. Moreover, purely informal norm enforcement within such large and heterogeneous groups is neither possible nor likely to be robust.

The formulation of norms in the ICN takes place through consensus-based benchmarking of best practices. Benchmarking as a practice is imported from the business context, yet benchmarking is only one discipline for continuous innovation used by firms. By contrast, the ICN lacks robust mechanisms for following up the implementation of endorsed practices in various jurisdictions that would aid in the revision of those practices or their fine-tuning to particular enforcement contexts. Moreover, even if such mechanisms were created, the breadth and size of the network present additional impediments to comparison of international experience, particularly in a way that meets the needs of regulators in newer regimes.

Evidence from interviews with competition officials is used to illustrate some of the limitations of current processes within the ICN and ways in which officials from different jurisdictions overcome those limitations when designing or correcting domestic antitrust rules and procedures. Antitrust authorities increasingly participate in regional competition groupings, which both enhance the capacity and credibility of their enforcement efforts but could also provide the shared context necessary for joint exploration of best practices. The ICN could thus be reconceptualized as a network of networks, providing a venue for the creation of such clusters and the coordination and comparison of their experiences.

April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

John Flynn, 1936-2010

Posted by D. Daniel Sokol

We note with sadness the passing of John Flynn, who taught antitrust at the University of Utah.  His obituary is available here.

April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Why Markets Matter for Evidence-Based Merger Analysis

Posted by D. Daniel Sokol

Malcolm B. Coate, U.S. Federal Trade Commission (FTC) and Jeffrey H. Fischer, U.S. Federal Trade Commission (FTC) explain Why Markets Matter for Evidence-Based Merger Analysis.

ABSTRACT: While the Merger Guidelines structure represents the standard approach to merger analysis in the US, economists have proposed methods to dispense with market definition and estimate the competitive effect directly. In this note, we argue that market definition is necessary to evaluate the assumptions of any merger analysis and thus, cannot be dispensed with. Moreover, we suggest that market definition plays an important role in the stakeholders’ merger guidance process, the regulator’s merger screening process, and the court’s merger decision process.

April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

An Introduction to Competition Concerns in the Google Books Settlement

Posted by D. Daniel Sokol

Rudolph J.R. Peritz, New York Law School and Marc Miller, New York Law School provide An Introduction to Competition Concerns in the Google Books Settlement.

ABSTRACT: Google started its Google Books project in 2004 with the intent to create a digital library of the world’s books. There has not been such a grand plan since students of Aristotle began to gather the world’s knowledge in the Library of Alexandria some 24 centuries ago. The world’s knowledge has changed. And so has its political economy. Twenty-first century public policy questions have been interjected to delay and reshape Google’s project, questions that did not concern the royal sponsors of the ancient Library. This review takes up questions of competition policy raised in the United States, the corporate site for Google’s virtual Library of Alexandria.

After presenting the factual background to the Google Books project and the procedural history of the current class-action lawsuit, we examine two clusters of competition issues concerning the Google Books project: First, whether a class action settlement in litigation between private parties is an appropriate vehicle for making public policy. Second, whether Google’s actions are on balance anticompetitive under U.S. antitrust laws. Antitrust concerns will be given the lion’s share of attention.

April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Monopolies, Innovation, and Predatory Pricing: Observations on Some Hard Questions in the Section 2 Context

Posted by D. Daniel Sokol

Tom Rosch (FTC) has some interesting thoughts on Monopolies, Innovation, and Predatory Pricing: Observations on Some Hard Questions in the Section 2 Context.

ABSTRACT: My remarks will proceed in three parts. First, I’ll discuss the deference that we, as public enforcers of the antitrust laws, should pay to the patent laws in the Section 2 context. Second, I’ll discuss what degree of deference the existence of a patent should get in the context of our Section 2 enforcement. Third, I’ll discuss the application of the antitrust laws, and specifically Section 2, to firms that make huge upfront investments in developing or exploiting their intellectual property.

April 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 13, 2010

We Rank #29 Among all Law Professor Blogs in Traffic

Posted by D. Daniel Sokol

See here

April 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Market Power in the Russian Banking Industry

Posted by D. Daniel Sokol

Market Power in the Russian Banking Industry is a new paper by Zuzana Fungacova, Bank of Finland - Institute for Economies in Transition (BOFIT), Laura Solanko, Bank of Finland - Institute for Economies in Transition (BOFIT), and Laurent Weill, Université Robert Schuman Strasbourg III, University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie).

ABSTRACT: The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2007 with the Lerner index. Earlier studies on bank competition have focused on developed countries whereas this paper contributes to the analysis of bank competition in emerging markets. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. We would consequently qualify the procompetitive role of foreign bank entry and privatization. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size.

April 13, 2010 | Permalink | Comments (0) | TrackBack (0)

The FTC's Challenge to Intel: Predictions of Doom Are Exaggerated and Misplaced—the FTC Has a Straightforward Case

Posted by D. Daniel Sokol

David Balto (American Progress Institute) has posted The FTC's Challenge to Intel: Predictions of Doom Are Exaggerated and Misplaced—the FTC Has a Straightforward Case.

ABSTRACT: The Obama administration has promised more aggressive antitrust enforcement. In its first action under new leadership, the Antitrust Division of the U.S. Department of Justice abandoned a report issued during the previous administration that blessed a broad range of conduct by dominant firms. Both the Federal Trade Commission and DOJ have promised stronger enforcement efforts against anticompetitive mergers. The most significant challenge has been an enforcement action against Intel Corp. by the FTC challenging a wide variety of anticompetitive conduct in critically important markets for microprocessors.

April 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Monopoly, Decreasing Returns, and Incentives to Cost-Reducing R&D

Posted by D. Daniel Sokol

Paolo G. Garella, University of Milan addresses Monopoly, Decreasing Returns, and Incentives to Cost-Reducing R&D.

ABSTRACT: The present paper shows that it is possible to define cost innovations for which a monopolist has a higher incentive to invest than a social planner. This unveils the limits of the general claim, based on Arrow (1959), that a monopoly has a lower incentive to innovate than a social planner and therefore than socially desirable. In particular, exceptions to the rule are shown to arise only under decreasing returns. Further, it follows from the analysis that the direction of the inequality in the comparison of incentives to invest also depends upon the shape of the demand function. Finally, only under a restricted domain of analysis, a rule for determining whether a monopoly has lower or higher incentives to invest than a social planner is derived.

April 13, 2010 | Permalink | Comments (0) | TrackBack (0)