Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, May 18, 2010

Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

Posted by D. Daniel Sokol

Cory S. Capps, Bates White, LLC, Guy David, University of Pennsylvania - Wharton, and Dennis W. Carlton, University of Chicago - Booth School of Business, ask Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?

ABSTRACT: Nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities. Extending this rationale suggests that nonprofit hospital mergers should be evaluated differently than mergers of for-profit hospitals because suppression of competition may also allow nonprofits to cross-subsidize care for the poor. Using detailed California data, we find no evidence that nonprofit hospitals are more likely than for-profit hospitals to provide more charity care or offer unprofitable services in response to an increase in market power. Therefore, we find no empirical justification for different antitrust standards for nonprofit hospitals, as some courts have suggested.

May 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Settlement as a Way Out in Hard-Core Cartel Investigations in Brazil: Practice and Problems

Posted by D. Daniel Sokol

André Marques Gilberto (Marques Gilberto & Oliveira Felix) and Priscila Brolio Gonçalves (Vella Pugliese Buosi & Guidoni) have a short new piece on Settlement as a Way Out in Hard-Core Cartel Investigations in Brazil: Practice and Problems.

ABSTRACT: Since May 2007, the law has permitted settlements of cartel investigations in Brazil. To date, there have been eight settlements, a figure that, while not trivial, is not very impressive (especially when compared to the increasing number of investigations initiated by the Brazilian authorities). This article explores possible reasons why settlements are not adopted more frequently.

 Download Artigo_ABA_International_Bulletin_(2)[1]

May 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Harvard, Chicago and Transaction Cost Economics in Antitrust Analysis

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law) has posted the excellent Harvard, Chicago and Transaction Cost Economics in Antitrust Analysis.  Highly recommended!

ABSTRACT: Since Oliver Williamson published Markets and Hierarchies in 1975 transaction cost economics (TCE) has claimed an important place in antitrust, avoiding the extreme positions of the two once reigning schools of antitrust policy. At one extreme was the “structuralist” school, which saw market structure as the principal determinant of poor economic performance. At the other extreme was the Chicago School, which also saw the economic landscape in terms of competition and monopoly, but found monopoly only infrequently and denied that a monopolist could “leverage” its power into related markets. Since the 1970s both the structuralist and Chicago positions have moved toward the center, partly as a result of TCE. For example, already in 1978 Areeda and Turner produced the first volumes of the Antitrust Law treatise, which completely repudiated the leverage theory and abandoned the structuralist and leveraging positions on vertical integration.

A distinctive feature of TCE is that transactions occur with a limited range of partners depending on limits of knowledge and previous technological commitment. The question of who trades is at least as important as the terms of trading. TCE analysis of contractual restraints recognizes that an important threat to competition is double marginalization, which can occur when market power is held by separate firms with complementary outputs. Antitrust is relevant in two ways. First, private arrangements can minimize double marginalization, justifying practices such as tying in markets characterized by single firm dominance or product differentiation. Both tying and bundled discounts operate as a kind of “reverse leveraging,” benefiting consumers. Second, transaction costs sometimes explain why private contracting is inadequate for addressing double marginalization problems and thus justify antitrust intervention.

TCE has also reinvigorated the link between conduct and exclusion, as illustrated by the Williamson/Areeda-Turner dispute over predatory pricing, and the rise of the antitrust literature on raising rivals costs. The RRC literature has attempted to restore a meaningful conception of anticompetitive exclusion without a return to the excesses of the structuralist school.

Nevertheless, one comparative advantage of both structuralism and the Chicago School was their simplicity. For the structuralists concentration explained everything and inferences were drawn in favor of condemnation. Within Chicago School analysis the impossibility of leveraging and the mobility of resources explained everything and inferences were drawn in favor of exculpation. TCE analysis is more specific to the situation, however, demanding close scrutiny when significant market power is either present or realistically threatened.

May 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, May 17, 2010

Competition and horizontal integration in maritime freight transport

Posted by D. Daniel Sokol

Rafael Moner, José J. Sempere, Pedro Cantos, and Oscar Álvarez (all Department of Economic Analysis and ERI-CES, University of Valencia) discuss Competition and horizontal integration in maritime freight transport.

ABSTRACT: This paper develops a theoretical model for freight transport characterized by competition between means of transport (the road and maritime sectors), where modes are perceived as differentiated products. Competitive behavior is assumed in the road freight sector, and there are constant returns to scale. In contrast, the freight maritime sector is characterized by oligopolistic behavior, where shipping lines enjoy economies of scale. The market equilibrium where the shipping lines behave as profit maximizers, provides a first approximation to the determinants of market shares, profits, and user welfare. We then characterize the equilibrium when horizontal integration of shipping lines occurs, with and without further economies of scale. An empirical application to the routes Valencia-Antwerp and Valencia-Genoa uncovers that the joint profit of the merged firms and social welfare always increase. However, user surplus only increases when economies of scale are significantly exploited.

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

4th International Conference of IMEDIPA - May 21-22, Nicosia, Cyprus

Posted by D. Daniel Sokol

4th International Conference of IMEDIPA - May 21-22, Nicosia, Cyprus.  Conference details are below.


Download IMEDIPA_Cyprus

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Building New Plants or Entering by Acquisition? Estimation of an Entry Model for the U.S. Cement Industry

Posted by D. Daniel Sokol

Hector Perez-Saiz (University of Chicago) discusses Building New Plants or Entering by Acquisition? Estimation of an Entry Model for the U.S. Cement Industry.

ABSTRACT: In many industries, firms usually have two choices when expanding into new markets: They can either build a new plant (greenfield entry) or they can acquire an existing incumbent. The U.S. cement industry is a clear example. For this industry, I study the effect of two policies on the entry behavior and industry equilibrium: An asymmetric environmental policy that creates barriers to greenfield entry and a policy that creates barriers to entry by acquisition (like an antitrust policy). In the U.S. cement industry, the comparative advantage (e.g., TFP or size) of entrants versus incumbents and the regulatory entry barriers are important factors that determine the means of expansion. To model this industry, I use a perfect information static entry game. To estimate the supply and demand primitives of my model, I apply a recent estimator of discrete games to a rich database of the U.S. Census of Manufactures for the years 1963-2002. In my counterfactual analyses, I find that a less favorable environment for mergers during the Reagan-Bush administration would decrease the acquired plants by 70% and increase the new plants by 20%. Also, I find that the Clean Air Act Amendments of 1990 increased the number of acquisitions by 7.8%. Furthermore, my simulations suggest that regulations that create barriers to greenfield entry are less favorable in terms of welfare than regulations that create barriers to entry by acquisition. Finally, I demonstrate how my parameter estimates change when I apply the traditional approach in the entry literature where entry by acquisition is not considered, and when using a simple OLS estimation.

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Department of Justice and USDA Announce Schedule and Panelists for Agriculture Workshop in Alabama

Posted by D. Daniel Sokol

The Department of Justice and the U.S. Department of Agriculture (USDA) today announced the schedule and panelists for the second joint public workshop on competition and regulatory issues in agriculture, which will be held on May 21, 2010, in Normal, Ala., at the Ernest L. Knight Reception Center at Alabama A & M University. The workshop, the second of five, will focus on the poultry industry.

The schedule is as follows:

9:00 a.m. – 9:15 a.m. CDT Welcome/Introductory Comments

Tom Vilsack, Secretary of Agriculture, U.S. Department of Agriculture

Eric Holder, Attorney General, U.S. Department of Justice

9:15 a.m. – 10:00 a.m. CDT Roundtable Discussion and Presentation of Issues

Tom Vilsack, Secretary of Agriculture, U.S. Department of Agriculture

Eric Holder, Attorney General, U.S. Department of Justice

Christine Varney, Assistant Attorney General for Antitrust, U.S. Department of Justice

Artur Davis, Congressman, U.S. House of Representatives

Troy King, Attorney General, state of Alabama

Ron Sparks, Agriculture Commissioner, state of Alabama

* The Alabama Congressional Delegation is invited

10:00 a.m. – 10:30 a.m. CDT Coffee Break
10:30 a.m. – 12:00 p.m. CDT Roundtable Discussion on Poultry Grower Issues

This panel will allow a dialogue among growers, former producers and government officials. Expected topics include competition in the poultry industry, poultry contracting, contract terminations and upgrades to poultry houses. The panel will also discuss inputs that affect grower compensation, such as bird quality, feed quality and consistency.

Moderator: Tom Vilsack, Secretary of Agriculture, U.S. Department of Agriculture

Gary Alexander, producer, Westminster, S.C.

Kay Doby, former producer, Cameron, N.C.

Garry Staples, producer, Steele, Ala.

Robert Lumzy, former producer, Columbia, Miss.

Carole Morison, former producer, Maryland.

Shane Wootten, producer, Henagar, Ala.

Sandra Genell Pridgen, producer, North Carolina

12:00 p.m. – 1:00 p.m. CDT Lunch Break
1:00 p.m. – 2:00 p.m. CDT Public Testimony
2:00 p.m. – 3:45 p.m. CDT Roundtable Discussion on Trends in Poultry Production

This panel will discuss changes in the structure of poultry production and enforcement under the Packers and Stockyards Act. Issues that will be discussed include the use of the tournament system and other methods of compensation, market access, contracting, credit availability, production efficiency/improvements and poultry house upgrades.

Moderator: Norman Familant, Chief, Economic Litigation Section, U.S. Department of Justice

Benny Bishop, Peco Foods, Tuscaloosa, Ala.

Michael R. Dicks, Watkins Chair, International Trade and Development, Oklahoma State University

Max Carnes, producer, Baldwin, Ga.

John Ingrum, Forest, Miss.

Cindy Johnson, attorney, Cohutta, Ga.

Robert Taylor, professor, Agricultural Economics and Public Policy, College of Agriculture, Auburn University

Mike Weaver, producer and president of Contract Poultry Growers Association of the Virginias, Fort Seybert, W.Va.

3:45 p.m. – 4:00 p.m. CDT Break
4:00 p.m. – 5:00 p.m. CDT Additional Public Testimony
5:00 p.m. – 5:15 p.m. CDT Closing Remarks

John Ferrell, Deputy Under Secretary for Marketing and Regulatory Programs, U.S. Department of Agriculture

Mark Tobey, Special Counsel for State Relations and Agriculture, U.S. Department of Justice


Additional information, including submitted public comments and transcripts for past workshops can be found at the Antitrust Division's agriculture workshop website at www.justice.gov/atr/public/workshops/ag2010/index.htm. While no streaming webcast will be available, transcripts will be available for this workshop at a later date on the Antitrust Division's website. Individuals seeking more information on the workshops should contact agriculturalworkshops@usdoj.gov.

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Vertical Integration and Patent Licensing in Upstream and Downstream Markets

Posted by D. Daniel Sokol

Fehmi Bouguezzi (LEGI and Faculty of Management and Economic Sciences of Tunis) and Moez EL ELJ (LEGI - Laboratory of Economics and Industrial Management EPT - Polytechnic School of Tunisia ISG - High Institute of Management - Tunisia) describe Vertical Integration and Patent Licensing in Upstream and Downstream Markets.

ABSTRACT: The present paper studies and compares different vertical integration structures on consumers and total surplus with licensing by mean of a fixed fee in two successive homogeneous-good Cournot duopolies where one of the firms in each market has a different cost-reducing innovation. The key difference between the present model and models in the existing literature is that here we suppose the existence of two different patents in upstream and downstream markets. In each market we find two firms: the patent holding firm and a non innovative firm. In upstream market, the innovative firm owns an innovation allowing to reduce the input marginal production cost. In downstream market the innovative firm owns an innovation allowing to reduce marginal cost of transforming the input into output. We discuss different structures of vertical integration and we show that consumer surplus and total surplus are depending of cost-reducing! innovation in upstream and downstream markets and the structure of vertical integration.

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Graduation

Posted by D. Daniel Sokol

On Friday I gave the faculty address for the law school graduation (I was the student choice).  I gave the students a sense that even in a world that is full of tumult, there are new opportunities for lawyers because of legal uncertainty.  The four things I advised the graduates to do - work hard, do good work, treat others well and be willing to take risks.  I also gave the story of David Cohen, Class of '89, who was unhappy as an antitrust associate, took some risks and ended up General Counsel of the NY Mets. 

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Dynamic Bertrand Oligopoly

Posted by D. Daniel Sokol

Andrew Ledvina and Ronnie Sircar (both ORFE Department, Princeton University) describe Dynamic Bertrand Oligopoly.

ABSTRACT: We study continuous time Bertrand oligopolies in which a small number of firms producing similar goods compete with one another by setting prices. We first analyze a static version of this game in order to better understand the strategies played in the dynamic setting. Within the static game, we characterize the Nash equilibrium when there are $N$ players with heterogeneous costs. In the dynamic game with uncertain market demand, firms of different sizes have different lifetime capacities which deplete over time according to the market demand for their good. We setup the nonzero-sum stochastic differential game and its associated system of HJB partial differential equations in the case of linear demand functions. We characterize certain qualitative features of the game using an asymptotic approximation in the limit of small competition. The equilibrium of the game is further studied using numerical solutions. We find that consumers benefit the most when a market is structured with many firms of the same relative size producing highly substitutable goods. However, a large degree of substitutability does not always lead to large drops in price, for example when two firms have a large difference in their size.

May 17, 2010 | Permalink | Comments (0) | TrackBack (0)