Antitrust & Competition Policy Blog

Apple a Target of FTC Investigation

Posted by D. Daniel Sokol

The WSJ reports about it here.

The Law and Economics of Trademarks: Product Differentiation, Market Power and New Directions in Antitrust

Posted by D. Daniel Sokol

P. Sean Morris, University of Helsinki - Faculty of Law provides his thoughts on The Law and Economics of Trademarks: Product Differentiation, Market Power and New Directions in Antitrust.

ABSTRACT: The purpose of this paper is to clarify the relationship between trademarks and market power and their implication for antitrust law and policy by using law and economics approaches. The interaction of trademarks and antitrust continues to be an enigmatic area of intellectual property rights and policy making. Antitrust law protects competition and the competitive process by preventing certain type of conduct that threatens a free market. Trademark law protect the owners brand and for the owner to reap the economic incentive from its protection. In this paper, I argue that both the law and economics of trademark should steer new directions for both policy goals. Do trademarks confer market power? Are well known marks too dominant? If so, what do current antitrust law tells us about the interaction of intellectual property rights and competition? This research paper will offer a discourse into product differentiation and monopolistic competition in trademarks. While current law and economics model of trademark law argues that trademarks serves to lower consumer search costs, I argue that trademarks are monopolist in nature.

 

Behavioral Antitrust and Merger Control

Posted by D. Daniel Sokol

Gregory J. Werden, U.S. Department of Justice - Antitrust Division, Luke Froeb, Vanderbilt University - Owen Graduate School of Management, and Mikhael Shor, Vanderbilt University - Owen Graduate School of Management have an interesting new working paper on Behavioral Antitrust and Merger Control.

ABSTRACT: Scholarship on competition policy has begun to explore the implications of learning from psychology and to challenge the assumption of profit maximization, which is at the heart of neoclassical economic theory of the firm. This scholarship is briefly reviewed with a focus on merger control. Prospects for abandoning neoclassical economic theory, and basing merger control entirely on data from actual mergers or laboratory experiments, are explored. Also explored are implications of learning from psychology for merger assessment with nonstandard and irrational consumers. Conclusions from the forgoing are that psychology has few present implications for merger control and that relying less on neoclassical economic analysis would not be for the best.

Worth Watching: The Good, the Bad and the Weird

Posted by D. Daniel Sokol

My wife and I went out last night (on a weeknight?  It must be summer time and no classes to teach).  We went to the local art house theater and saw the Korean film, The Good, the Bad and the Weird.  In the tradition of Sergio Leone, call this feature by Jee-woon Kim a "kimche western".  We both highly recommend it.

The description for the movie (which does not do the movie justice) is:

Set in the 1930s Manchurian desert where lawlessness rules and many different ethnic groups clash, three Korean men fatefully meet each other on a train. The train’s diverse passengers and imminent danger with guns and knives everywhere serves as a microcosm of the turbulent times. Do-won (JUNG Woo-sung) is a bounty hunter who tracks down any criminals with rewards on their heads. Chang-yi (LEE Byung-hun) is the leader of a group of tough-as-nails bandits. He cannot stand to be the second best. Tae-goo (SONG Kang-ho) is a train robber with nine lives. The three strangers engage in a chase across Manchuria to take possession of a map Tae-goo discovers while robbing the train. Also on the hunt for the mysterious map are the Japanese army and Asian bandits. In this unpredictable, escalating battle for the map, who will stand in the end as the winner?

Public Procurement and the EU Competition Rules

Posted by D. Daniel Sokol

Albert Sánchez Graells, Pontifical University Comillas of Madrid explains Public Procurement and the EU Competition Rules.

ABSTRACT: Public procurement and competition law are both important fields of EU law and policy, intimately intertwined in the creation of the internal market. Hitherto their close connection has been noted, but not closely examined. This new work is the most comprehensive attempt to date to explain the many ways in which these fields, often considered independent of one another, interact and overlap in the creation of the internal market. In this process of convergence between competition and public procurement law, the need for this joint study is clearly apparent. As such, the book asks whether competition law principles inform or condition public procurement rules, and whether they are adequate to ensure that competition is not distorted in markets where public procurement is particularly significant. The book moves away from the classical focus of public procurement on the activities of private actors, developing instead an analytical framework for the appraisal of the market behaviour of the public buyer from a competition perspective. The analysis is both legal and economic. Proceeding through a careful assessment of the general rules of competition and public procurement, the book constantly tests the efficacy of the rules in competition and public procurement against a standard of the proper functioning of undistorted competition in the market for public procurement.

 

When is Static Analysis a Sufficient Proxy for Dynamic Considerations? Reconsidering Antitrust and Innovation

Posted by D. Daniel Sokol

Joshua S. Gans, University of Melbourne - Melbourne Business School, University of Melbourne - Department of Economics asks When is Static Analysis a Sufficient Proxy for Dynamic Considerations? Reconsidering Antitrust and Innovation.

ABSTRACT: This paper examines the claim that dynamic considerations play a particularly important role in certain industries (in particular, those characterized by high rates of product innovation) and, consequently, render antitrust analysis based on static concepts inappropriate or misleading. By expositing and applying the fully dynamic model of Segal and Whinston (2007), I argue that, in many cases, static analyses are not misleading and that dynamic considerations (such as competition for the market) are not decisive in these analyses. I argue, however, that dynamic considerations can be important when the predominant mode of commercialization by innovative entrants is via cooperation rather than competition with incumbent firms; examples of cooperation include acquisition and licensing. Therefore, this means that static measure of competition are likely to be reinforced in certain circumstances by related dynamic considerations.

 

Is that Lord Gaga?

Posted by D. Daniel Sokol

My five year old daughter saw a picture of Lady Gaga kissing a guy from one of her videos.  She asked the natural question, "Is that Lord Gaga?"

Filling Out the Instrument Set in Mixed Logit Demand Systems for Aggregate Data

Posted by D. Daniel Sokol

Charles J. Romeo (DOJ) has a new and interesting paper on Filling Out the Instrument Set in Mixed Logit Demand Systems for Aggregate Data.

ABSTRACT: The random parameters logit model for aggregate data introduced by Berry, Levinsohn, and Pakes (1995) has been a driving force in empirical industrial organization for more than a decade. While these models are identified in theory, identification problems often occur in practice. In this paper we introduce the means of included demographics as a new set of readily available instruments that have the potential to substantially improve numerical performance in a variety of contexts. We use a set of endogenous price simulations to demonstrate that they are valid, and we use a real data illustration to demonstrate that they improve the numerical properties of the GMM objective function. In addition, we develop a metric that decomposes the explanatory power of the model into the proportion of market share variation that is explained by mean utility and that which is explained by the heterogeneity specification.

Introducing Competition in Container Movement by Rail

Posted by D. Daniel Sokol

Sebastian Morris, Ajay Pandey, G Raghuram and Rachna Gangwar of the Indian Institute of Management, Ahmedabad address Introducing Competition in Container Movement by Rail.

ABSTRACT: Container movement by rail was a monopoly of Indian Railways (IR) until recently and its subsidiary, Container Corporation (CONCOR) was the sole operator of container trains. Entry of other entities in 2007 has been driven by larger public policy concerns. In the process, issues such as resistance of the incumbent, erection of entry barriers, denial of level playing field, use of a closely held organization as a consultant, and conflicting roles of IR as licensor, regulator, service provider, and operator came into sharp focus. This paper attempts to review the process starting from the policy announcement (February 2005) to evolution of a Model Concession Agreement (January 2007) and shows how policies were influenced by the incumbent to restrict competition by creating barriers on the one hand and how an alternate view provided by external entities, like the Planning Commission and other non-IR stakeholders significantly altered the course of action leading to entry of a large number of competing players.

Leibowitz's June 9, 2010 testimony on oversight hearing of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy, and Consumer Rights

Posted by D. Daniel Sokol

See here.

Varney's June 9, 2010 testimony on oversight hearing of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy, and Consumer Rights

Posted by D. Daniel Sokol

See here.

Exclusive Territories and Manufacturers’ Collusion

Posted by D. Danie Sokol

Salvatore Piccolo (University of Naples "Federico II" and CSEF) and Markus Reisinger (University of Munich) explain Exclusive Territories and Manufacturers’ Collusion.

ABSTRACT: This paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains. We show that exclusive territories have two countervailing effects on the incentives for manufacturers to sustain tacit collusion. First, granting local monopolies to retailers distributing a given brand softens inter- and intrabrand competition in a one-shot game. Hence, in repeated interaction the punishment profit after deviation from the collusive agreement is larger, thereby rendering deviation more profitable. Second, exclusive territories stifle deviation profits because retailers of competing brands can adjust their pricing decisions to the wholesale contract offered by a deviant manufacturer, whilst intrabrand competition would prevent this instantaneous reaction’ mechanism. We show that the latter effect tends to dominate the former, whereby making exclusive territories a more sui! table organizational mode to sustain cooperation between manufacturers. We also argue that these effects emerge only if manufacturers engage in information sharing about wholesale contracts, and show that they indeed always choose to do so in equilibrium. Otherwise, the strategic effects are absent and exclusive territories are of no use. Thus, the paper provides insights on the way exclusive territories and information sharing between supply chains should be bundled to improve manufacturers’ profits.

Loyola Institute for Consumer Antitrust Studies: Student Programs

Posted by Spencer Waller

Thanks again to Danny for the chance to guest blog about the Institute for Consumer Antitrust Studies which I have directed for the past ten years at Loyola University Chicago School of Law.  Last time, I provided a quick overview of the history, mission, and activities of the Institute.  This time I want to focus on the student-oriented aspects of the Institute.  Next time (if Danny doesn’t cut me off) I will discuss our research, publications, and symposia.

 

While Loyola does not have a LLM or SJD program focused on competition or consumer law, we do have LLM and SJD programs in Health Law and Business Law where US and international graduate students occasionally pursue topics in competition or consumer law where the Institute plays a supporting role.

 

The Institute plays its most direct role in creating for the JD program a rich and varied offering of courses in the competition and consumer law area that are available to all students at the law school.  Besides the basic Antitrust and Consumer law courses, the Institute uses its resources to ensure a wide variety of advanced courses from full-time, visiting, and adjunct faculty.  Depending on the year, these have included Health Care Antitrust; International and Comparative Antitrust; Antitrust and Intellectual Property; Cyber Law; Economic Regulation; European Union Law; Law and Economics; Mergers and Acquisitions; the Preparation and Trial of an Antitrust Case; plus externships and independent studies.

 

The Institute also sponsors a unique fellowship for students at the law school. The goal of the Fellowships is to create a group of students (and faculty) with interest in antitrust and consumer law. Outstanding incoming first-year students are selected as well as students in the top third of their class after their first year.  We seek to create a small community of like minded student within the law school and help train the next generation of antitrust and consumer lawyers for the years to come.

 

The Fellowship is limited to students with demonstrated interest or experience in antitrust and consumer protection law.  In the fall of each year, there is an informal application process where interested students are asked to submit a cover letter, transcript, resume, and short personal statement describing their interest and qualifications. Submitting one or two letters of recommendation is optional. Finalists have a short interview with me and some of the current student fellows.  While we have occasionally accepted student fellows with substantial prior antitrust or consumer law experience as they enter Loyola as first years, the vast majority of fellows are selected at the beginning of their second year.

 

Fellows are required to:

 

    * Maintain his or her standing in the top third of the class
    * Complete the basic Antitrust and Consumer Law courses
    * Participate in either an advanced antitrust seminar, independent study or externship with a         substantial writing component
    * Attend all events of the Institute and participate in Institute projects
Fellows receive an annual stipend of at least $3000.00 in addition to any other financial aid they receive.  Third years fellows also receive a $500 travel budget to attend the conference of their choice, which is usually the ABA Antitrust Section spring meeting in Washington, DC. All Loyola law students are also eligible to apply for summer grants underwritten by the Institute to promote otherwise unpaid public interest/public sector work in antitrust and consumer protection.

 

In any given year, there have been between six and twelve student fellows.  In addition to their course work, the fellows have engaged in such projects as testifying before the Illinois State Senate on proposed changes to the Illinois Antitrust Act; assisting in the preparation of written comments to US and international competition and consumer agencies; publishing articles in the Antitrust Law Journal, World Competition Law and Economics Review, the European Consumer Law Journal, and the full array of student journals at Loyola; preparing most of the entries for the News and Views section of the Institute web site; and externing at such placements as the Federal Trade Commission, Illinois Antitrust Bureau, Citizens Utility Board, and the Illinois Commerce Commission.

 

I will spend more time next time describing the symposia and conferences at the Institute in a typical year, but the student fellows help organize and attend both the large more formal programs (and all speakers dinners), as well as monthly informal brown bag lunches where we focus more on the practice of antitrust and consumer law from all perspectives rather than the current of the law.

 

The goal is to produce excellent well-rounded lawyers with a special interest and knowledge in antitrust and consumer that goes far beyond the average newly minted J.D.  Obviously, not every graduating fellow has the interest or the opportunity to specialize in these areas of the law.  However, the more than sixty alumni fellows to date have gone on to federal and state judicial clerkships, practice with large and small firms doing both plaintiff and defendant work in antitrust and consumer law, the Antitrust Division of the Justice Department, the Illinois Attorney General’s Office, Brooklyn Legal Services, the Legal Assistance Foundation, and corporate legal departments, as well as the full range of public and private law practice in other areas.  Now ten years into the program, it is always a moment of great pride when one of the early fellows now in practice can be of help to the newly graduating student fellows as they enter the legal world in these uncertain times.

 

All told, running the fellowship program is part classroom teaching, part curriculum development, part externship supervision, part editorial work for writing projects both large and small, part informal placement advice, part tour guide at the ABA spring antitrust meeting, and a lot of student contact with some of the best, most motivated students I have had the pleasure of teaching.

 

If you are interested in more information about the student fellowship program or if I can provide any help set up similar programs at other schools please contact me at antitrust@luc.edu.

Coordination and Critical Mass in a Network Market: An Experimental Investigation

Posted by D. Daniel Sokol

Bradley J. Ruffle (Department of Economics, Ben-Gurion University of the Negev), Avi Weiss (Department of Economics Bar-Ilan University), and Amir Etziony (Hewlett-Packard) describe Coordination and Critical Mass in a Network Market: An Experimental Investigation.

ABSTRACT: A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. We introduce an experimental paradigm to study consumers' ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass.

The Effect of Payoff Tables on Experimental Oligopoly Behavior

Posted by D. Daniel Sokol

Özgür Gürerka (University of Erfurt) and Reinhard Selten (University of Bonn) explain The Effect of Payoff Tables on Experimental Oligopoly Behavior.

ABSTRACT: We explore the effects of the provision of an information-processing instrument - payoff tables - on behavior in experimental oligopolies. In one experimental setting, subjects have access to payoff tables whereas in the other setting they have not. It turns out that this minor variation in presentation has non-negligible effects on participants' behavior, particularly in the initial phase of the experiment. In the presence of payoff tables, subjects tend to be more cooperative. As a consequence, collusive behavior is more likely and quickly to occur.

The classical notion of competition revisited

Posted by D. Daniel Sokol

Neri Salvadori and Rodolfo Signorino (University of Pisa and University of Palermo, respectively) have a new piece on The classical notion of competition revisited.

ABSTRACT: We compare and analyse two different conceptions of market competition: the walrasian notion of perfect competition and the Classical notion of free competition: while the former may be described as an equilibrium state in which atomistic agents treat prices parametrically, the latter is a situation in which agents, endowed by market power, fix prices strategically. We show that price undercutting or outbidding are the typical phenomena that, for the Classical authors, may be observed in a market characterized by free competition. We investigate some problematic aspects of the neoclassical notion of perfect competition and we reconstruct the Classical theory of free competition, as developed, in particular, by Adam Smith and Karl Marx, in the light of the modern notion of mixed strategies equilibria.

Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model

Posted by D. Daniel Sokol

James Anton (Duke) and Gary Biglaiser (UNC Chapel Hill) address Quality, Upgrades, and Equilibrium in a Dynamic Monopoly Model.

ABSTRACT: We examine an infinite horizon model of quality growth in a durable goods monopoly market. The monopolist generates new quality improvements over time and can sell any available qualities, in any desired bundles, at each point in time. Consumers are identical and for a quality improvement to have value the buyer must possess previous qualities: goods are upgrades. We show that subgame perfect equilibrium payoffs for the seller range from capturing the full social surplus all the way down to capturing only the current flow value of each good and that each of these payoffs is realized in a Markov perfect equilibrium that follows the socially efficient allocation path. This is true for all discount factors. We also show that inefficient equilibria exist for rates of innovation above a threshold.

Form-based Approach at its Best – German FCO Re-discovers Old Rules on Recommended Resale Prices

Posted by D. Daniel Sokol

Albrecht Bach (OPPENLÄNDER Rechtsanwälte) describes Form-based Approach at its Best – German FCO Re-discovers Old Rules on Recommended Resale Prices.

ABSTRACT: Germany: for the Federal Cartel Office, any making of contact going beyond the mere transmission of suggested resale prices constitutes an exercise of pressure and must be prohibited.

The Microsoft Case as a Political Trial

Posted by D. Daniel Sokol

William H. Page (Florida Law) and John Lopatka (Penn State Law) have a very interesting new paper on The Microsoft Case as a Political Trial.  Highly recommended!

ABSTRACT: This essay, written for a planned volume on political trials, considers the political dimensions of the government’s monopolization suit against Microsoft. The Microsoft case was not a political trial in the usual sense, but it was political for three reasons: first, it was a classic cause célèbre; second, it exposed the ideological conflicts within antitrust policy; and third, it brought unusually intense interest-group pressure on the Antitrust Division. We argue that the government’s case and its judicial resolution are best understood in terms of ideology, rather than naked interest-group pressure. The simple interest-group hypothesis has never explained the enactment and evolution of antitrust law very well, and it does not explain Microsoft. Both antitrust law and Microsoft are products of a subtler process, one characterized by conflicting and shifting conceptions of the capacity and limitations of the market and the government. These conceptions, or visions, are deeply held views of the public interest, and its relationship to conflicting private interests. They are not neatly separable from special interest pressures. Groups invoke these conceptions to press arguments for regulation in service of their own interests. But arguments in these terms are persuasive only if they resonate with the policymakers’ understanding of the public interest. Administrators and courts must routinely distinguish arguments that credibly advance the public interest from those that invoke it only as lip service. When a special interest group succeeds in persuading the government that an action that benefits the special interest also advances the public interest, the result can fairly be attributed to the interaction of the special interest’s narrative with the ideological outlook of the government policymaker. The Microsoft case illustrates these dynamics.

Consumer Preferences in Monopolistic Competition Models

Posted by D. Daniel Sokol

Alexander Tarasov, University of Munich describes Consumer Preferences in Monopolistic Competition Models.

ABSTRACT: This paper develops a novel approach to modeling references in monopolistic competition models with a continuum of goods. In contrast to the commonly used CES preferences, which do not capture the effects of consumer income and the intensity of competition on equilibrium prices, the present preferences can capture both effects. I show that under an unrestrictive regularity assumption, the equilibrium prices decrease with the total mass of available goods (which represents the intensity of competition in the model) and increase with consumer income. The former implies that the entry of firms in the market or opening a country to international trade has a pro-competitive effect that decreases equilibrium prices.