Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, June 8, 2010

Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers

Posted by D. Daniel Sokol

Riemer P. Faber (Erasmus University Rotterdam) provides us with Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers.

ABSTRACT: This paper studies asymmetric price responses of individual firms, via daily retail prices of almost all gasoline stations in the Netherlands and suggested prices of the five largest oil companies over more than two years. I find that 38% of the stations respond asymmetrically to changes in the spot market price. Hence, asymmetric pricing is not a feature of the market as a whole, but of individual firms. For asymmetrically pricing stations, the asymmetry is substantial directly after a change but disappears after one or two days. I study station-specific characteristics and conclude that asymmetric pricing seems to be a phenomenon that is randomly distributed across stations. I also find that none of the five largest oil companies adjust their suggested prices asymmetrically.

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

Selling When Brand Image Matters

Posted by D. Daniel Sokol

Stefan Bühler (Institute of Public Finance and Fiscal Law - St. Gallen) and Daniel Halbheer (University of Zurich - Econ) analyze Selling When Brand Image Matters.

ABSTRACT: This paper studies profit-maximizing seller behavior when brand image affects consumer demand. We consider a seller facing a population of consumers with heterogeneous tastes regarding product quality and brand image. First, we analyze “active branding” by the seller through costly advertising. Our analysis shows that advertising, price and profits are all increasing in the average valuation of brand image in the population. Second, we examine the role of “passive branding” emanating from the population’s consumption of the product. We demonstrate that seller profits increase in the average degree of conformity in the opulation whereas the price remains unaffected.

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

Multiproduct Duopoly with Vertical Differentiation

Posted by D. Daniel Sokol

Yi-Ling Cheng (National Taiwan University), Shin-Kun Peng (Institute of Economics, Academia Sinica, Taipei, Taiwan), and Takatoshi Tabuchi (Faculty of Economics, University of Tokyo) explain Multiproduct Duopoly with Vertical Differentiation.

ABSTRACT: The paper investigates a two-stage competition in a vertical di¤erentiated industry, where each firm produces an rbitrary number of similar qualities and sells them to heterogeneous consumers. We show that, when unit costs of quality are increasing and quadratic, each firm has an incentive to provide an interval of qualities. The finding is in sharp contrast to the single-quality outcome when the market coverage is exogenously determined. We also show that allowing for an interval of qualities intensifies competition, lowers the profits of each firm and raises the consumer surplus and the social welfare in comparison to the single-quality duopoly.

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

Monday, June 7, 2010

Competition policy and global competitiveness in South Africa

Posted by D. Daniel Sokol

Saul Klein (Wits Business School) has written on Competition policy and global competitiveness in South Africa.

ABSTRACT: This article discusses proposals for competition policy reform in South Africa as an issue facing all developing countries. The South African environment is described and government philosophy summarized. Policy proposals are critiqued within the context of their impact on competitiveness. The consequences of competition policy on economic growth are considered in terms of their relative standing with respect to key trading and FDI competitors.

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

Minimum Price Guarantees In a Consumer Search Model

Posted by D. Daniel Sokol

Maarten Janssen (University of Vienna,and Erasmus University Rotterdam) and Alexei Parakhonyak (Erasmus University Rotterdam) address Minimum Price Guarantees In a Consumer Search Model.

ABSTRACT:  This paper is the first to examine the effect of minimum price guarantees in a sequential search model. Minimum price guarantees are not advertised and only known to consumers when they come to the shop. We show that in such an environment, minimum price guarantees increase the value of buying the good and therefore increase consumers’ reservation prices. This increase is so large that even after accounting for the fact that some consumers will buy at lower prices, firms profits are larger under minimum price guarantees than without it. We also show that an equilibrium where all firms offer minimum price guarantees does not exist because of a free-riding problem. Minimum price guarantees can only be an equilibrium phenomenon in an equilibrium where firms randomize their decision to offer these guarantees.

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

Increasing Dominance - the Role of Advertising, Pricing and Product Design

Posted by D. Daniel Sokol

Tobias Kretschmer and Mariana Rosnery ICE, University of Munich have a new paper on Increasing Dominance - the Role of Advertising, Pricing and Product Design.

ABSTRACT: Despite the empirical relevance of advertising strategies in concentrated markets, the economics literature is largely silent on the effect of persuasive advertising strategies on pricing, market structure and increasing (or decreasing) dominance. In a simple model of persuasive advertising and pricing with differentiated goods, we analyze the interdependencies between ex-ante asymmetries in consumer appeal, advertising and prices. Products with larger initial appeal to consumers will be advertised more heavily but priced at a higher level - that is, advertising and price discounts are strategic substitutes for products with asymmetric initial appeal. We find that the escalating effect of advertising dominates the moderating effect of pricing so that post-competition market shares are more asymmetric than pre-competition differences in consumer appeal. We further find that collusive advertising (but competitive pricing) generates the same market outcomes, and that network effects lead to even more extreme market outcomes, both directly and via the effect on advertising.

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

Competition in Digital Media and the Internet: The Related Roles of Antitrust, Consumer Protection, and Regulation

Posted by D. Daniel Sokol

Event Details

We are delighted to present the 2010 Jevons Colloquium which will be devoted to Competition in Digital Media and the Internet - The Related Roles of Antitrust, Consumer Protection, and Regulation on Wednesday 7 July 2010, 9 - 5pm

About the conference:
This sector is going through change at an unprecedented pace. Traditional business are challenged, new market forces are emerging and consumer behaviour is changing and adapting to a novel setting.This creates a complex set of interrelated issues which range from analysis of market power, to data protection and privacy, incentivising content and infrastructure investment and innovation but, at the same time, protecting consumers.

The 2010 Jevons Colloquium will bring together head of authorities, senior enforcers, business representatives. academics, and the leading experts from the EU and US to discuss this set of issues.  Joaquin Almunia, the EU Competition Commissioner will open the Colloquium and start the debate with John Fingleton, OFT's Chief Executive, Julie Brill, recently appointed Commissioner at the US Federal Trade Commission and other senior authority heads and business figures.  Ed Richards, Ofcom's Chief Executive, will give a key note address. 

The Colloquium will feature a number of other senior enforcers and leading experts including:  Per Hellstrom of DG Competition at the European Commission; Thibaud Vergé, Chief Economist at the French Competition Authority, Heather Clayton, Senior Director of OFT and responsible for the OFT recent study on online targeting; Jon Baker, Professor at the American University; Andrea Coscelli, Director of Competition Economics at Ofcom, and Pamela Harbour, former Commissioner at the Federal Trade Commission.

It is a rich and full programme but we hope that there will be time for debate. 

Antonio Bavasso and David Evans
Executive Directors, Jevons Institute, University College London 


Accreditation:  

6 CPD hours by the Solicitors Regulation Authority and the Bar Standards Board. 


The Programme 

7 JULY 2010
9.00

Registration

9.30

Overview:
David Evans, UCL and University of Chicago

  • What are the business models behind the behaviour of the major players?
  • How does the increasingly pervasive presence of Internet-based options after competition among businesses
  • Are problems emerging, is it too early to worry, and can we count on the competitive process?
09:45

Keynote address: 
Joaquin Almunia, Competition Commissioner (European Commission)

A discussion on key business and regulatory issues
moderated by Sir Christopher Bellamy (Linklaters) 

  • John Fingleton, Chief Executive (OFT), 
  • Julie Brill, Commissioner (Federal Trade Commission)
11:00 Coffee Break
11:15 Mergers and Antitrust:
Chair: Antonio Bavasso, UCL and Allen & Overy


Confirmed Speakers:

  • Per Hellstrom (DG Comp)
  • Christian Ahlborn, Partner (Linklaters), 
  • Thibaud Vergé, Chief Economist (French Autorité de la Concurrence)

Topics covered:

  • What are the key issues in analyzing market definition and power?
  • What are the lessons from Internet-mergers to date?
  • What if any special issues are raised by Internet distribution?
  • How if at all does the fact that many Internet products are free affect antitrust analysis?
  • What is the role of two-sided market antitrust?
  • Can antitrust provide an effective oversights against risk of algorithm manipulation?
  • Can antitrust strike a balance in relation to behaviour of companies with different business models and incentives? 
12:30

Lunch keynote:
With Ed Richards, Chief Executive (Ofcom)

13:00 LUNCH
14:00

Online targeting of advertising, use of data and consumer protection:
Chair: Julie Brill, Commissioner (Federal Trade Commission)

Confirmed Speakers:

  • Heather Clayton, Senior Director (OFT),
  • Mark Armstrong (UCL, Economics)

Topics covered:

  • OFT Study on online targeting http://www.oft.gov.uk/OFTwork/markets-work/current/online-targeting
  • What consumer protection issues are raised by the collection and sale of consumer data?
  • Who deals with these issues and how?
  • How do we strike the balance between innovation and consumer protection? 
15:15 Tea Break
15:30

A debate on the Intersections:
Chair:  David Evans, UCL and University of Chicago

Confirmed Speakers:

  • Jon Baker, Professor of Law (American University)
  • Andrea Coscelli, Director of Competition Economics (Ofcom)
  • Pamela Harbour, Partner (Fulbright & Jaworsky) - former Commissioner (FTC) 
  • Jenine Hulsmann, Partner (Clifford Chance)

Topics covered:

  • Are regulations of media and communications firms outmoded as a result of the emergence of Internet-based competitors?
  • How should regulation and antitrust incentivize in new infrastructure
  • Investment in super-fast broadband (the interaction between market-led investment, SMP regulations that can facilitate infrastructure investment and public subsidies)
  • Investment in next generation mobile networks (role of Art. 101 (3) in reviewing network-sharing agreements between competitors and spectrum management policy)
  • How should antitrust policy be adjusted in light of regulation?
  • Can and should antitrust consider privacy and data issues?
17:00 END OF CONFERENCE

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

Welfare losses in models of horizontal and vertical differentiation

Posted by D. Daniel Sokol

Luis C. Corchón and Galina Zudenkova (both Universidad Carlos III de Madrid - Econ) discuss Welfare losses in models of horizontal and vertical differentiation.

ABSTRACT: We study the percentage of welfare losses (PWL) in models of horizontal and vertical differentiation. In the Hotelling model, we show that PWL depends on the underlying parameters in a non-monotonic way. We also show that PWL can be calculated from market data-locations and market size-except when the market is covered and exhibits maximal product differentiation. PWL can be very large-up to 37.4%-arising from firms located in the wrong places. In the Salop model, PWL can be calculated from market size. PWL may be large-up to 25%-but, in general, smaller than in Hotelling because firms are optimally located here. Finally, under vertical differentiation with two firms, PWL is discontinuous, but can be calculated from market prices and market coverage. In this model PWL is modest, always below 8.33%.

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

The Indian Competition Act: A Historical and Developmental Perspective

Posted by D. Daniel Sokol

Shiju Varghese Mazhuvanchery, TERI University has posted The Indian Competition Act: A Historical and Developmental Perspective.

ABSTRACT: The relationship between competition law and development continues to be a subject that excites many. The appropriate design of a competition law with developmental dimensions is a contentious issue. With the enactment of the Competition Act 2002, India joined the hundred odd developing countries that have adopted new competition laws over the last two decades. After a hiatus of seven years, substantive provisions of the Act have been notified recently. The Indian Act presents a perfect case study for the developmental dimensions of competition law. This paper explores the events that led to the enactment of the new law in India and analyses its provisions from a developmental perspective. The paper concludes that many of the provisions in the law may come in the way of the realization of developmental goals.

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

The Application of Competition Law in the Communications and Media Sector: A Survey of Recent Cases

Posted by D. Daniel Sokol

Antonio Bavasso and Dominic Long  (both Allen & Overy) provide thoughts on The Application of Competition Law in the Communications and Media Sector: A Survey of Recent Cases.

ABSTRACT: This article presents an overview of key competition law decisions in the electronic communications sector in 2009. During the period surveyed, the Commission has been involved in a number of cases relating to abusive pricing practices. It has also been heavily involved in issues relating to territorial restrictions in the distribution of digital media. There appears to be a cross fertilisation between regulation and general competition law in the electronic communications sector.

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

Building up a Young Competition Commission: The Competition Commission of Singapore’s Experience

Posted by D. Daniel Sokol

Teo Eng Cheong (Competition Commission of Singapore) describes Building up a Young Competition Commission: The Competition Commission of Singapore’s Experience.

ABSTRACT:  Singapore has been consistently ranked among the world's most competitive economies by renowned reports such as the World Economic Forum's Global Competitiveness Report. As an open economy constantly subject to global market forces, Singapore's strong ranking has been the result of sound competition policy in areas ranging from trade openness, human capital development, and infrastructure investment.

Hence when Singapore's Competition Act came into force in stages between 2006 and 2007, it was an extension of Singapore's competition policy. It was envisaged then that the Competition Act would help to boost market innovation and productivity, thus sharpening Singapore's competitiveness in the process.

The Competition Commission of Singapore (CCS) was established to administer and enforce the Competition Act. As staying globally competitive is key to Singapore's economic vibrancy, CCS had to be built up speedily so that Singapore could reap the benefits of competition law as quickly as possible.

Faced with this urgency to build up a new and young competition agency, CCS developed a four-pronged strategy:

  • Rigorous Enforcement: Taking Our Time Swiftly
  • Effective Advocacy: Innovating Routinely
  • Relevant Capabilities: Building the Future Now
  • Active International Relations: Going Regional and Global

And for a fun way to educate the public about the importance of competition policy, take a look at the these two comic books: Fixed and Protect Your Business: Know the Dos and Don'ts of the Competition Act.

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

Sunday, June 6, 2010

Department of Justice and USDA Announce Dairy Workshop on June 25 in Wisconsin

Posted by D. Daniel Sokol

From the press release:

The Department of Justice and the U.S. Department of Agriculture (USDA) announced today additional details regarding the June 25 public workshop in Madison, Wis., which will examine competition and regulatory issues in the dairy industry. The workshop will be held in the Union Theater at the University of Wisconsin - Madison, 800 Langdon Street, Madison, Wis.

This is the third in a series of five joint public workshops. The first workshop was held in March in Ankeny, Iowa, with a focus on row crops and hogs. The second workshop focused on issues in the poultry industry and was held in Normal, Ala., last month.

The workshops, which were first announced by Attorney General Eric Holder and Agriculture Secretary Tom Vilsack on Aug. 5, 2009, are the first joint Department of Justice/USDA workshops ever to be held to discuss competition and regulatory issues in the agriculture industry. The goals of the workshops are to promote dialogue among interested parties and foster learning with respect to the appropriate legal and economic analyses of these issues, as well as to listen to and learn from parties with experience in the agriculture sector. Attendance at the workshops is free and open to the public. The general public and media interested in attending the Wisconsin workshop should register at www.surveymonkey.com/s/V3FHXPY.

U.S. Attorney General Eric Holder, U.S. Agriculture Secretary Tom Vilsack and Assistant Attorney General for the Justice Department's Antitrust Division Christine Varney will participate in a roundtable discussion to open the Wisconsin workshop. Senators Herb Kohl and Russell Feingold, Representatives Ron Kind, Steve Kagen and Tammy Baldwin, Governor Jim Doyle, and Wisconsin Agriculture Secretary Rod Nilsestuen have tentatively accepted invitations to join this roundtable discussion. Invitations have been extended to Representatives Thomas Petri and David Obey. The remaining panels will feature farmers, processors, academics and other dairy industry stakeholders. Additional details on the schedule and panelists will be provided at a later date.

The Justice Department and USDA will hold the next public workshop in Fort Collins, Colo., where the focus will be on the livestock industry. This will be followed by a workshop on margins in agriculture in Washington.

Please visit the Antitrust Division's events website, www.justice.gov/atr/events.htm, or contact agriculturalworkshops@usdoj.gov for more information.

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