Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Wednesday, June 16, 2010

New Chambers USA Rankings Are Out - California Elite Edition

Posted by D. Daniel Sokol

 
Antitrust: California

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

Foreclosing Competition through Access Charges and Price Discrimination

Posted by D. Daniel Sokol

Angel Lopez (Public-Private Sector Research Center, IESE Business School) and Patrick Rey (Toulouse School of Economics) explain Foreclosing Competition through Access Charges and Price Discrimination.

ABSTRACT: This article analyzes competition between two asymmetric networks, an incumbent and a new entrant. Networks compete in non-linear tariffs and may charge different prices for on-net and offnet calls. Departing from cost-based access pricing allows the incumbent to foreclose the market in a pro…table way. If the incumbent bene…ts from customer inertia, then it has an incentive to insist in the highest possible access markup even if access charges are reciprocal and even in the absence of actual switching costs. If instead the entrant benefits from customer activism, then foreclosure is profitable only when switching costs are large enough.

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

Tuesday, June 15, 2010

Competition in two-sided markets with common network externalities

Posted by D. Daniel Sokol

David Bardey (University of Rosario, Bogota), Helmuth Cremer (Toulouse School of Economics) and
Jean-Marie Lozachmeur (Toulouse School of Economics) offer their thoughts on Competition in two-sided markets with common network externalities.

ABSTRACT: We study competition in two sided markets with common network externality rather than with the standard inter-group effects. This type of externality occurs when both groups benefit, possibly with different intensities, from an increase in the size of one group and from a decrease in the size of the other. We explain why common externality is relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satisfies an homogeneity condition then platforms profits and price structure have some specific properties. Our results reveal how the rents coming from network externalities are shifted by platforms from one side to other, according to the homogeneity degree. In the specific but realistic case where the common network externality is homogeneous of degree zero, platforms profit do not depend on the intensity of the (common) network externality. This is in sharp contrast to conventional results stating that the presence of network externalities in a two-sided market structure increases the intensity of competition when the externality is positive (and decreases it when the externality is negative). Prices are affected but in such a way that platforms only transfer rents from consumers to providers.

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

The value of switching costs

Posted by D. Daniel Sokol

Gary Biglaiser (UNC Chapel Hill), Jacques Cremer (Toulouse School of Economics) and Gergely Dobos (Gazdasagi Versenyhivatal) explore 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.

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

Competition and the signaling role of prices

Posted by D. Daniel Sokol

Fabrizio Adriani (CeFiMS - School of Oriental and African Studies) and Luca Gabriele Deidda (University of Sassari) analyze Competition and the signaling role of prices.

ABSTRACT: In a market where sellers are heterogeneous with respect of the quality of their good and are more informed than buyers, high quality sellers’ chances to trade might depend on their ability to inform buyers about the quality of the goods they offer. We study how the strength of competition among sellers affects the ability of sellers of high quality goods to achieve communication by means of appropriate pricing decisions in the context of a market populated by a large number of strategic price setting sellers and a large number of buyers. When competition among sellers is weak high quality sellers are able to use prices as a signaling device and this enables them to trade. By contrast, strong competi- tion among sellers inhibits the role of prices as signals of high quality, and high quality sellers are driven out of the market.

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

New Chambers USA Rankings Are Out - NY Elite Edition

Posted by D. Daniel Sokol

 
 
Antitrust: New York

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

Managerial Effort Incentives and Market Collusion

Posted by D. Daniel Sokol

Cécile Aubert (University of Bordeaux and Toulouse School of Economics) explains Managerial Effort Incentives and Market Collusion.

ABSTRACT: We investigate the interactions between managers’ incentives to collude or compete, and incentives to exert effort. A manager privately chooses the competitive strategy of the firm, and his own effort to improve productivity; He may substitute collusion to effort to increase profits. High profit targets — i.e., strong effort incentives — make participating in a cartel more attractive. To answer this double moral hazard, owners may have to give the manager information rents, and to choose inefficient effort levels. This affects cartel sustainability and profitability. Because of reduced internal efficiency, welfare losses may arise even when the industry remains competitive. Antitrust policy has a novel value, specifically thanks to individual sanctions: They foster internal efficiency in competing firms while worsening it in cartelized firms. This improves both efficiency under competition and cartel deterrence. Individual fines are thus more beneficial than corporate fines; criminal sanctions are even more effective. Last, individual leniency programs have ambiguous effects, even when not used in equilibrium.

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

Monday, June 14, 2010

New Chambers USA Rankings Are Out - DC Elite Edition

Posted by D. Daniel Sokol

 
Antitrust: District of Columbia

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

A Doctor and a Lawyer Walk into a Bar: Moving Beyond Stereotypes

Posted by D. Daniel Sokol

John Leibowitz (FTC) gave a speech on A Doctor and a Lawyer Walk into a Bar: Moving Beyond Stereotypes.

HT: Seth Silber

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

Bundling and Competition for Slots: Sequential Pricing

Posted by D. Daniel Sokol

Doh-Shin Jeony (Toulouse School of Economics, Universitat Pompeu Fabra) and Domenico Menicucci (Università degli Studi di Firenze) address Bundling and Competition for Slots: Sequential Pricing.

ABSTRACT: In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due ! to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

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

Bundling and Competition for Slots: On the Portfolio Effects of Bundling

Posted by D. Daniel Sokol

Doh-Shin Jeony (Toulouse School of Economics, Universitat Pompeu Fabra) and Domenico Menicucci (Università degli Studi di Firenze) discuss Bundling and Competition for Slots: On the Portfolio Effects of Bundling.

ABSTRACT: We consider competition among sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. We study how bundling affects competition for slots. Under independent pricing, equilibrium often does not exist and hence the outcome is often inefficient. When bundling is allowed, each seller has an incentive to bundle his products and an efficient equilibrium always exists. Furthermore, in the case of digital goods, all equilibria are efficient if slotting contracts are prohibited. We also identify portfolio effects of bundling and analyze the consequences on horizontal mergers. Finally, we derive clear-cut policy implications.

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

Save the Date: Global Competition Law and Practice Conference, November 19, 2010, Taj Mahal Hotel, Man Singh Road, New Delhi, India

Posted by D. Daniel Sokol

Save the Date


Global Competition Law and Practice Conference
November 19, 2010
Taj Mahal Hotel, Man Singh Road
New Delhi, India

Conference Co-organizers:
Ioannis Lianos (University College London) and Daniel Sokol (University of Florida)

Details, including speakers, will follow soon.  We promise that this will be the conference of the year for practitioners in Asia and around the world.

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

Competition versus Collusion: The Impact of Consumer Inertia

Posted by D. Daniel Sokol

Bos Iwan (Department of Organization & Strategy, Maastricht University), Peeters Ronald (Department of Economics, Maastricht University), and Pot Erik (Department of Quantitative Economics, Maastricht University) consider Competition versus Collusion: The Impact of Consumer Inertia.

ABSTRACT: We consider a model of dynamic price competition to analyze the impact of consumer inertia on the ability of firms to sustain high prices. Three main consequences are identified, all of which contrast with predictions of the standard model of collusion: (i) maintaining high prices does not require punishment strategies when firms are sufficiently myopic, (ii) if buyers are sufficiently inert, then high prices can be sustained for all discount factors, and (iii) the ability to maintain high prices may depend non-monotonically on the level of the discount factor when the industry exhibits network externalities and demand is sufficiently viscous. These results provide a number of interesting insights with regard to competitive and collusive pricing behavior. In particular, we illustrate how direct communication between firms may facilitate collusion.

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

On-line reselling and selective distribution networks: What can be learnt from the French experience?

Posted by D. Daniel Sokol

Robert Saint-Esteben, Olivier Billard, and Karin-Amélie Jouvensal (Avocats à la Cour, Bredin Prat) ask On-line reselling and selective distribution networks: What can be learnt from the French experience?

ABSTRACT: The European Commission is reviewing the competition rules applicable to vertical restraints. In that context, an issue is how restrictions to Internet sales should be addressed. Such restrictions are frequent in selective distribution systems, where French courts and authorities have acquired a competence that may inspire the Commission.

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

The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy

Posted by D. Daniel Sokol

Juan S. Lleras (University of California, Berkeley) and Nathan H. Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) have produced The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy.

ABSTRACT: We model competition between two firms in a vertical upstream-downstream relationship. Each firm can pay a sunk cost to enter the other’s market. For equilibria in which both firms enter, the downstream price can be lower than the joint profit maximizing level, and coordination (e.g., through merger) is anticompetitive.

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

Sunday, June 13, 2010

Harvard, Chicago and Transaction Cost Economics in Antitrust Analysis

Posted by D. Daniel Sokol

Herbert J. Hovenkamp, University of Iowa - College of Law has a great piece on Harvard, Chicago and Transaction Cost Economics in Antitrust Analysis.

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.


 

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