Antitrust & Competition Policy Blog

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

Saturday, June 26, 2010

How Do Firms Set Prices? Survey Evidence from Ireland

Posted by D. Daniel Sokol

 Mary J. Keeney (Central Bank and Financial Services Authority of Ireland), Martina Lawless (Central Bank and Financial Services Authority of Ireland) and Alan Murphy (Central Bank and Financial Services Authority of Ireland) ask How Do Firms Set Prices? Survey Evidence from Ireland.

ABSTRACT: Despite the importance of understanding and estimating the “stickiness” of prices of goods and services, empirical assessment of price setting behaviour by firms has remained relatively limited. This is the first paper to provide detailed information on the pressures, manner and frequency with which Irish firms adjust their output prices. Using survey information from almost a thousand Irish firms, we present a number of stylised facts on price setting behaviour. One of the first of these relates to the level of control firms have over their pricing strategy – the most common approach for firms is to set a price based on costs and a self-determined profit margin. However, one-third of firms said that their price was set primarily by following that of their closest competitors. The perceived intensity of competition was found to be one of the most significant factors in determining the price-setting approach and is ! also a central factor in determining price changes

June 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, June 25, 2010

Important Scholarly News - Phil Areeda's Papers now Available for Researchers

Posted by D. Daniel Sokol

Harvard's Law Library has opened the papers of Phil Areeda for researchers.  See here for details.

June 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Level of Access and Competition in Broadband Markets

Posted by D. Daniel Sokol

Marc Bourreau (Institut Telecom and CREST-LEI) and Pinar Dogan (Harvard) have a new paper on Level of Access and Competition in Broadband Markets.

ABSTRACT: In this paper, we consider an unregulated incumbent who owns a broadband infrastructure and decides on how much access to provide to a potential entrant. The level of access, i.e., the network elements that are shared in the provision of competing broadband services, not only determines the amount of investment the entrant needs to undertake to enter the market, but also the intensity of post-entry competition. We consider an access scheme that determines an access level and an associated two-part tariff. We show that the equilibrium level of access is higher when the sensitivity of product differentiation to the level of access is lower, and when the marginal investment cost is higher. We also show that the unregulated incumbent sets a suboptimally low (high) level of access if the degree of service differentiation is sufficiently high (low).

June 25, 2010 | Permalink | Comments (0) | TrackBack (0)

New Chambers USA Rankings Are Out - North Carolina Antitrust Elite Edition

Competition and stability in banking

Posted by D. Daniel Sokol

Xavier Vives (IESE Business School) discusses Competition and stability in banking.

ABSTRACT: I review the state of the art of the academic theoretical and empirical literature on the potential trade-off between competition and stability in banking. There are two basic channels through which competition may increase instability: by exacerbating the coordination problem of depositors/investors on the liability side and fostering runs/panics, and by increasing incentives to take risk and raise failure probabilities. The competition-stability trade-off is characterized and the implications of the analysis for regulation and competition policy are derived. It is found that optimal regulation may depend on the intensity of competition.

June 25, 2010 | Permalink | Comments (0) | TrackBack (0)

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

Posted by D. Daniel Sokol

Bradley J. Ruffle (Ben-Gurion University), Avi Weiss (Bar-Ilan University), and Amir Etziony (Hewlett-Packard Israel) have a new paper on 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.

June 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 24, 2010

Platforms and Limits to Network Effects

Posted by D. Daniel Sokol

Hanna Halaburda (Harvard Business School, Strategy Unit) and Mikolaj Jan Piskorski (Harvard Business School, Strategy Unit) explore Platforms and Limits to Network Effects.

ABSTRACT: We model conditions under which agents in two-sided matching markets would rationally prefer a platform limiting choice. We show that platforms that offer a limited set of matching candidates are attractive by reducing the competition among agents on the same side of the market. An agent who sees fewer candidates knows that these candidates also see fewer potential matches, and so are more likely to accept the match. As agents on both sides have access to more candidates, initially positive indirect network effects decrease in strength, reach their limit and eventually turn negative. The limit to network effects is different for different types of agents. For agents with low outside option the limit to network effects is reached relatively quickly, and those agents choose the platform with restricted number of candidates. This is because those agents value the higher rate of acceptance more than access to more candidates! . Agents with higher outside option choose the market with larger number of candidates. The model helps explain why platforms offering restricted number of candidates coexist alongside those offering larger number of candidates, even though the existing literature on network effects suggests that the latter should always dominate the former.

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Price and quality competition

Posted by D. Daniel Sokol

Ioana Chioveanuy (University College London - Econ) explains Price and quality competition.

ABSTRACT: This study considers an oligopoly model with simultaneous price and quality choice. Exante 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 pro…ts. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards.

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition in Digital Media and the Internet: The Related Roles of Antitrust, Consumer Protection, and Regulation (7 July 2010)

Posted by D. Daniel Sokol

The Jevons Institute, based at the UCL Faculty of Laws, is pleased to announce its 2010 Colloquium on: 

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

on Wednesday 7 July 2010, 9 - 5pm.

The 2010 Jevons Colloquium brings 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 also 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.

The programme covers:
- Mergers and Antitrust
- Online targeting of advertising, use of data and consumer protection
- A debate on the intersection 

The conference is accredited with 6 CPD hours by the SRA and BSB. 

£150 standard ticket
£120 UCL graduates
£40 academic and public sector  

Click here to view the full programme and to book your place or go to

You are invited to the following event:
Competition in Digital Media and the Internet: The Related Roles of Antitrust, Consumer Protection, and Regulation (7 July 2010)

Wednesday, July 07, 2010 from 9:00 AM - 5:00 PM (GMT)

BMA House
Tavistock Square
WC1H 9JP London
United Kingdom

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition Policy: Going International?

Posted by D. Daniel Sokol

Paul Nihoul (University of Louvain Law) and Thomas Lübbig (Freshfields) ask Competition Policy: Going International?

ABSTRACT: There has been much talk about the necessity for competition policy to go international. National or regional competition policies create uncertainties for businesses in terms of how their operations should be structured if they are subject to contradictory rules depending on where they are carried out.

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Collusive networks in market-sharing agreements under the presence of an antitrust authority

Posted by D. Daniel Sokol

Flavia Roldan (IESE Business School) presents Collusive networks in market-sharing agreements under the presence of an antitrust authority.

ABSTRACT: This paper studies how the presence of an antitrust authority affects market-sharing agreements made by firms. These agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that while in the absence of the antitrust authority, a network is stable if its alliances are large enough when considering the antitrust authority, and more competitive structures can be sustained through bilateral agreements. Antitrust laws may have a pro-competitive effect, as they give firms in large alliances more incentives to cut their agreements at once.

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

The classical notion of competition revisited

Posted by D. Daniel Sokol

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

ABSTRACT: The paper seeks to fill a lacuna within Classical economics concerning the process of market price determination in a short-period equilibrium. To this aim, first we distinguish the Classical notion of free competition from the Walrasian notion of perfect competition and we argue that the latter is beset by some theoretical difficulties alien to the former. Second, we reconstruct in some detail Smith and Marx’s views concerning market price determination and we show that Marx’s extensive use of metaphors and numerical examples foreshadows the modern taxonomy of buyers’ market, sellers’ market and mixed strategy equilibrium in the capacity space of a standard Bertrand duopoly model. Finally, we highlight similarities and differences between the Classical notion of competition and contemporary game-theoretic oligopoly models.

June 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 23, 2010

Most Downloaded Antitrust Law Professors of the Year - Midyear 2010 Report

Posted by D. Daniel Sokol

The list below is that of the most downloaded antitrust law professors of the past year, as measured by new downloads within the past year on SSRN.  The rule for inclusion - you are actively writing in antitrust although I note that some people are writing in more than one field.

1. Damien Geradin (Tilburg, University of Michigan) - 6364
2. David Evans (University College London, University of Chicago) - 6331
3. Herb Hovenkamp (University of Iowa) - 5768
4. Josh Wright (George Mason) - 4553
5. Wouter Wils (Kings College) - 3734
6. Randy Picker (University of Chicago) - 3108
7. Marc Edelman (Barry University) - 2717
8. Spencer Waller (Chicago Loyola) - 2575
9. Bob Lande (University of Baltimore) - 2513
10. Einer Elhauge (Harvard) - 2111
11. Jon Baker (American University) - 2005
12. Phil Weiser (University of Colorado) - 1952
13. Barak Orbach (University of Arizona) - 1822
14. Keith Hylton (Boston University) - 1633
15. Bruce Kobayashi (George Mason) - 1625
16. Maurice Stucke (University of Tennessee) - 1602
17. Danny Sokol (University of Florida) - 1583
18. Dan Crane (University of Michigan) - 1539
19. Bill Page (University of Florida) - 1467
20. Scott Hemphill (Columbia University) - 1380
21. Michael Trebilcock (University of Toronto) - 1374
22. Ioannis Lianos (University College London) - 1206
23. Geoff Manne (Lewis and Clark) - 1203
24. Damien Gerard (Louvain University) - 1114
25. Avishalom Tor (University of Haifa) - 1048

For those of you keeping track at home, schools with multiple placements in the top group include:

George Mason
University College London
University of Chicago
University of Florida
University of Michigan

In this first version, I probably accidentally omitted someone.  If you are such an aggrieved person, email me and I will correct the list.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Price competition with consumer confusion

Posted by D. Daniel Sokol

Ioana Chioveanu (UCL - Econ) and Jidong Zhou (UCL - Econ) explore Price competition with consumer confusion.

ABSTRACT: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Europe’s Reform of the Regulatory Framework of Motor Vehicle Distribution

Posted by D. Daniel Sokol

Gregory Pelecanos (Ballas, Pelecanos & Associates) discusses Europe’s Reform of the Regulatory Framework of Motor Vehicle Distribution.

ABSTRACT: On May 27, 2010 the Commission adopted Regulation (EU) No. 461/2010 "on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector." In so doing, it extended the life of Reg. 1400/ 2002 which was due to expire on May 31, 2010, until May 31, 2013 with regards to vertical agreements relating to the conditions under which the parties may purchase, sell or resell new motor vehicles (primary market). Additionally, article 101 (3) of the Treaty, Reg. 461/2010 exempted, from the application of article 101(1), vertical agreements relating to the conditions under which parties may purchase, sell, or resell spare parts for motor vehicles or provide repair and maintenance services for motor vehicles, (the aftermarket) which fulfill the requirements for an exemption under Regulation (EU) No. 330/2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (the VBER), and also do not contain any of the hardcore clauses listed in Article 5 of Reg. 461/2010.

In short, the Commission extended the life of and did not, at least until 2013, reform that part of Reg. 1400/2002 relating to the primary market. Indeed, it has kept the regime unchanged despite admitting that it did not work as intended in crucial areas and had little, if any, beneficial effect on competition. With regard to the primary market, reform has been postponed at least until June 2013. On the other hand Reg. 461/2010 carried over and added the essential provisions of Reg. 1400/2002 referring specifically to the aftermarket to the new VBER.  In reality however, the effect of Reg. 461/2010 is to remove the benefits of automatic exemption under art.101 (3) for the agreements between vehicle manufacturers and their networks of authorized repairers and spare parts dealers.  In as much as it deals with the aftermarket, this removal of exemption benefits does not bring about as substantive changes to existing structures as those developed under the previous Reg. 1400/2002.

The wrongs perpetrated on the primary market by the previous Reg. 1400/02 have not been corrected in the short term, although there are no reasons for delay. Chronic pathologies and distortions in the aftermarket are not dealt with, and systemic difficulties in the proper application of competition rules to the sector as a whole are not dealt with sufficiently.

Indeed, in contrast to the rush caused in 2002 when the now defunct Reg. 1400/2002 was adopted as well as during its annual transition period and the robust pro-competitive assertions of the Commission, Reg. 461/2010 was adopted without any fanfare and has received only little industry attention. Notably, partly because of delayed impact on the primary market, and in contrast to 2002/2003, motor vehicle' manufacturers have not proceeded with wholesale changes to their downstream distribution and service contracts.

It is not possible to deal extensively with the new regime in this article. Our emphasis is on whether certain unintended consequences of Reg. 1400/02 have been remedied for the short term in the primary market and whether certain structural problems of the aftermarket have been adequately dealt with.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Competitive Effects of Mass Customization

Posted by D. Daniel Sokol

Oksana Loginova (Department of Economics, University of Missouri-Columbia) describes Competitive Effects of Mass Customization.

ABSTRACT: Earlier theoretical literature on mass customization maintains that customization reduces product differentiation and intensifies price competition. In contrast, operations management studies argue that customization serves primarily to differentiate a company from its competitors. Interactive involvement of the customer in product design creates an affective relationship with the firm, relaxing price competition. This paper provides a model that incorporates consumer involvement to explain the phenomena described in the operations management literature. Two firms on the Hotelling line compete for a continuum of consumers with heterogeneous brand preferences. An exogenously given fraction of consumers is potentially interested in customization. Consumer benefits from customization are the rewards from a special shopping experience and the value of product customization (better fitting product); these benefits are higher for consumers located closer to the customizing brand. When a consumer purchases a customized product, he incurs the waiting cost. The firms decide whether to offer customization, then engage in price competition. I show that customization increases the ``stickiness" of a consumer to the customizing firm, leading to less intense price competition. As mass customization becomes more efficient (the lead time goes down and/or the sunk costs decrease), customization by one or both firms occurs in equilibrium. I perform comparative statics analysis with respect to the fraction of consumers potentially interested in customization.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

First case report by the Competition Commission of Mauritius - volume-related discounts for Kraft Cheese

Posted by D. Daniel Sokol

Today the Competition Commission of Mauritius published its first case report, regarding volume-related discounts for Kraft Cheese.  The non-confidential version of the full report is available here:

This is the report of the Executive Director to the Commissioners. It is not a final decision of the CCM, as that is for the Commissioners alone to determine, after hearing the views of interested parties.

The CCM was established in June 2009, with the appointment of Commissioners. Following a busy period of appointing staff, drafting guidelines and setting up the office, they launched their first investigations in December 2009. This is the first published report from those investigations.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Vertical Restraints: New BER and Guidelines Adopted

Posted by D. Daniel Sokol

Stephan Simon (DG Comp) explains Vertical Restraints: New BER and Guidelines Adopted.

ABSTRACT: The new antitrust framework for vertical agreements applies a double market share threshold (one to buyers, one to sellers) and provides improved clarity on online sales—but leaves unchanged the set of hard cores restrictions.

The BER and its accompanying Guidelines provide improved clarity on a number of important issues and constitute a sufficiently flexible framework to last until the BER expires in 2022. The most significant change concerns the application of the 30 per cent market share threshold, which now also applies to buyers, in order to take account of their increased market power in some markets, and should be particularly beneficial for small and medium sized suppliers and buyers.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)

New Chambers USA Rankings Are Out - Massachusetts Antitrust Elite Edition

American Needle and the Boundaries of the Firm in Antitrust Law

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law)  provides some analysis on the recent Supreme Court decision in American Needle and the Boundaries of the Firm in Antitrust Law.

ABSTRACT: In American Needle the Supreme Court unanimously held that for the practice at issue the NFL should be treated as a “combination” of its teams rather than a single entity. However, the arrangement must be assessed under the rule of reason. The opinion, written by Justice Stevens, was almost certainly his last opinion for the Court in an antitrust case; Justice Stevens had been a dissenter in the Supreme Court’s Copperweld decision 25 years earlier, which held that a parent corporation and its wholly owned subsidiary constituted a single “firm” for antitrust purposes. The Sherman Act speaks to this issue but is not very helpful. Its §6 defines the word “person” to “include corporations and associations existing under or authorized by” law, but gives no particulars.

When antitrust tribunals decide if associations should be considered a single firm or a combination two factors stand out. One is whether the members remain as separate, significant economic actors in the marketplace. The ordinary corporation's shareholders do not and are thus unlike the members of a trade association, sports league, or the like. The second key factor is whether the challenged act controls or affects the individual market behavior of the members. In American Needle the conduct was exclusive licensing of the individually held trademark rights of each of the NFL’s member teams. These rights had been consolidated into a single holding company controlled by the NFL and then licensed exclusively to Reebok, thus ousting the plaintiff.

While American Needle is important, its significance for that case should not be exaggerated. If the NFL were a single entity the case would be characterized as exclusive dealing, or more properly an output contract, in which the NFL licensed to Reebok and no one else. Such agreements are analyzed under the rule of reason and their illegality usually depends on a “foreclosure” analysis in which illegality depends on the extent to which the plaintiff has been denied access to a properly defined relevant market. Also significant is that American Needle involves a trademark license, and the justification for restricted licensing of trademarks can be weighty, particularly if issues of origin or quality control are present. Even if exclusive trademark licenses are desirable, however, each separate NFL team could have granted its own individual exclusive licenses, and apparel manufacturers could then compete for one or more of these contracts.

June 23, 2010 | Permalink | Comments (0) | TrackBack (0)