Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, July 20, 2010

Asymmetric information and exchange of information about product differentiation

Posted by D. Daniel Sokol

António Brandão (CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal) and Joana Pinho (Faculdade de Economia, Universidade do Porto, Portugal) discuss Asymmetric information and exchange of information about product differentiation.

ABSTRACT: We introduce asymmetric information about consumers' transportation costs (i.e., the degree of product differentiation) in the model of Hotelling (1929). When the transportation costs are high, both firms have lower profits than in the case of perfect information. Contrarily, both firms may prefer the asymmetric information case if the transportation costs are low (the informed firm always prefers the informational advantage, while the uninformed firm may or may not prefer to remain uninformed). Information sharing is ex-ante advantageous for the firms, but ex-post damaging in the case of low transportation costs. If the information is not verifiable, the informed firm always tends to announce that the transportation cost is high. To induce truthful revelation: (i) the uninformed firm must pay for the informed firm to confess that the transportation costs are low; and (ii) the informed firm must make a payment (to the un! informed firm or to a third party) for the uninformed firm to believe that the transportation costs are high.

July 20, 2010 | Permalink | Comments (0) | TrackBack (0)

A "PRINCIPLED" APPROACH TO THE DESIGN OF TELECOMMUNICATIONS POLICY

Posted by D. Daniel Sokol

Dennis L. Weisman (Kansas State - Econ) discusses A "PRINCIPLED" APPROACH TO THE DESIGN OF TELECOMMUNICATIONS POLICY.

ABSTRACT: The Obama administration came into power championing a philosophical shift in regulatory and antitrust policy. The telecommunications industry was singled out by the administration as a case where past regulatory or antitrust policies may have been too permissive. Prominent policy issues slated for (re)examination include forbearance from network unbundling obligations, net neutrality regulation, and prospective market failures in the provision of broadband. The principal objective of this article is to develop a set of competition and regulatory principles, firmly grounded in the law and economics literature, that can serve to inform the design of the optimal public policy for the telecommunications sector.

July 20, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, July 19, 2010

INNOVATION SPILLOVERS AND THE "DIRT ROAD" FALLACY: THE INTELLECTUAL BANKRUPTCY OF BANNING OPTIONAL TRANSACTIONS FOR ENHANCED DELIVERY OVER THE INTERNET

Posted by D. Daniel Sokol

J. Gregory Sidak (Tilburg Law)  and David J. Teece (Berkeley Haas School of Business) explore INNOVATION SPILLOVERS AND THE "DIRT ROAD" FALLACY: THE INTELLECTUAL BANKRUPTCY OF BANNING OPTIONAL TRANSACTIONS FOR ENHANCED DELIVERY OVER THE INTERNET.

ABSTRACT: In October 2009, the Federal Communications Commission proposed "net neutrality" regulations, including a new rule that would have the effect of banning optional business-to-business transactions between broadband Internet service providers (ISPs) and content providers for enhanced delivery of packets over the Internet. The proposed "nondiscrimination" rule would have the ironic effect of actively discriminating against any kind of content or application that is differentiated by its need for greater assurance of higher quality transmission across the Internet (known as quality of service, or QoS) than undifferentiated best-effort delivery can offer. This result not only would reduce static efficiency by encouraging higher consumer prices, but also would reduce dynamic efficiency by retarding innovation. The proposed rule manifests an inverse relationship between means and ends, for it would actively thwart the Commission's stated purpose of promoting innovation both in and at the edges of the network. These economic considerations set the bar very high for those who claim that the new regulation is needed to prevent theoretical harms that have not materialized in more than a decade of real-world experience. By now, the economic arguments in favor of network neutrality regulation have coalesced around three principal theories. The first is the theory that, if permitted to charge suppliers of content or applications for optional higher quality delivery, network operators will ignore positive spillover effects and set charges at higher than socially optimal levels. The second is the theory that vertically integrated network operators will foreclose independent providers of Internet content and applications. A third and less clearly articulated theory is that the broadband ISP will degrade the quality of best-effort delivery of Internet packets—reducing the quality of best-effort delivery to that of a "dirt road"—as a means of coercing suppliers of content or applications into purchasing superior QoS. We show that none of these three theories of harm is plausible. Certainly, none justifies the proposed across-the-board ban on optional business-to-business QoS transactions between ISPs and content providers—transactions that could prove particularly valuable to smaller content providers looking to differentiate their offerings from and compete with larger content rivals that have the scale and resources to meet their QoS needs with third-party or self-deployed content delivery networks.

July 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Demand Cross Elasticity Without Substitutability: Evidence from an Experiment

Posted by D. Daniel Sokol

Luigi Luini, University of Siena - Department of Economics and Pierluigi Sabbatini, Government of the Italian Republic (Italy) - Italian Competition Authority address Demand Cross Elasticity Without Substitutability: Evidence from an Experiment.

ABSTRACT: We study a market where goods are produced under low marginal costs with a poor degree of substitutability among products. In such an environment we ran an experiment in order to explain why prices are interdependent even when preferences are independent. We compare our results to previous theoretical and laboratory experimental literature on price fairness. We find that, even in absence of interaction among subjects, price fairness/unfairness do play a major role in accepting/rejecting a deal. Subjects tend to be more resistant to a price increase and reject a deal when the favourite product is not anchored to price increases of not substitutable products, if these products are considered to be a benchmark for fair conduct. Therefore demand cross elasticity can arise also between products which are not substitutes. This result has an important implication for the delineation of an antitrust market. Due to fairness concerns, in the markets that we consider products which are not interchangeable should be included in the relevant market.

July 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Monopsony in Law and Economics

Posted by D. Daniel Sokol

My colleagues and friends Roger Blair (University of Florida - Econ) and Jeff Harrison (University of Florida - Law) have the excellent 2nd edition coming out of Monopsony in Law and Economics.  The book significantly revises the first edition, which came out in 1993.

ABSTRACT: Most readers are familiar with the concept of a monopoly. A monopolist is the only seller of a good or service for which there are not good substitutes. Economists and policy makers are concerned about monopolies because they lead to higher prices and lower output. The topic of this book is monopsony, the economic condition in which there is one buyer of a good or service. It is a common misunderstanding that if monopolists raise prices, then monopsonists must lower them. It is true that a monopsonist may force sellers to sell to them at lower prices, but this does not mean consumers are better off as a result. This book explains why monopsonists can be harmful and the way law has developed to respond to these harms.

1. Introduction; 2. The antitrust laws and monopsonistic forms of conduct; 3. Economic theory of monopsony; 4. The antitrust response to monopsony and collusive monopsony; 5. Cooperative buying efforts; 6. Bilateral monopoly; 7. Monopsony and antitrust enforcement; 8. Monopsony in action: agricultural markets; 9. Monopsony in action: the NCAA; 10. Monopsony in action: physician collective bargaining: monopoly or bilateral monopoly; 11. Final comments.

July 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Getting Linkedin to Antitrust and Competition Issues

Posted by D. Daniel Sokol

Ever wonder who the other readers of the blog are and your potential opportunities to network with them?  I have created a Linkedin site for readers of the blog to network and post announcements on substantive issues and also on any job announcements and tenders.  Click here to join.  If anyone can create a logo for the site, please let me know.

July 19, 2010 | Permalink | Comments (2) | TrackBack (0)

Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras

Posted by D. Daniel Sokol

Juan Esteban Carranza (Universidad Icesi) explores Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras.

ABSTRACT: This paper contains an empirical dynamic model of supply and demand in the market for digital cameras with endogenous product innovation. On the demand side, heterogeneous consumers time optimally the purchase of goods depending on the expected evolution of prices and characteristics of available cameras. On the supply side, firms introduce new camera models accounting for the dynamic value of new products and the optimal behavior of consumers. The model is estimated using data from the market for digital cameras and the estimated model replicates rich dynamic features of the data. The estimated model is used to perform counterfactual computations, which suggest that more competition or lower product introduction costs generate more product variety but lower average product quality.

July 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Sunday, July 18, 2010

Workshop on Competition Policy in Mauritius

Posted by D. Daniel Sokol

On 20th July 2010, the Competition Commission of Mauritius, (CCM), will host a workshop on “Competition Policy in Mauritius” at Sugar Beach Resort.

The Honourable Yatin Varma, Attorney-General , will open the ceremony and the Mr Satyajit Boolell, Director Public Prosecution will present on the Competition Act 2007.

The Keynote speaker will be Dr Frédéric Jenny, Judge at the Cour de Cassation and Chairman of the OECD Competition Committee. Dr Frédéric Jenny is one of the leading world authorities on competition policy. He is a respected academic economist who also sits as a judge and as a decision-maker on the Board of the OFT, the UK competition agency. He was closely involved in the establishment of what is now Autorité de la Concurrence in France and served as its Vice-President from 1993 to 2004. Dr Frédéric Jenny is being hosted by the Competition Commission of Mauritius for a three-day visit. During this time, as well as the workshop, he will conduct seminars for CCM staff and meet justices of the Supreme Court to help them prepare for their appeal role.

The workshop will also provide for a panel discussion on selected topics on competition policy, with expert speakers, including Pierre Dinan, Sanjeev Ghurburrun, Raj Makoond, and Dr Frédéric Jenny.

John Davies, Executive Director of the CCM said yesterday “I am delighted to have such a prestigious guest as Dr Frédéric Jenny speaking at this workshop. As a world authority on competition policy he will greatly enhance our understanding of competition issues, we are looking forward to benefiting from his wide ranging knowledge and experience.”

“This workshop is perfectly timed, as the CCM has recently released its first report and competition policy is coming into focus in Mauritius. I therefore expect and hope for lively debate on the topic.”

If you are interested in attending please contact the CCM to RSVP: Ph: 211 2005 211 2005  or email info@ccm.mu
 
Agenda
 
Brief on Dr Frédéric Jenny
 

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