Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, January 30, 2010

Conference on Antitrust Litigation - Conflict of Laws and Coordination

Posted by D. Daniel Sokol

Conference on “Antitrust Litigation - Conflict of Laws and Coordination”

 

With the decentralization of competition law enforcement and the development of private damages actions in the European Union as well as with the increasingly international character of antitrust proceedings, there is a growing need for clear and workable rules to coordinate cross-border actions of both a judicial and administrative nature. These include not only rules on jurisdiction, the applicable law and recognition of judgments, but also on sharing of evidence, protection of business secrets and interplay between administrative and judicial procedures. Those issues, which have been overlooked for so long, have been reflected upon by a group of international experts from across Europe and the United States who will identify current pitfalls and formulate concrete proposals for improving coordination of cross-border antitrust litigations.

Organized by: Louvain University – Chair of European Law (Prof. Francq), University Paris II Panthéon-Assas – Collège européen de Paris (Prof. Idot) and the Max Planck Institute for International and Comparative Law (Prof. Basedow), with the support of the Civil Justice program of the European Commission.

 

Date: 26 March 2010.

Location: Hilton Brussels, Boulevard de Waterloo 38, 1000 Brussels.

Contact: [email protected], +32 (0)10 474774
Full program and list of speakers available at http://www.uclouvain.be/en-286505.html 

 

Conférence sur « Contentieux de la concurrence – Conflits de lois et coordination des systèmes juridiques »

 

La décentralisation de l’application du droit communautaire de la concurrence et le développement des actions en dommages et intérêts dans l’Union européenne, ainsi que l’internationalisation croissante des litiges et enquêtes en matière antitrust, nécessitent des règles claires afin de coordonner efficacement les actions transfrontalières, qu’elles soient de nature judiciaire ou administrative. En effet, ces situations posent d’innombrables questions quant à la détermination de l’autorité compétente et du droit applicable, la reconnaissance et l’exécution des jugements et décisions, mais également l’échange de preuves, la protection des secrets d’affaires et les relations entre action judiciaire et procédure administrative. Ces problématiques trop souvent ignorées ont fait l’objet d’un projet de recherche regroupant des experts européens et américains qui présenteront leurs conclusions et formuleront des propositions concrètes afin d’améliorer la coordination des litiges transfrontaliers en matière de concurrence.

Organisé par: Université de Louvain – Chaire de droit européen (Prof. Francq), Université Paris II Panthéon-Assas – Collège européen de Paris (Prof. Idot) et Institut Max Planck pour le droit international et comparé (Prof. Basedow), avec le soutien du programme « Justice civile » de la Commission européenne.

 

Date: 26 mars 2010.

Lieu: Hilton Bruxelles, Boulevard de Waterloo 38, 1000 Bruxelles.

Contact: [email protected], +32 (0)10 474774
Programme et liste des orateurs disponibles sur http://www.uclouvain.be/en-286505.html


January 30, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, January 29, 2010

Indirect network effects with two Salop circles: the example of the music industry

Posted by D. Daniel Sokol

Ralf Dewenter- TU Ilmenau, Justus Haucap- University of Erlangen-Nuremberg and Tobias Wenzel University of Erlangen-Nuremberg explain Indirect network effects with two Salop circles: the example of the music industry.

ABSTRACT: This paper analyses the interdependency between the market for music recordings and concert tickets, assuming that there are positive indirect network effects both from the record market to ticket sales for live performances and vice versa. Using a model with two interrelated Salop circles we show that prices in both markets are corrected downwards when compared to the standard Salop model. Furthermore, we show that the effects of file sharing on firms' profitability and on variety are ambiguous. File sharing can increase profits through increased concert ticket demand and thereby also lead to additional market entry and additional variety.

January 29, 2010 | Permalink | Comments (0) | TrackBack (0)

Strategic Vertical Separation

Posted by D. Daniel Sokol

Igor Sloev (Humboldt University Berlin) analyzes Strategic Vertical Separation.

ABSTRACT: The paper explores incentives for strategic vertical separation of firms in a framework of a simple duopoly model. Each firm chooses either to be a retailer of its own good (vertical integration) or to sell its good through an independent exclusive retailer (vertical separation). In the latter case a two-part tariff is applied. Retailers compete in quantities, goods are perfect substitutes and firms' cost functions are quadratic. I show that the equilibrium outcome crucially depends on the degree of (dis)economies of scale and asymmetry of costs. Two asymmetric equilibria arise, in which one firm separates while another integrates, under conditions that both firms' cost functions exhibit a sufficiently high diseconomies of scale, or extreme asymmetry of costs. Under a moderate asymmetry of costs a unique equilibrium exists in which the firm with the lower degree of diseconomies of scale separates, while its rival integra! tes. With the degree of diseconomies of scale low for both firms in the unique equilibrium both firms separate.

January 29, 2010 | Permalink | Comments (0) | TrackBack (0)

Product variety, price elasticity of demand and fixed cost in spatial models

Posted by D. Daniel Sokol

Yiquan Gu, Technische Universit¨at Dortmund and Tobias Wenzel, Universit at Erlangen-Nurnberg determine Product variety, price elasticity of demand and fixed cost in spatial models.

ABSTRACT: This paper explores the implications of price-dependent demand in spatial models of product differentiation. We introduce consumers with a quasi-linear utility function in the framework of the Salop (1979) model. We show that the so-called excess entry theorem relies critically on the assumption of completely inelastic demand. Our model is able to produce excessive, insufficient, or optimal product variety. A proof for the existence and uniqueness of symmetric equilibrium when price elasticity of demand is increasing in price is also provided 

January 29, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 28, 2010

Monitoring Costs and the Law of Franchise Tying Contracts: A Behavioral Perspective

Posted by D. Daniel Sokol

Uri Benoliel,  Academic Center of Law & Business analyzes Monitoring Costs and the Law of Franchise Tying Contracts: A Behavioral Perspective.

ABSTRACT: Traditional law-and-economics analysis suggests that the per se illegality rule that governs franchise tying contract is inefficient. Legal economists particularly argue that a per se illegal standard fails to account for the enhancement in efficiency that a franchise tying contract provides. One central improvement in efficiency that a franchise tying contract creates, according to legal economists, is a decrease in the franchisor's monitoring costs. Particularly, by requiring from a franchisee to purchase products directly from the franchisor, a tying contract reduces the costs that the franchisor will have to incur in order to monitor the quality of products sold by the franchisee to customers.

Building upon a noteworthy body of empirical research, this article will argue that traditional law-and-economic analysis is incomplete. Although a franchise tying contract may reduce product quality-related monitoring costs, this contract is also likely to significantly increase other monitoring costs.

More specifically, this article will argue that a centralized franchise tying relationship is likely to continually constrain the franchisee's autonomy. Consequently, the tying relationship is likely to decrease the franchisee's satisfaction in the relationship. Such emotional experience of decreased satisfaction is likely to promote aggressive retaliatory behavior. Aggressive retaliatory behavior will take the form of franchisee opportunistic behavior. Ultimately, a centralized tying relationship will increase the likelihood that the franchisee will take three central types of opportunistic actions towards the franchisor: manipulate information, shirk the contractual obligation to provide adequate customer service and shirk the contractual obligation to maintain the entire franchise unit clean. These potential opportunistic actions are likely, accumulatively, to significantly increase the franchisor's information, customer-service and cleanliness-related monitoring costs. Such incrase will off-set the arguable product-quality monitoring cost savings generated by a franchise tying contract.

January 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels

Posted by D. Daniel Sokol

Maurice "My Middle name is 'Eital' but it really should be 'I eat, read and sleep Behavioral Economics'" Stucke (Tennessee - Law) asks, Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels.

ABSTRACT: This article considers why executives risk prison, their careers, and their status in the community, and violate the antitrust laws. The generally accepted approach today is that price-fixers behave as “rational” profit-maximizers. Executives engage in a cost-benefit analysis to see if the benefits from the crime are worth taking the risks. To achieve optimal deterrence, the economic theory goes, the antitrust penalty should equal the violation’s expected net harm to others (plus enforcement costs) divided by the probability of detection and proof of the violation. Despite increasing antitrust fines and jail sentences, cartels continue to exist. Before the United States responds with greater fines and jail sentences, it makes sense to evaluate several assumptions underlying optimal deterrence theory. In reviewing the behavioral economics literature, policymakers will have a better grasp of the situational and dispositional factors that promote price-fixing.

January 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Farrell and Shapiro: The Sequel

Posted by D. Daniel Sokol

Gregory K. Leonard (NERA) and Mario A. Lopez (NERA) have written on Farrell and Shapiro: The Sequel.

ABSTRACT: A review of the writings of Joseph Farrell and Carl Shapiro suggest directions they may take antitrust enforcement as chief economists at the Federal Trade Commission and the Antitrust Division of the Department of Justice, respectively.

January 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Advertising, Product Differentiation and Cooperation

Posted by D. Daniel Sokol

Moshe Bar-Niv (Burnovski)  Interdisciplinary Center Herzliyah - Radzyner School of Law and Israel Zang explain Advertising, Product Differentiation and Cooperation

ABSTRACT: Collaboration among sizeable competitors is usually considered to be harmful to social welfare while competition among such competitors is perceived the better, or even best, mode of operation. We examine industries where the goods produced are homogeneous and producers employ advertising in order to artificially differentiate the products in the eyes of customers. Our two stage game models consider firms that advertise in the first stage and then compete, in the second stage, in the final products market. We explore the effects of either a no-advertising regime, a competition regime, or a cooperation regime in the advertising stage. We examine the consumer and producer welfare effects of the above regimes, and show that cooperative advertising dominates competitive advertising as both customers and producers would prefer cooperation over competition. Indeed, cooperative advertising yields higher profits, lower prices and less wasteful advertising. Hence, forbidding cooperation (cartel) in the advertising phase, as an antitrust violation, is erroneous, and the regulator should rather allow and even encourage such cooperation. Similarly, courts, while dealing with such advertising collaboration, should interpret the rule of reason in a manner that defines it within the legitimate range of economic behavior.

January 28, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 27, 2010

Post-Sale Restraints and Competitive Harm

Posted by D. Daniel Sokol

Herb Hovenkamp, University of Iowa College of Law, has new paper.  This one is titled Post-Sale Restraints and Competitive Harm.  Herb is both amazingly prolific and insightful.  How he manages to write so much and keep up his two treatises is beyond me.

ABSTRACT: A post-sale restraint is a condition or contract provision that operates after a good has been sold. In antitrust law these restraints are roughly divided into two classifications, “intrabrand” and “interbrand.” An intrabrand restraint limits the way a firm can distribute the restricted property. For example, resale price maintenance controls the price at which goods can be resold. Intrabrand nonprice restraints place other types of limits, such as the places from which goods can be sold, the uses for which they can be sold, and the identity of buyers. By contrast, an interbrand restraint limits a purchaser’s right to deal in the goods of rivals. “Exclusive dealing” involves a buyer’s promise not to purchase competing goods from anyone else, and “tying” refers to a buyer’s promise to take a second product from this seller as well. Intellectual property policy also has rules that limit post-sale restraints. Many of these are addressed under the rubric of intellectual property “misuse,” whose substance is similar but not identical to antitrust rules. A third rule, the IP “exhaustion” or “first sale” requirement, applies to these same restraints as well. Unlike both antitrust doctrine and misuse doctrine, the first sale rule refuses to enforce post-sale restraints without querying into anticompetitive effects, economic benefits or impact on innovation. Whatever policy justifications it may have were not made apparent in the Supreme Court’s 2008 Quanta decision, its first application of patent law’s first sale doctrine in sixty years. Quanta ended a trend in both the Supreme Court and Federal Circuit of using the law of post-sale restraints to prohibit unreasonable limitations on competition or innovation, while permitting the market to govern their use otherwise. Instead the Court reverted to a per se rule that refuses to enforce post-sale restraints without regard to economic consequences. While rationales exist for the first sale doctrine, these pertain to whether breach of contract suits or infringement actions are better devices for downstream enforcement of IP restraints and the extent of notice communicated to downstream infringers. But these considerations were also irrelevant to the per se rule that the Supreme Court adopted. This paper critiques this per se approach to first sale doctrine, concluding that it lacks a defensible policy justification and that it is inconsistent with a decades long trend toward increasing sophistication in the analysis of vertical restraints involving intellectual property rights.

January 27, 2010 | Permalink | Comments (0) | TrackBack (0)

Barry Hawk Returns to Fordham to Full Time Director Role for Competition Law Institute

Fordham Law School

 

 

Fordham Competition Law Institute

 

The Fordham Competition Law Institute is happy to announce that Barry Hawk has returned to Fordham as full-time Director of the Institute.

 

 

 

January 27, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition Among the Big and the Small

Posted by D. Daniel Sokol

Ken-Ichi Shimomura and Jacques-François Thisse (CREA, University of Luxembourg) have a new paper on Competition Among the Big and the Small.

ABSTRACT: Armchair evidence shows that many industries are made of a few big commercial or manufacturing firms, which are able to affect the market outcome, and of a myriad of small family-run businesses with very few employees, each of which has a negligible impact on the market. Examples can be found in apparel, catering, publishers and bookstores, retailing, finance and insurances, and IT industries. We provide a new general equilibrium framework that encapsulates both market structures. Due to the higher toughness of the market, the entry of big firms leads them to sell more through a market expansion effect, which is generated by the exit of small firms. Furthermore, the level of social welfare increases with the number of oligopolistic firms because the procompetitive effect associated with the entry of a big rm dominates the resulting decrease in product variety.

January 27, 2010 | Permalink | Comments (0) | TrackBack (0)

An Update on the Review of the Horizontal Merger Guidelines

Posted by D. Daniel Sokol

Christine Varney (DOJ) provides An Update on the Review of the Horizontal Merger Guidelines.

January 27, 2010 | Permalink | Comments (0) | TrackBack (0)

Conditioning prices on search behaviour

Posted by D. Daniel Sokol

Mark Amstrong (UCL - Econ) and Jidong Zhou  (UCL - Econ) explain Conditioning prices on search behaviour.

ABSTRACT: We consider a market in which firms can partially observe each consumer's search behavior in the market. In our main model, a firm knows whether a consumer is visiting it for the first time or whether she is returning after a previous visit. Firms have an incentive to offer a lower price on a first visit than a return visit, so that new consumers are offered a "buy-now" discount. The ability to offer such discounts acts to raise all prices in the market. If firms cannot commit to their buy-later price, in many cases firms make "exploding" offers, and consumers never return to a previously sampled firm. Likewise, if firms must charge the same price to all consumers, regardless of search history, we show that they sometimes have the incentive to make exploding offers. We also consider other ways in which firms could use information about search behaviour to determine their prices.

January 27, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 26, 2010

SIGNALING IN AUCTIONS AMONG COMPETITORS

Posted by D. Daniel Sokol

Benedikt von Scarpatetti (University of Basel) and Cédric Wasser (Humboldt University of Berlin) provide their thoughts on SIGNALING IN AUCTIONS AMONG COMPETITORS.

ABSTRACT: We consider a model of oligopolistic firms that have private information about their cost structure. Prior to competing in the market a competitive advantage, i.e., a cost reducing technology, is allocated to a subset of the firms by means of a multi-object auction. After the auction either all bids or only the prices to be paid are revealed to all firms. This provides an opportunity for signaling. Whether there exists an equilibrium in which bids perfectly identify the bidders’ costs generally depends on the type and fierceness of the market competition, the specific auction format, and the bid announcement policy.

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

The (Early) Triumph of Law and Entrepreneurship

Posted by D. Daniel Sokol

Because there is some overlap between entrepreneurship and antitrust, I include a cross post that I wrote for the Faculty Lounge.

How do you know that a field has "made it" in the legal academy?  The answer is when a school creates an LLM program in the area.  Luckily, this past week the Wall Street Journal Law Blog reported that not one but two schools are in the process of starting up Law and Entrepreneurship LLM programs - Duke and Colorado.

This semester in my own Law and Entrepreneurship class we just finished a unit on what is distinct about entrepreneurship as well as law and entrepreneurship.  I suspect that with the Kauffman Foundation providing the funding for cutting edge research in the area, within the next few years the field will look a bit more coherent to those outside of it.  

So, what is Law and Entrepreneurship? 

Generally speaking, “entrepreneurship” involves new products or services, new ways of organizing, or new geographic markets (collectively, “entrepreneurial opportunities”). A key feature of entrepreneurial opportunities is their novelty. Entrepreneurial opportunities may be novel in a strong sense, which typically implies a technological breakthrough, or they may be novel in a weak sense, such as opening a new restaurant in a vacant building. We define entrepreneurship as “engaging in a novel activity that carries substantial risk or uncertainty, in a sustained manner with the intent of creating an ongoing enterprise.” Operationally, this usually translates to “founding a new firm.” Understanding law is relevant to understanding entrepreneurship.

Focusing on “law” as it relates to entrepreneurship can mean various things, but the basic idea of “law and entrepreneurship” is to find either (1) a unique set of legal rules or legal practices in the entrepreneurial context, or (2) the unique expression or interaction of more generally applicable legal rules in the entrepreneurial context. “Legal rules” include constitutions, statutes, regulations, and common law doctrines. “Legal practices” include contracts or other forms of private ordering. Further, we include “legal bodies.” By “legal bodies” we mean the personnel, technologies, facilities, operational routines, etc. that implement legal rules and practices including the legal profession. For example, professions are organizers and rationalizers of the organizational environment. Legal bodies include the linkages to work on law firm management, legal ethics, and the nature of corporate legal work.

In my own research in this area for an article in which I am writing with Gordon Smith(BYU Law), we note that lots of the existing literature in entrepreneurship is fundamentally about legal issues.  Nevertheless,  academics in other fields that have been active in entrepreneurship research (sociology/org theory, accounting, finance and economics) for the most part have yet to make these connections explicit in their work.

As I explained to a colleague on Friday who wondered why the "law" part is so important if it has not been explicit in much of the non-legal research to date, my answer to him is that the "law" is like the Book of Esther.  Unlike other books of the Bible, God (in all possible variations of the name) does not appear even once in the Book of Esther.  However, as we learned in Hebrew School, this does not mean that God is not ever-present in the story. 

Biblical allusions aside, law and entrepreneurship is a hot field and one that I think will continue to grow in part because the study of entrepreneurship  has taken off in many universities.  With BIGLAW jobs perhaps no longer guaranteed for students, law and entrepreneurship allows students to access an area of law where jobs might be possible for those who are willing to take on some risk.  Additionally, increasingly the structure of BIGLAW might make a number of current BIGLAW associates and partners more willing to take the plunge into a fascinating area of law that is a driver of US innovation and growth. 

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

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

Posted by D. Daniel Sokol

See here.

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

A general model of oligopoly endogenizing Cournot, Bertrand, Stackelberg, and Allaz-Vila

Posted by D. Daniel Sokol

Yves Breitmoser (Faculty of Business Administration, Europa-Universität Viadrina) provides A general model of oligopoly endogenizing Cournot, Bertrand, Stackelberg, and Allaz-Vila.

ABSTRACT: This paper analyzes a T-stage model of oligopoly where firms build up capacity and conclude forward sales in stages t<T, and they choose production quantities in t=T. We consider the case of n firms with asymmetric marginal costs. In the two-stage game, the set of outcomes is a quasi-hyperrectangle including Cournot, Allaz-Vila, and all two-stage Stackelberg outcomes. In general, it consists of T-1 such hyperrectangles where the lower bound approaches the Bertrand outcome as T tends to infinity. In the limit, a range of outcomes stretching from Cournot via Stackelberg to Bertrand can result in equilibrium, i.e. the mode of competition is entirely endogenous.

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

CARTEL SANCTIONS AND THE BALANCE OF OPTIMAL ENFORCEMENT

Posted by D. Daniel Sokol

Jevons Forum 2010: Cartel Sanctions and the Balance of... Logo

The UCL Jevons Institute for Competition Law and Economics is pleased to announce its Fifth Annual  Forum on Antitrust and Regulation:


CARTEL SANCTIONS AND THE BALANCE OF OPTIMAL ENFORCEMENT


to be held on 4 February 2010  from 5.30 - 8.00pm, at University College London
accredited with 2 CPD hours by the Bar Standards Board and the Solicitors Regulation Authority


About this event:

Use of cartel sanctions and the effectiveness of public and private enforcement against cartels is coming under renewed scrutiny.  Some of the issues that are being considered in Europe include: enhanced penalties for recidivism, full waivers for leniency applicants who are also ringleaders, co-operation outside the leniency process, the role of private damages and the issue of parent-company liability.  The issue of criminal sanctions is being considered at national level.  The incoming Commissioner Almunia and DG Comp will have to tackle all these issues in the coming months.  These themes have implications also national level for both national authorities and courts, particularly in the UK where private damages are taking off and cartelists can be exposed to criminal prosecutions.  Judge Douglas Ginsburg of US Court of Appeals for the DC Circuit will discuss some of those issues from a US and international perspective and the Jevons Forum will include contributions from John Fingleton of the OFT, Ewatt Sakker of the European Commission and a judge from the newly-renamed EU General Court.  Sir Christopher Bellamy a former CFI judge and President of the UK Competition Appeal Tribunal will chair the debate.

To book your place at this event please click on the link below.

 

You are invited to the following event:
Jevons Forum 2010: Cartel Sanctions and the Balance of Optimal Enforcement

Date:
Thursday, February 04, 2010 from 5:30 PM - 8:00 PM (GMT)

Location:
UCL Gustave Tuck Lecture Theatre
Gower St
London
United Kingdom

 

 

Can you attend this event?  Respond Here

 


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

Antitrust and Competition Policy Blog Online Symposium on Competition in Agriculture Coming Soon

Posted by D. Daniel Sokol

The week of February 8, 2010, we will host an online symposium of a number of professors on competition in agriculture, which will include some discussion of antitrust/IP issues.  More details to follow once we have confirmation of all of the participants.

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

Submarket Dynamics and Innovation: The Case of the U.S. Tire Industry

Posted by D. Daniel Sokol

Guido Buenstorf and Steven Klepper write on Submarket Dynamics and Innovation: The Case of the U.S. Tire Industry.

ABSTRACT: Beginning in 1922, the rate of exit of U.S. tire producers increased sharply and the industry began a severe and protracted shakeout. Just five years earlier, the tire industry experienced a surge in entry that led to a rise of over 80% in the number of producers. We propose an explanation for this episode based on the idea of industry submarkets, which we incorporate in a model of shakeouts. We test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire, a key innovation we feature in our theory. Our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents, accentuating the shakeout of producers.

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