Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, October 8, 2010

The Razors-and-Blades Myth(s)

Posted by D. Daniel Sokol

Randy Picker (University of Chicago) has a very interesting new paper titled The Razors-and-Blades Myth(s).  I highly recommend that you download it.

ABSTRACT: The razors-and-blades story offers a foundational understanding of a key area of economics and strategy: Invest in an installed base by selling the razor handles at low prices or even giving them away, then sell the razor blades at high prices to justify the prior investment. Large chunks of modern technological life - from VCRs and DVD players to video game systems like the Xbox and now ebook readers - seem to operate subject to the same dynamics of razors and blades.

At least on the paper, the competitive dynamics of this situation are straightforward and well understood. If you actually give away the handle to create the installed base, you need to recapture those loses in the blade sales. And if you are selling blades above cost, you need to be able to tie the blades to your handle or you should expect entry in the blades business to compete on the base that you have installed.

That is at least the theory. The actual facts of the dawn of the disposable razor blades market are quite confounding. Gillette’s 1904 patents gave it the power to block entry into the installed base of handles that it would create. While other firms could and did enter the multi-blade market with their own handles and blades, no one could produce Gillette handles or blades during the life of the patents.

From 1904-1921, Gillette could have played razors-and-blades - low-price or free handles and expensive blades - but it did not do so. Gillette set a high price for its handle - high as measured by the price of competing razors and the prices of other contemporaneous goods - and fought to maintain those high prices during the life of the patents. For whatever it is worth, the firm understood to have invented razors-and-blades as a business strategy did not play that strategy at the point that it was best situated to do so.

It was at the point of the expiration of the 1904 patents that Gillette started to play something like razors-and-blades, though the actual facts are much more interesting than that. Before the expiration of the 1904 patents, the multi-blade market was segmented, with Gillette occupying the high end with razor sets listing at $5.00 and other brands such as Ever-Ready and Gem Junior occupying the low-end with sets listing at $1.00.

Given Gillette’s high handle prices, it had to fear entry in handles, but it had a solution to that entry: it dropped its handle prices to match those of its multi-blade competitors. And Gillette simultaneously introduced a new patented razor handle sold at its traditional high price point. Gillette was now selling a product line, with the old-style Gillette priced to compete at the low-end and the new Gillette occupying the high end. Gillette foreclosed low-end entry by doing it itself and yet it also offered an upgrade path with the new handle.

But what of the blades? Gillette’s pricing strategy for blades showed a remarkable stickiness, indeed, sticky doesn’t begin to capture it. By 1909, the Gillette list price for a dozen blades was $1 and Gillette maintained that price until 1924, though there clearly was discounting off of list as Sears sold for around 80 cents during most of that time. In 1924, Gillette reduced the number of blades from 12 to 10 and maintained the $1.00 list price, so a real price jump if not a nominal one. That was Gillette’s blade pricing strategy.

It is hard to know what to say about that strategy. If Gillette had finally understood razors-and-blades they might have coupled their new low-end razor with higher blade prices and the two changes coincide roughly. But the other event, of course, was the expiration of the 1904 blade patents and eventual entry of Gillette blade competitors. That should have pushed blade prices down and made it difficult for Gillette to play razors-and-blades. Indeed, even with the drop from 12 to 10 blades, by 1930, Sears was selling genuine Gillette blades for the price it had been selling them prior to the packet reduction.

And all of that gets us to the final irony. No razors-and-blades during the years of 1904 patents. With the expiration of the patents, Gillette no longer had a way to tie the blades to the handles and thus, at least on paper, seemed to have no good way to play razors-and-blades. Yet with sale of razor sets to the U.S. government during World War I and the jump in handle sales with the introduction of the low-price old-style handle, Gillette’s installed based jumped rapidly and the profits followed.

And that leaves a hole in the analysis. Gillette hadn’t played razors-and-blades when it could have during the life of the 1904 patents and didn’t seem well situated to do so after their expiration, but it was exactly at that point that Gillette played something like razors-and-blades and that was when it made the most money. Razors-and-blades seems to have worked at the point where the theory suggests that it shouldn’t have. Why is that? Did Gillette succeed because of quality or were their powerful even-if-hard-to-discern-now locks - psychological or otherwise - between the razors and the blades?

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

Market concentration in the banking sector: Evidence from Albania

Posted by D. Daniel Sokol

Arjan Tushaj (University of Tirana - Economics) explores Market concentration in the banking sector: Evidence from Albania.

ABSTRACT: The market structure can be described by concentration ratios based on the oligopoly theory or the structure - conduct - performance paradigm. Measures of concentration and also competition are essential for banks conduction in the banking industry. Several researchers have proved concentration level to be major determinants of banking system efficiency. Theoretical characteristics of market concentration measures are illustrated with empirical evidence. The market structure of the Albanian Banking Sector has changed dramatically in recent years. On 1990s, our country has experienced deregulation, foreign bank penetration, and an accelerated process of consolidation and competition in the banking sector. Particularly, the working paper examines the nature and the extent of changes in market concentration of Albanian banking sector. It focused primarily on a descriptive and dynamic analysis of change in the concentration ! indices in banking sector from year to year. Also it examines how the inherited structure of the banking system affects the way of the distribution of market shares amongst the different banks that comprise on the banking sector.

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

Merger Review in the New High-Tech World

Posted by D. Daniel Sokol

Merger Review in the New High-Tech World

San Francisco and East Palo Alto, California
27 October 2010- 28 October 2010
Hosted By: NERA Economic Consulting

Regulatory changes and the rapid evolution of electronic retailing have brought a new level of uncertainty to merger review. This NERA seminar, to be held in San Francisco on 27 October and in East Palo Alto on 28 October, will address merger review in the context of Internet economics and the 2010 DOJ and FTC Merger Guidelines. The Guidelines, and particularly the concept of Upward Pricing Pressure, have placed profit margins at the center of merger review. This can have consequences for mergers in high-tech industries that are characterized by high fixed costs and low marginal costs. In addition, the economics of Internet retailers and related companies complicate the traditional review of mergers: the size of the players is rapidly evolving, entry costs are low, and there is a lack of transparency about prices or even who the competitors are.

NERA Senior Vice President Dr. Gregory K. Leonard will discuss considerations presented by mergers between firms with high profit margins, while Professor and NERA Special Consultant Michael Baye will discuss methods for analyzing the competitive effects of mergers in Internet retailing. Vice President Dr. Graeme Hunter will moderate the discussion.

Please RSVP by 20 October to RSVP@NERA.com. There is no attendance fee;  we are pleased to have you as our guest. One hour of CLE credit is available.

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

Information Exchanges Among Competitors: The Commission Takes a New Look

Posted by D. Daniel Sokol

Andreas Reindel (Fordham law) has posted Information Exchanges Among Competitors: The Commission Takes a New Look.

ABSTRACT: The European Commission's draft guidelines on horizontal agreements (the "Draft Guidelines") feature as one of its main innovations a new chapter on information exchanges among competitors. In it the Commission has put forward an analytical framework that should ensure a conceptually sound and consistent assessment of the broad range of diverse situations in which firms exchange information with their rivals.

The Commission document has already triggered strong reactions. One alarmist comment accused the Commission of seeking to drastically expand its enforcement powers, of creating the risk of jail time for potentially benign conduct, and of threatening to chill activities of third parties such as market research companies and journalists with its unprincipled enforcement zeal against information sharing.

Such comments might be designed to scare firms into hiring more lawyers, but they do not provide an accurate assessment of the Draft Guidelines. I believe that the Commission has proposed overall sound analytical principles for a practice that simply cannot be analyzed with the help of bright-line legal rules. Of course there are aspects in which the Draft Guidelines could and should be improved. But if the Guidelines' principles are followed in actual enforcement practice (an important "if," as I will explain below) the proposed approach should allow firms and their counsel to reasonably accurately assess the risks of information sharing, and should generally lead to case outcomes consistent with the Commission's view of EU competition law as a consumer-welfare prescription. On both counts the Draft Guidelines do a better job than existing case law and are therefore an improvement over the current state of affairs.

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

Thursday, October 7, 2010

Size Metrics and Dynamics of Firms Expansion in the European Pharmaceutical Industry

Posted by D. Daniel Sokol

Franco Mariuzzo (Geary Institute, University College Dublin, Ireland) and Xiaoheng Zhang (Economic and Social Research Institute, Dublin, Ireland) examine Size Metrics and Dynamics of Firms Expansion in the European Pharmaceutical Industry.

ABSTRACT: We generalize the growth-of-firm literature by linking alternative metrics of size via a Copula approach. We look at the result of the fitted Copula and justify the metric we base our analysis upon. We employ the Amadeus dataset and investigate the growth dynamics of the European pharmaceutical industry in the Single Market Programme era, 1990–2004. Relying on a set of dynamic panel Probit methods that deal with unobserved heterogeneity and initial conditions, we analyze how our units of investigation, multinationals, capture opportunities over time. We find strong evidence of state dependence and mean reversion, as predicated by the theory of maturation — firms face a period of rapid growth, followed by a slow down, or even a stop, in growth. We finish off our exercise by conditioning the fitted Copula on the predicted measure of size and simulate the remaining measures.

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

Antitrust and the Dynamics of Competition in High-Tech Industries

Posted by D. Daniel Sokol

Antitrust enforcement in technology industries is complex, in part because the sector is characterized by continuous innovation.  How can antitrust policy be formulated to prevent abuses yet not stifle innovation in these dynamic sectors?  Please join the Technology Policy Institute on October 22 for "Antitrust and the Dynamics of Competition in High-Tech Industries," where experts will discuss and critique four papers examining antitrust issues of concern for the technology and communications sectors.  The papers were prepared as part of the TPI project "Maintaining U.S. Leadership in Information and Communications Technology: Antitrust and the Dynamics of Competition in 'New Economy' Industries."

 

The authors scheduled to present are:

 

Robert Crandall, Senior Fellow, Economic Studies, Brookings Institution

 

Charles Jackson, Adjunct Professor of Electrical Engineering, George Washington University

Antitrust in High-Tech Industries: The Three Major Recent Monopolization Cases

 

Bruce Owen, Director, Public Policy Program, Stanford University and Senior Fellow, Stanford Institute for Economic Policy Research

Antitrust and Vertical Integration in "New Economy" Industries

 

Joshua Wright, Assistant Professor of Law, George Mason University Law School

Does Antitrust Enforcement in High Tech Markets Benefit Consumers? Stock Price Evidence from FTC v. Intel

 

Christopher Yoo, Professor of Law, Communication, and Computer and Information Science and Director, Center for Technology, Innovation, and Competition, University of Pennsylvania Law School

Cloud Computing:  Architectural and Policy Implications

 

Scheduled to discuss the papers are:

 

Tim Brennan, Professor, Public Policy and Economics University of Maryland, Baltimore County, and Senior Fellow, Resources for the Future

 

Joseph Farrell, Director, Bureau of Economics, Federal Trade Commission

 

Michael Salinger, Professor/Everett W. Lord Distinguished Faculty Scholar, Markets, Public Policy and Law, Boston University School of Management

 

Carl Shapiro, Deputy Assistant Attorney General for Economics, U.S. Department of Justice

 

The conference will be held October 22, 8:30 to 12:00 in the Polaris Suite at the Ronald Reagan Building and International Trade Center in Washington DC.  Registration can be performed and the TPI website and questions should be directed to Ashley Creel at acreel@techpolicyinstitute.org.  Members of the press should contact Amy Smorodin at asmorodin@techpolicyinstitute.org.

 

 

The Technology Policy Institute

The Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at http://www.techpolicyinstitute.org/.

 

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

Do Group Purchasing Organizations Achieve the Best Prices for Member Hospitals? An Empirical Analysis of Aftermarket Transactions

Posted by D. Daniel Sokol

Robert E. Litan (Kauffman Foundation, Brookings Institution) and Hal Singer Navigant Economics) discuss Do Group Purchasing Organizations Achieve the Best Prices for Member Hospitals? An Empirical Analysis of Aftermarket Transactions.

ABSTRACT: Group purchasing organizations (GPOs) were formed with the purpose of securing the best prices for medical devices for their member hospitals. They ostensibly do so by, among other things, conducting auctions for the right to supply a particular device to hundreds of hospitals at once. Until they were exposed to Congressional scrutiny of their practices, GPOs often structured these supply contracts as “sole source”—that is, the winning bidder would have exclusive access to the GPO’s member hospitals to supply the device. In the past few years, GPOs have restructured their contracts to allow “multisource” contracting among multiple device makers. Whether this has resulted in competitive prices for member hospitals is the subject of the current study. Even though competition for the GPO contract may have been marginally reduced by permitting multiple firms (rather than single firm) to supply the device in question, the GPO auction process should still generate competitive bids in theory. Because GPOs are still compensated with a share of the revenues generated under the contracts, however, they may be incentivized to maintain some monopoly pricing power for the winning bidder or bidders. After all, a fixed percentage (typically twotothree percent, but as high as 18 percent) of revenues from a monopoly concession is more valuable than the same percentage of a competitive concession. To measure the extent of this potential competitive distortion, we analyzed a database of approximately 8,100 aftermarket transactions, in which the winning GPO price was put up for bid after the initial GPO auction. The transactions data suggest that, when exposed to competition in the aftermarket, hospitals were able to achieve average savings of approximately 10 to 14 percent across the entire database (2001 through 2010) and a savings of 15 percent on average for 2010 data. Indeed, in over half of all auctions in the transactions database, incumbent device makers on the GPO contract were induced to lower their own prices for the same product to the same hospital, and did so by approximately 7 percent on average. Our results are inconsistent with the hypothesis that GPOs secure the best prices for their member hospitals. One clear policy implication of this study is to modify the incentives that limit the intended procompetitive objectives of GPOs—namely, by changing the method of compensation of GPOs to reduce conflicts of interest, which could be achieved by reinstating the application of the existing Medicare antikickback statute of the 1986 Social Security Act, thereby prohibiting vendors from paying GPOs. This exemption has allowed GPOs to retain an equity interest (or its functional equivalent) in their contracts with those whom they are to negotiate for lower prices. So long as GPOs are compensated via an equity interest in the concession, they have an inherent conflict that limits their ability to negotiate the best prices for their member hospitals and those hospitals (and their payors, including the federal government) will likely continue to overpay for medical devices. Based on the results from our empirical analysis, we conservatively estimate that changing the incentive structure by reapplying the antikickback statutes would reduce private U.S. health care expenditures by roughly $25 billion annually, and would reduce federal health care spending by roughly $11.5 billion annually.

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

Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance

Posted by D. Daniel Sokol

Jeffrey T. Prince (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) and Daniel H. Simon (School of Public and Economic Affairs, Indiana University) have an interesting new paper on Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance.

ABSTRACT: We examine if and how incumbent firms respond to entry, and entry threats, using non-price modes of competition. Our analysis focuses on service quality within the airline industry. We find that incumbent on-time performance actually worsens in response to entry, and even entry threats, by Southwest Airlines. Given Southwest’s general superiority in on-time performance, this result is consistent with equilibria of theoretical models of quality and price competition, which generally predict differentiation along quality. We corroborate this intuition with further analysis, showing there is no notable response by incumbents when an airline with average on-time performance (Continental) threatens to enter or enters a route.

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

Industry Concentration Dynamics and Structural Changes: The Case of Aerospace & Defence

Posted by D. Daniel Sokol

Štefan Lyócsa (Department of Business Informatics and Mathematics,Faculty of Business Economics in Košice),
Svatopluk Svoboda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic), and Tomáš Výrost (Department of Finance and Accounting, University of Economics in Bratislava) have a new paper on Industry Concentration Dynamics and Structural Changes: The Case of Aerospace & Defence.

ABSTRACT: In this paper we present a general approach and methodology for modelling concentration dynamics on industrial level. The majority of research in this field has usually been focused on estimating adjustment models, where the speed of adjustment of actual level of concentration to the long-run concentration was considered to be responsible for concentration dynamics. The long-run concentration is usually modelled implicitly by the means of often complex industry characteristic variables. We model the changes in concentration through a) long-term structural changes in the specific industry, b) short-term structural changes, stemming from individual company conduct, and c) changes in number of companies constituting the industry. On the sample of quarterly data from 1999 to 2009 using total assets for the companies in Aerospace & Defence Industry in the U.S. we have confirmed the existence of short-term, but lacked evidence for the long-term structural changes.

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

Revision of the EU Competition Rules on Cooperation in Research & Development and Production: Scope for Further Improvement

Posted by D. Daniel Sokol

Axel Gutermuth (Arnold & Porter) analyzes Revision of the EU Competition Rules on Cooperation in Research & Development and Production: Scope for Further Improvement.

ABSTRACT: As part of the pending revision of the EU competition rules on horizontal cooperation agreements, the EU Commission has proposed significant amendments to the two block exemption regulations covering research and development agreements  and specialization agreements as well as changes to the corresponding chapters of the Horizontal Guidelines. The proposed amendments aim to improve the existing framework of assessment rather than to radically change it. This has been largely achieved by the Commission expanding, simplifying, and clarifying the application of the two block exemption regulations and by aligning the text of the relevant chapters of the Horizontal Guidelines with the approach expressed in other recent Commission guidance documents, such as the Horizontal Merger Guidelines and the General Guidelines (previously referred to as the Article 81(3) Guidelines).

However, there remains scope for further improvement before the final versions of the revised texts are adopted later this year. This article identifies 10 aspects where, in the author's view, the Commission's proposed amendments should be further clarified or dropped in order to reach a sound competition policy solution and enhance legal certainty. As decisions and judgments of European competition authorities and courts assessing R&D and production agreements under EU competition law are scarce, clarity of the block exemption regulations and the relevant chapters of the Horizontal Guidelines is of particular importance.

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

Wednesday, October 6, 2010

Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry

Posted by D. Daniel Sokol

Federico Ciliberto (Virginia) Nicolai V. Kuminoff (Arizona State) explore Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry.

ABSTRACT: This paper investigates the large and unexpected increase in cigarette prices that followed the 1997 Master Settlement Agreement (MSA). We integrate key features of rational addiction theory into a discrete-choice model of the demand for a differentiated product. We find that following the MSA firms set prices on a more elastic region of their demand curves. Using these estimates, we predict prices that would be charged under a variety of industry structures and pricing rules. Under the assumptions of firms’ perfect foresight and constant marginal costs, we fail to reject the hypothesis that firms collude on a dynamic pricing strategy.

October 6, 2010 | Permalink | Comments (1) | TrackBack (0)

Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry

Posted by D. Daniel Sokol

Federico Ciliberto (University of Virginia) and Jonathan Williams (University of Georgia) ask Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry.

ABSTRACT: We nest conjectural parameters into a standard oligopoly model. The conjectural parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we find: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

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

The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years

Posted by D. Daniel Sokol

Carl Shapiro, University of California, Berkeley - Economic Analysis & Policy Group and DOJ Antitrust has posted The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years.

ABSTRACT: This paper discusses some of the economic principles underlying the revised Horizontal Merger Guidelines that were issued by the Department of Justice and the Federal Trade Commission in August 2010.


 

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

Health Insurance Transactions: Insights From The Front Line

Posted by D. Daniel Sokol

Health Insurance Transactions: Insights From The Front Line

November 9, 201012:00-1:30 P.M. EDT  

A panel of experts will discuss recent health insurance transactions, providing insights into the antitrust issues raised by these transactions and the analytical approaches that are used in evaluating them.  While historical transactions will be discussed, the panel will also consider what to expect in the future.  Both federal and state enforcement initiatives and perspectives will be considered.  

Moderator Fiona Schaeffer, Jones Day  

Panelists David Argue, Economists Incorporated
Joshua Soven, Chief of Litigation I, Department of Justice

Michael Spector, America's Health Insurance Plans (AHIP)
Jennifer A. Thomson, Deputy Attorney General, Pennsylvania Office of Attorney General

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

Séminaire Economie et droit de la concurrence : Les relations fournisseurs-distributeurs

Posted by D. Daniel Sokol

"Séminaire Economie et droit de la concurrence": Les relations fournisseurs-distributeurs, PARIS, 22 octobre 2010, 12.30 / 14.30 Friday, October 22, 2010 from 12:30 AM - 2:30 PM (GMT+0100)

Paris, France

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

The Standard-Setting Process and the European Commission's Draft Horizontal Guidelines

Posted by D. Daniel Sokol

Julia Holtz & Tero Louko (Google) discuss The Standard-Setting Process and the European Commission's Draft Horizontal Guidelines.

ABSTRACT: This brief commentary focuses on the section on Standardization Agreements in the Draft Guidelines (mainly paragraphs 269 - 290). While it is important to honor the intellectual property rights ("IPR") of participants in the standard-setting process, it is also important that the process is transparent and the members of the standardization agreement are aware of the likely cost of the technical choices when deciding among technologies during the standard-setting process. Also, to promote innovation and economic development (one of the stated policy goals of the Europe 2020 initiative), the standard-setting process should be geared towards identifying the "best in breed" technologies irrespective of the existing market position of the various companies participating in the standard-setting procedure.

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

Tuesday, October 5, 2010

Nonsequential Search Equilibrium with Search Cost Heterogeneity

Posted by D. Daniel Sokol

Jose Luis Moraga-Gonzalez (University of Groningen and CESifo), Zsolt Sandor (Universidad Carlos III de Madrid), and Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) explore Nonsequential Search Equilibrium with Search Cost Heterogeneity.

ABSTRACT: We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices with respect to the number of firms hinges upon the shape of the search cost distribution: when search costs are relatively concentrated (dispersed), entry of firms leads to higher (lower) average prices.

October 5, 2010 | Permalink | Comments (0) | TrackBack (0)

DOJ on Visa, MasterCard and American Express

Posted by D. Daniel Sokol

The DOJ Press Announcement is here.  Varney's statement is here.  Unlike Visa and Mastercard, AmEx did not settle.  This should make for some interesting litigation.  The AmEx legal team both in-house and external is very good.  The DOJ team is also quite good.

October 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Sector-Specific Competition Enforcement at the FCC

Posted by D. Daniel Sokol

Jon Baker (AU Law) has a very interesting new paper on Sector-Specific Competition Enforcement at the FCC.

ABSTRACT: This comment explains how and why sector-specific enforcement by the Federal Communications Commission (FCC) complements generalist competition enforcement by the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC), to the benefit of competition in the communications industry. It illustrates ways in which a sector-specific agency such as the FCC can foster competition by comparing merger reviews by the FCC and DOJ in the wake of the 1996 Telecommunications Act.

October 5, 2010 | Permalink | Comments (0) | TrackBack (0)

Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry

Posted by D. Daniel Sokol

Federico Ciliberto (University of Virginia) and Jonathan Williams (University of Georgia) have an interesting paper that asks Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry.

ABSTRACT: We nest conjectural parameters into a standard oligopoly model. The conjectural parameters are modeled as functions of multimarket contact. Using data from the US airline industry, we find: i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.

October 5, 2010 | Permalink | Comments (0) | TrackBack (0)