Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, November 5, 2010

Acquisitions as a Response to Deregulation: Evidence from the Cable Television Industry

Posted by D. Daniel Sokol

David Byrne (University of Melbourne) discusses Acquisitions as a Response to Deregulation: Evidence from the Cable Television Industry.

ABSTRACT: This paper studies the dynamics of an industry that is subject to exclusive geographical licensing. I develop a model of license ownership that predicts the evolution of profit-maximizing entry and acquisition decisions by firms over time, starting from an initial allocation of licenses. The entry and acquisition process is modeled as a one-sided coalition-formation game as in Farrell and Scotchmer (1988), where acquisition payoffs depend on economies of scale and agglomeration (economies of density). I estimate the model for the cable television industry in Canada using a panel that I have constructed from 1990 to 1996. The dataset builds up from the national regulator’s license ownership decision files, and contains license-level information on acquisition decisions, subscribership, and subscription profits. The model is estimated in two steps. I first estimate firms’ license-level profit functions, and then estima! te the parameters of the fixed, merger and entry cost functions by Simulated Maximum Likelihood. Through counterfactual simulations, I use the estimated model to quantify the extent to which economies of scale and density drive acquisition behaviour, and to evaluate how merger activity reacts to a partial deregulation that occurs in 1994. Counterfactual experiments are also used to evaluate policies that stimulate entry or reduce acquisitions in the early years of the sample. The main finding is that these policies can lead to more productive dominant firms in the long-run as the industry consolidates.

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

Market Regulation and Competition; Law in Conflict: A View from Ireland, Implications of the Panda Judgment

Posted by D. Daniel Sokol

Philip Andrews (McCann FitzGeraldMcCann FitzGerald) and Paul K Gorecki (Economic and Social Research Institute) address Market Regulation and Competition; Law in Conflict: A View from Ireland, Implications of the Panda Judgment.

ABSTRACT: On 21 December 2009 the Irish High Court found that a regulatory proposal, the Variation, by the four Dublin local authorities, is a breach of national competition law. The Variation allows a single operator to collect household waste, irrespective of whether the operator is selected by competitive tender or the local authority reserves the collection function to itself. The judgment has important, possibly groundbreaking, implications. Local government is held to be an undertaking and hence its decisions susceptible to review and prohibition under national competition rules. The burden of the paper is, however, that the local authorities are not undertakings for the purposes of competition law when they made the Variation. Even if the local authorities were undertakings in this regard, competitive tendering for selecting a single operator to collect household waste collection is neither an anti-competitive agreement nor an abuse of a dominant position. If, however, the High Court judgment is affirmed by the Supreme Court on appeal, then the wider implications of the judgment will need to be explored.

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

Do Islamic Banks Have Greater Market Power?

Posted by D. Daniel Sokol

Laurent Weill (University of Strasbourg and EM Strasbourg Business School) asks Do Islamic Banks Have Greater Market Power?

ABSTRACT: The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000–2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives.

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

Thursday, November 4, 2010

2010 Merger Guidelines: Empirical Analysis

Posted by D. Daniel Sokol

Jerry Hausman (MIT - Econ) discusses 2010 Merger Guidelines: Empirical Analysis.

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

Exclusive Content and the Next Generation Networks

Posted by D. Daniel Sokol

Juan José Ganuza, Universitat Pompeu Fabra, Department of Economics and explain María Fernanda Viecens, FEDEA explain Exclusive Content and the Next Generation Networks.

ABSTRACT: This paper analyzes the interaction between the market of premium contents and the next generation network industry. We assume structural separation between the network and service operators (platforms) and the comparative advantage of the service operators depends on the access to premium contents. On one side, we analyze the impact of the exclusivity of premium contents over the incentives to deploy NGNs, the performance of the operators market, and welfare. On the other side, we analyze what are the incentives of the providers of premium contents to offer exclusivity contracts (to singlehome) in NGNs settings in which they can also sell directly to consumers. In this context, we show that exclusivity only occurs when the content is not highly valued by consumers.

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

The Effect of Regulating Interchange Fees at Cost on the ATM Market

Posted by D. Daniel Sokol

Jocelyn Donze (Toulouse School of Economics (GREMAQ)) and Isabelle Dubec (Toulouse School of Economics (GREMAQ)) discuss The Effect of Regulating Interchange Fees at Cost on the ATM Market.

ABSTRACT:We show that regulating interchange fees at cost reduces banks' incentives to deploy free ATMs over time. Simultaneously, more and more charging ATMs are deployed by independent deployers. These results are consistent with the recent evolution of the British ATM market.

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

Cartels and Corporate Compliance

Posted by D. Daniel Sokol

The UCL Centre for Law and Economics (Competition, Regulation and Public Policy Section) invited you to a Competition Law in a Global Context Lecture:  

CARTELS AND CORPORATE COMPLIANCE
by Professor Daniel Sokol
(University of Florida Levin College of Law)

Monday 15th November 2010
from 1 - 2pm, at the UCL Faculty of Laws 

This lecture is free of charge and accredited with 1 CPD hour.
 

BOOK YOUR PLACE by clicking on the link at the bottom of this email or at: http://cartels.eventbrite.com/ 


About this event: 
Professor Sokol's talk develops a richer model of cartels and cartel enforcement, moving beyond the neo-classical approach to examine both firm and individual incentives as well as the interplay between them. Sokol will provide new empirical evidence on cartel enforcement and the cartel leniency program in the United States based upon practitioner survey evidence. He also will provide an analysis of media coverage of US cartel enforcement from 1990-2009. Finally, he will suggest modifications to US cartel enforcement based on insights from finance, organizational theory and accounting academic literatures.

About the Competition Law in a Global Context Speaker Series
Convened by Dr. Ioannis Lianos (UCL), the “Competition law in a Global Context” Speaker Series aim to critically examine the evolution of competition law enfocement in several parts of the world. More than 100 jurisdictions have now developed competition law statutes and many actively enforce it. The series will delve into important issues of practical and theoretical importance for practitioners, academics and graduate students interested in the enforcement of competition law in foreign jurisdictions. Previous talks in the series included “US Antitrust Law under an Obama Administration: One year on” (http://antitrust-obama.eventbrite.com/ ) and "Competition Law in Latin America" (http://latin-america.eventbrite.com/)


The series forms part of UCL’s increasing engagement with the study of comparative competition law and global competition law enforcement. The Centre for Law and Economics (Public Policy Section) at UCL has signed a research partnership agreement with the United Nations Conference on Trade and Development (UNCTAD) and members of UCL faculty participate actively to the work of the International Competition Network (ICN). 

 

 

You are invited to the following event:
Cartels and Corporate Compliance

Date:
Monday, November 15, 2010 at 1:00 PM (GMT)

Location:
UCL Faculty of Laws
Bentham House
Endsleigh Gardens
WC1H 0EG London
United Kingdom

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation

Posted by D. Daniel Sokol

Jan Kraemer (Karlsruhe Institute of Technology, Institute of Information Systems and Management) and Lukas Wiewiorra (Karlsruhe Institute of Technology, Institute of Information Systems and Management) address Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation.

ABSTRACT: We consider a two-sided market model with a monopolistic Internet Service Provider (ISP), network congestion sensitive content providers (CPs), and Internet customers in order to study the impact of Quality-of-Service (QoS) tiering on service innovation, broadband investments, and welfare in comparison to network neutrality. We find that QoS tiering is the more efficient regime in the short-run. However it does not promote entry by new, congestion sensitive CPs, because the ISP can expropriate much of the CPs' surplus. In the long-run, QoS tiering may lead to more or less broadband capacity and welfare, depending on the competition-elasticity of CPs' revenues.

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

Price Wars in Two-Sided Markets: The case of the UK Quality Newspapers

Posted by D. Daniel Sokol

Timothy Keller (Department of Economics, University of California, San Diego), David Miller (Department of Economics, University of California, San Diego), and Xiahua (Anny) Wei (Department of Economics, University of California, San Diego) describe Price Wars in Two-Sided Markets: The case of the UK Quality Newspapers.

ABSTRACT: We study duopoly pricing in the market for mobile phone service, which features network externalities, switching costs, and consumer heterogeneity. We introduce a steady state approach that enables a tractable analysis without endgame effects. The model can generate a variety of testable predictions, of which we focus on the comparative statics with respect to switching costs. Using data on the mobile phone service industries in 52 countries, we use the variation in market structure at the time switching costs were suddenly reduced by the regulatory imposition of mobile number portability (MNP). Firms that grew more rapidly prior to MNP respond to MNP by pricing more aggressively; firms facing large competitors respond less aggressively. Exploration of the model and its implications is an object of ongoing research.

November 4, 2010 | Permalink | Comments (1) | TrackBack (0)

Where Politics Creates Restrainsts on Trade - Canadian Government Decides That Potash Bid Unacceptable Under “Net Benefit” Test

Posted by D. Daniel Sokol

When the industry ministry rather than the Competition Bureau decides on the merits of a proposed merger (BHP's bid for Potash), you might suspect that politics might trump competition.  Welcome to Canada, which has blocked BHP's bid for Potash.  I have noted in an article the potential for public restraints to be both pervasive and as damaging (if not more so) than private restraints on competition.

November 4, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 3, 2010

A Return to Von's Grocery?

Posted by D. Daniel Sokol

John Harkrider (Axinn) asks if the new merger guidelines is A Return to Von's Grocery?

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Annual Conference of the Association for Competition Economics 11th-12th November 2010

Posted by D. Daniel Sokol

The details of the presentations for Annual Conference of the Association for Competition Economics (11th-12th November 2010) are now up on the web.  See here for details for what looks to be a great conference.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Interbank market integration, loan rates, and firm leverage

Posted by D. Daniel Sokol

Steven Ongena (Tilburg University) and Alexander Popov (European Central Bank, Financial Research Division) discuss Interbank market integration, loan rates, and firm leverage.

ABSTRACT: We study the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6,047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation

Posted by D. Daniel Sokol

Jan Kraemer (Karlsruhe Institute of Technology, Institute of Information Systems and Management) and
Lukas Wiewiorra (Karlsruhe Institute of Technology, Institute of Information Systems and Management) address Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation.

ABSTRACT: We consider a two-sided market model with a monopolistic Internet Service Provider (ISP), network congestion sensitive content providers (CPs), and Internet customers in order to study the impact of Quality-of-Service (QoS) tiering on service innovation, broadband investments, and welfare in comparison to network neutrality. We find that QoS tiering is the more efficient regime in the short-run. However it does not promote entry by new, congestion sensitive CPs, because the ISP can expropriate much of the CPs' surplus. In the long-run, QoS tiering may lead to more or less broadband capacity and welfare, depending on the competition-elasticity of CPs' revenues.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers

Posted by D. Daniel Sokol

Robert Seamans (NYU Stern School of Business) and Feng Zhu (USC-Marshall School of Business) explain Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers.

ABSTRACT: Theories of multi-sided markets suggest that a platform’s pricing strategies on different sides of the market are closely linked, and in particular, an increase in competition on one side may lead to an increase in price on other sides. We empirically examine platforms’ pricing strategies by exploiting the gradual expansion of Craigslist, a website providing classified ads services, into local newspaper markets. We adopt a differences-in-differences approach by comparing the pricing strategies of local newspapers for which classified ads are likely to be a significant portion of their revenue to others before and after Craigslist’s entry. We find that these newspapers drop their classified ad rates significantly more after Craigslist’s entry. We also find that the impact of the entry of Craigslist propagates to other sides of the newspaper market. These newspapers increase their subscription rates relative to oth! ers, and consequently, their circulation also drops more. Finally, lower circulation also leads to lower display ad rates for these newspapers. Our study helps build an understanding of how incumbent media platforms respond to technologically disruptive entrants in multi-sided markets.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

New Horizontal Merger Guidelines Indicate Greater Scrutiny of High Tech and Pharmaceutical Transactions

Posted by D. Daniel Sokol

Janet McDavid & Eric Stock (Hogan Lovells) address New Horizontal Merger Guidelines Indicate Greater Scrutiny of High Tech and Pharmaceutical Transactions.

ABSTRACT: On August 19, 2010, the Department of Justice and the Federal Trade Commission (the "Agencies") released the final version of their revised Horizontal Merger Guidelines ("Guidelines"), which are used by the Agencies to analyze the competitive implications of mergers between direct competitors. Whereas the prior version of the Guidelines had sought to provide a precise, step-by-step framework for analyzing horizontal mergers-centered around defining a "relevant market" and measuring market concentration-the new revisions envision a much more flexible approach. The revised Guidelines de-emphasize market definition and the calculation of market shares, and can instead be likened to a "tool box" of techniques for analyzing the competitive implications of horizontal mergers. This new analytical approach has important implications for analyzing M&A transactions. It also indicates greater Agency scrutiny of such transactions in industries characterized by differentiated products and high levels of research and development ("R&D") spending-such as the high tech and pharmaceutical industries.

Importantly, the methods for analyzing horizontal mergers and acquisitions that are set forth in the new Guidelines are not new-they reflect practices that the Agencies have used since the last version of the Guidelines was published in 1992. The new Guidelines are also generally consistent with the approach taken in the Merger Guidelines Commentary, which the Agencies published in 2006 during the Bush Administration. As a result, the new Guidelines are more of an effort to increase transparency rather than to effect fundamental change. Additionally, as demonstrated by a recent court ruling against the FTC, the impact of the Guidelines will also be restrained by the fact that courts hearing merger challenges will likely continue to consider market definition central to the antitrust assessment of mergers. Indeed, the final version of the Guidelines contains a statement emphasizing that the Agencies will ordinarily rely on market definition and market share arguments in a merger challenge.

Below we describe several changes to the new Guidelines that indicate greater scrutiny of transactions in high tech and pharmaceutical markets.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Monopolization Through Acquisitions in Multimarket Oligopolies

Posted by D. Daniel Sokol

Amrita Ray Chaudhuri, Tilburg University - Center and Faculty of Economics and Business Administration, Tilburg Law and Economics Center (TILEC) explores Monopolization Through Acquisitions in Multimarket Oligopolies.

ABSTRACT: This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local firm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.

November 3, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 2, 2010

Are the New Guidelines Representational Art or Pop Art in the End?

Posted by D. Daniel Sokol

Ilene Gotts (Wachtell) provides critical insights on the merger guidelines by asking Are the New Guidelines Representational Art or Pop Art in the End?

November 2, 2010 | Permalink | Comments (0) | TrackBack (0)

Market-Share Contracts as Facilitating Practices

Posted by D. Daniel Sokol

Roman Inderst (University of Frankfurt and Imperial College London) and Greg Shaffer (Rochester) address Market-Share Contracts as Facilitating Practices.

ABSTRACT: This article investigates how the use of contracts that condition discounts on the share a supplier receives of a retailer’s total purchases (market-share contracts) may affect market outcomes. The case of a dominant supplier that distributes its product through retailers that also sell substitute products is considered. It is found that when the supplier’s contracts can only depend on how much a retailer purchases its product (own-supplier contracts), both intra- and inter-brand competition cannot simultaneously be dampened. However, competition on all goods can simultaneously be dampened when market-share contracts are feasible. Compared to ownsupplier contracts, the use of market-share contracts increases the dominant supplier’s profit and, if demand is linear, lowers consumer surplus and welfare.

November 2, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition and Access Price Regulation with Multiple Networks

Posted by D. Dasniel Sokol

Yan Liu, Monash College and Guang-Zhen Sun, Monash University - Department of Economics, Max Planck Institute for Research Into Economic Systems discuss Competition and Access Price Regulation with Multiple Networks.

ABSTRACT:We develop a framework, extending the conventional duopoly model by replacing the Hotelling line with a simplex in high-dimension spaces, to study the competition and access regulation of multiple networks. We first characterize the competitive equilibrium when the substitutabilities of the networks are not too high, or the access charges are nearly cost-based. We then analyze how the equilibrium market shares respond to marginal variations in the access charges under various regimes of access regulation, and thereby examine the efficiency implications of such regulation regimes. In particular, we analyze the asymmetric scenario in which some networks are incumbent and some are entrants. It is shown that some existing results of the duopoly do not extend to a multi-firm setting, largely because regulation of multiple networks is structurally far richer

November 2, 2010 | Permalink | Comments (0) | TrackBack (0)