Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, November 9, 2010

Multi-market competition, R&D, and welfare in oligopoly

Posted by D. Daniel Sokol

Akio Kawasaki, Ming Hsin Lin, and Noriaki Matsushima (all The Institute of Social and Economic Research Osaka University) explain Multi-market competition, R&D, and welfare in oligopoly.

ABSTRACT: We investigate a multi-market Cournot model with strategic process R&D investments wherein a multi-market monopolist meets entrants that enter one of the markets. We find that entry can enhance the total R&D expenditure of the incumbent firm. That is, entry can stimulate R&D effort. Moreover, the incumbent's profit nonmonotonically changes as the number of entrants increases. Depending on the fixed entry costs and R&D technologies, both insufficient and excess entrycan appear.

November 9, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, November 8, 2010

Including Exclusion in the 2010 Horizontal Merger Guidelines

Posted by D. Daniel Sokol

D. Bruce Hoffman and Daniel Francis (both Hunton & Williams) describe Including Exclusion in the 2010 Horizontal Merger Guidelines.

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

Oligopolistic Price Competition with Informed and Uninformed Buyers

Posted by D. Daniel Sokol

Michal Ostatnicky (Center for Economic Research and Graduate Education, Charles University, and the Economics Institute of Academy of Sciences of the Czech Republic) analyzes Oligopolistic Price Competition with Informed and Uninformed Buyers.

ABSTRACT: The standard price competition of two or more players leads to Bertrand equilibrium in basic economic theory (if complete information is assumed, there are no capacity constraints, etc.). In reality, even on highly competitive Internet-based markets, the prices of seemingly undifferentiated goods (e.g. books and CDs on Amazon and similar e-shops) vary, although competition seems prima facie based on prices. I follow the literature that originated with Varian’s (1980) model, especially Kocas and Kiyak (2006), and analyze oligopolistic markets where buyers have reservation values drawn from a common distribution function rather than a single value (inelastic demand), as typically assumed in the models of Varian’s or Kocas and Kiyak’s type. The model presented in this paper is developed from the simplest symmetric set-up (uninformed buyers are assigned to sellers evenly) to the most complex asymmetric set-up with many! competing sellers (uninformed buyers are distributed over sellers unevenly). The most complex set-up theoretically rationalizes the empirical findings of Kocas and Kiyak. In the equilibrium of my model, all sellers randomly choose prices from a non-trivial interval for (almost) every seller, while in Kocas and Kiyak’s theoretical model only two sellers randomize while others always offer the same price.

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

Market Oversight Games

Posted by D. Daniel Sokol

Marten Pieter Schinkel (University of Amsterdam - Amsterdam Center for Law & Economics) describes Market Oversight Games.

ABSTRACT: Big business plays cat & mouse with market regulators. Market participants try to avoid the competitive pressures that the regulators are working to keep up. Only if the latter play these games at least as cleverly as the former can we reap all the fruits of competition. A case in point is the European Commission’s ongoing struggle with the major credit card companies. Another example is the Dutch telecom regulator OPTA’s pursuit of the local cable monopolies in The Netherlands. The Dutch Central Bank DNB vs. DSB Bank is a strategic market oversight game as well. In his Inaugural Lecture as Professor of Competition Economics and Regulation, Maarten Pieter Schinkel draws on game theory, artificial intelligence research on Pac-Man, and forensic evidence obtained through undercover surveillance to develop optimal market oversight strategies. He argues that market supervisors should have strong discretionary authority to be able to creatively pursue continuously changing business strategies with an evasive edge. This finding has implications for the interpretation of the principle of legal certainty. As illustrations, Schinkel outlines several possible evasion strategies in recent cases. He gives examples of strong counter-play by the US Department of Justice, the European Commission, the UK Office of Fair Trading and the Netherland Competition Authority NMa. Schinkel warns against flying blind on leniency instruments and complaints made by rivals. He points out how market supervisors can become a pawn in the game between powerful companies.

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

Regulatory Reform and Competition: How to Push the Agenda Forward. A European Perspective

Posted by D. Daniel Sokol

Alberto Heimler, Government of the Italian Republic (Italy) - Advanced School of Public has a new paper on Regulatory Reform and Competition: How to Push the Agenda Forward, A European Perspective.

ABSTRACT: In recent decades, Community institutions have promoted most of the pro-competitive reforms in continental Europe. Liberalizations originating at the national level were seldom successful because they were blocked by arguments based on often fictitious general interest considerations (stability, universal service, continuity of supply, consumer protection, employment, etc). In Italy, also as a result of competition advocacy by the antitrust Authority, the Government has recently liberalized a number of private service activities. Experience shows that the probability of competition-oriented reforms is greatly enhanced if law making is accompanied by a technical analysis of the objectives, necessity and proportionality of regulatory restrictions.

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

Imperfect Platform Competition: A General Framework

Posted by D. Daniel Sokol

Alexander White (Department of Economics, Harvard University) and E. Glen Weyl (Harvard University Society of Fellows; Toulouse School of Economics) discuss Imperfect Platform Competition: A General Framework.

ABSTRACT: We propose a general model of imperfect competition among multi-product firms, the consumption of whose goods yields externalities from one consumer to another. We extend the allocation approach of the Weyl (2010) monopoly model, proposing a solution concept, Insulated Equilibrium, that allows for tractable analysis of competition. In such an equilibrium each firm’s price on one side of the market adjusts to all firms’ participation levels on the other side, so as to insulate its own allocation. This eliminates both the indeterminacy of consumer reactions once platforms have set their tariffs and the multiplicity of reaction functions that platforms can have to one another’s tariffs. Our approach allows us to derive intuitive first-order conditions characterizing equilibrium without restrictive assumptions and to analyze the effects of competition, mergers and regulation.

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

Non Linear Contracting and Endogenous Buyer Power between Manufacturers and Retailers: Empirical Evidence on Food Retailing in France

Posted by D. Daniel Sokol

Céline Bonnet and Pierre Dubois (both Toulouse School of Economics (GREMAQ, INRA)) explain Non Linear Contracting and Endogenous Buyer Power between Manufacturers and Retailers: Empirical Evidence on Food Retailing in France.

ABSTRACT: We present the first empirical estimation of a structural model taking into account explicitly the endogenous buyer power of downstream players facing two part tariffs contracts offered by the upstream level. We consider vertical contracts between manufacturers and retailers where resale price maintenance may be used with two part tariffs and allow retailers to have some endogenous buyer power from the horizontal competition of manufacturers. Our contribution allows to recover price-cost margins at the upstream and downstream levels in these different structural models using the industry structure and estimates of demand parameters. We apply it to the market of bottled water in France, estimating a mixed logit demand model on individual level data. Empirical evidence shows that two part tariffs contracts are used with no resale price maintenance and that the buyer power of supermarket chains is endogenous to the structure of manufacturers competition.

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

Sunday, November 7, 2010

Of Omissions and Commissions: India's Competition Laws

Posted by D. Daniel Sokol

Aditya Bhattacharjea (Delhi School of Economics) provides his thoughts on Of Omissions and Commissions: India's Competition Laws

ABSTRACT: In 2009, India repealed its 40 year old Monopolies and Restrictive Trade Practices (MRTP) Act, and brought into force most sections of the 2002 Competition Act. After a brief introduction to the basic economic principles underlying modern competition law, this paper first reviews the country’s experience with the MRTP Act. It argues that the way it was structured, amended, interpreted and enforced ensured that it could not serve as a competition law. Consequently, it did not bequeath a body of expertise that could help in the implementation of its successor, the Competition Act, which is very demanding in terms of economic analysis. The strengths and weaknesses of the new law, the reasons for its delayed implementation, and the first few decisions of the Competition Commission of India (CCI) are then discussed.

Although in many respects the new regime marks an improvement relative to the MRTP Act and MRTP Commission, there are also several potentially serious problems. In particular, “contribution to economic development” may be employed in deciding on mergers or abuse of dominance; provisions on anti-competitive agreements may be interpreted to allow a rule of reason even for cartels; those on abuse of dominance give the CCI authority to take action even in cases where there is no adverse effect on competition. The sections governing merger review remain very controversial, and had not been brought into force as of September 2010. The CCI and the tribunal set up to hear appeals from its decisions have been saddled with a huge backlog of unresolved cases and investigations that were pending with the MRTP Commission. Finally, the long delay (from 2003 to 2009) in bringing the Act into force has resulted in the departure from the CCI of all the staff members who had acquired some familiarity with competition analysis.

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