Antitrust & Competition Policy Blog

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

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Tuesday, December 7, 2010

Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through

Posted by D. Daniel Sokol

Celine Bonnet, GREMAQ, INRA, Pierre Dubois, National Institute for Agricultural Research (INRA) - Research Center in Toulouse, and Sofia Berto Villas-Boas, University of California, Berkeley - Agricultural & Resource Economics discuss Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through.

ABSTRACT: How a cost shock is passed through into final consumer prices may relate to nominal price stickiness and rigidities, the existence of non adjustable cost components, strategic mark-up adjustments, or other contract terms along the supply distribution chain. This paper presents a simple framework to assess the potential role of non linear pricing contracts and vertical restraints such as resale price maintenance or wholesale price discrimination in the supply chain in explaining the degree of pass-through from upstream cost shocks in the ground coffee category to downstream retail prices. We do so in the German coffee market where both upstream and downstream firms make pricing decisions allowing for non linear pricing and vertical restraints. Using counterfactual simulations of an upstream coffee cost shock, we find that the existence of resale price maintenance between manufacturers and retailers increases pass through rate by more than 10 points relative to the case when this assumption is not allowed with non linear pricing or when double marginalization along the distribution chain is present. The intuition for our findings is that resale price maintenance restrictions make it less possible for retailers to perform strategic mark-up adjustments when faced with a cost shock. We also find that the less concentrated upstream sector, and also when faced with less elastic demands, the larger the role of vertical restraints in preventing retailers to perform strategic mark-up adjustments, and thus the higher the pass-through increases.

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

Monopoly Power and Labour Values

Posted by D. Daniel Sokol

Klaus Hagendorf, Université Paris Ouest - Nanterre, La Défense has a new paper on Monopoly Power and Labour Values.

ABSTRACT: This paper presents the microeconomic partial and general economic equilibrium analysis of monopoly power in terms of labour values. In the partial analysis it is shown that the monopolistic mark-ups above marginal cost do not constitute labour values but real bubbles of values which prevent the economic agents to perform efficient decisions on the basis of the price system. Within the framework of input-output analysis it is shown that in the monopolistic economic system the over-evaluation of commodities and the under-evaluation of labour leads to less capital-intensive technologies. Not even in the long term are marginal labour values equal to average labour values and marginal costs do not reflect labour values. It is suggested that the monopolistic mark-ups of prices above their labour values, the “real bubble effects” which lead to monopolistic unemployment, the inefficient use of labour and over-exploitation of the labourers, are the major source for the cyclical nature of the capitalistic development. It is shown that the monopolistic exploitation is much greater than orthodox theory suggests leading to the “Over-Exploitation Hypothesis.”

 

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

Monday, December 6, 2010

Countervailing power and dynamic efficiency

Posted by D. Daniel Sokol

Roman Inderst (Goethe University Frankfurt and London School of Economics) and Christian Wey (University of Dusseldorf, Dusseldorf Institute for Competition Economics) discuss Countervailing power and dynamic efficiency.

ABSTRACT: This paper studies the impact of buyer power on dynamic efficiency. We consider a bargaining model in which buyer power arises endogenously from size and may impact on a supplier's incentives to invest in lower marginal cost. We challenge the view frequently expressed in policy circles that the exercise of buyer power stifles suppliers' incentives. Instead, we find that the presence of larger buyers keeps a supplier 'more on his toes' and induces him to improve the competitiveness of his offering, in terms of both price and quality, relative to buyers' alternative options.

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

Collusion Through Joint R&D: An Empirical Assessment

Posted by D. Daniel Sokol

Tomaso Duso, Humboldt University of Berlin - School of Business and Economics, Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change, Lars-Hendrik Röller, ESMT European School of Management and Technology, Centre for Economic Policy Research (CEPR), Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change, and Jo Seldeslachts, Wissenschaftszentrum Berlin für Sozialforschung (WZB) explain Collusion Through Joint R&D: An Empirical Assessment.

ABSTRACT: This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the US National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors - created through firms being members in several RJVs at the same time - are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing.

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

Theories of Harm in the Intel Case

Posted by D. Daniel Sokol

Patrick DeGraba, Federal Trade Commission - Antitrust I and John David Simpson, The Brattle Group discuss Theories of Harm in the Intel Case.

ABSTRACT: Over the past several years, government competition agencies and private plaintiffs have sued Intel challenging the legality of its relationships with original equipment computer manufacturers (“OEMs”). These lawsuits have combined to produce a detailed account describing Intel’s relationships with OEMs and analyzing the competitive effects of these relationships. This paper uses the public evidence in this account as a starting point for further analysis of both competition in downstream markets and the structure of Intel’s contracts with OEMs. By presenting this additional analysis, this paper seeks to better identify the circumstances under which exclusive contracts can lead to anticompetitive harm.

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

Rigorous Analysis to Bridge the Inference Gap in Class Certification

Posted by D. Daniel Sokol

Steven R. Peterson (Compass Lexecon) and Andrew Y. Lemon(Compass Lexecon) provide Rigorous Analysis to Bridge the Inference Gap in Class Certification.

ABSTRACT: Federal appellate courts increasingly require a rigorous analysis showing that the requirements of Rule 23 of the Federal Rules of Civil Procedure are satisfied before a district court permits a lawsuit to proceed as a class action. In particular, courts require that plaintiffs demonstrate using common evidence that all or almost all proposed class members would have suffered injury as a result of the defendant's alleged conduct. In this article, we show that there is generally a limit to what one can infer about injury to individuals from common evidence—that is, the inference gap. Moreover, this inference gap exists even in circumstances where ideal common evidence shows injury in the aggregate. To explain how economics can help bridge the inference gap, we examine three special cases where the inference gap can be bridged and discuss several recent class actions that show how courts are using economic analysis to determine whether Rule 23 has been satisfied.

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

Sunday, December 5, 2010

Coming Soon - Annual List of Best Antitrust and Competition Scholarship (for 2010)

Posted by D. Daniel Sokol

As is the yearly tradition, December 26 the Antitrust and Competition Policy Blog will have its end of the year "Best of Scholarship" posting. Each year, various professors of law and economics provide their picks for the best article, book chapter or book of the year dealing with antitrust economics or antitrust law. Basically, anything that has a publication date of 2010 and fits these criteria is eligible.  We will have an All-Star cast of professors participating in providing their picks.

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