Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, December 25, 2010

Regular prices and sales

Posted by D. Daniel Sokol

Paul Heidhues (ESMT European School of Management and Technology) and Botond Koszegi (University of California, Berkeley) have a new piece on Regular prices and sales.

ABSTRACT: We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Koszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to costless for the consumer to observe the realized price of the product, then – in a pattern consistent with several recently documented facts regarding supermarket pricing – the monopolist chooses low and variable “sale” prices with some probability and a high and sticky “regular” price with the complementary probability. Realizing that she will buy at the sale prices and hence that she will purchase with positive probability, the consumer chooses to avoid the painful uncertainty in whether she will get the product by buying also at the regular price. If it is more costly for the consumer to observe the realized price, then – in a pattern consistent with the pricing behavior of some other retailers (e.g. movie theaters) – the monopolist chooses a sticky price and holds no sales. In this case, a sale is less tempting and hence less effective in generating an expectation to purchase with positive probability. We also show that ex-ante competition for loyal consumers leads to sticky pricing while ex-post competition leads to marginal-cost pricing, and discuss several other extensions of the model.

December 25, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, December 24, 2010

Sales, Quantity Surcharge, and Consumer Inattention

Posted by D. Daniel Sokol

Of course, on the last day of the shopping season, I have found a relevant paper on Sales, Quantity Surcharge, and Consumer Inattention by Sofronis Clerides (University of Cyprus; CEPR; RCEA) and
Pascal Courty (University of Victoria; CEPR).

ABSTRACT: Quantity surcharges occur when firms market a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur the sales of the large size decrease only slightly despite the fact that the small size is a cheaper option - a clear arbitrage opportunity. This behavior is consistent with the notion of rationally inattentive consumers that has been developed in models of information frictions. We discuss implications for consumer decision making, demand estimation, and firm pricing.

December 24, 2010 | Permalink | Comments (0) | TrackBack (0)

The end of the Bertrand Paradox?

Posted by D. Danie Sokol

Marie-Laure Cabon-Dhersin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan) and Nicolas Drouhin (Centre d'Economie de la Sorbonne - Paris School of Economics & Ecole normale supérieure de Cachan) ask about The end of the Bertrand Paradox?

ABSTRACT: This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program.

December 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 23, 2010

NY Bar Association's Yearly Antitrust Law Section program, January 27, 2011

Posted by D. Daniel Sokol

This is a really great program.  I encourage all to attend.

Download Flyer[1]

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Bundling revisited: substitute products and inter-firm discounts

Posted by D. Daniel Sokol

Mark Amstrong (UCL - Econ) explains Bundling revisited: substitute products and inter-firm discounts.

ABSTRACT: This paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce bundling discounts when demand for the bundle is elastic relative to demand for stand-alone products. Separate firms often have a unilateral incentive to offer inter-firm bundle discounts, although this depends on the detailed form of substitutability. Bundle discounts mitigate the innate substitutability of products, which can relax competition between firms and induce an integrated firm to lower all of its prices when it follows a bundling strategy.

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Accountable Care Organizations — The Fork in the Road

Posted by D. Daniel Sokol

Tim Greaney (St. Louis Law) has a recent shprt piece worth reading on Accountable Care Organizations — The Fork in the Road.

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Call for Papers University of Amsterdam 7th Annual Competition & Regulation Meeting: Competition Policy for Emerging Economies: When and How?

Posted by D. Daniel Sokol

 

 

ACLE Conference - Call for Papers

The Amsterdam Center for Law & Economics at the University of Amsterdam organizes its 7th annual Competition & Regulation meeting on the topic:

 

Competition Policy for Emerging Economies: When and How?

May 20, 2011
University of Amsterdam

 

Keynote Speakers include:

Frederic Jenny (ESSEC Business School)
Daniel Sokol (University of Florida)
Michal Gal (University of Haifa)

 

Roundtable discussion chaired by William Kovacic (FTC) between the keynote speakers, joined by Andrew Gavil (Howard University), Ioannis Lianos (UCL) and Hassan Qaqaya (UNCTAD, tbc).

 

The objective of this C&R Meeting is to bring together renowned specialists in emerging competition law enforcement and its interrelationship to economic development in conference to debate. We also welcome practitioners with a keen interest in this specialty subject, including (new) agency officials, government officials interested in competition policy as a development aid tool, competition lawyers and consultants and scholars working on these research topics.

Call for Papers – NOW OPEN

Academics, private practitioners and competition officials, both with a legal and an economic background, are encouraged to submit their research for inclusion in the conference program. We welcome all original research (in progress).

 

Submissions for inclusion in the program (full papers or abstracts) may be sent together with the author’s address information to: ACLE@uva.nl

 

The deadline for submission is March 1 2011. Decisions on acceptance to the program will be communicated mid March. 

 

Call for Papers 

 

The scientific program committee, which consists of Maarten Pieter Schinkel (chair), Rein Wesseling, Benjamin van Rooij, Jeroen van de Ven, Kati Cseres and Jo Seldeslachts, will produce a full day program based on the response to this call. Local organizers are Martijn Han and Michael Frese.

 

More Information

For more information, please visit the ACLE conference website: http://emergingagencies.acle.nl

 

Relevant information on the preliminary program, registration, fees and accommodation will be posted on this website as we progress towards the conference date. 

 


December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market

Posted by D. Daniel Sokol

Tobias Paulun (Institute of Power Systems and Power Economics, RWTH Aachen University), Eberhard Feess (Frankfurt School of Finance & Management), and Reinhard Madlener (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)) discuss Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market.

ABSTRACT: We develop a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices. The model is parameterized with publicly available data on total demand, marginal costs and capacity constraints of power generators. Comparably precise data on the price sensitivity is not available, so that we analyze its impact in a range of simulations. Contrary to apparently straightforward expectations, we find that a higher price sensitivity increases average prices under reasonable assumptions. The reason is that, when price sensitivity is high, the most efficient energy providers can attract sufficiently many consumers for operating at full capacity, even when price differences to their less efficient competitors are small. Hence, incentives to reduce prices are higher when the price sensitivity is low. We conclude th! at the widespread view that high electricity prices can (partially) be attributed to a low willingness of consumers to change their providers is flawed.

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Corruption as a Barrier to Entry: Theory and Evidence

Posted by D. Daniel Sokol

Nauro F. Campos, Brunel University - Economics and Finance, Centre for Economic Policy Research (CEPR), University of Michigan at Ann Arbor - The William Davidson Institute, Institute for the Study of Labor (IZA), Saul Estrin, London School of Economics & Political Science (LSE), Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA), and Eugenio Proto, University of Warwick - Department of Economics explain Corruption as a Barrier to Entry: Theory and Evidence.

ABSTRACT: Conventional wisdom depicts corruption as a tax on incumbent firms. This paper challenges this view in two ways. First, by arguing that corruption matters not so much because of the value of the bribe ("tax"), but because of another less studied feature of corruption, namely bribe unavoidability. Second, we argue that the social costs of corruption arise not because corruption hurts incumbent firms, but mostly because it acts as a powerful barrier to the entry of new firms. Corruption sands and greases in tandem: it helps incumbent firms (on balance) and it hurts potential entrants. We put forward a model in which a bureaucrat chooses entry barriers to optimize bribe revenues. When the capacity to collect bribes is high, it is optimal to allow high levels of oligopoly power to incumbents. Conversely, the more avoidable are the bribes, the more firms are allowed into the market. These ideas are tested using a unique, representative sample of Brazilian manufacturing firms. Consistently with our theoretical model, we show that corruption (a) is ranked as the most important barrier to entry (above finance, taxes and regulation) and (b) while bribes unavoidability is positively related to firm performance, the size of the bribe is not.

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Abuse of Dominance under the Egyptian Competition Law: Investigating Peculiarities That May Have Special Effects in the Economy

Posted by D. Daniel Sokol

Mourad Greiss, University of Sussex discusses Abuse of Dominance under the Egyptian Competition Law: Investigating Peculiarities That May Have Special Effects in the Economy.

ABSTRACT: This paper investigates peculiarities in the treatment of abuse of dominance under Egyptian Competition Law and evaluates their potential effects in the economy. Particularly, it recognizes the lack of excessive pricing prohibition and the deployment of effects-based approach to abuse of dominance at the present stage as likely peculiarities in Egyptian Competition Law that may harm the economy. It is specifically argued that the success of the practice of excessive pricing, at least in exceptional circumstances, may become more plausible at this stage in Egypt, as an emerging economy, since it lacks the necessary competition culture and, as such, its market is highly concentrated. The paper, furthermore, finds that employing an effects-based approach at this early stage of competition law enforcement may not be suitable due to the understandable lack of experience that may increase the likelihood of committing judicial errors. It is, however, perceived that investigating the practice of excessive pricing is quite complex and, as such prohibiting it may not be the best initiative at this stage. Moreover, it is suggested that employing an effects-based analysis, as opposed to per se approach, may help avoid type II errors (erroneously condemning pro-competitive practices). It is, hence, suggested to stick by this approach at the current stage; so long as caution is taken in relation to practices that generate questionable anti-competitive effects. Whether for introducing an excessive pricing prohibition in the future (should the practice continue to pose a threat) or employing effects-based approach, it is argued that increasing economic expertise in the field of competition law and cooperating with competition authorities of the developed world remains central.

December 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 22, 2010

Remedies for Tying in Computer Applications

Posted by D. Daniel Sokol

Josh Gans (University of Melbourne - Econ) discusses Remedies for Tying in Computer Applications.

ABSTRACT: Recent anti-trust decisions have proposed remedies for tying of different computer software and applications. The remedies have drawn criticism for being ineffectual. This paper develops a model tailored to deal with the specific issue of tying in computer applications. It provides a rationale for such tying and also any associated harm to social welfare. It then examines proposed remedies and finds conditions under which those remedies will be effective in improving social welfare.

December 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Antitrust in Two-Sided Markets: Is Competition Always Desirable?

Posted by D. Daniel Sokol

Ingo Fiedler, University of Hamburg - Institute of Commercial Law asks Antitrust in Two-Sided Markets: Is Competition Always Desirable?

ABSTRACT: The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.

December 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Most Downloaded Antitrust Law Professors of 2010

Posted by D. Daniel Sokol

I included people who have uploaded at least one new antitrust related work in 2010.  Please let me know if I have missed anyone.

Name (Institution) Number of New Downloads

  1. Herb Hovenkamp (University of Iowa) 7532
  2. David Evans (University College, University of Chicago) 7133
  3. Damien Geradin (Tilburg, University of Michigan) 6394
  4. Josh Wright (George Mason) 4733
  5. Randy Picker (University of Chicago) 3170
  6. Marc Edelman (Barry University) 3005
  7. Bob Lande (University of Baltimore) 2759
  8. Michael McCann (Vermont Law School) 2637
  9. Spencer Waller (Chicago Loyola) 2546
  10. Maurice Stucke (University of Tennessee) 2237
  11. Barak Orbach (University of Arizona) 1919
  12. Phil Weiser (University of Colorado) 1974
  13. Jon Baker (American University) 1924
  14. Einer Elhauge (Harvard University) 1877
  15. Keith Hylton (Boston University) 1826
  16. Danny Sokol (University of Florida) 1965
  17. Scott Hemphill (Columbia University) 1489
  18. Dan Crane (University of Michigan) 1487
  19. Geoff Manne (Lewis & Clark) 1247
  20. Bill Page (University of Florida) 1111
  21. Barak Richman (Duke University) 1111
  22. Avishalom Tor (University of Haifa) 1016

December 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Supply Function Equilibria with Capacity Constraints and Pivotal Suppliers

Posted by D. Daniel Sokol

Talat S. Genc (Department of Economics,University of Guelph) and Stanley S. Reynolds (Department of Economics,University of Arizona) discuss Supply Function Equilibria with Capacity Constraints and Pivotal Suppliers.

ABSTRACT: The concept of a supply function equilibrium (SFE) has been widely used to model generators’ bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation firms. If a generation firm’s rivals are capacity constrained then the firm may be pivotal; that is, the firm could substantially raise the market price by unilaterally withholding output. However the SFE literature has not properly analyzed the impact of capacity constraints and pivotal firms on equilibrium predictions. We characterize the set of symmetric supply function equilibria for uniform price auctions when firms are capacity constrained and show that this set is increasing as capacity per firm rises. We provide conditions under which asymmetric equilibria exist and characterize these equilibria. In addition, we compare results for uniform price auctions to those for discriminatory auctions, and we compare our SFE predictions to equilibrium predictions of models in which bidders are constrained to bid on discrete units of output.

December 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms

Posted by D. Daniel Sokol

Zack Cooper (LSE Health and the Department of Social Policy, London School of Economics), Stephen Gibbons (SERC, Department of Geography and Environment, London School of Economics), Simon Jones (LSE Health), and Alistair McGuire (LSE Health and the Department of Social Policy, London School of Economics) ask Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms.

ABSTRACT: This paper examines whether or not hospital competition in a market with fixedreimbursement prices can prompt improvements in clinical quality. In January 2006, theBritish Government introduced a major extension of their market-based reforms to theEnglish National Health Service. From January 2006 onwards, every patient in England couldchoose their hospital for secondary care and hospitals had to compete with each other toattract patients to secure their revenue. One of the central aims of this policy was to createfinancial incentives for providers to improve their clinical performance. This paper assesseswhether this aim has been achieved and competition led to improvements in quality. For ourestimation, we exploit the fact that choice-based reforms will create sharper financialincentives for hospitals in markets where choice is geographically feasible and that prior to2006, in the absence of patient choice, hospitals h! ad no direct financial incentive to improveperformance in order to attract more patients. We use a modified difference-in-differenceestimator to analyze whether quality improved more quickly in more competitive marketsafter the government introduced its new wave of market-based reforms. Using AMI mortalityas a quality indicator, we find that mortality fell more quickly (i.e. quality improved) forpatients living in more competitive markets after the introduction of hospital competition inJanuary 2006. Our results suggest that hospital competition in markets with fixed prices canlead to improvements in clinical quality.

December 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 21, 2010

Global Issues in Patent Law

Posted by D. Daniel Sokol

This new book has some interesting commentary on a numberof antitrust-IP interface issues.

Adelman, Ghosh, Landers, and Takenaka's Global Issues in Patent Law

Adelman, Ghosh, Landers, and Takenaka's Global Issues in Patent Law

Book - softbound
Copyright: 2011
ISBN-13: 9780314195173
Availability: In Stock  
Product Details »
List Price:
 $29.00
Description
Beginning with a discussion of current international intellectual property institutions and ending with a study of contemporary border enforcement issues, this book takes the user through the major treaties and a comparative discussion of the critical areas of patent law and practice. Topics covered include patentable subject matter, prior art, inventive step, enablement and disclosure, infringement, remedies, and competition policy. The approach of the book and its materials would complement intellectual property law courses at the basic, intermediate, and advanced levels as well as serve as the focal casebook for a stand-alone course on international patent law.

December 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Community Structure and Market Outcomes: A Repeated Games in Networks Approach

Posted by D. Daniel Sokol

Itay Fainmesser (Economics Department, Brown University) has posted a paper on Community Structure and Market Outcomes: A Repeated Games in Networks Approach.

ABSTRACT: Consider a large market with asymmetric information, in which sellers choose whether to cooperate or deviate and ?cheat?their buyers, and buyers decide whether to re-purchase from di¤erent sellers. We model active trade relationships as links in a buyer-seller network and suggest a framework for studying repeated games in such networks. In our framework, buyers and sellers have rich yet incomplete knowledge of the network structure; allowing us to derive meaningful conditions that determine whether a network is consistent with trade and cooperation between every buyer and seller that are connected. We show that three network features reduce the minimal discount factor necessary for sustaining cooperation: moderate competition, sparseness, and segregation. We find that the incentive constraints rule out networks that maximize the volume of trade and that the constrained trade maximizing networks are in between old world segregated and sparse networks, and a global market?

December 21, 2010 | Permalink | Comments (0) | TrackBack (0)

A New Learning Tool: The Economics of Seinfeld

Posted by D. Daniel Sokol

A Web site that uses Seinfeld episodes to explain economics.

HT (Jeff Harrison)

December 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Pre-play communication in Cournot competition: An experiment with students and managers

Posted by D. Daniel Sokol

Israel Waichman (University of Kiel - Econ), Till Requate (University of Kiel - Econ), and Ch’ng Kean Siang (Department of Economics, Universiti Sains Malaysia) analyze Pre-play communication in Cournot competition: An experiment with students and managers.

ABSTRACT: This study investigates the impact of pre-play communication on the outcomes in Cournot duopoly and triopoly experiments, using both students and managers as subjects. Communication is implemented by two different devices, a 'standardized-communication' and a free-communication device. We find that the effect of communication on collusion is larger in duopoly than in triopoly. Moreover, managers behave in a similar way under the two communication devices, while students are more influenced by the free-communication than by the standardized-communication device. In addition, managers select lower aggregate quantities than students, and communication enhances the difference between the subject pools in duopoly but reduces this difference in triopoly. Inspecting individual behavior, in all treatments the output adjustment is significantly correlated with the previous round's best response strategy. In the treatments with co! mmunication, the effect of imitation becomes larger and crowds out the effect of myopic best response. Finally, in all treatments duopoly results in more collusion than triopoly

December 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly

Posted by D. Daniel Sokol

Juan José Ganuza (Universitat Pompeu Fabra, Department of Economics and Business) and Jos Jansen (Max Planck Institute for Research on Collective Goods) discuss Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly.

ABSTRACT: By using general information structures and precision criteria based on the dispersion of conditional expectations, we study how oligopolists’ information acquisition decisions may change the effects of information sharing on the consumer surplus. Sharing information about individual cost parameters gives the following trade-off in Cournot oligopoly. On the one hand, it decreases the expected consumer surplus for a given information precision, as the literature shows. On the other hand, information sharing increases the firms’ incentives to acquire information, and the consumer surplus increases in the precision of the firms’ information. Interestingly, the latter effect may dominate the former effect.

December 21, 2010 | Permalink | Comments (0) | TrackBack (0)