Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, March 5, 2010

Entry as a Source of Post-Merger Price Discipline

Posted by D. Daniel Sokol

Elizabeth M. Bailey (NERA) explains Entry as a Source of Post-Merger Price Discipline.
Download Antitrust_Insights_Winter 2010 (2)

ABSTRACT: Entry—including the threat of entry—is a market dynamic that is critical in evaluating the competitive impact of a proposed transaction. What matters in such an analysis is easy to articulate—the new entry must occur reasonably quickly, be profitable for the entrant, and sufficient to return or keep pricing at pre-merger levels. However, demonstrating empirically that entry would or would not prevent the merged entity from raising prices is a challenging task. This article describes a practical, empirical approach to the analysis of entry. The approach that she describes involves a careful review of the time and cost that it would take for entry to occur, an analysis of a potential entrant’s upfront investment costs and future revenue stream, and an assessment of the scale of entry that would be needed to return or keep pricing at pre-merger levels. All three dimensions of entry—the time it would take, the expected profits, and scale—are related, and an economically consistent analysis integrates all three elements simultaneously.

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

Rethinking Exclusionary Abuses in EU Competition Law

Posted by D. Daniel Sokol

Ekaterina Rousseva (DG Comp) has a new book out on Rethinking Exclusionary Abuses in EU Competition Law.

BOOK ABSTRACT: This book offers an original interpretation of the case law on exclusionary abuses under Article 82 EC (now Article 102 TFEU, according to the numbering introduced by the Treaty of Lisbon), and it identifies the various factors that have shaped the application of this provision through its history. The book provides an in-depth analysis of the European Commission's Guidance on enforcement priorities under Article 82 and it makes a provocative proposal for further modernisation of the analysis of exclusionary abuses by recasting the prohibition of abuse of dominance as a norm which deals only with unilateral conduct.

The first part of the book reconsiders fundamental legal and economic concepts underpinning the assessment of exclusionary abuses and identifies the difficulties posed by the principal forms of abusive practices (refusals to deal, predatory pricing, rebates and tying). The EU case law is compared with the US experience under Section 2 of the Sherman Act.

The second part of the book explores solutions, based on the premise that the reform of Article 82 (now Article 102 TFEU) should be in line with the modernisation of Article 81 (now Article 101 TFEU) and the EU merger control rules. The last chapter demonstrates the gradual convergence of the application of Articles 81 and 82 in the area of vertical restraints. It points towards a redefined division of labour between these two provisions with a view to ensuring efficient enforcement, better protection of consumer interests, and clearer incentives for dominant firms to invest in desirable commercial practices.

The book will be of interest to students and practitioners of EU competition law, and to those in other jurisdictions where the application of competition law to practices of dominant firms is controversial. 
 

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

Nine Modest Suggestions for the New EU Commissioner for Competition

Posted by D. Daniel Sokol

Paul Lugard (Royal Phillips Electronics and Tilburg Law) provides Nine Modest Suggestions for the New EU Commissioner for Competition.

ABSTRACT:  This contribution includes some modest suggestions for areas where the new Commissioner and his staff may direct their attention. However, it can be expected that, at least initially, DG COMP's activities will for a large part be characterized by a continuation of the present policy. This is certainly likely to apply to the Commission's state aid policy. At his confirmation hearing before the European Parliament, Commissioner Almunia made it clear that he is committed to ensuring that competition policy "supports a successful exit from the crisis, while maintaining a level playing field and safeguarding the internal market." In addition, he stated he would continue to work towards legislation in the area of private damage actions and remain focused on the application of the competition rules in such key areas such as energy, information technology, and transport. Incidentally, in relation to fines, he stressed that the current system has "proved its mettle" and that the Commission "...will continue to use fines as a deterrence. So far so good. ..."

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

Thursday, March 4, 2010

A New Treaty, A New Commissioner, A New Competition Policy?

Posted by D. Daniel Sokol

Christophe Lemaire and Simon Naudin (both Ashurst) ask A New Treaty, A New Commissioner, A New Competition Policy?

ABSTRACT: The impulse for change in competition law and policy should not be expected to come either from the entry into force of the Lisbon Treaty, or from the nomination of Mr. Almunia, whose statements indicate that he does not intend to deviate substantially from the path followed by his predecessor.

However, the question may be asked whether more substantial changes should be anticipated as a result of the ever-increasing tension between the high standards of fundamental rights and freedoms which the EU has recently developed, on the one side, and the potential incompatibility of the Commission's organization and procedure with essential due process requirements, on the other side. DG Comp is organized and functions like an ordinary administrative body, and yet it functions as an investigator, prosecutor, and judge, with the authority to impose fines amounting to billions of Euros or even structural remedies.

In parallel, the EU has set increasingly ambitious standards of fundamental rights, as displayed by the entry into force of the European Charter of Fundamental Rights. It is therefore not surprising that the reinforcement of due process guarantees came up as one of the main requests of companies and lawyers consulted in the context of the Commission's report on the implementation of regulation 1/2003. In the next few years, the growing pressure in favor of adequate due process guarantees in the context of antitrust proceedings could well impose considering a procedural reform which is not necessarily on Mr. Almunia's initial agenda

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

Compulsory or Voluntary Pre-Merger Notification? Theory and Some Evidence

Posted by D. Daniel Sokol

Chongwoo Choe, Monash University and Chander Shekhar, University of Melbourne explore Compulsory or Voluntary Pre-Merger Notification? Theory and Some Evidence.

ABSTRACT: We compare the prevailing system of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification. It is shown that, for a non-trivial set of parameter values, a perfect Bayesian equilibrium exists in mixed strategies in which the regulator investigates un-notified mergers with probability less than one and the parties choose notification with probability less than one. Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.

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

The Failed Resurrection of the Single Monopoly Profit Theory

Posted by D. Daniel Sokol

Einer Elhauge (Harvard Law) has an interesting new article The Failed Resurrection of the Single Monopoly Profit Theory.  Download it while it is hot.

ABSTRACT: Various arguments attempting to resurrect the single monopoly profit theory of tying have been made, but none are successful. The Seabright claim that it is supported by a lack of empirical proof fails because the single monopoly profit theory is an impossibility theory, and my recommended exception applies to whatever empirical extent the necessary conditions for that theory actually exist. The claim that a lack of empirical proof favors critics of current tying doctrine also fails because it is the critics that favor a categorical rule (of legality either for all ties or for all ties that lack substantial foreclosure) that requires empirical proof across the category. In contrast, current tying doctrine uses no categorical rule, but rather weighs efficiencies against anticompetitive effects in each case and permits ties to whatever extent it turns out to be empirically true that the efficiencies outweigh the anticompetitive effects. Current tying doctrine is thus preferable to the critics’ recommended alternatives whether the standard is consumer welfare or total welfare, and whether one thinks most ties flunk that standard or not.

Seabright also makes the more minor claim that, absent empirical proof that most ties harm welfare, the law should shift the burden of proof on efficiencies away from defendants. But this claim fails because: (1) the burden of empirical proof on legal issues is on those who want to overrule precedent, (2) the fact that defendants have better access to evidence on tying efficiencies favors putting the burden of proof on them regardless of what one assumes about the welfare effects of most ties, (3) the relevant category is not all ties, but ties covered by current doctrine with my exception, a category that excludes ties without market power, ties of items routinely bundled in competitive markets, and fixed ratio ties of products that lack separate utility and create no substantial foreclosure share, and (4) theoretical considerations indicate that ties in the relevant set will usually reduce both consumer welfare (the actual antitrust standard) and ex ante total welfare.

The Crane-Wright claim that bundled discounts cannot credibly threaten unbundled prices that exceed but-for prices conflicts with the facts that: (1) firms can credibly threaten the refusal to sell at any price that is necessary to get buyers to agree to tying and monopoly pricing and (2) in markets with many buyers, buyers have collective action problems that make them price takers.

My conclusions on the subset of ties that are metering ties is confirmed by Nalebuff’s models. However, I think it more accurate to model metering ties by assuming that (1) buyers purchase a whole number of tied units rather than (as he assumes) infinitely divisible fractions of tied units, and (2) buyers have varying valuations rather than (as some of his models assume) the same valuation for tied product usage over the relevant range.

My legal conclusions are also generally confirmed by First’s conclusions using a multi-goal approach, but I prefer a welfarist analysis because I find the multi-goal approach and its non-welfarist components conclusory and unpersuasive when they conflict with welfare.

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

Excellent New Film on Leniency by the Swedish Competition Authority - A Must See

Posted by D. Daniel Sokol

The Swedish Competition Authority has launched a film about leniency in order to raise awareness of their leniency program. You can see the film here.

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

Professional Interpretation of the Standard of Proof: An Experimental Test on Merger Regulation

Posted by D. Daniel Sokol

Bruce Lyons (School of Economics and ESRC Centre for Competition Policy, University of East Anglia), Gordon Menzies (School of Finance and Economics, University of Technology Sydney) and Daniel Zizzo (School of Economics, ESRC Centre for Competition Policy and Centre for Behavioural and Experimental Social Science, University of East Anglia) explain Professional Interpretation of the Standard of Proof: An Experimental Test on Merger Regulation.

ABSTRACT: There is considerable debate about the alternative economic approaches to merger control taken by competition authorities. However, differences in economic analysis are not the only reason for alternative decisions. We conduct an experiment in decision making in the context of merger appraisal, identifying the separate influences of different standards of proof, volumes of evidence, cost of error and professional training. The experiment was conducted on current practitioners from nine different jurisdictions, in addition to student subjects. We find that legal standards of proof significantly affect decisions, and identify specific differences due to professional judgment. We are further able to narrow the range of explanations for why professionalization matters.

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

Wednesday, March 3, 2010

2010 Milton Handler Lecture

Posted by D. Daniel Sokol

THE ANTITRUST AND TRADE REGULATION COMMITTEE OF THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK INVITES YOU TO THE 2010 MILTON HANDLER LECTURE

Professor Handler and the New York City Bar Association established the Milton Handler lectures in 1973 to explore significant developments in antitrust law and policy. With the help of a generous endowment created by Professor Handler, the lectures have since become a very important event for the antitrust community and have led to significant contributions to the advancement of antitrust law. This year’s lecture is in keeping with Professor Handler’s original tradition of inviting leading scholars to discuss the development of antitrust law and policy. This is a particularly exciting time because of possible changes in antitrust enforcement. We have invited Professor C. Scott Hemphill of Columbia Law School to present his views on the Obama Administration’s first year of antitrust enforcement. He will discuss what can we learn from the enforcement actions and policy positions taken by the Obama Administration so far, and how those might alter the scope of current antitrust doctrine. Please join us for what promises to be a stimulating and enjoyable program.

TIME: Wednesday, April 7, 2010, 8.30 – 10.30 a.m.

PLACE: The Great Hall of the Association New York City Bar Association 42 West 44th Street New York, NY 10036

SPEAKER: C. Scott Hemphill, Professor of Law and Milton Handler Fellow, Columbia Law School

RSVP: There is no charge for this program; however, since seating is limited please register by April 1, 2010, by sending an email to Debbie Goldberg at dxg@avhlaw.com containing your name and email address. For any questions, please contact Daniel Bitton at dsb@avhlaw.com or (212) 728- 2239.

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

DOJ Antitrust Division Economic Analysis Group Spring 2010 Seminar Series

Posted by D. Daniel Sokol

Economic Analysis Group

Antitrust Division, US Department of Justice

 

 

 

Date

Speaker

Topic

(Tues 2

-3:30pm)

Tim Brennan

UMD-Baltimore County

Exclusion vs. Predation: Drawing Lines Between Easy and Hard Abuse Cases

March 30

(Tues 2

-3:30pm)

James Roberts

Duke

Entry and Selection in Auctions (with Andrew Sweeting)

April 6

(Tues 2-3:30pm)

Patrick DeGraba

FTC

Naked Exclusion by a Dominant Supplier: Exclusive Contracting and Loyalty Discounts

April 13

(Tues 2-3:30pm)

Joshua Gans

Melbourne

Collusion on the Extensive Margin

April 20

(Tues 2-3:30pm)

Heski Bar-Isaac

New York University

Search, Design, and Market Structure

(with Guillermo Caruana and Vicente Cuñat)

May 4

(Tues 2-3:30pm)

John Rust

Maryland

A Dynamic Model of Bertrand Price Competition with Leap-Frogging Investments

May 11

(Tues 2-3:30pm)

Tracy Lewis

Duke

TBA

May 18

(Tues 2-3:30pm)

Ralph Winter

British Columbia

Exclusionary Contracts (with Ran Jing)

May 25

(Tues 2-3:30pm)

Josh Lustig

Boston University

Measuring Welfare Losses from Adverse Selection and Imperfect Competition in Privatized Medicare

March 3, 2010 | Permalink | Comments (1) | TrackBack (0)

Of Vulnerable Monopolists?: Questionable Innovation in the Standard for Class Certification in Antitrust Cases

Posted by D. Daniel Sokol

Joshua P. Davis, University of San Francisco - School of Law and Eric L. Cramer, Berger & Montague have an interesting new paper titled Of Vulnerable Monopolists?: Questionable Innovation in the Standard for Class Certification in Antitrust Cases.

ABSTRACT: Some courts appear to have begun to revise the standard for granting class certification, including in antitrust cases. The new standard, if there is one, may empower courts to find facts relevant to the merits in a way that historically they have not been permitted to do. If courts are ratcheting up the standard at class certification by forcing plaintiffs to make a showing on the merits, then it seems an unfortunate development for various reasons. First, the rationale for the change is unsubstantiated and implausible. Neither theory nor evidence supports the claim that corporations settle meritless class actions with any frequency, particularly in antitrust. Second, a heightened certification standard fits poorly in the existing procedural framework, potentially forcing a decision on the merits prematurely and possibly violating the Seventh Amendment. Third, such a standard may distort other aspects of the class certification decision. In particular, it may encourage courts to put undue emphasis on methods of proving class-wide injury, or “common impact,” at class certification. Fourth, the new standard would involve a back-door change to the procedural rules. Rule 23 does not contemplate that judges will rule on merits issues at class certification. If some modification of the class certification process is in order - if a procedural decision is going to morph into a merits determination - courts should follow the right method of effecting that change, including careful deliberation, empirical study, and a formal amendment to the Federal Rules of Civil Procedure.

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

Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets

Posted by D. Daniel Sokol

Kris James Mitchener and David C. Wheelock have a paper on Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets.

ABSTRACT: This paper examines the relationship between the structure of banking markets and economic growth using a new dataset on manufacturing industry-level growth rates and banking market concentration for U.S. states during 1899-1929—a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically. Unlike studies of modern developing and developed countries, we find that banking market concentration had a positive impact on manufacturing sector growth in the early twentieth century, with little variation across industries with different degrees of dependence on external financing or access to capital. However, because regulations affecting bank entry varied considerably across U.S. states and the industrial organization of the U.S. banking system differs markedly from those of other countries, we also examine the impact of other aspects of banking m! arket structure and policy on growth. We continue to find that banking market concentration boosted industrial growth. In addition, we find evidence that a greater prevalence of branch banking and more banks per capita increased the growth of industries that rely relatively heavily on external financing or have greater access to external funding sources, while deposit insurance depressed growth in the manufacturing sector. Regulations on bank entry and other banking market characteristics thus appear to exert an independent influence on manufacturing growth in geographically fragmented banking markets.

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

Tuesday, March 2, 2010

Who Has the Best Global Antitrust/Competition Practice? Chambers Global Rankings Are Out

ICN Annual Conference - Istanbul, Turkey

Posted by D. Daniel Sokol

The 9th Annual Conference of the International Competition Network, will take place in Istanbul from April 27th to April 29th, 2010.

The program is available here.

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

How Do Firms Exercise Unilateral Market Power? Evidence from a Bid-Based Wholesale Electricity Market

Posted by D. Daniel Sokol

Shaun McRea and Frank Wolack (both Stanford) ask and asnwer How Do Firms Exercise Unilateral Market Power? Evidence from a Bid-Based Wholesale Electricity Market.

ABSTRACT: This paper uses the framework in Wolak (2003a,b and 2007) and data on half-hourly offer curves and market-clearing prices and quantities from the New Zealand wholesale electricity market over the period January 1, 2001 to June 30, 2007 to characterize how the four large suppliers in this imperfectly competitive industry exercise market power. To accomplish this we introduce half-hourly measures of the firm-level ability and incentive of an individual supplier to exercise unilateral market power that are derived from a simplified model of expected profit-maximizing offer behaviour in a multi-unit auction market. We then show that half-hourly market-clearing prices are highly correlated with the half-hourly values of the firm-level and firm-average measures of both the ability and incentive of the four large suppliers in New Zealand to exercise market power. We then present evidence consistent with the view that this incre! asing relationship between the ability or incentive of individual suppliers to exercise market power and higher market-clearing prices is caused by the four large suppliers submitting higher offer prices when they have a greater ability or incentive to exercise unilateral market power. We show that after controlling for changes in input fossil fuel prices and other factors that impact the opportunity cost of producing electricity during that half hour, each of the four suppliers submits a higher offer price into the wholesale market when it has a greater ability or incentive to exercise unilateral market power. To strengthen the case that this increasing relationship between market prices and the ability and incentive of each of the suppliers to exercise unilateral market power is actually caused by the four large suppliers exercising unilateral market power by changing their offer prices in response to their ability and incentive to exercise market power, we also perform a! test of the implications of the null hypothesis that the four large s uppliers behave as if they had no ability to exercise market power. We find strong evidence against this null hypothesis and instead find that these hypothesis testing results are consistent with the perspective that these suppliers are exercising all available unilateral market power. 

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

Retailer Choice and Loyalty Schemes - Evidence from Sweden

Posted by D. Daniel Sokol

Johan Lundberg (Department of Economics, Umeå University) and Sophia Lundberg, (Department of Economics, Umeå University) provide Retailer Choice and Loyalty Schemes - Evidence from Sweden.

ABSTRACT: From economic theory, it is known that consumer loyalty schemes can have lock-in effects resulting in entry barriers and higher prices. This paper concerns consumer loyalty schemes where the main issue is to test the hypothesis that loyalty scheme membership affects the choice of food retailer. This choice is modeled as a random utility maximization problem estimated with maximum likelihood. Based on a data set covering 1,551 Swedish households, we find evidence supporting this hypothesis. Further, according to the results, store characteristics and geographical distance matter for the choice of retailer while household characteristics are not found to have a significant effect.

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

New Ideas for Limiting Bank Size - Murphy Conference on Corporate Law, Fordham Law School, March 12, 2010

Posted by D. Daniel Sokol

I will be participating in what looks to be an interesting conference at Fordham on March 12, 2010.

New Ideas for Limiting Bank Size

Murphy Conference on Corporate Law
Fordham Law School
March 12, 2010

Register for this event.

08:45 - 09:00 a.m.
Opening Remarks

Speaker: TBD


09:00 - 10:15 a.m.
Panel 1: The Status Quo and How We Got There

 Landy, Heather  The Complexities of Approaching Complexities
 Pasquale, Frank  The Business Models of Big Banks
 Scherer, F.M.  A Perplexed Economist Confronts "Too Big To Fail"
 Carnell, Richard  Moderator
 Stern, Gary  Respondent


10:30 - 11:30 a.m.
Panel 2: Creative Ideas for Limiting Bank Size I

 Baker, Dean  Financial Transactions Tax
 Chasin, Dana  Increasing Liability and Asset Limits
 Feldman, Ron  Addressing TBTF by Shrinking Institutions: An Initial Assessment
 Hurley, Cornelius  The Return of Bank Subsidies


11:30 - 12:15 p.m.
Panel 3: Creative Ideas for Limiting
Bank Size II

 D'Arista, Jane  Inflating the Financial System: How It Was Done; How to Prevent It From Happening Again
 Johnson, Rob  Credible Resolution Authority
 Neiman, Richard  TBD
 Wilmarth, Art  Reforming Financial Regulations to Address the Too Big Too Fail Problem
 Sokol, Daniel  Respondent


12:30 - 01:30 p.m.
Lunch and Keynote Address

 Johnson, Simon  Keynote: 13 Bankers
 Carnell, Richard  Respondent
 Open Discussion  


02:00 - 03:00 p.m.
Panel 4: Time for a New Antitrust?

 Felsenfeld, Carl  An Antitrust Approach
 Markham, Jesse  Lessons for Competition Law From The Economic Crisis: Can Antitrust Intervention Ever Avert TBTF?
 Teachout, Zephyr  Why the DOJ is better than Regulatory Agencies for Size Enforcement
 Kaplan, Paul M.  Respondent
 Squire, Richard  Respondent

03:15 - 03:30 p.m.
Legislative Update

Heather C. McGhee
Washington Office Director
Demos


03:30 - 4:45 p.m.
Panel 5: Challenging False Assumptions

 Baxter, Lawrence  When "Big" Becomes a Problem
 Bayern, Shawn  False Assumptions in Law and Economics
 Frankel, Tamar  Toxic Financial Intermediaries
 Kwak, James  Difficulties with Risk Weighting
 Nowicki, Elizabeth  Current Enforcement Problems
 Gimein, Mark  Respondent
 Pearce, Russell  Respondent


05:00 p.m.
Closing Remarks

Speaker: TBD

06:00 p.m.
Informal Closing Dinner

March 2, 2010 | Permalink | Comments (1) | TrackBack (0)

Entry Barriers in Retail Trade

Posted by D. Daniel Sokol

Fabiano Schivardi (University of Cagliari) and E. Viviano (Bank of Italy) describe Entry Barriers in Retail Trade.

ABSTRACT: The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the effects of entry barriers on sectoral performance. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and lower productivity of incumbent firms. Liberalizing entry has a positive effect on investment in ICT, increases employment and compresses labor costs in large shops. In areas with more stringent entry regulation, lower productivity coupled with larger margins results in higher consumer prices.

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

Monday, March 1, 2010

Dynamic price competition with network effects

Posted by D. Daniel Sokol

Luis Cabral (IESE Business School) has posted a paper on Dynamic price competition with network effects.

ABSTRACT: I consider a dynamic model of competition between two proprietary networks. Consumers die and are replaced with a constant hazard rate; and firms compete for new consumers to join their network by offering network entry prices. I derive a series of results pertaining to: a) existence and uniqueness of symmetric equilibria, b) monotonicity of the pricing function (e.g., larger networks set higher prices), c) network size dynamics (increasing dominance vs. reversion to the mean), and d) firm value (how it varies with network effects). Finally, I apply my general framework to the study of termination charges in wireless telecommunications. I consider various forms of regulation and examine their impact on firm profits and market share dynamics.   

March 1, 2010 | Permalink | Comments (1) | TrackBack (0)

Unilateral versus Coordinated Effects: Comparing the Impact on Consumer Welfare of Alternative Merger Outcomes

Posted by D. Daniel Sokol

Matt Olczak (CCP- University of East Anglia) has written on Unilateral versus Coordinated Effects: Comparing the Impact on Consumer Welfare of Alternative Merger Outcomes.

ABSTRACT: The nature of tacitly collusive behaviour often makes coordination unstable, and this may result in periods of breakdown, during which consumers benefit from reduced prices. This is allowed for by adding demand uncertainty to the Compte et al. (2002) model of tacit collusion amongst asymmetric firms. Breakdowns occur when a firm cannot exclude the possibility of a deviation by a rival. It is then possible that an outcome with collusive behaviour, subject to long/frequent break downs, can improve consumer welfare compared to an alternative with sustained unilateral conduct. This is illustrated by re-examining the Nestle/Perrier merger analyzed by Compte et al., but now also taking into accoun

March 1, 2010 | Permalink | Comments (0) | TrackBack (0)