Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, April 19, 2011

Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices

Posted by D. Daniel Sokol

Charles Courtemanche (University of North Carolina at Greensboro, Department of Economics) and Art Carden (University of North Carolina at Greensboro, Department of Economics) explain Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices.

ABSTRACT: Research shows that grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam's Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.

April 19, 2011 | Permalink | Comments (0) | TrackBack (0)

Patent Pools and Product Development

Posted by D. Daniel Sokol

Thomas Jeitschko (Antitrust Division, U.S. Department of Justice and Department of Economics, Michigan State University) and Nanyun Zhang (Department of Economics, Towson University) explore Patent Pools and Product Development.

ABSTRACT: The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. The focus of this paper is on (downstream) product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that nal demand products are imperfect substitutes. If pool formation either increases spillovers in development or decreases the degree of product dierentiation, pool formation can actually adversely aect overall welfare by reducing incentives towards product development and product market competition|even with perfectly complementary patents. This significantly modifies and possibly even negates the conventional wisdom for many settings. The paper provides insights into why patent pools are uncomm! on in science-based industries such as biotech, despite there being strong policy advocacy for them.

April 19, 2011 | Permalink | Comments (1) | TrackBack (0)

GCR's Competition Law, Consumer Goods and Retail 2011 conference

Posted by D. Daniel Sokol

GCR's Competition Law, Consumer Goods and Retail 2011 conference

Wednesday 11 May, London

PROGRAMME

Chairman's Introduction

* John Davies, Partner and Global Co-Head of the Antitrust, Competition and Trade practice, Freshfields Bruckhaus Deringer LLP

SESSION ONE - Information Flows in the Industry

Unilateral and reciprocal information flows; challenges of the EC horizontal guidelines; 'hub & spoke' cartels; use of third party data providers

* Andrea Gomes da Silva, Partner, Freshfields Bruckhaus Deringer LLP

* Andrew Groves, Director, Markets and Projects, Office of Fair Trading

* Frank Wijckmans, Partner, Contrast Law

* Andrea Lofaro, Director, RBB Economics

* Susan Hinchliffe, Partner, Arnold & Porter LLP

SESSION TWO - The Growth of the Sector Regulation

DG Enterprise proposals on private labels etc; buyer power; codes of conduct; unfair commercial practices code; best practice guidelines

* Susan Hinchliffe, Partner, Arnold & Porter LLP

* Jean Bergevin, Head of Unit, DG Markt, European Commission     

* Alain Galaski, Director General, AIM (European Brands Association)

* Paul Skehan, Director, ERRT (European Retail Round Table)

SESSION THREE - Collaboration and Joint Initiatives between Suppliers and/or Retailers

Joint purchasing; collaboration for environmental and social goals; OFT short form opinions; category management including the two French Competition Authority recommendations; EU horizontal guidelines

* John Davies, Freshfields Bruckhaus Deringer LLP

* Michael Hutchings, Competition Solicitor

* Jackie Holland, Director Policy Unit, Office of Fair Trading

* Etienne Pfister, Deputy General Rapporteur, Autorité de la Concurrence

SESSION FOUR - Consumer Product Mergers

Review of the implications of recent cases; 'references up' to the European Commission; buyer power and private label; merger simulations; the evolution of remedies policy in consumer products cases

* Alex Potter (Panel Chair), Partner, Freshfields Bruckhaus Deringer LLP

* Cristina Caffarra, Vice President, Charles River Associates

* Michael Rowe, Partner, Slaughter and May

* Claes Bengtsson, Deputy Chief Economist, DG Competition, European Commission

Chairman's summing up and close

REGISTER HERE:


April 19, 2011 | Permalink | Comments (2) | TrackBack (0)

Saving the First Amendment from Itself: Relief from the Sherman Act Against the Rabbinic Cartels

Posted by D. Daniel Sokol

Barak Richman (Duke Law) has posted a very interesting article - Saving the First Amendment from Itself: Relief from the Sherman Act Against the Rabbinic Cartels. I highly recommend this.

ABSTRACT: America’s rabbis currently structure their employment market with rules that flagrantly violate the Sherman Act. The consequences of these rules, in addition to the predictable economic outcomes of inflated wages for rabbis and restricted consumer freedoms for the congregations that employ them, meaningfully hinder Jewish communities from seeking their preferred spiritual leader. Although the First Amendment cannot combat against this privately-orchestrated (yet paradigmatic) restriction on religious expression, the Sherman Act can. Ironically, however, the rabbinic organizations implementing the restrictive policies claim that the First Amendment immunizes them from Sherman Act scrutiny, thereby claiming the First Amendment empowers them to do what the First Amendment was arguably designed to prevent. This essay evaluates this interesting intersection between the Sherman Act and the First Amendment, and it argues that the Sherman Act can, and must, be vigorously applied against the private rabbinic cartels.

April 19, 2011 | Permalink | Comments (0) | TrackBack (0)

From Mergers to Cartels: An Overview of the Rapidly Evolving Turkish Competition Law in Light of the European Model

Posted by D. Daniel Sokol

Gönenç Gürkaynak and Derya Durlu (both ELIG Attorneys) explain From Mergers to Cartels: An Overview of the Rapidly Evolving Turkish Competition Law in Light of the European Model.

ABSTRACT: With its more than a decade-long enforcement practice, Turkish competition law has undergone significant changes that could indicate a move towards converging with the European jurisdiction in many respects. In particular, the Turkish merger control regime has been introduced to a new communiqué and a draft guideline to interpret ex ante merger review in light of especially the new, only-turnover-based notifiability thresholds. Additionally, abuse of dominance, cartel cases, concerted practices and exchange of sensitive competitive information under Turkish competition law bear significant resemblance to their comparable European counterparts, while retaining their Turkey-specific features.

April 19, 2011 | Permalink | Comments (0) | TrackBack (0)

The Use of Empirical Techniques in European Commission Merger Cases

Posted by D. Daniel Sokol

Jan Peter van der Veer (RBB Economics) addresses The Use of Empirical Techniques in European Commission Merger Cases.

ABSTRACT: In recent years, there has been a trend towards a more systematic use of detailed empirical analysis in the assessment of merger cases by the European Commission. This trend owes its roots to the Court of First Instance's judgments in the Airtours/First Choice, Tetra Laval/Sidel, and General Electric/Honeywell cases, which made it clear that any theory of competitive harm advanced by the Commission must specify the conditions that gave rise to that harm and test those conditions against observed industry characteristics and behavior. The Commission took the lessons from these judgments to heart in the reform package that was implemented in 2004 and, indeed, it has since taken more responsibility to further develop the empirical side of its merger analysis. The creation of the post of Chief Economist and the subsequent hires made by the Commission to build a dedicated unit of economists have undoubtedly played a key role in this development. In this article, we review the main empirical analyses applied by the European Commission in recent merger cases, focusing on unilateral effects cases. In Section 2, we set out the basic framework for the analysis of unilateral effects. Section 3 reviews methods that focus on assessing the strength of the competitive constraint between the merging parties. In Section 4, we examine merger simulation approaches that seek to estimate the price impact of a merger. Section 5 provides some concluding remarks.

April 19, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, April 18, 2011

New Tools for Competitive Effects: Do We Really Know What Works Best?

Posted by D. Daniel Sokol

G. Steven Olley (NERA) asks New Tools for Competitive Effects: Do We Really Know What Works Best?

ABSTRACT: Competition agencies around the world are charged with the task of identifying and challenging mergers and acquisitions that are likely to substantially lessen competition. Agencies have over the years relied upon a wide range of information and economic theories to investigate the likely competitive effects of proposed transactions. Furthermore, the types of information and the economic models and tools employed by agency staff have evolved over time, largely in response to developments in economic theory and legal thinking. Developments in oligopoly theory on the one hand, and econometric methods for analyzing price and quantity data on the other, have shaped the theories of harm articulated by the agencies and the empirical tools used to investigate those theories. Many of these developments are reflected in merger guidelines issued by competition agencies in order to assist merging parties and antitrust practitioners generally. Over the last few years, there has been a lively debate among antitrust practitioners and the academic community about the appropriate tools for analyzing unilateral effects in a merger investigation. The debate was fueled in part by the 2008 publication of a working paper by Joseph Farrell and Carl Shapiro that proposed a new method for analyzing the competitive effects of mergers in differentiated products industries. Acknowledging the enormous challenges faced by competition agencies, Farrell & Shapiro proposed a measure of upward pricing measure ("UPP") as a simple screen for likely unilateral effects in a merger between rivals in a differentiated products industry. Contributors to the debate have discussed the relative strengths and weaknesses of UPP versus other empirical tools for identifying anticompetitive mergers, including so-called natural experiments, merger simulation, diversion ratios, and critical loss analysis for competitive effects. In this article, I do not intend to weigh in on this debate. Instead, I will attempt to summarize efforts to evaluate empirically the relative strengths and weaknesses of the empirical techniques used to analyze theories of unilateral effects. To assess the performance of the various empirical tools available to competition agencies I consider results from recent empirical research that evaluates the success of empirical models used to predict price changes following a transaction. The results from this research would seem to be especially important to inform the ongoing debate about which empirical technique is best able to identify anticompetitive transactions. As discussed in more detail below, there is a small but growing body of empirical work that provides some evidence on how best to identify mergers likely to be anticompetitive. I will also briefly discuss a second strand of research that considers whether the empirical tools for identifying anticompetitive mergers can accurately predict agency enforcement decisions.

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

On the Move: Avishalom Tor to Notre Dame from Haifa

Posted by D. Daniel Sokol

Avishalom Tor is moving to Notre Dame from Haifa where he adds to the existing firepower of Joe Bauer on antitrust issues.

 

Thus far, announced antitrust law professor lateral moves include:

Name                      Old School                   New School

Fred McCheseney     Northwestern               Miami
Avishalom Tor          Haifa                           Notre Dame
Wentong Zheng        Buffalo                        University of Florida

Visits include:

Keith Hylton to visit at Harvard Law (from BU)

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

Upward Price Pressure, Merger Simulation, and Merger Simulation Light

Posted by D. Daniel Sokol

Michael D. Noel (University of California, San Diego) has written on Upward Price Pressure, Merger Simulation, and Merger Simulation Light.

Every year, the Federal Trade Commission("FTC")and the Antitrust Division of the Department of Justice ("DOJ") are notified of thousands of mergers. Investigating which mergers are likely to have anticompetitive effects is a difficult, data-intensive, and resource-consuming task. Screens are necessary to target the truly problematic mergers and economize on scarce agency resources. The agencies have historically relied in part upon a screen for unilateral effects based on the market shares of the merging firms. The 1997 merger guidelines state that, in concentrated industries, if the new merged firm would attain a market share of at least 35 percent the merger would be presumptively anticompetitive. The specific figure has since been dropped in the 2010 guidelines. As has long been noted by economists, market share screens rely on the inherently difficult and artificial exercise of defining a relevant market from which to construct market shares. Market definition exercises must make a discrete "in or out" decision for each product from what is generally a continuum of substitute products, and market shares are sensitive to where this cutoff is drawn. Recently, Joseph Farrell and Carl Shapiro (hereafter "FS") introduced a new screen known as Upward Price Pressure ("UPP") to flag potential unilateral effects. The screen requires as inputs estimates of diversion ratios, markups, and post-merger cost efficiency expectations. On theoretic grounds, UPP has many advantages over traditional market-share based screens and represents a potentially important step forward for merger enforcement policy. UPP is rooted in the economic theory of profit maximization (for Bertrand competition), and attempts to directly gauge the post-merger pricing incentives of a merging firm. In general it does not require defining a relevant antitrust market. UPP has several limitations, though. Like market-share based screens, it only seeks to predict whether prices will rise, but not by how much, when it is actually the latter we actually care about. Also, the data requirements are more stringent for UPP than for market-based screens, which may limit its use. Finally, UPP is yet to be fully tested and optimized empirically. In this article, I consider the advantages and limitations of implementing UPP in practice, discuss the relationship between UPP and merger simulation, and ultimately argue in favor of a "merger simulation light" style screen, based on UPP, that I think holds the most promise for effective merger screening practice.

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

Monopolistic competition in general equilibrium: Beyond the CES

Posted by D. Daniel Sokol

Evgeny Zhelobodko (NSU - Novosibirsk State University - Novosibirsk State University), Sergey Kokovin (NSU - Novosibirsk State University - Novosibirsk State University, Sobolev Institute of Mathematics - Russian Academy of Science), Mathieu Parenti (Université Panthéon Sorbonne - Paris 1 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris), Jacques-François Thisse (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris discuss Monopolistic competition in general equilibrium: Beyond the CES.

ABSTRACT: We propose a general model of monopolistic competition and derive a complete characterization of the market equilibrium using the concept of Relative Love for Variety. When the RLV increases with individual consumption, the market generates pro-competitive effects. When it decreases, the market mimics anti-competitive behavior. The CES is a borderline case. We extend our setting to heterogeneous firms and show that the cutoff cost decreases (increases) when the RLV increases (decreases). Last, we study how combining vertical, horizontal and cost heterogeneity affects our results.

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

The New Indian Merger Control: Key Procedural Issues

Posted by D. Daniel Sokol

Simon Baxter & Nikolaos Peristerakis (both Skadden, Arps) discuss The New Indian Merger Control: Key Procedural Issues.

ABSTRACT: On March 4, 2010, the Ministry of Corporate Affairs of India published a Notification according to which the merger-related Sections 5 and 6 of the Competition Act, 2002 (as amended) (the "Act") will enter into force as of June 1, 2011. The merger control regime will be supplemented by procedural guidance (the "Draft Regulations") that is expected to enter into effect prior to June 1.

The entry into effect of the new Indian merger control regime is a long awaited development, not only because it took several years for the merger related provisions of the Act to enter into force, but also because India was the last BRIC country without a merger control regime applicable to cross-border mergers and acquisitions. The delay was due to both a challenge of the Act before India's Supreme Court and subsequent amendments by the Parliament of India that led to two important modifications in the merger control regime as originally anticipated by the Act: (i) modification of the regime from a voluntary to a mandatory notification with a bar on closing; and (ii) extension of the maximum waiting period from 90 days to 210 days.

These modifications, combined with very expansive notification thresholds, will raise a number of important procedural issues for cross-border transactions.

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

Exclusive Dealing Contracts by Distributors

Posted by D. Daniel Sokol

Ryoko Oki (Graduate School of Economics, University of Tokyo) and Noriyuki Yanagawa (Faculty of Economics, University of Tokyo) research Exclusive Dealing Contracts by Distributors.

ABSTRACT: The existing literature about exclusive dealing contracts has focused on cases where an incumbent manufacturer offers exclusive contracts to deter an entry. In contrast, we consider the case where an incumbent distributor offers exclusive dealing contracts to deter an entry. Exclusive dealing contracts by a distributor are less effective. We will show that the outcome of such contracts is quite different from the outcomes in the traditional literature. If the number of manufacturers is sufficiently high, it is impossible to exclude an efficient entry. Furthermore, if we allow two- part tariff contracts, the entrant distributor can enter the market for any number of manufacturers.

April 18, 2011 | Permalink | Comments (0) | TrackBack (0)

Sunday, April 17, 2011

Competition Day In Mexico - See the Video

Posted by D. Daniel Sokol

April 4 was Competition Day in Mexico. Watch the video here.

April 17, 2011 | Permalink | Comments (0) | TrackBack (0)