Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, July 8, 2011

Merger Control in Ireland: Too Many Unnecessary Merger Notifications?

Posted by D. Daniel Sokol

Paul K Gorecki (ESRI) asks Merger Control in Ireland: Too Many Unnecessary Merger Notifications?

ABSTRACT: The market for corporate control plays an important role in ensuring that assets are deployed in an efficient and effective manner. However, on occasion, mergers might lead to a reduction in competition and a consequent rise in prices and/or other anticompetitive effects. The Competition Act 2002 provides that all mergers that meet certain financial thresholds must be notified to the Competition Authority in order that they are subject to a competitive effects assessment. However, there are concerns that the notification thresholds result in many mergers with little or no nexus to Ireland being notified. While it is the case that the vast majority of merger notifications do not raise competition concerns, Ireland is not out of line with other jurisdictions which have mandatory notification thresholds such as the EU and the US. Nevertheless, that should not lead to complacency. The paper quantifies the impact of reforms m! ade in 2006 and 2007 by the Competition Authority and the Minister of Enterprise, Trade and Employment to the merger notification thresholds. The evidence suggests that these tighter better specified thresholds led to a reduction of at least 40-50 per cent in the number of merger notifications. However, more could be done, albeit probably to a lesser extent than the earlier reforms. Applying the International Competition Network's Recommended Practices for Merger Notification Procedures, a series of proposals are made in the paper for revising the merger notification thresholds to better select mergers with a nexus to Ireland. Such moves should facilitate a more effective and efficient market for merger control by reducing transaction costs involved in the merger process as well as allowing Competition Authority resources to be deployed elsewhere, a not inconsiderable advantage in a period of austerity.

July 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Parallel Imports and Mandatory Substitution Reform: A kick or a muff for price competition in pharmaceuticals

Posted by D. Daniel Sokol

David Granlund (The Swedish Retail Institute and Umea University) and Miyase Yesim Koksal  (Department of Economics, School of Business, Economics and Law, Goteborg University) address Parallel Imports and Mandatory Substitution Reform: A kick or a muff for price competition in pharmaceuticals.

ABSTRACT: What has been the effect of competition from parallel imports on prices of locally-sourced onpatent drugs? Did the 2002 Swedish mandatory substitution reform increase this competition? To answer these questions, we carried out difference-in-differences estimation on monthly data for a panel of all on-patent prescription drugs sold in Sweden during the 40 months from January 2001 through April 2004. On average, facing competition from parallel imports caused a 15-17% fall in price. While the reform increased the effect of competition from parallel imports, it was only by 0.9%. The reform, however, did increase the effect of therapeutic competition by 1.6%.

July 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Economic effects of vertical disintegration: the American motion picture industry, 1945 to 1955

Posted by D. Daniel Sokol

Gregory Mead Silver (LSE) has a paper on Economic effects of vertical disintegration: the American motion picture industry, 1945 to 1955.

ABSTRACT: In 1948, the United States Supreme Court declared the operations of eight of the nation’s largest motion picture studios in violation of the 1890 Sherman Antitrust Act. The decision ordered them to disintegrate their producer-distributor roles from cinemas. The Court believed this would promote competitive practices in a hitherto uncompetitive industry. However, these desired benefits were not entirely reached. Instead, by leading the Hollywood studio system to collapse, the Court also distorted the supplychain for motion pictures. This work utilizes Coasian analyses of transaction costs to show that institutional integration was an efficient structure for the motion picture industry. It explores the motives to integrate and the benefits it garnered. Having laid this groundwork, it then assesses the effects theatre divorcement had on the industry and offers plausible counterfactuals had the studios remained intact after 1948.

July 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Job Posting: OECD Seeking Expert in Competition Law and Policy

Posted by D. Daniel Sokol

The OECD is seeking to recruit one or more candidates to the following position: Expert in Competition Law and Policy Successful candidates would work on projects relating to competition policy analysis and the application of competition law in OECD’s Competition Division.

S/he will participate in the drafting of reports on issues of competition policy for consideration by the OECD Competition Committee, in reviewing national competition laws and policies and in the preparation of recommendations to improve and strengthen competition law and policy. An advanced degree in law and/or economics is required, ideally specialised in competition law or industrial organization, together with three to seven years relevant experience. The post is based in Paris.

More details are available on the detailed job posting, at https://oecd.taleo.net/careersection/int/joblist.ftl (look for ‘Expert in Competition Law and Policy’). The closing date for applications is July 21, 2011.

July 8, 2011 | Permalink | Comments (0) | TrackBack (0)

The Empirics of Vertical Integration and Foreclosure

Posted by D. Daniel Sokol

Emmanuel Frot, Microeconomix, Stockholm School of Economics - Stockholm Institute of Transition Economics (SITE) has written on The Empirics of Vertical Integration and Foreclosure.

ABSTRACT: Economic theory underlines that vertical mergers are very likely to lead to efficiencies and benefit consumers. On the other hand, more recent research found that vertical integration can also be used as an anti-competitive tool by firms, and harm consumers, notably through foreclosure. These opposing effects make the assessment of vertical mergers a subtle exercise. This article argues that because of the complexity of the issue, it is important to rely on empirical studies to understand in practice the consequences of vertical integration. It reviews three recent articles on vertical mergers to better illustrate what can be learned ex post from such studies and the methods employed. It then looks at the TomTom/Tele Atlas merger where the European Commission ex ante conducted an evaluation of the incentives to foreclose by the new proposed entity. Econometric tools provide interesting insights on the mechanisms at play in vertical mergers, both ex ante and ex post, and therefore usefully complete economic theory.

July 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 7, 2011

Exclusive dealing: investment promotion may facilitate inefficient foreclosure

Posted by D. Daniel Sokol

Chiara Fumagalli, Massimo Motta and Thomas Rondehave an interesting article on Exclusive dealing: investment promotion may facilitate inefficient foreclosure.  Recommended.

ABSTRACT: This paper studies a model where exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. While investment promotion is usually regarded as a pro-competitive effect of ED, our paper shows that it may be the very reason why a contract that forecloses a more effcient supplier is signed. Absent the effect on investment, the contract would not be signed and foreclosure would not be a concern. For this reason, considering potential foreclosure and investment promotion in isolation and then summing them up may not be a suitable approach to assess the net effect of ED. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Reinvigorating Antitrust Enforcement An Address by Christine Varney July 12, 2011, 9:00am – 10:30am

Posted by D. Daniel Sokol

Please join the Center for American Progress for a special presentation: 

Reinvigorating Antitrust Enforcement

An Address by Christine Varney

July 12, 2011, 9:00am – 10:30am

Admission is free.

RSVP to attend this event

 

Featured Speaker:
Christine Varney, Assistant Attorney General for Antitrust, Department of Justice

Introduction by:
Winnie Stachelberg, Senior Vice President for External Affairs, Center for American Progress

Featured Panelists
Mark Cooper, Research Director, Consumer Federation of America
Albert Foer, President, American Antitrust Institute
Howard Morse, Partner, Cooley LLP
Scott Sher, Partner, Wilson Soncini, Goodrich & Rosati

Moderated by:
David Balto, Senior Fellow, Center for American Progress

 

Over two years ago Christine Varney began her tenure as Assistant Attorney General in charge of the Antitrust Division of the Department of Justice. In this short period of time, under her leadership the Division has reinvigorated enforement against anticompetitive conduct and potentially problematic mergers. Moreover, the Division has worked closely with other arms of the Administration in addressing competitive problems in critical areas such as health care and agriculture. This approach to antitrust enforcement and engagement in competition issues across the government has contributed to the Administration's efforts to promote innovation, job growth through preservation of competitive forces in the market, and more efficient use of governmental coordination to spur economic growth.

 Ms. Varney will address the critical challenges facing the Division and Administration in addressing competition issues throughout the economy.

July 12, 2011, 9:00am – 10:30am

Space is extremely limited. RSVP required.
Seating is on a first-come, first-served basis and not guaranteed.

Coffee will be served at 8:30 a.m.

Center for American Progress
1333 H St. NW, 10th Floor
Washington, DC 20005
Map & Directions

Nearest Metro: Blue/Orange Line to McPherson Square or Red Line to Metro Center

RSVP to attend this event

For more information, call 2026821611.

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Does intellectual monopoly stimulate or stifle innovation?

Posted by D. Daniel Sokol

Angus C. Chu (Shanghai School of Finance), Guido Cozzi (University of Durham), and Silvia Galli (Hull University) ask Does intellectual monopoly stimulate or stifle innovation?

ABSTRACT: This study develops an R&D-based growth model with vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. We analyze the effects of patent protection in the form of blocking patents. We show that patent protection changes the direction of innovation by having asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Calibrating the model and simulating the transition dynamics, we find that strengthening the effect of blocking patents stifles vertical innovation and decreases economic growth but increases social welfare due to an increase in horizontal innovation. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patents, it is important to consider their often neglected compositional effects on vertical and horizo! ntal innovation.

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

DOJ, FTC Announce Changes to Streamline the Premerger Notification Form

Posted by D. Daniel Sokol

DOJ/FTC have announced changes to HSR.  According to the press release:

The revisions are part of ongoing efforts by the department and the FTC to review their regulations, ensure that the rules are necessary and up-to-date, and eliminate unnecessary or potentially overly burdensome reporting requirements for business. The changes will make the HSR form easier to complete, reduce the burden for most filers and make the premerger notification review program more effective for both agencies.

The revised HSR form deletes several categories of information that over time have proven unnecessary in a preliminary merger review. For example, HSR filers will no longer be required to provide copies of documents – whether in hard copy or via electronic link – filed with the Securities and Exchange Commission, report economic code “base year” data or give a detailed breakdown of all the voting securities to be acquired. The new form also will require filers to provide the department and the FTC with narrowly focused additional documents that will help expedite the merger review process.

The revised form changes certain kinds of required reporting, such as revenue information by the North American Industry Classification System (NAICS) code, and the identity of holders and holdings of the entities making a filing. In addition, new concepts are introduced that are designed to expedite the antitrust review, including reporting information about “associates” of the acquiring person. Changes also include minor revisions to the HSR Rules to address omissions from the 2005 Rule changes involving unincorporated entities.

 

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Strategic delegation and collusion: Do incentive schemes matter?

Posted by D. Daniel Sokol

Jean-Daniel Guigou (Luxembourg School of Finance, University of Luxembourg), Patrick De Lamirande (Shannon School of Business, Canada), and Bruno Lovat (University of Nancy) asks Strategic delegation and collusion: Do incentive schemes matter?

ABSTRACT: This paper introduces delegation decisions and contracts based on relative performance evaluation (RPE) in the analysis of cartel stability. We follow the approach developed by Lambertini and Trombetta [12], where manager's compensation combines pro_ts and sales (CPS) instead. Some of our results are similar while others are distinct from those of Lambertini and Trombetta. In particular, we show that collusion under RPE is always harder to sustain than under CPS.

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Low-Quality Leadership in a Vertically Differentiated Duopoly with Cournot Competition

Posted by D. Daniel Sokol

L. Lambertini and A. Tampieri Low-Quality Leadership in a Vertically Differentiated Duopoly with Cournot Competition.

ABSTRACT: We model a vertically differentiated duopoly with quantity-setting firms as an extended game in which firms noncooperatively choose the timing of moves at the quality stage, to show that at the subgame perfect equilibrium sequential play obtains, with the low-quality firm taking the leader's role.

July 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 6, 2011

Varney from DOJ to Cravath

Posted by D. Daniel Sokol

The Wall Street Journal is reporting that Chrstine Varney is moving from DOJ Antitrust to Cravath.

Update: DOJ Antitrust has confirmed the report with a press release. The most important parts of her legacy, according to the press release, are:

Shortly after confirmation, Assistant Attorney General Varney withdrew a previous department report that lowered the enforcement standards under Section 2 of the Sherman Act.

Assistant Attorney General Varney next worked with the Federal Trade Commission (FTC) to update the Horizontal Merger Guidelines, including by hosting a series of workshops and receiving public comments on proposed revisions to the Guidelines. Most recently, Assistant Attorney General Varney released a new Merger Remedy Guide. These policy undertakings combine to bring new levels of transparency and certainty to antitrust enforcement in the United States.

Under Assistant Attorney General Varney’s leadership, the division enhanced its focus on large international cartel cases as well as financial institution price-fixing cases in the U.S. municipal bond market. As a result, these cases have brought a billion dollars in fines and restitution to the victims of those conspiracies. In the last fiscal year, the division brought 60 cases on the criminal side, charging 84 defendants. In that year, the division obtained over $550 million in fines, more than $24 million in restitution and prison sentences totaling over 71 years.

Under Assistant Attorney General Varney’s leadership, the Antitrust Division also challenged several proposed mergers or industry practices that, if allowed to proceed, would have diminished competition and harmed consumer welfare, including NASDAQ OMX Group Inc. and IntercontinentalExchange Inc.’s joint bid to acquire NYSE Euronext; API Healthcare Corporation’s proposed merger with Kronos Inc.; and Blue Cross Blue Shield of Michigan’s attempt to purchase Physicians Health Plan of Mid-Michigan (PHP). Other transactions including LiveNation/TicketMaster; Comcast/NBC; Google/ITA were significantly altered by the parties in order to secure division approval.

July 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Quality distortions in vertical relations

Posted by D. Daniel Sokol

Pio Baake and Vanessa von Schlippenbach describe Quality distortions in vertical relations.

ABSTRACT: This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a nonlinear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that from the firms' perspective delivery contracts lead to more efficient contracts and thus higher overall profits the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less effcient outcomes.

July 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Antitrust in China - The Brighter Spots

Posted by D. Daniel Sokol

Adrian Emch, Hogan Lovells notes Antitrust in China - The Brighter Spots.

ABSTRACT: Following its entry into force in August 2008, China’s Anti-Monopoly Law has been applied by authorities and courts in individual enforcement decisions. This article aims to look at the achievements in the enforcement process so far. In particular, it analyzes how the merger control authority and some courts have - to some extent - carried out three analytical steps that can be used to separate anti- from pro-competitive conduct - i.e., market definition, market power, and pro-competitive effects.

July 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Cartel Destabilization and Leniency Programs – Empirical Evidence

Posted by D. Daniel Sokol

Gordon J. Klein has posted Cartel Destabilization and Leniency Programs – Empirical Evidence.

ABSTRACT: Leniency programs as a tool for cartel detection and cartel destabilization, have been implemented since the early nineties. Theoretical work has shown that leniency programs can be eff ective in enhancing cartel detection and deterrence, but these e ffects are not straight-forward. It is even possible that there is an increase in the total number of cartels. Empirical evidence shows that the positive e ffect on cartel deterrence seems to dominate, but cannot provide definite evidence, as inference is derived only by detected cartels. This study uses a more direct measure of success: the intensity of competition at the industry level of OECD countries. An instrumental variable approach, reveals a positive e ffect on industries' competition intensity of leniency programs indicating e ffectiveness in cartel destabilization and eff ective deterrence.

 

July 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Monopolistic Competition in General Equilibrium: Beyond the CES

Posted by D. Daniel Sokol

Evgeny Zhelobodko (Novosibirsk State University (Russia)) Sergey Kokovin (Novosibirsk State University and Sobolev Institute of Mathematics (Russia)) Mathieu Parenti (Universite de Paris 1 and PSE (France)) Jacques-François Thisse (CORE-UCLouvain (Belgium), CREA, Universite du Luxembourg, and CEPR.) address Monopolistic Competition in General Equilibrium: Beyond the CES.

ABSTRACT: We determine the endogenous order of moves in a mixed price-setting duopoly. In contrast to the existing literature on mixed oligopolies we establish the payoff equivalence of the games with an exogenously given order of moves. Hence, it does not matter whether one becomes a leader or a follower. We also establish that replacing a private firm by a public firm in the standard Bertrand-Edgeworth game with capacity constraints increases social welfare and that a pure-strategy equilibrium always exists.

July 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 5, 2011

Google Books: Game and Set to the Sceptics; the Match Continues

Posted by D. Daniel Sokol

Ian Forrester (White & Case) addresses Google Books: Game and Set to the Sceptics; the Match Continues.

ABSTRACT: There is no doubt that the grand idea of scanning millions of books and making them available to the world's readers is spectacular. There is no doubt that public good can flow from it. However, the current settlement conferred a too immense private good, and annoyed too many ordinary people who had eloquent voices. Since the copying is far advanced, it seems unlikely that the project will be abandoned, so a more cautious, better balanced regime seems the most likely outcome. Again, there may be a broader message for Google's aspirations as to other activities-searches, maps, private addresses, and privacy generally. The message may be "Prune the exuberant aspirations and go more cautiously."

July 5, 2011 | Permalink | Comments (0) | TrackBack (0)

Does timing of decisions in a mixed duopoly matter?

Posted by D. Daniel Sokol

Tamas L. Balogh and Attila Tasnadi ask Does timing of decisions in a mixed duopoly matter?

ABSTRACT: We determine the endogenous order of moves in a mixed price-setting duopoly. In contrast to the existing literature on mixed oligopolies we establish the payoff equivalence of the games with an exogenously given order of moves. Hence, it does not matter whether one becomes a leader or a follower. We also establish that replacing a private firm by a public firm in the standard Bertrand-Edgeworth game with capacity constraints increases social welfare and that a pure-strategy equilibrium always exists.

July 5, 2011 | Permalink | Comments (0) | TrackBack (0)

Search Costs and Risky Investment in Quality

Posted by D. Daniel Sokol

Arthur Fishman (Bar-Ilan University) and Nadav Levy (IDC Herzliya) discuss Search Costs and Risky Investment in Quality.

ABSTRACT: One striking development associated with the explosion of e-commerce is the increased transparency of sellers' quality history. In this paper we analyze how this affects fi…rms' incentives to invest in quality when the outcome of investment is uncertain. We identify two conflicting effects. On the one hand, reducing the consumer's cost of search for quality exacerbates the negative effects of past poor performance. This increases incentives to invest, leading to higher quality. On the other hand, the fact that a fi…rm, despite its best efforts, may fail to live up to consumers' more demanding expectations, makes investment less attractive. This discourages investment, leading to lower quality. We show that reducing the search cost leads to higher quality if the initial level of the search cost is sufficiently high but may lead to lower quality if the initial level of the search cost is sufficiently low.

July 5, 2011 | Permalink | Comments (0) | TrackBack (0)

Mobile Application Pricing

Posted by D. Daniel Sokol

Joshua S. Gans, Melbourne Business School explores Mobile Application Pricing.

ABSTRACT: This paper examines the pricing of mobile applications when app providers can supply consumers directly or through a mobile platform (such as a mobile smart phone, tablet or other device). It is demonstrated that when platform access (i.e., purchasing a device) takes place in advance of app pricing, a non-trivial unravelling problem exists that rules out selling platform access at a positive price. Consequently, all platform revenues come from sharing app provider revenues. It is demonstrated that several restrictive conditions on app providers such as most favoured customer clauses can allow the platform provider to earn more profits and charge a positive access price in situations where the platform might not otherwise be provided.

July 5, 2011 | Permalink | Comments (0) | TrackBack (0)