Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, August 13, 2011

Invention Is Not Innovation and Intellectual Property Is Not Just Like Any Other Form of Property: Competition Themes from the FTC's March 2011 Patent Report

Friday, August 12, 2011

Recent EU Investigations into Financial Services: What is the Scope for Antitrust Intervention?

Posted by D. Daniel Sokol

Mark Powell & Katarzyna Czapracka (White & Case) ask Recent EU Investigations into Financial Services: What is the Scope for Antitrust Intervention?

ABSTRACT: Like their U.S. counterparts, the EU antitrust enforcers have decided to probe practices that attracted criticism in the wake of the recent economic and financial turmoil. The Commission has opened two investigations into the functioning of the CDS market. It is also looking into possible misconduct with respect to the setting of LIBOR in times of financial crisis. The focus of these new investigations is markedly different from the Commission's previous enforcement efforts, which, until recently, have been focused on the payment card sector (which has been among the subjects of the Commission's financial services sector enquiry that was closed in 2007). Having reached an agreement with VISA on the Multilateral Interchange Fee, the Commission seems to focus now on wholesale banking and on practices that may impede access to market data and decrease market transparency.

This note gives more background on the antitrust enforcement actions recently initiated by the Commission in the financial industry and attempts to identify the Commission's likely concerns.

August 12, 2011 | Permalink | Comments (0) | TrackBack (0)

The Global Entry of New Pharmaceuticals: A Joint Investigation of Launch Window and Price

Posted by D. Daniel Sokol

Isabel Verniers (Erasmus School of Economics; Faculty of Economics and Business Administration, Ghent University), Stefan Stremersch (Erasmus School of Economics; IESE Business School), and Christophe Croux (Faculty of Business and Economics, Catholic University of Leuven) discuss The Global Entry of New Pharmaceuticals: A Joint Investigation of Launch Window and Price.

ABSTRACT: Research on the launch of new products in the international realm is scarce. The present paper is the first to document how launch window (difference in months between the first worldwide launch and the subsequent launch in a specific country) and launch price are interrelated and how regulation influences both launch window and launch price. The research context is the global 50 countries worldwide launch of 58 new ethical drugs across 29 therapeutic areas. We show that the fastest launch occurs when the launch price is moderately high and the highest launch price occurs at a launch window of 85 months. We find that the health regulator acts strategically in that the extent to which it delays the launch of a new drug increases with the price of the new drug. We also find that regulation overall increases the launch window, except for patent protection. Surprisingly, regulation does not directly impact launch price. The descriptive information on average launch window and launch price and the interconnection between launch window and launch price allows managers in ethical drug companies to build more informed decisions for international market entry. This study also provides public policy analysts with more quantitative evidence regarding launch window and launch price on a broad sample of countries and categories.

August 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition and Procurement

Posted by D. Daniel Sokol

Patricia M. Danzon (Wharton) Andrew W. Mulcahy (Wharton) and Adrian K. Towse (Office of Health Economics) have posted Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition and Procurement.

ABSTRACT: This paper analyzes determinants of ex-manufacturer prices for originator and generic drugs across a large sample of countries. We focus on drugs to treat HIV/AIDS, TB and malaria in middle and low income countries (MLICs), with robustness checks to other therapeutic categories and other countries. We examine effects of per capita income, income dispersion, number and type of therapeutic and generic competitors, and whether the drugs are sold to retail pharmacies vs. tendered procurement by NGOs. The cross-national income elasticity of prices is 0.4 across high and low income countries, but is only 0.15 between MLICs, implying that drugs are least affordable relative to income in the lowest income countries. Within-country income inequality contributes to relatively high prices in MLICs. Number of therapeutic and generic competitors only weakly affects prices to retail pharmacies, plausibly because uncertain quality lead! s to competition on brand rather than price. Tendered procurement attracts multi-national generic suppliers and significantly reduces prices for originators and generics, compared to prices to retail pharmacies.

August 12, 2011 | Permalink | Comments (0) | TrackBack (0)

The Economics of Cartels: Incentives, Sanctions, Stability, and Effects

Posted by D. Daniel Sokol

Mette Trier Damgaard (London Economics), Paula Ramada (London Economics), Gavan Conlon (London Economics), and Moritz Godel (London Economics) have written on The Economics of Cartels: Incentives, Sanctions, Stability, and Effects.

ABSTRACT: Economic theory has many applications in cartel cases and economic arguments and evidence is increasingly used in cartel cases. This paper brings together several different strands of economic literature to provide an overview of economic theory and empirical evidence that can help us understand cartels. The paper focuses on how sanctions affect incentives to participate in cartels, the stability of cartels, and the effects of cartels.

August 12, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 11, 2011

Corporate Restructurings, Debt-for-Equity Swaps: Competition Law Perspectives

Posted by D. Daniel Sokol

Paolo Palmigiano & Josh Sherer (Lloyds Banking Group) address Corporate Restructurings, Debt-for-Equity Swaps: Competition Law Perspectives.

ABSTRACT: This article discusses the application and practical implications of merger control rules to certain transactions not traditionally seen as mergers; namely, the taking for a certain period of time of an equity stake by a bank in a company that faces financial difficulty, in return for a write-down of (some of) the outstanding debt. This "debt-for-equity swap" is usually part of a wider restructuring and refinancing.

The authors suggest that such transactions rarely raise competition law concerns and that the application of merger control rules (and, in particular, obligations under the European regime as well as others to suspend completion until a formal clearance has been obtained) can be an unwanted and unnecessary additional hurdle in what is already a stressful and complex deal. At a time when restructurings are prevalent, we suggest that thought might be given to possible changes to the application of suspensory obligations for debt-for-equity deals.

 

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Structural versus Behavioral Remedies in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns

Posted by D. Daniel Sokol

Silvester Van Koten (Academy of Sciences of the Czech Republic, Economics Institute (EI) Loyola de Palacio Chair, RSCAS, European University Institute) and Andreas Ortmannhave (University of New South Wales) have a paper on Structural versus Behavioral Remedies in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns.

ABSTRACT: We try to better understand the comparative advantages of structural and behavioral remedies of deregulation in electricity markets, an eminent policy issue for which the experimental evidence is scant and problematic. Specifically, we investigate theoretically and experimentally the effects on competition of introducing a forward market — considered a behavioral remedy by the European Commission. We compare this scenario with the best alternative, the structural remedy of reducing concentration by adding one more competitor by divestiture. Our study contributes to the literature by introducing more realistic cost configurations, by teasing apart competition effect and asset effect, and by investigating competitor numbers that reflect the market concentration in the European electricity industries. Our experimental data suggest that introducing a forward market has a positive effect on the aggregate supply in markets w! ith two or three major competitors, configurations typical for the newly accessed and the old European Union member states, respectively. Introducing a forward market also increases efficiency. In contrast to previous findings, our data furthermore suggest that the effect of introducing a forward market is stronger than adding one more competitor both in markets with two, and particularly three, producers. Our data thus provides evidence that behavioral remedies may be more effective than structural remedies. Our data suggest that competition authorities are well advised, in line with EU law (European Commission, 2006a, p.11), to focus on introducing, and facilitating the proper functioning of, forward markets rather than on lowering market concentration by divestiture.

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition and Commercial Media Bias

Posted by D. Daniel Sokol

Andrea Blascoy (University of Bologna) & Francesco Sobbrio (IMT Lucca) address Competition and Commercial Media Bias.

ABSTRACT: This paper reviews the empirical evidence on commercial media bias (i.e., advertisers inuence over news reports) and then introduces a simple model to summarize the main elements of the theoretical literature. The analysis provides three main policy insights for media regulators: i) Media regulators should target their monitoring efforts towards news contents upon which advertisers are likely to share similar preferences; ii) In advertising industries characterized by highly correlated products, an increase in the degree of competition may translate into a lower accuracy of news reports; iii) A sufficiently high degree of competition in the market for news may drive out commercial media bias.

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Revisiting the merger and acquisition performance of European banks

Posted by D. Daniel Sokol

Ioannis Asimakopoulos - Bank of Greece and Panayiotis P. Athanasoglou - Bank of Greece are Revisiting the merger and acquisition performance of European banks.

ABSTRACT: The study examines the value creation of Merger and Acquisition (M&A) deals in European Banking from 1990-2004. This is performed, first, by examining the stock price reaction of banks to the announcement of M&A deals and, second, by analysing the determinants of this reaction. The findings provide evidence of value creation in European banks as the shareholders of the targets have benefited from positive and (statistically) significant abnormal returns while those of the acquirers earn small negative but non-significant abnormal returns. In the case of the shareholders of the acquirers, domestic M&As and especially those between banks with shares listed on the stock market, seem to be more beneficial compared to cross-border ones or those when the target is unlisted. Shareholders of the targets earn in all cases positive abnormal returns. Finally, although the link between abnormal returns and fundamental ch! aracteristics of the banks is rather weak, it appears that the acquisition of smaller, less efficient banks generating more diversified income are more value creating, while acquisition of less efficient, liquid and characterised by higher credit risk banks is not a value creating option.

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

FTC's Google Investigation Broadens

Posted by D. Daniel Sokol

The WSJ reports that the FTC has broadened its investigation into anticompetitive practices by Google. No news yet on a broader inquiry by Abuse of Dominance-happy DG Comp (yet). Recall that a number of Google competitors, including Microsoft, have complained about Google's practices to DG Comp.

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Entry and Competition in the Pharmaceutical Market following Patent Expiry

Posted by D. Daniel Sokol

Silvia Appelt (University of Munich)explains Entry and Competition in the Pharmaceutical Market following Patent Expiry.

ABSTRACT: This dissertation encompasses three essays on entry and competition in the German generic drug market. The first paper examines the market entry decisions of generic companies and finds that original drug producrs do not create barriers to entry by launching a generic version of the brand drug prior to patent expiry. The second paper examines generic market share dynamics and patients‘ switching behaviors among generic drugs. The analysis shows that generic market shares are little influenced by prices and highly persistent over time, conferring a substantial advantage to first generic entrants. Price differentials likewise have a negligible impact on the likelihood that patients switch to a generic drug offered by a different manufacturer. The third paper investigates generic price differentials and provides evidence of economies of scope and reputation effects.

August 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 10, 2011

Card acceptance and surcharging: the role of costs and competition

Posted by D. Daniel Sokol

Nicole Jonker (De Nederlandsche Bank) describes Card acceptance and surcharging: the role of costs and competition.

ABSTRACT: The payment cards market is a two-sided market. Cost sensitivity of both consumers and merchants for card services influences total demand. Survey data of Dutch merchants shows that costs, and competition affect acceptance as well as surcharging decisions. Merchants who find payment cards expensive are less likely to accept them and more likely to surcharge their customers for using them. Merchants who face any competition accept debit card payments relatively more often than merchants with monopoly power, and they are less likely to surcharge their customers for debit card usage. Intense competition leads to higher credit card acceptance.

August 10, 2011 | Permalink | Comments (0) | TrackBack (0)

DOJ Antitrust is Hiring More People Than Almost Any Other Part of the DOJ Honors Program

Posted by D. Daniel Sokol

Reinvigorating antitrust means new hires at DOJ.  This is good news and comes at a time when the overall honors program is shrinking.  See here for details.

August 10, 2011 | Permalink | Comments (1) | TrackBack (0)

Network neutrality and the evolution of the internet

Posted by D. Daniel Sokol

Gunter Knieps (University of Freiburg) describes Network neutrality and the evolution of the internet.

ABSTRACT: In order to create incentives for Internet traffic providers not to discriminate with respect to certain applications on the basis of network capacity require-ments, the concept of market driven network neutrality is introduced. Its basic characteristics are that all applications are bearing the opportunity costs of the required traffic capacities. An economic framework for market driven network neutrality in broadband Internet is provided, consisting of congestion pricing and quality of service differentiation. However, network neutrality regulation with its reference point of the traditional TCP would result in regulatory micro-management of traffic network management.

August 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Calling Circles: Network Competition with Non-Uniform Calling Patterns

Posted by D. Daniel Sokol

Steffen Hoernig (Universidade Nova de Lisboa and CEPR), Roman Inderst (University of Frankfurt (IMFS), Imperial College London and CEPR) and Tommaso Valletti (Imperial College London, University of Rome II and CEPR) have posted Calling Circles: Network Competition with Non-Uniform Calling Patterns.

ABSTRACT: We introduce a flexible model of telecommunications network competition with non-uniform calling patterns, which account for the fact that customers tend to make most calls to a small set of contacts. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit-maximizing access charges are set above termination cost in order to dampen competition, and the resulting on-net prices are below off-net prices, if calling patterns are sufficiently concentrated. We discuss implications for regulating access charges as well as on- and off-net price discrimination.

August 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Price Competition on Network

Posted by D. Daniel Sokol

Carlos Lever Guzman (Banco de Mexico) has written on Price Competition on Network.

ABSTRACT: We present a model of imperfect price competition where not all firms can sell to all consumers. A network structure models the local interaction of firms and consumers. We find that aggregate surplus is maximized with a fully connected network, which corresponds to perfect competition, and decreases monotonically as the network becomes less connected until firms become local monopolists. When we study which networks are likely to form in equilibrium, we find that stable networks are not fully connected but are connected enough to rule out local monopolists. Our results extend to oligopolistic competition when consumers can either buy from a single firm or from all firms.

August 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Lessons Since The Reagan Revolution at the FTC: A 30-Year Perspective on Competition and Consumer Policies

Posted by D. Daniel Sokol

Lessons Since The Reagan Revolution at the FTC: A 30-Year Perspective on Competition and Consumer Policies

Law & Economics Center, George Mason University School of Law

Friday, September 30, 2011, George Mason University School of Public Policy, Arlington, VA

The Henry G. Manne Program in Law & Economics presents at the First Annual Manne Law & Economics Conference on Lessons Since the Reagan Revolution at the FTC: A 30-Year Perspective on Competition and Consumer Policies to be held at George Mason University School of Public Policy, Friday, September 30th, 2011. The conference will run from 8:00 A.M. to 5:00 P.M.

OVERVIEW: By the late 1970's, the Federal Trade Commission had greatly expanded in size and scope of its powers. The Commission's size, lack of focus, and overreach of its regulatory mandate drew the ire of parents, business leaders, and members of Congress. No less than The Washington Post opined that the FTC was a "National Nanny." In 1981, President Ronald Reagan appointed James C. Miller III as Chairman of the FTC. Miller was the first Ph.D. Economist to serve as Commissioner. Under Chairman Miller's leadership, the FTC was reformed in a number of ways. Miller cut the Commission's budget and set a new direction involving more private initiative and self-regulation by industry as well as providing more information to consumers to enable them to make their own decisions. He lessened government intervention in the marketplace and was committed to integrating economic analysis into the development of investigations, prosecutions, and justifications of remedies. Miller asserted that our system of competition combined with laws that proscribe only economically inefficient transactions "affects not only our economic well-being, but our basic liberties."

Stephen Calkins, a leading antitrust scholar and former FTC official, writes "The great thing about Jim Miller, for the FTC, was that he cared about and was committed to the institution, and it showed." Now, as the FTC once more gains expanded authority and broad new powers for consumer protection and antitrust enforcement, and moves to regulate online privacy, continued discussion of Miller's reforms is more important than ever. This conference will reexamine the important changes implemented in the early 80's, evaluate their lasting impact, and consider the insights gained for current and future FTC practices and policies. The conference proceedings will be published in a peer-reviewed journal or an edited volume.

This conference is organized by Henry N. Butler, Executive Director of the Law & Economics Center and George Mason Foundation Professor of Law at George Mason University School of Law, and Joshua D. Wright, Professor of Law at George Mason University School of Law.

AGENDA (as of July 27, 2011):

Friday, September 30, 2011

8:00 Welcome:
- Henry N. Butler, Executive Director, Law & Economics Center
- Daniel Polsby, Dean, George Mason University School of Law

8:05 to 8:20 Opening Remarks:
- James C. Miller III

8:20 to 9:15 Panel Discussion: Politics and Policy in 1981
Panelists:
- Timothy J. Muris, George Mason University School of Law
- Sidney M. Milkis, University of Virginia
- Bruce Yandle
- William Baer, Arnold & Porter

Moderator:
- Carol T. Crawford

9:30 to 10:45 Consumer Protection: The Demise and Return (?) of the "Nanny State"
Papers:
- Howard Beales, George Washington University
- Fred S. McChesney, University of Miami
- Paul Rubin, Emory University

Discussants:
- Paul Paulter, FTC
- Jodie Z. Bernstein, KelleyDrye

Moderator:
- William MacLeod, KelleyDrye

11:00 to 12:15 Competition Policy and Section 5
Papers:
- David Scheffman, Berkeley Research Group
- Joshua D. Wright, George Mason University School of Law

Discussants:
- Kathryn M. Fenton, Jones Day
- Douglas Melamed, Intel

Moderator:
- TBD

12:30 to 2:00 Keynote Luncheon Address:
The Future of FTC Jurisdiction over Antitrust and Consumer Protection
- William E. Kovacic, FTC

Moderator:
- David Hyman, University of Illinois

2:15 to 3:30 Economic Policy in Enforcement, Research and Development

Papers:
- Robert D. Tollison, Clemson University
- Luke Froeb, Vanderbilt (I)

Discussants:
- Maureen Ohlhausen, Wilkinson Barker Knauer LLP
- Jonathan Baker, American University
- James Cooper, FTC

Moderator:
- Bruce Kobayashi, George Mason University School of Law

3:45 to 4:45 Panel Discussion: Lessons for Setting Priorities in 2011

- William E. Kovacic, FTC and George Washington University
- Robert Pitofsky, Georgetown University
- J. Thomas Rosch, FTC

Moderator:
- Deboarh Majoras, The Procter & Gamble Company

4:45 Closing Remarks: James C. Miller III

5:00 Reception

REGISTRATION: Attendance for this conference is by invitation only. To receive an invitation, please send a message with your name, affiliation, and full contact information to Jeff Smith: [email protected]

VENUE:
George Mason University School of Public Policy
3551 Fairfax Drive
Arlington, VA 22201

FURTHER INFORMATION: For more information regarding this conference or other initiatives of the Law & Economics Center, please visit: http://www.MasonLEC.org or call or send an email to (703) 993-8040, [email protected]

The Henry G. Manne Program in Law & Economics honors the legacy of Henry G. Manne, Dean Emeritus of George Mason Law School and founder of the Law & Economics Center. Manne was a trailblazer in the development of law and economics, not only as a prominent and influential scholar, but also as an academic entrepreneur. He spurred the development of law and economics into the most influential area of legal scholarship through his Economics Institutes for Law Professors and Law Institutes for Economics Professors. The Manne Program promotes law-and-economics scholarship by funding faculty research and hosting research roundtables and academic conferences.


August 10, 2011 | Permalink | Comments (2) | TrackBack (0)

Exclusive dealing and compatibility of investments

Posted by D. Daniel Sokol

Milliou Chrysovalantou (Universidad Carlos III de Madrid) has posted Exclusive dealing and compatibility of investments.

ABSTRACT: We examine a final product manufacturer's incentives to engage in exclusive dealing with an input supplier when both market sides invest in quality and bargain over their trading terms. Taking into account that the investments' compatibility can be higher under exclusive dealing we find, in contrast to previous literature, that bargaining power distribution plays a crucial role both for investment incentives and for incentives to adopt exclusive dealing. We also find that there exist cases in which although investments are higher under exclusive dealing, the manufacturer chooses non-exclusive dealing. Our welfare analysis indicates that the manufacturer's choice of exclusive dealing in equilibrium is never welfare detrimental.

August 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 9, 2011

Financial Services and Competition Law in the United Kingdom: The Quest for Pro-Competitive Objectives and Financial Tools

Posted by D. Daniel Sokol

Emanuela Lecchi (Watson, Farley & Williams) discusses Financial Services and Competition Law in the United Kingdom: The Quest for Pro-Competitive Objectives and Financial Tools.

ABSTRACT: In the United Kingdom, the debate on competition and financial services has focused lately on a fairly esoteric discussion about whether one of the new envisaged regulators, the Financial Conduct Authority (the "FCA"), should or should not have competition as a "primary objective." In this article we aim to clarify the terms of this debate. We provide first an overview of past competition enforcement activities in the financial services (I) and then turn to the proposed options for reform, which purport to promote both competition and stability in the sector (II). In this latter respect, we focus on the creation of the FCA and, in particular, on the indeterminacy of its powers (III).

 

August 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Refusal to Deal, Intellectual Property Rights, and Antitrust

Posted by D. Daniel Sokol

Yongmin Chen (University of Colorado) has posted Refusal to Deal, Intellectual Property Rights, and Antitrust.

ABSTRACT: A vertically integrated firm, having acquired the intellectual property (IP) through innovation to become an input monopolist, can extract surplus by supplying efficient downstream competitors. That the monopolist would refuse to do so is puzzling and has led to numerous debates in antitrust. In this paper, I clarify the economic logic of refusal to deal, and identify conditions under which prohibiting such conduct would raise or lower consumer and social welfare. I further show how IP protection (as determined by IP laws) and restrictions on IP holders' conduct (as determined by antitrust laws) may interact to affect innovation incentive and post-innovation market performance.

August 9, 2011 | Permalink | Comments (0) | TrackBack (0)