Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, August 9, 2011

Endogenous Market Structures and Innovation by Leaders: an Empirical Test

Posted by D. Daniel Sokol

Federico Etro (Department of Economics, University Of Venice Ca Foscari), Dirk Czarnitzki (K.U. Leuven) and Kornelius Kraft (Technical University of Dortmund) address Endogenous Market Structures and Innovation by Leaders: an Empirical Test.

ABSTRACT: Simple models of competition for the market with endogenous entry show that, contrary to the Arrow view, an endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms reduce R&D intensity for the average firm, but they increase it for an incumbent leader. These results hold after a number of robustness tests with instrumental variable regressions.

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

Lemley on AT&T/T-Mobile

Posted by D. Daniel Sokol

Mark Lemley (Stanford) has come out against the merger in an op-ed.

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

Scale Scale Economies in Nonprofit Provision, Technology Adoption and Entry

Posted by D. Daniel Sokol

Kimberley Scharf (University of Warwick) discusses Scale Scale Economies in Nonprofit Provision, Technology Adoption and Entry.

ABSTRACT: We study competition between nonprofit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where nonprofit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a nonneutral effect on entry, technology adoption, and industry performance.

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

GCR Live - 2nd Annual Pharmaceutical Conference

Posted by D. Daniel Sokol

Last chance to save for GCR Live's 2nd Annual Pharmaceutical and Competition Law Conference
18 October 2011, Sofitel Brussels Le Louise, Brussels

Chaired by Stephen Kon, SJ Berwin LLP

Speakers: * Cameron Firth, SJ Berwin LLP * Gerry Kamstra, Bird & Bird LLP * Adrian Majumdar, RBB Economics * Pierre Regibeau, University of Essex (Charles River Associates) * Paula Riedel, Linklaters LLP * Gavin Robert, Linklaters LLP * Dominik Schnichels, Head of Pharmaceutical Task Force, DG Comp * Geoffrey Steadman, UK's Office of Fair Trading * Mélanie Thill-Tayara, Norton Rose LLP * Jonathan Tickner, Peters & Peters LLP * Marleen Van Kerckhove, Arnold & Porter LLP * Ingrid Vandenborre, Skadden, Arps, Slate, Meagher & Flom LLP * Jacob Westin, GlaxoSmithKline

Download the conference programme here: http://broadcast.lbresearch.com/re?l=453syyIxiya3vI0

Sessions include: * A keynote address from Dominik Schnichels, head of the pharmaceuticals task force, DG Competition * Settlement agreements * Application for and exercise of IP rights: complying with competition law obligations * Competition/IP interface in the pharmaceutical industry: workshop * Deregistration/dealings with regulatory authorities: complying with competition law obligations *

A roundtable discussing cases in the pipeline, approach in other member states, life cycle management versus anti-competitive behaviour and deregistration

Conference fees: Register before 15 August to save with our early booking rates - * In-house counsel ticket: £375 * Government agency ticket: £500 * Standard ticket: £600 All prices subject to 21% TVA

How to register:

1) Register online to save an additional 5% at www.GlobalCompetitionReview.com/pharmaceuticals

2) Request an invoice by emailing GCRLive@GlobalCompetitionReview.com or phone +44 207 908 1185 Reduced early booking rates available until 15 August 2011.

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

Nonprofit and profit companies in monopolistic competition

Posted by D. Daniel Sokol

Morten Skak (University of Southern Denmark Department of Business and Economics) has written on Nonprofit and profit companies in monopolistic competition.

ABSTRACT: A homogenous goods market with nonprofit and profit companies engaged in monopolistic competition is proposed. In a short run equilibrium, entrance of more companies of both types increases consumer surplus and reduces company profit. However, nonprofit companies under a long run zero profit constraint will act inefficiently and have higher marginal costs than profit companies. From this follows that more funds for donations to nonprofit companies reduce the welfare to be gained on the market. Depending on the size of donations, nonprofit companies may have higher, the same or lower (quality) output than profit companies.

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

Monday, August 8, 2011

The European Commission's CDS Investigation: How to Balance Stability and Competition in the Financial Sector

Posted by D. Daniel Sokol

Bruno Lebrun & Thibault Balthazar (UGGC & Associes) have posted The European Commission's CDS Investigation: How to Balance Stability and Competition in the Financial Sector.

ABSTRACT: On April 29, 2011, the European Commission (the "Commission") announced two antitrust investigations on the Credit Default Swaps market (the "CDS market") relating to potential breaches of Articles 101 and 102 TFEU.

The first investigation concerns 16 banks active on the CDS market that arguably reserve their transaction data to Markit, the British leading information provider of CDS data. The second investigation scrutinizes a series of agreements between ICE, a clearing house, and nine of the above 16 banks that may incentivize said banks to use exclusively ICE as a clearing company (through, for instance, preferential fees and profit sharing agreements).

Such investigations in the financial industry are rare and emphasize the current focus of regulators on this industry in the context of the financial crisis and the consequent reshuffle of the financial regulatory framework. As detailed below, these investigations may, on the one hand, participate in the redesign of the regulation of financial services, and, on the other hand, may contribute to test the balance between competition and the need for stability inherent to the banking sector.

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

'Just one of us': Consumers playing oligopoly in mixed markets

Posted by D. Daniel Sokol

Marco Marini and Alberto Zevi describe 'Just one of us': Consumers playing oligopoly in mixed markets.

ABSTRACT: Consumer cooperatives represent a highly successful example of democratic form of enterprises operating in developed countries. They are usually medium to large-scale companies competing with the profit-maximizing firms in the retail sector. This paper describes this situation as a mixed oligopoly in which consumer cooperatives maximize the utility of consumer-members and, in return, refund them with a share of the profits corresponding to the ratio of their individual spending to the cooperative's total sales. We show that when consumers possess quasi-linear preferences over a bundle of symmetrically differentiated goods, and companies operate using a linear technology, the presence of consumer cooperatives positively affects total industry output, as well as welfare. The effect of cooperatives on welfare proves to be even more significant when goods are either complements or highly differentiated, and when competition ! is à la Cournot rather than à la Bertrand.

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

Competition for procurement shares

Posted by D. Daniel Sokol

Jose Alcaldey (University of Alicante) and Matthias Dahm (Universitat Rovira i Virgili) explore Competition for procurement shares.

ABSTRACT: We propose a new procurement procedure which allocates shares of the total amount to be procured depending on the bids of suppliers. Among the properties of the mechanism are: (i) Bidders have an incentive to participate in the procurement procedure, as equilibrium payoffs are strictly positive. (ii) The mechanism allows to vary the extent to which affirmative action objectives, like promoting local industries, are pursued. (iii) Surprisingly, even accomplishing affirmative action goals, procurement expenditures might be lower than under a classical auction format.

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

Transparency and Product Differentiation with Competing Vertical Hierarchies

Posted by D. Daniel Sokol

Matteo Bassi (Università di Salerno and CSEF) Marco Pagnozzi (University of Napoli "Federico II" and CSEF) and Salvatore Piccolo (University of Naples "Federico II" and CSEF) explain Transparency and Product Differentiation with Competing Vertical Hierarchies.

ABSTRACT: We revisit the choice of product differentiation by competing firms in the Hotelling model, under the assumption that firms are vertically separated, and that retailers choose products’ characteristics. We show that retailers with private information about their marginal costs choose to produce less differentiated products than retailers with no private information, in order to increase their information rents. Hence, information asymmetry increases social welfare because it induces firms to sell products that appeal to a larger number of consumers. The socially optimal level of transparency between manufacturers and retailers depends on the weight assigned to consumers’ surplus and trades of two effects: higher transparency reduces price distortion but induces retailers to produce excessively similar products.

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

Are DOJ Antitrust's Criminal Stats Padded?

Posted by D. Daniel Sokol

Over the weekend, I had a chance to review the Antitrust Division's FY 1999 - FY 2008 Workload Statistics. One thing that caught my eye was that in the most recent fiscal year for which statistics are available, the Division prosecuted more process crimes (i.e., more obstruction cases) than price-fixing cases. The total number of criminal cases in FY 2008 was 54 (id. at 7), with only 26 of those "Restraint of Trade - Criminal Sherman Section 1" cases. The majority of its workload was "Other Criminal Cases" -- not cartel crimes -- for Obstruction of Justice, false statements, etc. -- 28 cases filed in FY 2008. See id. at 8.

Let me also note that overall, the criminal record at DOJ is the crown jewel of the Division.  The leniency program has brough to light some very bad illegal conduct.  I do not mean to diminish the good work that the Division has done, just to note some limitations.  I have a forthcoming article that suggests some limits to the leniency program and ways to potentially strengthen cartel enforcement.  This summer I have been working on a follow-up article that extends my analysis in new directions.  I'll blog more about these papers when I post them on SSRN.

Download DOJ Antitrust Division Workload Statistics - FY 1999 to FY 2008

August 8, 2011 | Permalink | Comments (2) | TrackBack (0)

Norris Cert Petition to the Supreme Court

Posted by D. Daniel Sokol

Download Norris Cert Petition

In short, the appeal centers on the circuit split -- recognized seven years ago as cert-worthy -- in Arthur Andersen over the meaning of "corrupt persuasion" in 18 USC 1512(b). (The Court granted cert. in 2004 and rendered judgment in 2005). Unfortunately, the US Supreme Court did not resolve the circuit split over the meaning of "corrupt persuasion" -- did it mean merely to have an "improper purpose" -- as the Second Circuit and Eleventh Circuit have held -- which renders the statutory language superfluous, or is an improper means, such as bribery what is meant by "corrupt"? In Arthur Andersen, the Court did not resolve the circuit split.

As a result, the circuits are still badly split, and the Ninth Circuit joined the split in March 2011 in the Doss case. In Doss, the Ninth Circuit recognized the deep split and sided with the Third Circuit's Farrell decision.

At stake in Norris, is whether there is an ability to remain silent and not provide incriminating information to prosecutors. The case suffered from proof problems at trial. The Antitrust Division never called any witnesses before the grand jury -- so the first problem was that there was no grand jury witness involved. No witnesses were subpoenaed to appear before the grand jury. Further, the Division's witnesses all testified that there was in fact no US price-fixing agreement, so no motive to tamper with grand jury witnesses. The jury acquitted Mr. Norris of the two substantive counts of obstruction of justice via grand jury witness tampering.

However, they convicted Mr. Norris of the inchoate offense of a "conspiracy" to violate 18 USC 1512(b) -- a conspiracy to tamper with grand jury witnesses. This conspiracy allegedly involved meeting notes which were prepared to provide background information to the defense lawyer handling the case. That lawyer independently elected to supply the notes to the Antitrust Division. The Division maintained that the notes were false because no price-fixing was mentioned in the meeting summaries (which also bore a clear attorney client privilege legend). Thus, a key issue is whether the failure of Norris and others to provide incriminating information or to withhold it could possibly violate Section 1512(b), given the Fifth Amendment privilege against self-incrimination. Thus, Norris, a foreign national, was convicted of a thoughtcrime, for being the victim of a misunderstanding of defense materials.

The case -- the Division's first-ever extradition of a foreign national -- is also unusual for the degree of invasion of the attorney-client privilege. The Division chatted up the outside lawyer at an ABA conference, wrote a memo to the file (attached in our Petition) and indicted Mr. Norris. The Division then called that lawyer to the witness stand as its star witness, and later defended the verdict on the basis that a lie to the defense lawyer is tantamount to lying to the grand jury -- its bizarre and dangerous "defense-counsel-as-conduit" theory of liability under the statute. Nothing could be more destructive of the adversary process. The Supreme Court has not handled a serious attorney-client privilege case in many years.

 

 

 

 

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

Endogenous R&D Investment and Market Structure: A Case Study of the Agricultural Biotechnology Industry

Posted by D. Daniel Sokol

Benjamin Anderson and Ian Sheldon (both Ohio State) address Endogenous R&D Investment and Market Structure: A Case Study of the Agricultural Biotechnology Industry.

ABSTRACT: Over the past three decades, the agricultural biotechnology sector has been characterized by rapid innovation, market consolidation, and a more exhaustive definition of property rights. The industry attributes consistently identified by the literature and important to this analysis include: (i) endogenous sunk costs in the form of expenditures on R&D; (ii) seed and agricultural chemical technologies that potentially act as complements within firms and substitutes across firms; and (iii) property rights governing plant and seed varieties that have become more clearly defined since the 1970s. This paper adds to the stylized facts of the agricultural biotechnology industry to include the ability of firms to license technology, a phenomenon observed only recently in the market as licensing was previously precluded by high transactions costs and “anti-stacking” provisions. We extend Sutton‟s theoretical framework of endogenous sunk costs and market structure to incorporate the ability of firms to license technology under well-defined property rights, an observed characteristic not captured in previous analyses of the sector. Our model implies that technology licensing leads to lower levels of industry concentration then what would be found under Sutton‟s model, but that industry concentration remains bounded away from perfect competition as market size becomes large.

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