Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, September 2, 2011

Analyzing the Determinants of Temporary Antitrust Immunity Seeking Behavior: The Dispensation Requests in the Netherlands

Posted by D. Daniel Sokol

Erik Brouwer (PricewaterhouseCoopers; Professor of Competition and Innovation at
Department of Economics, CentER & Tilburg Law and Economics Center) and Fatih Cemil Ozbugday (Tilburg Law and Economics Center) discuss Analyzing the Determinants of Temporary Antitrust Immunity Seeking Behavior: The Dispensation Requests in the Netherlands.

ABSTRACT: This article examines the determinants of antitrust immunity seeking behavior at the industry level in the Netherlands. Our findings suggest that market structure and the level of competition are important determinants of antitrust immunity seeking behavior. There were more dispensation requests in less competitive industries. On the other hand, we could not find systematic evidence for the impact of the degree of interaction and asymmetry on antitrust immunity seeking behaviour in the Netherlands, even though we had legitimate reasons to believe that they did have an impact. Finally, we could not detect any effect of market demand growth and profitability on exemption application counts.

September 2, 2011 | Permalink | Comments (0) | TrackBack (0)

FAIR, REASONABLE AND NON-DISCRIMINATORY (FRAND) TERMS: A CHALLENGE FOR COMPETITION AUTHORITIES

Posted by D. Daniel Sokol

Mario Mariniello (DG Comp) has a paper on FAIR, REASONABLE AND NON-DISCRIMINATORY (FRAND) TERMS: A CHALLENGE FOR COMPETITION AUTHORITIES.

ABSTRACT: Standards contribute to increase welfare to the extent that they reduce production costs and increase products' value to consumers. The adoption of a standard can, however, raise competition concerns. After the adoption of the standard, the chosen technology may lack effective substitutes. The owner of an intellectual property (IP) right essential to the technology may indeed use the additional market power that may be gained through standardization (competitors being absent ex-post) to charge higher prices to “locked-in” licensees. To mitigate such a hold-up risk, standard setting organizations usually require patent holders to disclose their relevant IP rights ex-ante and/or to commit to license IP on fair, reasonable and non-discriminatory (FRAND) terms. This article suggests a methodology to assess whether FRAND commitments are violated, from a competition perspective. The proposed methodology extends the framework proposed by Cecilio Madero and Nicholas Banasevic by outlining four necessary conditions for an ex-post licensing behavior to be considered anticompetitive, in violation of FRAND commitments.

September 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Consumer Search Costs and the Incentives to Merge Under Bertrand Competition

Posted by D. Daniel Sokol

José Luis Moraga-González, IESE Business School of the University of Navarra, University of Groningen and Vaiva Petrikaite, University of Groningen address Consumer Search Costs and the Incentives to Merge Under Bertrand Competition.

ABSTRACT: This paper studies the incentives to merge in a Bertrand competition model where firms sell differentiated products and consumers search the market for satisfactory deals. In the pre-merger market equilibrium, all firms look alike and so the probability a firm is next in the queue consumers follow when visiting firms is equal across non-visited firms. However, after a merger, insiders raise their prices more than the outsiders so consumers search for good deals first at the non-merging stores and then, if they do not find any product satisfactory enough, they continue searching at the merging stores. When search cost are negligible, the results of Deneckere and Davidson (1985) hold. However, as search costs increase, the merging firms receive fewer customers so mergers become unprofitable for sufficiently large search costs.

This new merger paradox is more likely the higher the number of non-merging firms.

September 2, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 1, 2011

Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms

Posted by D. Daniel Sokol

Zack Cooper, Stephen Gibbons, Simon Jones, and Alistair McGuire, London School of Economics & Political Science (LSE) ask Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms.

ABSTRACT:

Recent substantive reforms to the English National Health Service expanded patient choice and encouraged hospitals to compete within a market with fixed prices. This study investigates whether these reforms led to improvements in hospital quality. We use a difference‐in‐difference‐style estimator to test whether hospital quality (measured using mortality from acute myocardial infarction) improved more quickly in more competitive markets after these reforms came into force in 2006. We find that after the reforms were implemented, mortality fell (i.e. quality improved) for patients living in more competitive markets. Our results suggest that hospital competition can lead to improvements in hospital quality.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets

Posted by D. Daniel Sokol

Patricia M. Danzon (Wharton) and Michael F. Furukawa (Carey School of Business Arizona State University) address Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets.

ABSTRACT: This paper examines the role of regulation and competition in generic markets. Generics offer large potential savings to payers and consumers of pharmaceuticals. Whether the potential savings are realized depends on the extent of generic entry and uptake and the level of generic prices. In the U.S., the regulatory, legal and incentive structures encourage prompt entry, aggressive price competition and patient switching to generics. Key features are that pharmacists are authorized and incentivized to switch patients to cheap generics. By contrast, in many other high and middle income countries, generics traditionally competed on brand rather than price because physicians rather than pharmacies are the decision-makers. Physician-driven generic markets tend to have higher generic prices and may have lower generic uptake, depending on regulations and incentives. Using IMS data to analyze generic markets in the U.S., Canada, ! France, Germany, U.K., Italy, Spain, Japan, Australia, Mexico, Chile, Brazil over the period 1998-2009, we estimate a three-equation model for number of generic entrants, generic prices and generic volume shares. We find little effect of originator defense strategies, significant differences between unbranded and unbranded generics, variation across countries in volume response to prices. Policy changes adopted to stimulate generic uptake and reduce generic prices have been successful in some E.U. countries.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Horizontal Mergers in Multi-Tier Decentralized Supply Chains

Posted by D. Daniel Sokol

Soo-Haeng Cho, Carnegie Mellon University - Tepper School of Business has a paper on Horizontal Mergers in Multi-Tier Decentralized Supply Chains.

ABSTRACT: We study the effects of a horizontal merger in multi-tier decentralized supply chains where different numbers of firms compete at each tier. Two common effects of a horizontal merger are analyzed: the competition effect caused by reduced competitive intensity, and the synergy effect of merging firms through marginal cost reduction. Our analysis shows that the synergy effect and the competition effect often change pre-merger quantities, prices, and profits in opposite directions, so that the aggregate merger effect is non-monotonic. For non-monotonic cases, we provide the conditions under which a merger increases or decreases pre-merger outcomes. Importantly, we find that many of those conditions differ depending on the position in the supply chain where a merger occurs. In particular, a consumer price is less likely to fall after a merger, ceteris paribus, (1) when a merger occurs in a downstream tier rather than in an upstream tier, and (2) when a merger occurs in a vertically disintegrated market rather than in a vertically integrated market.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

DOJ EAG Fall Seminar Series 2011 Schedule

Posted by D. Daniel Sokol

Economics Seminars

The Economic Analysis Group (EAG) presents a seminar series to advance recent economic analyses in the fields of industrial organization, antitrust, and applied microeconomics. Schedules are organized in the spring and fall.

Date

Speaker

Title

Sept 13

(Tues 2-3:30)

Steve Salop

GTU-Law

"Gauging Parallel Accommodating Conduct Concerns with the CPPI," with S. Moresi, D. Reitman, and Y. Sarafidis

Sept 20

 (Tues 2-3:30)

Sheldon Kimmel

EAG-Ret.

“The Illusion of Anticompetitive Behavior Created by 100 Years of Misleading Farm Statistics

Sept 26

(Mon 2-3:30)

Cuihong Li

UConn

“Sourcing from Supplier Effort and Competition”

Oct. 4

(Tues 2-3:30)

Mitsu Nishida

Johns Hopkins

“Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa”

Oct. 11

(Tues 2-3:30)

Hans Normann

DICE

“Explicit vs. Tacit Collusion -- The Impact of Communication in Oligopoly Experiments,” with M. Fonseca

Oct. 18

(Tues 2-3:30)

Todd Zywicki

GMU

“Credit Cards and Bankruptcy”

Oct. 25

(Tues 2-3:30)

Malcolm Coate

FTC

“The use of Natural Experiments in Merger Analysis”

Nov. 1

(Tues 2-3:30)

Bill Nye

EAG

“Some New Data About the Impact of U.S. Antidumping Duties on the Price of U.S. Imports”

Nov. 7

(Mon 2-3:30)

Steve Puller

Texas A&M

"Power to Choose: An Analysis of Consumer Behavior in the Texas Retail Electricity Market," w. A. Hortaçsu and S.A. Madanizadeh

Nov. 15

(Tues 2-3:30)

Panle Jia

MIT

“The Cost of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston,” with Parag Pathak

Nov. 29

(Tues 2-3:30)

Joe Harrington

Johns Hopkins

TBA

Dec. 6

 (Tues 2-3:30)

Leemore Dafny

Northwestern

“Competition in Quality: A Case Study of Dialysis Clinics,” with D. Cutler and Ch. Ody

Location: Seminars take place in the Liberty Square Building at 450 Fifth Street NW. The closest Metro stop is Gallery Place/Chinatown.
Time: Seminars take place 2:00 to 3:30 p.m. on Tuesdays unless otherwise noted.
Attendance: Seminars are free and open to the public, but prior arrangements must be made in order to pass through building security.
Contact:

For more information or to arrange attendance, contact Thomas Jeitschko at 202-532-4826 or send e-mail to atr.eag@usdoj.gov or Thomas.Jeitschko@usdoj.gov.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

FTC Issues its Final Report on Authorized Generics

Posted by D. Daniel Sokol

The FTC issued its final report on authorized generics. As it notes in its press release:

The Federal Trade Commission issued a final report on authorized generic drugs that concludes when pharmaceutical companies introduce an authorized generic version of their brand-name drug, it can reduce both retail and wholesale drug prices. The report also found that authorized generics have a substantial effect on the revenues of competing generic firms. Over the longer term, by lowering expected profits for generic competitors, the introduction of an authorized generic could affect a generic drug company’s decision to challenge patents on branded drug products with low sales. However, the report concludes that in spite of this, patent challenges by generic competitors remain robust. Finally, the report finds that some brand companies may have used agreements not to launch an authorized generic as a way to compensate would-be generic competitors for delaying entry into the market.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Merger Efficiency and Welfare Implications of Buyer Power

Posted by D. Daniel Sokol

Ozlem Bedre-Defolie, European School of Management and Technology and Stephane Caprice have increased Merger Efficiency and Welfare Implications of Buyer Power.

ABSTRACT: This paper analyzes the welfare implications of buyer mergers, which are mergers between downstream firms from different markets. We focus on the interaction between the merger's effects on downstream efficiency and on buyer power in a setup where one manufacturer with a non-linear cost function sells to two locally competitive retail markets. We show that size discounts for the merged entity has no impact on consumer prices or on smaller retailers, unless the merger affects the downstream efficiency of the merging parties. When the upstream cost function is convex, we find that there are “waterbed effects,” that is, each small retailer pays a higher average tariff if a buyer merger improves downstream efficiency. We obtain the opposite results, “anti-waterbed effects,” if the merger is inefficient. When the cost function is concave, there are only anti-waterbed effects. In each retail market, the merger decreases the final price if and only if it improves the efficiency of the merging parties, regardless of its impact on the average tariff of small retailers.

September 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 31, 2011

Direct Versus Communications-Based Prohibitions on Price Fixing

Posted by D. Daniel Sokol

Louis Kaplow, Harvard Law School, National Bureau of Economic Research (NBER) has posted the interesting Direct Versus Communications-Based Prohibitions on Price Fixing.

ABSTRACT: This article compares two policies toward coordinated oligopolistic price elevation. Most commentators endorse the view that the law should (and does) prohibit only those price elevations produced by certain sorts of interfirm communications, such as secret price negotiations. In contrast, little attention has been devoted to a more direct approach that encompasses all coordinated price elevations that can be detected and sanctioned effectively. It is demonstrated that the conventional formulation rests on numerous misconceptions, involves complex and costly detection if its logical implications are taken seriously, and tends to target cases with relatively low deterrence benefits and high chilling costs in contrast to those targeted under the direct approach.

August 31, 2011 | Permalink | Comments (0) | TrackBack (0)

DOJ to Challenge AT&T/T-Mobile

Posted by D. Daniel Sokol

The Department of Justice today filed a civil antitrust lawsuit to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc. The press release is here.

Remarks as Prepared for Delivery by Acting Assistant Attorney General Sharis A. Pozen at the AT&T/T-Mobile Press Conference.

Remarks as Prepared for Delivery by Deputy Attorney General James M. Cole at the AT&T/T-Mobile Press Conference

August 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Implicit Collusion in Non-Exclusive Contracting under Adverse Selection

Posted by D. Daniel Sokol

Seungjin Han, McMaster University addresses Implicit Collusion in Non-Exclusive Contracting under Adverse Selection.

ABSTRACT: This paper studies how implicit collusion may take place in non-exclusive contracting under adverse selection when multiple agents (e.g., entrepreneurs with risky projects) non-exclusively trade with multiple firms (e.g., banks). It introduces the notion of the dual-additive price schedule, which makes agents non-exclusively trade with firms in the market without arbitrage opportunities. It then shows that any dual-additive price schedule can be supported as equilibrium terms of trade in the market if each firm's expected profit is no less than its reservation profit. Firms sustain collusive outcomes through triggering trading mechanisms in which they change their terms of trade contingent only on agents' reports on the lowest average price that the deviating firm's trading mechanism would induce.

August 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly

Posted by D. Daniel Sokol

Nicolas Le Pape (Universite du Mans) discuss Kai Zhao (Universite du Mans) explain Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly.

ABSTRACT: We consider firms perfectly symmetrical on production costs in the pre-merger game but the cost of the merged entity may be amended due to the anti-competitive effects of the merger. The lack of empirical precision concerning the effect of the merger on production costs (Scherer, 1980 or Tichy, 2002) justifies our theoretical model in which we do not specify a priori the exact production cost in the post merger game. Two firms in Stackelberg oligopoly game take part in the merger. The aim of this paper is to identify under which conditions on the cost the merger is privately profitable and socially desirable when firms in the coalition are either leaders or followers. We show that a merger could remain profitable even if the merged entity suffers from efficiency losses and we identify the condition on efficiency gains below which the merger takes place with the exclusion of all rivals. Among all possible cases, a profitable merger between two firms of different roles (leader & follower) could potentially give rise to more efficiency losses than the one encompassing firms of the same role. Moreover, profitable mergers can induce either an increase or a decrease in social welfare except for the case where two leaders decide to merge. Consequently this paper argues that Competition Authorities must supervise more closely two-firm mergers including either one or two followers.

August 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Bankruptcy Risk, Product Market Competition and Horizontal Mergers

Posted by D. Daniel Sokol

Bernard Franck (Universite de Caen) and Nicolas Le Pape (Universite du Mans) discuss Bankruptcy Risk, Product Market Competition and Horizontal Mergers.

ABSTRACT: We consider an oligopolistic industry including leveraged …firms and unleveraged ones where …rms are engaged in a sequential decision-making process. At the fi…rst stage of the game, a …firm and her bank, considering the demand uncertainty and the distribution probability of the shock, evaluate a bankruptcy risk and, at the second stage, …firms are engaged in a Cournot competition. We characterize subgame perfect equilibria and we analyze the impact on these equilibria of the proportion of debt …nanced …firms in the industry. By introducing an additionnal upstream stage to the game, we then examine how debt …nancing impacts on incentives to merge with competitors. We demonstrate that a merger involving leveraged fi…rms increases the bankruptcy probability of the merging fi…rms while a similar merger concerning unleveraged …rms or between the two categories of …firms leads to a decrease in the bankruptcy probability of leveraged fi…rms. Moreover, the minimum number of …rms that must be engaged in the coalition in order to cause a pro…table merger, is lower in comparison with Salant, Switzer and Reynolds (1983). The welfare losses associated to anticompetitive e¤ects of mergers are lower when the coalition gathers unleveraged …rms rather than leveraged ones. Our model predicts that in evaluating proposed mergers Competition Authorities should take into account the …financial structure of both merging …firms and outsiders. Moreover the model justi…es the failing …rm argument when an unleveraged …firm takes over a leveraged one.

August 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 30, 2011

The Deterrence Effects of U.S. Merger Policy Instruments

Posted by D. Daniel Sokol

Joseph A. Clougherty, University of Illinois at Urbana-Champaign, Centre for Economic Policy Research (CEPR) and Jo Seldeslachts, University of Amsterdam, Tinbergen Institute have a new paper on The Deterrence Effects of U.S. Merger Policy Instruments.

ABSTRACT: We estimate the deterrence effects of U.S. merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the U.S. DOJ and FTC allow industry based measures over the 1986-1999 period of the conditional probabilities for eliciting investigations, challenges, prohibitions, court-wins and court-losses: deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge-rate to robustly deter future horizontal (both relative and absolute) merger activity; the investigation-rate to slightly deter relative horizontal merger activity; the court-loss-rate to moderately affect absolute-horizontal merger activity; and the prohibition-rate and court-win-rate to not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e., remedies and prohibitions) involves the strongest deterrence effect from amongst the different merger policy instruments.

August 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Right to Be Heard or Protection of the Confidential Information? Competing Guarantees of Procedural Fairness in the Proceedings Before the Competition Authority

Posted by D. Daniel Sokol

Maciej Bernatt, University of Warsaw, Jean Monnet Chair on European Economic Law / Centre of Antitrust and Regulatory Studies writes on Right to Be Heard or Protection of the Confidential Information? Competing Guarantees of Procedural Fairness in the Proceedings Before the Competition Authority.

ABSTRACT: The concept of procedural fairness plays an important role in the enforcement of competition law, which must not only be effective but also fair. Thus, legal institutions should guarantee a proper level of protection of the values of procedural fairness. This paper is dedicated to the possible conflict between the guarantees of procedural fairness that find their expression in the right to be heard and in the protection of confidential information. Both guarantees, the right to be heard on the one side, and the protection of confidential information on the other, should be properly balanced. Unlike EU law, Polish legislation and jurisprudence proves to be inefficient in this respect. Article 69 of the Competition Act fails to show clearly what the limits of the protection of confidential information are in situations when the right to be heard of other parties of antitrust proceedings is at stake. Business secrets are predominantly protected over the right to be heard also in the jurisprudence of Polish courts. By contrast, the Competition Act does not seem to properly protect confidential information other than business secrets. Such situation poses a risk for the adequate level of protection of procedural fairness in Polish antitrust enforcement. Moreover, neither Polish legislation nor jurisprudence explains to companies what shall prevail in the case of a concrete conflict between the protection of business secrets and the right to be heard. An answer to this questions is needed seeing as proof of a competition law infringement which should be accessible to the parties, can at the same time constitute a business secret.

August 30, 2011 | Permalink | Comments (0) | TrackBack (0)

The Lerner Index of Monopoly Power: Origins and Uses

Posted by D. Daniel Sokol

Kenneth G. Elzinga, University of Virginia - Department of Economics and David E. Mills, University of Virginia - Department of Economics have an interesting article on The Lerner Index of Monopoly Power: Origins and Uses.

ABSTRACT: Abba Lerner’s paper in the Review of Economic Studies (1934) is the source of what is now referred to as the Lerner Index of monopoly power. The Lerner Index has become the standard measure of monopoly power and one of the most widely cited indexes in the discipline of economics. This paper traces the origins of the index, sets out its strengths and weaknesses, and examines its role in antitrust enforcement. The Index is a better indicator of a firm’s price-setting discretion than its ability to sustain monopoly prices.

August 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Wikileaks Finds that the US Government Lobbied Europe to Approve the Oracle/Sun merger

Posted by D. Daniel Sokol

According to the news story, Wikileaks has shed some light into the world of diplomacy and antitrust.  According to the story:

The cable noted that Oracle representatives were “unwilling or unable to make certain divestitures to satisfy the Commission's concerns” and that without the merger Sun would “go bankrupt.”

The cable suggests the US Government lobbied on behalf of Oracle to prevent Sun from shedding any further jobs and to save face for the US Department of Justice’s Antitrust division, which had approved the acquisition months earlier.

August 30, 2011 | Permalink | Comments (0) | TrackBack (0)

Looks Matter for Job Success - Do They in Antitrust?

Posted by D. Daniel Sokol

There was a NY Times op-ed yesterday by University of Texas econ Professor Daniel Hamermesh on the economics of ugly which suggests that ugly people get paid less over time relative to good looking people.  The author is the same econ prof who examined Michigan Law grads from the 60s to 80s and determined that the better looking ones ended up more successful in terms of financial earnings. 

Hamermesh also has found this effect of good looking people doing well among professors in the classroom.  

Hamermesh is the author of the recent book Beauty Pays (Princeton University Press 2011).  It is worth reading.

This makes me wonder about beauty in antitrust.  Do looks matter and if so at what stage of antitrust?  With case handlers? With getting clients? In court? Only for private sector people or for government people as well?  Does it make more of a difference for in-house people? Alternatively, is beauty more limited to "that is a beautiful brief" or "that is a beautiful economic model"?

Comments are welcome but please no anonymous comments.

 

August 30, 2011 | Permalink | Comments (2) | TrackBack (0)

Competition Enhancing Regulation and Diffusion of Innovation: The Case of Broadband Networks

Posted by D. Daniel Sokol

Harald Gruber, European Investment Bank and Pantelis Koutroumpis, Athens University of Economics and Business - Department of Management Science and Technology, European Union - European Investment Bank describe Competition Enhancing Regulation and Diffusion of Innovation: The Case of Broadband Networks.

ABSTRACT: The paper assesses the scope for competition inducing infrastructure regulation in furthering the diffusion of innovation. The paper uses data on the adoption of broadband services comprising a global panel of 167 countries. The effects of different regulatory provisions are assessed. Inter-firm competition in general and intra-platform competition on the incumbent’s DSL network in particular accelerate adoption of broadband, whereas there is little evidence that inter-platform over different access technologies and intra-platform competition on cable have such effects. Retail competition has about a twice as strong effect than local loop unbundling in furthering diffusion. The effect deriving from service competition is more powerful than the effect of provisions that induce competitors in investing. The diffusion enhancing effect from regulatory access provisions however dissipates after 3-4 years. These results are robust under different hypotheses of reverse causality and taking into account regulatory metrics and variable endogeneity.

August 30, 2011 | Permalink | Comments (0) | TrackBack (0)