Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, September 17, 2011

Almunia on New challenges in mergers and antitrust

Posted by D. Daniel Sokol

Joaquín Almunia (European Commission) spoke on New challenges in mergers and antitrust at the IBA annual competition conference Florence, 16 September, 2011.

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

Online Symposium on Dan Crane's The Institutional Structure of Antitrust Enforcement

Posted by D. Daniel Sokol

We will be hosting a symposium on Dan Crane's The Institutional Structure of Antitrust Enforcement (Oxford University Press 2011) this coming week.

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

Friday, September 16, 2011

Carl Shapiro wins prize for his article Injunctions, Hold-Up, and Patent Royalties

Posted by D. Daniel Sokol

Congrats to Carl Shapiro (Berkeley). Shaprio has won the 2011 Distinguished Article Prize of the American Law and Economics Review for his article Injunctions, Hold-Up, and Patent Royalties.

The abstract from the article is below.

ABSTRACT: A simple model is developed to study royalty negotiations between a patent holder and a downstream firm whose product is more valuable if it includes a feature covered by the patent. The downstream firm must make specific investments to develop, design, and sell its product before patent validity and infringement will be determined. The hold-up component of the negotiated royalties is greatest for weak patents covering a minor feature of a product with a high margin between price and marginal cost. For weak patents, the hold-up component of negotiated royalties remains unchanged even if negotiations take place before the downstream firm designs its product. The analysis has implications for the use of injunctions in patent infringement cases.

September 16, 2011 | Permalink | Comments (0) | TrackBack (0)

Antitrust Exam Bank

Posted by D. Daniel Sokol

One frequent reader and law prof asked if I could set up an exam bank for old antitrust exams. If there is interest, I will be happy to set this up.

September 16, 2011 | Permalink | Comments (2) | TrackBack (0)

Thursday, September 15, 2011

Bank Competition and Stability: Cross-country Heterogeneity

Posted by D. Daniel Sokol

Thorsten Beck (Tilburg University), Olivier De Jonghe (Tilburg University), and Glenn Schepens (Ghent University) have an interesting paper on Bank Competition and Stability: Cross-country Heterogeneity.

ABSTRACT: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unified framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks' risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.

September 15, 2011 | Permalink | Comments (0) | TrackBack (0)

An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks

Posted by D. Daniel Sokol

Scott Schuh, Oz Shy, Joanna Stavins, Robert Triest (Boston Fed) have posted An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks.

ABSTRACT: In 2010, the Department of Justice (DOJ) filed a lawsuit against the credit card networks American Express, MasterCard, and Visa for alleged antitrust violations. We evaluate the extent to which the recently proposed settlement between the DOJ and Visa and MasterCard (henceforth, "Proposed Settlement") is likely to achieve its central objective: "…to allow Merchants to attempt to influence the General Purpose [Credit] Card or Form of Payment Customers select by providing choices and information in a competitive market." In word and spirit, the Proposed Settlement represents a significant step toward promoting competition in the credit card market. However, we find that merchants are unlikely to be able to take full advantage of the Proposed Settlement's new freedoms because they currently lack comprehensible and complete information on the full and exact merchant discount fees for their customers' credit cards. We analyze the likely consequences of this information problem, and consider ways in which it could be remedied. We also evaluate the probable welfare consequences of allowing merchants to impose surcharges to reflect the fees associated with the use of payment cards.

September 15, 2011 | Permalink | Comments (0) | TrackBack (0)

Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-Cholesterol Drugs

Posted by D. Daniel Sokol

Abe Dunn (DOJ Antitrust Bureau of Economic Analysis) discusses Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-Cholesterol Drugs.

ABSTRACT: The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to construct a constant- quality price index for anti-cholesterol drugs. Demand is estimated using a nationally representative sample of individuals over the period 1996 to 2007 that includes detailed information on individual health conditions, demographics, insurance, and prescription drug choices. Although the average price for anti-cholesterol drugs does not change over the sample period, I .nd that the constant-quality price index drops by 22 percent, a pace more in line with our expectations in such a dynamic segment of the industry. This result is robust to a number of alternative assumptions, highlighting the import! ance of controlling for quality in markets with signi.cant innovation. The demand estimates also reveal that the bene.ts from new innovations depend on the health conditions of individuals which may impact quality-adjusted prices for di¤erent populations.

September 15, 2011 | Permalink | Comments (0) | TrackBack (0)

The Role of Economics in Competition Law: Course at UCL for 2011

Posted by D. Daniel Sokol

UCL's Centre for Law, Economics & Society is pleased to announce the opening of admissions to:

The Role of Economics in Competition Law
Starting on 4 October 2011


The course consists of 13 x 2 hour seminars and its objective is to introduce the economic theories that underlie competition law and the methods that are used to assess whether business practices are nefarious, benign, or healthy.


This year it is taught by Dr Andrea Coscelli, Director of Competition Economics at Ofcom, and the team of experts from Charles River Associates (CRA) led by Dr Cristina Caffarra (Head of European Competition) and including Professor Damien Neven (former Chief Economist at the European Commission), Dr Uğur Akgün, Dr Valter Sorana, Dr Hugh Wills and Dr Hans Zenger.


Each seminar is accredited with 2 CPD hours by the Solicitors Regulation Authority and the Bar Standards Board. 


Sign up online for your place at:
http://ucl-competition-11-12.eventbrite.com/

Download the course brochure from:
http://ucl.ac.uk/laws/events/cle-docs/economics_11-12.pdf 


You are invited to the following event:
CPD Course: The Role of Economics in Competition Law & Practice

Location:
UCL Faculty of Laws
Bentham House
Endsleigh Gardens
WC1G 0EG London
United Kingdom

September 15, 2011 | Permalink | Comments (0) | TrackBack (0)

Technology licensing by advertising supported media platforms: An application to internet search engines

Posted by D. Daniel Sokol

Geza Sapiy (DIW Berlin) and Irina Suleymanova (Heinrich-Heine-Universitat Dusseldorf) discuss Technology licensing by advertising supported media platforms: An application to internet search engines.

ABSTRACT: We develop a duopoly model with advertising supported platforms and analyze incentives of a superior firm to license its advanced technologies to an inferior rival. We highlight the role of two technologies characteristic for media platforms: The technology to produce content and to place advertisements. Licensing incentives are driven solely by indirect network effects arising fromthe aversion of users to advertising. We establish a relationship between licensing incentives and the nature of technology, the decision variable on the advertiser side, and the structure of platforms' revenues. Only the technology to place advertisements is licensed. If users are charged for access, licensing incentives vanish. Licensing increases the advertising intensity, benefits advertisers and harms users. Our model provides a rationale for technology-based cooperations between competing platforms, such as the planned Yahoo-Google adver! tising agreement in 2008.

September 15, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 14, 2011

How Do Firm Financial Conditions Affect Product Quality and Pricing?

Posted by D. Daniel Sokol

Gordon M. Phillips (University of Maryland) and Giorgo Sertsios (University of Houston) ask How Do Firm Financial Conditions Affect Product Quality and Pricing?

ABSTRACT: We analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. We consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. We examine how airline mishandled baggage, on-time performance and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. We find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, in bankruptcy product quality increases relative to financial distress. In addition, we find that firms price more aggressively when in financial distress consistent with firms trying to increase sh! ort-term market share and revenues.

September 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Vertical coordination through renegotiation

Posted by D. Daniel Sokol

Ozlem Bedre-Defolie (ESMT European School of Management and Technology) explores Vertical coordination through renegotiation.

ABSTRACT: This paper analyzes the strategic use of bilateral supply contracts in sequential negotiations between one manufacturer and two differentiated retailers. Allowing for general contracts and retail bargaining power, I show that the first contracting parties have incentives to manipulate their contract to shift rent from the second contracting retailer and these incentives distort the industry profit away from the fully integrated monopoly outcome. To avoid such distortion, the first contracting parties may prefer to sign a contract which has no commitment power and can be renegotiated from scratch should the manufacturer fail in its subsequent negotiation with the second retailer. Renegotiation from scratch induces the first contracting parties to implement the monopoly prices and might enable them to capture the maximized industry profit. A slotting fee, an up-front fee paid by the manufacturer to the first retailer, and a menu of tariff-quantity pairs are sufficient contracts to implement the monopoly outcome. These results do not depend on the type of retail competition, the level of differentiation between the retailers, the order of sequential negotiations, the level of asymmetry between the retailers in terms of their bargaining power vis-à-vis the manufacturer or their profitability in exclusive dealing.

September 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Customer recognition and competition

Posted by D. Daniel Sokol

Oz Shy and Rune Stenbacka (Boston Fed) discuss Customer recognition and competition.

ABSTRACT: We introduce three types of consumer recognition: identity recognition, asymmetric preference recognition, and symmetric preference recognition. We characterize price equilibria and compare profits, consumer surplus, and total welfare. Asymmetric preference recognition enhances profits compared with identity recognition, but firms have no incentive to exchange information regarding customer-specific preferences (symmetric preference recognition). Consumers would benefit from a policy panning information exchange regarding individual consumer preferences. Our welfare analysis shows that the gains to firms from uniform pricing (no recognition) are larger than the associated harm to consumers, regardless of which regime of customer recognition serves as the basis for comparison.

September 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Spillover and Competition Effects: Evidence from the Sub-Saharan African Banking Sector

Posted by D. Daniel Sokol

Birte Pohl (GIGA German Institute of Global and Area Studies) addresses Spillover and Competition Effects: Evidence from the Sub-Saharan African Banking Sector.

ABSTRACT: This paper examines the efficiency effects of foreign bank entry on domestic banks in sub-Saharan Africa during the period 1999-2006. Using a recently compiled dataset on foreign bank presence, the competition and spillover effects of North-South, regional and nonregional South-South banks are distinguished. The results show that the competitive pressure on domestic banks' net interest margins emanates only from regional South-South banks. There is evidence of spillover effects from North-South and regional South-South banks on domestic banks. As domestic banks invest in foreign technologies, their overhead costs increase in the short-run. Non-regional South-South banks seem to have little effect on the efficiency of domestic banks.

September 14, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 13, 2011

Getting The Deal Through: Merger Control 2012

Posted by D. Daniel Sokol

Global Competition Review is pleased to announce the publication of Getting The Deal Through: Merger Control 2012.

This fully revised and updated 16th edition offers the reader coverage of 69 jurisdictions worldwide, including new chapters on Uruguay, Thailand, Saudi Arabia, Malta and Chile.

Key questions are answered by leading practitioners, providing international analysis in areas of law and policy for corporate counsel, cross-border legal practitioners and business people.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston

Posted by D. Daniel Sokol

Panle Jia Barwick and Parag A. Pathak (both MIT Econ) analyze The Costs of Free Entry: An Empirical Study of Real Estate Agents in Greater Boston.

ABSTRACT: This paper studies the real estate brokerage industry in Greater Boston, an industry with low entry barriers and substantial turnover. Using a comprehensive dataset of agents and transactions from 1998-2007, we find that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. These empirical patterns motivate an econometric model of the dynamic optimizing behavior of agents that serves as the foundation for simulating counterfactual market structures. A one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion. House price appreciation in the first half of the 2000s accounts for 24% of overall entry and a 31% decline in the number of houses sold by each agent. Low cost programs that provide! information about past agent performance have the potential to increase overall productivity and generate significant social savings.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Defending Mail Markets against New Entrants: An Application of the Defender Model

Posted by D. Daniel Sokol

Christian Jaag, Helmut Dietl, Urs Trinkner and Oliver Furst (Swiss Economics) describe Defending Mail Markets against New Entrants: An Application of the Defender Model.

ABSTRACT: In this paper we analyzed the strategic competition between incumbent postal operators and market entrants in liberalized letter markets based on the “defender consumer model” pioneered by Hauser and Shugan (1983) and derived qualitative normative implications on how an established firm should defend its profits when facing an attack by a new competitive product. Our results extend the literature on competition in liberalized mail markets by combining pricing and positioning strategies from a marketing perspective. Our analysis highlights that incumbent postal operators can defend their market shares by differentiating their services along one or more quality dimensions. Postal services are not necessarily homogenous. If postal operators focus solely on pricing strategies they will run into the more serious problems than if they compete on quality too.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Competitive Price Coordination in Technology Sharing Agreements

Posted by D. Daniel Sokol

Nancy Gallini (UBC Econ) has posted Competitive Price Coordination in Technology Sharing Agreements.

ABSTRACT: This paper examines technology-sharing arrangements, the incentives to join them and the type of products that develop when they are anticipated. Particular attention is given to patent pools that admit members with overlapping ownership; that is, patentees with a stake in both complementary pooled inputs and downstream products that do not depend on the pool but compete with products that do. We ask whether this ownership structure under which pool members are vertically and horizontally related, facilitates anticompetitive price collusion. In a Bertrand framework it is shown that if the downstream products inside and outside the pool are strategic complements, then technology-sharing agreements are both privately and socially efficient in making the market more competitive, although prices increase in the degree to which pool members are involved in competing products. For strong substitutes and asymmetric outside owne! rship, efficient patent pools may not be profitable in which case allowing full coordination in which the pool sets the prices of both inside and outside products owned by its members will encourage the formation of efficient pools and, possibly, the selection of more complementary products. In analyzing the efficiencies of cooperative agreements for sharing technologies, this paper makes a case for incorporating private incentives to cooperate, as well as to innovate and litigate, into the debate on effective systems for encouraging innovation and its diffusion.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

UK's Competyition Commission is Hiring Economics Advisors and Legal Advisors - Applications Due 6 September 2011

Posted by D. Daniel Sokol

The UK's Competition Commission is Hiring economists and lawyers. See here for details. The closing date for applications is Monday 26 September 2011.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Non-Per Se Treatment of Buyer Price-Fixing in Intellectual Property Settings

Posted by D. Daniel Sokol

Hillary Greene, University of Connecticut School of Law discusses Non-Per Se Treatment of Buyer Price-Fixing in Intellectual Property Settings.

ABSTRACT: The ability of intellectual property owners to earn monopoly rents and the inability of horizontal competitors to price fix legally are two propositions that are often taken as givens. This article challenges the wholesale adoption of either proposition within the context of buyer price-fixing in intellectual property markets. More specifically, it examines antitrust law’s role in protecting patent holders’ rents through its condemnation of otherwise ostensibly efficient buyer price fixing. Using basic economic analysis, this article refines the legal standards applicable at this point of intersection between antitrust and patent law. In particular, the author recommends the limited abandonment of per se condemnation of buyer price-fixing within pure intellectual property contexts. As an alternative, a coarse screen which accounts for both price and innovation effects is proposed. This recommendation represents one example of how antitrust law can better account for the complicated and imperfectly understood effects of the patent system on social welfare.

September 13, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, September 12, 2011

Patent Term Restoration and Non-Patent Exclusivity in the United States

Posted by D. Daniel Sokol

Margo A. Bagley, University of Virginia School of Law describes Patent Term Restoration and Non-Patent Exclusivity in the United States.

ABSTRACT: The United States provides companies engaged in drug discovery and marketing with a variety of statutory tools to maximize the exclusivity period for their products and delay generic competition in the marketplace. These tools include patent protection and patent term restoration, as well as marketing, data, pediatric testing, and orphan drug exclusivity. These tools are widely accepted and relied upon in the U.S. for most traditional drug product. However, the use of these tools to maintain pharmaceutical development incentives is in constant tension with their negative impact on drug cost and availability. This chapter surveys the various U.S. drug exclusivity maximizing tools, how they differ, and how they can be used, singly or in combination, to extend the marketing advantage of innovator pharmaceutical company products. It also outlines the exclusivity regime for large molecule drugs, known as biologics, and touches on some of the areas of controversy associated with innovator firm efforts to extend the lifecycles of successful pharmaceutical products.

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