Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, October 18, 2011

Spatial Competition in Quality, Demand-Induced Innovation, and Schumpeterian Growth

Posted by D. Daniel Sokol

Raphael Anton Auer and Philip Ulrich Saure have posted Spatial Competition in Quality, Demand-Induced Innovation, and Schumpeterian Growth.

ABSTRACT: We develop a general equilibrium model of vertical innovation in which multiple firms compete monopolistically in the quality space. The model features many firms, each of which holds the monopoly to produce a unique quality level of an otherwise homogenous good, and consumers who are heterogeneous in their valuation of the good's quality. If the marginal cost of production is convex with respect to quality, multiple rms coexist, and their equilibrium markups are determined by the degree of convexity and the density of quality-competition. To endogenize the latter, we nest this industry setup in a Schumpeterian model of endogenous growth. Each firm enters the industry as the technology leader and successively transits through the product cycle as it is superseded by further innovations. The intrinsic reason that innovation happens in our economy is not one of displacing the incumbent; rather, innovation is a means to differentiate oneself from existing firms and target new consumers. Aggregate growth arises if, on the one hand, increasingly wealthy consumers are willing to pay for higher quality and, on the other hand, private firms' innovation generates income growth by enlarging the set of available technologies. Because the frequency of innovation determines the toughness of product market competition, in our framework, the relation between growth and competition is reversed compared to the standard Schumpeterian framework. Our setup does not feature business stealing in the sense that already marginal innovations grant non-negligible prots. Rather, innovators sell to a set of consumers that was served relatively poorly by pre-existing firms. Nevertheless, "creative destruction" prevails as new entrants make the set of available goods more di-erentiated, thereby exerting a pro-competitive e-ect on the entire industry.

October 18, 2011 | Permalink | Comments (0) | TrackBack (0)

An Antitrust Framework for Climate Change

Posted by D. Daniel Sokol

Michael A. Carrier, Rutgers University School of Law - Camden provides An Antitrust Framework for Climate Change. ABSTRACT: Climate change is one of the most important issues of the twenty-first century. With the Earth’s fate literally hanging in the balance, observers increasingly recognize the fragility of the planet’s ecosystem. Rising temperatures, hurricanes, floods, wildfires, droughts, tropical storms, and other events demonstrate the multiple forms in which climate change appears to be presenting itself.

As seen with President Obama’s 2009 stimulus package, carbon capture technologies, the developing “Smart Grid,” and patent pools addressing climate change based on the open source and Creative Commons models, the issues are pressing. But while climate change has received attention from scholars in other fields, including environmental, property, international, and human rights law, no one has yet analyzed how antitrust law should treat collaborative activity that addresses climate change. This Article addresses this gap. It focuses on four of the most likely antitrust topics to arise.

Part I addresses the issue of markets. Given the fledgling technologies at issue, determining the scope of the relevant market is an uncertain task. In many cases, it will not be clear exactly how broad the market is. For an example, this Part discusses the analysis by the Federal Trade Commission (FTC) of Panasonic’s acquisition of Sanyo, which combined the two largest manufacturers of a type of portable rechargeable battery.

Part II discusses the treatment of monopoly issues, such as refusals to license intellectual property (IP) in the United States and European Union. It then applies this law to patents that assist in the removal of carbon dioxide from the atmosphere.

Standards are the focus of Part III. The context in which standards will most likely play a role involves the “Smart Grid,” which uses “a two-way flow of electricity and information” to create a network that promises to reduce blackouts and to integrate renewable energy sources. This Part explores how antitrust law should analyze these issues.

Part IV analyzes patent pools, tracing their benefits in bringing new technologies to the market and allowing the combination of various patented inputs. In particular, this Part examines the Eco-Patent Commons and Green Xchange, two voluntary arrangements by which patent holders can disseminate beneficial environmental technologies.

October 18, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, October 17, 2011

COMPLETION POLICY AND REGIONAL INTERGRATION IN DEVELOPING COUNTRIES

Posted by D. Daniel Sokol

Michal S. Gal University of Haifa - Faculty of Law and Inbal Faibish University of Haifa - Faculty of Law have an interesting chapter on COMPLETION POLICY AND REGIONAL INTERGRATION IN DEVELOPING COUNTRIES.

ABSTRACT: Regional competition agreements (RCAs) hold great potential for overcoming the major enforcement problems of developing jurisdictions. Indeed, it is no coincidence that the past two decades have seen an unprecedented upsurge in the number and scope of such agreements, especially in the developing world. Yet, as the experiences analyzed throughout this book clearly demonstrate, the accumulated experience of almost all of these newly sprung RCAs is that thus far they have not significantly enhanced competition law enforcement in their regions, or have encountered serious difficulties in doing so. This empirical finding applies regardless of the region and the special characteristics of the jurisdictions within it. This creates a paradox: why do so many countries invest in adopting such agreements in the first place, if the obstacles to their successful operation are high.

This chapter attempts to offer some answers to this paradox by analyzing the obstacles that stand in the way of realizing the potential benefits of RCAs. Our purpose is to identify and analyze at least some of the variables that affect their adoption and operation in the real world. Such an analysis can hopefully provide better tools to understand and predict when an RCA is likely to succeed or to fail, and what can be done to increase its chances of success. To do so, we combine the empirical observations on how RCAs operate in practice with a theoretical analysis. The analysis builds, inter alia, on studies of the collective action problem, including studies of successful collaborations in environments which face relatively similar obstacles to a successful joint collaboration. Such an analysis can also assist us in determining whether the current failure is mainly rooted in the regional aspect of the RCAs or rather in the fact that they involve competition law, the application of which would have encountered serious difficulties in the relevant jurisdictions regardless of its regional aspect.

Accordingly, the chapter is divided into three parts. The first explores the potential benefits that can accrue from a successful RCA. The second, which is the heart of this chapter, analyzes some of the obstacles to realizing such benefits that emerge from the case studies of the different RCAs and places them in a wider theoretical context. The third part offers some potential solutions for overcoming such problems.

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

Empirical Models of Consumer Behavior

Posted by D. Daniel Sokol

Aviv Nevo, Northwestern University - Department of Economics provides some interesting writing on Empirical Models of Consumer Behavior.

ABSTRACT: Models of consumer behavior play a key role in modern empirical industrial organization. In this review, I survey some of the models used in this literature. In particular, I discuss two commonly used demand systems: multistage budgeting approaches and discrete choice models. I motivate their use and highlight some key modeling assumptions. I next briefly discuss key issues of estimation and conclude by summarizing some extensions.

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

Collusion and Selective Supervision

Posted by D. Daniel Sokol

Alberto Motta, University of New South Wales writes on Collusion and Selective Supervision.

ABSTRACT: This paper studies a mechanism-design problem involving a principal-supervisor-agent in which collusion between supervisor and agent can only occur after they have decided to participate in the mechanism. We show how collusion can be eliminated at no cost via the use of a mechanism in which the principal endogenously determines the scope of supervision. A simple example of such a mechanism is one in which the agent bypasses the supervisor and directly contracts with the principal in some states of the world. The result that collusion can be eliminated at no cost in this environment highlights the important assumptions required for collusion to be a salient issue in the existing literature. The result is robust to alternative information structures, collusive behaviours and specification of agent's types. Applications include work contracts with different degrees of supervision, self-reporting of crimes, tax amnesties, immigration amnesties and mechanisms based on recommendation letters.

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

Explaining Antitrust and Judaism in the Sukkah

Posted by D. Daniel Sokol

Yesterday we were at a Sukkot children's event sponsored by Chabbad of Gainesville. There were fun activities including a magic show by Jake the Clown and a bounce house plus the usual lulav and etrog related prayers.

I had a chance to chat with one of the Chabbad Rabbis about antitrust. This was an interesting experience. Sitting on my Conservative synagogue's board (Bnai Israel of Gainesville), discussing antitrust is easy (such as Barak Richman's Rabbi cartel work), as my own Rabbi holds an MBA and had a career in business prior to becoming a Rabbi in his 40s. The Chabbad Rabbi had a good sense of how competition worked but what hit home about antitrust was the following example regarding antitrust presumptions- If a synagogue in town has a dynamic Rabbi and the other Rabbis in town complain, it is probably pro-competitive. If the congregants of the "dynamic" synagogue complain, it is probably anti-competitive.

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

Collusive Price Rigidity under Price-Matching Punishments

Posted by D. Daniel Sokol

Luke Garrod (Loughborough University) has posted Collusive Price Rigidity under Price-Matching Punishments.

ABSTRACT: Abstract: In this paper we provide game theoretic support for the results of the kinked demand curve. By analysing an infinitely repeated game where unit costs fluctuate stochastically between a low and a high state over time and where firms follow a price-matching punishment strategy, we demonstrate that price rigidity can occur in the best collusive subgame perfect Nash equilibrium for small fluctuations in costs. The critical level of high costs under which the best collusive prices are rigid is shown to depend upon the expected duration of a sequence of high-cost periods, the number of firms in the market, and the degree of product differentiation.

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

Sunday, October 16, 2011

United States and European Union Antitrust Agencies Issue Revised Best Practices for Coordinating Merger Reviews

Posted by D. Daniel Sokol

According to the press release:

The Department of Justice, Federal Trade Commission (FTC) and the European Commission issued an updated set of “best practices” that they use to coordinate their merger reviews. The agencies also celebrated the 20th anniversary of the United States-European Union bilateral antitrust agreement.

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