Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, October 29, 2011

The U.S./EC Antitrust Cooperation Agreement: Genesis, Innovation, & Early Implementation

Posted by D. Daniel Sokol

James F. Rill (Baker Botts) discusses The U.S./EC Antitrust Cooperation Agreement: Genesis, Innovation, & Early Implementation.

ABSTRACT: The antitrust agreement between the United States and the European Commission, which has now passed its 20th birthday, constitutes a landmark achievement in international cooperation in the application of the parties' competition laws. It has served as a model for subsequent bilateral agreements by both parties. The 1991 agreement was innovative in a number of respects and has served as a foundation for the effective cooperation between the U.S. and EC antitrust agencies and very likely provided the groundwork for increased convergence of antitrust enforcement principles between the parties.

This paper will examine some of the events leading up to the Agreement, its innovative provisions, and its early application. The progress of cooperation in antitrust enforcement between the United States and the European Union is a rich and continuing history, complete with many successes and a few bumps along the road. It is worthy of book-length recitation; here, the focus is the beginnings and early story of the Agreement and its efficacy.

October 29, 2011 | Permalink | Comments (0) | TrackBack (0)

Friday, October 28, 2011

New Evidence on the Efficacy of Leniency

Posted by D. Daniel Sokol

Jun Zhou, Bonn University, Wirtschaftspolitische Abteilung offers New Evidence on the Efficacy of Leniency.

ABSTRACT: This paper examines the effects of the European Commission's (EC) new leniency program on the EC's capabilities in detecting and deterring cartels. I discuss a dynamic model of cartel formation and dissolution to illustrate how changes in antitrust policies and economic conditions might affect cartel duration. Comparative statics results are then corroborated with empirical estimates of hazard functions adjusted to account for both the heterogeneity of cartels and the time-varying policy impacts suggested by theory. Statistical tests are consistent with the theoretic predictions that following an efficacious leniency program, the average duration of discovered cartels rises in the short run and falls in the long run.

October 28, 2011 | Permalink | Comments (1) | TrackBack (0)

Did residential electricity rates fall after retail competition? a dynamic panel analysis

Posted by D. Daniel Sokol

Adam Swadley and Mine Yucel (both Federal Reserve Bank of Dallas) ponder Did residential electricity rates fall after retail competition? a dynamic panel analysis.

ABSTRACT: A key selling point for the restructuring of electricity markets was the promise of lower prices, that competition among independent power suppliers would lower electricity prices to retail customers. There is not much consensus in earlier studies on the effects of electricity deregulation, particularly for residential customers. Part of the reason for not finding a consistent link with deregulation and lower prices was that the removal of the transitional price caps led to higher prices. In addition, the timing of the removal of price caps coincided with rising fuel prices, which were passed on to consumers in a competitive market. Using a dynamic panel model, we analyze the effect of participation rates, fuel costs, market size, a rate cap and a switch to competition for 16 states and the District of Columbia. We find that an increase in participation rates, price controls, a larger market, and high shares of hydro in ! electricity generation lower retail prices, while increases in natural gas and coal prices increase rates. The effects of a competitive retail electricity market are mixed across states, but generally appear to lower prices in states with high participation and raise prices in states that have little customer participation.

October 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Bank Competition in the EU: How Has It Evolved?

Posted by D. Daniel Sokol

Laurent Weill (LaRGE Research Center, Universite de Strasbourg) asks Bank Competition in the EU: How Has It Evolved?

ABSTRACT: Economic integration on the EU banking markets is expected to favor competition, which should provide economic gains. However, even if there is a commonly accepted view in favor of enhanced bank competition during the last decade, no study has been performed in the 2000s showing this trend. In this paper, we aim to fill this gap by measuring the evolution of bank competition in all EU countries during the 2000s. We estimate the Lerner index and the H-statistic for a sample of banks from all EU countries. We provide evidence of a general improvement in bank competition in the EU, even if cross-country differences are observed in the pattern of the evolution of bank competition. We check whether convergence in bank competition has taken place on the EU banking markets, by applying and convergence tests for panel data. We show convergence in bank competition. These findings are also observed with standard competition me! asures (Herfindahl index, profitability indicators). We thus support the view th at bank integration has taken place in the European Union.

October 28, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 27, 2011

EU/U.S. Cooperation in the Area of Competition Policy

Posted by D. Daniel Sokol

Miek van der Wee & Holger Dieckmann (DG Comp) describe EU/U.S. Cooperation in the Area of Competition Policy. The 20th anniversary of the EU-U.S. Cooperation Agreement takes place in an era of globalisation and increasing competition challenges. Highlighting the importance of cooperation between the different competition agencies is in the interest of both market players and consumers.

The European Union successfully cooperates with the U.S. competition authorities (the Department of Justice and the Federal Trade Commission) on the basis of the 1991 Cooperation Agreement and the 1998 Positive Comity Agreement. Today, twenty years after its signature, the U.S. authorities represent the Commission's most frequent cooperation partner.

This paper will look at the development of this bilateral cooperative regime, focusing on the main areas covered, looking at achievements, and stressing areas in which effectiveness and efficiency could be improved by means of further collaboration.

October 27, 2011 | Permalink | Comments (0) | TrackBack (0)

The Spatial Agent-based Competition Model (SpAbCoM)

Posted by D. Daniel Sokol

Marten Graupner (Leibniz Institute of Agricultural Development in Central and Eastern Europe) describes The Spatial Agent-based Competition Model (SpAbCoM).

ABSTRACT: The paper presents a detailed documentation of the underlying concepts and methods of the Spatial Agent-based Competition Model (SpAbCoM). For instance, SpAbCoM is used to study firms' choices of spatial pricing policy (GRAUBNER et al., 2011a) or pricing and location under a framework of multi-firm spatial competition and two-dimensional markets (GRAUBNER et al., 2011b). While the simulation model is briefly introduced by means of relevant examples within the corresponding papers, the present paper serves two objectives. First, it presents a detailed discussion of the computational concepts that are used, particularly with respect to genetic algorithms (GAs). Second, it documents SpAbCoM and provides an overview of the structure of the simulation model and its dynamics.

October 27, 2011 | Permalink | Comments (0) | TrackBack (0)

A Note on “Modeling the Birth and Death of Cartels with An Application to Evaluating Competition Policy” by Harrington and Chang (2009)

Posted by D. Daniel Sokol

Jun Zhou (University of Bonn) provides A Note on “Modeling the Birth and Death of Cartels with An Application to Evaluating Competition Policy” by Harrington and Chang (2009).

ABSTRACT: In the December 2009 issue of the Journal of European Economic Association, Harrington and Chang presented a model of dynamic cartel formation and dissolution where an industry of firms interact repeatedly over an infinite time horizon. Absent antitrust intervention, there is a “marginal industry” in which firms are indifferent between collusion and competing because the short-run gain of cheating for each firm equals its long-run benefit from colluding. An efficacious antitrust innovation works its effect by increasing a firm’s short-run benefit from cheating to a level that exceeds its long-run gains from colluding. In this way, the policy-innovation moves the “marginal type” from a population of sustainable, longer-lived cartels to a population of unstable, shorter-lived ones. The model generates intuitive predictions that can be used to assess the efficacy of antitrust innovations (such as the leniency program): The impact of an efficacious policy on the duration of discovered cartels is time-dependent. In particular, following an antitrust innovation that increases probability of detection, the marginal cartels immediately break up and the ensuing cartel discovery comes from a population of longer-lasting cartels. Because of such a sample selection effect, the average duration of discovered cartels increases in the short-run. That is, the short-run distribution of cartel duration dominates the steady-state pre-innovation distribution in the sense of first order stochastic dominance (FOSD) (Theorem 7 of Harrington and Chang); in the long run, the duration decreases due to the enhanced overall deterrence. That is, the post-innovation steady-state distribution of cartel duration dominates the short-run one in the sense of FOSD (Theorem 8 of Harrington and Chang). These theoretical predictions can be tested empirically but not direct ways. This is because the estimation of the cartel duration from discovered cartels must consider the censoring of duration for cartels ending due to antitrust interventions (Levenstein and Suslow (forthcoming)). For such cartels, we can only infer that collusion would have exceeded the observed cartel duration at the time of the cartel’s dissolution. In this note, I provide two stronger theorems than Theorems 7 and 8 in Harrington and Chang. My results can be directly corroborated in a empirical model of survival analysis— a by now standard approach to the analysis of cartel durations.2 They relate to the probability that a cartel survives for t periods conditional on the event that the cartel survives for at least t periods, i.e., the dissolution hazard of discovered cartels.

I show within Harrington and Chang’s framework that (1) in the short-run an after an antitrust innovation that raises the probability of detection, the distribution of cartel duration shifts and dominates, in the sense of hazard rate dominance (HRD), the pre-innovation distribution; and that (2) in the long run after the innovation, the distribution readjusts and dominates the short-run distribution in the sense of HRD.

October 27, 2011 | Permalink | Comments (0) | TrackBack (0)

The dynamics of a Bertrand duopoly with differentiated products and bounded rational firms revisited

Posted by D. Danie Sokol

Luciano Fanti (University of Pisa) and Luca Gori (University of Genoa) discuss The dynamics of a Bertrand duopoly with differentiated products and bounded rational firms revisited.

ABSTRACT: We revisit the study of the dynamics of a duopoly game à la Bertrand with horizontal product differentiation and bounded rational firms analysed by Zhang et al. (2009), (Zhang, J., Da, Q., Wang, Y., 2009. The dynamics of Bertrand model with bounded rationality. Chaos, Solitons and Fractals 39, 2048–2055), by introducing sound microeconomic foundations. We study how an increase in the relative degree of product differentiation affects the stability of the unique positive Bertrand-Nash equilibrium, in the case of both linear and non-linear costs. We show that an increase in either the degree of substitutability or complementarity between goods of different variety may destabilise the equilibrium of the two-dimensional system through a period-doubling bifurcation. Moreover, by using numerical simulations (i.e., phase portraits, sensitive dependence on initial conditions and Lyapunov exponents), we find that a “quasi-periodic” route to chaos and a large gamma of strange attractors for the cases of both substitutability and complementarity can occur.

October 27, 2011 | Permalink | Comments (0) | TrackBack (0)

Why Mergers Fail

Posted by D. Daniel Sokol

Ralph M. Sonenshine (American University) tackles Why Mergers Fail.

ABSTRACT: A number of empirical studies have shown that negative abnormal returns often result shortly after a once promising merger is consummated. There are few consistent explanations, however, as to why so many mergers result in such poor performance. This paper sheds light on this issue by examining the effect that structural factors (including market concentration and R&D intensity) have on post-merger abnormal returns. The paper also attempts to assess how differences in valuation among bidders, along with the presence of multiple bidders, influencethe performance of the merged firm. Our findings show that firm value is positively impacted in the first one to three years post merger by acquiring related assets, but that participating in a merger wave in these years has a negative influence. Over longer periods of time these effects are not evident and instead post-merger performance is impacted foremost by intangible asset intensity.

October 27, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 26, 2011

Foreign Cartel With Domestic Ripple Effects

Posted by D. Daniel Sokol

Elai Katz (Cahill Gordon) has an op-ed in the New York Law Journal on the Seventh Circuit's recent potash case regarding extraterritoriality.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition Leverage: How the Demand Side Affects Optimal Risk Adjustment

Posted by D. Daniel Sokol

Michiel J. Bijlsma, CPB Netherlands Bureau of Economic Policy Analysis, Tilburg Law and Economics Center (TILEC), Jan Boone, Tilburg University - Center for Economic Research (CentER), Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA), TILEC and Gijsbert Zwart, CPB Netherlands Bureau of Economic Policy Analysis, Tilburg Law and Economics Center (TILEC) examine Competition Leverage: How the Demand Side Affects Optimal Risk Adjustment.

ABSTRACT: We study optimal risk adjustment in imperfectly competitive health insurance markets when high-risk consumers are less likely to switch insurer than low-risk consumers. First, we find that insurers still have an incentive to select even if risk adjustment perfectly corrects for cost differences among consumers. Consequently, the outcome is not efficient even if cost differences are fully compensated. To achieve first best, risk adjustment should overcompensate for serving high-risk agents to take into account the difference in markups among the two types. Second, the difference in switching behavior creates a trade off between efficiency and consumer welfare. Reducing the difference in risk adjustment subsidies to high and low types increases consumer welfare by leveraging competition from the elastic low-risk market to the less elastic high-risk market. Finally, mandatory pooling can increase consumer surplus even further, at the cost of efficiency.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Welfare Standards in Hospital Mergers

Posted by D. Daniel Sokol

Katalin Katona, Dutch Healthcare Authority, Tilburg Law and Economics Center (TILEC) and Marcel F. M. Canoy, European Union - European Commission discuss Welfare Standards in Hospital Mergers.

ABSTRACT: There is a broad literature on the consequences of applying different welfare standards in merger control. Specific aspects of health care mergers, however, have not yet been considered. Two features of the health care sector are especially relevant. First, health care providers are possi-bly not profit oriented. Second, consumers can be covered by a mandatory health insurance and pay uniform premiums. The fact and level of payment is not connected to the consumption of health care services, which makes the concept consumer in merger control ambiguous. Previous literature on welfare standards in merger control has often built on the general result that consumer welfare is a more restrictive standard than total welfare. We model mergers on hospital markets and allow for non-profit maximizing behavior of providers and mandatory health insurance. We show that applying a restricted interpretation of consumer in health care merger control can reverse the relation between the two standards. Consumer welfare standard can be weaker than total welfare. Consequently, applying the wrong standard can lead to both clearing socially undesirable and to blocking socially desirable mergers. The possible negative consequences of applying a simple consumer welfare standard in merger control can be even stronger when hospitals maximize quality and put less weight on financial considerations. We also relate these results to the current practice of merger control.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Corporate Compliance - Enron and Sarbanes Oxley (To Music)

Posted by D. Daniel Sokol

I use an Enron case study for class to discuss problems of corporate governance/compliance and regulatory response to crisis in my Business Associations class. The case study is in Smith and Williams, Business Organizations.  I also have an evening showing of the documentary Smartest Guys in the Room, based on the book by the same name about Enron for the class. One of my current students felt so moved on Monday that he created a song (based on Gangster's Paradise). The lyrics are below.  You can also listen to the song.

 

 

Download Juans Jam



 

 

As I walk through the (SILICON) valley of death

I take a look at my (ENRON STOCK AND ) realize there's no more left

Cause I've been (COOKING THE BOOKS) for so long that

Even (THE GAAP) thinks that my mind is gone

But I ain't never crossed (AN AGENCY) that didn't deserve it

(FASTOW) be treated like a punk, you know that's unheard of
You better watch how you (NEGOTIATE), and where you (WORKING)

Or you and your homies might be lined up in (COURT)

I really hate to trip, but I gotta lop'-

As they grew I see myself in the (GOLDEN PARACHUTE) fool

I'm the kinda (CEO) the (EXECUTIVES) wanna be like

In my  (PORSHE) at night

(EMBEZZLING MY  FUNDS) in the street light

 

Been spending most our lives living in the SMARTEST GUY's  Paradise

Been spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

 

They got the situation, they got me facin'

I can't live a normal life, I was raised by the (WEALTHY)

So I gotta be down with (KEEP STASHING CASH OVERSEAS)

Too much (OFF-BALANCE SHEET ACCOUNTING) got me chasin' dreams

I'm an educated fool with money on my mind

Got my SPE's  in my hand and a (GENIUS MBA) in my (GANG)

I'm a loc'ed out wall street gangsta, CORPORATE banger

And my (BOARD MEMBERS) (ARE)down, so don't arouse my anger, fool

(PRISON)  ain't nuthin but a heart beat away

I'm livin (THE WHITE COLLAR LIFE) , YO what can I say?

I'm 61 now, but will I live to see SARBANES AND OXLEY?

The way things are goin' I don't think they ll ever catch me

 

Tell me why are we, so blind to see

ENRON's hidden SPE's

 

Been spending most our lives living in the SMARTEST GUY's  Paradise

Been spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

 

Power and the money, money and the power

Minute after minute, hour after hour

(SHAREHOLDERS)  runnin, but half of them ain't lookin

What's goin on in the kitchen, but I dont know what's cookin

(Skilling) say I got ta learn, but noones here to teach me,

If  (THE COURT) cant understand it, how can they reach me?

I guess they can't; I guess they won't

I guess its cool; they’ll call it the  BUSINESS JUDGMENT, RULE!

 

Been spending most our lives living in the SMARTEST GUY's  Paradise

Been spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

Keep spending most our lives living in the SMARTEST GUY's  Paradise

 

Tell me why are we, so blind to see

ENRON's hidden SPE's

Tell me why are we, so blind to see

ENRON's hidden SPE's

 

 

October 26, 2011 | Permalink | Comments (2) | TrackBack (0)

Antitrust as Regulation

Posted by D. Daniel Sokol

Alan James Devlin, University of Dublin - Trinity College, University College Dublin (UCD) explores Antitrust as Regulation.

ABSTRACT: Antitrust, properly understood, plays a modest role in constraining commercial behavior. With respect to unilateral conduct, it does not prohibit monopoly or the fortuitous or quality-based acquisition of the same. It generally permits dominant companies to enjoy the fruits of their positions and does not speak to the propriety of excessive pricing. It does not impose service obligations on monopolists; nor does it generally limit their right to price discriminate amongst their consumers. It merely prohibits monopolists’ artificial creation of impediments to competition - so-called “exclusionary practices.” With respect to concerted behavior, the law allows a vast swathe of private agreements, even between rivals and if restrictive of competition, so long as the arrangement sufficiently promotes the well being of consumers. These tenets of competition policy reflect a sound maxim: antitrust is not regulation.

Unfortunately, the judiciary has lost sight of this rudimentary principle. The erosion began subtly, as lower courts rewrote antitrust law’s principal mode of analysis, the rule of reason. According to the Supreme Court’s seminal pronouncement of the rule, if economic analysis reveals that a practice enhances an appropriate measure of consumer welfare, the practice is lawful. That analytic inquiry does not insist that companies calibrate their behavior to maximize efficiency. The U.S. Courts of Appeals, however, have rewritten the rule of reason to require more. Today, an antitrust defendant cannot necessarily prevail by showing that its challenged restraint is welfare enhancing. Instead, if a court finds that a defendant could have achieved comparable efficiency gains in a manner less prejudicial to competition, a violation of the Sherman Act will follow.

Although recent calls for antitrust to require the best have intuitive appeal, policymakers should reject them in most cases. Where welfare analysis requires one to appeal to a hypothetical counterfactual - as it typically the case — courts invariably operate in an error-prone manner. Here, antitrust should play a role founded on incremental improvement over the status quo. Any other function would blur the lines between antitrust and regulation, thus subjecting the courts and agencies to tasks for which they are ill suited. Recent enforcement actions and judicial proceedings reveal the dangers of requiring welfare maximization, as antitrust now threatens to undo desirable gains in a self-defeating pursuit for more.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Former FTC Commissioner William E. Kovacic Named Recipient of 2011 Miles Kirkpatrick Award

Posted by D. Daniel Sokol

FTC Chairman Leibowitz named Bill Kovacic the winner of the 2011 Miles W. Kirkpatrick Award for Lifetime FTC Achievement. If you were to cut Bill open, he would bleed FTC. Bill's work in a number of capacities - GC, Commissioner and Chairman (plus junior staffer back in the day) has focused on ensuring that the FTC makes a meaningful impact on the lives of consumers in the US and around the world. I could not be more in agreement with the award choice. Bill is a very deserving recipient.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Abuse of Collective Dominance under the Competition Law of the Russian Federation

Posted by D. Daniel Sokol

Svetlana Avdasheva (Professor of Economics, Higher School of Economics, Moscow), Nadezhda Goreyko (Junior Researcher, Institute for Industrial and Market Studies, Higher School of Economics, Moscow), and Russell Pittman (DOJ) address Abuse of Collective Dominance under the Competition Law of the Russian Federation.

ABSTRACT: In 2006, Russia amended its competition law and added the concepts of “collective dominance” and its abuse. This was seen as an attempt to address the common problem of “conscious parallelism” among firms in concentrated industries. Critics feared that the enforcement of this provision would become tantamount to government regulation of prices. In this paper we examine the enforcement experience to date, looking especially closely at sanctions imposed on firms in the oil industry. Some difficulties and complications experienced in enforcement are analyzed, and some alternative strategies for addressing anticompetitive behavior in concentrated industries discussed.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

How Well Do Travel Cost Models Measure Competition Among Hospitals?

Posted by D. Daniel Sokol

Michael J. Doane, Competition Economics LLC Luke M. Froeb, Vanderbilt University - Owen Graduate School of Management and R. Lawrence Van Horn, Owen Graduate School of Management, Vanderbilt University ask How Well Do Travel Cost Models Measure Competition Among Hospitals?

ABSTRACT: Health plans create competition among hospitals by threatening to “steer” patients to preferred facilities. Mergers can reduce this competition and economists have begun using travel cost demand models to estimate their effects. In this paper, we document an anomaly in estimation: for any plausible estimate of the opportunity cost of time, the price of hospital service is several orders of magnitude larger than the estimated value that patients place on the service. This anomaly raises questions about how well travel cost models measure demand for medical care, competition among hospitals, and the increase in bargaining power created by merger.

October 26, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 25, 2011

The Complexity of Cartel Enforcement in Times of Globalization of Competition Law

Posted by D. Daniel Sokol Frank Montag & Daniel Colgan (Freshfields) address The Complexity of Cartel Enforcement in Times of Globalization of Competition Law. ABSTRACT: On the twentieth anniversary of the signing of a Cooperation Agreement between the United States government and the European Commission ("EC") to enhance the effective application of their respective competition laws, it is fitting to undertake a review of the continuing significance of the relationship between the European Union and the United States in the current context of ever greater "globalization" of competition law. Indeed, much has changed in the intervening two decades, both in terms of the nature and output of the EU/U.S. relationship and in terms of the backdrop created by the ever-tightening network of antitrust agencies around the world.

The EU/U.S. cooperative relationship has not always progressed smoothly. There is an inevitable amount of divergence in substantive law and policy but, by common consensus, the positive approach taken by both agencies has been a hallmark of the global competitive order for twenty years. This paper seeks to put this relationship in a contemporary context, highlighting how the globalization of competition law adds complexity to cartel enforcement, thereby rendering the ground for companies that are under investigation more challenging.

October 25, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition and Innovation

Posted by D. Daniel Sokol

Michele Boldrin, Washington University, Juan Correa Allamand Ministry of Finance, Chile. David K. Levine, Washington University and Carmine Ornaghi, University of Southampton have posted a controversial paper on Competition and Innovation.

ABSTRACT: Which kind of intellectual property regime is more favorable to innovation: one that enforces patents or one that does not? Economic theory is unable to answer this question, as valid arguments can be made both for and against patents; hence we must turn to empirical evidence. In this paper, we review empirical evidence gathered by other researchers and add new evidence of our own. We conclude that the evidence suggests that patents do not promote innovation, but instead retard it.

October 25, 2011 | Permalink | Comments (0) | TrackBack (0)

Endogenous Competition Alters the Structure of Optimal Auctions

Posted by D. Daniel Sokol

Ronald M Harstad (The Institute of Social and Economic Research Osaka University) argues that Endogenous Competition Alters the Structure of Optimal Auctions.

ABSTRACT: Potential bidders respond to a sellerfs choice of auction mechanism for a common-value or affiliated-values asset by endogenous decisions whether to incur an information-acquisition cost (and observe a private estimate), or forgo competing. Privately informed participants decide whether to incur a bid-preparation cost and pay an entry fee, or cease competing. Auction rules and information flows are quite general; participation decisions may be simultaneous or sequential. The resulting revenue identity for any auction mechanism implies that optimal auctions are allocatively efficient; a nontrivial reserve price is revenue-inferior. Optimal auctions are otherwise contentless: any auction that sells without reserve becomes optimal by adjusting any one of the continuous, spanning parameters, e.g., the entry fee. Sellerfs surplus-extracting tools are now substitutes, not complements. Many econometric studies of auction market! s are seen to be flawed in their identification of the number of bidders.

October 25, 2011 | Permalink | Comments (0) | TrackBack (0)