Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, November 25, 2011

Network Interconnectivity with Regulation and Competition

Posted by D. Daniel Sokol

Jolian McHardy (Department of Economics, The University of Sheffield), Michael Reynolds, and Stephen Trotter address Network Interconnectivity with Regulation and Competition.

ABSTRACT: A simple theoretical network model is introduced to investigate the problem of network interconnection. Prices, profits and welfare are compared under welfare maximisation, network monopoly and network monopoly with competition over one part of the network. Given that inducing actual competition may bring disbenefits such as cost duplication and co-ordination costs, we also explore the possibility of a regulator using the threat of entry on a section of the monopoly network in order to bring about the socially preferred level of interconnectivity. We show that there are feasible parameter values for which such a threat is plausible.

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

Intrafirm Conflicts and Interfirm Price Competition

Posted by D. Daniel Sokol

Werner Guth (Max Planck Institute of Economics, Strategic Interaction Group), Kerstin Pull (University of Tubingen, Department of Economics and Business Administration), and Manfred Stadler (University of Tubingen, Department of Economics and Business Administration) discuss Intrafirm Conflicts and Interfirm Price Competition.

ABSTRACT: We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents.

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

Is AT&T/T-Mobile Dead?

Posted by D. Daniel Sokol

Could it be that AT&T and T-Mobile are ready to end the merger even before the antitrust trial set for February? According to news reports, the parties have scrapped their FCC application to join their cellular operations. I wonder to what extent this is the function of the FCC's recent opposition to the deal versus the development of antitrust case law since the suit by DOJ was filed. The way I read US v. H&R Block, the tide seems to be turning toward the goverrnment, when you compare the language used to the case law in Oracle for example.

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

ANTITRUST AND COMPETITION IN TWO-SIDED MARKETS

Posted by D. Daniel Sokol

Alexei Alexandrov (Rochster), George Deltas (Illinois) and Daniel F. Spulber (Northwestern) have written on ANTITRUST AND COMPETITION IN TWO-SIDED MARKETS.

ABSTRACT: This article extends antitrust analysis to two-sided markets in which a virtual monopolist competes with local bricks-and-mortar dealers. The discussion examines the market power of an Internet market maker as well as an Internet matchmaker. The analysis shows that equilibrium in a two-sided market can be characterized as a one-sided market in which transaction demand depends on the bid-ask spread of the central market maker. This allows for a straightforward extension of critical demand elasticity and critical loss analysis from one-sided markets to two-sided markets, with antitrust tests based on the hypothetical monopolist's bid-ask spread. Antitrust analysis of a one-sided market also carries over to a two-sided market with a matchmaker where antitrust tests are based on the sum of participation fees.

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

Attention competition

Posted by D. Daniel Sokol

Andreas M. Hefti (University of Zurich, Department of Economics) focuses on Attention competition.

ABSTRACT: I present a game-theoretic model where economic competition and attention competition are interdependent. On the one hand the effort to attract consumer attention depends on the value of attention to the firm which depends on the grade of price competition among all perceived firms. On the other hand attracting attention involves costs which must be covered by the earnings from competition. It is the task of this paper to clarify the consequences of such an interdependence between attention competition and economic competition for prices, attention effort and market structure as determined by the strategic equilibrium. Under limited attention the market as perceived by consumers and not the effective market is relevant to the firms which implies that prices also reflect the scarcity of attention. Less attentive consumers lead to higher prices but at the same time getting attention is more valuable which intensifies the competition for attention and leads to higher attention costs. I show that if attention competition is relatively inelastic or the commodities are strong substitutes then the gains from consumer inattention outweigh the costs of attracting attention which leads to higher profits and larger effective markets.

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

Thursday, November 24, 2011

Exercise of Patent Rights Under Japanese Anti-Monopoly Prevention Law: A Comparative Law Perspective

Posted by D. Daniel Sokol

Toshiko Takenaka, University of Washington - School of Law describes Exercise of Patent Rights Under Japanese Anti-Monopoly Prevention Law: A Comparative Law Perspective.

ABSTRACT: Article 21 of Japan’s Anti-monopoly Law gives immunity from anti-competition liability to the exercise of copyrights, patents, trademark registrations and other intellectual property (IP) rights. However, Japan’s Fair Trade Commission (FTC) excludes from the immunity a sham IP right exercise, which deviates from or conflicts with the mission of the IP system. A sham exercise of patent rights does not contribute to but rather hinders the promotion of inventions for developments of industry in Japan. This interpretation is also supported by the Basic Intellectual Property Law requiring the government to pay attention to the fair use of IP rights and public interests in developing Japan’s national IP strategies. When the Supreme Court of Japan decided the legality of recycled printer ink cartridges, it adopted a different approach from the U.S. Supreme Court and lower US courts. The Court’s limited application of the exhaustion doctrine allows the patentee to restrict resale and reuse of a patented product legally sold by the patentee. This article compares anti-monopoly issues regarding recycling patented products under Japanese and U.S. laws.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

European Commission Rolls Out a Compliance Guideline - Why Won't the US Agencies Do the Same?

Posted by D. Daniel Sokol

DG Competition has published a guide to competition law compliance, which focuses on what companies should and should not do. Maybe DOJ Antitrrust can do something similar to note that compliance should work hand in hand with the leniency program.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

BENCHMARKING THE UPWARD PRICING PRESSURE MODEL WITH FEDERAL TRADE COMMISSION EVIDENCE

Posted by D. Daniel Sokol

Malcolm B. Coate (FTC) has written BENCHMARKING THE UPWARD PRICING PRESSURE MODEL WITH FEDERAL TRADE COMMISSION EVIDENCE.

ABSTRACT: The upward pricing pressure (UPP) model was introduced in the 2010 revision of the Merger Guidelines, although little insight was offered for how to operationalize an UPP screen. Abstracting from the potential for efficiencies, this article defines an UPP-related benchmark of 15 percent using data from a review of Federal Trade Commission merger challenge decisions. While the historical record highlights the importance of diversion ratios, the other key input into the UPP index, the margin, appears to play little role in the review process. A supplemental analysis of the case-specific evidence associated with unilateral merger review serves to confirm the benchmark results. Moreover, a detailed case study of unilateral-effects analyses identifies a number of application issues that may negate the finding of an UPP-based competitive concern. Thus, careful study should be undertaken before (1) using an UPP index as a merger screen with a benchmark well below 15 percent (diversions well below 30 percent), (2) customizing the UPP calculation for either high or low values of the margin, or (3) using an UPP index to impose a strong presumption of a competitive concern.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition and Managerial Incentives: Board Independence, Information, and Predation

Posted by D. Daniel Sokol

George Kanatas, Rice University - Jesse H. Jones Graduate School of Management and Jianping Qi, University of South Florida - College of Business Administration discuss Competition and Managerial Incentives: Board Independence, Information, and Predation.

ABSTRACT: We show that the choice of an independent board serves as a commitment by management that it will abstain from ex post decisions that are not in shareholder interests. However, an independent board, relying on product market information to make or approve strategic decisions, also makes the firm more vulnerable to predatory information manipulation by its industry rivals. The optimal board type trades off the cost of the agency problem with that from predation. We show that only for weaker firms is an independent board the better choice, and for such firms, increased competition makes board independence even more beneficial.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

New Global Antitrust Blog started at UC Berkeley School of Law

Posted by D. Daniel Sokol

New Global Antitrust Blog started at UC Berkeley School of Law http://berkeleyantitrust.blogspot.com/

Students at UC Berkeley School of law have started a new Antitrust blog focusing on international and comparative antitrust issues. The blog was started by law students, legal professionals and academics who are currently studying at UC Berkeley School of Law (Boalt Hall). The founders came together for the joint purpose of promoting deeper transnational dialogue about competition law. Members of the blog hail from jurisdictions around the world, from the United States to Poland, from Mexico to Armenia, from Germany to South Korea. They are truly an international group of scholars.

The blog aims to create a platform for students, experts and professionals to write about recent developments in antitrust and competition law, with a particular emphasis on global and comparative topics. The platform hopes to build on the great wealth of cross-jurisdictional knowledge and experience that its members and contributors possess.

With an ever-increasing global economy, a growing consensus that antitrust laws promote sound competition, protect consumers and encourage innovation, these students saw an opportunity to capitalize on the international draw and reputation of Berkeley Law to create a forum to discuss these topics.

People interested in the blog should contact Paul B Goodwin, U.C. Berkeley School of Law (Boalt Hall), Class of 2013 at pbgoodwin@berkeley.edu.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

Airline Pricing and Airport Charges in Hub-Spoke Networks with Congestion

Posted by D. Daniel Sokol

Ming Hsin Lin, Osaka University of Economics - Faculty of Economics and Yimin Zhang address Airline Pricing and Airport Charges in Hub-Spoke Networks with Congestion.

ABSTRACT: This article investigates airline pricing and airport congestion charges in hub-spoke networks. When a public hub airport and two public spoke (local) airports independently levy their charges, airlines will eventually set a ticket price that overcharges the passengers for congestion delay cost and overcompensates for airline markups. Privatizing only local airports will always lead to more overcharge, whereas privatizing only the hub airport or all airports could result in lesser overcharge if the network markets are competitive. The degree of overcharge under a private hub and public local airports is always lesser than that under a public hub and private local airports, implying that privatizing a hub airport could yield higher social welfare than privatizing a local airport. Furthermore, investigation on compensation for airline markups also finds that privatizing a hub airport is preferable to privatizing a local airport. These findings have policy implications for airport privatization.

November 24, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 23, 2011

The Fels Effect: Responsive Regulation and the Impact of Business Opinions of the ACCC

Posted by D. Daniel Sokol

Christine Parker, Monash University - Faculty of Law and Vibeke Lehmann Nielsen, University of Aarhus - Department of Political Science explore The Fels Effect: Responsive Regulation and the Impact of Business Opinions of the ACCC.

ABSTRACT: As chair of the Australian Competition and Consumer Commission, Professor Allan Fels blasted his way into popular consciousness by aggressively using the media to promote noholds-barred enforcement against businesses that breached competition and consumer protection laws. Opinions were sharply divided on the desirability and effectiveness of Allan Felsʼ media approach during his chairmanship of the ACCC. This article argues that opinions of the ʻFels effectʼ were based on two opposed, mono-dimensional theories as to how a regulator should behave: one based on conflict and deterrence and the other on cooperation and voluntary compliance. Responsive regulation theory, however, suggests that regulators should be evaluated on multiple dimensions, including whether they are both tough and fair, strategic and sophisticated. This paper reports and analyses survey evidence as to how large businesses do in fact perceive the ACCC across multiple dimensions. We find that Australian businesses may be divided into three groups: those that see the ACCC as threatening; those that see the ACCC as unthreatening; and those that see the ACCC as a professional or responsive regulator. The article goes on to test what impact such differences in opinions have on businessesʼ compliance attitudes and compliance management behaviours. Seeing the ACCC as a deterrent threat has some influence on compliance management behaviour. However, when businesses see the ACCC as both strong and fair, this improves both compliance management behaviour and attitudes towards compliance. These findings support responsive regulation theory, but only a minority of businesses in fact saw the ACCC as a responsive regulator.

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Interchange Fees in Card Payments

Posted by D. Daniel Sokol

Ann Borestam, European Central Bank (ECB) and Heiko Schmiedel, European Central Bank - Securities Settlement Systems Policy Division have written on Interchange Fees in Card Payments.

ABSTRACT: The present paper explores issues surrounding multilateral interchange fees (MIFs) in payment card markets from various angles. The Eurosystem’s public stance on interchange fees is neutral. However, the Eurosystem takes a keen interest in facilitating a constructive dialogue among the stakeholders involved in this debate. Transparency and clarity with respect to the real costs and benefi ts of different payment instruments are indispensable for a modern and harmonised European retail payments market. Interchange fees (if any) should be set at a reasonable level so as to promote overall economic effi ciency in compliance with competition rules.

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Reforming a World Class Competition Regime: The Government’s Proposal for the Creation of a Single Competition and Markets Authority

Posted by D. Daniel Sokol

James Aitken and Alison Jones, King's College London - School of Law explain Reforming a World Class Competition Regime: The Government’s Proposal for the Creation of a Single Competition and Markets Authority.

ABSTRACT: This article outlines the principal reform proposals set out in the UK Government's Consultation Document, ‘A Competition Regime for Growth: A Consultation on Options for Reform.’ Given the huge breadth of the proposals, however, it does not discuss each proposal in detail but focuses on the core proposal to create a new Competition and Markets Authority and a new procedural framework for decision-taking in each of the antitrust, markets and merger regimes. In particular, a key issue considered is how the Government proposes to achieve faster and more frequent decision-taking, whilst at the same time ensuring accountability, predictability, due process and that the system is compliant with the requirements of the Human Rights Act 1998 and the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (ECHR).

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices

Posted by D. Daniel Sokol

Joseph E. Harrington (Johns Hopkins - Econ) and Andrzej Skrzypacz (Stanford GSB) have an interesting article on Private Monitoring and Communication in Cartels: Explaining Recent Collusive Practices.

ABSTRACT:Motivated by recent cartel practices, a stable collusive agreement is characterized when firms’ prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements in a number of markets including citric acid, lysine, and vitamins.

 

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

BHP: My Corporate Hero for Remaining Outside of a Government Facilitated Cartel That Hurts Developing World Consumers

Posted by D. Daniel Sokol

I am not a particular fan of export cartels when it is clear that the effect is to hurt developing world consumers.  I am even less a fan of such cartels when they produce potash (Canpotex for those agencies out there looking to bring a potential price fixing case in your country- note that there are similar export cartels in Russia and Belarus), which is the fertilizer used in many developing countries. Higher potash prices mean that end consumers see the costs of food go up.  Essentially, the Canadian government is helping to price out the poor in the developing world from being able to afford enough to eat.

The Financial Times and Reuters both reported last week that BHP, as part of its Canadian operations, will not participate in the cartel.

Much of the time, antitrust scholarship focuses on firms that have done something bad - fixed prices or monopolized.  Maybe because we do not see good deeds as frequently, this day before Thanksgiving, let's give thanks to BHP Billiton for doing good in this world and not supporting a cartel that starves the world's poor.

HT: Andreas Stephan

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

The Assessments for Agreements for Which Antitrust Immunity is Sought: Competition Authority Perspective

Posted by D. Daniel Sokol

Faith Cemil Ozbugday (Tilburg) has written on The Assessments for Agreements for Which Antitrust Immunity is Sought: Competition Authority Perspective.

ABSTRACT: The present study provides an analysis of the conditions that led the Dutch competition authority (the NMa) to decide against a temporary antitrust immunity seeking agreement on antitrust grounds. First, a theoretical Bayesian decision framework, that is similar to that of Cooper et al. (2005), is presented to derive the optimal enforcement rule for agreements for which ex ante antitrust immunity is sought. The NMa’s decisions are then investigated in an econometric background where those final decisions are linked to various industry characteristics, as the NMa took them into consideration when making its final decision. In doing so, a bivariate Probit model with sample selection is estimated to account for the fact that non-application by firms operating in a specific industry for an exemption might result in significant bias. The econometric results suggest it is more likely that concerted practices are seen as anti-competitive in more competitive and less concentrated industries. Finally, the narrative evidence on the legal and institutional background, and the econometric results are interpreted in light of the theoretical Bayesian decision framework.

November 23, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 22, 2011

Not Your Typical DOJ Antitrust - This Group Eats Trial Work for Breakfast, Lunch and Dinner

Posted by D. Daniel Sokol

In addition to the article in today's WSJ profiling Joe Wayland's litigation prowess, they have added a new article on DOJ Antitrust bringing in Munger's Glenn Pomerantz for AT&T/T-Mobile. I could not be more thrilled. Hard core litigators.

November 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Ex-post evaluation of the consumer impacts of a decision by Competition Commission of Mauritius (CCM) concerning block processed cheddar cheese

Posted by D. Daniel Sokol

Mauritius reminds the competition community about the importance of post evulation impact. All too often agencies do not follow up to see the impact of their actions. However, the Competition Commission of Mauritius (CCM) has just produced an ex-post evaluation of the consumer impacts of a decision taken last year by CCM. The report shows substantial consumer benefits, of about 130m Mauritian Rupees or more, after CCM intervention concerning block processed cheddar cheese. The report was released last Friday at a workshop for professionals including lawyers and financial analysts. http://www.gov.mu/portal/sites/ccm/pdf/INV001-EvaluationReport-Non-Confidential.pdf

As background, in September 2010, the Commissioners decided to limit the types of contracts that could be used when selling Kraft processed block cheddar cheese in Mauritius. Contractual features that had been used included retroactive rebates for supermarkets that achieved customised sales targets. Block cheese is particularly popular in Mauritius and Kraft sold about 90% of processed block cheddar cheese at the time of the case. Since the Commissioners decision, the market for block cheese in Mauritius has evolved.

The main findings are:

· The distributor of Kraft processed block cheddar cheese has discontinued the practice of offering anticompetitive retroactive rebates in exchange for prominent shelf space.

· Starting in the spring of 2011, two new brands namely, Bega and Melbourne, have successfully penetrated the market with growing sales volume. The market has become more competitive with a lower concentration level, as measured by the HHI declining significantly from 8,200 in the year 2010 to between 4,000 – 5,000 by August 2011.

· Prices for block processed cheddar cheese 250g have fallen significantly in the post-CCM intervention period. Consumers are now paying on average around Rs 62.40 per unit compared to Rs 72.30 in early 2011, prior to new entry in the market of block processed cheddar cheese.

· Consumers have already realised savings on expenditure in the range of Rs 8m – Rs 39m over last 4-month May – August 2011 period. On an annual basis that would range between Rs 25m – Rs 117m. The expected benefits over a period of 6 years, assuming a 6% discount rate, would range between Rs 130m – Rs 600m.

November 22, 2011 | Permalink | Comments (0) | TrackBack (0)

Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly

Posted by D. Daniel Sokol

Kenji Fujiwara (Kwansei Gakuin University) and Ngo Van Long (McGill University) discuss Welfare Implications of Leadership in a Resource Market under Bilateral Monopoly.

ABSTRACT: Formulating a dynamic game model of a world exhaustible resource market, this paper studies welfare implications of Stackelberg leaderships for an individual country and the world. We overcome the problem of time-inconsistency by imposing a credibility condition" on the Markovian strategy of the Stackelberg leader. Under this condition, we show that the presence of a global Stackelberg leader leaves the follower worse o relative to the Nash equilibrium. Moreover, the world welfare is highest in the Nash equilibrium as compared with the two Stackelberg equilibria.

November 22, 2011 | Permalink | Comments (0) | TrackBack (0)