Antitrust & Competition Policy Blog

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

Saturday, December 10, 2011

The Consolidation of Competition Law in Latin America

Posted by D. Daniel Sokol

Julian Pena (Allende Brea) discusses The Consolidation of Competition Law in Latin America.

ABSTRACT: The enactment of the long-awaited reform of the Brazilian competition law can be seen as part of a new stage in competition law in Latin America, which also involves other countries in the region. Regardless of the broad extent of the area covered by the concept of Latin America, and the sweeping diversity of political, economic, social and cultural realities it comprises, there are some common patterns that can be identified in the process through which competition law has evolved in the region, particularly in the enactment process of such laws. There are signs that some Latin American countries have now reached a new stage of development that represents the start of the consolidation and conformity of competition law in the region.

The development of competition law in Latin America can be divided into three stages: A preliminary stage, when a few countries in the region had some basic and vague legislation with poor enforcement (Argentina 1923, 1946, and 1980; Brazil 1962; Chile 1959 and 1973; Colombia 1959; and Mexico 1934); A second stage, when most Latin American countries either modernized the existing competition laws (Argentina 1999; Brazil 1991 and 1994; Chile 1999; Colombia 1992; and Mexico 1992) or introduced modern ones with the guidance of international organizations (Andean Community 1991 and 2005; Costa Rica 1994; Ecuador 2011; El Salvador 2005; Honduras 2006; Mercosur 1996; Nicaragua 2006; Panama 1995 and 2006; Peru 1991; Uruguay 2000 and 2007; and Venezuela 1991); and A stage of consolidation of the existing regimes (Chile 2004 and 2009; Colombia 2009; Mexico 2006 and 2011; Panama 2006; and Brazil 2011), with the introduction of substantial amendments to their laws based on their own experience and on the ideas taken from the best practices agreed at the international fora, with significant debates and strong political support from their governments. The new competition laws and the way they were enacted show a level of maturity and consolidation of the competition regimes in certain parts of the region that is likely to be followed in the near future by the other Latin American countries, though each at its own pace and in its own fashion. Some countries, for instance, are newcomers to having an antitrust law (e.g. Ecuador 2011), while others are still debating whether to have such kind of laws (e.g. Paraguay). Many of the Latin American countries had previously made some amendments to their laws at different levels (procedural, substantial, and/or institutional).

However, the latest series of competition laws evidence a change in both how the society perceives competition laws and its awareness of the importance of the changes that have been introduced, thus raising the level of the debate and relevance of the new laws enacted.

December 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Friday, December 9, 2011

The New Competition Law in Brazil: Challenges Ahead

Posted by D. Daniel Sokol

Jose Antonio Ziebarth has written The New Competition Law in Brazil: Challenges Ahead.

ABSTRACT: The present article aims to outline the latest developments of Competition Law and Policy in Brazil. The so-called Brazilian Competition Policy System has become increasingly more active over the past decade. Since the beginning of the 2000s, a commodities boom has fueled strong growth and lowered poverty across Latin America. Once hobbled with high inflation and highly susceptible to worldwide crises, Brazil now has wide foreign reserves and a rousing consumer market. Furthermore, Brazil achieved an investment grade status for its sovereign debt in 2008 and 2009.

The BCPS is internationally recognized for creative initiatives to further increment the effectiveness of their enforcement activities, including a strong and creative cartel enforcement program and efforts to streamline merger review procedures.

This article aims to provide a brief perspective and commentary on such developments. In order to do so, it will focus on the following topics: (a) the foundations of competition policy in Brazil; (b) an overview of the current Brazilian Competition Policy System; and (c) the enactment of the new legislation and its main changes

December 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Optimal Product Variety in a Hotelling Model

Posted by D. Daniel Sokol

Kieron Meagher (Australian National University) discusses Optimal Product Variety in a Hotelling Model.

ABSTRACT: In Hotelling style duopoly location games the product variety (or firm locations) is typically not socially optimal. This occurs because the competitive outcome is driven by the density of consumers at the margin while the socially optimal outcome depends on the whole distribution of consumer locations/tastes. We consider a natural extension of the standard model in which firms are imperfectly informed about the distribution of consumers, in particular firms are uncertain about the consumer mean. In the uniform case, as the aggregate uncertainty about the mean becomes large relative to the dispersion of consumers about the mean, competitive locations become socially optimal. A limit result on prices for discontinuous, log-concave densities shows the result will hold in a range of cases.

December 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Cournot and Bertrand competition with asymmetric costs in a mixed duopoly

Posted by D. Daniel Sokol

Kangsik Choi (Pusan National University) describes Cournot and Bertrand competition with asymmetric costs in a mixed duopoly.

ABSTRACT: We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, regardless of whether the goods are substitutes or complements, if the degree of public firm's inefficiency is sufficiently small, there exists a dominant strategy for both public and private firms that choose Bertrand competition, while there exists a dominant strategy only for the private firm that chooses Bertrand competition if the degree of inefficiency is sufficiently large. Consequently, we show that regardless of the nature of goods, (i) social welfare under Bertrand competition is determined in equilibrium, if the degree of public firm's inefficiency is sufficiently small; and (ii) if the degree of its inefficiency is sufficiently large, social welfare under which the private firm sets its price and the public firm! sets its quantity is determined in equilibrium. Moreover, the ranking of a private firm's profit is not reversed.

December 9, 2011 | Permalink | Comments (0) | TrackBack (0)

How to and How Not to Introduce Competition Law and Policy in Transitional and Developing Economies

Posted by D. Daniel Sokol

Frank Emmert, Indiana University School of Law - Indianapolis argues How to and How Not to Introduce Competition Law and Policy in Transitional and Developing Economies.

ABSTRACT: The paper first summarizes the benefits of competition, i.e. why competitive markets are more efficient than oligopolistic or monopolistic markets, and the threats to competitive markets from cartels, concentration, and government interference. In the main part, the paper presents the key components of effective competition oversight, in particular for countries seeking to reform their competition laws and agencies and those planning for the first time to introduce meaningful competition oversight. Finally, the paper advocates that transitional and developing countries should look to the European Union for the most advanced model of robust competition oversight and avoid costly and time consuming experiments with inferior alternatives. In an annex, the paper provides links to legislative materials of countries that have modernized their competition laws since 1990.

December 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 8, 2011

Brazil: The New Antitrust Bill of Law

Posted by D. Daniel Sokol

Cecilia Vidigal Monteiro de Barros (Motta Fernandes Rocha Advogados) discusses Brazil: The New Antitrust Bill of Law. ABSTRACT: The Brazilian antitrust system underwent a modernization with the approval, by the Brazilian Congress, of a new bill of law on October 5, 2011 ("New Law"). The New Law was signed by the President of Brazil on November 30 and will come into force on May 29, 2012.

The main amendments to the current antitrust law comprise: (i) elimination of the current overlaps among three different agencies; (ii) adoption of a pre-merger review regime (as opposed to the current post-merge review); (iii) change in the requirements for submission of transactions to merger review; and (iv) amendment to penalties imposed on participants in cartels and other unilateral conducts.

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition, Innovation and Welfare

Posted by D. Daniel Sokol

Arijit Mukherjee, University of Nottingham - School of Economics focuses on Competition, Innovation and Welfare.

ABSTRACT: In an economy with drastic innovation, we analyze the effects of product market competition on social welfare. Considering Cournot and Bertrand competition as different types of product market competition, we show that Cournot competition may generate higher social welfare depending on the difference between the pre‐ and post‐innovation costs of production and the magnitude of R&D productivities. In our analysis, R&D investments are higher under Bertrand (Cournot) competition if R&D productivities are sufficiently low (high).

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition and Innovation-Driven Inclusive Growth

Posted by D. Daniel Sokol

Mark A. Dutz, World Bank, Ioannis N. Kessides, World Bank, Stephen D. O'Connell, CUNY The Graduate Center - Department of Economics, World Bank, and Robert D. Willig, Princeton University - Woodrow Wilson School of Public and International Affairs discussed Competition and Innovation-Driven Inclusive Growth.

ABSTRACT: The paper investigates the strength of innovation-driven employment growth, the role of competition in stimulating and facilitating it, and whether it is inclusive. In a sample of more than 26,000 manufacturing establishments across 71 countries (both OECD and developing), the authors find that firms that innovate in products or processes, or that have attained higher total factor productivity, exhibit higher employment growth than non-innovative firms. The strength of firms'innovation-driven employment growth is significantly positively associated with the share of the firms'workforce that is unskilled, debunking the conventional wisdom that innovation-driven growth is not inclusive in that it is focused on jobs characterized by higher levels of qualification. They also find that young firms have higher propensities for product or process innovation in countries with better Doing Business ranks (both overall and ranks for constituent components focused on credit availability and property registration). Firms generally innovate more and show greater employment growth if they are exposed to more information (through internet use and membership in business organizations) and are exporters. The empirical results support the policy propositions that innovation is a powerful driver of employment growth, that innovation-driven growth is inclusive in its creation of unskilled jobs, and that the underlying innovations are fostered by a pro-competitive business environment providing ready access to information, financing, export opportunities, and other essential business services that facilitate the entry and expansion of young firms.

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Dynamics in a Mature Industry: Entry, Exit, and Growth of Big-Box Grocery Retailers

Posted by D. Daniel Sokol

Dan Hanner, Government of the United States of America - Federal Trade Commission, Daniel S. Hosken, Government of the United States of America - Federal Trade Commission, Luke Olson, Government of the United States of America - Federal Trade Commission, and Loren Smith, Government of the United States of America - Federal Trade Commission have an interesting piece on Dynamics in a Mature Industry: Entry, Exit, and Growth of Big-Box Grocery Retailers.

ABSTRACT: This paper measures market dynamics within the U.S. grocery industry (defined as supermarket, supercenter and club retailers). We find that the composition of outlets changes substantially, roughly 7%, each year, and that store sizes have increased as the result of growth by supercenter and club retailers. We find significant changes in the relative position of brands in markets over time. These changes are largely the result of expansion (or contraction) by incumbents rather than entry or exit. There is little entry or exit, except by small firms. Moreover, only in small markets do entrants gain substantial market share.

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

GCR IP and Technology 2012 - March 12, 2012

Posted by D. Daniel Sokol

GCR logo Register Now

Chaired by Thomas Vinje, partner, chair of global antitrust practice, Clifford Chance LLP


Should antitrust authorities intervene in fast moving IT markets?

Differences between EU and US IT antitrust enforcement.

Antitrust standards for standards in the horizontal guidelines.

Pricing and bundling of IT products - drawing the line between lawful and unlawful behaviour.

Merger review in the IT sector: too much or too little scrutiny?

Apple, Google, IBM under the antitrust nanoscope.

Further Details


Jean-Yves Art, Microsoft

Riccardo Celli, O'Melveny & Myers LLP

Amelia Fletcher, Office of Fair Trading

Matthew Heim, Qualcomm (TBC)

Julia Holtz, Google

Jon Orszag, Compass Lexecon

Alvaro Ramos, Cisco Systems Belgium BVBA/SPRL

Scott Sher, Wilson Sonsini Goodrich & Rosati

Craig Waldman, Jones Day

Conference fees:

Register now to save with our early booking rates:

Private practitioner £600
Government agency £500
In-house counsel £325

Prices may be subject to 20% VAT

Register online here to pay by credit card, cheque or bank transfer.


For all registration enquiries, please contact +00 44 207 908 1185 or email:

Register Now To Book Your Place

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Tacit Collusion Under Imperfect Monitoring in the Canadian Manufacturing Industry: An Empirical Study

Posted by D. Daniel Sokol

Marcelo Resende, Universidade Federal do Rio de Janeiro (UFRJ), CESifo (Center for Economic Studies and Ifo Institute for Economic Research) and Rodrigo M. Zeidan, University of Nottingham Ningbo analyze Tacit Collusion Under Imperfect Monitoring in the Canadian Manufacturing Industry: An Empirical Study.

ABSTRACT: The paper undertakes a cross-sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by Abreu et al (1986). Specifically, the prevalence of a first order Markovian process for alternating between price wars and collusive periods is assessed by means of non-parametric tests. The analysis focuses on 30 different industries in Canada. The evidence provides weak support for optimal collusion in one industry, which is consistent with the idea that such collusive arrangements are unusual.

December 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 7, 2011

Merger Control Under the New Brazilian Competition Law

Posted by D. Daniel Sokol Caio

Mario da Silva Pereira Neto & Paulo Leonardo Casagrande (Brasil, Pereira Neto, Galdino, Macedo Advogados) discuss Merger Control Under the New Brazilian Competition Law.

ABSTRACT: On November 30, 2011, Law n. 12.529—the New Brazilian Competition Law—was formally enacted by President Dilma Roussef, after more than 7 years of discussions within the Brazilian National Congress. Such Law will become effective on May 29, 2012, when it will supersede Law 8.884, enacted in 1994.

The New Law represents a significant change in the institutional, procedural, and material rules structuring competition policy in Brazil, and it is seen as a major improvement. According to the 2010 peer review by the OECD, the New Law is a "comprehensive legislation that would overhaul the Brazilian Competition Policy System and remedy many of the problems that have plagued it for so long." Probably the most difficult problem that the New Law aims to tackle concerns the merger review regime. Law 8884, of 1994, established a non-suspensory regime in Brazil: i.e. parties are allowed to close the transaction before the decision of the competition authority. Besides being odd compared to most jurisdictions, this brought significant difficulties to the authorities and many uncertainties to merging parties, especially in complex transactions.

The New Law sets up a pre-merger review system, together with a significant change in the institutional design of the authorities in charge of such review. This article aims at presenting the main aspects and issues concerning the merger review process under the New Brazilian Competition Law . It will do so by: (i) presenting the new institutional structure of the BCPS; (ii) explaining which transactions will have to be reported, according to the new thresholds; (iii) describing the main phases of the review process; (iv) pointing to some changes in the substantive assessment test; and, finally (v) evaluating the possible effects of such important changes.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Competition & Innovation: New Evidence from US Patent and Productivity Data

Posted by D. Daniel Sokol

Juan A. Correa, Ministry of Finance, Chile and Carmine Ornaghi, University of Southampton - Division of Economics address Competition & Innovation: New Evidence from US Patent and Productivity Data.

ABSTRACT: Is there any evidence that innovation and technological progress are contained by competition and fostered by monopoly power? Our results based on a newly constructed dataset of US manufacturing industries observed over two decades suggest that this is not the case.

On the contrary, using both patent statistics and productivity growth as alternative measures of innovation and technical change, we observe faster technological advances in more competitive markets. These results are robust to changes in the econometric techniques used to model nonlinearity in the competition-innovation relationship and to the inclusion of non-manufacturing industries in the estimation sample.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

OFT publishes survey of UK companies identifying the competition law compliance measures which they adopt

Posted by D. Daniel Sokol

The UK Office of Fair Trading (OFT) has published the results of a survey of UK companies identifying the competition law compliance measures which they adopt.

The results are included in a study published by the OFT on Dec. 7, 2011.  The study considers what drives businesses to comply with competition law and what deters them from trying to infringe it ("The impact of competition interventions on compliance and deterrence" (December 2011; document OFT1391), available at  The study identifies three key pillars which drive competition law compliance: knowledge and awareness of the law; sanctions and enforcement by regulators; and voluntary compliance measures.

Based on a survey of over 800 companies in the UK, the study lists the most common compliance measures used by businesses.  For small companies (fewer than 200 employees), the top four measures are, in order: taking external legal advice; carrying out a competition risk assessment; having a formal competition law code of conduct or compliance programme; and holding training for employees on competition law issues.  For large companies (200 or more employees) the top four measures are the same, but the positions of a code of conduct and training are reversed.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Covert Networks and Antitrust Policy

Posted by D. Daniel Sokol

Flavia Roldan, Public-Private Sector Research Center, IESE Business discusses Covert Networks and Antitrust Policy.

ABSTRACT: This paper studies the effectiveness of two different antitrust policies by characterizing the network structure of market-sharing agreements that arises under those settings. Market-sharing agreements prevent firms from entering each other's market. The set of these agreements defines a collusive network, which is pursued by antitrust authorities. This article shows that under a constant probability of inspection and a penalty equal to a firm's limited liability, firms form collusive alliances where all of them are interconnected. In contrast, when the antitrust policy reacts to prices in both dimensions - probability of inspection and penalty - firms form collusive cartels where they are not necessarily fully interconnected. This implies that more competitive structures can be sustained in the second case than in the first case. Notwithstanding, antitrust laws may have a pro-competitive effect in both scenarios, as they give firms in large alliances more incentives to cut their agreements at once.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

A Tort-Based Causation Framework for Antitrust Analysis

Posted by D. Daniel Sokol

Michael A. Carrier, Rutgers University School of Law - Camden provides A Tort-Based Causation Framework for Antitrust Analysis.

ABSTRACT: Causation is one of the most underexplored areas in antitrust law. What must a plaintiff show to connect a defendant’s conduct with anticompetitive effects? Several tests are possible, including “but for” causation, proximate cause, sole causation, reasonable connection, and increased possibility of harm. Courts have applied variations of all these tests. This article focuses on the two settings in which the issue of antitrust causation has most often arisen: monopolization cases and, more generally, cases addressing antitrust injury.

Some of the most difficult causation issues occur in monopolization cases. One such issue involves determining the counterfactual scenario of what would have happened absent the monopolist’s conduct. A second occurs when both the monopolist’s actions and other events cause the injury to competition. In this setting, courts have diverged on whether the presence of other causes precludes a finding of monopolization.

In dynamic high-technology markets, these issues are even more challenging. It is not easy to hypothesize the path not taken in a rapidly changing market or to separate the effects of the monopolist’s conduct from those of other events affecting the market’s development. These difficulties are compounded because of the concern of punishing unilateral conduct and because the standards articulated by courts in monopolization cases are often not clear.

The second antitrust setting in which courts have frequently addressed causation is the analysis of antitrust injury. The Supreme Court and lower courts have famously explored whether a plaintiff suffers injury “of the type that the antitrust laws were intended to prevent and that flows from that which makes the defendants’ acts unlawful.” This inquiry is designed to ensure that the plaintiff is able to show harm to “competition not competitors.”

This article examines these causation issues and gains insights by turning to tort law, the law with the most developed causation framework. It focuses on two core concepts of causation in tort law, factual and legal cause. As exported to antitrust law, the tort factual cause inquiry would ask if a plaintiff can show a “reasonable connection” between the challenged conduct and the anticompetitive effects. This range of potential causes is limited by the requirement of legal causation, which would determine if a plaintiff’s harm results from anticompetitive — as opposed to other — conduct.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Register Now: 2nd ABA/NYU Next Generation of Antitrust Scholarship Conference - January 20, 2012

Posted by D. Daniel Sokol

Next Generation of Antitrust Scholarship Conference 

Date:  January 20, 2012
Location:  New York Univ School of Law
Lipton Hall
108 W 3rd St
New York, NY, 10012
United States of America

Presented by:  Section of Antitrust Law

Registration is Free (see here)


Antitrust law scholarship remains an important component to the practice of antitrust law and the creation of effective antitrust policy by the antitrust agencies. Scholarship in this area both shapes and is shaped by the latest economic thinking and developments in the law. Moreover, the quality and sophistication of practitioners, both lawyers and economists, upon the academic antitrust discourse is perhaps unmatched in any other substantive field of law. To take advantage of the potential synergies of practitioners and academics, the ABA Section of Antitrust Law proudly presents the second "Next Generation of Antitrust Scholarship Conference.” The purpose of this day-long conference is to provide an opportunity for antitrust/competition law professors who began their full time professorial career in or after 2002 to present their latest research. Senior antitrust scholars and practitioners in the field will comment on their papers. Attendance for this conference is open to the larger antitrust community.

NYU School of Law and ABA Section of Antitrust Law
108 West 3rd Street, Lipton Hall
JANUARY 20, 2012

08:20 – 08:50 am Registration and Continental Breakfast

08:50 – 09:00 am Introductory Comments from ABA Section of Antitrust Law Chair
Speaker: Richard S. Steuer, Chair, ABA Section of Antitrust Law, Mayer Brown, New York, NY

09:00 – 10:30 am Session 1 ‐ Antitrust and Courts

Session Chair: J. Douglas Richards, Cohen Milstein

Speaker: Hillary Greene, University of Connecticut School of Law
Rules of Reason: The Architecture of Legal Consistency
Discussant: Thomas Sullivan, University of Minnesota Law School

Speaker: Rebecca Haw, Vanderbilt University Law School.
Adversarial Economics in Antitrust Litigation: Losing Academic Consensus in the Battle of the Experts
Discussant: Judge Douglas Ginsburg, NYU Law School

Speaker: Avishalom Tor, Notre Dame Law School Understanding the Potential and Limits of Behavioral Antitrust
Discussant: Bruce Kobayashi, George Mason Law School

Practitioner Session Discussant:
Stephen D. Houck, Menaker & Herrmann

10:30 – 10:45 am Break

10:45 am – 12:15 pm Session 2 – The Structure of Antitrust

Session Chair: Stacey Mahoney, Gibson Dunn

Speaker: Dan Crane, University of Michigan Law School Rethinking Merger Efficiencies
Discussant: Janusz Ordover, NYU Stern School of Business

Speaker: Barak Orbach, University of Arizona Rogers College of Law Refuse to Die: Refusals to Deal and the Essential Facility Doctrine
Discussant: John Asker, NYU Stern School of Business

Speaker: D. Daniel Sokol, University of Florida Levin College of Law Cartel Remedies and the Case for Corporate Monitors
Discussant: Harry First, NYU Law School

Practitioner Session Discussant: Roxann Henry, Dewey Lebouf

12:15 – 01:00 pm Lunch

01:00 – 02:30 pm Session 3 – Antitrust and Intellectual Property

Session Chair: Elaine Johnston, Allen & Overy

Speaker: Scott Hemphill, Columbia Law School Parallel Exclusion
Discussant: Larry White, NYU Stern School of Business

Speaker: Ariel Katz, University of Toronto Law School What Antitrust Law Can (and Cannot) Teach About the First Sale Doctrine
Discussant: Mark Patterson, Fordham Law School

Speaker: Thomas Cheng, University of Hong Kong School of Law Putting Innovation Incentives Back in the Patent‐Antitrust Interface
Discussant: Marina Lao, Seton Hall Law School

Practitioner Session Discussant: Steven Edwards, Hogan Lovells

02:30 – 02:45 pm Break

02:45 – 04:15 pm Session 4 – Antitrust and Regulation

Session Chair: Lauren Albert, Axinn Veltrop

Speaker: Anu Bradford, University of Chicago Law School The Law and Politics of Antitrust in an Open Economy Discussant: William Kovacic, George Washington Law School

Speaker: Damien Gerard, University of Louvain Law A Global Perspective on State Action
Discussant: Eleanor Fox, NYU Law School

Speaker: Christopher Sagers, Cleveland‐Marshall College of Law Legal Boundaries as Political Economy: The Scope of Antitrust and a General Theory of the Regulation‐Competition Dichotomy
Discussant: Edward Cavanaugh, St. John’s School of Law

Practitioner Session Discussant: Jay Himes, Labaton Sucharow

04:15 – 5:15 pm Cocktail Reception
NYU – Lipton Hall

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Provigil: A Case Study of Anticompetitive Behavior

Posted by D. Daniel Sokol

Michael A. Carrier, Rutgers University School of Law - Camden provides Provigil: A Case Study of Anticompetitive Behavior.

ABSTRACT: Using the sleep-disorder drug Provigil as a case study, this short symposium piece explores the anticompetitive harm presented by the combination of two distinct activities.

First, brand-name drug firms such as Cephalon, the developer of Provigil, have settled patent litigation by paying generic firms to delay entering the market. Second, brand firms, frequently at the end of a patent term, have engaged in "product hopping," switching from one means of administering a drug (e.g., tablet) to another (e.g., capsule).

The story of Provigil demonstrates the harm that can result from the combination of these two activities.

December 7, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 6, 2011

Competition and Product Innovation in Dynamic Oligopoly

Posted by D. Daniel Sokol

Ronald L. Goettler, University of Chicago - Booth School of Business and Brett R. Gordon, Columbia University - GSB address Competition and Product Innovation in Dynamic Oligopoly.

ABSTRACT: We investigate the relationship between competition and innovation using a dynamic oligopoly model that endogenizes both the long-run innovation rate and market structure. Determinants of competition, such as product substitutability, entry costs, and innovation spillovers, affect firms' equilibrium strategies for entry, exit, and R&D. We find an inverted-U relationship between product substitutability and innovation: the returns to innovation initially rise for all firms but eventually, as the market approaches a winner-take-all environment, laggards have few profit scraps to fight over and give up pursuit of the leader, knowing he will defend his lead. We also find competitive forces interact with each other: innovation exhibits a positive relationship with spillovers when product substitutability is high but is unaffected by the spillover when substitutability is low. Entry costs and innovation exhibit a U-shaped relationship that results from entry-deterring R&D by laggards.

December 6, 2011 | Permalink | Comments (0) | TrackBack (0)

Selling to Competitors? Competitive Implications of User-Manufacturer Integration

Posted by D. Daniel Sokol

Joachim Henkel, Technische Universitat Munchen (TUM) - Faculty of Economics and Business Administration, Annika Bock, Technische Universitat Munchen (TUM) - Faculty of Economics and Business Administration and Joern Hendrich Block, Munich University of Technology, Erasmus University Rotterdam - Department of Applied Economics ask Selling to Competitors? Competitive Implications of User-Manufacturer Integration.

ABSTRACT: Commercial firms that develop user innovations often find these innovations attractive to their competitors. Thus, the user innovator may consider vertical diversification, turning to manufacturing and selling its own innovation while keeping its original business as a user. The question of whether to become a supplier to competitors obviously is a critical one, as it can have detrimental effects on the competitive advantage of the innovator’s user unit. In this paper, we analyze this decision using two qualitative case studies and a game-theoretical model. We identify the intensity of competition in the user industry, the value that the innovation would create for other users, and the cost of imitation as the key parameters. We find, among other things, that commercialization may be the innovator’s best course of action even if it reduces its overall profits, since it may pre-empt market entry through imitation.

December 6, 2011 | Permalink | Comments (0) | TrackBack (0)