Antitrust & Competition Policy Blog

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

Tuesday, February 1, 2011

Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market

Posted by D. Daniel Sokol

Tobias Paulun, RWTH Aachen University - Institute of Power Systems and Power Economics, Eberhard Feess, Frankfurt School of Finance & Management, and Reinhard Madlener, RWTH Aachen University, German Institute for Economic Research (DIW Berlin) suggest Why Higher Price Sensitivity of Consumers May Increase Average Prices: An Analysis of the European Electricity Market.

ABSTRACT: We develop a model of the European electricity market that allows analyzing the impact of consumers' price sensitivity, defined as the willingness to change energy providers, on equilibrium prices. The model is parameterized with publicly available data on total demand, marginal costs and capacity constraints of power generators. Comparably precise data on the price sensitivity is not available, so that we analyze its impact in a range of simulations. Contrary to apparently straightforward expectations, we find that a higher price sensitivity increases average prices under reasonable assumptions. The reason is that, when price sensitivity is high, the most efficient energy providers can attract sufficiently many consumers for operating at full capacity, even when price differences to their less efficient competitors are small. Hence, incentives to reduce prices are higher when the price sensitivity is low. We conclude that the widespread view that high electricity prices can (partially) be attributed to a low willingness of consumers to change their providers is flawed.

February 1, 2011 | Permalink | Comments (0) | TrackBack (0)

15th International Conference on Competition, Berlin, 13-15 April 2011

Posted by D. Daniel Sokol

Conference Announcement


15th International Conference on Competition, Berlin,
13-15 April 2011

The International Conference on Competition, organised by the Bundeskartellamt, is one of the most renowned international events dealing with competition law issues. At this conference, the heads of competition authorities, antitrust lawyers, academics, politicians, prominent representatives of international companies and other high-ranking participants discuss current, internationally relevant issues of competition policy and competition law.


The Bundeskartellamt is proud to announce that it will host the


15th International Conference on Competition

in Berlin

on 13 - 15 April 2011.


The theme of the 15th International Conference on Competition will be:


"Anti-Cartel Enforcement in the Spotlight".


Keynote speeches will be given by Rainer Brüderle, German Federal Minister of Economics, Joaquín Almunia, Commissioner for Competition and Vice-President of the European Commission and Dr Rüdiger Grube, Chairman of the Management Board and CEO, Deutsche Bahn AG.


The keynote speeches will be followed by four panel discussions.

Participants in the conference programme, besides the keynote speakers, will be Harald Wolf (Senator and Mayor of Berlin), Prof. Dr. Carl Baudenbacher (EFTA Court), Anne-José Paulsen (Düsseldorf Higher Regional Court), Josef Sanktjohanser (German Retail Federation), Dipl.-Wirtsch.-Ing. Wolfgang Bauer (Dyckerhoff AG), Prof. Massimo Motta (Barcelona Graduate School of Economics), Bruno Lasserre (Autorité de la concurrence, France), Dr. Frank Montag, LL.M (German Competition Lawyers' Association), Dr. Eckart Sünner (BASF SE), Prof. Dr. Vincent Martenet (Competition Commission, Switzerland), Philip Collins (Office of Fair Trading, UK), Gary Spratling (Gibson, Dunn & Crutcher), Prof. Frédéric Jenny (OECD Competition Committee), Dr. Wolfgang Kirchhoff (German Federal Court of Justice), Alfred Dittrich (General Court of the European Union), Sir Christopher Bellamy QC (Linklaters LLP, UK), Prof. Lars-Hendrik Röller, Ph.D. (European School of Management and Technology in Berlin), Peter Freeman (UK Competition Commission), Alexander Italianer (DG Competition, European Commission), William E. Kovacic (US Federal Trade Commission), Prof. Dr. Josef Drexl, LL.M. (Max Planck Institute for Intellectual Property, Competition and Tax Law), Prof. Stephen Davies, Ph.D. (University of East Anglia).


The first panel discussion will take a close look at intensified anti-cartel enforcement as practised by the competition authorities over the last few years.


The second panel discussion will deal specifically with issues arising from the fact that more and more jurisdictions around the world have introduced instruments for the prosecution of cartel agreements.


The third panel discussion will address an issue which is not limited to anti-cartel enforcement but is of particular significance in this area: What is the level of proof that courts demand of economic arguments presented to them, for example with regard to assessing the economic damage caused by cartel agreements?


The fourth panel discussion will deal with the evaluation of agency activities: What are the effects of intervention by competition authorities, not only on competition itself, but also on the economy as a whole, and how can competition authorities communicate the significance and effects of their actions appropriately and convincingly?


The event will start with a welcome reception on the evening of Wednesday, 13 April. The conference will start in the morning of Thursday, 14 April and end in the early afternoon of Friday, 15 April.


The Conference will be held in German and in English (simultaneous translation).




Conference participation is by personal invitation by
the President of the Bundeskartellamt only.


Personal invitations will be mailed before the end of the year.

February 1, 2011 | Permalink | Comments (0) | TrackBack (0)

The Domestic and International Effects of Interstate U.S. Banking

Posted by D. Daniel Sokol

Fabio Pietro Ghironi, Boston College - Department of Economics and Viktors Stebunovs, Board of Governors of the Federal Reserve System, Division of Monetary Affairs describe The Domestic and International Effects of Interstate U.S. Banking.

ABSTRACT: This paper studies the domestic and international effects of the transition to an interstate banking system implemented by the U.S. since the late 1970s in a dynamic, stochastic, general equilibrium model with endogenous producer entry. Interstate banking reduces the degree of local monopoly power of financial intermediaries. We show that the an economy that implements this form of deregulation experiences increased producer entry, real exchange rate appreciation, and a current account deficit. The rest of the world experiences a long-run increase in GDP and consumption. Less monopoly power in financial intermediation results in less volatile business creation, reduced markup countercyclicality, and weaker substitution effects in labor supply in response to productivity shocks. Bank market integration thus contributes to a moderation of firm-level and aggregate output volatility. In turn, trade and financial ties between the two countries in our model allow also the foreign economy to enjoy lower GDP volatility in most scenarios we consider. The results of the model are consistent with features of the U.S. and international business cycle after the U.S. began its transition to interstate banking.

February 1, 2011 | Permalink | Comments (0) | TrackBack (0)


Posted by D. Daniel Sokol

Max Huffman, Indiana University School of Law - Indianapolis has written on Neo-Behavioralism?

ABSTRACT: This symposium contribution discusses the interplay between Neo-Chicago antitrust and Behavioral Antitrust. Neo-Chicago appears to be defined as a return to Chicago principles, informed by the developments in economic thinking over the past 30-or-so years. Its most visible contribution is a formal adoption of the error-cost framework from then-Professor Easterbrook’s influential 1984 article, The Limits of Antitrust. At least as articulated by Easterbrook, the error cost framework is a politically charged, economic-theory based rule of decision, which contains at its core a deregulatory preference for false negative error over false positive error. But there is more to Neo-Chicago than the mere formal adoption of an error-cost framework. Behavioral Antitrust has the feel of being something quite new. Professor Tor wrote the earliest article explicitly proposing a behavioral approach to antitrust in 2002. Proponents encourage courts and policy-makers to import the study of behavioral law and economics into the rules of decision in antitrust, using empirical study to achieve a fuller understanding of the conduct of individuals in market settings. Behavioral Antitrust is on its face result-neutral, but as it has been studied to date, it might be argued to have a political slant. All of the writing on Behavioral Antitrust of which I am aware favors enforcement. Neo-Chicago and Behavioral Antitrust came along at about the same time, and a marriage of the two might temper the respective tendencies toward predetermined political ends. The combination might produce a result-neutral enterprise of economically informed antitrust. Neo-Chicago’s premise of correcting for the errors of Chicago, which included the oversimplification of facts in pursuit of tractability, leading to what have been argued to be false understandings of marketplace conduct and effects, suggests its adherents might be receptive to the lessons of Behavioral Antitrust better to understand the forces driving individual economic actors. Behavioral Antitrust’s goal of informing the assumptions underlying established economic theory through empirical study of the behavior of individual economic actors suggests its adherents might look to Neo-Chicago for a comprehensive theoretical framework for their analysis.

February 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Bargaining in the Shadow of the European Settlement Procedure for Cartels

Posted by D. Daniel Sokol

Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics explores Bargaining in the Shadow of the European Settlement Procedure for Cartels.  I recommend this paper.

ABSTRACT: In its recently implemented settlement procedure for cartels, the European Commission pledges not to negotiate the appropriate sanction. The Commission offers a take-it-or-leave-it 10% reduction of the ultimate fine only in exchange for acknowledgment of the facts. Yet there are at least three dimensions open for bargaining in cartel cases. One is the determination of the fine base to which the 10% reduction is applied. A second is the additional percentages of fine reductions that are awarded to subsequent leniency applicants. A third is the phrasing that the Commission uses in its public communications about the case – including the eventually published formal decision. The Commission’s consistent negation of any negotiation space may well be part of its bargaining strategy. The door on fine discount discussions shut, talks are channeled to the other bargaining points, where the Commission has more leeway to find an agreement. By disabling the only hard bargaining point, however, the Commission may unintentionally have put itself in a weak bargaining position. To avoid detrimental effects on the overall deterrence of cartels in Europe, the European Commission should credibly commit itself to being a tough negotiator, if not by enabling individual percentage fine reductions after all, then by embedding a binding and full independent review of all settlement proposals in the procedure.

February 1, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, January 31, 2011

Interchange Regulation: Implications for Credit Unions

Posted by D. Daniel Sokol

Adam Levitin (Georgetown Law) has written on Interchange Regulation: Implications for Credit Unions.

ABSTRACT: This research brief reviews the potential implications of the Durbin Interchange Amendment on credit unions based on an original survey of credit unions debit and credit card programs.


January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Counting Rivals or Measuring Share: Modeling Unilateral Effects for Merger Analysis

Posted by D. Daniel Sokol

Malcolm Coate is a one man transparency regime for the FTC (hint, hint, can someone step up to the plate at DOJ and start doing some similar analysis?).  In Counting Rivals or Measuring Share: Modeling Unilateral Effects for Merger Analysis he examines unilateral effects as it has been undertaken at the FTC.  I highly recommend this working paper.

ABSTRACT: This paper explores the FTC’s unilateral effects merger policy using a sample of 184 investigations undertaken between 1993 and 2009. A review of the files suggests that roughly half of the sample is evaluated with a dominant firm/monopoly model, while the rest of the cases require a more complex unilateral effects analysis. Deterministic modeling based on the number of significant rivals suggests that the four-to-three transaction in a market with impediments to entry represents the marginal merger challenge. Case specific facts explain deviations from this rule and suggest that critical diversion ratios fall into the 25-30 percent range. Share based indices (post-merger market share, change in the Herfindahl, or a share-based Gross Upward Pressure on Price variable) can be used, but require the definition of a market and do not predict outcomes as well as the significant rivals’ model. An Appendix details the various reasons why the staff declined to apply a unilateral effects analysis to conclude a merger was likely to substantially lessen competition in a broader sample of differentiated products mergers.

January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Short-Term Managerial Contracts Facilitate Cartels

Posted by D. Daniel Sokol

Martijn A. Han, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) suggests that Short-Term Managerial Contracts Facilitate Cartels.

ABSTRACT: This paper shows how a series of commonly observed short-term CEO employment contracts improves cartel stability compared to a long-term contract. When a manager’s short-term appointment is renewed if and only if the firm hits a certain profit target, then (a) defection from collusion results in superior firm performance and thus reduces the chance of being fired immediately, while (b) future punishment results in inferior firm performance, thereby increasing the chance of being fired in the future. The introduction of this reemployment tradeoff intertwines with the usual monetary tradeoff and weakly improves cartel stability. Studying the impact of fixed versus variable salary components, I find that fixed components facilitate collusion with a short-term contract, while not affecting cartel stability with a long-term contract. I extend the model to argue how short-term renewable contracts are a source of cyclical collusive pricing. Finally, interpreting the results in the light of firm financing shows how debt-financed firms can form more stable cartels than equity-financed firms.

January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Monopoly Innovation and Welfare Effects

Posted by D. Daniel Sokol

Shuntian Yao, Nanyang Technological University (NTU) - Centre for Research in Financial Services (CREFS) and Lydia L. Gan, Department of Economics and Finance, School of Business, Medical Tourism Research Center address Monopoly Innovation and Welfare Effects.

ABSTRACT: In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models with non-price-taking behavior are constructed and analyzed in greater detail. We discover that technical innovation carried out by a monopolist could significantly increase the social welfare. We conclude that, in general, the criticism against monopoly innovation based on its increased deadweight loss is less accurate than previously postulated by many studies.

January 31, 2011 | Permalink | Comments (0) | TrackBack (0)

Sunday, January 30, 2011

Keywords: Google, European Commission. Anyone Feeling Lucky?

Posted by D. Daniel Sokol

Lia Vitzilaiou (Lambadarios Law Offices) has authored Keywords: Google, European Commission. Anyone Feeling Lucky?

ABSTRACT: On November 30, 2010, the European Commission issued a press release which many were worried about, others looking forward to, but almost everyone anticipated: Google is under formal antitrust investigation with regard to an alleged abuse of dominance in the online search market.

The Commission will investigate three main issues. The first is whether Google has manipulated its unpaid or "algorithmic" search results by giving preferential placement to its own results while lowering the ranking of those offered by competitors, i.e. vertical search engines. The second issue is whether Google has imposed exclusivity contracts on its advertising partners, preventing them from placing ads on competitive websites. Finally, the Commission will look into whether Google has restricted the portability of online advertising campaign data to competing online advertising platforms.

This development was expected by most, not only because Google has recently been the center of attention for many national competition authorities (the latest being the Italian antitrust investigation in the Google News Service which ended by compromise) but also because the Commission seems to have lately targeted powerful technology companies. Since 2004, when Microsoft was fined EUR 497 million for abuse of dominance, to 2008 when a further EUR 899 million penalty was imposed for failure to comply with the 2004 ruling, up to 2009 when Intel was fined a historic EUR 1.1 billion, also for abuse of dominance, the Commission has shown a strong interest in the high-tech industry, apparently feeling confident it has the sophistication to tackle the complex issues arising in such innovative markets.

This Commission investigation targets the core of the Google business, i.e. its search engine, and naturally has attracted a lot of controversy. For example, there is speculation that this is an attack partly assisted by Microsoft, which recently merged its search business with Yahoo's in order to challenge Google's market lead.This assertion is based on the fact that Microsoft owns one of the plaintiffs (Ciao!) as well as a price comparison service in Germany, and it sponsors a trade grouping called ICOM, a member of which is another plaintiff called Fodem, a British price comparison service.If this is the case, then there might be more competition in the search engine market than initially appears.

Also controversially, Benjamin Edelman, an assistant professor at Harvard Business School, recently published the results of a study conducted of Google's search engine, which allegedly show that there exists what he calls a "hard coded bias" that overrides the normal algorithmic results in order to put a Google answer first. In another study, he suggests that this "distortion" is identified with almost all leading search engines, including Yahoo!, but supposedly Google promotes its own services significantly more than others.

Google can be expected to bring forth evidence to contest such arguments. As we are not yet in a position to reach solid conclusions on such complex technical issues to answer the core question of whether Google tampers with its search results or not, it is safer to look at the available facts and pose some other questions also relevant to the competition analysis.

The first question is whether Google has a motive to tamper with its search results, in view of the two-sided platform market it operates. The second question is whether it is Google or the Commission who should "be feeling lucky" in the present dispute. And finally, if the "holy grail" of a neutral search engine is behind the Commission investigation, is this a realistic pursuit?

January 30, 2011 | Permalink | Comments (0) | TrackBack (0)