Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, December 24, 2011

The Handbook of Competition Economics 2012

Posted by D. Daniel Sokol

Global Competition Review is delighted to publish this sixth annual edition of The Handbook of Competition Economics.

The book's comprehensive format provides full contact details for competition agencies' economists in 56 jurisdictions.

A Q&A format then illustrates how the advisers are organised and their input into the regulation and enforcement process. Free to view chapters below are supported by an introductory article from leading competition economists.

The Handbook of Competition Economics 2012

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

Friday, December 23, 2011

Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone

Posted by D. Daniel Sokol

Ting Zhu (Booth School of Business, University of Chicago), Hongju Liu (University of Connecticut, School of Business) and Pradeep Chintagunta (Booth School of Business, University of Chicago) discuss Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone.

ABSTRACT: Since the Apple iPhone’s first launch in 2007 with an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by “locked-out” consumers, due to the fact that a consumer has to subscribe to a particular service provider if he or she strongly prefers one handset to others. In this paper, we empirically examine the impact of handset exclusivity arrangements on consumer welfare. First we study consumers’ purchase decisions in mobile services that include the choice of a handset and of a service provider. We do so by combining survey data on consumers’ purchase decisions with supplemented data on prices and features of common handsets. Next, assuming a Stackelberg leader-follower relationship between the handset manufacturers and the service providers, and using our demand estimates, we recover the marginal costs for the players in the market. We then simulate what would have happened in the counterfactual scenario when the iPhone is available from all carriers. Our results suggest that, if we take into account price adjustments from handset manufacturers and service providers in response to the change in market structure, consumer welfare will increase by $326 million without the exclusive arrangement. We view our analysis as a starting point to a more complete characterization of consumer behavior and the complex relationships among players in this industry.

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

The Welfare Effects of Mobile Termination Rate Regulation in Asymmetric Oligopolies: the Case of Spain

Posted by D. Daniel Sokol

Sjaak Hurkens (Institute for Economic Analysis (CSIC)) and Angel Luis Lopez (Public-Private Sector Research Center, IESE Business School, University of Navarra) address The Welfare Effects of Mobile Termination Rate Regulation in Asymmetric Oligopolies: the Case of Spain.

ABSTRACT: We examine the effects of mobile termination rate regulation in asymmetric oligopolies. We do this by extending existing models of asymmetric duopoly and symmetric oligopoly where consumer expectations about market shares are passive. We ?first calibrate product differentiation parameters using detailed data from the Spanish market from 2010. Next, we predict equilibrium outcomes and welfare effects under alternative scenarios of future termination rates. Lowering termination rates typically lowers profits of all networks and improves consumer and total surplus.

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

To Surcharge or Not To Surcharge? A Two-Sided Market Perspective of the No-Surcharge Rule

Posted by D. Daniel Sokol

Nicholas Economides (Stern School of Business, New York University) and David Henriques (Nova School of Business and Economics) ask To Surcharge or Not To Surcharge? A Two-Sided Market Perspective of the No-Surcharge Rule.

ABSTRACT: In Electronic Payment Networks (EPNs) the No-Surcharge Rule (NSR) requires that merchants charge the same final good price regardless of the means of payment chosen by the customer. In this paper, we analyze a three-party model (consumers, merchants, and proprietary EPNs) to assess the impact of a NSR on the electronic payments system, in particular, on competition among EPNs, network pricing to merchants and consumers, EPNs’ profits, and social welfare. We show that imposing a NSR has a number of effects. First, it softens competition among EPNs and rebalances the fee structure in favor of cardholders and to the detriment of merchants. Second, we show that the NSR is a profitable strategy for EPNs if and only if the network effect from merchants to cardholders is sufficiently weak. Third, the NSR is socially (un)desirable if the network externalities from merchants to cardholders are sufficiently weak (strong) and the! merchants’ market power in the goods market is sufficiently high (low). Our policy advice is that regulators should decide on whether the NSR is appropriate on a market-by-market basis instead of imposing a uniform regulation for all markets.

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

Thursday, December 22, 2011

ACO Antitrust Guidelines: Coordination Among Federal Agencies

Posted by D. Daniel Sokol

Susan DeSanti (FTC) discusses ACO Antitrust Guidelines: Coordination Among Federal Agencies.

ABSTRACT: This article discusses how the FTC and the DOJ worked with CMS as it developed its rules for ACOs and as the antitrust agencies developed their Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.

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

Matching & Information Provision by One-Sided and Two-Sided Platforms

Posted by D. Daniel Sokol

Carlos Canon (Toulouse School of Economics) explores Matching & Information Provision by One-Sided and Two-Sided Platforms.

ABSTRACT: This paper studies a "market creating" firm (platform) that offers a matching environment by charging an access fee to a population of high and low type users who wish to form a match. We focus on an environment where users only observe a signal of their randomly assigned partner's type and where the informativeness of the signal is controlled by the firm. We study how both tools, access fee and signal informativeness, can be used to screen particular segments of the population. We finish by characterizing the set of optimal menus. The paper proposes three results. We show that information provision has a screening role when network effects are heterogeneous because a platform cannot induce every level of participation using only the access fee. Secondly, any platform will optimally offer a menu such that only high types participate, or where every user participates. In the former the signal is perfectly informative; in ! the latter it is partially informative. Lastly, the profit maximizing firm will over-provide information in relation to the surplus maximizing firm, and the higher the heterogeneity in the population, the higher the chance of the optimal menu excluding low type users.

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

Industrial Policy and Competition

Posted by D. Daniel Sokol

Philippe Aghion, Universite Libre de Bruxelles, Mathias Dewatripont, Universite Libre de Bruxelles, L. Du, Peking University, Beijing, Ann Harrison, University of California, Berkeley and Patrick Legros, Universite Libre de Bruxelles and CEPR describe Industrial Policy and Competition.

ABSTRACT: The economic slowdown in the 70s in Latin America and Japan in the late 90s, generated a growing skepticism about the role of industrial policy in the process of economic development. Yet, new considerations have emerged over the recent period, which invite us to revisit the issue. This paper argues that sectoral state aids tend to foster productivity, productivity growth, and product innovation to a larger extent when it targets more competitive sectors and when it is not concentrated on one or a small number of firms in the sector. Using a theoretical framework in which two firms may choose either to operate in the same "higher-growth" sector or in different, "lower-growth" sector. We use a panel of medium and large Chinese enterprises for the period 1998 through 2007 to test for complementarity between competition and industrial policy. A main implication from our analysis is that the debate on industrial policy should no longer be for or against having such a policy. As it turns out, sectoral policies are being implemented in one form or another by a large number of countries worldwide, starting with China. Rather, the issue should be on how to design and govern sectoral policies in order to make them more competition-friendly and therefore more growth-enhancing.

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

NY Times Profile of Bert Foer and the American Antitrust Institute

Posted by D. Daniel Sokol

I could not have asked for more interesting reading than the NY Times story on Bert Foer and AAI. Among the best quotes:

“A lot of Bert’s antitrust opinions are annoying,” said R. Hewitt Pate, the general counsel of Chevron and a former senior antitrust official in the Bush administration. “You disagree with him on the substance but you enjoy hanging out with him, and there are not enough people in Washington like that.”

“At its root, antitrust is about human dignity and making sure consumers have a range of choices,” Mr. Foer said.

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

Endogenous Merger Waves in Vertically Related Industries

Posted by D. Daniel Sokol

Zhiyong Yao (Department of Industrial Economics, School of Management, Fudan University) and Wen Zhou (School of Business, The University of Hong Kong) describe Endogenous Merger Waves in Vertically Related Industries.

ABSTRACT: We study merger waves in vertically related industries where firms can engage in both vertical and horizontal mergers. Even though any individual merger would have been profitable, firms may refrain from merging for fear of negative impacts from other mergers. When they do merge, however, they always merge in waves, which is either vertical or horizontal depending on the relative intensity of double markup and horizontal competitions in the two industries. Finally, merger waves may happen with or without any fundamental change in the underlying economic conditions.

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

Wednesday, December 21, 2011

Huffington Post Op-Ed Slams Google

Posted by D. Daniel Sokol

Chris Castle has penned a scathing attack on Google's antitrust issues in The Samba of Bad Moves: Eric Schmidt Changes His Testimony -- Again for the Huffington Post.

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Best Academic Works of 2011 - The List Goes Up on Christmas Day

Posted by D. Daniel Sokol

As is our yearly tradition, we will have our yearly list of best articles as voted by professors on Christmas Day.

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

Posted by D. Daniel Sokol

Andrea Mantovani (Department of Economics, University of Bologna) and Francisco Ruiz-Aliseda (Department of Economics, Ecole Polytechnique) have written on Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors.

ABSTRACT: The recent years have exhibited a burst in the amount of collaborative activities among firms selling complementary products. This paper aims at providing a rationale for such a large extent of collaboration ties among complementors. To this end, we analyze a game in which the two producers of a certain component have the possibility to form pairwise collaboration ties with each of the two producers of a complementary component. Once ties are formed, each of the four firms decides how much to invest in improving the quality of the match with each possible complementor, under the assumption that a firm with a collaboration link with a complementor puts some weight on the complementor's profit when making investment decisions. Once investment choices have taken place, all firms choose prices for their respective components in a noncooperative manner. In equilibrium, firms end up forming as many collaboration ties as it is ! possible, although they would all prefer a scenario where collaboration were forbidden. In addition, a social planner would also prefer such a scenario to the one arising in equilibrium. We show that the result that collaboration is inefficient for firms and society does not depend on whether collaboration ties are formed in an exclusive manner: in fact, exclusivity would only worsen the situation.

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

An Empirical Model of Industry Dynamics with Common Uncertainty and Learning from the Actions of Competitors

Posted by D. Daniel Sokol

Nathan Yang (Department of Economics, University of Toronto) presents An Empirical Model of Industry Dynamics with Common Uncertainty and Learning from the Actions of Competitors.

ABSTRACT: This paper advances our collective knowledge about the role of learning in retail agglomeration. Uncertainty about new markets provides an opportunity for sequential learning, where one firm's past entry decisions signal to others the potential profitability of risky markets. The setting is Canada's hamburger fast food industry from its early days in 1970 to 2005, for which simple analysis of my unique data reveals empirical patterns pointing towards retail agglomeration. The notion that uninformed potential entrants have an incentive to learn, but not informed incumbents, motivates an intuitive double-difference approach that separately identifies learning by exploiting differences in the way potential entrants and incumbents react to spillovers. This identification strategy confirms that information externalities are key drivers of agglomeration. Estimates from a dynamic oligopoly model of entry with information externalities provide further evidence of learning, as I show that common uncertainty matters. Counterfactual analysis reveals that an industry with uncertainty is initially less competitive than an industry with certainty, but catches up over time. Furthermore, there are many instances in which chains enter markets they would have avoided had they not faced uncertainty. Finally, consistent with the interpretation of uncertainty as an entry barrier, I find that chains place significant premiums on certainty at proportions beyond 2% of their total value from being monopolists.

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Former FTC Chairmen Jim Miller and Dan Oliver Warn Against Google Antitrust Investigation

Posted by D. Daniel Sokol

Former FTC Chairmen Jim Miller and Dan Oliver have an op-ed that warns against an FTC Google investigation. To their credit, they disclose that they are both consultants to Google.

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

A Dynamic Duopoly Investment Game without Commitment under Uncertain Market Expansion

Posted by D. Daniel Sokol

Marcel Boyer, Pierre Lasserre, and Michel Moreaux analyze A Dynamic Duopoly Investment Game without Commitment under Uncertain Market Expansion.

ABSTRACT: We model capacity-building investments in a homogeneous product duopoly facing uncertain demand growth. Capacity building is achieved through the addition of production units that are durable and lumpy and whose cost is irreversible. While building their capacity over time, firms compete à la Cournot in the product market given their installed capacity. There is no exogenous order of moves, no commitment regarding future decisions, and no finite horizon. We investigate Markov Perfect Equilibrium (MPE) paths of the investment game, which may include episodes during which firms invest at different times, a preemption pattern, and episodes in which firms invest simultaneously, a tacit collusion pattern. These episodes may alternate and are typically several. When firms have yet to invest in capacity, the sole pattern that is MPE-compatible is a preemption episode: firms invest at different times but have equal value. The f! irst such investment may occur earlier and therefore be riskier than socially optimal. When both firms hold capacity, tacit collusion episodes may be MPE-compatible: firms invest simultaneously at a postponed time (hence holding back production in the meantime), thereby generating an investment wave in the industry. Such investment episodes are more likely with higher demand volatility, faster market growth, and lower cost of capital (discount rate).

December 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 20, 2011

Getting Exclusion Cases Right: Intel and Beyond

Posted by D. Daniel Sokol

Timothy Brennan (Univ. of Maryland, Baltimore County) discusses Getting Exclusion Cases Right: Intel and Beyond.

ABSTRACT: The continuing fire over how to assess the competitive effects of single-firm conduct received yet more gasoline in the wake of the U.S. Federal Trade Commission's (FTC) settlement of its antitrust case against Intel. The key issue in the case was whether Intel's offering of "loyalty" discounts and other benefits to computer makers that purchased all or most of their microprocessor chips from Intel created an incentive to limit purchases of chips from Intel's rivals, primarily AMD. My purpose here is not to re-litigate the case or take a position on whether the outcome was supported by the evidence. Rather, it is to use the Intel case to illustrate how the law should examine exclusion cases to see whether any anticompetitive harms-increases in prices consumers pay-are likely.

Among other differences with my approach, the standard framework for analyzing exclusion cases treats buyers who sign exclusive dealing contracts, or arrangements that impose penalties for dealing with rivals, as victims of monopoly coercion. These views of exclusion as coercion, and buyers as victims, are shared by both proponents and critics of cases, as illustrated by Joshua Wright's critique of the FTC's Intel case.

Following a brief summary of my framework and a look at Wright's critique, I conclude by suggesting seven reforms to the assessment of exclusion cases that should improve how to identify when anticompetitive effects are present, reduce attention on irrelevant or superfluous considerations, and promote remedies that recognize any efficiencies that exclusive dealing and other potentially exclusionary practices can create.

December 20, 2011 | Permalink | Comments (0) | TrackBack (0)

Duopoly Competition, Escape Dynamics and Non-cooperative Collusion

Posted by D. Daniel Sokol

Batlome Janjgava and Sergey Slobodyan (both Center for Economic Research and Graduate Education - Economics Institute) address Duopoly Competition, Escape Dynamics and Non-cooperative Collusion.

ABSTRACT: In this paper, we study an imperfect monitoring model of duopoly under similar settings as in Green and Porter (1984), but here firms do not know the demand parameters and learn about them over time though the price signals. We investigate how a deviation from rational expectations affects the decision making process and what kind of behavior is sustainable in equilibrium. We find that the more common information firms analyze to update their beliefs, the more room is for implicit coordination. This might propagate escapes from the Cournot- Nash Equilibrium and the formation of cartels without explicit cooperative motives. In contrast to Green and Porter (1984), our results show that in a model with learning, breakdown of a cartel happens even without a demand shock. Moreover, in this model an expected price serves as an endogenous price threshold, which triggers a price war. Finally, by investigating the durations of th! e cooperative and price war phases, we find that in industries with a higher Nash equilibrium output and a lower volatility of firm-specific shocks, it is easier to maintain a cartel and harder to break it down.

December 20, 2011 | Permalink | Comments (0) | TrackBack (0)

To File or Not to File: The Treatment of Offshore Joint Ventures Under the EU and China's Merger Control Regimes

Posted by D. Daniel Sokol

Angela Huyue Zhang & Mark Jephcott (Herbert Smith) have written on To File or Not to File: The Treatment of Offshore Joint Ventures Under the EU and China's Merger Control Regimes.

ABSTRACT: Joint ventures ("JV") encompass a broad range of commercial operations. The creation and operation of a JV can be subject to competition scrutiny in every jurisdiction that it affects, and in some cases, even those jurisdictions that are not obviously affected by the creation of the JV. A common question for parties to an international JV transaction is whether the JV needs to have a sufficient "nexus" to the jurisdiction in question for the transaction to fall within its merger control regime. This note focuses on the merger regulations of the European Union and China, and their potential extraterritorial jurisdiction over newly created offshore JVs.

December 20, 2011 | Permalink | Comments (0) | TrackBack (0)

The Gay Men's Chorus of Los Angeles performs "Chanukah in Santa Monica"

Posted by D. Daniel Sokol

Tonight is the first night of Chanukah.  One video recently brought to my attention for the holiday is The Gay Men's Chorus of Los Angeles performance of "Chanukah in Santa Monica".

 

December 20, 2011 | Permalink | Comments (0) | TrackBack (0)

Regional Merger Review in Spain

Posted by D. Daniel Sokol

Francisco Marcos, Instituto de Empresa Business School discusses Regional Merger Review in Spain.

ABSTRACT: The decentralization of competition law enforcement in Spain has led to the creation of agencies and administrative authorities by Autonomous Communities responsible for this task. Today most of the disciplinary procedures for the enforcement of the Spanish Defense Competition Act are heard before the regional authorities, which also play other advisory and advocacy roles.

In the area of merger review, however, to date, the law only provides for a consultative intervention of regional authorities in those operations that have a significant impact in the regional context. The constitutionality challenge against the Spanish Competition Act promoted by the government of the Canary Islands in 2008 for limiting regional powers, the reform of the Autonomy Statute for Catalonia in 2006 and the Constitutional Court Judgment 31/2010, allow considering that in the future there could be a regional review of mergers and acquisitions. In view of the unique experience of decentralization of competition in Spain, this paper examines this issue and the implications it could have a potential regional power in merger control.

December 20, 2011 | Permalink | Comments (0) | TrackBack (0)