Antitrust & Competition Policy Blog

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

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Tuesday, February 22, 2011

Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices

Posted by D. Daniel Sokol

Saroj Bhattarai (Pennsylvania State University) and Raphael Schoenle (Department of Economics, Brandeis University) discuss Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices.

ABSTRACT: In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchronization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific me! nu costs and trend inflation, the model matches the empirical findings.

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

Monday, February 21, 2011

Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games

Posted by D. Daniel Sokol

Victor Aguirregabiria (Toronto - Econ) and Aviv Nevo (Northwestern College) describe Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games.

ABSTRACT: Empirically studying dynamic competition in oligopoly markets requires dealing with large states spaces and tackling difficult computational problems, while handling heterogeneity and multiple equilibria. In this paper, we discuss some of the ways recent work in Industrial Organization has dealt with these challenges. We illustrate problems and proposed solutions using as examples recent work on dynamic demand for differentiated products and on dynamic games of oligopoly competition. Our discussion of dynamic demand focuses on models for storable and durable goods and surveys how researchers have used the.

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

American Needle and Justice Stevens’ Supreme Court Antitrust Legacy

Posted by D. Daniel Sokol

Warren S. Grimes, Southwestern Law School describes American Needle and Justice Stevens’ Supreme Court Antitrust Legacy.

ABSTRACT: Justice John Paul Stevens last antitrust opinion, American Needle Inc. v. NFL, is important for its clarification of Sherman Act conspiracy doctrine. By recognizing that the conduct of joint ventures or partially integrated firms can still constitute a conspiracy, the decision preserves the reach of Section 1 of the Sherman Act as the primary tool for maintaining competition. The decision also provides a fitting opportunity for an assessment of Stevens’ role in shaping US antitrust jurisprudence. In contrast to many recent Court decisions that have ignored the facts of the dispute to declaim sweeping policy-oriented changes to US antitrust law, Justice Stevens’ opinion demonstrates that the Court is still capable of acting as a traditional judicial tribunal, deciding cases narrowly on their facts. This cautious and fact-anchored jurisprudence is a hallmark of Justice Stevens’ opinions.

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

The Essential Facilities Doctrine Under Scrutiny: EU and US Perspective

Posted by D. Daniel Sokol

Ali A. Massadeh, University of East Anglia, School of Law has posted The Essential Facilities Doctrine Under Scrutiny: EU and US Perspective.

ABSTRACT: The essential facilities doctrine requires a monopolist or a dominant firm to provide access to a facility that the monopolist controls and that is deemed necessary for effective competition. The doctrine has received considerable attention by competition lawyers and economists on both sides of the Atlantic. This essay seeks an answer to the existence of the so called “essential facilities doctrine”. This question will be addressed by highlighting the development and the application of the doctrine in the US and the EU. It then brings to light some observations and consequences on the application of the doctrine. Furthermore, it considers the application of the doctrine in regulated industries and more generally the application of competition law where regulators are present in a given industry. This essay concludes that the doctrine does exist. It also offers a suggested test for the application of the doctrine.

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

An Economic Defense of Flexibility in IPR Licensing: Contracting Around 'First Sale' in Multilevel Production Settings

Posted by D. Daniel Sokol

Anne Layne-Farrar, LECG provides An Economic Defense of Flexibility in IPR Licensing: Contracting Around 'First Sale' in Multilevel Production Settings.

ABSTRACT: The legal doctrine of first sale (or exhaustion for patents) dictates that the first sale of any good (intermediate or final) that embodies licensed IPR exhausts the holder’s rights. Thus, a patent holder is held to licensing just one party in a good’s production chain and an original copyright holder cannot affect the resale of a copyrighted good. The Supreme Court’s decision in the Quanta case strengthened the patent exhaustion rule, but the ruling appears to leave open the possibility that the parties could contract around patent exhaustion. In this paper, I present an economic argument in support of such contractual flexibility in situations involving intermediate production goods. In particular, I argue that under several real world circumstances the ability to license more than one party in a vertical production process makes economic sense and does not result in anticompetitive harm. Concerns such as "double dipping," raised during Quanta, do not hinge on multi-level licensing. Thus, as long as the parties involved can be presumed to understand the terms and conditions, they should be free to contract around a default "first sale" rule.

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

Sunday, February 20, 2011

The New EU Competition Rules for the Assessment of Horizontal Agreements

Posted by D. Daniel Sokol

Paul Lugard (Tilburg - Law) discusses The New EU Competition Rules for the Assessment of Horizontal Agreements.

ABSTRACT: Following a consultation process of more than two years, the European Commission has now adopted its Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (the "Horizontal Guidelines"). The new Horizontal Guidelines include a significantly revised chapter on standardization agreements, Chapter 7, an entirely new chapter on information exchanges, as well as numerous other modifications to and refinements of the previous guidelines.

The Horizontal Guidelines provide the EC Commission's new analytical framework for the assessment of most common types of horizontal agreements, including: research and development agreements; joint production agreements; commercialization agreements and standardization agreements that fall outside the two block exemption regulations for specific types of horizontal agreements; the Specialisation block exemption regulation on unilateral and reciprocal specialization agreements and joint production agreements;and the Research and Development block exemption regulation on joint research and exploitation of the results of joint research and development.

As part of its review, the Commission has considerably revised these rules. Overall, the scope of both block exemption regulations has been amended significantly and, while on balance the new rules provide a more liberal, coherent, and user-friendly framework for companies to structure their agreements without losing the benefit of the exemption under Article 101(3) TFEU, the Commission has also taken the opportunity to tighten the rules in a number of important respects. In particular, it has extended the list of hardcore restrictions of the R&D rules and has limited the scope of the Specialisation block exemption regulation in the event the specialization or joint production agreement is entered into between vertically integrated companies and the agreement concerns intermediate products which at least one party uses captively for the production of downstream products. In that case, the new rules provide that the exemption only applies if, in addition to not exceeding a combined market share threshold of 20 percent for the intermediate product, the parties' combined market share on the market for the downstream product does not exceed 20 percent. This new rule is introduced to prevent input foreclosure that would disadvantage downstream competitors.

Significantly, the final legislative texts incorporate many improvements on the drafts that the Commission had published for public consultation in May 2010. In their comments in the September 2010(1) CPI Antitrust Chronicle issue on the drafts of the two block exemption regulations and the Horizontal Guidelines, a number of authors identified several significant concerns. In this new issue the same authors evaluate the final text of the horizontal review package, revisit the concerns that they had identified on the basis of the draft texts, and express a much more favorable view. The Commission must be commended for having been willing to engage in extensive consultations with stakeholders and for having been receptive to many suggestions for improvements. The contribution of Donncadh Woods to this issue of the CPI Antitrust Chronicle provides some valuable insights into the main issues that the Commission has been confronted with during the consultation process. CPI is especially appreciative of his contribution.

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