Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, January 7, 2012

Accountable Care Organizations: Antitrust Business as Usual?

Posted by D. Daniel Sokol

Ken Glazer and Catherine A. LaRose (K&L Gates) ask Accountable Care Organizations: Antitrust Business as Usual?

ABSTRACT: The Final Statement is broadly consistent with earlier guidance from the antitrust agencies regarding competitor collaborations and joint ventures in the health care arena. It reiterates the same basic principles of preserving competitive markets, and uses familiar mechanisms of analysis and review. Like the Health Care Statements, the Final Statement also provides stricter safe harbor thresholds for ACOs that require exclusivity from their providers/participants. It also maintains
some of the emphasis on market share.

Despite this general consistency with the antitrust agencies’ prior guidance, the Final Statement raises two interesting issues. First, because the CMS rules require participants to meet strict performance requirements and because CMS will collect substantial data regarding quality of care, antitrust challenges to ACOs may give rise to some unusually detailed rule of reason analyses of the kind rarely, if ever, seen in antitrust cases. Second, although Medicare reimbursements are subject to set fees for services, which eliminates the possibility that an ACO might conspire to fix prices for various services it provides to beneficiaries, the government will still be alert to anticompetitive schemes regarding non-price elements of competition.

January 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, January 6, 2012

Internal Organization of Firms and Cartel Formation

Posted by D. Daniel Sokol

Jerome Kuipers (Maastricht University) and Norma Olaizola (UPV/EHU) address Internal Organization of Firms and Cartel Formation.

ABSTRACT: We study the endogenous formation of cartels in two contexts. Firt, we considere internal-external stability based models which, due to firms' free-riding incentives, lead to the formation of very small stable cartels (if any). Second, we introduce the dynamic aspect of coalition formation. That is, when considering a cartel we take into account also any other cartel that can be reached through a succesion of moves. We apply notions such as the generalized stable sets and the absorbing sets solutions which predict that collusion of the whole industry can occur with some regularity. Then we apply the two approaches to a Cournot game, and study the influence that the internal organization of firms has on the size of the cartels that form by means of a compariso between a situation where ownership and management are not separated and one in which they are.

January 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian

Posted by D. Daniel Sokol

Inaki Aguirre (UPV/EHU) has written Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian. ABSTRACT: Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination.

January 6, 2012 | Permalink | Comments (0) | TrackBack (0)

The Boundaries of Antitrust Law

Posted by D. Daniel Sokol

The IBA Journal Competition Law International has issued its double-edition on the Boundaries of Antitrust Law.

January 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Multimarket Competition and Welfare Effects of Price Discrimination

Posted by D. Daniel Sokol

Inaki Aguirre (UPV/EHU) notes Multimarket Competition and Welfare Effects of Price Discrimination.

ABSTRACT: The paper investigates the effects on welfare of price discrimination when a multimarket seller faces competition in one of its two markets. Whit respect to uniform pricing, price discrimination changes competition in such a way, that even with linear demands, price discrimination can be welfare-improving, both under strategic substitutes and strategic complements.

January 6, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 5, 2012

Managing Antitrust Agency Inquiries About Your Suppliers or Competitors

Posted by D. Daniel Sokol

The American Bar Association
Corporate Counseling Committee
Managing Antitrust Agency Inquiries About
Your Suppliers or Competitors

January 10, 2012
12:00 – 1:00 pm ET
The Corporate Counseling Committee is pleased to present this program which will address timely and practical issues that in-house and outside counsel must consider when they receive requests for interviews, subpoenas, or civil investigative demands from the antitrust agencies in connection with an investigation of another party’s conduct or transaction. Topics will include:

  • the reasons that the agencies contact competitors and customers, and the different methods that the agencies use to collect information;
  • the risks and opportunities presented by agency inquiries;
  • the confidentiality rules that apply to information provided by third parties;
  • best practices for preparing for interviews or responding to information requests;
  • what to tell your business team; and
  • how to interact with the parties under investigation.

 

Panelists:
Michael Moiseyev, Federal Trade Commission
Suzanne Wachsstock, American Express
David Wheeler, Verizon
Ronan Harty, Davis Polk & Wardwell

Eric Stock, Co-Chair of the Corporate Counseling Committee, will serve as moderator.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Cross-Border Mergers and Market Segmentation

Posted by D. Daniel Sokol

A. Ray Chaudhuri (Tilburg University, Center for Economic Research) explores Cross-Border Mergers and Market Segmentation.

ABSTRACT: This paper shows that cross-border mergers are more likely to occur in industries which serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. The product price rises in the market where an acquisition is made but falls in the other, decreasing the acquisition price of other firms (in contrast to the results in the existing merger literature on integrated markets). Although the sum of consumer surplus across the countries may rise in response to a given acquisition, one of the countries gains at the expense of the other.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter?

Posted by D. Daniel Sokol

Benjamin M. Tabak (Banco Central do Brasil and Departament of Economics, Universidade Catolica de Brasilia), Dimas M. Fazioy (Departament of Economics, Universidade de Brasilia) and Daniel O. Cajueiro (Departament of Economics, Universidade de Brasilia) ask The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter?

ABSTRACT: This paper aims to study the effect of banking competition on Latin American banks' risk-taking and whether capitalization and size changes this relationship. We conclude that: (1) competition affects risk in a non-linear manner: high/low (average) competition are related to more (less) stability; (2) bank's size explains the advantage from competition, while capitalization is only positive for larger banks in this case; (3) capital ratio explains the advantage from lower competition. These results are of uttermost importance for bank regulation, especially due to the recent turmoil in worldwide financial markets.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Product Differentiation, the Volume of Trade and Profits under Cournot and Bertrand Duopoly

Posted by D. Daniel Sokol

David R. Collie (Cardiff Business School) and Vo Phuong Mai Le(Cardiff Business School) analyze Product Differentiation, the Volume of Trade and Profits under Cournot and Bertrand Duopoly.

ABSTRACT: This paper analyses how product differentiation affects the volume of trade under duopoly using Shubik-Levitan demand functions rather than the Bowley demand functions used by Bernhofen (2001). The Shubik-Levitan demand functions have the advantage that an increase in product differentiation does not increase the size of the market as happens with the Bowley demand functions. It is shown that the volume of trade in terms of quantities is decreasing in the degree of product differentiation when the trade cost is relatively low, but increasing in the degree of product differentiation when the trade cost is relatively high.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

For the Better: The Reform of the Finnish Competition Act

Posted by D. Daniel Sokol

Niko Hukkinen and Laura Peltonen (Niko Hukkinen) discuss For the Better: The Reform of the Finnish Competition Act.

ABSTRACT: After prolonged preparation and several delays, a new Finnish Competition Act finally entered into force on 1 November 2011. The main purpose of the reform is to add coherence to the Finnish competition rules after sev-eral partial amendments over the years, as well as to further harmonize the legislation with the EU laws. The new substantive amendments include the harmonization of the concept of undertaking with the definition developed in the case law of the European Court of Justice as well as the introduction of the SIEC-test as the applicable intervention test for concentrations. In addition, several procedural changes have been introduced in relation to e.g. investigatory powers of the authority, sanctions and the merger control process.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

The Repeal of Decisions by the European Commission Based on Considerations of Fact or Law

Posted by D. Daniel Sokol

Florian Neumayr and Heinrich Kuhnert (bpv Hugel Rechtsanwalte) describe The Repeal of Decisions by the European Commission Based on Considerations of Fact or Law.

ABSTRACT: The paper addresses the question whether and, if so, to what extent the Commission has the right or is under an obligation to repeal decisions that have become final but are based on errors in fact or law. From case law, it appears that the institution is vested with a broad power to reconsider its decisions where the lifting of the original decision would be to the benefit of the addressee. By contrast, the European Courts have limited the instances in which the Commission would be under an obligation to do so. Recent cases indicate that the Commission does not appear to go beyond these possibilities/requirements.

January 5, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 4, 2012

Patent Disclosure in Standard Setting

Posted by D. Daniel Sokol

Bernhard Ganglmair, University of Texas at Dallas - School of Management - Department of Finance & Managerial Economicsand Emanuele Tarantino, University of Bologna - Department of Economics, Tilburg Law and Economics Center (TILEC) discuss Patent Disclosure in Standard Setting.

ABSTRACT: We present a model of industry standard setting with two-sided asymmetric information about the existence of intellectual property. We provide an equilibrium analysis of (a) firms' incentives to communicate ideas for improvements of an industry standard, and (b) firms' decisions to disclose the existence of intellectual property to other participants of the standardization process.

January 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Impact Evaluation of Merger Decisions

Posted by D. Daniel Sokol

Oliver Budzinski, University of Southern Denmark - Department of Environmental and Business Economics offers Impact Evaluation of Merger Decisions.

ABSTRACT: The German version of this paper can be found at http://ssrn.com/abstract=1963285

This paper provides a comparative analysis of methods for the empirical ex post evaluation of merger control decisions. It develops a competition-policy oriented framework of assessment criteria for the leading evaluation methods and applies them to structural modeling and simulation, differences-in-differences methods, event studies as well as survey-based methods. It concludes that a method-mix is recommendable, however, under the exclusion of event studies that fail to secure a minimum level of reliability regarding the evaluation results. Furthermore, it warns against overly optimistic expectations about the effects of systematic impact evaluations of merger decisions.

January 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Chinese Enforcement Against Abuses of Dominance Ramps Up

Posted by D. Daniel Sokol

Peter Wang, Yizhe Zhang & Sebastien Evrard (all Jones Day) have a new piece on Chinese Enforcement Against Abuses of Dominance Ramps Up which provides an overview of recent investigations.

ABSTRACT: The first three years under the Chinese Anti-Monopoly Law ("AML") have been dominated by merger control decisions mainly involving foreign companies, and cartel investigations mainly involving domestic Chinese ones.

However, the spotlight recently has begun to shift towards the third major area of anticompetitive activities under the AML: abuses of dominant market position. Several prominent matters have been reported in late 2011, most notably an investigation by price regulator the National Development and Reform Commission ("NDRC") into price discrimination in the provision of broadband internet services by state monopoly telecom companies; another NDRC investigation into refusals to deal involving dominant distributors of an important pharmaceutical precursor, and; a civil AML lawsuit filed against leading search engine Baidu. The AML prohibits such conduct by firms with dominant market positions, subjecting them to penalties that include potential fines of between 1 and 10 percent of annual turnover. This article focuses on the recent NDRC investigations to project future consequences for abuse of dominance cases brought under the AML.

January 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Entry and Competition in Differentiated Products Markets

Posted by D. Daniel Sokol

Catherine Schaumans, Tilburg University and Frank Verboven, Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE) discuss Entry and Competition in Differentiated Products Markets.

ABSTRACT: We propose a methodology for estimating the competition effects from entry when firms sell differentiated products. We first derive precise conditions under which Bresnahan and Reiss’entry threshold ratios (ETRs) can be used to test for the presence and to measure the magnitude of competition effects. We then show how to augment the traditional entry model with a revenue equation. This revenue equation serves to adjust the ETRs by the extent of market expansion from entry, and leads to unbiased estimates of the competition effects from entry. We apply our approach to seven different local service sectors. We find that entry typically leads to significant market expansion, implying that traditional ETRs may substantially underestimate the competition effects from entry. In most sectors, the second entrant reduces markups by at least 30%, whereas the third or subsequent entrants have smaller or insignificant effects. In one sector, we find that even the second entrant does not reduce markups, consistent with a recent decision by the competition authority.

January 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition Regulation in Australia: A Report Card (the 2011 Colin Clark Lecture)

Posted by D. Daniel Sokol

Stephen Peter King, Faculty of Business and Economics, Monash University, Economic Regulation Authority of Western Australia, has spoken on Competition Regulation in Australia: A Report Card (the 2011 Colin Clark Lecture).

ABSTRACT: In this paper I present a 'report card' on the current state of Australia’s competition laws, focusing on antitrust laws. I consider the three core antitrust provisions in the Australian Competition and Consumer Act (2010) – the laws against cartels, abuse of market power and anticompetitive mergers. In each of these areas, particularly cartels, I find that Australia’s laws could be significantly improved. I also consider more innovative reforms to Australia’s competition regulations, to improve the transparency of pricing and to reduce customer switching costs. I note that these reforms have been broadly successful.

January 4, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 3, 2012

Time Series Models for Estimating Economic Damages in Antitrust (and Other) Litigation: The Relative Merits of Predictive versus Dummy-Variable Approaches

Posted by D. Daniel Sokol

Paul Godek (Securities Litigation & Consulting Group) analyzes Time Series Models for Estimating Economic Damages in Antitrust (and Other) Litigation: The Relative Merits of Predictive versus Dummy-Variable Approaches.

ABSTRACT: Economic damages can arise from a variety of bad acts: a breach of contract, a patent violation, an oil-spill, or a price-fixing conspiracy, for examples. The calculation of economic damages involves the description of a "but-for world." The but-for world implies a set of economic values-such as profits or quantities or prices-that would have prevailed but-for the alleged bad acts. These but-for values become the basis for calculating damages.

A but-for world cannot be demonstrated with certainty because it never occurs; it is a hypothetical entity. Expert economists play a crucial role in the disputes over economic damages because of their ability to model and estimate what would have happened in a particular economic environment if one aspect of that environment had been different. What would profits have been if a contract or a patent had not been violated? What would fish harvests have been if not for an oil-spill? What would prices have been absent a price-fixing conspiracy?

This exercise often involves the comparison of relevant economic values across two distinct time periods, the damage period and the benchmark or clean period. And the basic exercise, describing and analyzing a but-for world, often involves time-series data-empirical observations that are generated at regular or irregular intervals over time. For example, in a price-fixing conspiracy, regression analysis is typically employed to estimate the historical relationship between actual transaction prices and various explanatory variables, such as production costs and the level of demand for the product. That econometrically derived relationship is used to generate but-for prices within the damage period.

Here I examine the properties of two alternative approaches to implementing time-series damages models. The two approaches will be referred to as "predictive" and "dummy-variable." The comparison between the two approaches also serves as a reminder of the potential problem to which time-series models are susceptible: the crucial but sometimes forgotten "spurious regression" problem.

January 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Summaries of Twenty Cases of Successful Private Antitrust Enforcement

Posted by D. Daniel Sokol

Josh Paul Davis, University of San Francisco - School of Law and Robert H. Lande, University of Baltimore - School of Law offer Summaries of Twenty Cases of Successful Private Antitrust Enforcement.

ABSTRACT: This document summarizes twenty cases of successful private antitrust enforcement. These twenty summaries build on earlier summaries of forty additional cases of successful private enforcement available at http://ssrn.com/abstract=1105523. An analysis of the data from the original forty cases is available at http://ssrn.com/abstract=1090661 (published as Robert L. Lande and Joshua P. Davis, Benefits From Private Antitrust Enforcement: An Analysis of Forty Cases, 42 U.S.F. L. REV. 879 (2008)) and an argument based on the forty cases that private antitrust enforcement has greater deterrence effects than criminal enforcement by the Department of Justice is available at http://ssrn.com/abstract=1565693 (published as Robert L. Lande and Joshua P. Davis, Comparative Deterrence from Private Enforcement and Criminal Enforcement of the U.S. Antitrust Laws, Brigham Young University Law Review, 315, 2011).

January 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Private Losses in European Competition Law: Public or Private Enforcement?

Posted by D. Daniel Sokol

Petra Pohlmann, University of Muenster asks Private Losses in European Competition Law: Public or Private Enforcement?

ABSTRACT: The author discusses three aspects of the compensation of private losses in European Competition law. First of all pros and cons of public and private enforcement are dealt with. The author argues for private claims as an indispensable element of competition law enforcement, including representative claims of non-profit consumer and trade organizations. State bodies should not bring suits on behalf of consumers, and neither public nor private skimming off of the benefits is deemed useful. Secondly it is asked whether the time has already come that the EU should create new rules to harmonize private claims. The author suggests a time period of at last five years during which the competition law systems of the member states should be developed according to the requirements of the Courage and Manfredi judgments. At last the Oxera report is assessed as a step into the right direction because, falling short of a detailed analysis of the legal background, it leaves room to develop rules bottom up.

January 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

Posted by D. Daniel Sokol

Michelle Haynes, University of Nottingham and Steve R. Thompson, University of Nottingham describe Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site.

ABSTRACT: This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use a panel of 295 products on NexTag.com to estimate an error correction model of net entry. While the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs, in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level which reveal that size and reputation determine individual responses to market opportunities.

January 3, 2012 | Permalink | Comments (0) | TrackBack (0)