Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, March 24, 2012

Best Shabbat Music Video - Antitrust Edition

Posted by D. Daniel Sokol

We are off to synagogue but before we go, the Sokol girls asked why it is that after they posted their picks for the best music videos for Rosh Hashana, Chanukah and Purim, we do not honor the Sabbath with its own best video. Good point. The girls have chosen I've Got a Feeling (The Shabbat Song) to the tune of Black Eyed Peas I've Got a Feeling (which does include lyrics of "Mazal tov" and "L'Chaim").

Runner up Six13: Good Shabbos  

March 24, 2012 | Permalink | Comments (0) | TrackBack (0)

European Commission launches Public Consultation on the Access to Interoperability Information of Digital Products and Services

Posted by D. Daniel Sokol

The European Commission has launched a Public Consultation on the Access to Interoperability Information of Digital Products and Services. From the website:

The purpose of this questionnaire is to obtain structured input from stakeholders and interested parties on the needs, barriers and opportunities for measures leading significant market players to license interoperability information not covered by standards, as proposed in the Digital Agenda for Europe communication: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010DC0245:FIN:EN:HTML under Pillar 2 (page 15-16) HT: Pedro Callol

March 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, March 23, 2012

Market structure and market performance in e-commerce

Posted by D. Daniel Sokol

Franz Hackl, Michael E. Kummer, Rudolf Winter-Ebmer, and Christine Zulehner (all ZEW) analyze Market structure and market performance in e-commerce.

ABSTRACT: We investigate the effect of market structure on market performance in the market for consumer electronics. This research is novel, because we exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail-data on whole sale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game. Using this information for 80 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price-leader.

March 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending

Posted by D. Daniel Sokol

Jason Allen (Bank of Canada), Robert Clark (HEC Montreal) and Jean-Francois Houde (University of Wisconsin-Madison) explore Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending.

ABSTRACT: This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.

March 23, 2012 | Permalink | Comments (0) | TrackBack (0)

E new era in retail: Private-label production by national-brand manufacturers and premium-quality private labels

Posted by D. Daniel Sokol

A.M. ter Braak (Tilburg University) explores E new era in retail: Private-label production by national-brand manufacturers and premium-quality private labels.

ABSTRACT: Private labels have witnessed considerable growth in grocery retailing. While existing academic studies have provided valuable insights concerning the evolution of private labels, several issues remain largely unexplored. First, in the face of these large private-label volumes, private-label production opportunities arise. Due to increased private-label competition, national-brand manufacturers increasingly pursue a dual-branding strategy and engage in private-label production next to their national-brand activities. In chapter two of this dissertation, a major motivation for national-brand manufacturers to engage in private-label production, namely whether it creates retailer goodwill, is investigated. It shows that private-label production is indeed rewarded: national-brand manufacturers involved in private-label production for a discounter have a higher likelihood of obtaining national-brand shelf presence at that discounter. The third chapter focuses on one of the main reasons why retailers push private labels, i.e. because they generate high margins, and considers how a retailer’s private-label margins vary within categories. It demonstrates that a retailer’s private-label margins depend on the nature of the private-label supplier-retailer relationship, that they differ across quality tiers and package sizes, and that they are affected by a supplier’s extent of national-brand focus next to its private-label production for the retailer. Finally, this dissertation concentrates on the recent premium private-label trend. Even though premium private labels are seen as “one of the hottest trends in retailing,” retailers are selective in picking their battles with top-quality national brands and do not feel the need to extend their standard private label with a premium private label in every category. The fourth chapter provides insight into why retailers offer premium private labe! ls in some categories, but not in others. The research presented in th is dissertation is among the first to empirically investigate the phenomenon of private-label production, and to shed light on the recent trend of premium private labels.

March 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 22, 2012

Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers

Posted by D. Daniel Sokol

Vigen Nikogosian and Tobias Veith (both ZEW) discuss Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers.

ABSTRACT: The literature on vertical integration in markets with regulated upstream prices suggests that the integrated upstream firm might engage in non-price discrimination. Several studies provide policy recommendations derived either from case study approaches or based on theoretical modeling which addresses the unbundling issue. In this study we analyze the impact of vertical integration of retail incumbent and network operator on retail prices and upstream charges. As the vertical structure is heterogeneous across the 850 German electricity submarkets for residential customers (there exist legally unbundled, vertically integrated or fully separated firms), we use firm level data to analyze the effects of different vertical structures and regulation schemes on retail electricity prices. We find significantly higher prices in markets with vertically integrated firms compared to markets with fully separated firms. This finding could indicate non-price discrimination. Furthermore, we find no evidence that legal unbundling eliminates the incentives for non-price discrimination because the prices do not differ from prices in markets under vertical integration.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling

Posted by D. Daniel Sokol

Linda Gratz (University of Munich) explores Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling.

ABSTRACT: In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Passing judgment on crisis state aid: control: the ING MEIP case

Posted by D. Daniel Sokol

OEXRA has a new article on Passing judgment on crisis state aid: control: the ING MEIP case.

ABSTRACT: In a landmark judgment, the General Court ruled in March 2012 that the European Commission had overstated the state aid received by Dutch bank, ING Groep NV, during the financial crisis by up to €2 billion, and, as such, ING may be relieved from certain remedies imposed by the Commission. What was the Court’s reasoning, and does it have a bearing on the support given to other banks in recent years?

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

PRIVATE ENFORCEMENT AND JUDICIAL DISCRETION IN THE EVOLUTION OF ANTITRUST IN THE UNITED STATES

Posted by D. Daniel Sokol

Reza Rajabiun (Ryerson University) ponders PRIVATE ENFORCEMENT AND JUDICIAL DISCRETION IN THE EVOLUTION OF ANTITRUST IN THE UNITED STATES.

ABSTRACT: The role of private enforcers in the implementation of laws against anticompetitive practices remains a subject of considerable controversy. The economic approach to the analysis of crime and punishment suggests that private rights of action can complement the information and incentives of public agents in the identification and deterrence of costly market behavior. This article studies the complementarities between public and private enforcement mechanisms. Long-term data on case filings, administrative resources, and judicial outcomes from the United States reveal that mixed regimes allow for the specialization of tasks between public and private enforcers: competition authorities focus on the regulation of dominance, while private litigants tend to identify collusion in contractual relations. The analysis further documents how judicial discretion under the rule-of-reason approach to substantive interpretation limits the predictability and credibility of legal constraints against anticompetitive practices.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

COMPETITION WITHIN FIRMS

Posted by D. Daniel Sokol

Lisa Bruttel (Professor, Department of Economics, University of Konstanz) and Simeon Schudy (Professor, Department of Economics, University of Konstanz) have written on COMPETITION WITHIN FIRMS.

ABSTRACT: We investigate the role of incentives set by a parent firm for competition among its subsidiaries. In a Cournot experiment, four subsidiaries of the same parent operate in the same market. Parents earn a specific share of the joint profit, and can choose how to distribute the remaining surplus (or loss). Results show that parents allocating profits equally among their subsidiaries reach outcomes close to collusion. However, almost half of the parent firms employ a proportional sharing rule instead. These groups end up with profits around the Cournot level.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 21, 2012

Rethinking the Economic Basis of the Standard Oil Refining Monopoly: Dominance Against Competing Cartels

Posted by D. Daniel Sokol

George L. Priest, Yale University - Law School has a very interesting paper in Rethinking the Economic Basis of the Standard Oil Refining Monopoly: Dominance Against Competing Cartels.

ABSTRACT: The success of the Standard Oil monopoly is not well understood. Standard Oil first developed a monopoly over the refining of crude oil, though later extended its control to gathering pipelines, later still to trunk pipelines (from the western Oil Regions to East Coast ports) and, even later, expanded operations to include oil production (drilling) and retail sales at the time the Supreme Court ordered its dissolution 100 years ago, in 1911.

Though there are several journalistic exposes of Standard Oil - Henry Demerest Lloyd and Ida Tarbell - as well as business histories - none very explanatory - the currently dominant theory of Standard Oil’s success is by Elizabeth Granitz and Benjamin Klein who assert that Standard Oil was chosen by oil shippers, the railroads, to police a railroad cartel. According to Granitz and Klein, the railroads split with Standard Oil the profits from cartelization of the crude and refined oil industry.

This paper challenges that explanation, claiming that there were attempts to cartelize at all levels of the oil industry - producers, gathering pipelines, refiners, and the railroads. There are good economic reasons that explain why Standard Oil, a refiner and at the remote western location of Cleveland, secured a monopoly as against the producers and the railroads.

March 21, 2012 | Permalink | Comments (0) | TrackBack (0)

Export Cartels: Is it Legal to Target your Neighbour? Analysis in Light of Recent Case Law

Posted by D. Daniel Sokol

Marek Martyniszyn (UC Dublin Law) has an interesting paper on Export Cartels: Is it Legal to Target your Neighbour? Analysis in Light of Recent Case Law.

ABSTRACT: Despite the growing sophistication of antitrust regimes around the world, export cartels benefit from special treatment: they are almost universally tolerated, if not encouraged in the countries of origin. Economists do not offer an unambiguous policy recommendation on how to deal with them in part due to the lack of empirical data. This article discusses arguments for and against export cartels and it identifies the existing gaps in the present regulatory framework. The theoretical part is followed by an analysis of the recent case law: a US cartel challenged with different outcomes in India and South Africa, as well as Chinese export cartels pursued in the USA. The Chinese cases are particularly topical as the conduct at stake, apart from being subject to private antitrust actions before US courts, was also challenged within the WTO dispute settlement framework, pointing out to the existing interface between trade and competition. While the recent developments prove that unaddressed issues tend not to vanish, the new South–North dimension has the potential of placing export cartels again on the international agenda. Pragmatic thinking suggests looking for the solution within the WTO framework.

March 21, 2012 | Permalink | Comments (0) | TrackBack (0)

University of Florida Bayard Wickliffe Heath Memorial Lecture Series featuring Joseph Harrington

Posted by D. Daniel Sokol

To join us for the Bayard Wickliffe Heath Memorial Lecture Series featuring

Joseph Harrington
Professor of Economics at Johns Hopkins University

"Game-Theoretic Ruminations on Section 1 of the Sherman Act"

10 a.m., Friday, March 30, 2012
Chesterfield Smith Ceremonial Classroom, HOL 180
University of Florida Levin College of Law, Gainesville, Fla.

March 21, 2012 | Permalink | Comments (0) | TrackBack (0)

Evidence of Market Power in the Atlantic Steam Coal Market Using Oligopoly Models with a Competitive Fringe

Posted by D. Daniel Sokol

Clemens Haftendorn (German Institute for Economic Research (DIW Berlin)) offers Evidence of Market Power in the Atlantic Steam Coal Market Using Oligopoly Models with a Competitive Fringe.

ABSTRACT: Before 2004 South Africa was the dominant steam coal exporter to the European market. However a new market situation with rising global demand and prices makes room for a new entrant: Russia. The hypothesis investigated in this paper is that the three incumbent dominant firms located in South Africa and Colombia reacted to that new situation by exerting market power and withheld quantities from the market in 2004 and 2005. Three market structure scenarios of oligopoly with a competitive fringe are developed to investigate this hypothesis: a Stackelberg model with a cartel, a Stackelberg model with a Cournot-oligopoly as leader and a Nash-bargaining model. The model with a Cournot oligopoly as leader delivers the best reproduction of the actual market situation meaning that the dominant players exert market power in a non-cooperative way without profit sharing. Furthermore some methodological clarifications regarding the ! modeling of markets with dominant players and a competitive fringe are made. In particular we show that the use of mixed aggregated conjectural variations can lead to outcomes that are inconsistent with the actions of rational profit-maximizing players.

March 21, 2012 | Permalink | Comments (0) | TrackBack (0)

Bertrand Competition with an Asymmetric No-Discrimination Constraint

Posted by D. Daniel Sokol


J.M.C. Bouckaert, H.A. Degryse and T. van Dijk (Tilburg University, Center for Economic Research) explore Bertrand Competition with an Asymmetric No-Discrimination Constraint.

ABSTRACT: We study the competitive and welfare consequences when only one firm must commit to uniform pricing while the competitor's pricing policy is left unconstrained. The asymmetric no-discrimination constraint prohibits both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that an asymmetric no-discrimination constraint only leads to higher profits for the unconstrained firm if the monopolistic segment is large enough. Therefore, a regulatory policy objective of encouraging entry is not served by an asymmetric no-discrimination constraint if the monopolistic segment is small. Only when the monopolistic segment is small and rivalry exists in the competitive segment does the asymmetric no-discrimination constraint enhance welfare.

March 21, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 20, 2012

The Supreme Court Discusses Bohannon and Hovenkamp, Creation Without Restraint

Posted by Shubha Ghosh

A few weeks ago we hosted an online symposium of IP and antitrust scholars commenting on the new book by Professors Chiristina Bohannon and Herbert Hovenkamp, Creation Without Restraint. The reviewers offered strong and generally positive feedback, but the best endorsement came from the US Supreme Court in its Mayo v Promethues decision, published March 20, 2012, and linked above. The case dealt with a patent on a medical diagnostic technique was per se unpatentable because it constituted a law of nature, rather than an inventive application of a law of nature. The Court ruled that the patent of which Prometheus was the exclusive licensee covered only a law of nature and did not offer any patentable application of the biomedical correlation at issue. Citing Bohannon and Hovenkamp several times, the unanimous opinion authored by Justice Breyer pointed to the bottlenecks and adverse effects on follow-on invention and research and developlment if a patent was granted to a law of nature. In the opinion of Professor Ghosh, Justice Breyer's opinion is one of the clearest statements of the policies underlying excluding laws of nature from patentable subject matter. At the same time, the opinion leaves open how the Court's approach will be applied in practice. On the first point, we have Bohannon and Hovenkamp to thank. On the second, we can blame the difficult disconnect between legal policy and legal practice. Stay tuned to more scholarly commentary and legal developments in this area.

March 20, 2012 | Permalink | Comments (1) | TrackBack (0)

Are Rights Finally Becoming Fundamental?

Posted by D. Daniel Sokol

Kristina Nordlander & Patrick Harrison (Sidley Austin) ask Are Rights Finally Becoming Fundamental?

ABSTRACT: In the landmark 2005 Article 102 TFEU case regarding Losec, AstraZeneca was fined EUR 60 million for conduct that would not have been an infringement of EU competition law had AstraZeneca not been found to be dominant in the relevant market. The European Commission ("Commission") found that the relevant market on which Losec competed should be defined narrowly to include only the newer class of medicines ("PPIs") to the exclusion of their older equivalents (H2 Blockers). The Commission's decision to define the market narrowly dictated that AstraZeneca's shares were in excess of 50 percent. At such share levels, there exists a presumption of dominance that is extremely difficult to rebut. On appeal, AstraZeneca challenged the findings on market definition and dominance. However, the EU's General Court limited its review to whether the Commission had committed a "manifest error" of assessment in arriving at its findings. Having found no "manifest error," the General Court upheld the Commission's findings on market definition and dominance and largely upheld the Commission's multi-million Euro fine.

Is this fair? If a prosecutor comes to a view on market definition, which is a sine qua non for a finding of infringement and the imposition of a high punitive fine, but which is not then subject to full review by an independent court, does that really constitute a fair trial for purposes of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the "ECHR") and the Charter of Fundamental Rights of the European Union ("Charter")?

The EU courts have often drawn indirectly on fundamental rights of the kinds set out in the ECHR and the Charter and incorporated them into EU law as "general principles." However, the 2009 entry into force of the Lisbon Treaty, and the EU's forthcoming direct accession to the ECHR seem set to give fundamental rights center stage in the application of EU law in general and EU competition law in particular. This article does not undertake a full review of this fascinating area of law, but rather focuses briefly on four issues, which are critical to EU competition law enforcement and in which fundamental rights challenges may play a key role going forward:

1. The question of whether the EU courts exercise a sufficiently "full review" in order to render the Commission's triple role as investigator, prosecutor, and judge compliant with the right to a fair trial as set out in Article 47 Charter and Article 6 ECHR.

2. The consistency of increasingly effects-based standards with the basic maxim of nulla poena sine lege, as enshrined in Article 49 Charter and Article 7 ECHR.

3. The appropriateness of legal presumptions in a system with questionable compliance with the right to a fair trial.

4. The issue of whether key procedural rights are sufficiently guaranteed in the course of the Commission's investigations.

We conclude that several aspects of EU competition law and the Commission's enforcement procedures are questionable at present, in particular in light of the often-limited review exercised by the EU courts. We may well see EU competition law fining decisions struck down in future if the European Court of Human Rights ("ECtHR") or the EU courts conclude that EU competition law imposes sanctions that are of a criminal nature and subjects EU competition law proceedings to the full force of Articles 6 and 7 ECHR and Articles 47 and 49 Charter.

March 20, 2012 | Permalink | Comments (0) | TrackBack (0)

Strategic pricing, market entry and competition: Evidence from German electricity submarkets

Posted by D. Daniel Sokol

Vigen Nikogosian and Tobias Veith (both ZEW Centre for European Economic Research,) provide Strategic pricing, market entry and competition: Evidence from German electricity submarkets.

ABSTRACT: In German electricity submarkets for residential customers standard contracts offered by former monopolists are the more costly option for customers who have not switched to an alternative contract yet. As most German households are served with this contract type we follow the Limit Pricing theory and show that standard contract price could be used as an instrument to affect competition, in terms of market entries, in the related market. We theoretically derive the optimal price-setting behavior of a price-discriminating incumbent provider and show that under particular circumstances reducing the standard contract price could increases the incumbent's profit. We then analyze our theoretical findings employing data for German retail electricity submarkets using simultaneous equation approach and can find support for our hypothesis. In particular for customers with low consumption and high relative switching costs the results show that the standard contract price can affect market entry whereas for high consumption level customers we have to reject our hypothesis.

March 20, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition and Health Care: A Prescription for High-Quality, Affordable Care

Posted by D. Daniel Sokol

Sharis Pozen (DOJ) has a new speech on Competition and Health Care: A Prescription for High-Quality, Affordable Care.

March 20, 2012 | Permalink | Comments (0) | TrackBack (0)

Price Discrimination and Fairness Concerns

Posted by D. Daniel Sokol

Florian Englmaiera (University of Konstanz), Linda Gratzb (International Max-Planck Research School for Competition and Innovation), and Markus Reisingerc (Economics Department, WHU - Otto Beisheim School of Management) explain Price Discrimination and Fairness Concerns.

ABSTRACT: We analyze the profitability of third degree price discrimination under consideration of consumers' fairness concerns within an experiment and explain the results within a theoretical framework. We find that with an increase in the price differential negative reciprocal reactions by disadvantaged consumers become stronger compared to positive reciprocal reactions by advantaged consumers. Consequently, the profit maximizing price differential lies below the one predicted to be optimal by standard theory. Further, profitability increases when consumers who are regarded as poorer are charged lower prices compared to when the wealth of the different consumer groups is unknown.

March 20, 2012 | Permalink | Comments (0) | TrackBack (0)