Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, March 20, 2012

Multi-stage oligopoly models with nested logit demand structures: A simplifying approach

Posted by D. Daniel Sokol

Varela-Irimia and Xose-Luis (both Universitat Rovira i Virgili) analyze Multi-stage oligopoly models with nested logit demand structures: A simplifying approach.

ABSTRCT: Solving multi-stage oligopoly models by backward induction can easily become a complex task when firms are multi-product and demands are derived from a nested logit framework. This paper shows that under the assumption that within-segment rm shares are equal across segments, the analytical expression for equilibrium profits can be substantially simplfied. The size of the error arising when this condition does not hold perfectly is also computed. Through numerical examples, it is shown that the error is rather small in general. Therefore, using this assumption allows to gain analytical tractability in a class of models that has been used to approach relevant policy questions, such as for example firm entry in an industry or the relation between competition and location. The simplifying approach proposed in this paper is aimed at helping improving these type of models for reaching more accurate recommendations.

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

Endogenous Timing in Quality Investments and Price Competition

Posted by D. Daniel Sokol

Luca Lambertini Alessandro Tampieri (both University of Bologna) discuss Endogenous Timing in Quality Investments and Price Competition.

ABSTRACT: We modify the price-setting version of the vertically differentiated duopoly model by Aoki (2003) by introducing an extended game in which firms noncooperatively choose the timing of moves at the quality stage. Our results show that there are multiple equilibria in pure strategies, in which firms always select sequential play at the quality stage. We also investigate the mixed-strategy equilibrium, revealing that the probability of generating outcomes out of equilibrium is higher than its complement to one. In the alternative of full market coverage, we show that the quality stage is solved in dominant strategies and therefore the choice of roles becomes irrelevant as the Nash and Stackelberg solutions coincide.

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

Monday, March 19, 2012

Ownership and control in a competitive industry

Posted by D. Daniel Sokol

Heiko Karle ECARES, ULB, Tobias J. Klein, Tilburg University - Department of Econometrics & Operations Research and Konrad O. Stahl, discuss University of Mannheim - Department of Economics Ownership and control in a competitive industry.

ABSTRACT: We study a differentiated product market in which an investor initially owns a controlling stake in one of two competing firms and may acquire a non-controlling or a controlling stake in a competitor, either directly using her own assets, or indirectly via the controlled firm. While industry profits are maximized within a symmetric two product monopoly, the investor attains this only in exceptional cases. Instead, she sometimes acquires a noncontrolling stake. Or she invests asymmetrically rather than pursuing a full takeover if she acquires a controlling one. Generally, she invests indirectly if she only wants to affect the product market outcome, and directly if acquiring shares is profitable per se.

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Collusion and downstream entry in a vertically integrated industry

Posted by D. Daniel Sokol

Eric Avenel, University of Rennes 1 and Stephane Caprice, Toulouse School of Economics (GREMAQ, INRA) have a paper on Collusion and downstream entry in a vertically integrated industry.

ABSTRACT: We analyse the impact of an entry threat at the downstream level on the ability of a pair of vertically integrated incumbents to collude. We present an original model of horizontal product differentiation on the final market and characterize the structures of this market for which an entry threat facilitates collusion between incumbents. While the entry threat leaves collusion and deviation profits unchanged, it lowers profits in punishment periods. Consequently, an entry threat discourages deviations and facilitates collusion, thus benefiting incumbents.

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Promoting Competition by Coordinating Prices: When Rivals Share Intellectual Property

Posted by D. Daniel Sokol

Nancy Gallinim (UBC) has an interesting article on Promoting Competition by Coordinating Prices: When Rivals Share Intellectual Property.

ABSTRACT: The paper examines technology agreements and the standards process from which they emerge when members supply inputs to the alliance while simultaneously competing with it. Under this overlapping ownership structure, pool members are horizontally related. I show that strategic complementarity between the downstream products owned by a member and those arising from the collaboration is sufficient for a pool to be pro-competitive. Although patent pools are more efficient than uncoordinated pricing, consumers are better off if an outside firm rather than a pool member owns the non-pool competing product. Antitrust rules facilitating efficient IP agreements under overlapping ownership and their implications for the direction of technological change are derived.

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

DG Competition Releases new guidance on confidentiality claims

Posted by D. Daniel Sokol

DG Competition has released a new guidance on confidentiality claims.

HT: Connor Maguire

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Framework—Document of 10 February 2012 on Antitrust Compliance Programmes

Posted by D. Daniel Sokol

Autorite de la Concurrence discusses Framework—Document of 10 February 2012 on Antitrust Compliance Programmes.

ABSTRACT: Compliance programmes are instruments that enable economic players to increase their chances of avoiding breaches of all kinds of rules that are applicable to their activity, including competition rules. These programmes rely not only on informational measures intended to create a compliance culture (training, awareness), but also on operational initiatives (such as whistle-blowing and advice and audit systems) that are indispensable in helping companies to prevent, detect and solve cases of potential misconduct. The Autorité encourages companies to set up antitrust compliance programmes, either on a standalone basis or within the framework of their overall compliance policy, and to allocate sufficient resources to these programmes to ensure they are successful. A list of "best practices" that can contribute to the efficiency of antitrust compliance programmes is laid out in the current framework-document.

Companies committing to set up or to upgrade an existing compliance programme according to the aforementioned best practices, in the context of a settlement with the Autorité, may expect a reduction of their fine of up to 10%, under the conditions provided by the current framework-document. This reduction will be added to the 10% reduction corresponding to the settlement proper, and to the further 5% reduction that may be awarded in return of other commitments undertaken in accordance with the procedural notice of the Autorité

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Price-dependent demand in spatial models

Posted by D. Daniel Sokol

Yiquan Gu (Technische Universit at Dortmund) and Tobias Wenzel (Dusseldorf Institute for Competition Economics) discuss Price-dependent demand in spatial models.

ABSTRACT: This paper introduces price-dependent individual demand into the circular city model of product differentiation. We show that for any finite number of firms, a unique symmetric price equilibrium exists provided that demand functions are not too convex. As in the case of unit demand, the number of firms under free entry decreases in the fixed cost of entry while increases in the transportation cost of consumers. However, this number is no longer always in excess of the socially optimal level. Insufficient entry occurs when the fixed and transportation costs are high.

March 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 18, 2012

Screens in the Gas Retail Market: The Brazilian Experience

Posted by D. Daniel Sokol

Carlos Emmanuel Joppert Ragazzo (CADE) introduces Screens in the Gas Retail Market: The Brazilian Experience.

ABSTRACT: Prices in the gas retail market were heavily regulated by the Brazilian government until the late 1990s. At the beginning of the last decade, prices were finally deregulated and, as an ensuing consequence, cartel complaints started. Although such behavior was to a certain extent expected due to the lack of previous competition in the market, such complaints became a problem as they represented the gross majority of sectoral complaints presented to the Brazilian Competition Policy System ("SBDC"). Given this fact, the main purpose of this article is to demonstrate how screens were used by competition authorities in Brazil in order to overcome such a problem.

March 18, 2012 | Permalink | Comments (0) | TrackBack (0)