Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, April 7, 2012

Consumer protection and contingent charges

Posted by D. Daniel Sokol

Mark Armstrong (Oxford) and John Vickers (Oxford) have a new paper on Consumer protection and contingent charges.

ABSTRACT: Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the UK Supreme Court.

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

Friday, April 6, 2012

“Solving” Net Neutrality: Regulation, Antitrust, Or More Competition

Posted by D. Daniel Sokol

Gerald Faulhaber (Wharton) describes “Solving” Net Neutrality: Regulation, Antitrust, Or More Competition.

ABSTRACT: Since net neutrality first appeared in policy debates, its meaning has been less than crystal clear. Some advocates have argued that net neutrality demands that broadband internet service providers ("ISPs") treat all bits equally: "a bit is a bit is a bit," while others make exceptions for malware bits, spam bits, child porn bits, etc. Some advocates have argued that net neutrality must apply not only to wired broadband ISPs (cable, DSL, and fiber) but to wireless broadband providers as well, while others recognize that wireless broadband has a unique technological structure that requires more stringent and flexible capacity management than is consistent with "a bit is a bit is a bit."

Whatever its definition, both the form and substance of the public policy response have been subject to much debate. Some have argued that the problem is one of market structure: the U.S.'s duopoly in wired broadband ISP services requires public control to protect the open internet that would not be needed in a competitive market. Others have argued that some form of public control is required no matter what the market structure. The outcome of this discussion informs the choice of public policy instrument: Should this be a problem addressed via regulation or should it be addressed via antitrust?

The Federal Communications Commission ("FCC") has issued a Report and Order ("R&O") promulgating its network neutrality rules, which, as might be expected, strikes a middle ground between purists on each side of the debate. Curiously, the FCC itself seems to have foresworn the use of the term "network neutrality," preferring to adopt phrases such as "preserving the Open Internet," or Open Internet rules." In this paper, I continue to use the traditional terminology.

First I outline the FCC's recently enacted regulation on network neutrality and then I ask three questions:

What economic problem is net neutrality designed to solve? What is the empirical evidence concerning this problem? What is the EU doing, if anything, on net neutrality? What is the more effective instrument for implementing net neutrality: regulation or antitrust?

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

Endougenous Timing in a Mixed Duopoly

Posted by D. Daniel Sokol

Rabah Amir (Department of Economics, University of Arizona) and Giuseppe De Feo (Department of Economics, University of Pavia) discuss Endougenous Timing in a Mixed Duopoly.

ABSTRACT: This paper applies the framework of endogenous timing in games to mixed quantity duopoly, wherein a private – domestic or foreign – firm competes with a public, welfare maximizing firm. We show that simultaneous play never emerges as a subgame-perfect equilibrium of the extended game, in sharp contrast to private duopoly games. We provide sufficient conditions for the emergence of public and/or private leadership equilibrium. In all cases, private profits and social welfare are higher than under the corresponding Cournot equilibrium. From a methodological viewpoint we make extensive use of the basic results from the theory of supermodular games in order to avoid common extraneous assumptions such as concavity, existence and uniqueness of the different equilibria, whenever possible. Some policy implications are drawn, in particular those relating to the merits of privatization.

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

Bundling, Competition and Quality Investment: a Welfare Analysis

Posted by D. Daniel Sokol

Alessandro Avenali (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma), Anna D'Annunzio (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma) and Pierfrancesco Reverberi (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma) analyze Bundling, Competition and Quality Investment: a Welfare Analysis.

ABSTRACT: We show how a monopolist in a primary market uses mixed bundling to extract surplus from quality-enhancing investment by a single-product rival in a complementary market, or even force the rival to provide low quality. In our model, bundling does not hinge on commitment ability. Although we assume that bundling creates efficiency gains, we find that bundling reduces consumer surplus and may reduce social welfare, even if the rival is not foreclosed, and investment is not blockaded. Nonetheless, bundling improves welfare when prevents inefficient investment. We propose to check bundled offers via a price test that controls the monopoly component stand-alone price to preserve efficiencies from both bundling and investment. When the rival invests, the test improves consumer surplus and welfare compared with the 'do-nothing' scenario, or a ban on bundling. The test is not consistent with the predatory pricing framework. Qualitative results hold when we endogenize the bundling strategy.

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

Bank pricing under oligopsony-oligopoly: Evidence from 103 developing countries

Posted by D. Daniel Sokol

Walid Marrouch (BOFIT) and Rima Turk-Ariss (BOFIT) Bank pricing under oligopsony-oligopoly: Evidence from 103 developing countries.

ABSTRACT: We propose a generic oligopsony-oligopoly model to study bank behavior under uncertainty in developing countries. We derive a pricing structure that acknowledges market power in both the deposit and loan markets and identify two theoretical components to the loan rate: a rent extraction component resulting from the interaction between the choke price of loans and prevailing banking structures, and a markup on deposit funding costs that captures the transformation efficiency of financial intermediation. We then test our structural specification with longitudinal data for 103 non-OECD countries and find that both the market structure under uncertainty and the deposit rate matter significantly in pricing. However, the role played by the rent-extraction share in pricing, on average, dominates funding costs in developing countries, and so underscores the importance of market structure in banks’ pricing power.

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

Thursday, April 5, 2012

Contracts that Reference Rivals

Posted by D. Daniel Sokol

Fiona Scott-Morton (DOJ) gave a speech today on Contracts that Reference Rivals.

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

Differentiation and the relationship between product market competition and price discrimination

Posted by D. Daniel Sokol

MANUEL BECERRA (Instituto de Empresa) and JUAN SANTALO (Instituto de Empresa) explore Differentiation and the relationship between product market competition and price discrimination.

ABSTRACT: We investigate how the effect of competition on price discrimination varies depending on the level of quality provided by companies in the hospitality industry. Our findings reconcile conflicting results of previous literature on this topic. Namely, we provide strong empirical evidence that competition affects differently the price of single and double rooms of hotels with greater quality versus those with lower quality. In the presence (absence) of differentiation, competition increases (decreases) price discrimination. Our findings are robust to the use of econometric techniques that alleviate endogeneity concerns.

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

Does Independence Affect Regulatory Performance? The case of national competition authorities in the European Union

Posted by D. Daniel Sokol

Mattia Guidi asks Does Independence Affect Regulatory Performance? The case of national competition authorities in the European Union?

ABSTRACT: Despite having always been assumed to be true, a relationship between the independence of regulatory agencies and their performance has never been formally tested. This paper aims at verifying whether formal regulatory independence affects the performance of national competition authorities in the EU member states. The author presents and discusses a statistical analysis which shows that greater formal independence leads competition authorities to investigate more cases and to issue more decisions.

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

The Robustness of Exclusion in Multi-dimensional Screening

Posted by D. Daniel Sokol

Paulo Barelli (University of Rochester) Suren Basov (La Trobe University), Mauricio Bugarin (Insper Institute) and Ian King (University of Melbourne) describe The Robustness of Exclusion in Multi-dimensional Screening.

ABSTRACT: We extend Armstrong's result on exclusion in multi-dimensional screening models in two key ways, providing support for the view that this result is generic and applicable to many different markets. First, we relax the strong technical assumptions he imposed on preferences and consumer types. Second, we extend the result beyond the monopolistic market structure to generalized oligopoly settings with entry. We also analyze applications to several quite different settings: credit markets, the automobile industry, research grants, the regulation of a monopolist with unknown demand and cost functions, and involuntary unemployment in the labor market.

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

Network Neutrality or Minimum Quality? Barking Up the Wrong Tree—and Finding the Right One

Posted by D. Daniel Sokol

Tim Brennan (Univ. of Maryland, Baltimore County) asks Network Neutrality or Minimum Quality? Barking Up the Wrong Tree—and Finding the Right One.

ABSTRACT: U.S. telecommunications regulation has long been characterized by contentious disputes. Pricing, subsidies, and legal authority to regulate have certainly been prominent, but one other theme has been prominent if not dominant: rights of access to incumbent networks. Past disputes of this sort led to a series of separation rules that, in part because of their cumbersome nature, resulted in a judicial rather than regulatory remedy, the 1984 breakup of (the "old") AT&T into a nominally competitive long distance and equipment companies and seven regulated local exchange monopolies.

It hardly needs to be said that the telecommunications landscape has changed considerably since the 1984 divestiture. Thanks to the ubiquity of packet-switching and the explosive growth in mobile communications, the long distance and voice service landline markets central to the antitrust case are almost distant memories. But disputes over pricing, subsidies, legal authority, and rights of access remain. They have moved over to the broadband internet services provided both through landlines (cable television systems or telephone company digital subscriber line service ("DSL") and fiber-optic service) and to mobile smartphones over cellular communications networks.

Perhaps the most contentious of these issues is network or "net" neutrality. Although some observers have found it an elastic concept, the central idea is nondiscrimination-that providers of broadband internet service should treat all content identically, in particular not block any content, and let users know how they manage content.

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

Mergers with Weak Competition: Reflections on FTC v. Lundbeck

Posted by D. Daniel Sokol

Gerg Werden (DOJ) has posted Mergers with Weak Competition: Reflections on FTC v. Lundbeck.

ABSTRACT: In FTC v. Lundbeck, courts rejected a challenge to an acquisition placing under common control the only two drugs for treating a heart defect in newborns. Although the court decisions in the case have been severely criticized, they might well have achieved the right result for the right reason. In a simple model reflecting the weak competition between the drugs found by the courts, duopoly nearly always yields monopoly or near monopoly pricing.

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

Wednesday, April 4, 2012

Information Exchange Agreements

Posted by D. Daniel Sokol

Florian Wagner-von Papp, University College London Faculty of Laws analyzes Information Exchange Agreements.

The exchange of information among competitors has been debated ever since the beginnings of Antitrust Law, but manages to stay a 'hot topic' - from Eddy's 'New Competition' in 1912 to the B2B platform discussions in the early 2000s and the recent guidance on information exchange in the European Commission's Guidelines on Horizontal Co-operation Agreements.

This chapter describes the European Union (EU) law on information exchange and critically analyzes the Guidelines' approach. The most frequent criticism against the Guidelines is that they provide little guidance: Practically all information exchange is suspect, but in many cases it may also have positive effects. To a large extent, this criticism fails the mark: The Guidelines carefully discuss the factors that are to be considered in assessing the anti-competitive and (to a lesser extent) the pro-competitive aspects of information exchange. Even though they do not provide safe harbors, they allow an assessment whether the exchange is 'more' or 'less' problematic. The overall balancing of anti- and pro-competitive aspects is necessarily a messy 'case-by-case' analysis. Those criticizing the Guidelines in this respect should try and come up with generalized safe harbors that do not also open the door to potentially harmful substitutes for cartels.

What is to be deplored, however, is that the Guidelines do not give any guidance for those cases, in which the messy overall balancing could have been avoided altogether. Herbert Hovenkamp rightly states that the balancing of pro- and anti-competitive effects of information exchange is practically impossible, and that one should instead focus on whether the pro-competitive aspects can be achieved by less restrictive means. This may mean, for example, that 'Chinese Walls' have to be erected where competitors enter into a supply-relationship with each other, or that 'Clean Teams' have to be formed when conducting due diligence in the run-up to a merger. While the Guidelines mention the 'indispensability' requirement in EU law briefly in two paragraphs, the failure to define detailed standards for less restrictive means in these cases is a lost opportunity.

The chapter also discusses the concepts of agreement and concerted practice under Article 101 of the Treaty on the Functioning of the EU (TFEU), which lie at the heart of the second category of information exchanges (exemplified by Wood Pulp II). This 'legalistic' criterion has long been under attack as focusing excessively on 'communication' between the competitors, and thus the wrong question (Turner-Posner debate in the 1960s, a criticism that is currently gaining momentum, e.g. by Louis Kaplow). In brief, the criticism is that the economic effects of tacit collusion (interdependent conscious parallelism) are equally bad as those of explicit collusion. While I reject the more extreme versions of completely substituting an effects-based test for any communication requirement, at least for the concept of competition that underlies EU law, I agree that the current focus on 'reciprocal communication' is too narrow. Surprisingly, the Guidelines proclaim that Article 101 TFEU can catch some unilateral communications as well. From a policy point of view, this is a laudable effort. It would, however, require legislative action, either on the EU level or, more likely, on the Member States' level.

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

The Law and Antitrust Economics of Tying

Posted by D. Daniel Sokol

Erik N. Hovenkamp, Northwestern University Department of Economics and Herbert J. Hovenkamp, University of Iowa - College of Law co-authored a paper on The Law and Antitrust Economics of Tying.

ABSTRACT: This paper gives an overview of the law and the antitrust economics of tying. After describing the many varieties of tying arrangements we examine specific legal tying doctrines and gauge their appropriateness for identifying anticompetitive ties. We generally assume that the appropriate antitrust goal is consumer welfare; however, all situations in which consumer welfare is increased by a tie also result in an increase in general welfare. We look at the use of ties as quality control devices and as ways of obtaining both production and distribution efficiencies.

Market power in either the tying or tied product is a necessary but not sufficient condition for competitive harm. Further the co-called “leverage” theory of tying has been appropriately denigrated, except for a few exceptional circumstances. However, the term “foreclosure” still serves to describe some anticompetitive ties. We also expand upon the rationale that ties can be used as price discrimination devices and analyze the effects of such ties on consumer welfare.

When both the tying and tied markets are noncompetitive ties are commonly used to prevent double marginalization. Such ties produce lower prices, higher output, and increased consumer welfare. If the tying and tied products are perfect complements or nearly so, then welfare increases are highly likely. If the two products are imperfect complements then consumer welfare losses may occur because some buyers are forced to take an unwanted product or do without. In this latter set of cases a bundled discount tends to produce greater welfare because those who wish only one product can continue to purchase it, although at a higher price. Thus bundled discounts serve to discriminate between classes of customers where gains from the elimination of double marginalization are possible and those in which they are not.

Finally, we examine optimal damages for tying, looking in particular at the historical test which based damages on tied product overcharges; and the current test which bases damages on the net overcharge of the sum of the tying and tied product prices. We find shortcomings in both methodologies.

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

A Summary Evaluation of the Antitrust Implications in Helios Towers' Acquisition of Multi-Links

Posted by D. Daniel Sokol

Chukwuyere Ebere Izuogu, Streamsowers & Kohn explains A Summary Evaluation of the Antitrust Implications in Helios Towers' Acquisition of Multi-Links.

ABSTRACT: Business combinations in telecommunications market have occurred since 1904 when the first combination between Pioneer Telephone & Telegraph Company, Shawnee’s Long Distance Telephone Company and the North American Telephone & Telegraph Company of Muskogee took place in Oklahoma, America. The merging parties will usually claim efficiencies to justify the combination but nevertheless in the last three decades, national Antitrust authorities have as a matter of practice reviewed such combinations whether they may substantially lessen competition or tend to create a monopoly. In August 2011, the Department of Justice (DoJ), America’s lead Antitrust enforcement agency successfully instituted a lawsuit permanently injuncting the proposed merger between AT&T Inc. and T-Mobile USA Inc., two of the nation’s largest Mobile Network Operators (MNOs). On the other side of the Atlantic, in Nigeria, Helios Towers recently acquired Multi-Links. Both companies operate in the Nigerian Telecommunications market.

In this article, I summarily evaluate the Antitrust implications of the transaction, if any. I also briefly discuss the “failing company” defence invoked to justify the acquisition of an ailing company and conclude by proposing various measures that would substantially mitigate any potential harm caused by the transaction to competition in the affected markets.

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

Compatible or Conflicting: The Promotion of a High Level of Employment and the Consumer Welfare Standard Under Article 101

Posted by D. Daniel Sokol

Tom Hodge has written on Compatible or Conflicting: The Promotion of a High Level of Employment and the Consumer Welfare Standard Under Article 101.

ABSTRACT: The antitrust, or competition, regime of the European Union (EU) differs substantially from that of the United States, because EU competition law forms part of the EU Treaties and is therefore imbibed with the multiple values of the European Union itself. Accordingly, it is by no means clear or settled if the anti-cartel law of the European Union, Article 101 TFEU, must focus solely on a consumer welfare standard or must also consider the broad and multiple policy aims enshrined in the EU Treaties. If Article 101 must balance multiple aims, this would be in stark contrast to Section 1 of the Sherman Act, where the sole goal of consumer welfare has long been established.

This Article will seek to demonstrate that when an agreement is examined under Article 101, any anti-competitive impact that is detrimental to consumer welfare must be balanced against the positive effect on the policy goals of the EU (with the Article focusing particularly on employment issues). The Article further proposes that a “bifurcated balancing approach” should be adopted, with economic efficiency concerns being examined under Article 101(1) and broader policy goals being considered in Article 101(3). The proposals made in this Article are not wholly without controversy, but are supported by the case law of the European Court of Justice.

April 4, 2012 | Permalink | Comments (2) | TrackBack (0)

Tuesday, April 3, 2012

Antitrust’s State Action Doctrine and the Ordinary Powers of Corporations

Posted by D. Daniel Sokol

Herb Hovenkamp has written on Antitrust’s State Action Doctrine and the Ordinary Powers of Corporations.

ABSTRACT: In its Phoebe-Putney decision the Eleventh Circuit held that a state statute permitting a hospital authority to acquire hospitals implicitly authorized such acquisitions when they were anticompetitive – in this particular case very likely facilitating a merger to monopoly. Under antitrust law’s “state action” doctrine a state may in fact authorize such an acquisition, provided that it “clearly articulates” its desire to approve an action that would otherwise constitute an antitrust violation and also “actively supervises” any private conduct that might fall under the state’s regulatory scheme.

“Authorization” in the context of state action doctrine has two meanings. The first is state authority to do the act; the second is state intent to permit the relevant actor to act anticompetitively, and thus to displace the antitrust laws. A statute giving a quasi-governmental or state chartered entity the power to “execute contracts” covers only the first category. Surely no state court would conclude that a simple authorization to a corporation to enter into contracts justified contracting that involved unlawful race discrimination, fraud, or embezzlement, or even state law antitrust violations. Indeed, for more than a century the Supreme Court has held that the fact that an acquisition was lawful under state corporate law did not immunize the transaction from federal antitrust scrutiny.

The Eleventh Circuit’s decision blurs these two meanings of “authorization.” In fact, virtually every state chartered business corporation in the United States has both the power to make contracts and the power to acquire the assets or share capital of other firms. But these simple grants of what have come to be ordinary corporate powers cannot form the basis of a state action immunity. To find authorization that broadly would virtually immunize business corporations from the great majority of antitrust claims. While the court claimed to find authorization in state approval twenty years earlier of what it described as a merger to monopoly, that case actually did not involve a merger to monopoly at all, but rather the transfer of a monopoly hospital from one owner to another. The transfer had no impact whatsoever on competition.

Federal antitrust policy’s commitment to federalism is strong – so strong, in fact, that it permits states to immunize almost any kind of intrastate conduct as long as they state their wishes clearly and do not permit private actors to hijack the process. At the same time, however, the inference is strong that the states have a commitment to the maintenance of competition – attested by the fact that nearly every state has an antitrust law of its own, most of them modeled on the Sherman Act. For that reason the presumption must be strong that before state action immunity will be granted the state must assert with clarity that this was the policy it intended.

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

Identifying Two-Sided Markets

Posted by D. Daniel Sokol

Lapo Filistrucchi, Department of Economics, CentER & TILEC, Tilburg University, Dipertimento di Scienze Economiche, University of Florence, Damien Geradin, Tilburg University - Tilburg Law and Economics Center (TILEC), University of Michigan Law School and Eric E.C. van Damme, TILEC propose Identifying Two-Sided Markets.

ABSTRACT: We review the burgeoning literature on two-sided markets focusing on the different definitions that have been proposed. In particular, we show that the well-known definition given by Evans is a particular case of the more general definition proposed by Rochet and Tirole. We then identify the crucial elements that make a market two-sided and, drawing from both theory and practice, derive suggestions for the identification of the two-sided nature of a market. Our suggestions are relevant not only for the analysis of traditional two-sided markets, such as newspapers and payment cards, but also for the analysis of many new markets, such as those for online social networks, online search engines and Internet news aggregators.

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

Defining and Measuring Search Bias: Some Preliminary Evidence

Posted by D. Daniel Sokol

Joshua D. Wright, George Mason University School of Law discusses Defining and Measuring Search Bias: Some Preliminary Evidence.

ABSTRACT: Search engines produce immense value by identifying, organizing, and presenting the Internet´s information in response to users' queries. Search engines efficiently provide better and faster answers to users' questions than alternatives. Recently, critics have taken issue with the various methods search engines use to identify relevant content and rank search results for users. Google, in particular, has been the subject of much of this criticism on the grounds that its organic search results — those generated algorithmically — favor its own products and services at the expense of those of its rivals. Much of this criticism has focused on the impact of differences among search engines' algorithmic methods upon individual websites, and allegations of "bias" in search engine results, in lieu of a conventional consumer-welfare driven antitrust analysis. The more useful attempts to define “bias" focus upon differences in organic rankings attributable to the search engine ranking its own content (“own-content bias”); that is, a sufficient condition for own‐content bias is that a search engine ranks its own content more prominently than its rivals do. Critics also fail to explore the possibility that differences in search engine algorithms result naturally from the competitive process and generate consumer benefits, as well as the vast economic literature replete with procompetitive justifications for vertical integration. In this paper, we use a large random sample of search queries to explore empirically the nature of search bias and its potential antitrust implications. Of course, so-called "bias" is not a sufficient condition for competitive harm as a matter of economics because it can increase, decrease, or have no impact at all upon consumer welfare. Nonetheless, documenting whether and how much of the alleged bias exists in Googles and its rivals' search results can improve our understanding of its competitive implications — that is, whether the evidence of discrimination in favor of one's own content across search engines is more consistent with anticompetitive foreclosure or competition. From an antitrust perspective, differences in own‐content references across engines fail to indicate consumer harm; to the contrary, it is quite possible — and indeed likely — that these differences imply the existence of intense competition among engines.

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

Monday, April 2, 2012

The Diverging Approach to Price Squeezes in the United States and Europe

Posted by D. Daniel Sokol

George Hay, Cornell University - School of Law and Kathryn McMahon, University of Warwick - School of Law discuss The Diverging Approach to Price Squeezes in the United States and Europe.

ABSTRACT: Notwithstanding assertions of greater harmonization and convergence between United States and European Union competition law, recent case law has identified significant differences in their approaches to the regulation of a price or margin squeeze. In the US after linkLine the likelihood of a successful claim has been significantly diminished, particularly if there has been no prior course of voluntary dealing and no downstream predatory pricing. In contrast, in a series of decisions in liberalized telecommunications markets, the EU Courts in applying an “as efficient competitor test” have focused on the preservation of competitive rivalry as “equality of opportunity.” This significantly broadens the potential liability for a margin squeeze in the EU and reconstitutes EU competition law as a form of de facto regulation in liberalized markets. Faced with the uncertainty of this standard, the dominant firm has an incentive to avoid liability by raising its retail prices, to the detriment of consumers. This article evaluates this divergence in approach to the regulation of a price or margin squeeze in the US and EU and traces these approaches to differing conceptions of dominant firm regulation which in turn have informed different understandings of the regulation of a “refusal to supply” and the intersection of competition law with sector-specific regulation.

April 2, 2012 | Permalink | Comments (0) | TrackBack (0)

How Does Bank Competition Affect Systemic Stability?

Posted by D. Daniel Sokol

Deniz Anginer, World Bank - DEC Research Group, Asli Demirguc-Kunt, World Bank - Development Research Group (DECRG) and Min Zhu, World Bank ask How Does Bank Competition Affect Systemic Stability?

ABSTRACT: Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, they examine the correlation in the risk taking behavior of banks, hence systemic risk. They find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, with generous deposit insurance and greater government ownership of banks, and public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with low levels of foreign ownership, weak investor protections, generous safety nets, and where the authorities provide limited guidance for bank asset diversification.

April 2, 2012 | Permalink | Comments (0) | TrackBack (0)