Antitrust & Competition Policy Blog

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

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Saturday, April 21, 2012

Conference announcement: 19th St.Gallen International Competition Law Forum ICF (June 7th and 8th)

Posted by D. Daniel Sokol 

Conference announcement: 19th St.Gallen International Competition Law Forum ICF (June 7th and 8th)

The Institute of European and International Business Law from the University of St.Gallen,  Switzerland is pleased to invite you to the 19th St.Gallen International Competition Law Forum ICF  on June 7th and 8th 2012. Once again, leading experts in national, European and international  competition law will come together to discuss and share their ideas on the latest trends and  developments in the field and their practical implications.

The St.Gallen International Competition Law Forum ICF prides itself on being one of the most  established events of its kind in Europe. It attracts influential policy shapers, this year, for example,  Joaquín Almunia (European Commissioner for Competition), Andreas Mundt (President of the  German Competition Authority) or William Kovacic (Former Commissioner of the U.S. Federal Trade  Commission ) as well as internationally renowned academic experts and leading business  practitioners.

You will find all information on the conference in the programme flyer  (http://www.eur.unisg.ch/org/eur/sgifk.nsf/SysWebRessources/Flyer+ICF+19/$FILE/19thICFFlyer.pdf)  and under www.sg‐icf.ch. As places are limited, we encourage early registration!  

If you have further questions, please do not hesitate to contact the Institute of European and  International Business Law ([email protected]).   We very much look forward to seeing you this summer in St.Gallen!

April 21, 2012 | Permalink | Comments (1) | TrackBack (0)

Friday, April 20, 2012

Trade, Competition, and the Pricing of Commodities

Posted by D. Daniel Sokol

Simon J. Evenett (University of St. Gallen) and Frederic Jenny (Essec Business School) have edited Trade, Competition, and the Pricing of Commodities.

1 Introduction
Simon J Evenett and Frederic Jenny

2 Commodity Prices, Government Policies and Competition
Steve McCorriston

3 Price Formation and Price Trends in Exhaustible Resource Markets
Marian Radetzki

4 Price Effects of International Cartels in Markets for Primary Products
John M Connor

5 Global Welfare Consequences of Cartelisation in Primary Commodities: Cases of Natural Rubber and Banana
Pradeep S Mehta, Aradhna Aggarwal and Natasha Nayak

6 Export Cartels in Primary Products: The Potash Case in Perspective
Frederic Jenny

7 Reducing Distortions in International Commodity Markets: An Agenda for Multilateral Cooperation Bernard Hoekman and Will Martin

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

How does bank competition affect systemic stability?

Posted by D. Daniel Sokol

Deniz Anginer Asli Demirguc-Kunt and Min Zhu (all 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 20, 2012 | Permalink | Comments (0) | TrackBack (0)

The institutional framework for doing sports business: Principles of EU competition policy in sports markets

Posted by D. Daniel Sokol

Oliver Budzinski (University of Southern Denmark) describes The institutional framework for doing sports business: Principles of EU competition policy in sports markets.

ABSTRACT: The competition rules and policy framework of the European Union represents an important institutional restriction for doing sports business. Driven by the courts, the 2007 overhaul of the approach and methodology has increased the scope of competition policy towards sports associations and clubs. Nowadays, virtually all activities of sports associations that govern and organize a sports discipline with business elements are subject to antitrust rules. This includes genuine sporting rules that are essential for a league, championship or tournament to come into existence. Of course, 'real' business or commercial activities like ticket selling, marketing of broadcasting rights, etc. also have to comply with competition rules. Regulatory activities of sports associations comply with European competition rules if they pursuit a legitimate objective, its restrictive effects are inherent to that objective and proportionate to ! it. This new approach offers important orientation for the strategy choice of sports associations, clubs and related enterprises. Since this assessment is done following a case-by-case approach, however, neither a blacklist of anticompetitive nor a whitelist of procompetitive sporting rules can be derived. Instead, conclusions can be drawn only from the existing case decisions - but, unfortunately, this leaves many aspects open. With respect to business activities, the focus of European competition policy is on centralized marketing arrangements bundling media rights. These constitute cartels and are viewed to be anticompetitive in nature. However, they may be exempted from the cartel prohibition on efficiency and consumer benefits considerations. Here, a detailed list of conditions exists that centralized marketing arrangements must comply with in order to be legal. Although this policy seems to be well-developed at first sight, a closer look at the decision practice reveals several open problems. Other areas of the buying and selling behavi or of sports associations and related enterprises are considerably less well-developed and do not provide much orientation for business.

April 20, 2012 | Permalink | Comments (2) | TrackBack (0)

Thursday, April 19, 2012

Some comparative economics of the organization of sports: Competition and regulation in north American vs. European professional team sports leagues

Posted by D. Daniel Sokol

Wladimir Andreff (CES - Centre d'economie de la Sorbonne - Universite Paris I - Pantheon Sorbonne) offers thoughts on Some comparative economics of the organization of sports: Competition and regulation in north American vs. European professional team sports leagues.

ABSTRACT: The paper presents the differences between the design of a closed and an open team sports league. Then it compares the theoretical models of a closed league with profit maximizing clubs and an open league with win maximizing clubs. Both models are now outdated by a Nash equilibrium model which is briefly sketeched. In the case of open leagues, a disequilibrium model seems more appropriate and a first attempt at elaborating it are exhibited.

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

Commitments in Antitrust

Posted by D. Daniel Sokol

Philippe Chone (ENSAE and CREST), Said Souam (Universite Paris Ouest Nanterre La Defense (EconomiX) and CREST) and Arnold Vialfont (Universite Paris-Est) have written on Commitments in Antitrust.

ABSTRACT: Competition agencies have the power to close an antitrust case in return for the commitment to end the alleged infringement. We examine how such a procedure affects deterrence and consumer welfare. We first show that it lowers the deterrent effect of competition policy. However, under asymmetric information, commitments may enhance consumer surplus with shortened proceedings and avoidance of trial type-II errors. The variation of consumer harm w.r.t. the firm's gain from the practice determines the optimal usage frequency of this negotiation tool. Finally, we show that trial and commitments may be complements as the latter is not always an answer to a lack of efficiency of the agency.

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

The Arm's Length Principle and Tacit Collusion

Posted by D. Daniel Sokol

Chongwoo Choe Department of Economics, Monash University and Noriaki Matsushimay Institute of Social and Economic Research, Osaka University have written on The Arm's Length Principle and Tacit Collusion.

ABSTRACT: The arm's length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm's length with each other. This paper examines the effect of the arm's length principle on dynamic competition in imperfectly competitive markets. It is shown that the arm's length principle renders tacit collusion more stable. This is true whether firms have exclusive dealings with unrelated parties or compete for the demand from unrelated parties.

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

Antitrust and Patent Wars Question

Posted by D. Daniel Sokol At an antitrust conference earlier this week a friend asked why the antitrust concerns regarding standard essential patents seem to be focused on mobile telecom. Any thoughts?

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

Economist Article Profiles LIBOR cartel scholarship

Posted by D. Daniel Sokol

The Economist has highlighted the screens work of Rosa Abrantes-Metz and her coauthors.

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

Intransparent Markets and Intra-Industry Trade

Posted by D. Daniel Sokol

Christian Gormsen (CES - Centre d'economie de la Sorbonne) identifies Intransparent Markets and Intra-Industry Trade.

ABSTRACT: Buyers are typically unaware of the full set of offers when making a purchase. This paper examines how international trade interacts with this problem of market intransparency. Sellers must communicate their offers through costly advertising, but cannot reach all buyers. Consequently, no market clearing price exists, and sellers randomize over an equilibrium price distribution. Sellers will wish to spread advertisement costs across markets, leading to international trade, which would not take place under complete information. Buyers then receive more offers, leading to lower prices and buyer surplus gains. Sellers in the model are identical, but appear heterogeneous due to their price randomization. If sellers differ slightly, these differences will be greatly magnified. Finally, the model rationalizes very infrequent exporters as firms offering disadvantageous, but profitable, deals to foreign buyers.

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

Wednesday, April 18, 2012

Conference 14-15 June 2012: What Do Public and Private Sanctions in Competition Policy Actually Achieve?

Posted by D. Daniel Sokol

What Do Public and Private Sanctions in Competition Policy Actually Achieve?

Competition authorities impose fines but also criminal sanctions on firms for breaches of competition law. Alongside this, they are making concerted efforts to encourage the victims of competition law abuses to bring private actions for damages. Despite a general consensus that certain types of competition law infringements should be punished, there is limited agreement as to what form this punishment should take or what sanctions aim to achieve. The conference explores the theory and evidence on public and private sanctions and what they could achieve or have achieved in practice. Contributions will include theoretical and empirical approaches from US, European and UK academics being presented in a multidisciplinary environment.

The conference will be held on 14 and 15 June 2012 in the Thomas Paine Building at UEA in Norwich.

For a list of conference speakers, presentation titles and abstracts (where available) click here

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

Competitive Pressure: Competitive Dynamics as Reactions to Multiple Rivals

Posted by D. Daniel Sokol

Leon Zucchini (Ludwig-Maximilians-Universitat Munchen) and Tobias Kretschmer (Ludwig-Maximilians-Universitat Munchen) describe Competitive Pressure: Competitive Dynamics as Reactions to Multiple Rivals.

ABSTRACT: Competitive dynamics research has focused primarily on interactions between dyads of firms. Drawing on the awareness-motivation-capability framework and strategic group theory we extend this by proposing that firms? actions are influenced by perceived competitive pressure resulting from actions by several rivals. We predict that firms? action magnitude is influenced by the total number of rival actions accumulating in the market, and that this effect is moderated by strategic group membership. We test this using data on the German mobile telephony market and find them supported: the magnitude of firms actions is influenced by a buildup of actions by multiple rivals, and firms react more strongly to strategically similar rivals.

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

Deterministic versus Random Utility: Implied Patterns of Vertical Product Differentiation in a Multi-Product Monopoly

Posted by D. Daniel Sokol

Christiaan Behrens (VU University Amsterdam), Mark Lijesen (VU University Amsterdam), Eric Pels (VU University Amsterdam), and Erik Verhoef (VU University Amsterdam) exlain Deterministic versus Random Utility: Implied Patterns of Vertical Product Differentiation in a Multi-Product Monopoly.

ABSTRACT: In this article we study patterns of vertical product differentiation in a multi-product monopoly using a random utility model. Prior research shows that applying such a model in a multi-product setting implies symmetric patterns of product differentiation in which all product variants of a single firm have the same characteristics. Assuming that preferences differ across consumers and allowing for unobserved demand heterogeneity, we numerically show the existence of asymmetric, fully differentiated, patterns of vertical product differentiation in which the monopolist maximises profits by setting prices and qualities. In particular, we show that the patterns of vertical product differentiation depend crucially on the level of unobserved demand heterogeneity and the observed dispersion of willingness to pay for quality. Only if unobserved demand heterogeneity is small relative to the observed dispersion, asymmetric, fully differentiated, equilibriums exist. Furthermore, we find in our model that the level of unobserved heterogeneity and the dispersion of willingness to pay for quality do not affect the relative welfare efficiency of the monopolist.

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

Beyond the Need to Boast: Cost Concealment Incentives and Exit in Cournot Oligopoly

Posted by D. Daniel Sokol

Jos Jansen (University of Cologne) has written on Beyond the Need to Boast: Cost Concealment Incentives and Exit in Cournot Oligopoly.

ABSTRACT: This paper studies the incentives for production cost disclosure in an asymmetric Cournot oligopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitors from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firms is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.

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

Timing of investments and third degree price discrimination in intermediate good markets

Posted by D. Daniel Sokol

Youping Li, School of Business, East China University of Science and Technology addresses Timing of investments and third degree price discrimination in intermediate good markets.

ABSTRACT: We study third degree price discrimination in intermediate good markets, in which costs of production for the downstream firms are determined by their investment choices. We focus on the effect of the sequence of firm actions and analyze two models with different timing of investments, before or after the upstream monopolist sets the input prices. When investments are determined after the prices are set, an indirect effect of input prices on the derived demand from downstream firms must be taken into account, due to the change of investment incentives. This causes the upstream firm to possibly charge the more efficient downstream firm a lower price, a result contrasting previous findings. Using linear demand and quadratic investment costs, we show that not only the downstream firms but also the upstream monopolist prefers the sequence of play in the latter model, i.e., it benefits from committing to prices before investm! ents are undertaken. A change of timing from the first model to the second constitutes a strict Pareto improvement.

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

Tuesday, April 17, 2012

The Impact of “Rollover” Contracts on Switching Costs in the UK Voice Market : Evidence from Disaggregate Customer Billing Data

Posted by D. Daniel Sokol

Gregory S. Crawford (Department of Economics, University of Warwick), Nicola Tosini and Keith Waehrer has researched The Impact of “Rollover” Contracts on Switching Costs in the UK Voice Market : Evidence from Disaggregate Customer Billing Data.

ABSTRACT: In February 2008, British Telecommunications (BT) introduced automatically renewing, or “rollover”, contracts into the UK market for fixed-voice telephone service. These contracts included a 12-month Minimum Contract Period (MCP) with associated Early Termination Charges (ETCs). Unless customers opted out, at the end of the 12 months they would automatically be rolled over into a new MCP and face new ETCs if they later wished to leave BT. Using a unique, disaggregate, customer billing dataset, we measure the impact of rollover contracts on BT customers’ decision to switch to another provider. We find that, controlling for the effects of tenure, broadband purchase, price discounts, and self-selection, rollover households switch after their first MCP 34.8% (54.8%) less than comparable customers on standard plans (fixed-term contracts). These imply rollover contracts induce switching costs on the order of 33.0% of the! monthly price of the average BT fixed-voice telephone service. This raises significant concerns about the competitive effects of such contracts n media and telecommunications markets.

April 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Innovation in EU merger control: walking the talk

Posted by D. Daniel Sokol

Reinhilde Veugelers (Breugel) has written on Innovation in EU merger control: walking the talk.

ABSTRACT: European Union policymakers have in principle put innovation at the heart of competitiveness, in particular in the Europe 2020 strategy. But in merger control, assessments of the innovation effects of mergers are inadequate, even though mergers and acquisitions can have a significant impact on the development of the structure of an industry, and on its capability to innovate. EU merger control rules include scope for assessing the innovation effects of mergers, but in practice, the European Commission's directorate-general for competition (DG COMP) is not â??walking the talkâ??. Innovation effects are only assessed when claimed by parties to a merger, and this happens rarely. Where innovation effects have been claimed, they have not been decisive in any case, meaning DG COMP has not considered them important enough to influence its decision. A framework should be put in place that makes the reporting of efficiency-rela! ted information by the merging parties mandatory, so that innovation effects can be properly assessed for all mergers. In addition, models can be used to make an assessment of the longer-term innovation effects of a merger, and to help inform decision-making.

April 17, 2012 | Permalink | Comments (0) | TrackBack (0)

The evolvability of business and the role of antitrust

Posted by D. Daniel Sokol

Ian Wilkinson (The University of Sydney)explores The evolvability of business and the role of antitrust.

ABSTRACT: I argue that the main case for antitrust policy should be extended to include the criteria of "evolvability." To date, the main case focuses on economizing, including market power as a key filter for identifying suspect cases. Both production and transaction costs are considered as part of economizing and other factors are use to consider the benefits of different industry structures. CAS analysis focuses attention on dynamics, evolution and networks. As I will show, the criteria of evolvability requires us to consider various types of direct and indirect network impacts in business that go beyond the traditional focus on production and transaction costs. These network impacts stem from the connections between transactions and relations over time and place, including how business arrangements at one time, limit or enable arrangements in the future. An assessme! nt of the impacts, I argue, can and should be included in the rules of antitrust and in the processes of antitrust case analysis and decision making.

April 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety

Posted by D. Daniel Sokol

Sumon Datta (Krannert School of Management, Purdue University) and K. Sudhir (Cowles Foundation and Yale School of Management) ask Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety.

ABSTRACT: This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that estimates of factors affecting market potential and competitive intensity in the extant literature on entry and location choice that do not account for zoning restrictions are significantly biased. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead to greater product differentiation. Finally, we provide qualitative insight on how zoning impacts retail entry and format variety; in particular we evaluate the impact of prototypical zoning arrangements such as "centralized," "neighborhood," and "outskirt" zoning on entry and format variety.

April 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, April 16, 2012

Costs in Competition Law - May 9, 2012

Posted by D. Daniel Sokol

On 9th May 2012, the Brussels School of Competition (BSC) will organize in Brussels a half-day compliance seminar on “Costs in Competition Law”. This event brings together a team of one lawyer and one economist, who will seek to provide an integrated perspective on the issue and also review recent case-law developments, in particular the recent judgments handed down by the EU Courts in the Post Danmark (C-209/10) and Telefónica (T-336/07) cases.

Information and registration : www.brusselsschoolofcompetition.eu

April 16, 2012 | Permalink | Comments (0) | TrackBack (0)