Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, May 5, 2012

The European Union after the Treaty of Lisbon

Posted by D. Daniel Sokol

The European Union after the Treaty of Lisbon

Edited by Dr Diamond Ashiagbor University College London Dr Nicola Countouris University College London Dr Ioannis Lianos University College London. TABLE OF CONTENTS: Introduction Diamond Ashiagbor, Nicola Countouris and Ioannis Lianos; 1. The institutional development of the EU post-Lisbon: a case of plus ça change…? Laurent Pech; 2. Competence after Lisbon: the elusive search for bright lines Takis Tridimas; 3. The Charter, the ECJ and national courts P. P. Craig; 4. Accession of the EU to the ECHR: who would be responsible in Strasbourg? Tobias Lock; 5. EU citizenship after Lisbon Niamh Nic Shuibhne; 6. The law and politics of migration and asylum: the Lisbon Treaty and the EU Sabina Anne Espinoza and Claude Moraes; 7. The European Union's Common Foreign and Security Policy after Lisbon Panos Koutrakos; 8. The European Ombudsman and good administration post-Lisbon P. Nikiforos Diamandouros, European Ombudsman; 9. European contract law after Lisbon Lucinda Miller; 10. Competition law in the European Union after the Treaty of Lisbon Ioannis Lianos; 11. The unexpected revision of the Lisbon Treaty and the establishment of a European Stability Mechanism Jean-Victor Louis

May 5, 2012 | Permalink | Comments (1) | TrackBack (0)

Friday, May 4, 2012

Competition for Innovation

Posted by D. Daniel Sokol

Herb Hovenkamp discusses Competition for Innovation.

ABSTRACT: Both antitrust and IP law are limited and imperfect instruments for regulating innovation. The problems include high information costs and lack of sufficient knowledge, special interest capture, and the jury trial system, to name a few. More fundamentally, antitrust law and intellectual property law have looked at markets in very different ways. Further, over the last three decades antitrust law has undergone a reformation process that has made it extremely self conscious about its goals. While the need for such reform is at least as apparent in patent and copyright law, very little true reform has actually occurred.

This article briefly examines three areas in which antitrust has something useful to contribute to innovation policy. The first concerns the relationship between innovation and market structure. Second is the lesson that IP law can learn from the severe revision in remedies doctrine that antitrust has developed in order to align private antitrust enforcement with antitrust law’s underlying goals. The third concerns the way that antitrust should deal with deficient intellectual property rules that grant far too many rights and defines them in excessively ambiguous or overly broad ways.

Both competition and innovation are highly sensitive to market structure. A vast literature discusses the relationship between market structure and market competitiveness. A equally vast literature is concerned with the relationship between market structure and the rate of innovation. This literature suggests, for example, that patenting works much better in some markets than in others. The optimal length of a patent or copyright varies from one market to another, even though the actual length generally does not. By most measures the rate of innovation also varies with the number of firms in a market. There is probably more empirical literature on the relationship between innovation and market structure than in any field in industrial organization economics. One would never know it from looking at patent or copyright cases or even the IP statutes themselves. While structural issues play a major role in antitrust policy, intellectual property policy very largely proceeds on the assumption that market structure is irrelevant.

For private plaintiffs, the analogy between antitrust and intellectual property enforcement is strong. While most antitrust lawsuits are brought by private plaintiffs, that is true of an even higher percentage of IP infringement suits. Private antitrust plaintiffs do not sue in order to promote competition but rather to protect their own interests, which may or may not coincide with competitive outcomes. By the same token, in intellectual property law the plaintiffs are rights holders protecting their own property interests.

Managing competition for innovation is a complex task, made more complex and difficult by deficient intellectual property policies. Although courts are not perfect institutions either, there is a lesson to be learned here. We would probably have a better and more defensible intellectual property system if we left somewhat more to the courts and less to the statutes.

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

Price competition in the spatial real estate market: Allies or rivals?

Posted by D. Daniel Sokol

Shinichiro Iwata, Faculty of Economics, University of Toyama, Kazuto Sumita, Department of Economics, Kanazawa Seiryo University and Mieko Fujisawa, Institute of Economic Research, Hitotsubashi University ask Price competition in the spatial real estate market: Allies or rivals?

ABSTRACT: This paper examines real estate pricing featuring the price response curve, both theoretically and empirically. The Bertrand model with differentiated products suggests that the price response of real estate may differ when properties in the vicinity are priced by an affiliated firm or one's own firm. This is because the firm can maintain the collusive state if real estate prices in the neighborhood are priced by allies, whereas it loses it if prices are priced by rivals. To examine this prediction, a spatial autoregressive model with autoregressive and heteroskedastic disturbances, including a share of allies in the vicinity, is estimated using data on the residential condominium market in central Tokyo. Empirical results provide support for the model prediction.

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

Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework

Posted by D. Daniel Sokol

Michael Zschille (DIW Berlin) has written on Consolidating the Water Industry: An Analysis of the Potential Gains from Horizontal Integration in a Conditional Efficiency Framework.

ABSTRACT: The German potable water supply industry is regarded as being highly fragmented, thus inhibiting high potentials for efficiency improvements through consolidation. Focusing on a hypothetical restructuring of the industry, we apply Data Envelopment Analysis (DEA) to analyze the potential efficiency gains from mergers between water utilities at the county level. A conditional efficiency framework is used to account for the operating environment. Highest efficiency improvement potentials turn out to result from reducing individual inefficiencies. The majority of the 84 merger cases is characterized by merger gains, which are decomposed into a technical efficiency effect, a harmony effect and a scale effect. The results suggest to improve incentives for efficient operations in water supply and a consolidation of the industry structure.

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

Thursday, May 3, 2012

Migration to the Cloud Ecosystem: Ushering in a New Generation of Platform Competition

Posted by D. Daniel Sokol

Chaim Fershtman (Tel Aviv University) and Neil Gandal (Tel Aviv University) explore Migration to the Cloud Ecosystem: Ushering in a New Generation of Platform Competition.

ABSTRACT: Cloud computing is defined to be Internet based computing technology, where the term 'cloud' simply means Internet -- and cloud computing refers to services that are accessed directly over the Internet. There are essentially three categories of cloud computing. (i) Iaas (Infrastructure as a Service) -- number crunching, data storage and management services (computer servers), (ii), SaaS (Software as a Service) -- ‘web based’ applications, and (iii) PaaS (Platform as a Service) -- essentially an operating system in the cloud. Much of the attention and literature has focused on the revolution in Iaas services provided via the cloud. Despite the major changes in technology in IaaS services, estimates indicate that more than 90% of the cloud computing market (in terms of revenues) will involve (virtual) operating systems and applications software services (i.e., PaaS and SaaS services.) In this paper, we examine how several key economic factors will likely affect competition in SaaS/PaaS services in the cloud.

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

Price and Frequency Competition in Freight Transportation

Posted by D. Daniel Sokol

Nilopa Shah (UC Irvine) and Jan K. Brueckner (UC Irvine) address Price and Frequency Competition in Freight Transportation.

ABSTRACT: This paper develops a simple analytical model of price and frequency competitionamong freight carriers. In the model, the full price faced by a shipper (a goodsproducer) includes the actual shipping price plus an inventory holding cost, whichis inversely proportional to the frequency of shipments offered by the freight carrier. Taking brand loyalty on the part of shippers into account, competing freightcarriers maximize profit by setting prices, frequencies and vehicle carrying capacities. Assuming tractable functional forms, long- and short-run comparative-staticresults are derived to show how the choice variables are affected by the model’sparameters. The paper also provides an efficiency analysis, comparing the equilibrium to the social optimum, and it attempts to explain the phenomenon of excesscapacity in the freight industry.

May 3, 2012 | Permalink | Comments (1) | TrackBack (0)

Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations

Posted by D. Daniel Sokol

Richard Gilbert (Berkeley) has an interesting new paper Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations.

ABSTRACT: Technical standards benefit consumers and producers by facilitating productadoption, promoting compatible solutions, and helping to create anecosystem of products and services in which competition can thrive. However,standards also may create opportunities for the exercise of market power. Owners of patents with claims that are essential to a standard may hold up firms or consumers that are locked-in to a standard by charging high royalties for the use of products that comply with the standard. This licensor (or seller) market power arises ex post, i.e., after firms and consumers have made investments that are specific to the standard.

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

TV Wars: Exclusive Content and Platform Competition in Pay TV

Posted by D. Daniel Sokol

Helen Weeds (Essex) has written on TV Wars: Exclusive Content and Platform Competition in Pay TV.

ABSTRACT: The paper examines incentives for exclusive distribution of premium television content such as live sports and Hollywood movies. Static analysis shows that a pay TV operator with premium content always chooses to supply its retail rival, using per-subscriber fees to soften competition. Incorporating platform competition, however, exclusive content gives its holder a market share advantage that is amplified by dynamic effects. Under some conditions this benefit outweighs the opportunity cost of forgone wholesale fees, making exclusivity the equilibrium choice. The analysis explains the observed incidence of content exclusivity in pay TV. Specific dynamic mechanisms are explored, and welfare and policy implications are discussed.

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

Wednesday, May 2, 2012

Exclusive dealing as a barrier to entry? Evidence from automobiles

Posted by D. Daniel Sokol

Laura Nurski, Katholieke Universiteit Leuven - Faculty of Business and Economics and Frank Verboven, Katholieke Universiteit Leuven - Faculty of Business and Economics address Exclusive dealing as a barrier to entry? Evidence from automobiles.

ABSTRACT: Exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market. We ask whether such contracts may act as an entry barrier, and provide an empirical analysis of the European car market. We first estimate a demand model with product and spatial differentiation, and quantify the role of a dense distribution network in explaining the car manufacturers' market shares. We then perform policy counterfactuals to assess the profit incentives and entry-deterring effects of exclusive dealing. We find that there are no individual incentives to maintain exclusive dealing, but there can be a collective incentive by the industry as a whole, even absent efficiencies. Furthermore, a ban on exclusive dealing would shift market shares from the larger European firms to the smaller entrants. More importantly, consumers would gain substantially, mainly because ! of the increased spatial availability and less so because of intensified price competition. Our findings suggest that the European Commission's recent decision to facilitate exclusive dealing in the car market may not have been warranted.

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

Complementary assets, patent thickets and hold-up threats: Do transaction costs undermine investments in innovation?

Posted by D. Daniel Sokol

Franz Schwiebacher (ZEW) asks Complementary assets, patent thickets and hold-up threats: Do transaction costs undermine investments in innovation?

ABSTRACT: Innovation is commercialization of technology. Imperfections in markets for technology should leave marks on physical investments for innovation. Two types of transaction costs could affect innovative investments: royality stacking and hold-up threats. Backward references in firm's patent portfolio indicate potential technology suppliers. I find a negative effect of ownership fragmentation on investments related to innovation for firms with small patent portfolios. Hold-up threats are credible when upstream patentees have less specific capital sunk than innovating firms. Differences in fixed capital stocks between downstream firms and upstream patentees negatively affect investments in innovation for firms with large patent portfolios. These effects are specific to investments in innovation. There are no comparable effects on investments in R&D or residual physical investments. The effects of patent thickets on innov! ation are thus not uniform. They depend on the characteristics of the downstream firm.

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

Blumenthal Blogging Write-Up of the Rio ICN Meeting Now Available

Posted by D. Daniel Sokol

Bill Blumenthal (Clifford Chance) has posted all of his blogging from the ICN meeting in Rio. See here.

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

Hospital competition with soft budgets

Posted by D. Daniel Sokol

Kurt R. Brekke (Department of Economics and Centre and Health Economics Bergen, Norwegian School of Economics), Luigi Siciliani (Department of Economics and Centre for Health Economics, University of York, Heslington) and Odd Rune Straume (Department of Economics, University of Minho) describe Hospital competition with soft budgets.

ABSTRACT: We study the incentives for hospitals to provide quality and expend cost-reducing effort when their budgets are soft, i.e., the payer may cover deficits or confiscate surpluses. The basic set up is a Hotelling model with two hospitals that differ in location and face demand uncertainty, where the hospitals run deficits (surpluses) in the high (low) demand state. Softer budgets reduce cost efficiency, while the effect on quality is ambiguous. For given cost efficiency, softer budgets increase quality since parts of the expenditures may be covered by the payer. However, softer budgets reduce cost-reducing effort and the profit margin, which in turn weakens quality incentives. We also find that profit confiscation reduces quality and cost-reducing effort. First best is achieved by a strict no-bailout and no-profit-confiscation policy when the regulated price is optimally set. However, for suboptimal prices a more lenient ba! ilout policy can be welfare improving.

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

Product-market competition, corporate governance and innovation: evidence on US-listed firms

Posted by D. Daniel Sokol

Nawar Hashem (University of Greenwich)and Mehmet Ugur (University of Greenwich), address Product-market competition, corporate governance and innovation: evidence on US-listed firms.

ABSTRACT: The debate on competition and innovation has produced a wide range of theoretical and empirical findings. Recently, corporate governance quality has emerged as an additional factor that may complement or substitute for competition’s effect on innovation. We aim to contribute to the debate by investigating whether product-market competition and corporate governance quality affect firm-level innovation, utilising a dataset for 1,400 non-financial US-listed companies. Using two-way cluster-robust estimation, we report several findings. First, the relationship between industry-level competition and input as well as output measures of innovation is non-linear. Secondly, the non-linear relationship is of an inverted-U shape with respect to input measures of innovation, but the relationship has a U-shape when output measure of innovation is estimated. Third, corporate governance indicators such as anti-takeover defences and insider control tend to have a negative effect on input measures of innovation but their effect is positive with respect to the output measure. Finally, when interacted with market concentration, anti-takeover defences and insider control emerge as substitutes, leading to sign reversals in the relationship between competition and innovation. The results are obtained by using two-way cluster-robust estimation that controls for dependence within company/year and industry/year clusters, but they are robust to different estimation methods including fixed-effect and Fama-Macbeth procedure.

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

Tuesday, May 1, 2012

Can the Failing Firm Defense Rule be Counterproductive?

Posted by D. Daniel Sokol

Helder Vasconcelos (Faculdade de Economia do Porto), asks Can the Failing Firm Defense Rule be Counterproductive?

ABSTRACT: This paper studies the role of the failing firm defense (FFD) concept in merger control in a Cournot setting where: (i) endogenous mergers are motivated by prospective efficiency gains; and (ii) mergers must be submitted to an Antitrust Authority which might require partial divestiture for approval. It is shown that when the FFD concept is available in merger control, firms can strategically embark on a merger which makes other firms fail and then buy over the exiting outsider firm(s), leading to complete monopolization of the industry. This in turn implies that, in some circumstances, the consumers'-surplus-maximizing market structure cannot be achieved if the FFD concept is available, whereas it would be achieved if the FFD concept were ruled out.

May 1, 2012 | Permalink | Comments (0) | TrackBack (0)

When the Baby Cries at Night: Uninformed and Hurried Buyers in Non-Competitive Markets

Posted by D. Daniel Sokol

Giacomo Calzolari (University of Bologna), Andrea Ichino (University of Bologna), Francesco Manaresi (Bank of Italy), Viki Nellas (University of Bologna) discuss When the Baby Cries at Night: Uninformed and Hurried Buyers in Non-Competitive Markets.

ABSTRACT: We study the entrance in a retail market of consumers who are less elastic because of hurriedness and lack of information. Theory predicts that firms react by increasing prices to expand surplus extraction, but this effect weakens as market competition increases. High frequency data from Italian pharmacies confirm these predictions. Monthly variation in the number of newborns at the city level generates exogenous changes in the number of less elastic buyers (the parents) who consume a basket of hygiene products demanded by more experienced and elastic consumers as well. We estimate that the number of newborns has a positive effect on the equilibrium price even if marginal costs are decreasing. We exploit exogenous variation in market competition generated by the Italian legislation concerning how many pharmacies should operate in a city as a function of the existing population. Using a Regression Discontinuity design we ! find that an increase in competition has a significant and negative effect on the capacity of sellers to extract surplus from less elastic buyers.

May 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Price setting with menu cost for multi-product firms

Posted by D. Daniel Sokol

Fernando E Alvarez (University of Chicago) and Francesco Lippi (University of Sassari) discuss Price setting with menu cost for multi-product firms.

ABSTRACT: We model the pricing decisions of a multi-product firm that faces a fixed 'menu' cost: once the cost is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decision in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products that are sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The cumulative response of output to a monetary shock is the product of three terms: the steady state standard deviation of price changes, the average time elapsed between price changes, and a function of both the number of products and the size of the monetary shock. The size of the cumulative response of output and the length of the half-life of the response of aggregate prices to a monetary shock increase with the number of products, both of them more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model.

May 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Endogenous Product Choice: A Progress Report

Posted by D. Daniel Sokol

Gregory Crawford (Warwick) provides Endogenous Product Choice: A Progress Report.

ABSTRACT: Empirical models of differentiated product demand are widely used by both academics and practitioners. While these methods treat carefully the potential endogeneity of price, until recently they have assumed the number and characteristics of the products offered by firms are exogenous. This paper presents a progress report on an ongoing research agenda to address this issue. First, it summarizes how the appropriate choice of 'orthogonal' instruments can yield consistent estimates of own and cross-price elasticities in the presence of endogenous product characteristics. Second, it summarizes how to measure 'quality markups' and the welfare consequences of endogenous product quality in U.S. cable television markets. Related papers and extensions to consider multiple product characteristics and dynamics are also discussed.

May 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, April 30, 2012

Interview with Sharis A. Pozen - Antitrust Source

Posted by D. Daniel Sokol

The current issue of the Antitrust Source has an interview with Sharis A. Pozen (DOJ). Read it here.

April 30, 2012 | Permalink | Comments (0) | TrackBack (0)

Flexibility and Collusion with Imperfect Monitoring

Posted by D. Daniel Sokol

Maria Bigoni (Universita di Bologna), Jan Potters (Tilburg), Giancarlo Spagnolo (Stockholm School of Economics ) discuss Flexibility and Collusion with Imperfect Monitoring.

ABSTRACT: Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility.

April 30, 2012 | Permalink | Comments (0) | TrackBack (0)

Financing Constraints, Product Market Competition, and Business Cycle Sensitivity

Posted by D. Daniel Sokol

Peter Pontuch (Universite Paris Dauphine) has written on Financing Constraints, Product Market Competition, and Business Cycle Sensitivity.

ABSTRACT: We analyze the interactions between financing constraints and product market competition. Financially constrained firms face restricted access to external finance during economic downturns, precisely when their internal funds decrease. This leads to vicious circle dynamics. We argue that in competitive industries cash flows are particularly sensitive to aggregate shocks, and the adverse dynamics are amplified. We find significant support for this hypothesis in firms' operating profitability and fixed investment. The adverse effects of financing constraints are increasing in the level of product market competition. Market valuations do not take into account these differences in fundamental risk. Unconstrained firms in competitive industries earn positive abnormal returns (on average 24-40 bp per month), especially following periods of macroeconomic distress. Furthermore, financing constraints affect competitive mechanisms! within industries. The industry-average level of financing constraints tends to reduce the intra-industry mean-reversion of firm profitability. Again, this regularity is not priced: highly profitable firms earn alphas of 20-29 bp per month if they operate in industries with many constrained firms, but virtually no alphas if their industries have few constrained firms.

April 30, 2012 | Permalink | Comments (0) | TrackBack (0)