Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, July 14, 2012

How I Would Have Handled the Libor Scandal if I Were Barclays

Posted by D. Daniel Sokol

A number of people have asked me for my views on the Libor scandal. If I were Barclays I would have taken the following strategy- the day the news came out of the Non-prosecution agreement, I would have said the following:

Barclays has entered into a NPA. The US DOJ entered into a NPA with us because of our “extraordinary cooperation.”

  1. Yes, we did some things that make us and the public feel uncomfortable. However, our compliance mechanisms are such that when we found out about this activity, we did the right thing - we reported our activities to the authorities and cooperated fully.
  2. A cartel by definition is a crime of more than one party. It requires collusive behavior. Consequently, we cannot talk about ongoing investigations into other companies but given that cartels require mutiple parties, we remind the public of this important fact.

This might have saved Diamond his job and the bank some reputational loss.

Note: I am not involved in the case although my co-author Rosa Abrantes-Metz (Global Economics Group and NYU Stern School of Business) wrote the famous paper that led to the investigations.

July 14, 2012 | Permalink | Comments (2) | TrackBack (0)

Friday, July 13, 2012

An Economic Analysis of the AT&T-T-Mobile USA Wireless Merger

Posted by D. Daniel Sokol

Stanley M. Besen, Charles River Associates (CRA), Stephen Kletter, Charles River Associates (CRA), Serge Moresi, Charles River Associates (CRA), Steven C. Salop, Georgetown University Law Center, and John Woodbury, Charles River Associates (CRA) provide An Economic Analysis of the AT&T-T-Mobile USA Wireless Merger.

ABSTRACT: On March 20, 2011, wireless provider AT&T announced its intention to merge with T-Mobile USA, a competing wireless provider. This article reviews the economic analysis of this proposed acquisition that we carried out for Sprint and explains why the merger would have been anticompetitive. We analyze how the merger would have led to adverse unilateral, coordinated and exclusionary effects. AT&T and T-Mobile contended that their proposed merger would not adversely affect competition in wireless services because T-Mobile USA was not an effective rival, because other wireless providers could easily replace any competition that was lost as a result of the merger, and because the efficiencies from the merger would be so substantial that they would dwarf any perceived anticompetitive effects. Our analysis concludes that AT&T failed to provide convincing evidence of the lack of anticompetitive effects and failed to adequately document the claimed efficiencies in a manner consistent with the Horizontal Merger Guidelines.

July 13, 2012 | Permalink | Comments (1) | TrackBack (0)

Google and Search Engine Market Power

Posted by D. Daniel Sokol

Mark Patterson (Fordham) has written on Google and Search Engine Market Power.

ABSTRACT: A significant and growing body of commentary considers whether possible manipulation of search results by Google could give rise to antitrust liability. Surprisingly, though, little serious attention has been paid to whether Google has market power. Those who favor antitrust scrutiny of Google generally cite its large market share, from which they infer or assume its dominance. Those who are skeptical of competition law’s role in regulating search, on the other hand, usually cite Google’s 'competition is only a click away' mantra to suggest that Google’s market position is precarious. In fact, the issue of Google’s power is more complicated and interesting than either of these approaches suggests.

The commentary on Google has not focused on information as a product and generally has not considered the ways in which it differs from other products. A key feature of information is described by Arrow’s paradox regarding information: 'its value for the purchaser is not known until he knows the information, but then he has in effect acquired it without cost.' As a result, in many instances of search, a consumer will be seeking information only in circumstances in which she will be unable to evaluate the quality of the information she receives. As will be discussed in more detail below, this lack of transparency in quality can give an information provider market power, just as can an absence of transparency in price for other products.

July 13, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 12, 2012

Optimal Antitrust Remedies: A Synthesis

Posted by D. Daniel Sokol

William Page (Florida) provides Optimal Antitrust Remedies: A Synthesis. ABSTRACT: Antitrust remedies -- criminal and civil, public and private, penalties and injunctions -- are supposed to “eliminate the effects of the illegal conduct” and “restore competition.” In pursuing these goals, courts and enforcers are guided by the standard of economic efficiency and by certain assumptions about the relative capabilities of markets and regulators. A substantial literature now examines the optimal use of antitrust remedies in specific contexts or for specific offenses to achieve economic efficiency. In this essay, I draw on these studies to develop an integrated, albeit schematic, account of how courts and agencies might optimally deploy the various remedies to deter or enjoin collusive and exclusionary practices.

July 12, 2012 | Permalink | Comments (0) | TrackBack (0)

Adverse Effects of Patent Pooling on Product Development and Commercialization

Posted by D. Daniel Sokol

Thomas D. Jeitschko (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) and Nanyun Zhang (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) discuss Adverse Effects of Patent Pooling on Product Development and Commercialization.

ABSTRACT: The conventional antitrust wisdom is that the formation of patent pools is welfare en- hancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. The focus of this paper is on (downstream) product development and commercialization on the basis of perfectly complementary patents. We consider development technologies that entail spillovers between rivals, and assume that nal demand products are imperfect substitutes. When pool formation facilitates information sharing and either increases spillovers in development or decreases the degree of product differentiation, patent pools can adversely a ect welfare by reducing the incentives towards product development and product market competition|even with perfectly complementary patents. This modi es and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon! in science-based industries such as biotech and pharmaceuticals, despite there being frequent policy advocacy for them.

July 12, 2012 | Permalink | Comments (0) | TrackBack (0)

An Agent-Based Model of Schumpeterian Competition

Posted by D. Daniel Sokol

Alessandro Caiani (Department of Economics and Business, University of Pavia) provides An Agent-Based Model of Schumpeterian Competition.

ABSTRACT: The paper presents an Agent-Based extension of Nelson-Winter model of schumpeterian competition. The original version did not provide any insight about the direction of firms’ innovative activities and of technological change as a whole. As a result, it lacked an explicit structure governing firms interaction and the shape of externalities. We address these criticisms by taking explicitly into account the structure of technology in use in the industry, that we shape as a directed network of nodes and links: nodes represent technological skills to be learnt by firms looking for ’new combinations’ and links represent their reciprocal interdependencies. The network is created in order to reflect the defining properties of Technological Paradigms and Technological Trajectories, as they emerge by evolutive-neoschumpeterian literature. Firms’ ability to learn technological skills through imitation of competitors genera! tes spillover effects related to the process of diffusion of innovation. The basic model presented here focuses on a particular aspect of schumpeterian competition: the relationship between industry initial concentration and its overall innovative performance and, vice-versa, between innovation process and the evolution of industry structure over time. In this same perspective we also analyze how firms’ interactions and the structure of technology concur in determining the success or failure of an innovative strategy. Finally we argue that the model presented here might constitute a flexible framework worthy of further applications in the study of innovation process and technological progress.

July 12, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 11, 2012

Discount pricing

Posted by D. Daniel Sokol

Mark Armstrong Department of Economics-University of Oxford and Yongmin Chen Department of Economics-University of Colorado address Discount pricing.

ABSTRACT: This paper investigates "discount pricing", the common marketing practice whereby a price is listed as a discount from an earlier, or regular, price. We discuss two reasons why a discounted price---as opposed to a merely low price---can make a rational consumer more willing to purchase the item. First, the information that the product was initially sold at a high price can indicate the product is high quality. Second, a discounted price can signal that the product is an unusual bargain, and there is little point searching for lower prices. We also discuss a behavioral model in which consumers have an intrinsic preference for paying a below-average price. Here, a seller has an incentive to offer different prices to identical consumers, so that a proportion of its consumers enjoy a bargain. We discuss in each framework when a seller has an incentive to offer false discounts, in which the reference price is exaggerated.

July 11, 2012 | Permalink | Comments (0) | TrackBack (0)

Right to be Heard But Not to Contest: The Standing of Consumer Associations in Competition Cases

Posted by D. Daniel Sokol

Chloe Binet (Universtie Catholique de Louvain) discusses Right to be Heard But Not to Contest: The Standing of Consumer Associations in Competition Cases.

ABSTRACT: Subject to two conditions, the right to be heard of consumer associations in merger proceedings gives them standing to challenge a clearance decision on the ground of a breach of that procedural right but not to question the substance of the decision at issue.

July 11, 2012 | Permalink | Comments (0) | TrackBack (0)

The Application of European Competition Law in the Financial Services Sector

Posted by D. Daniel Sokol

Thomas Franchoo and Marcus Pollard (both Linklaters) describe The Application of European Competition Law in the Financial Services Sector.

ABSTRACT: State aid control remains at the forefront of the European Commission's activity in the financial services sector, with a focus gradually shifting to monitoring the implementation of past decisions and the analysis of requested amendments. The Commission shows a growing impatience in respect of antitrust enforcement, pursuing commitment decisions under Article 102 TFEU and the opening of Article 101 TFEU investigations on inter-banking lending rates and e-payments standardisation. As regards merger control, the scene was dominated by the prohibition of the Deutsche Börse/NYSE merger after significant battles on the definition of the relevant market for financial derivatives.

July 11, 2012 | Permalink | Comments (0) | TrackBack (0)

The Next Generation of Global Competition Law

Posted by D. Daniel Sokol

Spencer Weber Waller, Loyola University Chicago School of Law has posted The Next Generation of Global Competition Law.

ABSTRACT: The Soviet Union dissolved on December 26, 1991. This accelerated a trend toward both the development of market economies and competition law to protect those economies. No one could have predicted that within twenty years most of the world’s trading economies would have adopted recognizable forms of competition law including the former nations of the Soviet Union, the centrally planned economies of Central and Eastern Europe, a host of transition economies in Africa, South America, and Asia, and such emerging economic giants as Brazil, China, and India.

Bill Kovacic has played a key role in helping us move from the world of 1991 to the world of the present where over one hundred twenty jurisdictions have some recognizable form of competition law. This has been the one of the principal, but by no means the only, topic of his work as an academic, then as general counsel, commissioner, and chairman of the FTC, and now back in academia. Kovacic has studied competition systems around the world, advised many of them, traveled relentlessly to dozens of these jurisdictions, and represented the FTC in interacting with them in countless public and private fora for these same two decades.

This essay focuses on the insights that Kovacic brought back from his travels and embodied in his scholarship. I also focus how his work has both documented and affected transition economies enacting and enforcing competition law for the first time, their advisers from more experienced jurisdictions, and the more mature competition jurisdictions themselves. Finally, I offer a brief outline of a research agenda to help evaluate how well both old and new jurisdictions have applied these insights over the past twenty years and suggestions for the next twenty years.

July 11, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 10, 2012

Patent Tying, Price Discrimination, and Innovation

Posted by D. Daniel Sokol

Christopher R. Leslie, University of California, Irvine School of Law discusses Patent Tying, Price Discrimination, and Innovation.

ABSTRACT: Patent law is the cornerstone of American innovation policy. The relationship between patents and innovation, however, is more complicated than the simple explanation that patents reward innovators. Patent holders sometimes engage in conduct that can reduce innovation. This article examines one type of such conduct: tying arrangements. Patentees sometimes employ tying arrangements as a metering device to effect price discrimination. While some commentators would justify patent tying as pro-innovation because it increases the rewards to the patentee.

This Article addresses with the argument that price discrimination through patent tying encourages innovation. In particular, it reviews the innovation arguments made in favor of patent tying; critiques these arguments by explaining how metered tying is not necessarily an appropriate mechanism for rewarding and funding research efforts; explains how patent tying can reduce the incentives for innovation in the tied product market; and discusses how antitrust law should treat patent tying in light of the impact that such tying may have on incentives to innovate.

July 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Regulatory Antitrust

Posted by D. Daniel Sokol

Tom Nachbar (Virginia - Law) has written on Regulatory Antitrust.

ABSTRACT: Antitrust is today viewed almost exclusively in strictly economic terms. Under the nearly ubiquitous “rule of reason,” conduct is condemned or saved by courts largely based on their evaluation of the conduct’s effect on economic efficiency. But many aspects of antitrust law cannot be explained by microeconomic analysis. The full sweep of antitrust makes sense only when one considers other values that underlie the antitrust laws, values contained in the allocation of public and private power inherent in the larger constitutional order. The paper attempts to provide a more comprehensive understanding of antitrust as policing the private exercise of regulatory power.

The paper considers both the dominant, efficiency-maximizing approach to antitrust and “societal” alternatives offered by critics. The two approaches are more alike than they are different, and gaps in both suggest a missing factor in both approaches: a recognition that a harm to competition consists of both a harm to allocative efficiency and a harm to choice — a harm generated when private entities regulate the conduct of others. After developing a conception of “regulation” as control over property separated from ownership, the paper explores the constitutional law of private regulation — the constitutional prohibition against delegations of legislative power to private parties — followed by a discussion of the same principles in the specific context of antitrust and identifies the nature of the right to choice — the liberty — that the antitrust laws protect. Having developed an understanding of how the antitrust laws prevent regulatory harms, the paper considers specific implications of recognizing the role of regulatory harms in antitrust, including changes to how antitrust treats horizontal and vertical restraints and mergers, the ability to explain some cases — especially in the area of tying — often considered outliers when viewed exclusively through the lens of economic analysis, and the possibility of a renewed role for concepts that have been largely forgotten in the rise of the rule of reason approach, such as conduct, intent, and the role of the per se rule itself.

July 10, 2012 | Permalink | Comments (0) | TrackBack (0)

The Proposed Merger of AT&T and T-Mobile: Are There Unexhausted Scale Economies in U.S. Mobile Telephony?

Posted by D. Daniel Sokol

Yan Li , ESRC Centre for Competition Policy, Norwich Business School, University of East Anglia and Russell W. Pittman, U.S. Department of Justice - Economic Analysis Group, New Economic School (NES) ask The Proposed Merger of AT&T and T-Mobile: Are There Unexhausted Scale Economies in U.S. Mobile Telephony?

ABSTRACT: From the beginning, the debate on the likely results of the proposed acquisition of T-Mobile USA by AT&T focused more on the claims of the parties that “immense” merger efficiencies would overwhelm any apparent losses of competition than on the presence or absence of those losses, and the factors that might affect them, such as market definition. The companies based their “economic model” of the merger on estimates of efficiencies on AT&T’s “engineering model”, without addressing the credibility of the results of the latter in the context of the economics literature on the telecommunications sector. In this paper we first argue that the economics literature on economies of scale (especially) and economies of density in mobile telephony suggests caution in expecting such massive cost reductions from increasing the size of an already very large firm. We then present new econometric evidence from an international data base supporting the notion that most large mobile telephone service providers have reached the point of constant or even (rarely) declining returns to scale.

July 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition between Clearing Houses on the European Market

Posted by D. Daniel Sokol

Marie-Noelle Cales, University of Lyon 2 - Groupe d'Analyse et de Theorie Economique (GATE), Laurent Granier, affiliation not provided to SSRN Nadege Marchand, Groupe d' Analyse et de Theorie Economique (GATE) Competition between Clearing Houses on the European Market.

ABSTRACT: For several years, European financial markets have been the place of important mutations. These mutations have hit both stock markets themselves as well as the infrastructures including all necessary services for the transactions on financial securities. Among the market services to which the investors appeal, is the clearing of the orders, the service which allows reducing exchanged flows while guaranteeing their safety. The market of clearing became strongly competitive with the arrival of new Pan European clearing houses. Confronted with aggressive pricing policies, 'incumbent' clearing houses have to adopt new strategies: merger, simple or mutual links of interoperability. We develop a model of industrial organization to appreciate the consequences of these various strategies in terms of price and social welfare. The strategic incentives of clearing houses and their effects on their customers, i.e. investors, are observed by means of a sequential game. We show that the interoperability agreements are never reached at the equilibrium in spite of the fact that the 'European code of good practice' of postmarkets incites them to accept this type of agreements. On the other hand, a merger between incumbent clearing houses can occur under some conditions. The merger is beneficial to these last ones as well as to the investors, but it is unfavorable to the Pan European clearing houses.

July 10, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, July 9, 2012

Why I Publish in the Antitrust Law Journal

Guest Post by Jonathan B. Baker

Danny asked me to explain why I like to publish in the Antitrust Law Journal.  As Danny knows, I
am a frequent author in that journal (nearly 20 articles), as well as a former Editorial Chair, and current Contributing Editor.  

I think the Antitrust Law Journal is by a large margin the best antitrust specialty journal today and an unbeatable place to publish an antitrust article for three reasons. 

  1.  The Antitrust Law Journal is widely read. 
     It goes free to every lawyer and economist, in the US and abroad, who  is a member of the ABA Antitrust Section, as well as to libraries, law  firms, etc.  That circulation is both large (around 8,000) and targeted (to antitrusters).  It means that as a practical matter,
         publication in the Journal is the best way for an author to reach the antitrust community.
  2. Publication in the Antitrust Law Journal provides a strong signal of article quality. 
         The journal attracts top authors in the field – academics and practitioners, economists and lawyers – so articles published there are found in good company.  It relies on a refereed
         peer review process to select articles (see next item below).  And it is where judges look to learn about antitrust:  half the antitrust articles cited by federal judges in recent years were
         published in Antitrust Law Journal – more than Harvard Law Review and Yale
         Law Journal combined (and with no other journal, specialty or general interest, accounting for more than 3% of citations). 
  3. The Journal’s peer review process and professional editorial board improve articles and help attract top authors.  The editorial board is composed of experienced practitioners from law firms and antitrust experts from the government, academia, and economic consulting.  The referees (often a combination of editorial board members and prominent outsiders) provide outstanding feedback to authors, and the hands-on editors also help authors improve their exposition.  The Journal does well with economics articles written in English, even if the ideas are complex or sophisticated, though it rarely publishes heavily mathematical economics articles. 

My personal experience with the peer review process and the editorial process has been strongly positive.  On peer review, let me describe a recent experience. I wrote a paper on exclusionary conduct, which I submitted to the Antitrust Law Journal.  I received three fabulous editorial reports from Journal referees and I have rewritten my paper substantially as a result. The reports were
serious reviews offering extensive criticisms written by what are obviously leading practitioners and scholars, whose own views on the controversial topic encompassed a range of perspectives.  The referee reports were extremely useful in the small – helping me improve my arguments or identify places where the exposition was not clear – and in the large – helping me see how to restructure the paper to make it more persuasive. (My commercial: I found the paper challenging to write because it combines discussions of law, economics, and policy, and I try to push the boundaries on each –
synthesizing a legal rule for truncated condemnation of exclusionary conduct not explicated as doctrine in the case law, synthesizing a complex economic literature on exclusionary conduct to isolate core principles, and questioning the commonly-accepted “error cost” policy analysis of exclusionary conduct enforcement.  The revised paper has been posted on SSRN – even if you looked at the previous draft, I would encourage you to check out the revision.)

On editing:  I expect to revise my exclusion article once again in response to suggestions from the
editor assigned to the article. My experience in the past is that the editors at Antitrust Law Journal are better writers and much more knowledgeable about antitrust law and economics than are editors at student law reviews, so their editing is more helpful.  With the editorial board and peer review, the Antitrust Law Journal certifies the quality of antitrust articles more credibly than student-edited law journals and improves the quality of manuscripts more than the student-edited journals do.

One could make a case that some antitrust articles might be better placed in a top ten student-edited general interest law review, particularly Harvard or Yale (which published a disproportionate fraction of the most influential articles in the field from the late 1950s through the early 1980s), or placed in a peer reviewed economics-oriented law review like the Journal of Law & Economics or the American Law & Economics Review.  The main advantage of these alternatives is in reaching a different target audience:  the general legal world (as with Harvard or Yale) or the economics-oriented legal community (as with JLE or ALER), rather than the antitrust community.  But one could also argue the point the other way – that even for antitrust articles of potential general interest or with substantial economic content, Antitrust Law Journal may be the best choice.  

My bottom line:  I would encourage anyone writing about antitrust to submit their best work to the Antitrust Law Journal. 

July 9, 2012 | Permalink | Comments (2) | TrackBack (0)

Diverse Degrees of Competition within the EMU and their Implications for Monetary Policy

Posted by D. Daniel Sokol

Patrick Bramer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg), Horst Gischer (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg), Toni Richter (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) and Mirko Weiss (German Savings Banks Association) discuss Diverse Degrees of Competition within the EMU and their Implications for Monetary Policy.

ABSTRACT: Our paper calls attention to the heterogeneous levels of competition in EMU banking systems. We enhanced the ECB MFI interest rate statistics by calculating a lending rate average weighted by loan volumes for each EMU member country. Employing a modified Lerner Index, our unique data set enables us to calculate banks' price setting power in the national lending business alone, instead of measuring market power for banks' total business. For 12 countries, we ultimately show that market power in the exclusive segment of lending is greater than market power in total banking business. In an OLS regression model, we investigate to what extent loan rate variations can be explained by changing degrees of market power during the period 2003-2009. Significant cross-country differences can be observed. We find that changes in the national degree of competition considerably affect funding conditions in the individual countries and ! therefore hinder a homogeneous transmission of ECB monetary policy.

July 9, 2012 | Permalink | Comments (0) | TrackBack (0)

Mergers and Innovation in the Pharmaceutical Market

Posted by D. Daniel Sokol

William Comanor (UC Santa Barbara) and F.M. Scherer (Harvard) analyze Mergers and Innovation in the Pharmaceutical Market.

ABSTRACT: The U.S. pharmaceutical industry has experienced in recent years two dramatic changes: stagnation in the growth of new molecular entities approved for marketing, and a wave of mergers linking inter alia some of the largest companies. This paper explores possible links between these two phenomena and proposes alternative approach to merger policy. It points to the high degree of uncertainty encountered in the discovery and development of new pharmaceutical entities and shows how optimal strategies entail the pursue of parallel research and development paths. Uncertainties afflict both success rates and financial gains contingent upon success. A new model simulating optimal strategies given prevalent market uncertainties is presented. Parallelism can be sustained both within individual companies' R&D programs and across competing companies. The paper points to data showing little parallelism of programs within c! ompanies and argues that inter-company mergers jeopardize desirable parallelism across companies.

July 9, 2012 | Permalink | Comments (0) | TrackBack (0)

ABA Antitrust Summer Mixer - Wednesday, July 11 from 5:30 p.m. to 7:30 p.m. at Co Co Sala, 929 F Street, NW in Washington, D.C.

Posted by D. Daniel Sokol

The ABA Antitrust Section’s YLD Antitrust Law Committee and Membership and Equal Opportunity Committee are hosting an Antitrust Summer Mixer on Wednesday, July 11 from 5:30 p.m. to 7:30 p.m. at Co Co Sala, 929 F Street, NW in Washington, D.C. The event is free to all and ABA members, as well as summer associates and interns interested in antitrust and consumer protection, are encouraged to attend. Come by to cool down from the recent heat wave, see old friends, meet new ones and network with Section leadership.

July 9, 2012 | Permalink | Comments (0) | TrackBack (0)

Compulsory licensing, price controls, and access to patented foreign products

Posted by D. Daniel Sokol

Eric Bond (Department of Economics, Vanderbilt University) and Kamal Saggi (Department of Economics, Vanderbilt University) address Compulsory licensing, price controls, and access to patented foreign products.

ABSTRACT: Motivated by existing multilateral rules regarding intellectual property, we develop a North-South model to highlight the dual roles price controls and compulsory licensing play in determining Southern access to a patented Northern product. The Northern patent-holder chooses whether and how to work its patent in the South (either via entry or voluntarily licensing) while the South determines the price control and whether to issue a compulsory license. The threat of compulsory licensing benefits the South and also increases global welfare when the North-South technology gap is significant. The price control and compulsory licensing are complementary instruments from the Southern perspective.

July 9, 2012 | Permalink | Comments (0) | TrackBack (0)

A Simple Theory of Predation

Posted by D. Daniel Sokol

Massimo Motta - Barcelona GSE and Chiara Fumagalli - Bocconi provide A Simple Theory of Predation.

ABSTRACT: We propose a simple theory of predatory pricing, based on incumbency advantages, scale economies and sequential buyers (or markets). The prey needs to reach a critical scale to be successful. The incumbent (or predator) has an initial advantage and is ready to make losses on earlier buyers so as to deprive the prey of the scale the latter needs, thus making monopoly profits on later buyers. Several extensions are considered, including cases where scale economies exist because of demand externalities or two-sided market effects, and where markets are characterized by common costs. Conditions under which predation may (or not) take place in actual cases are also discussed.

July 9, 2012 | Permalink | Comments (0) | TrackBack (0)