Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, September 11, 2012

Two-Sided Platform Competition in the Online Daily Deals Promotion Market

Posted by D. Daniel Sokol

Byung-Cheol Kim, Georgia Institute of Technology Jeongsik Lee, Georgia Institute of Technology - College of Management and Hyunwoo Park, Georgia Institute of Technology address Two-Sided Platform Competition in the Online Daily Deals Promotion Market.

ABSTRACT: We empirically investigate the platform competition in the online daily deals promotion market that is characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between merchants and consumers. We find that deals offered through Groupon, the incumbent, sell more and generate higher revenues than those offered by LivingSocial, the entrant. We show that the greater network size in the consumer side entirely explains the incumbent's lead in the merchant side performance, indicating the existence of cross-side network effects at the aggregated market level. However, this performance advantage is dampened by the entrant's competitive chasing at local markets through offers of greater discounts and lower prices. Moreover, the incumbent advantage quickly attenuates as the merchants repeat promotions over time. These countering forces appear to prevent this market from achieving a tipping equilibrium. Our findings thus help explain why different market structures arise in two-sided markets with network externalities.

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

WOULD THE PER SE ILLEGAL TREATMENT OF REVERSE PAYMENT SETTLEMENTS INHIBIT GENERIC DRUG INVESTMENT?

Posted by D. Daniel Sokol

Bret M. Dickey (Compass Lexecon) and Daniel L. Rubinfeld (Berkeley/NYU) ask WOULD THE PER SE ILLEGAL TREATMENT OF REVERSE PAYMENT SETTLEMENTS INHIBIT GENERIC DRUG INVESTMENT?

ABSTRACT: “Reverse payment” patent settlements between brand and generic pharmaceutical manufacturers have received substantial scrutiny in recent years. While much has been written about the appropriate antitrust policy towards these settlements, the literature has paid little attention to the effect that changes in that policy might have on the incentives of generic manufacturers to develop generic drugs and challenge branded patents. We present a basic economic model of generic manufacturers' investment decisions and argue that these incentives should be taken into account in evaluating policy issues. We conclude that a per se rule against “reverse payment” patent settlements could chill the incentives for generic investment by increasing the cost and uncertainty of patent litigation, and could deprive consumers of benefits from lower cost generic drugs.

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

Competition in Hospital Services

Posted by D. Daniel Sokol

The OECD has published a roundtable on Competition in Hospital Services.

ABSTRACT: The OECD Competition Committee together with delegates from the Health Committee discussed the role of competition in the provision of hospital services in February 2012. This document includes an executive summary of that debate and the documents from the meeting: an analytical note by Mr. Frank Maier-Rigaud (OECD), two expert papers from Mr. Zack Cooper and Mr. Martin Gaynor and written submissions from Chile, Finland, France, Germany, Ireland, Israel, Japan, the Netherlands, Norway, Sweden, Turkey, the United Kingdom, the United States, Brazil, Columbia, Peru, South Africa, Chinese Taipei, and BIAC, as well as an aide-memoire of the discussion.

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

Monday, September 10, 2012

Effective Engagement of Stakeholders: Inquire, Innovate, Intrigue

Posted by D. Daniel Sokol

The Competition Commission of Singapore describes Effective Engagement of Stakeholders: Inquire, Innovate, Intrigue.

ABSTRACT: Given the significant impact that competition law could have on the course of doing business in Singapore, CCS regards it as an important priority to educate and raise awareness of the competition regime to the business community. In a recent stakeholders perception survey conducted by CCS that covered over 400 businesses, 200 consumers, competition practitioners, and government agencies, it was found that consumers and businesses displayed fairly low levels of understanding and knowledge about competition law as well as a very unclear perception of what CCS did (consumers: 36 percent; businesses: 41 percent). This underlines the need for further advocacy and outreach to boost awareness and knowledge. The challenge is to communicate highly technical legal and economic concepts to our stakeholders, and to make ourselves heard above the many messages and voices that people are bombarded with daily.

To address these challenges, CCS developed an advocacy framework, I3, to distill and help stakeholders understand competition law and its benefits through simple innovations and fun methods that explain the intricacies of competition law and economics. The core pillars that form the I3 framework are: Inquire, Innovate, and Intrigue. The I3 framework guides our efforts to convey educational messages in a way that is engaging, relevant, and effective. CCS strives to be innovative in advocacy to enhance the effectiveness of these initiatives.

September 10, 2012 | Permalink | Comments (1) | TrackBack (0)

Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market

Posted by D. Daniel Sokol

Sherzod Tashpulatov and Lubomir Lizal (CERGE EI) ask Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market.

ABSTRACT: Promoting competition among electricity producers is primarily targeted at ensuring low electricity prices for consumers. Producers could, however, withhold part of production facilities (i.e., apply a capacity cutting strategy) and thereby push more expensive production facilities to satisfy demand for electricity. This behavior could eventually lead to a higher price determined through a uniform price auction. In this paper, using the case of the England and Wales wholesale electricity market, we empirically examine whether producers can indeed apply a capacity cutting strategy. We analyze the bidding behavior of producers during high- and low-demand trading periods across trading days and find direct and indirect evidence for producers' successful manipulation of capacity bids targeted at increasing a wholesale electricity price. We also examine whether the regulatory reforms to improve competition were successful at mitigating the extent of strategic capacity manipulation.

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

Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case

Posted by D. Daniel Sokol

M. Sadowska and Bert Willems, (Tilburg University, Tilburg Law and Economics Center) ask Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case.

ABSTRACT: Abstract: According to the European Commission, Svenska Kraftnat, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnat offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.

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

Patents, competition and firms’ innovation incentives

Posted by D. Daniel Sokol

Pilar Beneito (University of Valencia and ERICES) Maria E. Rochina-Barrachina (University of Valencia and ERICES) and Amparo Sanchis (University of Valencia and ERICES) discuss Patents, competition and firms’ innovation incentives.

ABSTRACT: In this paper we analyze how industrial property rights (IPRs), measured by patents granted, affect competition at the industry level, and their induced effects on firms’ innovation incentives. We use for that purpose a panel dataset of Spanish manufacturing firms for the period 1990-2006. Using indicators of fundamentals of competitive pressure and factor analysis techniques, we construct a new synthetic measure of competition. Our results indicate that although the use of IPRs (in terms of industry patenting intensity) reduces market competition, it may also encourage firms’ innovation incentives (in terms of firms’ R&D expenditures and the number of product innovations).

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

The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium

Posted by D. Daniel Sokol

Rudy Colacicco (Marche Polytechnic University) explores The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium.

ABSTRACT: This paper builds a general oligopolistic equilibrium model to investigate how within-sector firm heterogeneities affect wage rate, country-wide profits, and welfare. Using linear inverse demands, I consider asymmetric sectors, each involving n Cournot oligopolists producing horizontally differentiated varieties with constant, though asymmetric, costs. I link a measure of the average within-sector firm heterogeneity with the economy-wide, endogenously determined, and competitive wage rate. For interior equilibriums, the higher the "average" the lower the wage rate. Once general equilibrium feedbacks from wage rate are considered, the "average" has an unclear impact on country-wide profits and welfare, depending on moments of the technology distribution as well as demand parameters. The findings have implications to better understand antitrust and related policies.

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