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 18, 2012

Upward Pricing Pressure in Two-Sided Markets

Posted by D. Daniel Sokol

Pauline Affeldt, Lapo Filistrucchi, Department of Economics, CentER & TILEC, Tilburg University, Dipertimento di Scienze Economiche, University of Florence and Tobias J. Klein, Tilburg University discuss Upward Pricing Pressure in Two-Sided Markets.

ABSTRACT: Pricing pressure indices have recently been proposed as alternative screening devices for horizontal mergers involving differentiated products. We extend the concept of Upward Pricing Pressure (UPP) proposed by Farrell and Shapiro (2010) to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers, and the market for online search, where advertising demand depends on the number of users. The formulas we derive are useful for screening mergers among two-sided platforms. Due to the two-sidedness they depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we evaluate a hypothetical merger in the Dutch daily newspaper market. Our results indicate that it is important to take the two-sidedness of the market into account when evaluating UPP.

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

Software Predatory Pricing and Competition Law - Assessing Below-Cost Prices

Posted by D. Daniel Sokol

Qiang Yu, Leiden Law School has posted Software Predatory Pricing and Competition Law - Assessing Below-Cost Prices.

ABSTRACT: Below-cost pricing may elicit lawyers to contemplate market power, market barriers and predatory pricing, all of which constitute routine thinking on abusive pricing. This paper observed that below-cost pricing occurs in the software market under traditional circumstances and found that, as is typical with a new economy, the software market exposes different factors that are not evident in the markets on which traditional predatory pricing theory was based. These factors, such as extremely high switch/entry barriers and negligible marginal costs, result in pricing practices that are significantly different from those in traditional markets. A below-cost price, which traditionally would be considered predatory, may be necessary in the software market. Thus, in this context, a below-cost price would not be considered abusive but would rather be considered (almost) efficient. On the basis of these observations, this paper concludes that predatory pricing frequently occurs in software markets and that PP in software markets should be regulated by competition rules. At the same time, although efficiency-enhanced below-cost pricing occurs often, it is different from predatory pricing. Finally, this paper analyses the occurrence of predatory pricing and offers an approach for analysing predatory pricing as it relates to the software market.

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

Mortgage Lending and Lack of Competition in the Dutch Market

Posted by D. Daniel Sokol

Sometimes the most important competition advocacy is the product of academics. On Dutch television on Friday, Maarten Pieter Schinkel of the University of Amsterdam was part of a television show that exposed the lack of competition for the Dutch mortgage market. Historically the Dutch mortgage market has been highly concentrated, yet competitive. During the financial crisis, all of the main mortgage providers but one received State aid. In an attempt to offset distortions of competition feared to be brought about by the aid, the European Commission imposed strict conditions on the aid recipients. The State-aid condition were negotiated in the Spring of 2009 and included so-called price leadership bans (PLBs). These prohibited aid recipient banks to price below non-recipient banks. Three of the four main players in the Dutch mortgage market were put under a PLB. Schinkel and his coauthors show that margins on Dutch mortgages over the costs of attracting funds shifted to historically high levels in anticipation of these bans taking effect. The PLBs effectively graduated the one Dutch mortgage provider that had not requested aid, from a competitive to a collusive price leader. Unlike in neighboring countries, where mortgage rates did follow the total costs of attracting funds down, in The Netherlands no competition between banks not operating under a PLB remained. See here for more details.

Update - use this link instead.

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

Competition Advocacy at the Federal Trade Commission: Recent Developments Build on Past Successes

Posted by D. Daniel Sokol

Tara Isa Koslov (FTC) explains Competition Advocacy at the Federal Trade Commission: Recent Developments Build on Past Successes.

ABSTRACT: Section 5 of the Federal Trade Commission Act broadly empowers the Federal Trade Commission ("FTC" or "Commission") to prevent the use of "unfair methods of competition in or affecting commerce." The Commission is primarily a law enforcement agency and, in fulfilling its competition mission, the agency targets its enforcement efforts against alleged anticompetitive conduct by private actors. But competition also may be affected by the actions of public entities, including regulators and legislators. As a resource-constrained government entity itself, the FTC recognizes how difficult it can be for any conscientious public actor-seeking in good faith to protect the interests of American citizens-to solicit, analyze, and weigh the views of myriad stakeholders. Despite widespread agreement that competition policy is a fundamental organizing tenet of the American economy, principles of competition sometimes appear to, or actually do, conflict with other public policy objectives. As an expert competition agency, we believe consumers are better off when competition perspectives do not get lost in complex policymaking debates.

Fortunately the Commission has multiple tools at its disposal, beyond litigation and enforcement, to share its competition expertise with other public actors. Section 6 of the FTC Act authorizes the FTC to "gather and compile information" and to "make public from time to time such portions of the information obtained by it . . . as are in the public interest." In part pursuant to this authority, the FTC has a long history of engaging in competition advocacy before federal regulators, state legislatures, courts, foreign enforcers, international multilateral organizations, and other decision makers whose actions may affect competition.

When engaging in competition advocacy to inform the decisions of others, the Commission and its staff do not pretend to have all the answers. But, in our experience, anticompetitive outcomes sometimes can be mitigated or prevented by encouraging policymakers to ask the right questions:

What is the likely competitive impact of the proposed regulation or other contemplated action, and how would this affect consumers? What justifications exist for any restrictions on competition? Are there alternatives that would protect consumers and fulfill other important public policy goals, without restricting consumer choice or unduly burdening legitimate business activity? Whatever the format and whomever the audience, all of our competition advocacy efforts share a common goal: to provide a framework for thinking about public policy issues from a competition perspective. In so doing, we seek to enhance understanding of the competitive process, and also to persuade decision makers to deliver the benefits of competition to as many consumers as possible.

The academic literature includes several comprehensive reviews of the theory and history of FTC competition advocacy, and Commission officials also have spoken and written about the value of competition advocacy, so I will provide only a brief overview of our competition advocacy philosophy and mechanics. I will then highlight two substantive areas-the competition/intellectual property interface, and health care-where, in the last few years, the Commission's competition advocacy program has been particularly active and successful.

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

Monday, September 17, 2012

Assessing Potential Competition in Antitrust Markets

Posted by D. Daniel Sokol

Vivek Ghosal, Georgia Institute of Technology, Center for Economic Studies and Ifo Institute for Economic Research (CESifo) is Assessing Potential Competition in Antitrust Markets.

ABSTRACT: Antitrust guidelines of the major jurisdictions, to a greater or lesser degree of detail, comment on the likelihood of entry, various factors and barriers that determine entry conditions, and the assessment of actual and potential competition. I note that the treatment of potential competition, and the sunk costs that determine the parameters of such competition, are somewhat under-emphasized. Part of this is probably due to the complexities of assessing the different types of sunk costs, as well as meaningful quantification of the constructs. In this paper, I use the Baumol, Panzar and Willig (1982) contestable markets framework as a guidepost to elaborate on sunk costs and potential competition, and evaluate specific measures of sunk costs. The measures of sunk costs I elaborate, related to entry physical-capital requirements, on are designed to reveal the underlying structural conditions in the market. To complement this approach, I use the Landes and Posner (1981) framework to spell out a methodology that would rely on using market or industry specific time-series data to assess the likelihood and extent of potential competition. While the specifics of sunk costs are to be determined on a market and industry specific basis, this paper provides a set of alternatives that can be used by economists and attorneys in antitrust agencies to assess entry conditions and potential competition. The paper briefly comments on the proposed mergers between Staples and Office Depot (1996) and Volvo and Scania (2000), with an eye towards examining the entry conditions and assessment of potential competition in those markets.

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

Product Market Competition, Managerial Compensation and Firm Size in Market Equilibrium

Posted by D. Daniel Sokol

Ajay Subramanian, Georgia State University addresses Product Market Competition, Managerial Compensation and Firm Size in Market Equilibrium.

ABSTRACT: We develop a tractable equilibrium model of competing firms in an industry to show how the distribution of firm qualities, moral hazard, and product market characteristics interact to affect firm size, managerial compensation, and market structure. Equilibrium effects cause different determinants of product market competition -- the entry cost and the elasticity of substitution -- to have sharply contrasting effects on firm size and managerial compensation. While both firm size and managerial compensation increase with the entry cost, they increase with the elasticity of substitution if and only if firm size exceeds a high threshold, but decrease if it is below a low threshold. We also show how the distribution of firms' productivity shocks affects firm size, managerial compensation, and market structure. Aggregate shocks to the firm productivity distribution affect incentives in our equilibrium framework. We develop and test a number of qualitative hypotheses that relate product market/industry characteristics to CEO compensation, firm size, and the number of firms in the industry. We show statistically and economically significant empirical support for all the hypotheses. In particular, different determinants of product market competition indeed have sharply contrasting effects on managerial compensation, firm size, and the number of firms as predicted by the theory.

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

Polish Antitrust Legislation and Case Law Review 2010

Posted by D. Daniel Sokol

Agata Jurkowska, University of Warsaw - Centre for Antitrust and Regulatory Studies discusses Polish Antitrust Legislation and Case Law Review 2010.

ABSTRACT: The article presents key developments in Polish antitrust legislation and case law of 2010. Regarding legislation, the article focuses on a new group exemption for agreements on motor vehicle distribution; also provided is a general characterisation of antitrust jurisprudence, mainly the judgments of the Supreme Court and the Court of Appeals in Warsaw. The presented rulings are divided according to their subject matter referring to particular types of restrictive practices, relevant market definition, relationships between the Competition Act and other national legislation as well as problems related to the UOKiK President’s decision-making process and juridical control of antitrust decisions.

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

Regulators as Market-Makers: Accountable Care Organizations and Competition Policy

Posted by D. Daniel Sokol

Thomas L. Greaney, Saint Louis University School of Law explains Regulators as Market-Makers: Accountable Care Organizations and Competition Policy.

ABSTRACT: Of the many elements animating structural change under health reform, Accountable Care Organizations (ACOs) have drawn the greatest attention. The ACO strategy entails regulatory interventions that at once aim to reshape the health care delivery system, improve outcomes, promote adoption of evidence based medicine and supportive technology, and create a platform for controlling costs under payment system reform. Ambitious aims to be sure. Implementation, however, has proved a wrenching process. This article looks at the intersection of markets and regulation under the Affordable Care Act. Specifically, it analyzes regulatory interventions under the MSSP designed to foster commercial market competition. Assessing prospects for success, it advances several interrelated arguments. First, in fulfilling the regulatory task of implementing the MSSP, regulators needed to be vigilant to protect against the potential that ACOs may have adverse effects on private markets. It finds that because the Centers for Medicare and Medicaid Services (CMS) was overly preoccupied with Medicare program issues and hyper-sensitive to criticism from powerful hospitals, the agency missed an important opportunity in its implementing regulations to prevent exacerbation of provider market power. Because existing legal regimes, especially antitrust law, are severely constrained in their ability to deal with extant provider market power, regulation of ACOs requires a cross-platform regulatory approach that addresses market issues.

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

Sunday, September 16, 2012

Economics and Private Antitrust Litigation in China

Posted by D. Daniel Sokol

Dennis Lu, Government of Canada - Competition Policy Branch and Guofu Tan, University of Southern California - Department of Economics have an interesting paper on the Economics and Private Antitrust Litigation in China. I spent time with Guofu doing judicial training in China for members of the Chinese judiciary last spring. Guofu is an excellent presenter of economic analysis of antitrust to Chinese audiences. Because he has advised on a number of cases (and is a Chinese native and also has a secondary appointment at the Shanghai School of Finance) he is one of the few people who can successfully bridge the gap between US and Chinese analytical approaches.

ABSTRACT: Since the introduction of China’s Anti-Monopoly Law in 2008, private litigation has been increasing in the areas of monopolistic agreements and abuses of dominance. In addition, China's Supreme People's Court recently issued its judicial interpretation concerning the application of the law in order to offer some guidance in resolving private disputes. The purpose of this paper is to explain how competition economics can help to provide evidence in these private litigations. We discuss how the Anti-Monopoly Law and the judicial interpretation seem to take a rule of reason approach, as well as what roles economic analyses and economists may play in related litigation. We describe the economic evidence being used and accepted in recent Chinese cases that have reached the Chinese courts of appeals and further provide our views on what other evidence could have been offered in these cases.

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

Ten Things I (Really) Like About Gerber's 'Global Competition'

Posted by D. Daniel Sokol

Spencer Wallers details Ten Things I (Really) Like About Gerber's 'Global Competition'.

ABSTRACT: David Gerber’s scholarship has been an inspiration and a major contribution to international competition policy. His earlier book Law and Competition in Twentieth Century Europe: Protecting Prometheus made a compelling case that there is a European competition law that stands apart from US antitrust law and policy. He documented how EU competition law and its national analogues share common roots going back to prior to World War II as a true pan-European body of law with indigenous roots and a common frame of reference. Gerber now expands his field of inquiry to global competition policy in Global Competition: Law, Markets and Globalization. He analyzes the history and current state of national and international solutions to international competition law and sets forth a path forward where past efforts have failed. The key to understanding Gerber’s arguments is to appreciate his view that the past efforts did not fail, or at least did not fail as to the substance of the idea that global markets require global solutions to prevent anticompetitive conduct on a global scale. He provides one of the best and most nuanced accounts of the attempts in the 20th century to develop international competition law and the forces outside of the competition arena that prevented its adoption. In this essay, I want to highlight a very personal “top ten” list of the features that make Gerber’s Global Competition such a special and lasting contribution to the literature in the field.

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

CSLSA 2012 Conference Call for Papers

Posted by D. Daniel Sokol

Annual Scholarship Conference

October 19-20

Cleveland-Marshall College of Law

The Central States Law Schools Association 2012 Scholarship Conference will be held October 19 and 20, 2012 at the Cleveland-Marshall College of Law, in Cleveland, Ohio.  We invite law faculty from across the country to submit proposals to present papers or works in progress.

The purpose of CSLSA is to foster scholarly exchanges among law faculty across
legal disciplines.  The annual CSLSA conference is a forum for legal scholars,
especially more junior scholars, to present working papers or finished articles
on any law-related topic in a relaxed and supportive setting where junior and
senior scholars from various disciplines are available to comment.  More
mature scholars have an opportunity to test new ideas in a less formal setting
than is generally available for their work. 

To allow scheduling of the conference, please send an abstract of no more than 500
words to Secretary Missy Lonegrass at [email protected] by September 22, 2012

Any late submissions will be considered on a space available basis only. 

For those who are interested, the CSLSA mentorship program pairs interested junior scholars with
more senior mentors in their fields of expertise to provide feedback on their
presentations or papers.  To participate in the mentorship program as either a mentor or mentee, please contact Vice-President Elizabeth Young at [email protected].

In keeping with tradition, CSLSA is able to pay for one night’s lodging for presenters
from member schools.  If a school is interested in joining CSLSA and has not received an invoice, please contact Treasurer Carolyn Dessin at [email protected].

For more information about CSLSA, visit our website at http://cslsa.us/.

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