Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, October 27, 2012

Second Mover Advantage and Entry Timing

Posted by D. Daniel Sokol

Vinh Du Tran, TNK, David S. Sibley, University of Texas at Austin - Department of Economics, and Simon Wilkie, University of Southern California describe Second Mover Advantage and Entry Timing.

ABSTRACT: We describe a model of entry timing assuming that a second mover can benefit from observing the experience of a first mover. We focus on how market attractiveness characteristics such as size and cost affect the time until first entry. The effects depend on whether the number of participants is exogenous or endogenous. In the former case, a more attractive market leads to earlier entry. In the latter case, it leads to later entry. Treating the number of firms as an integer, free entry leads to non‐monotone, but testable, effects of market attractiveness on entry timing.

October 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, October 26, 2012

Cartel Organization, Price Discrimination and the Trans-Atlantic Passage, 1899-1911

Posted by D. Daniel Sokol

George Deltas, University of Illinois at Urbana-Champaign - Department of Economics and Richard A. Sicotte, University of Vermont - Department of Economics discuss Cartel Organization, Price Discrimination and the Trans-Atlantic Passage, 1899-1911.

ABSTRACT: This paper studies the operation of trans-Atlantic passenger shipping cartels during the period 1899-1911 and its effects on passenger traffic. We systematically document and categorize cartel agreements on the basis of key aspects of internal organization. Then, we exploit the variation in internal organization across markets and over time to investigate whether any specific organizational aspects were more effective in reducing flows from competitive levels. We find some evidence that the assessment of fines for violations of the agreement enhanced collusion, but no evidence that the posting of bonds (to guarantee the fines) or the formation of pooling arrangements had any incremental effect. We also take advantage of the richness of the data on passenger flows to show that collusion had a smaller effect on first and second-class passenger flows relative to third class service. Finally, we provide estimates of consumer substitution across passenger classes due to collusion and show that such substitution was small but non-negligible, especially during periods of normal cartel operation. Our study has broader implications for the theory of collusion, and on how collusion affects the quality, rather than the quantity, of products purchased by consumers.

October 26, 2012 | Permalink | Comments (0) | TrackBack (0)

FDI and EU Competition Law - Achieving Legal Certainty When Creating Korean-European Joint Ventures

Posted by D. Daniel Sokol

Simon Baier, Hankuk University of Foreign Studies analyzes FDI and EU Competition Law - Achieving Legal Certainty When Creating Korean-European Joint Ventures.

ABSTRACT: Korea’s foreign direct investment in the European Union is expected to increase as a consequence of the Korea‐EU FTA. Korean companies planning to invest in the European market will often choose the form of a joint venture as the preferred business vehicle.

This article analyzes the formation of joint ventures under EU competition law and shows that two areas can be concerned with it - European antitrust law and merger control law. The article argues that by creating the joint venture as 'concentrative full-function undertaking' the founders will be able to achieve a high and satisfactory level of certainty about the legality of their intended business, because the formation process will be subject to merger control proceedings with the possibility of a pre-clearance by the European Commission. Over such a joint venture parent companies must maintain common control, and they have to ensure that it operates independently from them in the market on a lasting basis. In addition, the founders need to fully withdraw from the joint venture’s market and any adjacent markets.

The article also points out that joint ventures which only take over one specific function within the parents’ business activities or which induce 'spill-over effects' can hardly be subject to merger control but will be dealt with Art 101 TFEU exclusively and will thus forego the chance of receiving a 'clean bill' by the European Commission.

October 26, 2012 | Permalink | Comments (1) | TrackBack (0)

The Role of Keyword Advertising in Competition among Rival Brands

Posted by D. Daniel Sokol

David S. Evans, University of Chicago Law School, University College London, Global Economics Group and Elisa V. Mariscal, Centro de Investigación y Docencia Economica (CIDE), Competition Policy International (CPI), Instituto Tecnológico Autónomo de México (ITAM) discuss The Role of Keyword Advertising in Competition among Rival Brands.

ABSTRACT: This paper considers recent proposals for restricting keyword advertising using competitor brand names. Keyword advertising is similar to many other widely used and valuable methods of marketing to the customers of rivals that increase competition and facilitate entry. Queries for products or services using search engines help inform consumers about other competitive alternatives and may enable them to compare different product offerings. Economists have found overwhelmingly that this type of informative and comparative advertising benefits consumers and, conversely, that restricting such advertising harms consumers. Complainants in some recent keyword advertising cases have sought to forbid search engines from using trademarked names as keywords, claiming that this may cause confusion. We argue that most consumers are likely to benefit from keyword advertising and are unlikely to be confused by the practice. Moreover, without a careful weighing of the likely costs and benefits of this type of regulation, consumers might bear significant costs by eliminating an easy reference with which to compare existing or new products, resulting in important reductions in consumer benefits. In fact, even more narrow remedies such as case-specific penalties for causing consumer confusion could discourage search engines from offering this service to advertisers, decreasing their value to consumers as a search tool and resulting in significant harm.

October 26, 2012 | Permalink | Comments (1) | TrackBack (0)

Thursday, October 25, 2012

The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?

Posted by D. Daniel Sokol

Joseph P. Bauer, Notre Dame Law School asks The Foreign Trade Antitrust Improvements Act: Do We Really Want to Return to American Banana?

ABSTRACT: The extra-territorial reach of the antitrust laws is subject to multiple constraints, including the Commerce Clause of the constitution, the text of the antitrust statutes, and a variety of policy considerations. At the beginning of the twentieth century, in the American Banana case, the Supreme Court severely limited the application of the antitrust laws to anti-competitive behavior beyond our shores. The next eighty years saw an expansion of their extra-territorial reach, by including within their coverage a range of foreign conduct which had domestic effects. However, confusion among the lower courts as to the extent of this coverage, as well as a concern about the application of American antitrust laws against exporters whose conduct principally affected competition in foreign markets, led to the passage in 1982 of the Foreign Trade Antitrust Improvements Act. FTAIA expressly excludes certain conduct from the antitrust laws, while maintaining the principle that they should continue to apply to import commerce and to foreign behavior having a domestic effect. In the intervening three decades, however, courts have given improperly broad readings to the FTAIA’s exclusionary provisions. The result has been to deny to American competitors and American consumers the appropriate level of protection afforded them by the antitrust laws. This Article reviews the history leading up to the passage of FTAIA and discusses its provisions. It then examines and critiques the judicial treatment FTAIA has received. It concludes that many of these decisions are wrong – both as a matter of statutory interpretation and as a matter of policy – and urges either a judicial redirection or legislative correction.

October 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Does Prohibiting 'Lock-In' Improve Aftermarket Outcomes? Evidence from the Fairness to Contact Lens Consumers Act

Posted by D. Daniel Sokol

James C. Cooper, George Mason University School of Law - Law & Economics Center asks Does Prohibiting 'Lock-In' Improve Aftermarket Outcomes? Evidence from the Fairness to Contact Lens Consumers Act.

ABSTRACT: Because a patient must have a prescription to purchase contact lenses, prescribing eye care professional (ECPs) have incentives to take advantage of locked-in patients. I use the Fairness to Contact Lens Consumers Act (FCLCA) – which outlawed lock-in – as a natural experiment to perform (to my knowledge) the first empirical examination of the effect of lock-in on aftermarket prices. Examination of the pre- and post-FCLCA price gap between ECPs and online sellers indicates that pricing in the contact lens market has not systematically changed since FCLCA. One conjecture from these results is that search costs may be responsible for persistent ECP premiums in this market. To the extent that they are generalizable, these results also indicate that the current antitrust treatment of power derived from proprietary aftermarkets may be welfare reducing.

October 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Call for papers: The evolution of antitrust public enforcement

Posted by D. Daniel Sokol

The Italian annual journal "Concorrenza e mercato" (Giuffre Publ.), whose 2012 issue has just been published, invites submission of full papers for publication in the next issue (forthcoming 2013).

Contributions are invited on the topic: "The evolution of antitrust public enforcement".

Completed papers should be submitted by December 31, 2012.

The Journal also welcomes, by the same deadline, contributions on competition law and economics dealing with issues other than that above mentioned. For further information: http://ricerca.giurisprudenza.luiss.it/centri-di-ricerca/opicc/concorrenza-e-mercato.

October 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Auctions for Private Congestible Infrastructures

Posted by D. Daniel Sokol

Vincent A.C. van den Berg (VU University Amsterdam) discusses Auctions for Private Congestible Infrastructures.

ABSTRACT: This paper investigates regulation by auctions of private supply of congestible infrastructures in two networks settings: 1) two serial facilities, where the consumer has to use both in order to consume; and 2) two parallel facilities that are imperfect substitutes. There are four market structures: a monopoly and 3 duopolies that differ in how firms interact. The effects of an auction depend on what the bidders compete. With a bid auction, the bidders compete on how much money they transfer to the government. This auction leads to the same outcome as the unregulated game (for a given market structure), since this gives the maximum profit to transfer. An auction on the capacity of a facility leads to an even lower welfare than no regulation, because firms set very high capacities and usage fees. Conversely, an auction on generalised price or number of users leads to the first-best outcome. Moreover, these two auctions are robust: they attain the first-best regardless of whether the facilities are auctioned off to a single firm or to two firms, and for all market and network structures. On the contrary, the performances (relative to the first-best) of the bid and capacity auctions strongly depend on these considerations.

October 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Empirical evidence on the relationship between mobile termination rates and firms’ profit

Posted by D. Daniel Sokol

Kjetil Andersson (University of Agder), Oystein Foros (NHH Norwegian School of Economics) and Bjorn Hansen (Telenor) offer Empirical evidence on the relationship between mobile termination rates and firms’ profit.

ABSTRACT: The comprehensive theoretical literature on mobile termination rates (MTRs) is inconclusive on how the level of MTRs affects overall consumer charges and firms’ profit. In a theoretical model, well suited for econometric implementation, we show that where consumers buy a bundle with included usage, as we now observe in the market, the level of MTRs has no impact on retail prices and firms’ profit. We use a panel data set from saturated European markets and find that an identical change in MTRs does not have a significant impact on firms’ profit.

October 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 24, 2012

ICN Celebrates 11 Years Today

Posted by D. Daniel Sokol

Happy 11th Birthday International Competition Network!

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Above the Law Most Overrated and Underrated Antitrust Practices

Posted by D. Daniel Sokol

According to Above the Law the most underrated antitrust practices:

Cadwalader
McDermott Will & Emery
Jenner & Block

The most overrated on Above the Law are:

Cleary Gottlieb
Cadwalader
Skadden

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange

Posted by D. Daniel Sokol

Keith M. Marzilli Ericson (BU) explores Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange.

ABSTRACT: I use the Medicare Part D prescription drug insurance market to examine the dynamics of firm interaction with consumers on an insurance exchange. Enrollment data show that consumers face switching frictions leading to inertia in plan choice, and a regression discontinuity design indicates initial defaults have persistent effects. In the absence of commitment to future prices, theory predicts firms respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. The complete set of enrollment and price data from 2006 through 2010 confirms this prediction: older plans have approximately 10% higher premiums than comparable new plans.

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland

Posted by D. Daniel Sokol

Joni Hokkanen, Centre for Health and Social Economics, National Institute for Health and Welfare, Aki Kangasharju, Nordea Markets, Ismo Linnosmaa, Centre for Health and Social Economics, National Institute for Health and Welfare and Hannu Valtonen, Department of Health and Social Management, University of Eastern Finland Kuopio discuss Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland.

ABSTRACT: The present paper evaluates the quantitative impact of a pharmaceutical reform on pharmaceutical prices. A generic substitution policy was introduced in Finland in 2003 to contain rising pharmaceutical expenditure. After the reform pharmacists were obliged to propose a cheaper alternative to a prescribed pharmaceutical product whenever a substitutable product was available. There were three possible channels through which the price effect might have been transmitted.

First, the policy might have affected manufacturers? pricing behaviour for existing pharmaceutical products. Second, firms might have introduced new product variants of existing drugs to the market in the form of new generics or different package sizes. Third, the policy might have affected prices through the market structure, with more firms offering new product variants entering the market.

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Supreme Court Will Address Antitrust State Action Exemption

Posted by Steve Semeraro

The state action exemption to the federal antitrust laws holds that governments do not violate the antitrust laws, firms do. State laws with anticompetitive impacts thus do not run afoul of federal law when they restrain trade even though the same conduct by private actors would violate the law. The exemption is entirely judge-made and rests on the notion that Congress intended the antitrust laws to reach only private conduct.

The Supreme Court’s engagement with the exemption has been sporadic. After creating it in the mid-20th Century Parker v. Brown case – where the Court upheld California's anticompetitive regulation of the raisin industry – the Court allowed the bare bones doctrine to evolve in the lower courts for decades. A flurry of cases in the 1980s set out the current parameters of the exemption. Sovereign state action is entirely exempt from antitrust scrutiny. Agency and municipal doctrine must be undertaken pursuant to a state policy recognizing the validity of anticompetitive conduct. And private actors may rely on the exemption only when their anticompetitive conduct is both (1) pursuant to state policy, and (2) actively supervised by state actors. Critics have long questioned why the exemption permits restraints of trade that would be illegal if imposed by private actors without the imprimatur of government. Indeed, the exemption appears as a sort of reverse preemption, enabling state law to trump federal law. The best explanation for the doctrine is that the federal antitrust laws recognize the value in regulation that restrains trade, but not private restraints. Government actors are charged with a duty to act in the public interest and thus can generally be trusted to restrain trade only when the public will benefit. Private actors, by contrast, are driven by the desire to maximize profit and will thus restrain trade when it is privately beneficial but harms the public interest. On 26 November, the Supreme Court will reenter the fray, hearing oral argument in FTC v. Phoebe Putney Health System.

The case arises from a Federal Trade Commission (FTC) challenge to the merger of two Georgia hospitals. The Eleventh Circuit held that the state action doctrine exempted the merger from antitrust scrutiny even if, as the FTC alleged, the merger created an "absolute monopoly" in certain hospital services in the geographic market. The merging hospitals argued that Georgia's Hospital Authorities Law authorized regional hospital authorities to ensure that medical services are available to the poor on a nonprofit basis in otherwise underserved areas. Toward that end, the law empowers the authority buy, sell, and operate hospital assets as necessary to achieve that goal. In this case, the regional hospital authority nominally purchased Palmyra Hospital and then promptly transferred it to Phoebe Putney, a hospital providing non-profit health care services.

The Eleventh Circuit rejected two arguments raised by the FTC. First, the Commission argued that the Hospital Authorities Law did not did not anticipate anticompetitive conduct. But the lower court carefully detailed the broad powers that the state granted and convincingly explained that they fell within the scope of prior cases in which state authorization of anticompetitive conduct has been found. Unless the Supreme Court plans to revisit this prong of the test, the Eleventh Circuit’s decision (like it or not) rests on firm ground.

Second, the FTC argued that the decision was not really that of the Authority, but rather Phoebe Putney Hospital’s private interests drove the merger despite the nominal cloak of state authority. Again, however, the Eleventh Circuit properly rejected the argument. The Supreme Court made clear in Omni Outdoor Advertising that there is no co-conspirator exception to the state action exemption. Courts are prohibited from probing the minds of state actors to see whether they were perhaps improperly influenced by private actors with an interest in the government activity. Another issue that should be central to the case, however, was never addressed by the Eleventh Circuit. This is a case against private parties, the hospitals, not the state or the Hospital Authority as a regulatory arm of the state. When private conduct is at issue, the state action exemption normally requires active state supervision. It would appear to be a relevant question whether state law provides sufficient mechanisms for the Hospital Authority to supervise Phoebe Putney going forward to ensure that the state policy of access to health services by the poor is in fact the result of the merger rather than merely higher prices for health care.

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Swedish Competition Authority Pros and Cons 2012 -

Posted by D. Daniel Sokol

Pros and Cons 2012

We have a tradition of arranging seminars on major issues, where academics and practitioners meet in the same arena.

The seminars, which are open for competition authority employees, researchers, lawyers and competition consultants, have been appreciated for the open discussion among the participants and we hope that this year’s seminar will be no exception.

Seminar in Stockholm on November 9

This year, the theme for the seminar is "More Pros and Cons of Merger Control". As in previous years we will arrange a seminar in Stockholm on November 9 where the contributors will present their papers and leading officials from competition authorities around the world will be the discussants.

Programme, Friday, November 9, 2012

8.30 Registration and coffee
 
9.00 Introduction by the moderator: Dan Sjoblom, Director General of the Swedish Competition Authority
9.10 Doris Hildebrand: European School of Thought in EU Merger Control

Discussant: Per Hellstrom, European Commission
10.00 Coffee
10.30 Tomaso Duso: A Decade of Ex‐post Merger Policy Evaluations: A Progress Report

Discussant: John Davies, OECD
11.20 Aditi Mehta: Choosing the Appropriate Control Group in Merger Evaluations

Discussant: Mateusz Blachucki, Polish Office of Competition and Consumer Protection
12.10 Lunch
13.20 Michal Gal: Merger Policy for Small and Micro Jurisdictions

Discussant: Vincent Martenet, Swiss Competition Commission
14.10 Coffee
14.40 Lars Sorgard: Merger Screening in Markets with Differentiated Products

Discussant: Manuel Sebastiao, Portuguese Competition Authority
15.30 Panel Session: New tools like UPP - just for screening or more?
16.30 Closing of seminar
 

 Each speaker has 30 minutes for their presentations; the discussants have 10 minutes each, leaving 10 minutes for general discussion.

Venue

The seminar venue is Nordic Light Hotel, directly adjacent to Arlanda Express, the express rail link with Stockholm Arlanda Airport. The conference venue is marked by red dot

Contributors

Doris Hildebrand, EE&MC - European Economic & Marketing Consultants
Tomaso Duso, Dusseldorf Institute for Competition Economics
Aditi Mehta, Antitrust Division, U.S. Department of Justice
Michal Gal, Faculty of Law, University of Haifa
Lars Sorgard, Norwegian School of Economics

We have the pleasure of announcing that the following senior officials will comment on the presentations:

Per Hellstrom, European Commission
John Davies, OECD
Mateusz Błachucki, Polish Office of Competition and Consumer Protection
Vincent Martenet, Swiss Competition Commission
Manuel Sebastiao, Portuguese Competition Authority

Registration

We need your registration at the latest on October 28, 2012. Please register here

All matters regarding registration and accommodation are handled by Meetagain, [email protected] .

Questions

If you have any questions, please do not hesitate to contact our head of the organizing committee Arvid Fredenberg at [email protected]

The information on this website will continuously be updated.

 

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Consolidation and merger sctivity in the United States banking industry from 2000 through 2010

Posted by D. Daniel Sokol

Robert M. Adams investigates Consolidation and merger sctivity in the United States banking industry from 2000 through 2010.

ABSTRACT: This study investigates trends in consolidation and merger activity in the United States banking industry from 2000 through 2010. Over this period, the U.S. banking industry has consistently experienced over 150 mergers annually, with the largest banking organizations holding an increasing share of banking assets. While the industry has undergone considerable consolidation at the national level, local banking markets have not experienced significant increases in concentration. The dynamics of consolidation raise concerns about competition, output, efficiency, and financial stability. This study uses a comprehensive proprietary data set to examine mergers and acquisitions involving banks and thrifts. The methodology in this paper expands the definition of mergers to include more types of transactions than previous studies on bank mergers.

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

European Commission on Microsoft - It is Not Over yet - New Statement of Objections

Posted by D. Daniel Sokol

In the shadow of an investigation into Google, the European Commission still seems fixated on its favorite target of the 2000s (other than Intel) - Microsoft. Commissioner Almunia’s press conference can be viewed here. Press release can be found here.

HT: Conor Maguire

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Must Read Non-Antitrust Book (with a little Antitrust Lineage)

Posted by D. Daniel Sokol

A Chanukah present for the entire family - Jewish Jocks: An Unorthodox Hall of Fame, edited by Franklin Foer and Marc Tracy. There is a really great interview with Franklin Foer (son of AAI's Bert Foer) in Slate that you can read here. I could not help to note a realy interesting competition theme regarding innovation that also plays to an antitrust crowd. In the interview, we get the following:

Is there any reason to believe that Jews are better or worse athletes than non-Jews?

My father has called this book the most triumphalist document to emerge from the Jewish community since the '67 war. Many of the essays hit the same theme: Jews compensate for their lack of physical acumen with their heads. They are innovators, who must devise new strategies and new techniques to win. Jewish boxers were invariably described as "scientific." That is, they used precision and creativity in order to foil their foes. Henry Ford, for one, hated the scientific fighters. He considered the use of feints and trickery to be less than manly. Yet, the slips and punches that Jewish boxers invented ultimately found their way into every gym in America.

October 24, 2012 | Permalink | Comments (1) | TrackBack (0)

Price Competition versus Externalities

Posted by D. Daniel Sokol

Liqiu Zhao (KU Leuven) discusses Price Competition versus Externalities.

ABSTRACT: Agglomeration can affect markups through two potential channels: agglom- erated regions toughen competition (price competition effect) and firms are more productive on average in agglomerated regions (agglomeration exter- nalities and firm selection effect). However, the literature is inconclusive on which force dominates. This paper models these two channels by in- troducing agglomeration economies to the model of Melitz and Ottaviano (2008). Under parameters from the empirical studies, I demonstrate that the price competition effect tends to dominate the others, i.e., firms in more agglomerated regions charge lower markups. Using a unique Chinese firm-level data from 2002 to 2004, I investigate the effect of spatial agglomeration on markups of firms. By addressing the potential endogeneity problems us- ing instrumental-variable method, I find that in China an increase in the number of own-industry firms in the same region has a negative causal effect on markups of firms and a positive effect on productivity. But firms in agglomerated regions have higher output and profit.

October 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 23, 2012

An experimental study of mixed strategy equilibria in simultaneous price-quantity games

Posted by D. Daniel Sokol

Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) and Benjamin Franz (Mathematical Institute, University of Oxford) describe An experimental study of mixed strategy equilibria in simultaneous price-quantity games.

ABSTRACT: We study oligopoly games with firms competing in prices and quantities at the same time. We systematically compare our experimental results to the theoretical predictions using the mixed strategy equilibria for linear demand functions. For the duopoly game, we observe that the mixed strategy equilibrium predicts average outcomes better than Cournot and Bertrand do. Subjects' price choices are mainly between marginal cost and monopoly level but do not follow the equilibrium distribution. Although average prices and profits are above theoretical values, we do not observe a high level of collusion as expected in the literature. By comparing simulations based on the mixed strategy equilibrium to our experimental outcomes, we conclude that in this game price setting can be explained by strategic reaction to preceding round results. In contrast to the equilibrium prediction, we observe a decrease in prices and negative average! profits for the triopoly game.

October 23, 2012 | Permalink | Comments (0) | TrackBack (0)