Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, February 11, 2012

Insights into Antitrust Enforcement in Media Industries

Posted by D. Daniel Sokol

Sharis Pozen (DOJ) has written about Insights into Antitrust Enforcement in Media Industries.

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

Friday, February 10, 2012

Competition and Consumer Protection: A Behavioral Economics Account

Posted by D. Daniel Sokol

Oren Bar-Gill, New York University (NYU) - School of Law explores Competition and Consumer Protection: A Behavioral Economics Account.

ABSTRACT: Do the benefits of competition extend to a world with imperfectly rational consumers? I argue that sellers, operating in a competitive market, will design their products, contracts and pricing schemes in response to consumer misconception, resulting in both efficiency losses and harm to consumers. Under certain conditions, competition provides incentives for sellers to educate consumers and reduce misconception, but these mistake-correction forces are limited. The existence of biased demand, generated by imperfectly rational consumers, creates a market failure – a behavioral market failure. Mandated disclosure, deliberately designed for imperfectly rational consumers, or for sophisticated intermediaries that advise imperfectly rational consumers, can help.

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

Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards

Posted by D. Daniel Sokol

Wilko Bolt, De Nederlandsche Bank (Dutch Central Bank) Sujit Chakravorti, The Clearing House address Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards.

ABSTRACT: The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. We focus on three types of market interventions for various countries. We argue that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.

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

What Do Drug Monopolies Cost Consumers in Developing Countries?

Posted by D. Daniel Sokol

Rebecca Hellerstein, Federal Reserve Bank of New York asks What Do Drug Monopolies Cost Consumers in Developing Countries?

ABSTRACT: This paper quantifies the effects of drug monopolies and low per-capita income on pharmaceutical prices in developing economies using the example of the antiretroviral drugs (ARVs) used to treat HIV.

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

Thursday, February 9, 2012

Output Commitment through Product Bundling: Experimental Evidence

Posted by D. Daniel Sokol

Jeroen Hinloopen (University of Amsterdam), Wieland Muller (Tilburg University) and Hans-Theo Normann (Duesseldorf Institute for Competition Economics) discuss Output Commitment through Product Bundling: Experimental Evidence.

ABSTRACT: We analyze the impact of product bundling in experimental markets. A firm has monopoly power in one market but faces competition by a second firm in another market. We compare treatments where the monopolist can bundle its two products to treatments where it cannot, and we contrast simultaneous and sequential order of moves. Our data indicate support for the theory of product bundling, even though substantial payoff differences between players exist. With bundling and simultaneous moves, the monopolist offers the predicted number of units. When the monopolist is the Stackelberg leader, the predicted equilibrium is better attained with bundling although in theory bundling should not make a difference here. In sum: bundling works as a commitment device that enables the transfer of market power from one market to another.

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

China's Anti-Monopoly Law and its Merger Enforcement: Convergence and Flexibility

Posted by D. Daniel Sokol

Dan Wei (University of Macau Faculty of Law) discusses China's Anti-Monopoly Law and its Merger Enforcement: Convergence and Flexibility.

ABSTRACT: As the world's second largest economy and the world's fastest growing economy, China is a late but significant entrant into the competition law club with the implementation of the Anti-Monopoly Law (AML) on 1 August 2008. This article provides a review of the enactment of the AML and a detailed discussion of the merger provisions and application of those provisions by the competition enforcement agency. Despite the short history of application of the AML, empirical findings on merger enforcement illustrate that China is making efforts to realize a soft convergence with international norms. Meanwhile, China's gradual approach to convergence gives it the flexibility to stop, to adjust, and to make an exception whenever necessary to accommodate its transitional and growing economy.

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

Anticompetitive Regulation in the Payment Card Industry

Posted by D. Daniel Sokol

Ron Mann (Texas - Law) discusses Anticompetitive Regulation in the Payment Card Industry.

ABSTRACT: The payment card industry in the United States has come under increasing scrutiny in recent years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 reflects a high-water mark of congressional influence for the industry, altering bankruptcy procedures largely for the benefit of card issuers. Since that point, Congress has turned repeatedly to rein in perceived abuses in the industry. The most substantial and direct response to the perception of abuse is the Credit Card Accountability Responsibility and Disclosure Act of 2009. That statute was focused directly on the card industry and outlawed a wide variety of industry practices. More recently, in § 1075 (the "Durbin Amendment") of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress cut permissible interchange fees for debit card transactions to amounts that approximate the costs of processing those transactions; the Federal Reserve's implementing regulation apparently will lead to a more than 50 percent decline in those fees.

So why is it at all noteworthy that Congress, in the course of reining in an industry targeted for excessive behavior, should require substantial changes in the industry's operations? My hypothesis is a simple one. Both provisions make it more challenging to operate profitably in the payment card market. Because both provisions will pose greater challenges for smaller firms than they do for larger firms, both statutes will make it harder for smaller banks to compete in the payment card market. It may not be easy to evaluate the consequences of greater concentration in the industry. But it is clear that industry concentration is not what drove Congress to action: whatever else Congress was trying to do, it certainly was not trying to drive small banks from the payment card market.

February 9, 2012 | Permalink | Comments (1) | TrackBack (0)

Competition and Vertical Integration in Financial Exchanges

Posted by D. Daniel Sokol

Craig Pirrong (University of Houston - Business) has written on Competition and Vertical Integration in Financial Exchanges.

ABSTRACT: Financial exchanges have come under increasing antitrust scrutiny of late. Competition authorities-especially those in Europe-have focused critical attention on the integration of trade execution and post-trade services in a single "silo." This hostility is predicated on a belief that integrated exchanges are immune to competitive entry. The conditions in financial trading markets do not match those that the "post-Chicago" literature has shown can make integration anticompetitive. Moreover, the cost and demand conditions in trade execution and post-trading services make integration efficient as a means of reducing double marginalization problems and transactions costs. In particular, the liquidity network effects tend to lead to consolidation of trading on a single venue, and risk sharing considerations give rise to extensive economies of scale and scope in post-trade services like clearing. Integration reduces the double marginalization and opportunism problems that would arise if dominant trading and post-trade venues were operated as separate firms. Liquidity network effects can be mitigated by order handling rules like RegNMS in the United States, but the issues with post-trade services are far less amenable to regulatory remediation. Thus, the hostility to vertically integrated exchanges is misguided. Moreover, even if order handling rules that reduce market power in execution are adopted, post-trade services are likely to present chronic competitive concerns.

February 9, 2012 | Permalink | Comments (1) | TrackBack (0)

Wednesday, February 8, 2012

Comparing three models for introduction of competition into railways – is a Big Wolf so Bad after all?

Posted by D. Daniel Sokol

Chris Nas (University of Leeds, UK) Jan-Eric Nilsson (VTI) and Heike Link (DIW, Berlin, Germany) are Comparing three models for introduction of competition into railways – is a Big Wolf so Bad after all?

ABSTRACT: This paper compares the experience of three European countries with long experience of competition in rail transport – Britain, Sweden and Germany. Britain is characterised by complete separation of infrastructure from operations, competition either for or in the market for the entire passenger network, open access for freight with two large operators and several smaller ones, strong regulation and careful attention to financial incentives. Sweden also has complete vertical separation, competitive tendering for all subsidised services, open access for freight and now also for commercial passenger services. Regulation, although now strengthened, is not as tight as in Britain. At the other extreme, Germany still has the dominant operator and the infrastructure company as subsidiaries to the same holding company, the regulator has had repeated disputes regarding their powers and – although there is some tendering of sub! sidised passenger services and open access for commercial passenger and freight – the incumbent still dominates the market. According to the general expectations of theoretical reasoning, we would expect the British approach to be the most successful in achieving an efficient, competitive rail system, with Sweden next and Germany least successful. But an examination of subsidy levels and trends in passenger and freight traffic finds that Germany has the slowest growth in public financial support for its railway as well as the lowest fares. Both Britain and Sweden have had faster growth in public financial support than Germany, although this has mainly been in infrastructure renewal and enhancement, and there has been debate as to the adequacy of current infrastructure spending in Germany. On most measures, Britain has lower absolute levels of financial support than Germany as well as faster traffic growth. Sweden clearly has much higher financial support, although this ma! y be the result of low population density. Thus on balance it is not c lear that the reform process has worked better in the other countries than in Germany, despite initial expectations. Further in depth research on the reasons for these changes in financial support and traffic levels would be needed to reach a more conclusive answer.

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

OECD’s Competition Committee meeting next week in Paris - Feb 13-15, 2012

Posted by D. Daniel Sokol

OECD’s Competition Committee meeting next week in Paris

The OECD’s Competition Committee will be in session next week, from Monday February 13th to Wednesday 15th, when delegates from the 34 member economies plus observers will gather to discuss topics in competition law and policy. These roundtable sessions are not open to the public, but the OECD has published drafts of some of the expert papers as work in progress (links below).

The three topics being discussed by the Committee and its working parties are:

Competition in Hospital Services

· Competition in Hospital Services - OECD background paper by Frank Maier-Rigaud

· Reform, Competition, and Policy in Hospital Markets - Paper by Mr. Martin Gaynor

· The Very English Experience with Competition: Lessons from Britain's National Health Service - Paper by Mr. Zack Cooper

Unilateral Disclosure of Information with Anticompetitive Effects (e.g. through Press Announcements)

· Unilateral Disclosure of Information with Anticompetitive Effects (e.g. through Press Announcements) - OECD background paper by Antonio Capobianco

The Digital Economy (Discussion continued from October 2011)

· Oversight of Innovation Catalysts - Paper by Tim Wu

Contact names and email addresses for each of these topics, and papers from earlier meetings (including previous papers on the continued digital economy session), are available on the OECD’s “Work in Progress” web page, at http://www.oecd.org/document/43/0,3746,en_2649_37463_48742443_1_1_1_37463,00.html

Full compilations of all the materials discussed in these meetings, together with contributions by participating countries and a summary of the discussion, will be published by the OECD on its web site later this year at www.oecd.org/competition/roundtables

The Committee will also be considering its plans for work over the next two years, focused around the two themes of “International co-operation in competition enforcement” and “Evaluating the impact of competition interventions”.

Following the Committee meeting, on Thursday 16th and Friday 17th February, the OECD will be holding its 11th annual Global Forum on Competition, details of which will be provided in a later post.

February 8, 2012 | Permalink | Comments (1) | TrackBack (0)

Media market concentration, advertising levels, and ad prices

Posted by D. Daniel Sokol

Simon P. Anderson (University of Virginia), Oystein Foros (Norwegian School of Economics), Hans Jarle Kind (Norwegian School of Economics), and Martin Peitz (University of Mannheim) have a paper on Media market concentration, advertising levels, and ad prices.

ABSTRACT: Standard media economics models imply that increased platform competition decreases ad levels and that mergers reduce per-viewer ad prices. The empirical evidence, however, is mixed. We attribute the theoretical predictions to the combined assumptions that there is no advertising congestion and that viewers single-home. Allowing for crowding in viewer attention spans for ads may reverse standard results, as does allowing viewers to multi-home.

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

DOJ Antitrust - Economics Analysis Gorup Spring 2012 Seminar Series Schedule

Posted by D. Daniel Sokol

March 7

Wed 2-3:30

Alan Sorensen

Wisconsin

“Market Thickness and Market Efficiency in Dynamic Auctions”

March 13

Tue 2-3:30

Chuck Romeo

USDOJ—EAG

“Incorporating Prior Information into a GMM Objective for Mixed Logit Demand Systems”

March 19

Mon 2-3:30

Bruce Lyons

U. East Anglia, Econ

“Concentration and Competition in European Retail Banking,” w. M. Zhu

March 27

Tues 2-3:30

Tim Brennan

UM BC

“Behavioral vs. standard economics: Observations against, for & tied”

April 3

Tues 2:30-4

Eugenio Miravete

UT Austin

“Welfare and Redistribution Effects of Benevolent Multiproduct Pricing: The Pennsylvania Liquor Control Board,” w. J. Thurk, K. Seim, and J. Waldfogel

April 10

Tue 2-3:30

Glen Weyl

Chicago

“Insulated Platform Competition,” w. A. White

April 17

Tues 2-3:30

Estelle Cantillion

U. Libre, Brussels

“Competition between Exchanges : Lessons from the Battle of the Bund,” w. PL Yin

April 24

Tues 2-3:30

Yan Lin

U. East Anglia, Bus

“Market Structure, Regulation and Mobile Network Penetration,” w. B. Lyons

May 2

Wed 1:45-3:15

Kosali Simon

Indiana Univ.

“How Effective Was the Dependent Coverage Mandate of the Affordable Care Act?” w. Y Antwi and A. Moriya

May 8

Tues 2-3:30

Bob Adams / Mark Manuszak; FRB

“Commuting Ties and Geographic Market Definition”

May 15

Tues 2-3:30

Miller, et al.

USDOJ—EAG

“Assessing the Accuracy of Merger Approximation,” w. M. Remer, C. Ryan and G. Sheu

May 22

Tues 2-3:30

Chad Brown

World Bank

“Export Preferences, Export Surges and Hysteresis: Indian Steel Firms and Import Safeguards,” w. G. Porto

May 29

Tues 2-3:30

John Asker

NYU-Stern

“Exclusionary Minimum Resale Price Maintenance,” w. H. Bar-Isaac

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Legal Boundaries as Political Economy: The Scope of Antitrust and a General Theory of the Regulation-Competition Dichotomy

Posted by D. Daniel Sokol

Chris Sagers, Cleveland-Marshall College of Law, Cleveland State University discusses Legal Boundaries as Political Economy: The Scope of Antitrust and a General Theory of the Regulation-Competition Dichotomy.

ABSTRACT: In American policy we apply a basic and useful fiction in a variety of ways, but it ordinarily goes unrecognized, remains essentially untheorized, and is usually deployed poorly. The fiction consists of the following dichotomy: Government can regulate any particular conduct in one of two ways. It (a) can command the manner and means of that conduct, or (b) can subject it to the disciplinary force of competition. That is, in principle, American governments can pursue policy objectives either by making rules to direct or forbid specific conduct - they can “regulate” it - or by employing competition itself as a regulatory tool. We have traditionally said that competition is the preferred option in America, though there have been major exceptions, as during the Progressive and early New Deal years.

The paper will explain how this concept is so often misapplied, and how it could be used better to serve policy goals. A case will be made that where the distinction is misused, it is for one of two reasons: it is either underdeployed or overdeployed. Briefly, “underdeployment” means forgetting that competition itself can do good, and “overdeployment” means expecting that competition can work miracles. Both problems reflect confusion of this fictional dichotomy with a claim of sociological fact. To that extent the paper joins an ancient jurisprudential struggle between an aspirational objectivity, said to inhere in law as a reflection of either logic or sociology, and acknowledgement that rules of decision are merely tools of normative policy. Next, a stronger theoretical claim is that, whether it is consciously used or not, the dichotomy is always deployed. That is, even where it is ignored, it retains explanatory power as to the consequences that follow policy choices. The paper will draw from this fact its strongest theoretical claim. As a practical matter:

The function of the regulation-competition dichotomy in American political economy is to situate the location of social decisionmaking.

Finally, the paper will offer a revised dichotomy as a tool for courts and policymakers. It would reorient certain legal doctrines toward competition as the favored regulator, but only as supported by pro-competitive market institutions and liability rules. The paper will work through several practical applications of the retooled dichotomy, with an emphasis on the scope of antitrust.

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Assessing Unilateral Merger Effects in a Two-Sided Market: An Application to the Dutch Daily Newspaper Market

Posted by D. Daniel Sokol

Lapo Filistrucchi, Tobias J. Klein and Thomas Michielsen (all TILEC, Tilburg University) are Assessing Unilateral Merger Effects in a Two-Sided Market: An Application to the Dutch Daily Newspaper Market.

ABSTRACT: We compare different methods to assess unilateral merger effects in a two-sided market by applying them to a hypothetical merger in the Dutch newspaper industry. For this, we first specify and estimate a structural model of demand for differentiated products on both the readership and the advertising side of the market. This allows us to recover price elasticities and indirect network effects. Following Filistrucchi, Klein, and Michielsen (2010) marginal costs are then recovered from an oligopoly model of the supply side. We use these estimates of price elasticities, network effects and marginal costs to compare different methods that can be used to evaluate merger effects: We perform a concentration analysis based on the Herfindahl Hirschmann Index, a Small Significant Non-Transitory Increase in Price test, measure Upward Pricing Pressure, and conduct a full merger simulation.

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Transparency, entry, and productivity

Posted by D. Daniel Sokol

Yiquan Gu (University of Liverpool, Management School) and Tobias Wenzel (Dusseldorf Institute for Competition Economics) address Transparency, entry, and productivity.

ABSTRACT: This paper studies the relationship between transparency on the consumer side and productivity of firms. We show that more transparent markets are characterized by higher average productivity as firms with low productivity abstain from entering these markets.

February 8, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 7, 2012

The economics of predation: What drives pricing when there is learning-by-doing?

Posted by D. Daniel Sokol

David Besanko (Kellogg School of Management, Northwestern University), Ulrich Doraszelski (Wharton School, University of Pennsylvania) and Yaroslav Kryukov (Tepper School of Business, Carnegie Mellon) ask The economics of predation: What drives pricing when there is learning-by-doing?

ABSTRACT: Predatory pricing--a deliberate strategy of pricing aggressively in order to eliminate competitors--is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated. The purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework. We endogenize competitive advantage and industry structure through learning-by-doing. We first show that predation-like behavior arises routinely in our model. Equilibria involving predation-like behavior typically coexist with equilibria involving much less aggressive pricing. To disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition. Our decomposition provides us with a coherent and flexible way to develop alternative characterizations of a firm’s predatory pricing incentives, some of which are motivated by the existing literature while others are novel. We finally measure the impact of the predatory pricing incentives on industry structure, conduct, and performance. We show that forcing a firm to ignore these incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation-like behavior. Along with the predation-like behavior, however, a fair amount of competition for the market is eliminated. Overall, the distinction between predatory pricing and pricing aggressively to pursue efficiency is closely related to the distinction between the advantage-building and advantage-denying motives that our decomposition of the equilibrium pricing condition isolates and measures.

February 7, 2012 | Permalink | Comments (1) | TrackBack (0)

Innovation and monopoly: The position of Schumpeter

Posted by D. Daniel Sokol

Antonella Laino has written on Innovation and monopoly: The position of Schumpeter.

ABSTRACT: When it speaks of Schumpeterian hypothesis we refer to the close relationship that exists between the degree of innovation and market structure. The entrepreneur represented by Schumpeter's is strongly creative and innovative to condition to be able to get e/o to maintain a market power, and thus make a extra profit.

February 7, 2012 | Permalink | Comments (0) | TrackBack (0)

The Sun Also Sets: Trending Away from Japanese Exceptionalism in Merger Control and Closer to Global Standards

Posted by D. Daniel Sokol

Etsuko Kameoka (Van Bael & Bellis) & Mel Marquis (European University Institute and University of Verona) have written on The Sun Also Sets: Trending Away from Japanese Exceptionalism in Merger Control and Closer to Global Standards.

ABSTRACT: Having endured two lost decades, Japan has little appetite for a third. But as an export-driven country, there are limits to Japan's ability to will itself back to economic health, given limp global demand and bleak forecasts. The implicit medium-term strategy-just staying afloat-seems evident in the Cabinet's decision of June 18, 2010 to pursue a "New Growth Strategy." One interesting offshoot of the Strategy is a package of merger control reforms, effective July 1, 2011. These took the form of an amendment to the Japan Fair Trade Commission's ("JFTC") notification rules and a revised set of guidelines.[3] The developments highlighted here are: the abolition of the prior consultation system; enhanced procedural transparency; confirmation of greater openness to wider geographic markets, and; early signs of how the reforms seem to be influencing the JFTC's merger practice.

February 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Platform Competition under Asymmetric Information

Posted by D. Daniel Sokol

Hanna Halaburda (Strategy Unit, Harvard University) and Yaron Yehezkel (The Recanati Graduate School of Business Administration, Tel Aviv University) explain Platform Competition under Asymmetric Information.

ABSTRACT: In the context of platform competition in a two-sided market, we study how ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology affects the strategies of the platforms and the market outcome. We find that the incumbent dominates the market by setting the welfare-maximizing quantity when the difference in the degree of asymmetric information between buyers and sellers is significant. However, if this difference is below a certain threshold, then even the incumbent platform will distort its quantity downward. Since a monopoly incumbent would set the welfare-maximizing quantity, this result indicates that platform competition may lead to a market failure: Competition results in a lower quantity and lower welfare than a monopoly. We consider two applications of the model. First, we consider multi-homing. We find that multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which result in market inefficiency. Second, the model provides a new argument for why it is usually entrants, not incumbents, that bring major technological innovations to the market.

February 7, 2012 | Permalink | Comments (0) | TrackBack (0)

Entry deterrence through cooperative R&D over-investment

Posted by D. Daniel Sokol

Clemence Christin, Dusseldorf Institute for Competition Economics explores Entry deterrence through cooperative R&D over-investment.

ABSTRACT: In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price.

February 7, 2012 | Permalink | Comments (0) | TrackBack (0)