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 25, 2012

Concurrences Antitrust Writing Awards 2012

Posted by D. Daniel Sokol

Concurrences is sponsoring a 2012 Antitrust Writing Award. Vote today.

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

How DG Competition and U.S. DOJ Antitrust Division Hurt Compliance Efforts

Posted by D. Daniel Sokol

Joe Murphy (Society of Corporate Ethics and Compliance) discusses How DG Competition and U.S. DOJ Antitrust Division Hurt Compliance Efforts.

ABSTRACT: Compliance programs today are generally recognized as key weapons in the fight against corporate crime and wrongdoing. When the U.S. Sentencing Guidelines ("USSG") in 1991 instituted a carrot and stick approach to promote programs, and set out a rigorous definition, this triggered a strong focus on making such programs effective. The understanding of such programs shifted dramatically, from mere codes and lawyer lectures, to requiring the use of a full range of management techniques to prevent and detect misconduct. Governments, following the USSG's model, have used standards with structured flexibility to give strong guidance, but allow businesses the freedom to tailor their approaches. This trend follows the recognition of a fundamental point: Effective programs utilize the same management tools and techniques that all organizations utilize when there is any task they value and want to achieve. This is how organizations get things done. Without this level of commitment, the message just does not effectively reach people in companies.

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

Friday, February 24, 2012

Plus Factors and Agreement in Antitrust Law

Posted by D. Daniel Sokol

William E. Kovacic, George Washington University - Law School, Robert C. Marshall, Pennsylvania State University, College of the Liberal Arts - Department of Economic, Leslie M. Marx, Duke University - Fuqua School of Business, Economics Group and Halbert L. White, University of California, San Diego (UCSD) - Department of Economics examine Plus Factors and Agreement in Antitrust Law. Highly recommended.

ABSTRACT: Despite the crucial role of concerted action to collusion among rival firms, few elements are more perplexing than the design of evidentiary standards to determine whether parallel conduct stems from collective or from unilateral decision making. Courts allow a collusive agreement to be established by circumstantial evidence, but the evidence must show additional evidence — “plus factors” — beyond parallel movement in price. Chief plus factors identified by courts have included actions contrary to each defendant’s self-interest unless pursued as part of a collective plan, phenomena that can be explained rationally only as a result of concerted action, evidence that defendants created the opportunity for regulation communication, industry performance data that suggests successful coordination, and the absence of a plausible legitimate business rational for suspicious conduct.

The frailties of the existing analytical tests for assessing plus factors impede the economically sensible resolution of many high-stakes antitrust cases where decisions made on the issue of conspiracy are decisive and such inadequacies may be magnified in the future. No cases have offered useful operational means for determining when the defendants have engaged in something more than consciously parallel conduct. It is possible to improve on existing approaches by focusing more precisely on the forms of behavior that firms use to communicate their intentions and to execute the tasks needed to achieve coordination on pricing, output, and other dimensions of effective collusion. Case law addressing plus factors has not established a methodology for ranking plus factors according to their probative value. The authors believe that the actions of an explicit cartel, and the outcomes of those actions, should illuminate the path to identifying plus factors and that any of those actions that surely do not result from unilateral conduct should be given special attention. Further, courts and enforcement agencies cannot address the agreement in question without awareness of remedial issues that stand in the background. Courts are left with a conundrum because they cannot meaningfully instruct firms not to react to their rivals’ pricing. When firms in an industry are players in a repeated game with substantially incomplete and asymmetric information, courts can examine buyer actions to attempt to distinguish between conduct that is an agreement in violation of the Sherman Act and conduct that is not.

This Article offers a way to increase understanding of plus factors and to improve the manner in which enforcement agencies and courts interpret them in individual cases by advocating the use of basic probability theory to rank plus factors in terms of their probative value. It proposes a formal definition of plus factors, a taxonomy of plus factors, and a coherent methodology for ranking them in terms of their probative values. It also proposes that plus factors should be considered in constellations whenever such groups are present because the probative value of the group can be far greater than the individual plus factors in the group.

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

Vert-zonal Differentiation in Monopolistic Competition

Posted by D. Daniel Sokol

Francesco Di Comite (Economics School of Louvain), Jean-Francois Thisse (Economics School of Louvain) and Hylke Vandenbussche (Economics School of Louvain) have written about Vert-zonal Differentiation in Monopolistic Competition.

ABSTRACT: The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of monopolistic competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, competition effects, varying markups and prices across countries, this results in a tractable model whose predictions differ from existing ones. Using the population of Belgian exporters, our model succeeds in explaining the hitherto unexplained variation. The implications call for a re-thinking of earlier results and measurement practices.

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

Bank Competition and Financial Stability: A General Equilibrium Exposition

Posted by D. Daniel Sokol

Gianni De Nicolo (IMF) and Marcella Lucchetta (University Ca’ Foscari) analyze Bank Competition and Financial Stability: A General Equilibrium Exposition.

ABSTRACT: We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy.

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

Thursday, February 23, 2012

Bank competition and stability: cross-country heterogeneity

Posted by D. Daniel Sokol

Thorsten Beck (Tilburg), Olivier De Jonghe (Tilburg) and Glenn Schepens (Ghent) address Bank competition and stability: cross-country heterogeneity.

ABSTRACT: This paper documents a large cross-country variation in the relationship between bank competition and stability and explores market, regulatory and institutional features that can explain this heterogeneity. Combining insights from the competition-stability and regulation-stability literatures, we develop a unied framework to assess how regulation, supervision and other institutional factors may make it more likely that the data favor the charter-value paradigm or the risk-shifting paradigm. We show that an increase in competition will have a larger impact on banks’ risk taking incentives in countries with stricter activity restrictions, more homogenous market structures, more generous deposit insurance and more effective systems of credit information sharing.

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

Who Is Hurt by E-commerce? Crowding out and Business Stealing in Online Grocery

Posted by D. Daniel Sokol

Andrea Pozzi (EIEF) asks Who Is Hurt by E-commerce? Crowding out and Business Stealing in Online Grocery.

ABSTRACT: I study the impact of e-commerce on competition in retail markets. Using scanner data from a large chain that markets grocery online and through traditional stores, I illustrate that selling online reduces the barrier of geographic differentiation and allows stealing business from competitors. Between 60% and 70% of the sales made online by the chain are stolen from other grocers, the rest coming from self cannibalization. I show that small stores are suffering the largest losses from this reallocation of market shares, as they were more heavily relying on geographic differentiation to survive the competitive pressure of big-box stores.

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

OFT Head John Fingleton to Step Down

Posted by D. Daniel Sokol

OFT Chief Executive John Fingleton has announced that he will step down after seven years. I have had an opporunity to interact with John around the world. He is smart, engaging and has had a temendous influence internationally. I have the greatest respect for him. From the OFT press release:

The OFT today announced that its Chief Executive, John Fingleton, is to step down later in 2012, after seven years in the role.

He said: 'I am proud of the OFT's achievements over the past seven years. During that time we have tackled major issues of concern to the public, helping to ensure that consumers are treated fairly and that firms are competing vigorously and transparently for their custom. In very many UK sectors, consumers are increasingly served by competitive, efficient businesses that comply with consumer and competition law. 'As the Government moves closer to a decision on the future structure of the regime, this is a good time for someone new to take the helm at the OFT and steer the competition and consumer regime into the future. I have not yet decided on my next career move.'

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

Endogenous Lysine Strategy Profile and Cartel Duration: An Instrumental Variables Approach

Posted by D. Daniel Sokol

Jun Zhou (University of Bonn, University of Tilburg) explores Endogenous Lysine Strategy Profile and Cartel Duration: An Instrumental Variables Approach.

ABSTRACT: Colluding firms often exchange private information and make transfers within the cartels based on the information. Estimating the impact of such collusive practices — known as the “lysine strategy profile(LSP)” — on cartel duration is difficult because of endogeneity and omitted variable bias. I use firms ’linguistic differences as an instrumental variable for the LSP in 135 cartels discovered by the European Commission since 1980. The incidence of the LSP is not significantly related to cartel duration. After correction for selectivity in the decision to use the LSP, statistical tests are consistent with a theoretic prediction that the LSP increases cartel duration.

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

Antitrust Law Scholar Tom Sullivan Named President of the University of Vermont

Posted by D. Daniel Sokol

I am happy to announce that Tom Sullivan (among other accolades, co-author with my friend and colleague at UF Jeff Harrison on the book Understanding Antitrust and its Economic Implications) has been announced as the next President of the University of Vermont. See the press release here.

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

Entrepreneurial Commercialization Choices and the Interaction between IPR and Competition Policy

Posted by D. Daniel Sokol

Joshua S. Gans (Rotman School of Management - University of Toronto) and Lars Persson, (Research Institute of Industrial Economics (IFN)) have a very interesting paper on Entrepreneurial Commercialization Choices and the Interaction between IPR and Competition Policy.

ABSTRACT: This paper examines the interaction between intellectual property protection and competition policy on the choice of entrepreneurs with respect to commercialization as well as the rate of innovation. We find that stronger intellectual property protection makes it more likely that entrepreneurs will commercialize by cooperating with incumbents rather than competing with them. Consequently, we demonstrate that competition policy has a clearer role in promoting a higher rate of innovation in that event. Hence, we identify one reason why the strength of the two policies may be complements from the perspective of increasing the rate of entrepreneurial innovation.

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

Wednesday, February 22, 2012

Enforcer's Consideration of Compliance Programs in Europe: Are 2011 Initiatives Raising Their Profile or Reducing It to the Lowest Common Denominator?

Posted by D. Daniel Sokol

Nathalie Jalabert-Doury & Gillian Sproul (Mayer Brown) have written on Enforcer's Consideration of Compliance Programs in Europe: Are 2011 Initiatives Raising Their Profile or Reducing It to the Lowest Common Denominator?

In Europe, compliance programs have been implemented by companies for many years. However, few competition authorities had clarified how they viewed these compliance initiatives, nor the impact of having (or not having) compliance programs on enforcement decisions. It took a long time for the European Commission to address the issue in any of its reports or notices. Then, in 2011, three competition authorities produced new guidance documents, outlining their support for compliance programs: the U.K. Office of Fair Trading ("OFT), the French Competition Authority ("FCA"), and the European Commission itself. Are these documents good news for businesses? The documents do show that competition authorities will now at least recognize compliance programs in Europe. However, behind the supportive tone, and the provision of more detailed guidance, the new guidelines in the United Kingdom and France only go as far as maintaining existing compliance reductions with reinforced conditions. Furthermore, the main emphasis of the European Commission's guidance appears to be on its commitment not to consider compliance programs as an aggravating circumstance.

February 22, 2012 | Permalink | Comments (0) | TrackBack (0)

The Unnoticed Difference between Antitrust and Competition Policy

Posted by D. Daniel Sokol

Petra Lunackova (Institute of Economic Studies, Charles University, Prague) describes The Unnoticed Difference between Antitrust and Competition Policy.

ABSTRACT: This paper presents a model which focuses on differences between the competition policy of the EU and antitrust of the U.S. It introduces three versions – Neutral, American, and European. Two-stage game model takes the authority’s perspective and describes options and behavior of antitrust officials when a firm engages in non-price vertical agreement (possibly restraint). Optimal behavior is expressed as expected income of the authority (EIA) which is a function of probability of wrong decision(s) in the course of action. It takes into account specific preferences, different types of errors, fear of those errors, and harm they might cause. Comparison shows some unnoticed features and results slightly in favor of the EU.

February 22, 2012 | Permalink | Comments (0) | TrackBack (0)

On the Price Effects of Horizontal Mergers: A Theoretical Interpretation

Posted by D. Daniel Sokol

Emilie Dargaud (Universite de la Reunion) and Carlo Reggiani (University of Manchester) provide comments On the Price Effects of Horizontal Mergers: A Theoretical Interpretation.

ABSTRACT: Horizontal mergers are usually under the scrutiny of antitrust au- thorities due to their potential undesirable e¤ects on prices and con- sumer surplus. Ex-post evidence, however, suggests that not always these e¤ects take place and even relevant mergers may end up hav- ing negligible price e¤ects. The analysis of mergers in the context of non-localized spatial competition offers a further explanation of that evidence: in this framework both positive and zero price e¤ects are possible outcomes of the merger activity.

February 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition Policy in Global Markets Efficiencies and remedies in lean times 22 June 2012

Posted by D. Daniel Sokol

Competition Policy in Global Markets Efficiencies and remedies in lean times 22 June 2012
Chatam House

This annual competition policy conference will focus on the challenges faced by regulators and industry world-wide as a result of the global downturn and budget cuts. Issues to be discussed include: Should there be a move from case-by-case or complaints-driven enforcement to sector-specific, ex officio cases? Should enforcement reflect a business’s economic difficulties? Competition issues relating to new technologies and the extractive industries. Speaker highlights: Joaquín Almunia (Commissioner for Economic & Monetary Affairs, European Commission), William E Kovacic (Global Competition Professor of Law and Policy, George Washington University), J Thomas Rosch (Commissioner, US Federal Trade Commission) Information and registration: www.chathamhouse.org/competition2012

February 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Price Competition or Tacit Collusion

Posted by D. Daniel Sokol

Makoto Yano (Institute of Economic Research, Kyoto University) and Takashi Komatsubara (Institute of Economic Research, Kyoto University) ask Price Competition or Tacit Collusion.

ABSTRACT: Every now and then, we observe a fierce price war in a real world market, through which competing firms end up with a Bertrand-like price competition equilibrium. Despite this, very little has been known in the existing literature as to why a price competition market is formed. We address this question in the context of a choice between engaging in price competition and holding a price leader. Focusing on a duopoly market, we demonstrate that if supply is tight relative to demand, and if the cost differential between firms is reasonably large, a price competition market is formed non-cooperatively.

February 22, 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) and Sujit Chakravorti (De Nederlandsche Bank) 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 experime! nt” to refute or validate the various theories of the economics of payments.

February 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 21, 2012

Consumer credit and payment cards

Posted by D. Daniel Sokol

Wilko Bolt, Elizabeth Foote and Heiko Schmiedel (all De Nederlandsche Bank) explore Consumer credit and payment cards.

ABSTRACT: We consider debit and credit card networks. ABSTRACT: Our contribution is to introduce the role of consumer credit into these payment networks, and to assess the way this affects competition and equilibrium fees. We analyze a situation in which overdrafts are associated with current accounts and debit cards, and larger credit lines with ‘grace’ periods are associated with credit cards. If we just introduce credit cards, we find their merchant fees depend not only on the networks’ cost of funds and the probability of default, but also on the interest rates of overdrafts. Whilst debit card merchant fees do not depend on funding costs or default risk in a debit-card only world, this changes when they start to compete with credit cards. First, debit merchant acceptance increases with the default probability, even though merchant fees increase. Second, an increase in funding costs causes a surprising increase in debit merchant fe! es. Effectively, the bank offering the debit card benefits from consumers maintaining a positive current account balance, when they use their credit instead of their debit card. As a result, this complementarity may lead to relatively high debit card merchant fees as the bank discourages debit card acceptance at the margin.

February 21, 2012 | Permalink | Comments (0) | TrackBack (0)

A battle between branded and me too brands (unbranded) products

Posted by D. Daniel Sokol

Muhammad Imtiaz Subhani, Iqra University, Syed Akif Hasan, Iqra University and Amber Osman, Iqra University describe A battle between branded and me too brands (unbranded) products.

ABSTRACT: Consumers have numerous options to select and buy various kinds of products. A retail outlet offers branded and me too (unbranded) items to the customers to buy from. The consumption pattern of both forms of products has which sort of variations, requires an accurate estimation and findings. For the outlined stated manifesto, personal survey technique was employed for grabbing the first hand data. Co- integration was used to understand and judge the co-variation between branded and me too (unbranded) products. Exclusive insights were revealed between the two different classes of product that an increase in consumer’s income level urges consumers to increase their consumption of branded products. Similarly, consumers opt to purchase branded product as there is a strong perception that branded items have good quality. While, it is also found that if there is an increase in the prices of branded and unbranded products than none of the products clearly win the battle and they have the same pattern for being consumed which is the co-movement of their consumption patterns.

February 21, 2012 | Permalink | Comments (0) | TrackBack (0)

ABA Section of Antitrust Law International Scholar in Residence Program - Announcement

Posted by D. Daniel Sokol

International Scholar in Residence Program - Announcement

The Section of Antitrust Law is pleased to announce the creation of its International Scholar in Residence ("SAL SIR") Program. For the academic years 2012-13 and 2013-14, the program will provide funding of up to $10,000.00 USD for each of one (1) or two (2) scholars to visit the United States to pursue their competition policy-related research.

Applications are invited from junior faculty members (those who have been engaged in full-time teaching for five years or less) as well as current or recent Ph.D. students who have a demonstrated interest in the study of competition policy. SAL SIR would be expected to visit the United States for a period between six (6) weeks and (3) months, likely during the Spring semester. During their time in the U.S., SAL SIR will conduct research, meet and interact with members of the U.S. antitrust community, and hopefully attend and possibly participate in one or more of the SAL's principal meetings, such as the annual Spring Meeting, which is held in Washington, D.C. Although arrangements can be tailored to the particular needs of each scholar's research proposal, it is expected that SAL SIR will be resident in Washington for at least some of their time in the U.S., so they can have access to federal agency personnel as well as a range of academics, lawyers, and consulting firms. SAL SIR can also propose short visits to state enforcement agencies or U.S. academic institutions outside of Washington, D.C., provided the visit will advance their research.

February 21, 2012 | Permalink | Comments (0) | TrackBack (0)