Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, March 3, 2012

SSRN Most Downloaded (for all papers announced in the last 60 days) Antitrust Law & Policy

Posted by D. Daniel Sokol

RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Antitrust: Antitrust Law & Policy eJournal

January 3, 2012 to March 3, 2012



Rank Downloads Paper Title

1 237 Interchange Fees: The Economics and Regulation of What Merchants Pay for Cards

David S. Evans Global Economics Group, University of Chicago Law School, Richard Schmalensee, Massachusetts Institute of Technology (MIT) - Sloan School of Management, Robert E. Litan, AEI-Brookings Joint Center for Regulatory Studies, Ewing Marion Kauffman Foundation, Daniel D. Garcia-Swartz, Compass Lexecon, Howard H. Chang, Global Economics Group, LLC, Margaret Morgan Weichert, Market Platform Dynamics and Abel Mateus

2 224 Platform Economics: Essays on Multi-Sided Businesses
David S. Evans Global Economics Group, University of Chicago Law School, Richard Schmalensee, Massachusetts Institute of Technology (MIT) - Sloan School of Management, Michael D. Noel, UC San Diego, Daniel D. Garcia-Swartz, Compass Lexecon, Howard H. Chang, Global Economics Group, LLC

3 187 Occupy Wall Street and Antitrust
Maurice E. Stucke, University of Tennessee College of Law

4 182 A Review of International Mobile Roaming to December 2011
Ewan Sutherland, University of Witwatersrand, LINK Centre

5 169 Decertifying Players' Unions: Lessons From the NFL and NBA Lockouts of 2011 Nathaniel Grow, University of Georgia - Department of Insurance, Legal Studies, Real Estate

6 158 Jurisdiction and Choice of Law in International Antitrust Law – A U.S. Perspective Hannah L. Buxbaum, Indiana University School of Law-Bloomington and Ralf Michaels, Duke University - School of Law

7 142 Is Intent Relevant? Maurice E. Stucke, University of Tennessee College of Law

8 129 Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law
Victoria Daskalova (TILEC)

9 123 Merger Control: Key International Norms and Differences
D. Daniel Sokol (University of Florida - Levin College of Law) and William Blumenthal (Clifford Chance LLP)

10 118 The Determination of Optimal Fines in Cartel Cases: Theory and Practice
Marie-Laure Allain Ecole Polytechnique, Paris - Department of Economic Sciences, Marcel Boyer (University of Montreal - Department of Economics) and Jean Pierre Ponssard (Ecole Polytechnique, Paris - Laboratoire d'Econometrie)

March 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Call for Papers: 29th Annual Conference of the European Association of Law and Economics (EALE), September 20-22, 2012 in Stockholm

Posted by D. Daniel Sokol

CALL FOR PAPERS

The 29th Annual Conference of the European Association of Law and Economics (EALE) will be held on September 20-22, 2012 in Stockholm, Sweden at Stockholm University in Aula Magna. The conference is arranged by Stockholm University, Faculty of Law, the Ratio Institute and Jönköping International Business School in cooperation with EALE. Those interested in presenting a paper are invited to submit electronically the paper (at least in its draft form) and a short abstract following the online procedure at http://www.eale.org. Priority in the selection will be given to completed papers.

Papers may be on any topic in or related to Law and Economics including: Antitrust and Regulation - Bankruptcy, Commercial Corporate Law and Corporate Governance - Behavioural Law and Economics - Comparative Law and Economics - Contract Theory and Contract Law - Crime, Deterrence and Criminal Law - Environmental Law and Economics - Experimental Law and Economics - Family Law, Gender, and Discrimination - Health Law - Intellectual Property and Innovation Policy - International Law, International Trade, and Immigration - Labour and Employment Law - Law and Development - Litigation, Dispute Resolution and the Legal Process - Market and Non-market Regulation - Mergers and Acquisitions - Political economy and public choice – Property rights, property law and growth - Public and Administrative Law - Finance, Securities and Capital Market Regulation - Taxation and Social Welfare - Theory of the Firm (Includes Non-Profits and Government Orgs.) - Tort Law and Compensation Systems. Emphasis on European laws, systems and institutions is welcome

Important dates:

• Proposal submission deadline: April 15, 2012

• Communication of Acceptance: June 15, 2012

• Early registration by: June 30, 2012

• Final papers due by: July 30, 2012

EALE Board Members: Bruno Deffains - President - (University of Paris II), Thomas Eger (University of Hamburg), Matteo Rizzolli (Free University of Bozen), Per-Olof Bjuggren (Jonkoping International Business School), Avishalom Tor (Notre Dame Law School), Anne Van Aaken (University of St. Gallen) Coordinator: Per-Olof Bjuggren (Jonkoping International Business School and Ratio Institute) Local Organization Committee: Jan B Andersson (Law Department, Stockholm University) Ronnie Eklund (Law Department, Stockholm University) Nils Karlson (Ratio Institute) Gustaf Sjoberg (Law Department, Stockholm University)

March 3, 2012 | Permalink | Comments (0) | TrackBack (0)

How to Deal with Merger Control of Listed Chinese Companies

Posted by D. Daniel Sokol

Liyong Jiang (Gaopeng & Partners) describes How to Deal with Merger Control of Listed Chinese Companies.

ABSTRACT: China's capital market has witnessed numerous mergers and acquisitions ("M&A") among listed companies in recent years. Data shows that 564 M&A deals involving listed companies took place in China from 2005 to 2009, valued at RMB 220 million (approximately US$ 35 million; EUR 27 million) per year. Listed companies in China, which usually are industry leaders, high-quality businesses, or large-sized enterprises, are naturally actively involved in M&A activities.

Generally, M&A is the result of market-based competition. It increases economic efficiency, promotes appropriate concentration, stimulates the economy, and breaks existing monopolies. However, M&A of large companies can result in an increase of market concentration, and may have both unilateral and coordinated effects from the perspective of antitrust law. Therefore, like antitrust legislations in other jurisdictions, China's Anti-Monopoly Law ("AML") stipulates that merger control review is mandatory if certain specified filings thresholds are met. This article will examine the effects of the merger control review of M&A on listed Chinese companies.

March 3, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, March 2, 2012

Coming Next Week: Book Symposium on Bohannan & Hovenkamp's Creation Without Restraint

Posted by D. Daniel Sokol

I am thrilled to be hosting a symposium on the excellent book Creation without Restraint: Promoting Liberty and Rivalry in Innovation, Oxford University Press 2011, by Christina Bohannan and Herbert Hovenkamp (both University of Iowa). Providing expert analysis will be:

Michael Carrier - Rutgers Camden
Kevin Collins - Washington University
Tom Cotter - University of Minnesota
Dan Crane - University of Michigan
Shubha Ghosh - University of Wisconsin
Paul Gugliuzza - University of Florida
Keith Hylton - Boston University
Ariel Katz - University of Toronto
Joe Scott Miller - University of Georgia
Mark Patterson - Fordham University

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Coalitional Approaches to Collusive Agreements in Oligopoly Games

Posted by D. Daniel Sokol

Sergio Currarini (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari") Marco Marini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo" and CREI, Universita di Roma III) discuss Coalitional Approaches to Collusive Agreements in Oligopoly Games.

ABSTRACT: In this paper we review a number of coalitional solution concepts for the analysis of the stability of cartels and mergers under oligopoly. We show that, although so far the industrial organization and the cooperative game-theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We first consider the basic problem of the stability of the whole industry association of firms under oligopoly and, for this purpose, we introduce the concept of core in games with externalities. We show that different assumptions on the behaviour as well as on the timing of the coalitions of firms yield very di¤erent results on the set of allocations which are core-stable. We then consider the stability of associations of firms organized in coalition structures different from the grand coalition. To this end, various coalition formation games recently introduced by the so called en! dogenous coalition formation literature are critically reviewed. Again, di¤erent assumptions concerning the timing and the behaviout of firms are shown to yield a wide range of different results.

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Call for Papers: Canadian Competition Law Review

Posted by D. Daniel Sokol

The Canadian Competition Law Review (formerly the Canadian Competition Record) is published twice a year by the Canadian Bar Association National Competition Law Section. Requests to reproduce portions of an issue should be addressed to:[email protected]

Call for Papers

The Canadian Competition Law Review welcomes submissions of original articles, case comments, book reviews, and essays on significant current issues of competition law and economics in French or English.

Submissions are subjected to an editorial review process and are peer-reviewed by selected scholars and practitioners before acceptance for publication.

Submissions are only accepted electronically.

The 2011-2012 Editorial Board:

Chair: Susan M. Hutton, Stikeman Elliott LLP
Vice Chairs:
- Dr. Thomas W. Ross, University of British Columbia
- W. Michael G. Osborne, Affleck Greene McMurtry LLP
- Ian Macdonald, Gowling Lafleur Henderson LLP
- Casey W. Halladay, McMillan LLP

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

13 April 2012 Newcastle Law School Conference on reforming the UK's competition regime

Posted by D. Daniel Sokol

On 13 April 2012 Newcastle Law School (Newcastle University, Newcastle upon Tyne) will be hosting a conference on the Department of Business Innovation and Skill's recent consultation on reforming the UK's competition regime. The conference will focus on revamping the cartel offence and on the suggestions for institutional reform. Speakers include: Peter Freeman CBE, QC (Cleary Gottlieb Steen & Hamilton LLP, Member of the Competition Appeal Tribunal and formerly Chairman of the Competition Commission) Angus MacCulloch (Lancaster); Michael O'Kane (Peters & Peters LLP); Dr Bruce Wardhaugh (Newcastle University); and Dr Peter Whelan (University of East Anglia) Christopher Brown (Matrix); Professor Alison Jones (King's College London, Freshfields); Professor William Kovacic (George Washington University, former Chairman US FTC); and Professor Stephen Wilks (Exeter University, CAT).

For further information and registration see: http://www.ncl.ac.uk/niassh/events/supported/CompetitionLaw.htm

Or contact [email protected]

or [email protected]

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Guilty of a Fault that one has not Committed. The Limits of the Group-Based Sanction Policy Carried out by the Commission and the European Courts in EU-Antitrust Law

Posted by D. Daniel Sokol

Stefan Thomas (Eberhard Karls University Tubingen) has written on Guilty of a Fault that one has not Committed. The Limits of the Group-Based Sanction Policy Carried out by the Commission and the European Courts in EU-Antitrust Law.

ABSTRACT: The economic entity doctrine allows the Commission to fine a parent company if its subsidiary has infringed the competition rules. In such cases, the Commission holds the subsidiary and the parent jointly and severally liable. The EU Courts have acknowledged this sanctioning concept as based on an interpretation of the notion of “undertaking”. Group companies are deemed to form one unitary undertaking in terms of the competition rules. However, the economic entity doctrine faces increasing criticism. It is argued that being a parent can hardly suffice to establish liability for the infringement of the subsidiary. Also, the rule stating that a 100 % shareholder is presumed to form an economic entity with its subsidiary is seen to conflict with the in dubio pro reo principle. As far as joint and several liability is concerned, practical problems arise with respect to recourse litigation between the corporate entities. The practical significance of the problems is rising. Although the Court of Justice has espoused the economic entity doctrine, there are reports that a Dutch company has recently asked the European Court of Human Rights to rule on whether such a concept is compatible with the presumption of innocence. Moreover, the national Courts struggle with the problem of how to apportion liability between the jointly and severally liable group companies with respect to recourse claims. The General Court has recently tried to establish general principles in that respect in its Siemens/VA Tech judgment which, however, seem to have created further problems.

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Merger Control under Chinese Law—Practical Matters from the Applicant's Perspective

Posted by D. Daniel Sokol

Dr. Dirk Elvermann, Edwin C. Li, & Patrick Chan (BASF) analyze Merger Control under Chinese Law—Practical Matters from the Applicant's Perspective. ABSTRACT: Along with its growing economic power, China has become a major jurisdiction where multinational companies conduct their businesses. The Chinese legal and regulatory requirements play a significant role in global transactions.

Consistent with this importance, the Chinese laws and regulations are evolving rapidly and are living up to international standards. Specifically, this is the case for the merger control regime under the Anti-Monopoly Law of the People's Republic of China ("AML"), which only came into effect in August 2008.

Multinational companies that are active in the Chinese market are paying full respect to the legal and regulatory regime. As regards merger control, applicants are very much interested in seeing that case handling is focused, expeditious, and time predictable.

March 2, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 1, 2012

The Application of China's Anti-Monopoly Law to State-Owned Enterprises in Special Industries –The Example of the China Telecom and China Unicom Case

Posted by D. Daniel Sokol

Meng Yanbei (Renmin Univ.) describes The Application of China's Anti-Monopoly Law to State-Owned Enterprises in Special Industries –The Example of the China Telecom and China Unicom Case.

ABSTRACT: This case has drawn considerable public interest in the AML, and has captivated both academia and the international business community. Standing out among the questions discussed is whether the conduct of China Telecom and China Unicom constitutes an abuse of a dominant market position as prohibited by the AML. However, in addition to this now often discussed question, this antitrust case also exposes a string of other questions about whether the unique situation of state-owned enterprises ("SOEs")-such as China Telecom and China Unicom- should be considered and whether the telecommunications industry has exceptional characteristics that need to be taken into account. Thus, one of the most important questions in the AML enforcement process-which reflects the circumstances specific to China-is how the AML is meant to regulate the conduct of SOEs in special industries.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Conflict and Coordination Between Sectoral Regulation and Competition Law Enforcement in the Information Industry

Posted by D. Daniel Sokol

Li Huiying (Ministry of Industry and Information Technology) addresses Conflict and Coordination Between Sectoral Regulation and Competition Law Enforcement in the Information Industry.

ABSTRACT: As competition for Chinese internet information services is getting fiercer, violations of the law have also gradually increased. For example, irregular business management and infringement of users' lawful rights and interests have taken place from time to time. As a result, the Ministry of Industry and Information Technology ("MIIT") published the Provisions on Standardizing the Internet Information Service Market Order (the "Provisions") on December 29, 2011. The Provisions establish specific prohibition rules, including Articles 5 and 40, on illicit competition and infringement of users' lawful rights and interests that are all common in the internet field.

The Provisions have, to a great extent, specified the rights and obligations for internet business operators as well as those governing the relations between such operators and users. Significantly, the Provisions also standardize the competition order in the internet industry, pushing forward the healthy development of the industry and protecting the lawful rights and interests of consumers.

It is understandable that MIIT, as the regulator of the information industry, has laid down regulations to supervise the internet industry. Yet, since the regulations published by MIIT include not only supervision over internet technologies, but also over the internet market and information service providers, there is potential for conflict and overlap between the industry-specific regulations and competition law, understood in a wide sense, encompassing the rules of both the Anti-Monopoly Law and the Anti-Unfair Competition Law in China. Conflicts between competition supervision by MIIT and law enforcement by the authorities responsible for cases brought under the Anti-Monopoly Law or the Anti-Unfair Competition Law will also be triggered.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

INDIA - AMENDMENTS TO MERGER REGULATIONS: PLUS CA CHANGE...?

Posted by D. Daniel Sokol

Rahul Singh Assistant Professor of Law, National Law School, Bangalore has written on the change in Indian merger regulations.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Exclusive interview with Competition Commissioner Almunia on State Aid

Posted by D. Daniel Sokol

Exclusive interview with Competition Commissioner Almunia on State Aid is on the web. See here.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Vice President Of The European Commission Responsible For Competition Policy Competition Policy And Growth

Posted by D. Daniel Sokol

DG Comp head Alumnia has given a talk on Competition Policy And Growth.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

League Structure & Stadium Rent Seeking - The Role of Antitrust Revisited

Posted by D. Daniel Sokol

David D. Haddock, Northwestern University - School of Law and Department of Economics, Tonja Jacobi, Northwestern University - School of Law, and Matthew Sag, Loyola University Chicago School of Law examine League Structure & Stadium Rent Seeking - The Role of Antitrust Revisited.

ABSTRACT: North American sporting teams receive enormous public funding for new stadiums after threatening to depart their hometowns, or by actually moving to a new town. Whereas English sporting teams neither receive massive public grants for stadium building, nor move towns. We argue that these differences are caused not by any inherent cultural or political cross-Atlantic variations; rather, it is the industrial organization of sports in the two countries - the structure of league control - that enables rent seeking by American sporting teams but not by their English counterparts. We support our claim with cross-country time series data contrasting American professional football and baseball stadiums with English soccer grounds, and by contrasting data regarding the stadiums of geographically flexible NFL teams with those of functionally immobile major collegiate football teams.

North American sports leagues are cartels: they control entry of teams, then collaborate to maximize effective rent seeking, stave off competition and keep prices high. In most of the world, entrance into leagues is based on competitive merit via a system known as promotion-and-relegation, whereby the worst performing teams in one competitive tier are demoted to the next lower tier at season’s end, and an equivalent number of top teams are promoted from the division below. The fluidity created by promotion-and-relegation severely undermines the credibility of a team’s threat to leave town, and creates alternative entry points into the league. This open entry mitigates pressure to engage in intercity competition over scarce team slots, and thus relieves the pressure to transfer wealth from the public to private sporting team owners through stadium funding.

The stadium rent seeking issue illustrates shortcomings in antitrust law in remedying problems at the intersection of market and political organization. While it is clear that stadium rent seeking stems from a competition problem in the U.S., it is not clear if there is an antitrust solution - it is questionable whether antitrust law can recognize or remedy this damage to taxpayers. Although the anti-competitive structure of American leagues provides the platform for stadium rent seeking, the harm that results is arguably a political injury and not an antitrust offense. Nonetheless, we argue that imposition of a promotion-and-relegation system would be the least intrusive means for the U.S. and Canada to limit sporting league cartel behavior to its proper functions, such as arranging schedules and defining homogeneous rules. The uncertain availability of promotion-and-relegation is a solution under antitrust law makes it all the more imperative for Congress to address this costly injury.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law

Posted by D. Daniel Sokol

Victoria I. Daskalova, TILEC, Tilburg Law School discusses Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law.

ABSTRACT: The past decade has seen growing antitrust concerns about the impact of private label goods on consumer welfare and competition in the grocery trade. Market investigations of the sector have been launched in several Member States, and there have also been legislative attempts to curb the power of large grocery retailers. Private labels have provoked interest not only because they increase the bargaining power of a retailer, but also because they fundamentally change the relationship between retailers and suppliers from one between trading partners to one between competitors. Because they place the retailer in the double role of a customer and a competitor of its suppliers, private labels are believed to create incentives for the grocery chains to resort to practices, which in turn lead to unfavorable outcomes for the consumers. Some of these practices include: misuse of a branded good’s product information to introduce competing private label products, de-listing of tertiary brands in order to replace them with undifferentiated me-too private labels, and using the strict rules on resale price maintenance to position the private label product in a more favorable position vis-a-vis the brand. Legal scholars and practitioners have been under pressure to find out in what ways competition rules may be used to limit these practices.

The goal of this paper is to give a comprehensive overview of the competition law issues that might arise in the context of private labels. The paper is divided into two parts: first, it contextualizes the claims related to the welfare effects of the introduction and continued presence of private labels. It shows that private labels may lead to a reduction in consumer welfare and discusses the practices and conditions that might lead to this negative outcome. The second part of the paper sketches the applicable legal framework under EU competition law as it may apply to the practices mentioned. The paper concludes with a discussion of the challenges for the effective treatment of harm arising from the retailer practices associated with private labels.

March 1, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 29, 2012

Should Setllements in Which the Patent Owners Pay the Accused Infringers to Stay Out the Market Be Illegal Per Se

Posted by D. Daniel Sokol

Tabrez Ahmad, College of Law Alliance University and Neha Mishra, Kalinga Institute of Industrial Technology (KIIT University) - KIIT Law School ask Should Setllements in Which the Patent Owners Pay the Accused Infringers to Stay Out the Market Be Illegal Per Se.

ABSTRACT:

The entire topic revolves around the concept of reverse settlement payment in which a huge lump of money is paid by the company owning the patent to the generic company for not infringing its product and so that it could enjoy its 20 years for that patent. These provisions are enabled by Hatch-Waxman Act as to application by the patent owner to obtain a patent and it also deals with on what specific grounds a generic company can infringe the patent of the patent owner. The topic briefly narrows down about how reverse payment settlement is violating the antitrust laws and its related case laws. It also describes about how reverse settlement violated the competition law provisions.

February 29, 2012 | Permalink | Comments (0) | TrackBack (0)

Cartel Detection in Procurement Markets

Posted by D. Daniel Sokol

Kai Huschelrath, Centre for European Economic Research (ZEW) and Tobias Veith, Centre for European Economic Research (ZEW) have written on Cartel Detection in Procurement Markets.

ABSTRACT: Cartel detection is usually viewed as a key task of either competition authorities or compliance officials in firms with an elevated risk of cartelization. We argue that customers of hard core cartels can have both incentives and possibilities to detect such agreements on their own initiative through the use of market-specific data sets. We apply a unique data set of about 340,000 market transactions from 36 smaller and larger customers of German cement producers and show that a price screen would have allowed particularly larger customers to detect the upstream cement cartel before the competition authority. The results not only suggest that monitoring procurement markets through screening tools has the potential of substantial cost reductions – thereby improving the competitive position of the respective user firms – but also allow the conclusion that competition authorities should view customers of potentially cartelized industries as important allies in their endeavor to fight hard core cartels.

February 29, 2012 | Permalink | Comments (0) | TrackBack (0)

Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law

Posted by D. Daniel Sokol

Victoria I. Daskalova, TILEC, Tilburg Law School discusses Private Labels (Own Brands) in the Grocery Sector: Competition Concerns and Treatment in EU Competition Law.

ABSTRACT: The past decade has seen growing antitrust concerns about the impact of private label goods on consumer welfare and competition in the grocery trade. Market investigations of the sector have been launched in several Member States, and there have also been legislative attempts to curb the power of large grocery retailers. Private labels have provoked interest not only because they increase the bargaining power of a retailer, but also because they fundamentally change the relationship between retailers and suppliers from one between trading partners to one between competitors. Because they place the retailer in the double role of a customer and a competitor of its suppliers, private labels are believed to create incentives for the grocery chains to resort to practices, which in turn lead to unfavorable outcomes for the consumers. Some of these practices include: misuse of a branded good’s product information to introduce competing private label products, de-listing of tertiary brands in order to replace them with undifferentiated me-too private labels, and using the strict rules on resale price maintenance to position the private label product in a more favorable position vis-a-vis the brand. Legal scholars and practitioners have been under pressure to find out in what ways competition rules may be used to limit these practices.

The goal of this paper is to give a comprehensive overview of the competition law issues that might arise in the context of private labels. The paper is divided into two parts: first, it contextualizes the claims related to the welfare effects of the introduction and continued presence of private labels. It shows that private labels may lead to a reduction in consumer welfare and discusses the practices and conditions that might lead to this negative outcome. The second part of the paper sketches the applicable legal framework under EU competition law as it may apply to the practices mentioned. The paper concludes with a discussion of the challenges for the effective treatment of harm arising from the retailer practices associated with private labels.

February 29, 2012 | Permalink | Comments (0) | TrackBack (0)

Strategic Vertical Market Structure and Opaque Products

Posted by D. Daniel Sokol

Mariano E. Tappata, University of British Columbia - Sauder School of Business, offers his thoughts on Strategic Vertical Market Structure and Opaque Products.

ABSTRACT: This paper studies opaque intermediation in differentiated product markets. We endow a circular city model with an intermediary that sells lotteries (opaque goods) over goods produced upstream. Compared to the benchmark model (Salop, 1979), opaque intermediation increases the intensity of price competition. However, it can be a profitable vertical market structure. Furthermore, it increases welfare and expands the range of entry costs supported by the industry. The emergence of opaque intermediation in established industries can be rationalized in the presence of seasonal demand such that the lower profits through increased competition when demand is high are outweighed by the benefits from expanding the extensive margin when demand is low.

February 29, 2012 | Permalink | Comments (0) | TrackBack (0)