Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, June 14, 2013

Mobile wholesale and retail price interplay: The somewhat contrary case of South Africa in Africa

Posted by D. Daniel Sokol

Christoph Stork (Research ICT Africa) & Alison Gillwald (University of Cape Town) discuss Mobile wholesale and retail price interplay: The somewhat contrary case of South Africa in Africa.

ABSTRACT: This paper analyses the link between termination rate reductions and retail prices. It draws on in-depth case studies of South Africa, Namibia and Kenya where regulators have reduced termination rates towards the cost of an efficient operator. To varying degrees these have all led to lower retail prices and a significant market expansion. While both Namibia and Kenya, experienced significant retail price reduction following substantial termination rate reductions, the case of South Africa demonstrates that termination rate reductions are not automatically passed through to consumers. In South Africa only the second reduction in March 2012 allowed smaller operators to reduce their off-net prices to a level could tempt subscribers from dominant operators to switch. The case studies confirm that retail prices do not go up in response to termination rates going down, in CPNP (calling-party's-network-pays) markets as contended by dominant mobile operators. This is also in contrast to a body of academic literature stating that termination rates and mobile retail prices constitute a two-sided market and that termination rate reductions will lead to a so called waterbed effect. This study draws on a database of all prepaid products available in 46 African countries which were collected monthly for the period January 2011 to June 2012. The OECD price basket methodology is used to compare prices between countries and between operators. In-depth face-to-face interviews on termination rate regulations were also held with regulators in Kenya, Namibia and South Africa. The analysis is further supplemented with an analysis of audited financial statements of dominant operators in each market, namely Vodacom South Africa, MTN South Africa, Telkom South Africa, MTC2 in Namibia, and Safaricom in Kenya.

June 14, 2013 | Permalink | Comments (0) | TrackBack (0)

On co-opetition between mobile network operators: Why and how competitors cooperate

Posted by D. Daniel Sokol

Jan Markendahl, Royal Institute of Technology and Bengt G. Molleryd, Swedish Post and Telecom Agency (PTS) have a paper On co-opetition between mobile network operators: Why and how competitors cooperate.

ABSTRACT: This paper address issues about cooperation among and competition between mobile network operators. The starting point is to examine why and how operators share infrastructure for mobile communication services, so called network sharing. The paper analyzes drivers, benefits and obstacles of network cooperation. We also analyze how roles and responsibilities are distributed for the network related functions while concurrently operators compete for customers and have separate functionality for service provisioning, marketing, customer relation management, charging and billing. Next, we analyze how network sharing as such and strategies for network sharing have changed in Sweden from the year 2000 when the 3G licenses were awarded and up to the year 2010. Moreover, network sharing in Sweden is compared with India where the market situation is different, as the number of operators is four times more and the cooperation is or! ganized in another way, with separate tower companies, which provides base stations sites where operators are tenants. Finally, we compare the network sharing cases with how mobile operators organize cooperation for mobile payments services. From our empirical data we can identify four different types of co-opetition among mobile operators. 1. A co-operative spirit with focus on working practices and/or principles that will facilitate the common use of resources or solutions. 2. Infrastructure cooperation through a third party, e.g. a tower company or a SMS aggregator with the main objective to reduce costs or to provide a common solution. The operators have agreements with a third party but not with each other. 3. Infrastructure cooperation through a joint venture that is responsible for network deployment and operation. The driver is to achieve cost-savings. The operators have their own service provisioning, billing, customer relations management and compete for end-users! . 4. Service and infrastructure cooperation through a joint venture th at is fully responsible for providing the end-user service, in our case mobile payments. The main driver is to offer a payment solution common for all operators in order to complement or compete with solutions provided by banks or payment service providers.

June 14, 2013 | Permalink | Comments (0) | TrackBack (0)

On the evolution of monopoly pricing in Internet-assisted search markets

Posted by D. Daniel Sokol

Aurora Garcia-Gallego (LEE & Department of Economics, Universitat Jaume I, Castellon, Spain), Nikolaos Georgantzis (GLOBE & Economics Department, University of Granada, Spain), Ainhoa Jaramillo-Gutiérrez (EriCes & Dpt. of Applied Economics, University of Valencia, Spain), Pedro Pereira (Autoridade da Concorrencia and CEFAGE-UE, U. of Evora, Portugal) and J. Carlos Pernías-Cerrillo (Economics Department, Universitat Jaume I, Castellon, Spain) provide thoughts On the evolution of monopoly pricing in Internet-assisted search markets.

ABSTRACT: We study the evolution of prices in markets assisted by price-comparison engines. We use laboratory data obtained under two industry sizes and two conditions concerning the sample (complete, incomplete) of prices available to informed consumers. Distributions are typically bimodal. One of the two modes, corresponding to monopoly prices, tends to increasingly attract prices over time. The second one, corresponding to interior prices, presents a decreasing trend. Monopoly pricing can be used as an insurance against more competitive (but riskier) behavior. In fact, subjects earning low profits due to interior pricing in the past are more likely to choose monopoly pricing.

June 14, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 13, 2013

The Shapley value as a guide to FRAND licensing agreements

Posted by D. Daniel Sokol

Pierre Dehez and Sophie Poukens, University of Louvain discusses The Shapley value as a guide to FRAND licensing agreements.

ABSTRACT: We consider the problem of specifying Fair, Reasonable And Non-Discriminatory agreements faced by standard-setting organizations. Along with Layne-Farrar, Padilla and Schmalensee (2007), we model the problem as a cooperative game with transferable utility, allowing for patents to be weak in the sense that they have substitutes. Assuming that a value has been assigned to weak patents, we obtain a formula for the Shapley value that gives an insight into what FRAND agreements should look like.

June 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Do pay-as-bid auctions favor collusion? - Evidence from Germany’s market for reserve power

Posted by D. Daniel Sokol

Sven Heim (ZEW, University of Giessen) and Georg Gotz (University of Giessen) ask Do pay-as-bid auctions favor collusion? - Evidence from Germany’s market for reserve power.

ABSTRACT: We analyze a drastic price increase in the German auction market for reserve power, which did not appear to be driven by increased costs. Studying the market structure and individual bidding strategies, we find evidence for collusive behavior in an environment with repeated auctions, pivotal suppliers and inelastic demand. The price increase can be traced back to an abuse of the auction’s pay-as-bid mechanism by the two largest firms. In contrast to theoretical findings, we show that pay-as-bid auctions do not necessarily reduce incentives for strategic capacity withholding and collusive behavior, but can even increase them.

June 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Hospital Mergers: A Spatial Competition Approach

Posted by D. Daniel Sokol

Kurt R. Brekke (Department of Economics and Centre and Health Economics Bergen, Norwegian School of Economics), Luigi Siciliani (Department of Economics and Centre for Health Economics, University of York, Heslington) and Odd Rune Straume (Department of Economics, University of Minho) offer Hospital Mergers: A Spatial Competition Approach.

ABSTRACT: Using a spatial competition framework with three ex ante identical hospitals, we study the effects of a hospital merger on quality, price and welfare. The merging hospitals always reduce quality, but the non-merging hospital responds by reducing quality if prices are fixed and increasing quality if not. The merging hospitals increase prices if demand responsiveness to quality is sufficiently low, whereas the non-merging hospital always increases its price. If prices are endogenous, a merger leads to higher average prices and quality in the market. A merger is harmful for total patient utility but can improve social welfare under price competition.

June 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Concentration Measures as an element in testing the structure-conduct-performance paradigm

Posted by D. Daniel Sokol

Johann du Pisanie (University of South Africa) has posted Concentration Measures as an element in testing the structure-conduct-performance paradigm.

ABSTRACT: The original structure-conduct-performance (SCP) paradigm, according to which market structure determines market conduct and market conduct determines market performance, underlies numerous competition policies. Since its development almost a century ago, the paradigm has been heavily criticised and numerous efforts have been made to test it by correlating measures of seller concentration with measures of market performance. The reliability of seller concentration measures that are frequently used, particularly in South Africa, was tested against the Hannah and Kay criteria, using hypothetical numbers of sellers and market shares. The premise is that a concentration measure must be reliable in the sense that it should lead to a correct conclusion when the relevant concentration curves do NOT cross. The following absolute concentration measures were found to meet the criteria: the Herfindahl-Hirschman index (HHI), the oth! er Hannah and Kay indices [HKI(α)], the Rosenbluth index (RI), the numbers equivalent of the Hannah and Kay indices [HKIne(α)] and the entropy coefficient (EC). The discrete measures, concentration ratios (CRX) and the occupancy count (CRX%), do not always meet the criteria, nor do the relative concentration measures or measures of inequality, namely the Gini coefficient (GC), the variance of logarithms of market shares (VL) and the relative entropy coefficient (REC). The Horvath index (HI), an absolute concentration measure, does not always meet the criteria. Studies that employed the unreliable measures should be disregarded or reworked and students should be forewarned against the use of such measures.

June 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 12, 2013

ASEAN Regional Cooperation on Competition Policy

Posted by D. Daniel Sokol

Cassey Lee (University of Wollongong, Australia) and Yoshifumi Fukunaga (Economic Research Institute for ASEAN and East Asia) provide an overview of ASEAN Regional Cooperation on Competition Policy.

ABSTRACT: ASEAN member states (AMSs) intend to establish the ASEAN Community by 2015. A key component of this goal is the formation of the ASEAN Economic Community (AEC). The AEC Blueprint was initiated to facilitate and monitor the implementation of the AEC during the period 2008-2015. Competition policy will play an important role in the achievement of the AEC. There has been significant progress in regional cooperation to achieve the competition policy targets listed in the AEC Blueprint. Even though only half of AMSs have implemented competition laws, regional cooperation in this area has been fairly strong. The main emphasis has been on publishing regional guidelines and a handbook on competition policy in ASEAN as well as capacity building activities. There needs to be a renewed impetus to implement national competition laws in AMSs that have not done so. There also remain significant opportunities for enforcement cooperation and pooling of resources for capacity building in competition policy in the region.

June 12, 2013 | Permalink | Comments (0) | TrackBack (0)

Competing by Restricting Choice: The Case of Search Platforms

Posted by D. Daniel Sokol

Hanna Halaburda, Bank of Canada and Mikolaj Jan Piskorski, Harvard University - Strategy Unit have discussed Competing by Restricting Choice: The Case of Search Platforms.

ABSTRACT: Seminal papers recommend that platforms in two-sided markets increase the number of complements available. We show that a two-sided platform can successfully compete by limiting the choice of potential matches it offers to its customers while charging higher prices than platforms with unrestricted choice. Starting from microfoundations, we find that increasing the number of potential matches not only has a positive effect due to larger choice, but also a negative effect due to competition between agents on the same side. Agents with heterogeneous outside options resolve the trade-off between the two effects differently. For agents with a lower outside option, the competitive effect is stronger than the choice effect. Hence, these agents have higher willingness to pay for a platform restricting choice. Agents with a higher outside option prefer a platform offering unrestricted choice. Therefore, the two platforms may coexist without the market tipping. Our model helps explain why platforms with different business models coexist in markets, including on-line dating, housing and labor markets.

June 12, 2013 | Permalink | Comments (0) | TrackBack (0)

New York State Bar Association presents WHY ANTITRUST? Tuesday, June 25, 2013

Posted by D. Daniel Sokol

Please Join the NYSBA Antitrust Section for:

WHY ANTITRUST?

The program will take place from 9:00 to 10:30 a.m. at the law offices of Sullivan & Cromwell LLP at 125 Broad Street (between Water Street and South Street), in room 37 Q/R/S.

 

Breakfast will be served beginning at 8:30 am. All law students and young attorneys interested in the possibility of pursuing antitrust law as a career are encouraged to attend this informative and worthwhile event. RSVPs are requested, preferably by email, to Wendy Chan, at chanw@sullcrom.com or at 212-558-3739.

Please include in your RSVP your law school affiliation and summer employment, if any.

The program and breakfast are complimentary.

This program offers a rare experience to hear perspectives on this dynamic and challenging area of the law from practitioners who graduated in the last ten years, including attorneys from law firms and antitrust enforcement agencies. Panelists will discuss what led them to antitrust law; provide details on the types of cases, transactions or other antitrust work they have handled; and offer insight into optimal positioning to capture a job in the field. A portion of the program will be allotted for questions and comments.

June 12, 2013 | Permalink | Comments (0) | TrackBack (0)

Bank bailouts, competition, and the disparate effects for borrower and depositor welfare

Posted by D. Daniel Sokol

Cesar Calderon, The World Bank and Klaus Schaeck, Bangor University address Bank bailouts, competition, and the disparate effects for borrower and depositor welfare.

ABSTRACT: This paper investigates how government interventions into banking systems such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This debate is important because the pricing of banking products has implications for borrower and depositor welfare. Exploiting data for 124 countries that witnessed different policy responses to 41 banking crises, and using difference-in-difference estimations, the paper presents the following key results: (i) Government interventions reduce Lerner indices and net interest margins. This effect is robust to a battery of falsification and placebo tests, and the competitive response also cannot be explained by alternative forces. The competition-increasing effect on Lerner indices and net interest margins is also confirmed once the non-random assignment of interventions is accounted for using instrumental variable techniques that exploit exogenous variation in the electoral cycle and in the design of the regulatory architecture across countries. (ii) Consistent with theoretical predictions, the competition-increasing effect of government interventions is greater in more concentrated and less contestable banking sectors, but the effects are mitigated in more transparent banking systems. (iii) The competitive effects are economically substantial, remain in place for at least 5 years, and the interventions also coincide with an increase in zombie banks. The results therefore offer direct evidence of the mechanism by which government interventions contribute to banks' risk-shifting behavior as reported in recent studies on bank level runs via competition. (iv) Government interventions disparately affect bank customers' welfare. While liquidity support, recapitalizations, and nationalizations improve borrower welfare by reducing loan rates, deposit rates decline. The empirical setup allows quantifying these disparate effects.

June 12, 2013 | Permalink | Comments (0) | TrackBack (0)

Switching costs in competitive health insurance markets

Posted by D. Daniel Sokol

Karine Lamiraud (Economics Department - ESSEC Business School) discusses Switching costs in competitive health insurance markets.

ABSTRACT: In this paper we investigate the possible presence of switching costs when consumers are offered the opportunity to change their basic health insurance provider. We focus on the specific case of Switzerland which implemented a pure form of competition in basic health insurance markets. We identify several barriers to switching, namely choice overload, status quo bias, the possession of supplementary contracts for enrollees in bad health, firm's pricing strategies based on providing low price supplementary products, poor regulation of reserves and the limitations of the previous risk-equalization mechanism which left room for risk selection practices.

June 12, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 11, 2013

Integration and Search Engine Bias

Posted by D. Daniel Sokol

Alexandre de Corniere (Oxford) and Greg Taylor (Oxford) describe Integration and Search Engine Bias.

ABSTRACT: Competition authorities all over the world worry that integration between search engines (mainly Google) and publishers could lead to abuses of dominant position. In particular, one concern is that of own-content bias, meaning that Google would bias its rankings in favor of the publishers it owns or has an interest in, to the detriment of competitors and users. In order to investigate this issue, we develop a theoretical framework in which the search engine (i) allocates users across publishers, and (ii) competes with publishers to attract advertisers. We show that the search engine is biased against publishers that display many ads - even without integration. Although integration may lead to own-content bias, it can also reduce bias by increasing the value of a marginal consumer to the search engine. Integration also has a positive effect on users by reducing the nuisance costs due to excessive advertising. ! Its net effect is therefore ambiguous in general, and we provide sufficient conditions for it to be desirable or not.

June 11, 2013 | Permalink | Comments (0) | TrackBack (0)

RESALE PRICE MAINTENANCE AND UP-FRONT PAYMENTS: ACHIEVING HORIZONTAL CONTROL UNDER SELLER AND BUYER POWER

Posted by D. Daniel Sokol

Gabrielsen, Tommy Staahl (Department of Economics, University of Bergen) and Johansen, Bjorn Olav (Department of Economics, University of Bergen) have a paper on RESALE PRICE MAINTENANCE AND UP-FRONT PAYMENTS: ACHIEVING HORIZONTAL CONTROL UNDER SELLER AND BUYER POWER.

ABSTRACT: We consider a setting where an upstream producer and a competitive fringe of producers of a substitute product may sell their products to two differentiated downstream retailers. We investigate two different contracting games; one with seller power and a second game with buyer power. In each game we characterize the minimum set of vertical restraints that make the vertically integrated profit sustainable as an equilibrium outcome, and we also characterize sufficient conditions for having interlocking relationships (i.e. no exclusion). In line with the recent literature, we focus on the performance of simple two-part tariffs, upfront payments and RPM as facilitating devices for reducing competition under both buyer and seller power. With seller power we show that minimum RPM, possibly coupled with a quantity roof, will allow the manufacturer to induce industry wide monopoly prices. With buyer power we show that monopoly prices may be induced if the retailers may use an upfront fee together with a two-part tariff and a minimum RPM.

June 11, 2013 | Permalink | Comments (0) | TrackBack (0)

Rebels without a clue? Experimental evidence on partial cartels

Posted by D. Daniel Sokol

Georg Clemens - Dusseldorf Institute for Competition Economics (DICE) and Holger A. Rau - Dusseldorf Institute for Competition Economics (DICE) ask Rebels without a clue? Experimental evidence on partial cartels.

ABSTRACT: This paper provides experimental evidence on the formation of partial cartels with endogenous coordination. Firms face a coordination challenge when a partial cartel is to be formed as every firm is better off if it is not inside the cartel but is a free-riding outsider. We introduce a three-stage mechanism with communication which facilitates the formation of a cartel and respectively allows the formation of a partial cartel. All-inclusive cartels are always formed. We find that partial cartels are frequently rejected out-of-equillibrium if moutside firms profit excessively from the formation of the cartel.

June 11, 2013 | Permalink | Comments (0) | TrackBack (0)

On Price Taking Behaviour in a Non-renewable Resource Cartel-Fringe Game

Posted by D. Daniel Sokol

Hassan Benchekroun (McGill) and Cees Withagen (VU University Amsterdam) provide thoughts On Price Taking Behaviour in a Non-renewable Resource Cartel-Fringe Game.

ABSTRACT: We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel- fringe game a la Salant 1976) coincide and (ii) when the number of fringe firms be- comes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.

June 11, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, June 10, 2013

Competition and Growth: Reinterpreting their Relationship

Posted by D. Daniel Sokol

Daria Onori (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IRES explains Competition and Growth: Reinterpreting their Relationship.

ABSTRACT: In this paper we modify a standard quality ladder model by assuming that R&D is driven by outsider firms and the winners of the race sell licenses over their patents, instead of entering directly the intermediate good sector. As a reward they get the aggregate profit of the industry. Moreover, in the intermediate good sector firms compete a la Cournot and it is assumed that there are spillovers represented by strategic complementarities on costs. We prove that there exists an interval of values of the spillover parameter such that the relationship between competition and growth is an inverted-U-shape.

June 10, 2013 | Permalink | Comments (0) | TrackBack (0)

Impossibility of market division with two-sided private information about production costs

Posted by D. Daniel Sokol

Joao Correia-da-Silva (CEF.UP and Universidade do Porto) describes the Impossibility of market division with two-sided private information about production costs.

ABSTRACT: In a market with several independent cities, two firms with private information about their production costs decide whether to open a store in each city or restrict their activity to some cities. In cities where a single rm opens a store, this firm is a monopolist. In cities where both firms open stores, there is price competition with full revelation of private information. In equilibrium, both firms open stores in all the cities. Tacit collusion to divide the market is impeded because, by restraining from opening additional stores, a firm reveals its inefficiency, which triggers an attack from its rival.

June 10, 2013 | Permalink | Comments (0) | TrackBack (0)

Mergers, managerial incentives, and efficiencies

Posted by D. Daniel Sokol

Dragan Jovanovic (Dusseldorf Institute for Competition Economics) theorizes about Mergers, managerial incentives, and efficiencies.

ABSTRACT: We analyze the effects of synergies from horizontal mergers on managerial incentives. In contrast to synergies, efficiency gains resulting from managerial effort are not merger specific, i.e., they may be realized by all firms before and after a merger. We show that synergies suppress managerial incentives within the non-merging firms, whereas the effect on the merged firm critically depends on the number of agents employed by its principal. An important implication for merger policy is that consumer surplus may be monotonically decreasing in the synergy level, which opposes the use of an efficiency defense in merger control.

June 10, 2013 | Permalink | Comments (0) | TrackBack (0)

Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab

Posted by D. Daniel Sokol

Abdolkarim Sadrieh (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) and Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) experiment with Coexistence of small and dominant firms in Bertrand competition: Judo economics in the lab.

ABSTRACT: The theory of "Judo Economics" describes an optimal entry strategy for small firms. Using a capacity limitation, small firms force dominant market incumbents to accommodate. In this article, we study the power of Judo economics as an entry strategy in different market environments. We find experimental evidence supporting the theory in the original setting with a monopolistic, dominant market incumbent. When we introduce a cost advantage for small firms, profits go down. This can be explained by incumbents responding aggressive towards large entrants. For settings with multiple market incumbents, results are reversed. There, a cost advantage strengthens small firms and pricing below the incumbents' marginal cost provides the unique entry strategy.

June 10, 2013 | Permalink | Comments (0) | TrackBack (0)