Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, January 15, 2013

Monopoly R&D and Compatibility Decisions in Network Industries

Posted by D. Daniel Sokol

Jong-Hee Hahn (School of Economics, Yonsei University) and Jin-Hyuk Kim discuss Monopoly R&D and Compatibility Decisions in Network Industries.

ABSTRACT: In network industries, we often observe frequent upgrades of existing products as well as delayed introductions of new products. In order to explain these contrasting phenomena, this paper examines a durable-good monopolist's incentive for R&D in- vestment in new product development in a market with network effects. We show that if the network effect is strong the monopolist underinvests in R&D compared to the commitment level, whereas overinvestment occurs when the network effect is weak. The monopolist also chooses full intergenerational compatibility between products. We then extend the analysis to the cases of potential entry and successive innovations, and examine how the results change in these extensions.

January 15, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, January 14, 2013

Do buyer groups facilitate collusion?

Posted by D. Daniel Sokol

Hans-Theo Normann, Jurgen Rosch, and Luis Manuel Schult (all DICE, University of Duessldorf) ask Do buyer groups facilitate collusion?

ABSTRACT: We explore whether buyer groups, in which firms legally purchase inputs jointly, facilitate collusion in the product market. In a repeated game, abandoning the buyer group altogether or excluding single firms from them constitute more severe credible threats, hence, in theory buyer groups facilitate collusion. We run several experimental treatments in a three-firm Cournot framework to test these predictions, and we also explore the impact communication has on buyer groups. The experimental results show that buyer groups lead to lower outputs when groups can exclude single firms. Communication is identified as a main factor causing collusive product markets.

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

Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures

Posted by D. Daniel Sokol

Yukihiko Funaki Waseda University - School of Political Science and Economics, Harold Houba, VU University Amsterdam - Department of Econometrics; Tinbergen Institute and Evgenia Motchenkova, VU University Amsterdam - Department of Economics; TILEC discuss Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures.

ABSTRACT: We consider price-fee competition in bilateral oligopolies with perfectly-divisible goods, non expandable infrastructures, concentrated agents on both sides, and constant marginal costs. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare. Prices equal marginal costs. Threats to switch suppliers set maximal fees. These also arise from a negotiation model that extends price competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but consumer surpluses do not increase. The minimal infrastructure achieving maximal aggregate welfare differs from the one that protects buyers most.

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

Federal Jurisdiction in Sports Labor Disputes

Posted by D. Daniel Sokol

Michael H. LeRoy, University of Illinois College of Law analyzes Federal Jurisdiction in Sports Labor Disputes.

ABSTRACT: My database of 83 published court opinions from 1970-2011 shows that pro players used conflicting federal laws to improve their labor market mobility. They formed unions under the National Labor Relations Act (NLRA), and bargained collectively with leagues. But they often failed to negotiate significant changes to league rules that bound them perpetually to a team. Consequently, they challenged these practices as restraints of trade under the Sherman Antitrust Act. Thus, players used a dual engagement strategy of bargaining with leagues under the NLRA and negotiating antitrust settlement agreements under the threat of treble damages.

My study exposes a recurring jurisdiction problem that Congress addressed 80 years ago — the inappropriate role of antitrust courts in labor disputes. Ironically, companies used the Sherman Act, a law meant to curb corporate monopolies, against unions. By 1914, Congress enacted a “labor exemption” in the Clayton Act to protect workers from this misuse of antitrust law. But the labor exemption was vaguely phrased. After judges continued to order injunctions against unions, Congress angrily stripped their jurisdiction in the Norris-LaGuardia Act. This history sprang to life in my study. Some courts recognized the conflict between antitrust and labor law — and therefore denied jurisdiction to player complaints, or ruled that labor restraints are immune under the Clayton Act exemption. But these courts were outnumbered by those that intervened under the Sherman Act in these labor disputes.

This sets the context for my key findings. In 21.7% of their cases, district courts issued antitrust injunctions, but rarely denied a motion for this order (5.0% of their cases). But appellate courts behaved differently: They stayed or vacated injunctions in 34.8% of their cases, but affirmed only one injunction (4.3%). In a second key finding, district courts rejected the antitrust labor exemption, a league defense, in 15.0% of their cases, and granted it in only 8.3% of their cases. However, appellate courts differed, applying this defense in 26.1% of their cases and rejecting it once (4.3%). Viewed together, the statistics show that district courts treated these disputes as antitrust issues amenable to federal jurisdiction, while appellate courts strongly disagreed by viewing them as labor disputes that were inappropriate for their jurisdiction.

My study yields three conclusions. First, Congress did not want the Sherman Act to supply one side in a collective bargaining relationship with more bargaining chips to play against the other side. Unfortunately, district courts ignored congressional intent to stay out of labor disputes which players dressed-up as antitrust problems. Second, federal courts unwittingly contributed to labor disputes by creating uncertainty as to whether bargaining over league-imposed labor market restraints were governed by labor or antitrust law. Courts were therefore partly to blame for the economic interruptions that grew out of sports labor disputes in 2011. Finally, I observed a deep conflict between district and appellate courts. Until district judges restrain their sympathies for players, these judges will be integral actors in professional sports labor disputes. And unless these judges learn from their appellate brethren, they will risk the institutional disrepute that befell the federal judiciary in the early twentieth century.

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

Article 102 TFEU: How to Claim the Application of Objective Justifications in the Case of prima facie Dominance Abuses?

Posted by D. Daniel Sokol

Tjarda van der Vijver asks Article 102 TFEU: How to Claim the Application of Objective Justifications in the Case of prima facie Dominance Abuses?

ABSTRACT: In principle, the case law allows dominant firms to escape the application of the prohibition expressed in Article 102 TFEU by claiming the application of objective justifications. In that context, daunting questions are what must be established to obtain the application of the justification - and how. This paper focuses on the second question and analyses the allocation of the burden of proof between the applicant and the defendant as well as the applicable standard of proof.

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

Sunday, January 13, 2013

The FTC's decision allows Google to keep doing what it does best -- innovating

Posted by D. Daniel Sokol

Tom Leary (Hogan Lovells and former FTC Commissioner) has written on The FTC's decision allows Google to keep doing what it does best -- innovating.

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

Replacing the LIBOR with a Transparent and Reliable Index

Posted by D. Daniel Sokol

Rosa Abrantes-Metz (Global Economics Group and NYU) and David Evans (Global Economics Group and University of Chicago) offer thoughts on Replacing the LIBOR with a Transparent and Reliable Index.

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