Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, August 10, 2013

Competition Policy and Price Fixing

Posted by D. Daniel Sokol

Louis Kaplow (Harvard) has a new book, Competition Policy and Price Fixing.  You can read the abstract below.  My one word description of the book - brilliant.  He tears apart traditional understandings of price fixing with devestating critiques.  If you buy one book this year, it should be this one.

BOOK ABSTRACT: Throughout the world, the rule against price fixing is competition law's most important and least controversial prohibition. Yet there is far less consensus than meets the eye on what constitutes price fixing, and prevalent understandings conflict with the teachings of oligopoly theory that supposedly underlie modern competition policy.

Competition Policy and Price Fixing provides the needed analytical foundation. It offers a fresh, in-depth exploration of competition law's horizontal agreement requirement, presents a systematic analysis of how best to address the problem of coordinated oligopolistic price elevation, and compares the resulting direct approach to the orthodox prohibition.

In doing so, Louis Kaplow elaborates the relevant benefits and costs of potential solutions, investigates how coordinated price elevation is best detected in light of the error costs associated with different types of proof, and examines appropriate sanctions. Existing literature devotes remarkably little attention to these key subjects and instead concerns itself with limiting penalties to certain sorts of interfirm communications. Challenging conventional wisdom, Kaplow shows how this circumscribed view is less well grounded in the statutes, principles, and precedents of competition law than is a more direct, functional proscription. More important, by comparison to the communications-based prohibition, he explains how the direct approach targets situations that involve both greater social harm and less risk of chilling desirable behavior--and is also easier to apply.

 

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

Friday, August 9, 2013

The Limits of Price Discrimination

Posted by D. Daniel Sokol

Dirk Bergemann (Cowles Foundation, Yale University), Benjamin Brooks (Dept. of Economics, Princeton University) and Stephen Morris (Dept. of Economics, Princeton University) discuss The Limits of Price Discrimination.

ABSTRACT: We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.

August 9, 2013 | Permalink | Comments (0) | TrackBack (0)

The Application of European Competition Law in the Financial Services Sector

Posted by D. Daniel Sokol

Thomas Franchoo, Niels Baeten and Shane Cranley (Linklaters) describe The Application of European Competition Law in the Financial Services Sector.

ABSTRACT: The State aid regime for the financial sector remains in place but the review of individual restructuring plans seems to be coming to a close. In relation to Articles 101 and 102 TFEU the Commission is still focused on payment systems and has been pursuing banks regarding financial benchmarks. As regards merger control, the scene was dominated by the in-depth investigation into a mobile wallets JV. The Commission further dealt with cases at the intersection of State aid and merger control and monitored a number of stock exchange developments.

August 9, 2013 | Permalink | Comments (0) | TrackBack (0)

Building New Competition Law Regimes

Posted by D. Daniel Sokol

David Lewis (Corruption Watch) has a new edited book on Building New Competition Law Regimes.

BOOK ABSTRACT: This detailed book focuses on the development of competition law institutions and contains case studies that examine this against the backdrop of the debate around global convergence of competition law and the limits imposed by particular national circumstances.

Five of the chapters examine the development of competition law regimes in a diverse range of countries: Mexico, Hungary, South Africa, Thailand (with comparative remarks on South Korea) and Zambia. The remaining chapters examine the role of multinational institutions, particularly the International Competition Network, and the practice of and potential for regional competition law arrangements. The majority of the authors are seasoned practitioners of competition law, all of whom acknowledge the importance of convergence, while simultaneously demonstrating the limits imposed by divergent national circumstances. This carefully edited collection is a companion volume to Enforcing Competition Rules in South Africa, an account of the development of competition law institutions in South Africa, authored by David Lewis and published by Edward Elgar.

August 9, 2013 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 8, 2013

Cartel Formation through Strategic Information Leakage in a Distribution Channel

Posted by D. Daniel Sokol

Noam Shamir, Tel-Aviv University has posted Cartel Formation through Strategic Information Leakage in a Distribution Channel.

ABSTRACT: This paper studies the ability of competing retailers to form a cartel by sharing information with their mutual manufacturer. In a market characterized by demand uncertainty, colluding retailers desire to share information about the potential market demand in order to coordinate on the optimal collusive retail price. However, since direct information-sharing between competing …firms is considered to be a possible signal for collusion, according to the antitrust laws, the retailers search for a mechanism to exchange information in a manner that would not raise the suspicions of the antitrust authorities. This paper examines such a mechanism: each retailer shares his private information with the mutual manufacturer and uses the wholesale price to infer the market condition and coordinate on the cartel price. Although a cartel at the retail level limits the manufacturer’'s sold quantity, under certain conditions, the manufacturer is better-off accepting the retailers' ’private information, thereby facilitating the cartel formation. Moreover, a situation in which the retailers cannot collude by sharing information horizontally and they collude by sharing information with the manufacturer can result in a lower consumer surplus.

August 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Predatory Hiring as Exclusionary Conduct: A New Perspective

Posted by D. Daniel Sokol

Michael A. Williams, Competition Economics LLC has an interesting paper on Predatory Hiring as Exclusionary Conduct: A New Perspective.

ABSTRACT: The showing of predatory or exclusionary conduct is a necessary element to prove an attempted monopolization claim under § 2 of the Sherman Act. Predatory hiring as a form of exclusionary conduct has not been extensively analyzed from legal or economic perspectives. Most litigated cases have followed Universal Analytics, Inc. v. MacNeal-Schwendler Corp., where the court held that unlawful predatory hiring occurs when talent is acquired not for purposes of using that talent but for purposes of denying it to a competitor.

An anticompetitive act by a single firm is an act that is not profit maximizing but for the monopoly rents the act creates or maintains, but that is profit maximizing inclusive of those monopoly rents. But a monopolist likely will use and derive profits from important labor talent once acquired, even if the effect of the hiring is anticompetitive. Thus, the current legal standard for proving predatory hiring as an element of an attempted monopolization claim may prevent plaintiffs from successfully prosecuting cases in which antitrust impact and injury exist.

Therefore, we argue that the current legal standard required to prove a predatory-hiring claim should be revised. We use a recently litigated matter in the ambulance industry, ICare-EMS v. Rural/Metro, as a case study to make our argument. This case study is particularly revealing because, unlike most litigated matters, internal company documents and deposition testimony from plaintiff and defendant firm witnesses were not designated confidential. Therefore, we are able to illuminate the bases for the firms’ internal business decisions in great detail. These decisions reveal the companies’ intentions in ways not normally observable by antitrust scholars.

August 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Cartels, Competition and Public Procurement

Posted by D. Daniel Sokol

Stefan E. Weishaar, Associate Professor of Law and Economics, University of Groningen discusses Cartels, Competition and Public Procurement.

BOOK ABSTRACT: Stefan Weishaar explores the ways in which economic theory can be used to mitigate the adverse effects of bid rigging cartels. The study sheds light on one of the vital issues for achieving cost-effective public procurement – which is itself a critical question in the context of the global financial crisis. The book comprehensively examines whether different laws deal effectively with bid rigging and the ways in which economic theory can be used to mitigate the adverse effects of such cartels. The employed industrial economics and auction theory highlights shortcomings of the law in all three jurisdictions – the European Union, China and Japan – and seeks to raise the awareness of policymakers as to when extra precautionary measures against bid rigging conspiracies should be taken.

August 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Understanding Behavioral Antitrust

Posted by D. Daniel Sokol

Avishalom Tor, Notre Dame Law School aids us in Understanding Behavioral Antitrust.

ABSTRACT: Behavioral antitrust – the application to antitrust analysis of empirical evidence of robust behavioral deviations from strict rationality – is increasingly popular and hotly debated by legal scholars and the enforcement agencies alike.  This Article shows, however, that both proponents and opponents of behavioral antitrust frequently and fundamentally misconstrue its methodology, treating concrete empirical phenomena as if they were broad hypothetical assumptions.  Because of this fundamental methodological error, scholars often make three classes of mistakes in behavioral antitrust analyses:  First, they fail to appreciate the variability and heterogeneity of behavioral phenomena; second, they disregard the concrete ways in which markets, firms, and other institutions both facilitate and inhibit rational behavior by antitrust actors; and, third, they erroneously equate all deviations from standard rationality with harm to competition.  After establishing the central role of rationality assumptions in present-day antitrust and reviewing illustrative behavioral analyses across the field – from horizontal and vertical restraints, through monopolization, to merger enforcement practices – the Article examines the three classes of mistakes, their manifestation, and their consequences in antitrust scholarship.  It concludes by offering two sets of essential lessons that the behavioral approach already can offer to make antitrust law and policy more realistic and effective in protecting competition:  One concerning the value of case-specific evidence in antitrust adjudication and enforcement, the other showing how antitrust law can and should account for systematic and predictable boundedly rational behavior that is neither constant nor uniform.

August 8, 2013 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 7, 2013

The Empirical Effects of Minimum Resale Price Maintenance on Prices and Output

Posted by D. Daniel Sokol

Alexander MacKay and David Aron Smith (both University of Chicago) have a very important new paper on The Empirical Effects of Minimum Resale Price Maintenance on Prices and Output.

ABSTRACT: This paper analyzes the empirical eects of minimum resale price maintenance (RPM) across a broad variety of household products. Using state-by-state variation in antitrust law in the wake of the 2007 Leegin Supreme Court decision, we nd that prices increased in states where minimum RPM is treated under the rule of reason. We also nd that price increases are most often combined with quantity decreases, which is consistent with anticompetitive uses of minimum RPM.

Highly recommended

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

The Market, the Firm, and Behavioral Antitrust

Posted by D. Daniel Sokol

Avishalom Tor (Notre Dame Law) has posted The Market, the Firm, and Behavioral Antitrust.

ABSTRACT: This chapter examines the main distinct concerns facing the application of empirical behavioral evidence to antitrust law and economics — also known as "behavioral antitrust."  More than many (though not all) other legal fields, antitrust law is primarily concerned with the conduct of firms in markets rather than in individual behavior per se.  Yet much of the empirical evidence that behavioral antitrust draws on concerns individual behavior outside the firm, often in non-market settings.  Hence besides adducing additional, direct empirical evidence on behavioral phenomena within firms and markets, there is a need to determine when and how the behavioral evidence on human judgment and decision behavior more generally is informative for antitrust.  To this end, the chapter considers the ways in which markets and firms shape behavior.  Direct evidence and theoretical analysis both reveal these institutions variously to facilitate rationality and deviations from it.  After illustrating the implications of the complex interaction among markets, firms, and the rationality of antitrust actors across different areas of the law and enforcement policy, the chapter concludes by sketching some important open questions and future research directions in behavioral antitrust.

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry

Posted by D. Daniel Sokol

Vivienne Pham, La Trobe University - Department of Economics and Finance and David Prentice, School of Economics, La Trobe University discuss A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry.

ABSTRACT: In this paper we empirically analyse two counterfactual situations facing an antitrust authority following the merger of two of the largest international cigarette companies. First we estimate a random coefficients model of the demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are consistent with the independent estimates available. We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian antitrust authority. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows that the model is partially successful in predicting the ranking of price changes across companies following the divestiture. This suggests structural econometric analysis using a random coefficients model can provide information for antitrust authorities assessing the implications of a potential merger and partial divestiture.

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Call for Papers: Third ABA/NYU Next Generation (Junior Professor) Antitrust Scholars Conference - Friday, January 17, 2014

Posted by D. Daniel Sokol

The third Next Generation (Junior Professor) Antitrust Scholars Conference will be held at NYU School of Law on Friday, January 17, 2014. The conference is co-sponsored by NYU School of Law and the American Bar Association – Section of Antitrust Law. The purpose of this day-long conference is to provide an opportunity for antitrust/competition law professors who began their full time professorial career in or after September 2004 to present their latest research. Senior antitrust scholars and practitioners in the field will comment on the papers. Papers are due by November 1, 2013 and should be sent to trustbuster2014@gmail.com. Papers will be reviewed by a group of professors and chosen for inclusion. See here for the 2010 program and here for the 2012 program. There is no reimbursement of travel or hotel for any participants in this conference. There is a free lunch (not part of a multi-product bundle) but everyone pays their own way.

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

The Effect of EU Antitrust Investigations and Fines on a Firm's Valuation

Posted by D. Daniel Sokol

Luca Aguzzoni, Lear - Laboratory of Economics, Antitrust, Regulation, Gregor Langus, Charles River Associates (CRA) and Massimo Motta, Universitat Pompeu Fabra investigate The Effect of EU Antitrust Investigations and Fines on a Firm's Valuation.

ABSTRACT: EU antitrust investigations involve a sequence of events which affect the investigated firm's market value. We model these relationships and estimate their impact on firms' share prices. On average, a surprise inspection reduces a firm's share price by 2.89%, an infringement decision reduces it by 3.57%. The Court judgments do not have a statistically significant effect. Overall, we find that the total effect of the antitrust action ranges from −3.03% to −4.55% of a firm's market value. Fines account for no more than 8.9% of this loss, and we conjecture that most of the loss is due to the cessation of illegal activities.

Highly recommended

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Oligopolies with (Somewhat) Environmentally Conscious Consumers: Market Equilibrium and Regulatory Intervention

Posted by D. Daniel Sokol

George Deltas, University of Illinois at Urbana-Champaign, Donna Ramirez Harrington, University of Vermont - Department of Economics and Madhu Khanna, University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics describe Oligopolies with (Somewhat) Environmentally Conscious Consumers: Market Equilibrium and Regulatory Intervention.

ABSTRACT: We consider a horizontally differentiated duopoly where consumers care about the product's “greenness.” Firms can be asymmetric: they may differ in the product's intrinsic value and may also differ in their chosen level of greenness. We examine the choice of greenness and the implications of various policy interventions. We show that (i) the choices of product greenness are strategic substitutes, (ii) the high‐intrinsic quality firm produces the greener product, (iii) the low‐quality firm's greenness may increase with the cost of its provision or decrease with consumer willingness to pay for it, (iv) a minimum quality standard (MQS) leads the greener firm to lower its environmental quality and can even reduce average quality, (v) greenness is underprovided even if consumers fully internalize the externality, and (v) an MQS can reduce welfare if the greenness of the high‐quality firm exceeds the MQS, even when environmental quality is underprovided. The effects of policy interventions on profits differ qualitatively across polices and firms: A firm that lobbies for one type of intervention may lobby against another similar one, and a firm may lobby for an intervention while its competitor may lobby against it. A subsidy for the development costs of a green product can financially hurt both firms.

August 7, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 6, 2013

Should Competition Policy in Banking be Amended During Crises? Lessons from the EU

Posted by D. Daniel Sokol

Iftekhar Hasan, Fordham University; Bank of Finland and Matej Marinc, University of Ljubljana - Faculty of Economics; University of Amsterdam ask Should Competition Policy in Banking be Amended During Crises? Lessons from the EU.

ABSTRACT: This article investigates the nexus of competition and stability in European banking. It analyzes the European legal framework for competition policy in banking and several cases that pertain to anti-cartel policy, merger policy, and state-aid control. It discusses whether and how competition policy should be amended in order to preserve the stability of the banking system during crises. The article argues for increased cooperation between prudential regulators and competition authorities, as well as an enhanced framework for bank regulation, supervision, and resolution that could mitigate the need to change competition policy in crisis times.

August 6, 2013 | Permalink | Comments (0) | TrackBack (0)

Banking Competition in Africa: Sub-regional Comparative Studies

Posted by D. Daniel Sokol

Samuel Fosu, University of Leicester examines Banking Competition in Africa: Sub-regional Comparative Studies.

 ABSTRACT: This paper examines the extent of banking competition in African sub-regional markets. A dynamic version of the Panzar-Rosse model is adopted beside the static model to assess the overall extent of banking competition in each sub-regional banking market over the period 2002 to 2009. Consistent with other emerging economies, the results suggest that African banks generally demonstrate monopolistic competitive behaviour. Although the evidence suggests that the static Panzar-Rosse H-statistic is downward biased compared to the dynamic version, the competitive nature identified remains robust to alternative estimators.

August 6, 2013 | Permalink | Comments (0) | TrackBack (0)

China - Inside and Out: Antitrust, Intellectual Property and Other Regulatory Issues for Initiating and Operating Outbound and Inbound Investments

Posted by D. Daniel Sokol

The ABA Section of International law has an exciting forthcoming program China - Inside and Out: Antitrust, Intellectual Property and Other Regulatory Issues for Initiating and Operating Outbound and Inbound Investments.

It will be held at the China World Hotel Beijing, September 16 – 17, 2013. There are a number of very good people on the panels.

August 6, 2013 | Permalink | Comments (0) | TrackBack (0)

Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs

Posted by D. Daniel Sokol

Volodymyr Bilotkach, Newcastle University Business School, Xavier Fageday, Universitat de Barcelona, and Ricardo Flores-Fillolz, Universitat Rovira i Virgili discuss Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs.

ABSTRACT: Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta s network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta s primary hubs at the expense of its secondary airports. We also find some evidence suggestin! g that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York s JFK airport.

August 6, 2013 | Permalink | Comments (0) | TrackBack (0)

The impact of EU competition law on national healthcare systems

Posted by D. Daniel Sokol

Wolf Sauter (Tilburg) analyzes The impact of EU competition law on national healthcare systems.

ABSTRACT: whereas the EU’s internal market rules govern market access and public intervention, its competition rules are concerned with the market conduct of private parties. When do the competition rules apply to healthcare? In principle the scope for application of the competition rules to the healthcare sector is largely defined by the Member States themselves. This is because a key criterion is whether the entities concerned act as undertakings, that is offer goods or services in a market. In pursuit of efficiency the Member States tend to rely at least partly on private undertakings for the market based provision of healthcare. Some healthcare purchasers, such as insurers, can also be classified as undertakings. This means that in many cases the competition rules will apply.

Given the relevance of the competition rules to healthcare, is there still room for the pursuit of public policy objectives? As this paper illustrates the competition rules (including the state aid rules) provide for boundaries and exceptions that Member States may rely upon to continue the pursuit of public policy goals in the healthcare sector. The most important exception is that for services of general economic interest (SGEI). This allows the pursuit of both economic (efficiency) and non-economic (equity) goals, albeit only in a proportionate manner. This requirement is likely to lead to a rationalisation of public policy objectives in the healthcare sector.

What is the effect of EU competition law on healthcare at the level of the Member States? Cases studies of Germany, the UK and the Netherlands show that so far the impact of EU competition law is largely indirect and works through national competition law as well as sector-specific rules. Given the lack of political support for EU level harmonisation of healthcare regulation, at the same time EU competition law forms a default regulatory framework for the sector. As in the Member States the reliance on markets in healthcare provision is still growing the impact of EU competition law on national healthcare systems is likely to increase as well.

August 6, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, August 5, 2013

Royalty Rate Determination

Posted by D. Daniel Sokol

Peter Dawson (U Conn) discusses Royalty Rate Determination.

ABSTRACT: Courts require royalty rate calculations based on rigorous economic foundations. The licensing literature provides limited guidance for royalty rate determination, leaving appraisal report readers wanting a more tangible and objective lens through which to understand and judge the credibility of royalty rate analyses. This paper develops the standard, core model for calculating market royalty rates for intangible asset licenses where royalty rates are determined ex ante in the actual market, or ex post in a hypothetical market under a market value standard. The model forms a consistent basis for performing and evaluating licensing royalty appraisals. Not being distracted with the question of how to combine the input values when calculating a royalty rate, the court can focus on understanding and verifying an appraiser’s calculations of the input variable values.

August 5, 2013 | Permalink | Comments (0) | TrackBack (0)