Antitrust & Competition Policy Blog

Attention Rivalry among Online Platforms and Its Implications for Antitrust Analysis

Posted by D. Daniel Sokol

David Evans (Global Economics Group, University of Chicago, UCL) explains Attention Rivalry among Online Platforms and Its Implications for Antitrust Analysis.

ABSTRACT: Many online businesses, including most of the largest platforms, seek and provide attention. These online attention rivals provide products and features to obtain the attention of consumers and sell some of that attention, through other products and services, to merchants, developers and others who value it. The multi-sided business of seeking and providing attention is fluid with rivalries crossing boundaries defined by the features of the products and services. It is also dynamic. Rivals introduce new products and services, some involving drastic innovation, frequently. Online attention rivals impose competitive constraints on each other. Product differentiation tempers the significance of these constraints in particular situations. But the relevant differentiation mainly involves aspects of the attention that is procured and sold rather than, necessarily, particular features of the products and services used for acquiring and delivering that attention. Antitrust analysis should consider these competitive constraints in evaluating market definition, market power, and the potential for anticompetitive effects. Most importantly, antitrust analysis should focus on competition for seeking and providing attention rather than the particular products and services used for securing and delivering this attention. The existence of competition among attention rivals does not imply that antitrust should reduce the vigor with which it examines mergers and exclusionary practices among these platforms. It just needs to look for problems in the right places.

Libor, Strategy, and International Cartel Investigations

Posted by D. Daniel Sokol

Chai Lim has written on Libor, Strategy, and International Cartel Investigations.

ABSTRACT: Cartel investigations are under way into practices deemed to be manipulative of the LIBOR index. The international effect and circumstances of these practices are favourable towards cooperation and coordination between investigating authorities for various reasons—including preventing parties from tactically assessing which authorities have the necessary resources and evidence to prosecute. This article discusses defence strategies available to counsel acting to defend the banks.

Commission v Microsoft: How to Set Reasonable Rates for Access to Interoperability Information and Evaluate their Innovative Character?

Posted by D. Daniel Sokol

Stefano Barazza, Studio Legale Barazza asks Commission v Microsoft: How to Set Reasonable Rates for Access to Interoperability Information and Evaluate their Innovative Character?

ABSTRACT: The General Court upheld the Commission's Decision which condemned Microsoft for failure to provide interoperability information on reasonable and non-discriminatory terms, reducing the periodic penalty payment imposed.

The Relationship between Service Quality, Economic and Switching Costs in Retail Banking

Posted by D. Daniel Sokol

Faruk Anıl Konuk, Sakarya University and Filiz Konuk, Sakarya University dsicuss The Relationship between Service Quality, Economic and Switching Costs in Retail Banking.

ABSTRACT: The objective of this study is to examine the structural relationships between service quality, economic and switching costs, loyalty and word-of-mouth intentions. For this aim, we proposed a conceptual model based on literature review and proposed hypothesis according to this model. In order to test the hypothesis structural equation modeling technique were applied to the data. Data were collected from 397 retail banking customers during May 2012 in Sakarya/Turkey. The results of this empirical study reveal that service quality has positive effect on economic and switching costs and these costs have positive effect on both loyalty and word-of-mouth intentions. The results also indicate negative relationship between economic costs and switching costs and behavioral intentions. In addition, positive relationship was found between service quality, loyalty and word-of-mouth intentions. At the end of this study some managerial implications are discussed based on the findings.

Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure

Posted by D. Daniel Sokol

Chiara Fumagalli, Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR), Massimo Motta, Universitat Pompeu Fabra and Thomas Ronde, University of Copenhagen - Department of Economics; Center for Economic and Business Research (CEBR); Centre for Economic Policy Research (CEPR) have an interesting paper on Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure.

ABSTRACT: This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.

Successive Oligopolies with Differentiated Firms and Endogeneous Entry

Posted by D. Daniel Sokol

Markus Reisinger, WHU - Otto Beisheim School of Management, CESifo (Center for Economic Studies and Ifo Institute for Economic Research) andv Monika Schnitzer, University of Munich - Department of Economics, Centre for Economic Policy Research (CEPR) describe Successive Oligopolies with Differentiated Firms and Endogeneous Entry.

ABSTRACT: We develop a model of successive oligopolies with endogenous entry, allowing for varying degrees of product differentiation and entry costs in both markets. We show that downstream conditions dominate the overall profitability of the two‐tier structure while upstream conditions mainly affect the distribution of profits. We analyze how two‐part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects. In contrast to previous literature, we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization. This is because linear prices induce more downstream market entry.

American Airlines/US Air Merger

Posted by D. Daniel Sokol

The merger between American Airlines and US Air has been announced.  I think that you will worry more about how often you will get a seat upgrade than you will if the American Airlines/US Air merger will be blocked on antitrust grounds. There are few direct overlaps. Given that DOJ allowed United/Continental, Delta/Northwest, and Southwest/AirTran in recent years, I think that this merger will go through. Maybe the parties will need to give up some slots.

Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending

Posted by D. Daniel Sokol

Stefan Arping (University of Amsterdam) has a paper on Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending.

ABSTRACT: In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.

Vertical restraints in soocer: Financial Fiar Play and the English Premier League

Posted by D. Daniel Sokol

Thomas Peeters (University of Antwerp) & Stefan Szymanski (University of Michigan) describe Vertical restraints in soocer: Financial Fiar Play and the English Premier League.

ABSTRACT: In 2010 UEFA, the governing body of European soccer, announced a set of financial restraints, that clubs must observe when seeking to enter its competitions, notably the UEFA Champions League. We characterize these “Financial Fair Play” (FFP) regulations as a form of vertical restraint and assess their impact on the intensity of competition in the English Premier League. We build a structural empirical model to show that introducing FFP would substantially reduce competition, resulting in lower average payrolls, while average revenues would hardly be affected. Depending on the exact regime, wage to turnover ratios would decline by 8% to 15%.

Airport Benchmarking and Spatial Competition: a Critical Review

Posted by D. Daniel Sokol

Dmitry Pavlyuk, Transport and Telecommunication Institute discusses Airport Benchmarking and Spatial Competition: a Critical Review.

ABSTRACT: During the last two decades the European airport industry is liberalised and turned to competitive market environment. This fact attracts an increasing scientific and practical interest to analysis of airport efficiency and its determinants, as well as different aspects of airport competition. This paper contains a critical review of existing researches in these two areas – airport efficiency and spatial competition among airports. We analysed modern approaches to airport benchmarking, their advantages and shortcomings, and systematised a wide range of related academic studies. We paid special attention to empirical researches of spatial competition as a factor affecting airport efficiency. Despite the fact of a well-developed theory of spatial competition and signs of its growing effects in the airport industry, we discovered a lack of studies devoted to the relationship between airport efficiency and spatial competition.

What's in a Name? Measuring Prominence, and its Impact on Organic Traffic from Search Engines

Posted by D. Daniel Sokol

Michael R. Baye (Department of Business Economics and Public Policy, Indiana University Kelley School of Business), Babur De los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) and Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) ask What's in a Name? Measuring Prominence, and its Impact on Organic Traffic from Search Engines.

ABSTRACT: Organic product search results on Google and Bing do not systematically include information about seller characteristics (e.g., feedback ratings and prices). Consequently, it is often assumed that a retailer’s organic traffic is driven by the prominence of its position in the list of search results. We propose a novel measure of the prominence of a retailer’s name, and show that it is also an important predictor of the organic traffic retailers enjoy from product searches through Google and Bing. We also show that failure to account for the prominence of retailers’ names–as well as the endogeneity of retailers’ positions in the list of search results–significantly inflates the estimated impact of screen position on organic clicks.

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

Posted by D. Daniel Sokol

Jun Zhou (Tilburg) analyzes Endogenous Lysine Strategy Profile and Cartel Duration: An Instrumental Variables Approach.

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

The Google Book Project: Antitrust and Intellectual Property Perspectives - Monday, March 4 2013

Posted by D. Daniel Sokol

 

The Google Book Project: Antitrust and Intellectual Property Perspectives

Monday, March 4
2013

Location: Notre Dame in London

          In 2008, the parties entered into a lengthy proposed settlement agreement.  After hearings and extensive commentary, in 2011, the court rejected the proposed settlement. 
Continuing discussions are ongoing among the parties, while legislative relief from Congress is also being pursued.

          The antitrust and intellectual property issues raised by the Google Book project and the judicial challenge will be discussed on March 4 by a panel consisting of Doctor Ioannis Lianos of University College London and Professor Jonathan Griffiths of Queen Mary
University of London, with Professor Joseph Bauer of Notre Dame Law School serving as moderator.

Product Market Frictions, Bargaining and Pass-Through

Posted by D. Daniel Sokol

Mirko Abbritti (School of Economics and Business Administration, University of Navarra) explores Product Market Frictions, Bargaining and Pass-Through.

ABSTRACT: Empirical evidence shows that the pass-through of cost shocks to prices is very low, and delayed. This is in stark contrast with the standard framework of monopolistic competition used in macro models, which, absent nominal rigidities, implies complete pass-through of cost shocks to prices. This paper develops a model of pricing dynamics in business to business relationships where incomplete pass-through arises endogenously. The model is based on two assumptions. First, both retailers and wholesalers invest resources to form new, long-term, business relationships. Second, once a business relationship is formed, the prices and the quantities of the intermediate good exchanged are set in a bilateral bargaining between wholesalers and retailers. The repeated nature of the interactions between firms raises the question of whether wholesale prices are allocative. We show that wholesale prices still play an allocative role in the model, but this role is likely to be quite limited.

Reputation and Entry

Posted by D. Daniel Sokol

Jeffrey V. Butler, EIEF, Enrica Carbone, University of Naples "SUN", Pierluigi Conzo, CSEF and Giancarlo Spagnolo, Stockholm School of Economics-SITE, University of "Tor Vergata" & CEPR examine Reputation and Entry.

ABSTRACT: This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, so that the concern is warranted, appropriately designed reputation mechanisms actually stimulate entry. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer.

Vertical Practices Facilitating Exclusion

Posted by D. Daniel Sokol

John Asker (NYU) and Heski Bar-Isaac (NYU) analyze Vertical Practices Facilitating Exclusion.

ABSTRACT: Resale price maintenance (RPM), slotting fees, loyalty rebates and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers. If these retailers were to accommodate entry, upstream competition could lead to lower industry profits and the breakdown of these profit transfers. Thus, in equilibrium, retailers can internalize the effect of accommodating entry on the incumbent’s profits. Consequently, if entry requires downstream accommodation, entry can be deterred. We discuss policy implications of this aspect of vertical contracting practices.

Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures

Posted by D. Daniel Sokol

Yukihiko Funaki (Waseda University), Harold Houba (VU University Amsterdam) and Evgenia Motchenkova (VU University Amsterdam) describe 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.

Identifying Two-Sided Markets

Posted by D. Daniel Sokol

Lapo Filistrucchi (Tilburg University), Damien Geradin (Tilburg University), and Eric van Damme (Tilburg University) are Identifying Two-Sided Markets.

ABSTRACT: We review the burgeoning literature on two-sided markets focusing on the different definitions that have been proposed. In particular, we show that the well-known definition given by Evans is a particular case of the more general definition proposed by Rochet and Tirole. We then identify the crucial elements that make a market two-sided and, drawing from both theory and practice, derive suggestions for the identification of the two-sided nature of a market. Our suggestions are relevant not only for the analysis of traditional two-sided markets, such as newspapers and payment cards, but also for the analysis of many new markets, such as those for online social networks, online search engines and Internet news aggregators.

Fordham Competition Law Institute Course in Summer 2013

Posted by D. Daniel Sokol

I received the following from ours friends at Fordham Law:

Fordham
Competition Law Institute Course in Summer 2013

The Fordham Competition Law Institute’s training center for antitrust/competition law officials, judges and policymakers is pleased to announce its course offering for 2013.  Since 2006, when FCLI started to offer summer courses, approximately 300 members of competition authorities and judges, representing more than 40 jurisdictions, have attended FCLI's workshops and courses.  We look forward to another year of programs where a deeply experienced and world-caliber faculty will discuss advanced topics in competition law and economics with diverse groups of participants from competition authorities and courts in jurisdictions around the world. 

If there are officials within your organization who are interested in attending the program described below, please provide them the information about the courses and/or send their name, a short resume, and application to Ms. Alice Wong at aalwong@law.fordham.edu Because space is limited, applications must be received by February 20, 2013.


Course for competition authority economists, June 24 to 28,   FCLI will offer a one week course for economists from competition authorities, building on the success of previous economist courses.   Through discussion and practical examples, the course will enable competition economists to refresh their knowledge of key economic concepts, learn about recent developments in economic theory, and develop the skills needed in case work.  The course is open to competition authority economists with at least three years experience in an authority.  A PhD in economics is not required.

A highly experienced, geographically diverse faculty from competition authorities, academia and the judiciary will lead the courses and workshop, taking an interactive approach and utilizing case studies.  Sample detailed agendas and application is available on the FCLI website at www.fordhamantitrust.com

All programs will be held at Fordham Law School in New York City.  Limited financial assistance will be available to enable competition officials and judges from diverse backgrounds to attend.

If you have any questions about the courses, please contact Ms. Alice Wong at  aalwong@law.fordham.edu

Respectfully yours,

Barry Hawk
Director
Fordham Competition Law Institute

Relaxing competition through speculation: Committing to a negative supply slope

Posted by D. Daniel Sokol

Par Holmberg (Research Institute of Industrial Economics (IFN))and Bert Willems (Tilburg) are Relaxing competition through speculation: Committing to a negative supply slope.

ABSTRACT: We demonstrate how suppliers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete with supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.