Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, March 24, 2015

Away From Market Shares? The Increasing Importance of Contestability in EU Competition Law Cases

Geert Goeteyn (Shearman & Sterling), Patrick Smith (RBB) and Sara Ashall (Shearman & Sterling) ask Away From Market Shares? The Increasing Importance of Contestability in EU Competition Law Cases.

ABSTRACT: In recent cases, the European Commission has shown a willingness to look beyond market shares to the contestability of markets when assessing the compatibility of mergers with EU competition law. In Syniverse/MACH, that approach, which understands that the strength of competition may not be expected to vary together with traditional measures of concentration, allowed the Commission to approve the proposed transaction, despite very high levels of concentration in three different relevant markets. The Commission granted clearance subject to conditions in relation to two of the relevant markets, while accepting that no such remedies were required in the third market of concern taking into account, in particular, the competitive constraints exerted by the customers’ ability to self-supply.

March 24, 2015 | Permalink | Comments (0) | TrackBack (0)

EU Merger Control: The Relevance of Captive Sales for the Purpose of Market Definition and Competition Assessment

Geert Goeteyn and Sara Ashall describe EU Merger Control: The Relevance of Captive Sales for the Purpose of Market Definition and Competition Assessment.

ABSTRACT: When assessing mergers, the European Commission's starting point is to consider only sales made on the merchant market in its assessment and exclude in-house or captive sales, in particular when defining markets. In recent years, it has adopted a pragmatic approach in its competition analysis by taking into account a variety of factors, including how in-house supply works practically in the market, the level of captive sales, and the extent of switching. This pragmatic approach corresponds to that used in the United States as well as, progressively, in emerging jurisdictions like Brazil.

March 24, 2015 | Permalink | Comments (0) | TrackBack (0)

Competing with Complementors: An Empirical Look at Amazon.com

Feng Zhu (Harvard Business School, Technology and Operations Management Unit) and Qihong Liu (University of Oklahoma) research Competing with Complementors: An Empirical Look at Amazon.com.

ABSTRACT: Platform owners sometimes enter complementors' product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: Platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms' overall quality. Using data from Amazon.com, we analyze the patterns of Amazon's entries into its third-party sellers' product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon's entry is positively correlated with the popularity and customer ratings of third-party sellers' products. Amazon's entry reduces the shipping costs of affected products and hence increases their demand. Results also show that third-party sellers affected by Amazon's entry appear to be discouraged from growing their businesses on the platform subsequently.

March 24, 2015 | Permalink | Comments (0) | TrackBack (0)

Advertising, Consumer Awareness and Choice: Evidence from the U.S. Banking Industry

Maria Ana Vitorino (University of Minnesota), Ali Hortacsu (University of Chicago), and Elisabeth Honka (The University of Texas at Dallas) explore Advertising, Consumer Awareness and Choice: Evidence from the U.S. Banking Industry.

ABSTRACT: Does advertising serve to (i) increase awareness of a product, (ii) increase the likelihood that the product is considered carefully, or (iii) does it shift consumer utility conditional on having considered it? We utilize a detailed data set on consumers' shopping behavior and choices over retail bank accounts to investigate advertising's effect on product awareness, consideration, and choice. Our data set has information regarding the entire purchase funnel, i.e. we observe the set of retail banks that the consumers are aware of, which banks they considered, and which banks they chose to open accounts with. We formulate a structural model that accounts for each of the three stages of the shopping process: awareness, consideration, and choice. Advertising is allowed to affect each of these separate stages of decision-making. Our model also endogenizes the choice of consideration set by positing that consumers undertake costly search. Our results indicate that advertising in this market is primarily a shifter of awareness, as opposed to consideration or choice. Along with advertising, branch density, marital status, race and income are very signficant drivers of awareness. We also find that consumers face non-trivial search/consideration costs that lead the average consumer to consider only 2.2 banks out of the 6.7 they are aware of. Conditional on consideration, branch density, the consumer's current primary bank (i.e. inertia), interest rates and education are the primary drivers of the final choice.

March 24, 2015 | Permalink | Comments (0) | TrackBack (0)

Monday, March 23, 2015

Provider Competition and Over-Utilization in Health Care

Boone, J. (Tilburg University, Center For Economic Research) and Douven, R.C.M.H. (Tilburg University, Center For Economic Research) research Provider Competition and Over-Utilization in Health Care.

ABSTRACT: This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We argue that each of these can be optimal depending on the contracting environment of a speciality. In particular, CfM is optimal in a clinical situation where the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether pat! ients react to decentralized information on quality differences between providers and whether payer’s and patients’ preferences are aligned.

March 23, 2015 | Permalink | Comments (0) | TrackBack (0)

Areeda-Turner in Two-Sided Markets

Stefan Behringer (Universitat Duisburg-Essen) and Lapo Filistrucchi (Tilburg) discuss Areeda-Turner in Two-Sided Markets.

ABSTRACT: Areeda and Turner (1975) were the first to argue that a price below marginal costs should be considered a sign of predation. Recognizing that marginal cost data were typically unavailable, the authors concluded that a price below average variable cost should be presumed unlawful. This so called Areeda-Turner Rule has become the standard to assess claims of predation. We first show that in two-sided markets price cost margins on the two-sides of the market are interrelated and that a monopolist, even in the absence of actual or potential competition, may find it optimal to charge a price below marginal cost on one s! ide of the market. As a result, showing that the price is below average variable cost on one side of the market cannot be considered a sign of predation in such markets. This is in contrast to a recent decision of the Commercial Court of Paris that sanctioned Google for giving away for free its online mapping services. We thus extend the Areeda-Turner rule to two-sided markets. We argue that one should apply the rule by taking into account revenues and costs from both sides of the market. As applications, we analyse three alleged cases of predatory behaviour in the market for daily newspapers. Our examples highlight that applying a one-sided Areeda-Turner rule may lead to assess a perfectly legitimate profit maximizing pricing policy as a predatory attempt.

March 23, 2015 | Permalink | Comments (0) | TrackBack (0)

CRESSE 10th Conference from 3-5 July 2015 in Rethimnon, Crete

The 10th CRESSE Conference is organized from 3-5 July 2015 in Rethimnon in island of Crete.

Confirmed speakers include Jean Tirole, Ariel Pakes (the two Keynote), Joe Harrington, Patrick Rey, Mark Ivaldi, Ralph Winter, Nancy Gallini, Tom Ross, Fiona Scott Morton, Gianca Spangolo, Jacques Cremer, Patrick Legros, Kai Uwe Kuhn, Frederic Jenny, Yossi Spiegel, Frank Verboven, Volker Nocke (TBC), Tommaso Valetti, Jorge Padilla, Massimo Motta, Joshua Gans, Marcel Boyer, Guilio Federico, Frank Maier Rigaud, Cristina Caffara, Juan Pablo Montero and Julian Wright.

 

Please see the link to the pdf for more details.

 

Download Summer School and Conference Synopsis 2015

 

CRESSE Lawyers Week

Sunday, July 5th – Friday, July 10th 2015

The Role of Economics in Competition Law and Practice

Download Lawyers Week Synopsis 2015

 

 

March 23, 2015 | Permalink | Comments (0) | TrackBack (0)

European champions and competition enforcement:Is DG COMP in ideological denial?

Damien Neven (IHEID, The Graduate Institute of International and Development Studies, Geneva), Vilen Lipatov and Gregor Langus have an interesting paper on European champions and competition enforcement: Is DG COMP in ideological denial?

ABSTRACT: In the wake of the Alstom restructuring, the French government indicated that current merger control rules do not allow for the development of European champions and called for a change in the rules. This paper argues that such a move may be not be advisable but that enforcement of the current rules should be improved, in particular regarding the assessment of efficiencies and the delineation of the wider public policy considerations that Member States can appeal to in exercising their own control. With respect to efficiencies, the Commission’s practice exacerbates the inherent bias of its consumer harm standard against the development of more efficient firms. The identification of transactions that are likely to harm consumers requires the evaluation of the magnitude and likelihood of efficiencies with respect to a benchmark that is case specific. However, a review of the Commission practice suggests (i) that it has failed to develop a constructive standard for the evaluation of efficiencies, (ii) that the standard of proof that it applies to efficiencies is high and misguided with respect to the extent of pass-through, (ii) that the magnitude of efficiencies is often not assessed in relation to the potential harm and (iii) that a discrete threshold is often applied with respect to the likelihood of efficiencies. An improvement in the assessment of efficiencies along these dimensions would improve enforcement under the existing standard, making it less inimical to the development of efficient firms and would thereby also enhance its political acceptability in relation to the recurring debates on national champions. With respect to the additional oversight over transactions that Member States can exercise, the paper finds that the operation of the merger control framework would be improved if the Commission would pro-actively clarify the wider public policy considerations that can be brought to bear on the transactions under Art 21(4) and impose some transparency requirements on member states that elect to appeal to these public policy grounds to impose additional remedies. The paper also offers some guiding principles for the delineation of these policy grounds.

March 23, 2015 | Permalink | Comments (0) | TrackBack (0)

Lower Sanctions, Greater Antitrust Compliance? Cartel Conduct with Imperfect Information about Enforcement Risk

Johannes Paha (University of Giessen) asks Lower Sanctions, Greater Antitrust Compliance? Cartel Conduct with Imperfect Information about Enforcement Risk.

ABSTRACT: This article provides a model of two risk-neutral firms that may cooperate to achieve a goal that is potentially illegal. The model assumes enforcement risk and firms that are imperfectly informed about antitrust law enforcement. It is shown that compliance training, which educates the agents about law enforcement, may prevent hardcore cartels. Compliance training programs may also promote forms of cooperation that are beneficial for customers. The article shows that a competition authority can sometimes spur the implementation of compliance programs by imposing lower sanctions on wrongdoers.

March 23, 2015 | Permalink | Comments (0) | TrackBack (0)

Friday, March 20, 2015

CPI Antitrust Chronicle Issue: Antitrust and the Patent Wars, Part 1

In our next two issues, compiled with Danny Sokol's guidance, we're diving into the murky waters of patents. We're asking how to balance the need to protect competition with the desire to encourage innovation, and, in an obviously related question, how to compensate for others to use that innovation. Recent events have underscored the continuing turmoil in the field—the Ericsson and Qualcomm decisions; intensified discussion on royalties, including asking whether royalty stacking even exists; the Recent FTC IEEE letter; and others.

And do any conclusions stand out? For one, we couldn't give all these issues sufficient attention in just one issue, so this will be part one of a two-part colloquium. But also, if you're involved in antitrust today, this is a field you really need to understand. And reading these papers will move you a long way down that road.

Antitrust and Patent Issues, Part 1
  1. Alden Abbott, Mar 16, 2015

    Standard Setting, Patents, and Competition Law Enforcement—The Need for U.S. Policy Reform

    Recent FTC and DOJ actions related to standard setting promote dubious enforcement theories and favor technology implementers over innovator patentees, to the detriment of dynamic competition and innovation. Alden F. Abbott (Heritage Foundation)

    Tags:
  2. Stuart Chemtob, Mar 16, 2015

    Carte Blanche for SSOs? The Antitrust Division’s Business Review Letter on the IEEE’s Patent Policy Update

    The DOJ’s devaluing of concerns about harm to innovation incentives has serious implications that will affect the choices made by other SSOs, as well as enforcement policies of foreign competition authorities looking to U.S. antitrust law for guidance. Stuart M. Chemtob (Wilson, Sonsini)

    Tags:
  3. Sean Gates, Mar 16, 2015

    Defining “Reasonable” in RAND: A Bit of Common Sense

    Those debating what “reasonable” means in RAND have crafted intricate and complex arguments on both sides. Sean Gates (Morrison & Foerster)

    Tags:
  4. Joseph Kattan, Mar 16, 2015

    The Next FRAND Battle: Why the Royalty Base Matters

    Based on this evidence, it concludes that the choice of the royalty base affects the royalty size. Joseph Kattan, PC (Gibson, Dunn & Crutcher)

    Tags:
  5. Richard Stark, Mar 16, 2015

    The Royalty Stacking Supposition

    Has the possibility of royalty stacking manifested itself as a real-world problem? Richard J. Stark (Cravath, Swaine & Moore)

    Tags:
  6. Dina Kallay, Mar 16, 2015

    F/RANDly Judicial Advice to the Rescue: Ericsson v. D-Link

    The CAFC formulation for determining the RAND value of standard-essential patents is different from the FTC formulation of the same. Dina Kallay (Ericsson)

    Tags:
  7. Anne Layne-Farrar, Koren Wong-Ervin, Mar 16, 2015

    An Analysis of the Federal Circuit’s Decision in Ericsson v. D-Link

    Given that the Federal Circuit is often the last word on patent issues, the court’s Ericsson decision provides important guidance to lower courts on how to determine RAND royalty rates. Anne Layne-Farrar (CRA) & Koren W. Wong-Ervin (FTC)

    Tags:
  8. Yoonhee Kim, Hui Jin Yang, Mar 16, 2015

    A Brief Overview of Qualcomm v. Korea Fair Trade Commission

    The KFTC’s enforcement action against Qualcomm should create little surprise. Yoonhee Kim & Hui-Jin Yang

    Tags:

March 20, 2015 | Permalink | Comments (0) | TrackBack (0)

Horizontal mergers in the presence of vertical relationships

Arghya Ghosh, UNSW, Hodaka Morita, UNSW and Chengsi Wang, Mannheim explore Horizontal mergers in the presence of vertical relationships.

ABSTRACT: We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from cost-inefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

March 20, 2015 | Permalink | Comments (0) | TrackBack (0)

Price Dynamics with Customer Markets

Luigi Paciello, Andrea Pozzi, Nicholas Trachter explain Price Dynamics with Customer Markets.

ABSTRACT: We study a model of firm price setting with customer markets and empirically evaluate its predictions. Our framework captures the dynamics of customers in response to a change in the price set by firms, describes the behavior of optimal prices in the presence of customer retention concerns, and delivers a general equilibrium model of price and customer dynamics. We exploit micro data on purchases from a large U.S. retailer by a panel of households to quantify the model and compare it to the counterfactual benchmark of the monopolistic competition setting. We show that our model with customer markets has markedly dierent implications in terms of the equilibrium price distribution, and better fits the available empirical evi! dence on retail prices. Moreover, the dynamic of the response of demand to policy relevant shocks is also distinctive. Our results suggest that inertia in customer reallocation across firms increases the persistence in the response of firms' demand to these shocks.

March 20, 2015 | Permalink | Comments (0) | TrackBack (0)

Quality differentiation and entry choice between online and offline markets

Yijuan Chen, Australian National University, Xiangting Hu, Renmin University of China, and Sanxi Li, Renmin University of China offer Quality differentiation and entry choice between online and offline markets.

ABSTRACT: We study a model where an entrant chooses between online and offline markets to compete with an offline-market incumbent. When consumers buy a product from the online market, they cannot inspect the product's quality prior to purchase. Conventional wisdom and some literature suggest that this feature drives low-quality products to hide themselves in the online market. However, the literature on vertical product differentiation indicates that a firm may prefer to reveal its product quality in the offline market, because quality differentiation helps alleviate price competition. We show that under fairly general conditions the entrant will choose the offline market for not only the highest qualities but also the lowest ones, and! choose the online market for intermediate qualities. While the average quality of the online good is lower than the incumbent's quality, the actual quality of the online good may be higher than that.

March 20, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2015

Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare

Hinnerk Gnutzmann (Universita Cattolica del Sacro Cuore) has researched Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare.

ABSTRACT: Price discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare effects { even though prices and industry profits fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric firms yielded sharply different results, the pro{competitive effect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare.

March 19, 2015 | Permalink | Comments (0) | TrackBack (0)

Horizontal Mergers and Product Quality

Kurt Richard Brekke, Luigi Siciliani, and Odd Rune Straume analyze Horizontal Mergers and Product Quality.

Abstract: Using a spatial competition framework with three ex ante identical firms, we study the effects of a horizontal merger on quality, price and welfare. The merging firms always reduce quality. They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger leads to higher average prices and quality in the market. The welfare implications of a merger are not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit from the merger and social welfare might also increase.

March 19, 2015 | Permalink | Comments (0) | TrackBack (0)

Quality competition and entry deterrence: When to launch an extra brand

Stephan Muller (Gottingen University) and Georg Gotz (Justus-Liebig-University Giessen) DISCUSS Quality competition and entry deterrence: When to launch an extra brand.

ABSTRACT: In this paper, we study the rational for an incumbent to launch a second brand when facing potential entry in a market with quality differentiated products and a fringe producer. Depending on market size, costs for a second brand and a potential entrant’s setup cost the incumbent might use a second brand both when deterring and when accommodating entry. The analysis generates predictions about the equilibrium degree of product differentiation, the presence of a multiproduct incumbent, and the determinants of successful entry.

March 19, 2015 | Permalink | Comments (0) | TrackBack (0)

WHAT DETERMINES FIRMS' CHOICES BETWEEN EX ANTE AND EX POST LICENSING AGREEMENTS?

Ralph Siebert, Purdue University has written on WHAT DETERMINES FIRMS' CHOICES BETWEEN EX ANTE AND EX POST LICENSING AGREEMENTS?

ABSTRACT: I investigate whether licensing agreements are an appropriate tool for firms to resolve blocking and hold-up problems in high-tech industries. I use a novel and comprehensive database on licensing agreements as well as detailed firm-level information on revenues and patents in the semiconductor industry from 1989 to 1999. It would be interesting to evaluate the post-1999 time period, but data constraints prevent me from doing so. I estimate a bivariate probit model accounting for endogenous selection. I find that different types of licensing agreements, that is, ex ante and ex post licensing agreements, help firms eventually resolve realized blocking. Firms engage in licensing before inventing a new technology (ex ante licensing) if they believe competitors hold patents that can potentially block the commercialization of their technology. In contrast, firms engage in licensing after inventing the technology (ex post licensing) if other firms hold patents that block the commercialization of the technology. The estimation results also show that firms' activity in technology and product markets plays an important role in explaining choices between ex ante and ex post licensing agreements. It should be kept in mind that the semiconductor industry is high paced and the data patterns might have changed after 1999.

March 19, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 18, 2015

Competition for Antitrust: The National Civic Federation and the Founding of the FTC

Peter J. Boettke, George Mason University - Department of Economics, Thomas K. Duncan, Radford University - Department of Economics, and Nicholas A. Snow, Ohio State University (OSU); George Mason University - Department of Economics explore Competition for Antitrust: The National Civic Federation and the Founding of the FTC.

ABSTRACT: Regulation by the state can benefit or harm any business in society. While the market provides for consumers rather than special interests, rationally acting interests will be incentivized to use political means to capture rents, particularly if public clamor for regulation exists. The formation of the Federal Trade Commission, rather than providing a check on business interests, follows the pattern of regulatory capture. The National Civic Federation, a group with strong business interest ties, was crucial to ensuring this outcome at the commission’s founding.

March 18, 2015 | Permalink | Comments (0) | TrackBack (0)

The leniency programme: obstacles on the way to collude

Joan-Ramon Borrell, Universitat de Barcelona, Juan Luis Jimenez, Universidad de Las Palmas de Gran Canaria, and Jose Manuel Ordonez-de-Haro, Universidad de Malaga, describe The leniency programme: obstacles on the way to collude.

ABSTRACT: There is no honour among thieves. This aphorism concisely expresses why the leniency programmes in competition policy have become one of the most effective instruments in the fight against the cartels. In this work we describe the dissemination, evolution, and effects of the aforementioned programmes in the two decades since its implementation around the world, paying special attention to what is being done at the European Union level and in Spain. The empirical regularities obtained from the descriptive analysis of leniency decisions adopted by the European Commission and by the Spanish Competition Authority provide relevant information about the effectiveness of their corresponding programmes, as well as information about the underlying reasons why companies, in this context, submit applications for sanction exemption or reductions in the penalty amount. We conclude that still there is scope to increase substantially the dissemination and implementation of the leniency programme in Spain, and if the reforms are handled correctly, the programme is set to catch up and to be the main source of detecting and sanctioning of Spanish cartels in the next decade.

March 18, 2015 | Permalink | Comments (0) | TrackBack (0)

The public interest test in the South African merger control regime

Mark Griffiths (Norton Rose) and Wiri Gumbie (Barclays) explore The public interest test in the South African merger control regime.

ABSTRACT:   The public interest test in the South African merger control regime plays a fundamentally different role to the type of public interest defence typically seen in other jurisdictions. Not only can the public interest test resurrect a merger that would harm competition, it can also prohibit a merger even if it does not have an anti-competitive effect. The public interest test in the South African merger control regime has attracted much criticism since the high-profile Wal-Mart merger. While the public interest test has always been applied, the South African competition authorities were initially somewhat cautious in their application. The article probes whether the public interest test continues to assume an increasingly important role in the application of the Competition Act 89 of 1998, as amended. It also examines the potential justification that an expansive application of the public interest test is necessary in developing economies. The article argues that, irrespective of the merits of this justification, the public interest test should not be used as a means of regulatory opportunism or a means to absolve the South African competition authorities from fulfilling their responsibility to provide transparency and certainty in the South African merger control regime.

March 18, 2015 | Permalink | Comments (0) | TrackBack (0)