Monday, June 29, 2015
Flavio Delbono, University of Bologna Luca Lambertini, University of Bologna are Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly.
ABSTRACT: We show that the standard argument according to which supply function equilibria rank intermediate between Bertrand and Cournot equilibria may be reversed. We prove this result within a static oligopolistic game in which both supply function competition and Cournot competition yield a unique Nash equilibrium, whereas price setting yields a continuum of Nash equilibria. There are parameter regions in which Bertrand profits are higher than Cournot ones, with the latter being higher than in the supply function equilibrium. Such reversal of the typical ranking occurs when price-setting mimics collusion. We then show that the reversal in profits is responsible for a reversal in the welfare performance of the industry.
Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US
John M. Clapp (University of Connecticut); Stephen L. Ross (University of Connecticut); and Tingyu Zhou (Concordia University) have written on Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US.
ABSTRACT: From the perspective of an existing retailer, the optimal size of a cluster of retail activity represents a trade-off between the marginal increases in consumer attraction from another store against the depletion of the customer base caused by an additional competitor. We estimate opening and closing probabilities of multi-line department stores (“anchors”) as a function of pre-existing anchors by type of anchor store (low-priced, mid-priced or high-priced) using a bias corrected probit model with county and year fixed effects. We find strong negative competitive effects of an additional same type but no effect on openings of anchors of another type.
Gilad Sorek, Auburn University examines Health Insurance and Competition in Health Care Markets.
ABSTRACT: I study duopolistic market for differentiated medical products. Medical providers decide whether to sell on the spot market to sick consumers or to sell through competitive insurance market to healthy consumers. While shopping for insurance consumers know only the distribution of possible medical needs they may have if they get sick. Only when getting sick their actual medical need reveals and diagnosed. Hence consumers on the insurance market have lower taste differentiation than the sick consumers who are shopping on the spot market. I find that in equilibrium providers sell only on the insurance market, even though this intensifies competition because of lower taste differentiation. Competition between providers under insurance sales brings premiums low enough to motivate consumers buying insurance for both products. Insurance sales generate efficient horizontal product differentiation, lower prices, and efficiently higher quality.
Saturday, June 27, 2015
I am blogging from the annual Oxford Antitrust Enforcement Symposium. Commissioner Ohlhausen just gave a brilliant talk on antitrust and industrial policy. Yesterday she spoke at Kings College in London where her speech on antitrust and data privacy was equally spectacular (carefully analyzing the limits of both antitrust and data privacy law). Hopefully bopth speeches will be in the FTC website soon.
Friday, June 26, 2015
Broos, Sebastien (Universite de Liege, HEC Management School, Belgium) and Gautier, Axel (Universite catholique de Louvain, CORE, Belgium) analyze Competing one-way essential complements: the forgotten side of net neutrality.
ABSTRACT: We analyze the incentives of internet service providers (ISPs) to break net neutrality by excluding internet applications competing with their own products, a typical example being the exclusion of VoIP applications by telecom companies offering internet and voice services. Exclusion is not a concern when the ISP is a monopoly because it can extract the additional surplus created by the application through price rebalancing. When ISPs compete, it could lead to a fragmented internet where only one firm offers the application. We show that, both in monopoly and duopoly, prohibiting the exclusion of the app and surcharges for its use as a strong form of net neutrality‚is not welfare improving.
A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand
Dhouha DRIDI, Manouba University and Slim BEN YOUSSEF and ESC de Tunis offer A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand.
ABSTRACT: In this paper, we develop a game theoretic model for cooperative advertising in a supply chain consisting of a monopolistic manufacturer selling its product to the consumer only through competing duopolistic retailers. We consider a new form of the demand function which is an additive form. The demand is influenced by both retail price and advertising expenditures. To identify optimal advertising and pricing decisions, we discuss three possible games (two non cooperative games including Stackelberg-Cournot and Stackelberg-Collusion, and one cooperative game) and then we compare the various decision variables and the profits for all cases and also with similar results of the existing literature to develop some important insights.
Yongmin Chen (Coloroado) Jianpei Li (UIBE) theorize on Bundled procurement.
ABSTRACT: When procuring multiple products from competing firms, a buyer may choose separate purchase, pure bundling, or mixed bundling. We show that pure bundling will generate higher buyer surplus than both separate purchase and mixed bundling, provided that trade for each good is likely to be efficient. Pure bundling is superior because it intensifies the competition between firms by reducing their cost asymmetry. Mixed bundling is inferior because it allows firms to coordinate to the high prices associated with separate purchase. (Pure) bundling is more likely to be selected as a procurement strategy when: (i) the products' values are higher relative to their possible costs, (ii) costs for different goods are more negatively or less positively dependent, or (iii) the cost distribution of each product is more dispersed.
Thursday, June 25, 2015
Discovering the Miracle of Large Numbers of Antitrust Investigations in Russia: The Role of Competition Authority Incentives
Svetlana Avdasheva (National Research University Higher School of Economics); Dina Tsytsulina (National Research University Higher School of Economics); Svetlana Golovanova (National Research University Higher School of Economics); and Yelena Sidorova (National Research University Higher School of Economics) are Discovering the Miracle of Large Numbers of Antitrust Investigations in Russia: The Role of Competition Authority Incentives.
ABSTRACT: Many antitrust investigations in Russia continue to present a challenge for the assessment of competition policy and international enforcement ratings. On the one hand, many infringement decisions may be interpreted as an indicator of high enforcement efforts in the context of rigid competition restrictions and the significant related harm to social welfare. On the other hand, many investigations proceed under poor legal and economic standards; therefore, the impact of decisions and remedies on competition is questionable. In fact, large number of investigations may indicate the ineffectiveness of antitrust enforcement. The article explains the possible effects of antitrust enforcement in Russia. Using a unique dataset of the appeals of infringement decisions from 2008-2012, we classify the investigated cases according to their potential impact on competition. A case-level analysis reveals that the majority of cases would never be investigated under an appropriate understanding of the goals of antitrust enforcement, restrictions on competition and basic cost-benefit assessments of agency activity. There are diverse explanations for the distorted structure of enforcement, including the incompleteness and imperfection of sector-specific regulations, rules concerning citizen complaints against the executive authorities and the incentives of competition authorities. Our analysis shows that competition agencies tend to pay more attention to the investigation of cases, which requires less input and, at the same time, results in infringement decisions with a lower probability of being annulled
Competition Law Scholars Forum (CLaSF) - “Competition Law Public Enforcement Across the EU” 10 September 2015
The Competition Law Scholars Forum (CLaSF) and
LUMSA University, Roma – Law School, Workshop (sponsored by Cleary Gottlieb Steen and Hamilton)
“Competition Law Public Enforcement Across the EU”
At LUMSA Law School, Via Pompeo Magno, Roma on Thursday 10 September 2015
9.20: Introduction: Prof Barry Rodger (CLaSF), Dr Roberto Cisotta (LUMSA)
9.30-11.00 Co-operation and Enforcement Networks:- Marta Ottanelli, Institute for European Studies, Vrije Universiteit, Brussels, ‘Cooperation between National competition authorities and National Regulatory Authorities- Issues of Network Interaction’; Xingyu Yan, PHD researcher, University of Groningen, ‘Institutional Dynamics in antitrust Case Allocation: A comparative analysis of the EU and China’; Fabian Luetz, PHD researcher, University of Hagen, ‘Nudging Competition Authorities- why behavioural economics should be the public enforcement’s best friend in Europe’.
11.00-11.30 Coffee break
11.30-1.15 Comparative Aspects of Public Enforcement:-
Part 1- General
Dr Jurgita Malinauskaite, ‘Brunel University, ‘Public EU competition law enforcement in small member States: past, current and future challenges’; Dr Alexander Svetlicinii, Asst Prof, University of Vienna and Dr Maciej Bernatt, Asst. Prof., University of Warsaw, ‘The assessment of the Effect in trade by the National Competition Authorities of the “New” EU Member States: Another Legal Partition of the Internal Market?’;
Part 2- Fines
Francisco Marcos, IE Law School, Madrid, Patricia Pérez Fernández, Cleary Gottlieb Steen & Hamilton LLP, Brussels, ‘A ‘Deutsch-spanisches’ dilemma: how fines for violations of competition laws should be calculated?’; Dr Mary Catherine Lucey, UCD, Dublin, ‘Convergent fining powers: Still only a pipe dream for the NCA in Ireland?’
2.45- 4.15 Review of Public Enforcement Decision-Making:- Evi Mattioli, Advocaat, CMS ‘The judicial review paradox in a new enforcement culture: still a fundamental necessity or ‘too much of a good thing’?’; Dr Maciej Bernatt, Asst. Prof, University of Warsaw, ’Judicial review in EU Competition Law: Anything to Learn from US?’; Dr Arianna Andreangeli, Edinburgh University, ‘EU public enforcement of competition law and the accession to the ECHR: unfinished business or testing ground?’
4.15-4.30 Coffee Break
4.30- 5.30 Leniency and Enforcement:- Prof Miguel Sousa Ferro, University of Lisbon Law School and Evelyne Ameye, Evelyne Ameye Legal Services, ‘Leniency in the Iberian Peninsula: Two worlds Apart’; Lena Boucon, PHD researcher, EUI, ‘The Impact of Directive 2014/104/EU on EU national leniency programs analysed from a comparative analysis perspective: creation of uncertainty, deterrence or complementarity?’
5.30-5.45 Overview by Mario Siragusa, Cleary Gottlieb Steen and Hamilton, Rome, Brussels - College of Europe
5.45 Closing remarks, followed by post-workshop drinks and dinner
GAUTIER, Axel (Université catholique de Louvain, CORE, Belgium) and PETIT, Nicolas (University of Liege) discuss Optimal enforcement of competition policy: the commitments procedure under uncertainty.
ABSTRACT: Since the introduction of a formal commitments procedure in EU antitrust policy (Article 9 of Council Regulation 1/2003), the European Commission has extensively settled cases of alleged anticompetitive practices. In this paper, we use a formal model of law enforcement (Bebchuk, 1984; Shavell, 1988) to identify the optimal procedure to resolve cases in a context of uncertainty related to the law (L-uncertainty) and to the facts (F-uncertainty). We show that commitments are suboptimal when L-uncertainty is important. Furthermore, the generalized use of commitments creates an additional risk of under-enforcement when F-uncertainty is significant.
Zhiqi Chen (Department of Economics, Carleton University); Subhadip Ghosh (Grant MacEwan University); and Thomas W. Ross (Sauder School of Business, University of British Columbia) explore Denying Leniency to Cartel Instigators: Costs and Benefits.
ABSTRACT: A large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price-fixers. This paper studies a feature of some of these programs that has received relatively little attention in the literature: the inclusion of “No Immunity for Instigators Clauses” (NIICs). These provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders. Our results show that NIICs can lead to increased or decreased levels of cartel conduct. By removing the instigator’s benefit from cooperating with the authorities, a NIIC undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability. On the other hand, the instigator faces an asymmetrically severe punishment under a NIIC and this can reduce the incentive to instigate in! the first place.
CRESSE 2015 10th International Conference on Competition and Regulation Rethymnon, Greece 3-5 July 2015
The conference program for the annual amazing program is here.
Advances in the Analysis of Competition Policy and Regulation
2015 CONFERENCE COMPETITION POLICY LECTURE
Professor JEAN TIROLE
(Toulouse School of Economics)
J J LAFFONT LECTURE
Professor ARIEL PAKES
ABSTRACT: This paper empirically investigates high-tech firms' decisions to relocate manufacturing plants to low-cost countries. Computers and electronics have undergone sector-wide offshoring and typically feature an oligopolistic market structure, in which firms' profits depend on their own and rivals' costs. To incorporate the endogenous evolution of offshoring incentives and market structure, I model and estimate a dynamic offshoring game with entry/exit, using unique data on hard disk drive (HDD) manufacturers. The results suggest that due to competitive pressure, the incentives to offshore increase as more rivals offshore. I then assess the welfare impacts of government interventions and find that (1) offshoring is pro-competitive, (2) discouraging offshoring would risk the survival of domestic firms, and (3) governments in Nash equilibrium would engage in either a subsidy race to drive out foreign firms, or free-riding on foreign firms' offshoring efforts, depending on policy objectives.
Wednesday, June 24, 2015
Antoine Pietri (University Paris 1, CES), Tarik Tazdait (CNRS, EHESS, CIRED), and Mehrdad Vahabi (University Paris 8, CES) discuss Empire-building and Price Competition.
This paper examines the relevance of price competition in the protection market in order to explain the different modes of empire-building. Our approach unravels the economic rationale of merchant empires which is not explicable with existing theoretical frameworks systematically eluding price competition. Our main contribution is to introduce a distinction between two different types of rent, namely an ‘absolute’ and a ‘differential’ one. Absolute protection rent (AR) corresponds to rents extracted by sellers of protection (empires) using threats and coercion. In contrast, differential protection rent (DR) stands for economic advantages conferred on subjects of an empire. The choice of the territorial expansion rule (AR-maximizing or DR-maximizing) depends on the nature of the protection market which is influenced by the assets structure detaining by the buyers of protection. In this paper, we build a general framework consistent with historical ! evidence in which coercive rivalry appears to be one case of empire-building among others (including price competition).
d’ASPREMONT, Claude (CORE, Universite Catholique de Louvain); DOS SANTOS FERRERIA, Rodolphe (BETA, Universite de Strasbourg, France, and FCEE, Universidade Cataolica Portuguesa) ask Oligopolistic vs. monopolistic competition: do intersectoral effects matter?
ABSTRACT: Recent extensions of the standard Dixit-Stiglitz (1977) model, that go beyond the CES sub-utility assumption, while maintaining monopolistic competition, have mainly emphasized the role of iintrasectoral substitutability. We argue that introducing oligopolistic competition can be an alternative extension, still tractable, allowing to restore the role of intersectoral substitutability and reinforcing the general equilibrium dimension of the model. For this purpose, we use the concept of oligopolistic equilibrium and derive a comprehensive formula to characterize the set of potential equilibria with varying competitive toughness. For two particular competitive regimes, price competition and quantity competition, we show how, with strategic interactions, procompetitive or anti-competitive effects now depend on the elasticity of intersectoral substitution as compared to the elasticity of intrasectoral substitution.
Lunchtime Lecture by Maureen K. Ohlhausen at the Centre of European Law, The Dickson Poon School of Law, King's College London
PARENTI, Mathieu (Universite catholique de Louvain, CORE, Belgium; NRU-Higher School of Economics, Russia) ; USHCHEV, Philip (NRU-Higher School of Economics, Russia) ; THISSE, Jacques-François (Universite catholique de Louvain, CORE, Belgium; NRU-Higher School of Economics, Russia; CEPR) move thinking Toward a theory of monopolistic competition.
ABSTRACT: We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern, which depends on both the per capita consumption and the total mass of varieties. We impose intuitive conditions on this function to guarantee the existence and uniqueness of a free-entry equilibrium. Comparative statics with respect to population size, GDP per capita and productivity shock are characterized through necessary and sufficient conditions. Finally, we show how our approach can be generalized to the case of a multisector economy and extended to cope with heterogeneous firms and consumers.
Francis O. Scarpulla, The Scarpulla Law Firm and Qianwei Fu, Zelle Hofmann Voelbel & Mason LLP. are Thinking globally about recovery actions in international cartel cases.
ABSTRACT: This article examines the legal and practical challenges that corporate claimants face in pursuing damages actions against international price-fixing cartels. It discusses the complex jurisdiction, choice-of-law, and related procedural issues central to corporate claimants’ litigation strategy in maximizing global recovery, with a focus on the relevant legal frameworks in the USA and Europe. The article also identifies trends in settlement and arbitration as potential alternatives to litigating damages claims in multiple national courts. The objective of this article is to provide productive inputs for corporate claimants to conduct a fair assessment of cross-jurisdictional claims in linked global cartel cases. In practice, corporate claimants should carefully weigh their recovery options with these complex issues in mind.
Tuesday, June 23, 2015
The Supreme Court decision in Kimble v Marvel came out yesterday. The Court suggested that in antitrust cases, stare decisis has limits in antitrust and that we should see a change in doctrine as we have a better understanding of economics to guide us for better case law. What are those areas most in need (based on how bad the underlying "good" case law is) of reform? I provide my top three terrible decisions previously endorsed by the Supreme Court:
1. criminal application of Robinson Patman
2. merger efficiencies are unlawful
3. tying is per se illegal
I open it up to readers to add their thoughts on bad antitrust doctrines and decisions. Please note that unless you use your real name, I am not posting your comment (this means you Dan Crane - aka, the "Wolverine Avenger").