Antitrust & Competition Policy Blog

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

Thursday, February 16, 2017

'Telephone terrorism' has rattled 48 Jewish centers. Is anyone paying attention?

This story is alarming - CNN reports 'Telephone terrorism' has rattled 48 Jewish centers. Is anyone paying attention?

Of note was the following stat:

In 2014 and 2015 the FBI tallied more than 1,270 hate crime incidents targeting Jews, far more than any other religious groups, and some Jewish leaders say the situation is getting worse.

 

February 16, 2017 | Permalink | Comments (0)

Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach

Lopez, Rigoberto A. (University of Connecticut) ; Zheng, Hualu (University of Connecticut) and Azzam, Azzeddine (University of Nebraska-Lincoln) discuss Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach.

ABSTRACT: This study estimates mark-ups and oligopoly power for U.S. food industries using a stochastic frontier (SF; Kumbhakar, Baardsen and Lien, 2012; Baraigi and Azzam, 2014) approach, where mark-ups are treated as systematic deviations from a marginal cost pricing frontier. We apply the analysis to 36 U.S. food industries using NBER-CES Manufacturing Industry Database (2014), which covers a span of 31 years from 1979 to 2009. Empirical results show that all the food industries in the sample exercise at least some degree of oligopoly power, but most in a moderate manner. The estimated mean Lerner index is approximately 0.06, generally much lower than obtained using the conventional NEIO approaches. The SF model used provides a novel and promising framework to test and measure the degree of market power in agricultural and food markets.

February 16, 2017 | Permalink | Comments (0)

Wednesday, February 15, 2017

Rockets and feathers: Asymmetric pricing and consumer search - Evidence from electricity retailing

Sven Heim examines Rockets and feathers: Asymmetric pricing and consumer search - Evidence from electricity retailing.

ABSTRACT: Recent theories suggest that consumers' search efforts are a function of prices and prices changes, respectively. This may help to explain the 'rockets and feathers' phenomenon often assigned to collusion - prices rise like rockets when costs increase and fall like feathers when costs decrease. This paper empirically investigates the relation between cost pass-through and consumer search intensity for the German electricity retail market utilizing a unique panel dataset on retail electricity prices and consumer search intensity at online comparison sites for retail electricity, both at the zip code level. The main findings are 1) consumers search non-linear with regard to prices and price changes. They search more when prices are high and they decrease search efforts substantially when prices fall but only increase search efforts slightly when prices rise, 2) costs are passed-through asymmetrically with positive cost shocks causing higher pass-through rates than cost decreases and 3) search intensity significantly impacts price adjustments and controlling for search intensity eliminates large parts of the asymmetry. I compare this finding with a counterfactual - the entrants - where all consumers are fully informed. In this case consumer search does not affect cost pass-through.

February 15, 2017 | Permalink | Comments (0)

Patent Disclosures and Standard-Setting

Josh Lerner; Haris Tabakovic and Jean Tirole work on Patent Disclosures and Standard-Setting.

ABSTRACT: A key role of standard setting organizations (SSOs) is to aggregate information on relevant intellectual property (IP) claims before deciding on a standard. This article explores the firms’ strategies in response to IP disclosure requirements—in particular, the choice between specific and generic disclosures of IP—and the optimal response by SSOs, including the royalty rate setting. We show that firms with a stronger downstream presence are more likely to opt for a generic disclosure, as are those with lower quality patents. We empirically examine patent disclosures made to seven large SSOs, and find results consistent with theoretical predictions.

February 15, 2017 | Permalink | Comments (0)

Non-comparative and comparative advertising in oligopolistic markets

Alipranti, Maria ; Mitrokostas, Evangelos ; Petrakis, Emmanuel study Non-comparative and comparative advertising in oligopolistic markets.

ABSTRACT: We study firms' advertising strategies in an oligopolistic market in which both non-comparative and comparative advertising are present. We show that in equilibrium firms mix over the two types of advertising, with the intensity of comparative advertising exceeding that of non-comparative advertising; moreover, that the intensity of comparative increases relatively to non-comparative advertising as market competition intensifies. Interestingly, the use of comparative advertising may lead to higher consumers' surplus and welfare in a mixed advertising market than in the absence of advertising or when either comparative or non-comparative advertising is not present.

February 15, 2017 | Permalink | Comments (0)

Information acquisition, signaling and learning in duopoly

Thomas D. Jeitschko, Ting Liu and Tao Wang have written on Information acquisition, signaling and learning in duopoly.

ABSTRACT: We study firms' incentives to acquire private information in a setting where subsequent competition leads to firms' later signaling their private information to rivals. Due to signaling, equilibrium prices are distorted, and so while firms benefit from obtaining more precise private information, the value of information is reduced by the price distortion. Thus, compared with firms that do not attempt to manipulate rivals' beliefs, signaling firms acquire less precise information. An industry-wide trade-association acquiring information increases firm profit and may also increase consumer surplus, so allowing such collective action may be in the interest of regulatory authorities.

February 15, 2017 | Permalink | Comments (0)

Tuesday, February 14, 2017

Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets

Vicente Lagos, Telecom ParisTech examines the Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets.

ABSTRACT: The aim of this paper is to quantify the impact on retail prices of the Shell-Terpel merger in the Chilean gasoline market, and to evaluate the effectiveness of gas stations’ divestitures in highly concentrated locations as a tool to mitigate an eventual raise in prices. The identification strategy relies on the fact that a merger between two national retail networks should be independent of previous characteristics of different local markets. Results show a modest but significant increase in margins of gas stations geographically impacted by the merger. The divestitures were effective in mitigating this anticompetitive effect, but only for retail outlets closely located to divested stations, i.e., within a 2 Km. radius. Notably, these effects are symmetric for both merging and non-merging parties. Moreover, the evidence suggests that divested gas stations that use an alternative brand (different from Terpel) set significantly lower prices on average. Finally, the presence of unbranded gas stations and/or small alternative brands within a 1 Km. radius seems to be enough in order to offset the price increase generated by the merger in these specific locations.

 

February 14, 2017 | Permalink | Comments (0)

Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets

Vicente Lagos, Telecom ParisTech examines the Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets.

ABSTRACT: The aim of this paper is to quantify the impact on retail prices of the Shell-Terpel merger in the Chilean gasoline market, and to evaluate the effectiveness of gas stations’ divestitures in highly concentrated locations as a tool to mitigate an eventual raise in prices. The identification strategy relies on the fact that a merger between two national retail networks should be independent of previous characteristics of different local markets. Results show a modest but significant increase in margins of gas stations geographically impacted by the merger. The divestitures were effective in mitigating this anticompetitive effect, but only for retail outlets closely located to divested stations, i.e., within a 2 Km. radius. Notably, these effects are symmetric for both merging and non-merging parties. Moreover, the evidence suggests that divested gas stations that use an alternative brand (different from Terpel) set significantly lower prices on average. Finally, the presence of unbranded gas stations and/or small alternative brands within a 1 Km. radius seems to be enough in order to offset the price increase generated by the merger in these specific locations.

 

February 14, 2017 | Permalink | Comments (0)

The Politics of Professionalism: Reappraising Occupational Licensure and Competition Policy

Sandeep Vaheesan and Frank A. Pasquale III, University of Maryland Francis King Carey School of Law take a contrarian view of The Politics of Professionalism: Reappraising Occupational Licensure and Competition Policy.

ABSTRACT: Elite economists and lawyers have united to criticize occupational licensing. They contend that licensure rules raise consumer prices and restrict labor market entry and job mobility. The Obama Administration’s Council of Economic Advisers and Federal Trade Commission have joined libertarians and conservatives in calling for occupational regulations to be scaled back.

Billed as a bipartisan boost to market competition, this technocratic policy agenda rests on thin empirical foundation. Studies of the wage effects of licensing rarely couple this analysis of its putative “costs” with convincing analysis of the benefits of the professional or vocational education validated via licensure. While some licensing rules may be onerous and excessive, licensing rules are inadequate or underenforced in other labor markets. Furthermore, by limiting labor market entry, occupational licensing rules, like minimum wage and labor laws, can help raise and stabilize working and middle class wages — goals that many center-left critics of occupational licensing claim to support.

While current antitrust law provides an ideological framework for technocratic attacks on licensing, it is fundamentally unsuited for a fair evaluation of labor markets. Contemporary antitrust law’s arcane concept of efficiency reflects neither the legislative objectives animating the antitrust statutes, nor popular understanding of what competition policy should do. Occupational licensing should reflect an expansive conception of the public interest and be the product of democratic decisionmaking — not a technocratic mission to advance an esoteric notion of “efficiency.” Both the Department of Justice and the Federal Trade Commission should make occupational licensing and collective action by workers a much lower advocacy and enforcement priority.

February 14, 2017 | Permalink | Comments (0)

Transparency of the Regulatory Authorities: An Analysis of Transparency of Competition Investigations in Turkey

Murat Çokgezen, Marmara University, Ali Ilicak, Independent, and Fevzi Toksoy, ACTECON analyze Transparency of the Regulatory Authorities: An Analysis of Transparency of Competition Investigations in Turkey.

ABSTRACT: This research analyses the transparency of regulations in the field of competition. Even though the topic is on regulations in the field of competition in general, it is specifically focused on: 1) how rules and policies to sustain competition are clear, open and accessible; and 2) transparency of the investigation process commenced by the regulatory authority on enterprises. Two different methods were applied to evaluate the transparency of these two fields. Firstly, a survey was prepared that included propositions on transparency; this was administered to staff of the regulatory authority, academics and legal experts specializing in competition law. Surveyees were asked to evaluate the transparency of each specific field. Secondly, by examining current laws, regulations, decisions of the regulatory authority and public communication channels, problems with the transparency of current rules and their enforcement were assessed. The experiences of the authors, the researchers and legal experts dealing with competition law who were brought together in a workshop organized as a part of this research guided us to determine the problems. The first method aimed to measure the perception of stakeholders, while the second method sought to determine the specific problems based on concrete facts. The following general findings were reached by the end of the research: 1) the legislation of competition and the Competition Authority are quite transparent in comparison with other fields of law and agencies in Turkey; 2) those who are obliged to provide information about competition regulation and those who use this information evaluate the transparency levels of regulations in the field of competition differently; 3) the Competition Authority places less importance on sharing information with third parties and the public than on sharing information with parties of the investigation; 4) problems with regard to the transparency of competition are mostly caused by enforcement of the current rules. The two basic problems regarding enforcement were determined to be: (a) not sharing current information with parties due to ‘confidentiality’ or ‘internal correspondence’; and (b) the Board’s inability to develop consistent practice on issues that are not clearly regulated by the laws.

 

February 14, 2017 | Permalink | Comments (0)

Monday, February 13, 2017

Competition and Capital Structure

Anisha Nyatee, University of Rochester, Simon Business School analyzes Competition and Capital Structure.

ABSTRACT: Manufacturing firms manage their capital structure policy differently in response to domestic and international competition. Competition captures the uncertainty arising from the firm's competitive environment. A rise in uncertainty raises the demand for crash proof liquidity. An asset seizes to be liquid when it suffers a capital loss. This creates a wedge between the current and the collateral value of assets. For firms operating in a competitive domestic environment the wedge between the current and the collateral value of assets is low due to more easily redeployable assets. Thus, firms in these industries have higher leverage. Firms operating in import intensive industries have assets that are less easily redeployable. Thus the wedge between the current and the collateral value of assets is large making assets less desirable as collateral. Therefore, firms operating in these industries have lower leverage.

 

February 13, 2017 | Permalink | Comments (0)

Explaining the Concentration-Profitability Paradox

Jan Keil, University of the West Indies at Mona, Department of Economics is Explaining the Concentration-Profitability Paradox.

ABSTRACT:  This paper explains an empirical paradox which is often found, but generally ignored: a significant negative econometric relationship between profitability and market share concentration. The phenomenon can appear when there is a negative correlation between market share and costs - for example due to economies of scale. I show that concentration becomes an indicator for the cost competitiveness of direct rivals within an industry. Profitability of a given firm is undermined if price correlates positively with average industry costs (Classical natural prices) and frictions like sunk costs make an industry exit expensive for firms. This idea also explains the frequent findings of highly persistent profit rate differentials.

February 13, 2017 | Permalink | Comments (0)

Markets, Monopolies and Moguls: The Relationship between Inequality and Competition

Andrew Leigh, Australian National University - Economics Program, Research School of Social Sciences and Adam Triggs, Australian National University (ANU) - Crawford School of Public Policy identify Markets, Monopolies and Moguls: The Relationship between Inequality and Competition.

ABSTRACT:Analysing private market research data, we estimate the degree of market concentration across 481 industries in the Australian economy. On average, the largest four firms control 36 per cent of the market. Some industries are considerably more concentrated. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, Internet service providers, baby food and beer, the biggest four firms control more than 80 per cent of the market. We suggest ways in which high market concentration may increase inequality and discuss some policy ideas to address the problem.  

February 13, 2017 | Permalink | Comments (0)

Party Funding, Competition Law and the Protection of Political Democracy

Arthur Guerra Filho, King’s College London, Dickson Poon School of Law, Students and CAPES, Coordenação de Aperfeiçoamento de Pessoal de Nível Superior has written Party Funding, Competition Law and the Protection of Political Democracy.

ABSTRACT: Capitalist democracies are paradoxical: while their political system is premised on equality, their economic system is based on the promise of inequality. Bill Gates’ vote has the same weight as that of any other American citizen. On one hand capitalism is concerned with wealth creation and consumer welfare. On the other hand democracy is concerned with the voters’ equal say in the composition of the government. But what if a merger that will likely benefit consumers militates against equality in the electoral process? In order to address this tension between concentrations in the economic sphere and equality in the electoral process, I propose in this article a political antitrust concerned with the marketplace of speech in elections. The article is organised as follows. Section II argues that there was an historical relationship between party funding and competition laws in countries such as the United States, Germany and Brazil. Section III argues that recent scholarship on political antitrust has been concerned with the indirect influence of economic power over the political democratic process. Section IV suggests a framework for the regulation of direct influence; more precisely the economic power’s influence over the electoral process. I conclude that political antitrust centred on economic power’s influence over elections is promising to capitalist democracies because: (i) it may be useful to complement the party funding laws and media regulations in the protection of political democracy; and (ii) it can be largely harmonised with the standard competition law.

 

February 13, 2017 | Permalink | Comments (0)

Friday, February 10, 2017

Abuse of Dominance by Firms Charging Excessive or Unfair Prices: An Assessment

Frederic Jenny, ESSEC Business School provides Abuse of Dominance by Firms Charging Excessive or Unfair Prices: An Assessment.

ABSTRACT: Competition authorities throughout the world are under pressure to use their enforcement powers to control excessive or unfair prices. In some countries, like the United States, competition authorities have clearly indicated that the antitrust laws were not meant to curb monopolistic prices. In other countries, like the European Union, excessive prices have occasionally been considered to be violations of the competition law. A vigorous debate among economists has taken place on what the definition of excessive prices could be and whether the control of excessive prices by competition authorities would in fact promote or discourage competition. This paper reviews this debate and considers alternative courses of action that competition authorities could consider in case of high prices.

February 10, 2017 | Permalink | Comments (0)

How Destructive is Innovation?

Daniel Garcia-Macia, Chang-Tai Hsieh, and Peter J. Klenow ask How Destructive is Innovation?

ABSTRACT: Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all non-farm private businesses from 1976–1986 and 2003–2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own-product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.

February 10, 2017 | Permalink | Comments (0)

Estimating market power Evidence from the US Brewing Industry

Jan De Loecker and Paul T. Scott are offering evidence of Estimating market power Evidence from the US Brewing Industry.

ABSTRACT: While inferring markups from demand data is common practice, estimation relies on difficult-to-test assumptions, including a specific model of how firms compete. Alternatively, markups can be inferred from production data, again relying on a set of difficult-to-test assumptions, but a wholly different set, including the assumption that firms minimize costs using a variable input. Relying on data from the US brewing industry, we directly compare markup estimates from the two approaches. After implementing each approach for a broad set of assumptions and specifications, we find that both approaches provide similar and plausible markup estimates in most cases. The results illustrate how using the two strategies together can allow researchers to evaluate structural models and identify problematic assumptions.

February 10, 2017 | Permalink | Comments (0)

Thursday, February 9, 2017

The Pechstein Case in Germany: A Review of Sports Arbitration Clauses in Light of Competition Law

Mariusz Motyka-Mojkowski and Krystyna Kleiner (both Freshfields Bruckhaus Deringer LLP) describe The Pechstein Case in Germany: A Review of Sports Arbitration Clauses in Light of Competition Law.

ABSTRACT: In 2009 Claudia Pechstein, a successful German speed skater and multiple Olympic champion, was banned by the International Skating Union (‘ISU’) from all skating competitions for 2 years because of alleged illegal doping. The athletes participating in the speed skating world cup had to sign a mandatory registration form for each competition. The registration form included a dispute resolution clause (‘arbitration clause’) requiring participants to bring any challenges against an ISU decision before the Court of Arbitration for Sport (‘CAS’).

Pursuant to the arbitration clause, Ms. Pechstein appealed her suspension before the CAS, but without success. Then she filed an appeal against the CAS ruling before the Swiss courts, which also upheld the ban. At this stage of the proceedings she had not claimed unlawfulness of the arbitration clause under competition law. At the end of 2012, Ms. Pechstein finally took legal action before the German civil courts. She brought an action against the ISU and the German Speed Skating Federation (‘GSSF’) before the Regional Court of Munich (Landgericht München), requesting that the court dismisses the ban and awards her compensation for the damages she had incurred as a result of it. Her action was based on several arguments. One of them was that she could claim antitrust damages on the basis of Sec. 33 (1), 20 (1) and 19 (1) of the German Act against Restraints of Competition (‘ARC’) due to an abuse of a dominant position by the ISU in the market for organising speed skating world cups. Therefore, the imposition of the obligatory arbitration clause was abusive and the non-admission to world cups constituted an undue impediment.

February 9, 2017 | Permalink | Comments (0)

Actions for Damages in the Netherlands, the United Kingdom, and Germany

Matthijs Kuijpers, Stibbe, Stefan Tuinenga, Covington, Elaine Whiteford, Covington and Thomas B. Paul, Hengeler Mueller examine Actions for Damages in the Netherlands, the United Kingdom, and Germany.

ABSTRACT: This survey will discuss the developments with regard to claims for damages resulting from competition law infringements in the three most prominent jurisdictions in this area: the Netherlands, the United Kingdom, and Germany. This survey relates to the period July 2014–July 2016.

In the previous survey covering 2013–2014, it was noted that actions for damages were still in their early stages and to a large extent related to procedural questions like jurisdiction, a stay of the legal proceedings and disclosure of documents. Although this is still the case for many actions today, more and more judgements on the merits have been issued. In this survey, a distinction will be made between claims for damages based on antitrust decisions by the European Commission (EC) or national competition authorities (follow-on damages claims) and claims that are not based on decisions from competition authorities (stand-alone damages claims).

Recent case law forms the backbone of this survey. Developments in both follow-on damages claims and stand-alone damages claims will be discussed in Sections III and IV, respectively, for each of the three jurisdictions. Legislative developments are, however, becoming increasingly important in the Netherlands, the United Kingdom, and Germany and will be discussed in Section II of this survey. The most obvious example is the directive on the rules governing actions for damages under national law for infringements of competition law (2014/104/EU) (Directive),3 which is pending implementation by EU Member States. At the same time, it cannot be denied that uncertainties have arisen since 23 June 2016, when the people of the United Kingdom voted to leave the European Union.

February 9, 2017 | Permalink | Comments (0)

Accounting for Price Endogeneity in Airline Itinerary Choice Models: An Application to Continental U.S. Markets

Virginie Lurkin; Laurie A. Garrow; Matthew J. Higgins; Jeffrey P. Newman; and Michael Schyns are Accounting for Price Endogeneity in Airline Itinerary Choice Models: An Application to Continental U.S. Markets.

ABSTRACT: Network planning models, which forecast the profitability of airline schedules, support many critical decisions, including equipment purchase decisions. Network planning models include an itinerary choice model that is used to allocate air total demand in a city pair to different itineraries. Multinomial logit (MNL) models are commonly used in practice and capture how individuals make trade-offs among different itinerary attributes; however, none that we are aware of account for price endogeneity. This study formulates an itinerary choice model that is consistent with those used by industry and corrects for price endogeneity using a control function that uses several types of instrumental variables. We estimate our model using a database of more than 3 million tickets provided by the Airlines Reporting Corporation. Results based on Continental U.S. markets for May 2013 departures show that models that fail to account for price endogeneity overestimate customers’ value of time and result in biased price estimates and incorrect pricing recommendations. The size and comprehensiveness of our database allows us to estimate highly refined departure time of day preference curves that account for distance, direction of travel, number of time zones traversed, departure day of week and itinerary type (outbound, inbound or one-way). These time of day preference curves can be used by airlines, researchers, and government organizations in the evaluation of different policies such as congestion pricing.

February 9, 2017 | Permalink | Comments (0)