Antitrust & Competition Policy Blog

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

Thursday, August 18, 2016

Competition and the Real Effects of Uncertainty

Raja Patnaik, London Business School offers Competition and the Real Effects of Uncertainty.

ABSTRACT: This paper investigates the impact of uncertainty on firm-level capital investment and examines whether this effect depends on the degree of competition that firms face. I exploit a unique empirical setting to construct a time-varying uncertainty measure that is exogenous to economic conditions and firm behavior. I show that higher uncertainty results in a decrease in investment for firms in more concentrated industries. The effect is stronger for firms that face higher costs associated with reversing investments. This finding is in line with irreversible investment models that predict a negative relationship between uncertainty and investment. In contrast, firms in highly competitive industries increase investment in response to higher uncertainty, supporting the argument that competition can erode the option value of deferring investment. In that case, other industry and firm characteristics such as operational flexibility can result in increased investment in response to heightened uncertainty. I also find economically significant effects of uncertainty on other types of investment such as R&D spending, advertising and investment in human capital. Collectively, my results illustrate that the degree of competition plays an important role in the link between uncertainty and investment.

 

 

August 18, 2016 | Permalink | Comments (0)

Discounts as a Barrier to Entry

Enrique Ide, Juan-Pablo Montero and Nicolas Figueroa have a fascinating paper on Discounts as a Barrier to Entry. Worth downloading!

ABSTRACT: To what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry? We show that off-list-price rebates that do not commit buyers to unconditional transfers--like the rebates in EU Commission v. Michelin II, for instance--cannot be anticompetitive. This is true even in the presence of cost uncertainty, scale economies, or intense downstream competition, all three market settings where exclusion has been shown to emerge with exclusive dealing contracts. The difference stems from the fact that, unlike exclusive dealing provisions, rebates do not contractually commit retailers to exclusivity when signing the contract.

August 18, 2016 | Permalink | Comments (0)

Innovation, Competition and Productivity

Klaus Sylvester Friesenbichler, Austrian Institute of Economic Research and Michael R. Peneder, Austrian Institute of Economic Research (WIFO) investigate Innovation, Competition and Productivity.

ABSTRACT: We investigate the drivers of firm‐level productivity in catching‐up economies by jointly estimating its relationship to innovation and competition using data from the EBRD‐WB Business Environment and Enterprise Performance Survey (BEEPS) in Eastern Europe and Central Asia. The findings confirm an inverted‐U shaped impact of competition on R&D. Both competition and innovation have a simultaneous positive effect on labour productivity in terms of either sales or value added per employee, as does a high share of university graduates and foreign ownership. Further positive impacts come from firm size, exports or population density. Innovation and foreign ownership appear to be the strongest drivers of multifactor productivity.

August 18, 2016 | Permalink | Comments (0)

Sequential Markets, Market Power, and Arbitrage

Koichiro Ito and Mar Reguant analyze Sequential Markets, Market Power, and Arbitrage.

ABSTRACT: We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.

August 18, 2016 | Permalink | Comments (0)

Leveraging Dominance with Credible Bundling

Sjaak Hurkens, Institute for Economic Analysis-CSIC; Barcelona GSE, Doh-Shin Jeon, Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR), and Domenico Menicucci, Universita' degli Studi di Firenze are Leveraging Dominance with Credible Bundling.

ABSTRACT:  We contribute to the leverage theory of tying by studying bundling of a dominant firm instead of a monopolist. We show that, when one firm has symmetric dominance across all markets, bundling has a positive demand size effect on the dominant firm but affects both firms similarly through the demand elasticity effect. The demand size affect is hump-shaped in dominance level whereas the demand elasticity affect is increasing and negative (positive) for low (high) dominance levels. This makes bundling credible for sufficiently strong dominance. In the case of asymmetric dominance levels, we identify three different circumstances in which a firm can credibly leverage its dominance in some (tying) markets to foreclose a dominant rival in other (tied) markets. Our findings provide a justification for the use of contractual bundling for foreclosure.

 

 

August 18, 2016 | Permalink | Comments (0)

Wednesday, August 17, 2016

The Impact of Merger Legislation on Bank Mergers

Elena Carletti, Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS), Steven Ongena, University of Zurich - Department of Banking and Finance; Swiss Finance Institute, Jan-Peter Siedlarek, Federal Reserve Banks - Federal Reserve Bank of Cleveland, and Giancarlo Spagnolo, Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF analyze The Impact of Merger Legislation on Bank Mergers.

ABSTRACT:  We find that stricter merger control legislation increases abnormal announcement returns of targets in bank mergers by 7 percentage points. Analyzing potential explanations for this result, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers, and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks, and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions.

August 17, 2016 | Permalink | Comments (0)

Merger Policy in a Quantitative Model of International Trade

Holger Breinlich, University of Nottingham - School of Economics; Centre for Economic Policy Research (CEPR); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP), Volker Nocke, University of Mannheim, and Nicolas Schutz, University of Mannheim theorize Merger Policy in a Quantitative Model of International Trade.

ABSTRACT:  In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. Calibrating the model to match industry-level data in the U.S. and Canada, we show that at present levels of trade costs merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.

 

 

August 17, 2016 | Permalink | Comments (0)

Spanish Antitrust Private Enforcement: Enhancing Consumer Collective Redress

Francisco Romero de Avila Ruiz-Peinado, University of York explores Spanish Antitrust Private Enforcement: Enhancing Consumer Collective Redress.

ABSTRACT: Following the decisions of the European Court of Justice in the Courage and Manfredi cases, victims of antitrust practices may seek redress before their national civil courts against the infringing businesses. In Spain, an empirical study on private enforcement of competition law collecting the cases brought before the Spanish courts from 1999 to 2012, it found that, despite the increase of antitrust private enforcement cases in this country in the last decade, only one out of 323 reported cases was brought by consumers. With this in mind, the dissertation aims to find out the reasons of the scarcity of consumer cases in the land of private antitrust enforcement in Spain, in order to palliate this situation.

To this end, this dissertation surveys some of the most successful models in delivering redress across the world, such the US-style of class action or the Dutch Settlement-only opt-out mechanism for mass torts, as well as the proposals recently made in the UK, with the ultimate aim of learning the appropriate measures that can effective and efficiently deliver redress to consumers harmed as a result of anti-competitive practices. In the light of those successful modes, it is noted, argued and concluded that the debate has focused on encouraging group litigation rather than on articulating efficient mechanisms, such as ADR tools, to deliver redress with the involvement of the National Competition Authorities. Based on this premise, two proposals are made: redress schemes voluntarily implemented and certified by the Spanish Competition Authorities on a voluntary basis, and a Public Prosecutor-led collective action articulated on opt-out basis.

August 17, 2016 | Permalink | Comments (0)

The Power of Arbitral Tribunals to Raise Public Policy Rules Ex Officio: The Case of EU Competition Law

Damien Geradin, TILEC, George Mason, Edge Legal discusses The Power of Arbitral Tribunals to Raise Public Policy Rules Ex Officio: The Case of EU Competition Law.

ABSTRACT: Whether arbitral tribunals should be allowed to adjudicate disputes on the basis of legal grounds different from those submitted by the parties is a question that is subject to considerable debate in the international arbitration community. On the one hand, arbitration is a creature of contract and arbitral tribunals should be careful not to exceed the mandate that has been extended to them by the parties. On the other hand, there may be circumstances where the ignorance of certain legal regimes may be fatal to the validity and enforceability of the award, and where the tribunal may thus well be advised to raise the applicability of such regimes even if the parties failed to do so. In order to illustrate the type of circumstances in which arbitral tribunals may be well advised to raise legal grounds on an ex officio basis in order to ensure the validity and enforceability of the award, I refer to contractual disputes where the agreement under scrutiny, which one of the parties is seeking to enforce, may breach EU competition law, which according to the Eco-Swiss judgment of the CJEU belongs to public policy. This paper argues that whether arbitral tribunals should raise EU competition rules on their own motion largely depends on the circumstances of each case and arbitral tribunals should be guided by pragmatism rather than theoretical considerations.

 

 

August 17, 2016 | Permalink | Comments (0)

Tuesday, August 16, 2016

The Antitrust and Intellectual Property Intersection in European Union Law

Nicolas Petit, University of Liege provides an overview of The Antitrust and Intellectual Property Intersection in European Union Law.

ABSTRACT:  In European legal scholarship, many articles discuss the equilibrium reached in the case-law of the Court of Justice of the European Union (“CJEU”) when the EU antitrust prohibitions apply to, and restrain, the free and ordinary use of intellectual property rights (“IPRs”). We call this the antitrust-IP intersection. The most interesting feature of this literature is perhaps the common assumption that a unifying substantive perspective, vision or theory on IPR underpins the intersection point reached by the antitrust case-law. Whilst the theory of “absolutism” can be quickly disposed of, several other theories like inherency, exceptionalism or complementarity have been described as the lynchpin of the antitrust-IP intersection. Our paper offers a different reading of the case-law. It submits that the antitrust-IP intersection does not rest on any unitary theory which, in turn, bespeaks the Court’s vision of the social function of IPRs. Instead, the main feature of the CJEU case-law is that a specific methodology is applied to antitrust cases with IPR ramifications. The CJEU deals with most of such cases under a rule-based approach, instead of a standard-based approach. By rule-based approach, we refer to the ex ante setting of structured tests of liability, by opposition to ex post case-by-case resolution on grounds of a pre-determined, general standard (e.g., reasonableness, competition on the merits, efficiency, fairness, equity, etc.). As will be seen below, this approach has many virtues, not least in terms of legal certainty. But it also has a major qualification. Whilst the Court has consistently formulated rules of liability and justifiability at the antitrust and IP intersection, it has at the same time often embedded abstract standards within those rules. The implications of this mixed approach are unclear.

 

 

August 16, 2016 | Permalink | Comments (0)

Exclusive Dealing with Costly Rent Extraction

Giacomo Calzolari, University of Bologna, Vincenzo Denicolo, University of Leicester, and Piercarlo Zanchettin, University of Leicester identify Exclusive Dealing with Costly Rent Extraction.

ABSTRACT:  We analyze the impact of exclusive contracts on the intensity of competition among firms that supply substitute products. Exclusive contracts would be neutral if firms priced at marginal cost and extracted buyers' rent by means of non distortionary fixed fees. We focus instead on the case in which rent extraction is costly, and hence firms distort marginal prices upwards. We show that in this case exclusive contracts are anti-competitive when the dominant firm enjoys a large enough competitive advantage over its rivals, and are pro-competitive, or neutral, when the competitive advantage is small. These effects appear as soon as marginal prices are distorted upwards, irrespective of which specific factors impede perfect rent extraction.

 

 

August 16, 2016 | Permalink | Comments (0)

The Disclosure of Evidence under the ‘Antitrust Damages’ Directive 2014/104/EU

Anca D. Chirita, Durham University, Durham Law School mentions The Disclosure of Evidence under the ‘Antitrust Damages’ Directive 2014/104/EU.

ABSTRACT: The primary aim of this contribution is to reflect on the principles underpinning the disclosure of evidence under the Directive 2014/104/EU (hereinafter mentioned as the ‘Directive’), namely, the principles of proportionality, effectiveness, equivalence and consistency. Its secondary aim is to review the legislative techniques that the above directive has used in order to codify the previous case law of the European Union (EU) Courts and discuss several recent rulings, including Carglass, Pilkington, Evonik Degussa, Axa Versicherung and others.

The contribution seeks first to locate the scope of the disclosure of evidence by clarifying the meaning and the importance of such evidence and by examining the categories of evidence. It goes on to examine the established rule on the disclosure of evidence in the light of the principle of transparency and its legal exceptions.

Finally, the author draws conclusions on the adequacy of the achieved codification of the previous case law on the disclosure of evidence and access to such evidence, as well as on its potential implications for the Member States.

 

 

August 16, 2016 | Permalink | Comments (0)

Complexity of the Effects of Cross Border Merger on Internal Market Under Both Company Law and Competition Law

Charlotte Valentine Ene, Bucharest Academy of Economic Studies notes the Complexity of the Effects of Cross Border Merger on Internal Market Under Both Company Law and Competition Law.

ABSTRACT: The purpose of this paper is to provide an insight into the legal regime of the effect s of cross-border merger on internal market assessed from Company Law and Company law provisions.

On the other hand merger may be analyzed as abuse of market power which affect European trade, qualified as a dominant position by the European Commission and the European Union Court of Justice. Therefore, competition provisions purpose also to remove the barriers to European internal market arising from actions of powerful of single undertakings which enjoy a dominant position in a particular market for good and services. However, the new European legislation would make it easier and much cheaper for undertakings (companies with share capital) to merge with enterprises in other Member States.

August 16, 2016 | Permalink | Comments (0)

Monday, August 15, 2016

Kudos to the 7th Circuit in Clorox for cleaning up bad old Robinson Patman case law

The Robinson Patman Act has been a blemish on US antitrust since its passage.  Luckily, the courts have pushed back on Robinson Patman enforcement for some time (now finding that Robinson Patman Act, like the Sherman Act requires an antitrust injury and also must protect consumers rather than competitors) and neither federal antitrust agency enforces it.  Every once in a while there is a successfully brought Robinson Patman case.  Luckily, on Friday the 7th Circuit in Clorox reversed a bad Robinson Patman district court decision.  Kudos to Judge Diane Wood for a well written opinion that helps clean up some bad case law from the 1940s and 1950s.   

August 15, 2016 | Permalink | Comments (0)

Chinese State Capitalism and Western Antitrust Policy

Nicolas Petit, University of Liege describes Chinese State Capitalism and Western Antitrust Policy.

ABSTRACT:  Enthused by China’s conversion to the free market system in 1978 and its adoption of Western-style market institutions, the world has spent the last few decades turning a blind eye to China’s real “governance” problem: that a shadow Party-State system permeates all branches of the economy. Whatever Washington-consensus style institutions are put in place, whatever State Owned Enterprise (“SOE”) reform is introduced, corporate and market governance occur under the rule of the Chinese Communist Party (“CCP”). And the CCP’s guidebook is the Leninist command that the whole of society shall be run as “single country-wide State syndicate”. This paper contends that China’s syndicated economic organization is akin to a “supertrust”, and that this creates conditions that are conducive to antitrust problems to which the Western world must awaken. In this context, this paper advances that the antitrust regulators of North America, Europe and elsewhere should take two simple, pragmatic steps under merger control and antitrust rules. In merger review, antitrust agencies should treat all SOEs and Privately Owned Enterprises (POEs) with a CCP cell as one unitary group and undertake a thorough competitive assessment of transactions on this basis. In addition, antitrust cases involving Chinese firms should be investigated on the default assumption that there is an underlying coordination scheme among them.

 

 

August 15, 2016 | Permalink | Comments (0)

Competition in Retail Electricity Markets: An Assessment of Ten Year Dutch Experience

Machiel Mulder, University of Groningen - Faculty of Economics and Business and Bert Willems, Tilburg University - Department of Economics - CentER & TILEC explore Competition in Retail Electricity Markets: An Assessment of Ten Year Dutch Experience.

ABSTRACT: This paper examines a decade of retail competition in the Dutch electricity market and discusses market structure, regulation, and market performance. We find a proliferation of product variety, in particular by the introduction of quality-differentiated green-energy products. Product innovation could be a sign of a well-functioning market that caters to customer’s preferences, but it can also indicate a strategic product differentiation to soften price competition. Although slightly downward trending, gross retail margins remain relatively high, especially for green products. Price dispersion across retailers for identical products remains high, as also across products for a single retailer. We do not find evidence of asymmetric pass-through of wholesale costs. Overall, the retail market matured as evidenced by fewer consumer complaints and higher switching rates. A fairly intensive regulation of mature energy retail markets appears to be needed to create benefits for consumers.

 

 

August 15, 2016 | Permalink | Comments (0)

Competition Law and Enforcement Priorities - UCD Sutherland School of Law Friday, 16 September 2016

The Competition Law Scholars Forum (CLaSF) and UCD Sutherland School of Law (BLREG)

Workshop-“Competition Law and Enforcement Priorities”

At UCD Sutherland School of Law (Belfield, Dublin 4)

on Friday, 16 September 2016

PROGRAMME

 

Mandatory prior registration by 9th September at law.events@ucd.ie

 

 

09:30 – 10.00: Registration

10.00: Introduction: Prof Barry Rodger (CLaSF), Mary Catherine Lucey (UCD BLREG)

10.10-10.45

Keynote Speaker –Professor William E. Kovacic, George Washington University Law School ’Prioritization, Project Selection and Agency Effectiveness’

10.45-11.15 Coffee

11.15-12.15

Prioritisation and Article 102:- Chair: Patrick Kenny, Member CCPC

‘Enforcement priorities Paper on Article 102 TFEU: Is a Title Enough to Overtake Constitutional Rules and Fundamental Rule-Of-Law Principles?’, Konstantinos Sidiropoulos, DPhil Candidate, Oxford University; ‘Far Beyond Meaningless: the non-enforcement of exploitative excessive prices’, Carmen Rodilla Marti, PHD Candidate, University of Valencia

12.15-13:15

Prioritising Enforcement: Commitments and State aid complaints:- Chair: Professor Barry Rodger

‘Commitments: Guidance for a New Enforcement Style’, Stavros Makis, PHD Candidate, Department of Law, EUI, Florence; ‘Prioritisation in state aid control: Filtering out “unwanted” complaints’ Oskar Van Maren, The Asser Institute, the Hague

13:15-14:30 LUNCH

14:30- 15.45

Priorities in Enforcement: A Global and EU Perspective:- Chair: Judge John Cooke

‘Goals, Values and Priorities of Competition Agencies: A View from Practice Around the World’ Julian Nowag, details, Maria Ioannidou details, Prof Ariel Ezrtachi details; ‘The Actual Role of Boosting the EU Competition Law Enforcement powers of NCAs: In Need of a Reframed Formula’ Catalin S. Rusu, Associate professor of European law, Radboud University, Nijmegen

15.45-16:00 Coffee Break

16:00-17:10

Enforcement priorities in Scotland and Ireland:- Chair: Isolde Goggin, Chairperson CCPC

‘Is there a case for a Scottish Competition Authority? Contrasting Old, New and Regional Competition Enforcement Priorities in large, small and regional EU Economies’ Aiste Selezeviciute, PHD candidate, Edinburgh law School and Zeno Frediano, Solicitors, S and W Edinburgh; ‘An Analytical Review of the Choices/priorities made by Ireland’s Competition Authority/Competition and Consumer Protection Commission 1991-2016’ Dr Vincent Power, Partner, A & L Goodbody, Dublin

 

 

17:10-17:30 Closing Address

Dr John Temple Lang

17:30 Closing remarks:

Professor Imelda Maher MRIA, Sutherland Professor of European Law

UCD Sutherland School of Law

Prof Barry Rodger (Clasf)

17.45 Taxis to Central Dublin for bar/restaurant for speakers and participants

Mandatory prior registration by 9th September at law.events@ucd.ie

August 15, 2016 | Permalink | Comments (0)

Assessing Banking Sector Competition in Zimbabwe Using a Panzar-Rosse Approach

Sanderson Abel & Pierre Le Roux are Assessing Banking Sector Competition in Zimbabwe Using a Panzar-Rosse Approach.

ABSTRACT: This paper assesses the level of competition in Zimbabwe’s banking sector using the Panzar-Rosse H-statistic. The H-Statistic has been assessed, using the total revenues regression equation, and applying the panel least square regression model with fixed effects. The H-statistics is estimated at 0.56, which result is confirmed, using bank random effects and the General methods of moments, yield similar results. The H-statics obtained from the two methods are 0.54 and 0.51 for the random effect and generalised methods of moments, respectively. The results confirm the presence of a monopolistic competition. On an annual basis, the results show that the Zimbabwean banking sector is evolving towards perfect competition. The increased competition was evident through aggressive promotions, increased marketing of banking products, and increased tenure of loans from one year to three years for individuals as banks tried to outclass each other. The study re! commends that the government should desist from tampering with market forces as this reduces the amount of competition.

August 15, 2016 | Permalink | Comments (0)

Banking Competition and Economic Stability

Ronald Fischer; Nicolas Inostroza; and Felipe J. Ramirez study Banking Competition and Economic Stability.

ABSTRACT: We study banking competition and stability in a 2-period economy. Firms need loans to operate, and in case of a real shock, a fraction of firms default. Banks bound by capital adequacy constraints lend less and amplify the initial shock. The magnification depends on the intensity of bank competition. The model admits prudent and imprudent equilibria, where banks collapse after shocks. We find existence conditions for a prudent equilibrium. Competition increases efficiency but leads to higher second period variance and makes imprudent equilibria more attractive. We examine the moderating effect of regulation and forbearance. 

August 15, 2016 | Permalink | Comments (0)

Do Preferences for Pop Music Converge Across Countries? - Empirical Evidence from the Eurovision Song Contest

Oliver Budzinski, Ilmenau University of Technology and Julia Pannicke, Ilmenau University of Technology ask Do Preferences for Pop Music Converge Across Countries? - Empirical Evidence from the Eurovision Song Contest.

ABSTRACT:  The combination of the digitalization of cultural goods and facilitated cross-border availability through the internet fuels a globalization process that is often said to cause a homogenization of demand across countries, in particular, for entertainment goods as music and movies. In the markets for music, this implies that the same hits and the same artists should be popular across countries and cultures. In order to test this hypothesis, we analyze historical voting data of the Eurovision Song Contest, the worldwide biggest live broadcasted international music competition between all countries of the European Broadcasting Union. It covers the period from 1975-2016 where digitalization and internet availability were invented and evolved into mass phenomena. Consequently, according to the outlined theory of homogenization of preferences, voting should have become more concentrated on the leading artists and less focused on regional differences in taste. For the purpose of detecting concentration trends in the points allocation, we employ different indicators for measuring concentration. First, we calculate a concentration ratio, representing the accumulated total number of points of the top three, five and ten-placed countries in each year of the contest. Second, we calculate the Herfindahl-Hirschman-Index (HHI) and, third, the Gini-Coefficient for each year. Furthermore, we test trendlines for statistical significance. The results show, that our analysis cannot support the thesis of preference homogenization. We find no significant trend towards preference convergence. In contrast, some of the employed indicators and methods point towards significant, albeit weak, deconcentration trends in voting behavior for the contest.

 

 

August 15, 2016 | Permalink | Comments (0)