Thursday, January 12, 2017
E. Bacchiega; O. Bonroy; and E. Petrakis offer Contract contingency in vertically related markets.
ABSTRACT: We study the optimal contract choice of an upstream monopolist producing an essential input that may sell to two vertically differentiated downstream firms. The upstream supplier can offer an exclusive contract to one of the firms or non-exclusive contracts to both firms. Each of the latter can be made contingent or not on the breakdown of the negotiations between the upstream supplier and the rival downstream firm. The distribution of bargaining power during the contract terms negotiations is the main driving force of the monopolist's choices. A powerful supplier always opts for an exclusive contract. By contrast, a weaker supplier offers non-exclusive contracts and makes each of them contingent or non-contingent such as to guarantee the most favorable outside option in its negotiations. Our main results hold under an horizontally differentiated downstream market too.
Alexandre CROUTZET ; Pierre LASSERRE examine Optimal Completeness of Property Rights on Renewable Resources in Presence of Market Power.
ABSTRACT: There are many instances where property rights are imperfectly defined, incomplete, or imperfectly enforced. The purpose of this normative paper is to address the following question:are there conditions under which partial property rights are economically efficient in a renewable resource economy? To address this question, we treat the level of completeness of property rights as a continuous variable in a renewable resource economy. By design, property rights restrict access to the resource, so that they may allow a limited number of firms to exercise market power. We show that there exists a level of property rights completeness that leads to first-best resource exploitation; this level is different from either absent or complete property rights. Complete rights are neither necessary nor sufficient for efficiency in presence of market power. We derive an analytic expression for the optimal level of property rights completeness and discuss its policy relevance and information requirements. The optimal level depends on i) the number of firms; ii) the elasticity of input productivity and iii) the price elasticity of market demand. We also find that a greater difference between the respective values of input and output requires stronger property rights. In fact, high profits both imply a severe potential commons problem and may be the expression of market power; strong property rights limit the commons problem; their incompleteness offsets market power. Biology also impacts the optimal quality of property rights: when the stock of resource is more sensitive to harvesting efforts, optimal property rights need to be more complete.
Garrod, Luke and Olczak, Matthew have written on Collusion, Firm Numbers and Asymmetries Revisited.
ABSTRACT: Despite the fact that competition law prohibits explicit cartels but not tacit collusion, theories of collusion often do not distinguish between the two. In this paper, we address this issue and ask: under which types of market structures are cartels likely to arise when firms can alternatively collude tacitly? To answer this question, we analyse an infinitely repeated game where firms with (possibly asymmetric) capacity constraints can make secret price cuts. Tacit collusion can involve price wars on the equilibrium path. Explicit collusion involves firms secretly sharing their private information in an illegal cartel to avoid such price wars. However, this runs the risk of sanctions. We find that, in contrast to the conventional wisdom but consistent with the available empirical evidence, cartels are least likely to arise in markets with a few symmetric firms, because tacit collusion is relatively more appealing in such markets. We discuss the implications for anti-cartel enforcement policy.
Evolutionary Cournot competition with endogenous technology choice: (in)stability and optimal policy
Lamantia, F. (University of Amsterdam); Negriu, A. (University of Amsterdam); and Tuinstra, J. (University of Amsterdam) offer Evolutionary Cournot competition with endogenous technology choice: (in)stability and optimal policy.
ABSTRACT: We study a dynamic oligopoly market model where quantity setting firms can choose one of two production technologies. We find that boundedly rationality in production (best-reply dynamics) and technology choice (evolutionary selection of better performing technologies) as sources of market dynamics, can generate endogenous instability and complicated dynamics, including chaotic fluctuations and co-existing attractors with fractal basins of attraction. By studying successively more complex versions of our model we analyze these two different sources of instability separately and also investigate their interaction. We find that boundedly rational production decisions amplify technological instability whereas boundedly rational technology decisions do not contribute to the production-driven destabilization of the Nash equilibrium. In any case, whenever the two types of decisions interfere in an endogenously unstable market, fluctuations follow a visibly different pattern compared to the fluctuations of a market with only one source of instability. Finally, we show that an innovation policy that aims to alter the market equilibrium without taking into account off-equilibrium dynamics may, in an intrinsically dynamic world, generate welfare losses by destabilizing a stable equilibrium and/or by raising the amplitude of market fluctuations.
Stephan Jaspersen discovers Market power in the portfolio: Product market competition and mutual fund performance.
ABSTRACT: I provide evidence that fund managers who overweight firms with the most differentiated products ('monopolies') exhibit a superior risk-adjusted performance. This is consistent with information advantages due to a better understanding of qualitative information on a firm's competitive environment. I find that funds with above median monopoly bets outperform by up to 92 basis points annually and trade more successfully in both their monopoly and nonmonopoly sub-portfolios. My identification strategy includes exogenous shocks to information quality using the Sarbanes-Oxley Act and to a firm's product market environment using the 9/11 terrorist attacks. I document that managers who place larger monopoly bets are less likely to invest into rival firms at the same time, have a longer investment horizon, and hold more illiquid and high quality stocks.
Wednesday, January 11, 2017
Chengsi Wang (University of Mannheim) and Julian Wright (National University of Singapore) offer Substitution and Complementarity between Fixed-line and Mobile Access.
ABSTRACT: Platforms use price parity clauses to prevent sellers charging lower prices when selling through other channels. Platforms justify these restraints by noting they are needed to prevent free-riding, which would undermine their incentives to invest in their platform. In this paper, we study the effect of price parity clauses on three different types of platform investment, and evaluate these restraints taking into account these investment effects. We find, that wide price parity clauses lead to excessive platform investment while without such price parity clauses there is insufficient platform investment. Even taking these investment effects into account, wide price parity clauses always lower consumer surplus and often lowers total welfare.
Global Value Chains in Competition Law
Wednesday 1 February 2017, 14:30 - 19:30
UCL Cruciform Building, Gower Street, London WC1E 6BT
A conference organised by the Centre for Law, Economics and Society at UCL
“The paradigm of the world political economy has shifted dramatically over the past twenty years. Legal scholarship, however, lags significantly behind. Existing legal scholarship is calibrated to an outdated model that suggests that multinational corporations – either individually or through one-to-one supplier relationships — create, manufacture, and sell a given product. But in today’s world, in what have been termed ‘global value chains’ the research, design, production, and retail of most products take place through coordinated chain components that stretch systemically across multiple – from a few to a few thousand – firms […] (t)he most important paradigm for understanding the global economy, and the political and social relationships that both guide it and stem from it, is no longer the template of the market but rather the role of global value chains” (K.B. SOBEL-READ, (2014), Global value Chains: A Framework for Analysis, Transnational Legal Theory, 5(3), pp. 364-407, 364 & 367)
Global Value Chains are prevalent in the global economy. A recent joint OECD, WTO and World bank report indicates that between 30% and 60% of G20 countries’ exports consist of intermediate inputs traded within GVCs. Economic production is increasingly structured around GVCs, which permit the simultaneous and coordinated transnational production and distribution of a very large array of products that each stage of the supply chain has to manage effectively, without this involving vertical integration by ownership. These supply chains start from the factors of production and other inputs needed for the production of a good and end up with distribution of the end product to the final consumer. Firms find it crucial to enter into long-term agreements with partners in other segments of a value chain, in order to create the necessary relation of trust that is required by the importance of relation specific investments that need to be undertaken in setting the supply chain management. This may lead to disintermediation and vertical integration but also to de-concentration through the constitution of networks or supply alliances that are managed by supply chain councils.
With some exceptions GVCs have not been explored systematically by competition law. The concept offers an important analytical potential. The most obvious one relates to the transnational dimension it brings forward, calling for a “transnational coordination” between “destination states” and “producer states”, this coordination being pursued at global, regional or bilateral levels, and raising interesting questions as to the scope of the extraterritorial enforcement of competition law, in particular with regard to “transformed products”. A deeper impact could be the re-conceptualization of the way competition law deals with vertical integration or quasi-integration and the more holistic perspective the concept of global value chain may ask from competition law enforcement, also with regard to its interaction with other competition policies.
Scope of the Conference The conference will explore these different dimensions of the global value chain concept in competition law. The first part will focus on the delimitation of this concept and will discuss its usefulness as an operational concept in competition law, looking in particular to its trans-national dimension and the international aspects of competition law enforcement. The second and third parts of the conference will take an industry-specific perspective and will explore how the concept of global value chain may alter the way we conceptualize the role and tasks of competition law with regard to global digital value chains and global food value chains. Issues, such as the implications of big data, the development of digital platforms, the gatekeeping role of search engines, the quest for network neutrality, the increasing consolidation of the factors of production sector in food, the global strategies of retailers will be explored from the angle of Global Value Chains theory with the aim to understand how this may challenge “the familiar landmarks of our thought” in competition law and economics and how we may need to reconsider the current model of competition law enforcement in these areas.
- Tembinkosi Bonakele, Commissioner, the Competition Commission of South Africa
- Philippe Chauve, Head, Food Task Force, European Commission
- Kevin Coates, Convington & Burling, Brussels
- Dennis Davis, President, Competition Tribunal of South Africa
- Ariel Ezrachi, Slaughter and May Professor of Competition Law, University of Oxford
- Alexey Ivanov, HSE-Skolkovo Institute for Law and Development, Moscow
- Marcio de Oliveira Junior, Professor of economics, University Center of Brasília, former head of CADE (Brazilian competition authority)
- Bill Kovacic, Professor at the George Washington University School of Law, Non-executive Director UK CMA, former head of the US Federal Trade Commission
- Ioannis Lianos, Professor of Global Competition Law and Public Policy, UCL
- Damien Neven, Consultant, Compass Lexecon, former chief economist, European Commission
- Pierre Regibeau, Vice President, Charles River Associates
- Simon Roberts, Professor at the University of Johannesburg
- Krishna Ravi Sirinivas, Consultant at RIS, India
- Florian Wagner von Papp, Reader in Laws, UCL
Modestly priced tickets available from: http://www.laws.ucl.ac.uk/event/global-value-chains-in-competition-law/
Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy (American Casebook Series) 3rd Edition
CASEBOOK ABSTRACT: The third edition of Gavil, Kovacic and Baker’s Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy thoroughly updates the second edition. It includes a more accessible treatment of the rule of reason, a further modernized treatment of collusion, the most comprehensive merger chapter available, an innovative new chapter on distribution strategies, and a refreshed and updated treatment of intellectual property and innovation. For the third edition, the authors are joined by former FTC Commissioner Joshua D. Wright, who is now University Professor and Executive Director of the Global Antitrust Institute at the Antonin Scalia Law School at George Mason University.
Jiekai ZHANG (INSEE-CREST) idetifies The impact of advertising length caps on TV: Evidence from the French broadcast TV industry.
ABSTRACT: The quantities of advertising on TV are regulated in France, as in many other developed countries. This paper aims at understanding the welfare implication of such regulation. It is the first paper which investigates this issue with a structural econometric model in two-sided market framework. I construct an unique database of per hour data on 12 main broadcast TV stations in France during one year (2014) to estimate structurally the demand and supply in the French broadcast television industry. I identify the shadow prices of regulation caps on advertising quantities, using the difference in estimated marginal costs between the binding and non-binding regulation constraints. A counterfactual experiment is carried out to quantify the exact impact of regulation. The results suggest that the TV channels advertise more without regulation but the overall impact of the current regulatory regime is small. The welfare analysis suggests that the current regulation framework is unnecessary, since it constrained the profit of TV channels without improving significantly the welfare of TV viewers.
Nocke, Volker and Schutz, Nicolas offer Multiproduct-Firm Oligopoly: An Aggregative Games Approach.
ABSTRACT: We develop an aggregative games approach to study oligopolistic price competition with multiproduct firms. We introduce a new class of demand systems, derived from discrete/continuous choice, and nesting CES and logit demand systems. The associated pricing game with multiproduct firms is aggregative and a firm's optimal price vector can be summarized by a uni-dimensional sufficient statistic, the iota-markup. We prove existence of equilibrium using a nested fixed-point argument, and provide conditions for equilibrium uniqueness. In equilibrium, firms may choose not to offer some products. We analyze the pricing distortions and provide monotone comparative statics. Under CES and logit demands, another aggregation property obtains: All relevant information for determining a firm's performance and competitive impact is contained in that firm's uni-dimensional type. Finally, we re-visit classic questions in static and dynamic merger analysis, and study the impact of a trade liberalization on the inter- and intra-firm size distributions, productivity and welfare.
Soohyun Cho (Rutgers Business School); Liangfei Qiu (University of Florida); and Subhajyoti Bandyopadhyay (University of Florida) ask Less than Zero? The Economic Impact of Zero Rating on Content Competition.
ABSTRACT: One emerging business model for Internet service providers (ISPs) is to allow content providers (CPs) to subsidize Internet access for end consumers. In the present study, we develop a game-theoretical model to analyze the effects of this sponsorship of consumer data usage. The findings indicate that for an ISP, its optimal network management choice of data sponsorship largely hinges on specific market conditions such as the revenue rates of CPs and the fit cost for consumers. If the fit cost is low, the ISP will either allow both CPs to subsidize consumers’ Internet access, or allow only the more competitive CP to subsidize, depending on the CPs’ per-consumer revenue generation rates. If the fit cost is high, it is in the ISP’s interest not to allow any subsidization. The study also identifies the conditions under which an ISP’s network management choices of data sponsorship deviate from the social optimum. By identifying additional revenue models, these findings have direct implications for the telecom industry, for online content providers competing for customer loyalty, and for policymakers vested in this issue.
Tuesday, January 10, 2017
Yong Chao (University of Louisville); Lin Liu (University of Central Florida); and Dongyuan Zhan (University College London, London) theorize Vertical Probabilistic Selling under Competition: the Role of Consumer Anticipated Regret.
ABSTRACT: This paper studies probabilistic selling with vertically differentiated products when firms compete and consumers anticipate the potential post-purchase regret raised by possibly obtaining the inferior products. Intuitively, anticipated regret hurts the attractiveness of probabilistic selling. However, we find that probabilistic selling can be more profitable, and more likely to arise with anticipated regret than without it. This is due to the reverse quality discrimination¡± (perceived quality of the random product becomes decreasing in consumer type at the competition margin), which increases the perceived differentiation, and may still maintain sufficient attractiveness of the random product for infra-marginal consumers. Meanwhile, it may hurt the competitor.
Does Public Competition Crowd Out Private Investment? Evidence from Municipal Provision of Internet Access
Kyle Wilson (University of Arizona) asks Does Public Competition Crowd Out Private Investment? Evidence from Municipal Provision of Internet Access.
ABSTRACT: Government investment in infrastructure may crowd out private investment that would have otherwise occurred. But, the threat of government intervention may also induce private firms to invest preemptively in infrastructure, in order to maintain their market position. This leaves the net effect of public competition on private investment unclear. This paper investigates the tension between these competing effects by providing evidence from the setting of internet service provision. Using household survey data and a novel data set of internet plan characteristics, I provide nationwide estimates of demand for internet technologies. I then use these results to estimate a dynamic oligopoly model of private and public internet service providers’ entry and technology adoption decisions, where private firms are driven by profits and municipalities by some (as yet) unknown combination of profits and consumer welfare. Finally, I simulate firms’ actions under a ban on public provision and find evidence that public competition partially, but not completely, crowds out private investment. Ultimately, I find that a ban on municipal provision in 30 states would result in a loss in consumer welfare of $1.11 billion over 20 years.
Angela Zhang, King's College explores Private Ordering in Chinese Antitrust.
ABSTRACT: This Article begins with an inquiry into why there is a rarity of private challenges of decisions made by the Chinese antitrust authorities. The legal approach to the study of administrative law, which has received most academic attention, has not been able to provide a satisfactory answer to this question. To resolve this puzzle, this Article draws attention to the factors beyond the law, particularly the reputation sanction that Chinese antitrust agencies can strategically inflict on firms under their investigations. Based on event study methodology, I identified significant abnormal stock returns in response to an antitrust agency’s proactive public disclosure of its investigation. As the regulator has the discretion in deciding whether and when to disclose its investigation, this gives it significant clout in influencing the stock performance of firms subject to its investigation. In addition, I hand-collected data from 860 news articles on three high-profile antitrust cases and identified an editorial slant that can further inflate the reputation damage to these firms. A close review of these news articles reveals that such bias stems not only from supply but also demand factors. This Article contributes to several strands of research, particularly on the use of reputation sanction in regulation, the role of media in legal enforcement, and the limits of law in resolving administrative disputes in China.
Ioannis Lianos, University College London - Faculty of Laws; HSE-Skolkovo Laboratory for Law and Development provides Competition Law and Intellectual Property (IP) Rights: Analysis, Cases and Materials.
ABSTRACT: This chapter is part of a forthcoming book on EU and UK Competition Law. It provides critical analysis and materials on the following topics relating to the interaction between competition law and IP rights: the innovation process and the different models of interaction between competition law and IP rights, exhaustion of IP rights in Europe, the licensing of IP rights and the recent EUTransfer of Technology regulation and guidelines, technology sharing agreements and the constitution of "innovation commons", unilateral practices, such as refusal to license and provide interoperability, abuse of the IP system (fraud to the patent office, product hopping...), vexatious (sham) litigation, Standard Essential Patents and FRAND licensing obligations, exploitative IP related abuses (excessive royalties), "pay for delay"/reverse payment settlements agreements.
Monday, January 9, 2017
Raimundas Moisejevas, Mykolas Romeris University identifies The Damages Directive and Consensual Approach to Antitrust Enforcement.
ABSTRACT: The article focuses on the novelties introduced by the Damages Directive in the field of consensual settlements of disputes concerning private enforcement. The Damages Directive obliges Member States to ensure that the limitation period for bringing an action for damages is suspended for the duration of any consensual dispute resolution process. The Directive also establishes the main principles that govern the effect of consensual settlements on subsequent actions for damages. Since the EU framework for consensual dispute resolution of private enforcement disputes is quite new, many issues must still be solved in Member States’ practice. While analysing consensual dispute resolution in private enforcement cases, particular interest should be paid to mediation and arbitration as a form of Alternative Dispute Resolution (ADR). Mediation is often used in competition law litigation. In a mediation process, parties are subject to fewer legal costs than in litigation and arbitration. It may thus be concluded that consensual dispute resolution is usually a faster way to receive compensation. However, voluntary arrangements and ADR in competition law still raise many problems concerning both procedural and substantial legal acts.
Anzhelika Gerasymenko, Kyiv National University of Trade and Economics (Ukraine) and Nataliia Mazaraki, Kyiv National University of Trade and Economics (Ukraine) describe Antitrust Damages Actions in Ukraine: Current Situation and Perspectives.
ABSTRACT: The article gives an overview of Ukrainian legislation and experiences concerning antitrust damages actions. The analysis has led to a number of conclusions: private claims are rare in Ukraine due to difficulties in obtaining evidence, high legal costs, and lacking confidence in the Ukrainian court system. The paper gives examples of Ukrainian private antitrust enforcement practice and provides a statistical analysis of the dynamics of ‘compensated’ damages caused by antitrust infringements in Ukraine. The value of ‘compensated’ damages is compared to the value of the economic effect of stopping antitrust infringements, as well as to the value of the overall welfare loss deriving from market power in the national economy. Finally, some new sources of damages caused by market power are discussed considering the development perspectives of this branch of antitrust activity.
Ondrej Blazo, Comenius University discusses Directive on Antitrust Damages Actions and Current Changes of Slovak Competition and Civil Law.
ABSTRACT: Slovak competition law enforcement can be characterized by infrequency of leniency applications and near absence of private enforcement. As a result, the adoption of the Damages Directive is not likely to cause substantial breakthrough in Slovakia, be it with respect to the rate of leniency applications or in private enforcement. A comprehensive amendment of Slovak competition law took place in 2014. Changes introduced therein reflected, among other things, the practice of the European Commission regarding access to its file. A new approach was also introduced towards damages claims submitted against leniency applicants. The paper will first consider the question whether it is necessary to further redesign these new Slovak rules because of the adoption of the Damages Directive, or if they have been successfully pre-harmonized. Along with changes to Slovak competition law, procedural rules for civil courts were also re-codified. Hence the second part of this analysis will focus on the question if a new civil procedure framework, including obligatory harmonization, could foster private enforcement of competition law. Summarizing the resulting answers, the third question focuses on who could benefit from further changes to Slovak legislation – final consumers or enterprises that are involved in the production chain. Finally, will changes in Slovak legislation driven by the Directive be coherent with its overall legal system, or will they appear to be an odd and peculiar piece of legislation?
Competition law and innovation: Protecting competitive markets—not just the interests of incumbents—is essential for India to enjoy the fruits of innovation-driven markets
Vishwanath Pingali (IIM Ahmedabad and this year the 2016-17 Lamb Regulatory Fellow at Duke) has a well written op-ed on Competition law and innovation: Protecting competitive markets—not just the interests of incumbents—is essential for India to enjoy the fruits of innovation-driven markets.
Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control
Gishan Dissanaike, University of Cambridge - Judge Business School, Wolfgang Drobetz, University of Hamburg, and Paul Peyman Momtaz, University of Hamburg ask Does Competition Policy Affect Acquisition Efficiency? Evidence from the Reform of European Merger Control.
ABSTRACT: We use the reform of the European Commission Merger Regulation as a natural experiment to examine the more general relationship between merger control and the profitability of corporate acquisitions. Our results suggest that acquisition efficiency is significantly lower in controlled deals, although the reform-induced improvement of legal certainty ameliorated this effect. The valuation effect is more pronounced in concentrated industries and in national cultures where firms tend to be more intolerant to uncertainty. These findings are consistent with the hypothesis that uncertainty about merger control decisions impedes M&A activity, which amplifies managerial entrenchment and enables managers to make agency-motivated acquisitions.