Wednesday, May 25, 2016
Magdalena Helfrich, University of Bayreuth - Faculty of Law, Business and Economics and Fabian Herweg, University of Bayreuth - Faculty of Law, Business and Economics are Fighting Collusion by Permitting Price Discrimination.
ABSTRACT:We investigate the effect of a ban on third-degree price discrimination on the sustainability of collusion. We build a model with two firms that may be able to discriminate between two consumer groups. Two cases are analyzed: (i) Best-response symmetries so that profits in the static Nash equilibrium are higher if price discrimination is allowed. (ii) Best-response asymmetries so that profits in the static Nash equilibrium are lower if price discrimination is allowed. In both cases, firms’ discount factor has to be higher in order to sustain collusion in grim-trigger strategies under price discrimination than under uniform pricing.
UCL Jevons Institute & UCL Centre for Law, Economics & Society CPD course
The Digital Economy: Economics, Antitrust and Regulation
Tuesday 7th June 2016, from 9:30am - 2pm
at University College London
Professor David Evans (UCL / Chicago)
with Will Page (Chief Economist at Spotify at the 1-2pm session)
Book your tickets online at:
Speaker: Professor David Evans (UCL / University of Chicago)
Accreditation: 3 CPD hours, plus 1 CPD hour for the 1-2pm session
About the course:
The digital economy has grown vast and now reaches almost every aspect of our lives. Whether consumer, business, or regulator we interact with Internet-based businesses constantly. It is also undergoing a massive transformation, with accompanying disruption, as the PC-web-browser centric ecosystem shifts to a mobile-app-centric ecosystem. That transformation has resulted in the “sharing economy,” the “gig-economy”, and the “app-economy” to use some of phrases that dominate today’s conversations.
This course will cover the unique business models followed by Internet-based companies; explore the changes in market structure that has taken place in the last few years as a result of the move to mobile; and consider some of the key competition policy and regulatory issues being debated today.
The course will consist of twelve short segments:
- technological forces;
- economic forces;
- wires, towers, and physical stuff;
- software platforms, APIs, and apps;
- economics of free;
- ad-support platforms and attention markets;
- marketplaces and online retail;
- mobile OSs and app stores;
- gig and sharing platforms;
- privacy and data; and
- the great transition from PC/browser to mobile/app. Each segment will include an application to competition and regulatory policy for the digital economy using examples from the US, EU, and China.
The course will draw extensively on examples of competition policy cases involving the digital economy from the US, EU, and China and these will be included in each segment.
Who should attend:
The course is mainly designed for professionals familiar with competition policy and sectoral regulation (lawyers, economists, and officials) but should also be informative for anyone who works for, invests in, must interact with digital economy businesses.
The course will run from 9:30-1:00pm.
At 1pm attendees are invited to stay for an hour long session in which Professor Evans will discuss his recent book, Matchmakers: The New Economics of Multisided Platforms which recently profile in The Economist, The New York Times, and Wall Street Journal. Following his presentation, Will Page Chief Economist at Spotify, will talk about some applications of the ideas in the course and the book to Spotify, which has revolutionized the distribution of music online.
There are no pre-requisites for attending this course.
Brasil Empresta Ltd
Cleary Gottlieb Steen & Hamilton LLP
Colgate-Palmolive (UK) Ltd
Freshfields Bruckhaus Deringer LLP
Herbert Smith Freehills LLP
International Bar Association
Orrick Herrington & Sutcliffe (Europe) LLP
Osborne Clark LLP
Oxera Consulting LLP
Pinsent Masons LLP
Sidley Austin LLP
Transport Systems Catapult
University of Leeds
£200 standard fee
£125 UCL Alumni ticket
£50 Government employees and academics
£50 non-UCL students
Sissel Jensen, Norwegian School of Economics and Lars Sorgard, Norwegian School of Economics ask FINE SCHEDULE WITH HETEROGENOUS CARTELS: ARE THE WRONG CARTELS DETERRED?
ABSTRACT: This article analyzes the minimum fines necessary to prevent price fixing when the size of the potential cartel overcharge differs across industries. We show that the incentive constraint is typically binding in industries where cartels would lead to a high overcharge, while the participation constraint is typically binding in industries where the potential for overcharge is quite low. We show that the introduction of private litigation and criminal sanctions (such as imprisonment) can make cartels with high overcharges more stable and only deter some of the potential cartels with low overcharges. We contrast our minimum fine schedule with the fine schedules that can be derived from current judicial practice and discuss the policy implications of our results.
Tuesday, May 24, 2016
See here for details for the GCR Women in Antitrust 2016 - call for nominations.
The Big 3 (DOJ Antitrust, FTC, DG Competition) are headed by women. So many of the most important law firm lawyers, in-house practitioners, professors, economic consultants and government stars are also female. It is hard to limit the group to just 100.
Ioannis Lianos, University College London - Faculty of Laws; HSE-Skolkovo Laboratory for Law and Development, Dmitry Katalevsky, HSE-Skolkovo Laboratory for Law and Development and Alexey Ivanov explore The Global Seed Market, Competition Law and Intellectual Property Rights: Untying the Gordian Knot.
ABSTRACT: The paper explores the competition dynamics of the global seed market. It documents the growth strategies of the major seed companies, in particular their M&A activity and their reliance on complex intellectual property strategies in order to offer a one stop shop solution to farmers. Recent merger activity in this sector (the Monsanto bid to buy Syngenta, the DuPont and Dow merger deal, ChemChina’s bid to buy Syngenta) illustrates its rapid transformation from an already concentrated industry to a tight oligopoly on a global scale. The increasing global consolidation of this industry raises new challenges for competition law enforcement authorities dealing with the emergence of new powerful actors at the factor of production (input) level, in view of the broader concerns animating public policy in the food sector and the existence of a nexus of international commitments for biodiversity, sustainability, the right to food etc. By exploring this under-studied but fascinating area of competition law enforcement we open the debate over the inclusion of broader public interest concerns in competition policy and the consideration of its distributive impact from a global perspective.
Superior Bargaining Power and the Global Food Value Chain: The Wuthering Heights of Holistic Competition Law?
Ioannis Lianos, University College London - Faculty of Laws; HSE-Skolkovo Laboratory for Law and Development and Claudio Lombardi, HSE describe Superior Bargaining Power and the Global Food Value Chain: The Wuthering Heights of Holistic Competition Law?
ABSTRACT: In this paper we analyse the role of superior bargaining power in competition law and policy in the agri-food value chain. Conventional approaches to competition law based on a neoclassical price theory perspective tend to neglect or to stay opaque on the role of bargaining power in competition law. However, national competition authorities and national legislators seem to be less biased by specific theoretical approaches and have increasingly engaged with the application of the concept of bargaining power in competition law. In this paper we discuss both positions and set a general theoretical framework, the global value chain approach, to better understand the interactions between suppliers and retailers in the food sector. Finally, we observe the framing of new tools of competition law intervention at national level, in order to deal with situations of superior bargaining power in specific settings related to the food value chain.
Vikas Kathuria, Tilburg University describes Pharmaceutical Mergers and Their Effect on Access and Efficiency: A Case of Emerging Markets.
ABSTRACT: The pharmaceutical M&As in emerging markets may jeopardies cheap access to generics. This may be a motivation for policy makers to use competition law as a tool to deter cross-border M&As. Additionally, M&As in pharmaceutical sector may also give rise to certain efficiencies. However, it is not clear as to how efficiencies will be treated in the peculiar socio-economic context of emerging markets. This paper develops a theoretical framework, which argues that the application of competition law is guided by sector-specific socio-economic realities and institutional realities of the jurisdiction. Thereafter, it employs this framework to analyze both the issues.
Niklas Horstmann, Karlsruhe Institute of Technology, Jan Kraemer, University of Passau, and Daniel Schnurr, Karlsruhe Institute of Technology experiment on Oligopoly Competition in Continuous Time.
ABSTRACT: We conduct oligopoly competition experiments with differentiated goods in discrete and continuous time. Continuous time experiments allow for real-time, asynchronous strategic interaction and are therefore argued to be a more realistic mode of interaction, particularly in the context of (electronic) markets. We consider duopolies and triopolies both under Bertrand as well as Cournot competition and consistently find that, ceteris paribus, tacit collusion is higher under discrete time than under continuous time, which contrasts the theoretical prediction. Thus, our results bear important methodological implications for research on oligopoly competition.
Monday, May 23, 2016
Eric Helland and Seth A. Seabury ask Are Settlements in Patent Litigation Collusive? Evidence from Paragraph IV Challenges.
ABSTRACT: The use of “pay-for-delay” settlements in patent litigation – in which a branded manufacturer and generic entrant settle a Paragraph IV patent challenge and agree to forestall entry – has come under considerable scrutiny in recent years. Critics argue that these settlements are collusive and lower consumer welfare by maintaining monopoly prices after patents should have expired, while proponents argue they reinforce incentives for innovation. We estimate the impact of settlements to Paragraph IV challenges on generic entry and evaluate the implications for drug prices and quantity. To address the potential endogeneity of Paragraph IV challenges and settlements we estimate the model using instrumental variables. Our instruments include standard measures of patent strength and a measure of settlement legality based on a split between several Circuit Courts of Appeal. We find that Paragraph IV challenges increase generic entry, lower drug prices and increase quantity, while settlements effectively reverse the effect. These effects persist over time, inflating price and depressing quantity for up to 5 years after the challenge. We also find that eliminating settlements would result in a relatively small reduction in research and development (R&D) expenditures.
Siekmann, Manuel ; Haucap, Justus ; Heimeshoff, Ulrich describe Fuel Prices and Station Heterogeneity on Retail Gasoline Markets.
ABSTRACT: Price levels and movements on gasoline and diesel markets are heavily debated among consumers, policy-makers, and competition authorities alike. In this paper, we empirically investigate how and why price levels differ across gasoline stations in Germany, using eight months of data from a novel panel data set including price quotes from virtually all German stations. Our analysis specifically explores the role of station heterogeneity in explaining price differences across gasoline stations. Key determinants of price levels across fuel types are found to be ex-refinery prices as key input costs, a station's location on roads or highway service areas, and brand recognition. A lower number of station-specific services implies lower fuel price levels, so does a more heterogeneous local competitive environment.
Wenzel, Tobias ; Normann, Hans-Theo examine Shrouding add-on information: an experimental study.
ABSTRACT: We explore how competition affects firms obfuscation strategies in laboratory experiments. Firms sell a base good and an add-on product. The price of the add-on may be shrouded and, if so, myopic consumers pay too much. Shrouding is an equilibrium but an unshrouding equilibrium coexists. In our experiments, competition matters in that only duopolistic markets are frequently shrouded whereas fourfirm markets are not. With repeated interaction, shrouding rates do not increase. However, the opportunities to shroud facilitate tacit collusion on the base good price for the duopolies: the unshrouding equilibrium serves as a credible punishment if deviations occur.
Normann, Hans-Theo ; Mollers, Claudia ; Snyder, Christopher M. offer Communication in Vertically Related Markets: Experimental Evidence.
ABSTRACT: When an upstream monopolist supplies several competing downstream firms, it may fail to monopolize the market because of opportunistic behavior towards the downstream firms. We analyze this well-known commitment problem in an experiment where we extend previous research by allowing for communication. In one treatment, the upstream firm can bilaterally talk to either of two downstream firms. In a second treatment, all three firms talk together. We find that the treatment with bilateral communication leads to fewer rejections of offers and higher joint profits than a baseline treatment without communication, but output is still above the monopoly benchmark. Only the treatment where all three firms can communicate leads to complete monopolization. Such communication effectively works as a vertical restraint and should be regarding as potentially anticompetitive.
Friday, May 20, 2016
Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading: Experimental evidence
Jacobs, Martin ; Requate, Till study Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading: Experimental evidence.
ABSTRACT: Price competition with increasing marginal costs, though relevant for many markets, appears as an under-researched field in the experimental oligopoly literature. We provide results from an experiment that varies the number of firms as well as the demand rationing and matching schemes in Bertrand-Edgeworth markets with increasing marginal costs and voluntary trading. We find that prices and profits are substantially higher in duopoly than in triopoly and with proportional compared to efficient demand rationing. The matching rule has little effect on prices and profits. Nash equilibrium predictions do not capture observed behavior. Neither the mixed-strategy Nash equilibria of the underlying one-shot game nor, for the fixed matching condition, the symmetric stationary outcome pure-strategy Nash equilibria of the infinitely repeated game are supported by the data. In contrast to results from related experiments, behavior is largely more competitive than pre! dicted by Nash equilibrium theory. Individual pricing decisions can predominantly be explained by either myopic best responses (Edgeworth cycles) or simple imitative behavior, where the complexity of the decision situation plays a crucial role in which behavioral pattern applies.
Teichmann, Isabel and von Schlippenbach, Vanessa identify Collusive effects of a monopolist's use of an intermediary to deliver to retailers.
ABSTRACT: A manufacturer contracting secretly with several downstream competitors faces an opportunism problem, preventing it from exerting its market power. In an infinitely repeated game, the opportunism problem can be relaxed. We show that the upstream firm's market power can be restored even further if the upstream firm chooses a mixed distribution system in which it makes use of an intermediary to distribute the good to a subset of the retailers and delivers directly only to the remaining downstream firms.
Daniel Herold offers A Principal-Agent Model of Competition Law Compliance.
ABSTRACT: This paper analyzes firm owners' incentives to implement Competition Law Compliance Programs as imperfect monitoring devices in a principal-agent setup and the interaction effects with bonus contracts. The manager chooses working effort and has the option to cartelize. The model reveals a non-monotonic relationship between profit targets and incentives to collude. Contrary to intuition, it might be the case that low instead of high profit targets facilitate collusion. This result is driven by the threat of detection and punishment. A Compliance Program deters the agent from misbehavior and enhances effort as long as the agent did not engage in collusive activity. Additionally, the owner can use the Program as an insurance against fines.
Thursday, May 19, 2016
Maican, Florin (University of Gothenburg) ; Orth, Matilda (Research Institute of Industrial Economics (IFN)) examine Entry Regulations, Welfare and Determinants of Market Structure.
ABSTRACT: We use a dynamic oligopoly model of entry and exit with store-type differentiation to evaluate how entry regulations affect profitability, market structure and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing. This study sheds light on the long-run implications of entry regulations for the welfare of differentiated product industries with endogenous entry and exit.
Schmidt-Dengler, Philipp ; Hünermund, Paul ; Takahashi, Yuya discuss Entry and Shakeout in Dynamic Oligopoly.
ABSTRACT: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm effi- ciency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model gener- ates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.
Xavier Freixas ; Kebin Ma examine Banking Competition and Stability: The Role of Leverage.
ABSTRACT: This paper re-examines the classical issue of the possible trade-offs between banking competition and financial stability by highlighting different types of risk and the role of leverage. We show that competition can affect portfolio risk, insolvency risk, liquidity risk, and systemic risk differently. The effect depends crucially on a bank’s type of funding (retail deposits vs. wholesale debts) and whether leverage is exogenous or endogenous. In particular, we argue that while competition might increase financial stability in a classical originate-to-hold banking industry, the opposite can be true for an originate-to-distribute banking industry with a large fraction of market short-term funding.
Roberto Burguet and Jozsef Sakovics are Bidding for input in oligopoly.
ABSTRACT: We present a model where firms producing substitutes bid for inputs (especially labor) in a decentralized market. We show that downstream market power increases the intensity of competition for input through a new channel: local competitive foreclosure. In our model each unit of input (worker) is sold in a separate local market and Â…rms try not just to get it, but also to keep it from their rivals. This externality leads to Â…firms targeting the same units of input and the price of these is bid up. This effect mitigates the output reducing effect of downstream market power and in the limit (linear Cournot with constant returns) can even restore efficiency. As a result of coordination, there exist further equilibria, with prices above cost even with price taking suppliers –in the labor application this leads to involuntary unemployment. When, instead of targeting, firms post prices, coordination no longer plays a role and we have a unique(!) equilibrium that clears the market, still internalizing the externality. Finally, we show that targeting can also result in endogenous market segmentation and price/wage differentials.