Antitrust & Competition Policy Blog

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

Thursday, September 22, 2016

R&D Cooperatives and Market Collusion: A Global Dynamic Approach

Jeroen Hinloopen (Utrecht University, The Netherlands); Grega Smrkolj (Newcastle University, United Kingdom) and Florian Wagener (University of Amsterdam, The Netherlands) investigate R&D Cooperatives and Market Collusion: A Global Dynamic Approach.

ABSTRACT:  We present a continuous-time generalization of the seminal R&D model of d’Aspremont and Jacquemin (American Economic Review, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion. We consider all trajectories that are candidates for an optimal solution as well as initial marginal cost levels that exceed the choke price. Firms that collude develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.

September 22, 2016 | Permalink | Comments (0)

How Far Can the Commission Go When Imposing Remedies for Antitrust Infringements?

Cyril Ritter, European Commission, Directorate-General for Competition ask How Far Can the Commission Go When Imposing Remedies for Antitrust Infringements?

ABSTRACT: Article 7 remedies for infringements of Articles 101 and 102 TFUE have a specific function (‘bringing the infringement effectively to an end’), which is distinct from interim measures, fines, and actions for damages. Alongside merger remedies and Article 9 commitments, Article 7 remedies can shape markets in very significant ways.  In this paper, the author examines the purposes of Article 7 remedies, the types of remedies, and the procedures used to impose and enforce them.

September 22, 2016 | Permalink | Comments (0)

ASCOLA Membership (A letter from Professor Michal Gal)

I am writing to you in my new role as the President of ASCOLA. ASCOLA is in international organization of competition law scholars (see http://www.ascola.org/). It was founded 11 years ago by Prof. Josef Drexl, and since then has increased its membership to approximately 350 members worldwide. While many members are European, many others come from all other parts of the world, whose main interest and occupation is the research of competition law issues. Unfortunately U.S. participation is still limited, but I hope to change this in my time as President. Some AAI members (including Bert and John Kwoka) have already joined, and I hope they will second me that it is well worth their time.

What does ASCOLA have to offer? It offers a unique opportunity to meet established competition law scholars from around the world. In one conference, you can meet many interesting scholars that you might not have come across otherwise, which might offer different points of view on shared topics. It also offers an environment in which competition law issues are discussed at a high level among scholars and researchers. This is mainly done though its yearly conference (this year in Stockholm, Sweden on June 15-17, 2017, with a focus on digital markets), and several more local events. Hopefully in the near future digital discussion groups will also be created.

How to join? ASCOLA membership is based on academic achievements in the fields of competition law and regulation. To join one can download an application form and send it along with the CV to me. The application is then approved by the board.

I invite the competition law scholars among you to join! If you have any questions please do not hesitate to contact me,

Michal

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-- Prof. Michal S. Gal, S.J.D Director of the Forum for Law and Markets

Faculty of Law, University of Haifa

President, International Academic Society of Competition Law Scholars (ASCOLA) Mount Carmel, Haifa 31905, Israel Tel: 972-4-825-3865 Fax: 972-4-824-0681 http://weblaw.haifa.ac.il/en/faculty/gal/pages/home.aspx SSRN page: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=163287

September 22, 2016 | Permalink | Comments (0)

Anticipated vs. Actual Synergy in Merger Partner Selection and Post-Merger Innovation

Vithala R. Rao, Johnson Graduate School of Management, Cornell University, Yu Yu AIG Science, and Nita Umashankar, J. Mack Robinson College of Business, Georgia State University have a paper in the current issue of Marketing Science on Anticipated vs. Actual Synergy in Merger Partner Selection and Post-Merger Innovation.

ABSTRACT: Past research has primarily focused on what happens after a merger. This research attempts to determine whether anticipated benefits from the merger actually accrue. We characterize the effects of observed variables on whether pairs of firms merge, vis-à-vis roommate matching, and then link these factors to post-merger innovation (i.e., number of patents). We jointly estimate the two models using Markov Chain Monte Carlo methods with a unique panel data set of 1,979 mergers between 4,444 firms across industries and countries from 1992 to 2008. We find that similarity in national culture and technical knowledge has a positive effect on partner selection and post-merger innovation. Anticipated synergy from subindustry similarity, however, is not realized in post-merger innovation. Furthermore, some key synergy sources are unanticipated when selecting a merger partner. For example, financial synergy from higher total assets and complementarity in total assets and debt leverage as well as knowledge synergy from breadth and depth of knowledge positively influence innovation but not partner selection. Furthermore, factors that dilute synergy (e.g., higher debt levels) are unanticipated, and firms merge with firms that detract from their innovation potential. Overall, the results reveal some incongruity between anticipated and realized synergy.

 

September 22, 2016 | Permalink | Comments (0)

Vertical Integration and Downstream Collusion

Sara Biancini, University of Cergy-Pontoise - THEMA and David Ettinger, CNRS, National Center for Scientific Research, France - CERAS Vertical investigate Integration and Downstream Collusion.

ABSTRACT: We investigate the effect of a vertical merger on downstream firms’ ability to collude in a repeated game framework. We show that a vertical merger has two main effects. On the one hand, it increases the total collusive profits, increasing the stakes of collusion. On the other hand, it creates an asymmetry between the integrated firm and the unintegrated competitors. The integrated firm, accessing the input at marginal cost, faces higher profits in the deviation phase and in the non cooperative equilibrium, which potentially harms collusion. As we show, the optimal collusive profit-sharing agreement takes care of the increased incentive to deviate of the integrated firm, while optimal punishment erases the difficulty related to the asymmetries in the non cooperative state. As a result, vertical integration generally favors collusion.

 

 

September 22, 2016 | Permalink | Comments (0)

Wednesday, September 21, 2016

Competition Law and Global Supply Chains

David Gerber, Chicago Kent conceptualizes Competition Law and Global Supply Chains.

ABSTRACT: Global supply chains (or value chains or production networks) produce most of the manufactured products used by most people in most developed countries most of the time. They often represent a highly efficient and valuable set of economic arrangements, but they also carry a potential for harm that is often beyond the reach of current legal remedies. GSCs can shield those that produce faulty or hazardous products or artificially raise prices from legal responsibility for the harms they cause to markets, consumers and to the environment. This article focuses on one of those potential harms -- those caused by anti-competitive conduct, but many of the issues also arise in relation to environmental, financial and other types of harm. The article also looks at the impact of such arrangements on emerging markets and suggests ways in which the interests of low income source countries can be better aligned with high income destination countries.

 

 

September 21, 2016 | Permalink | Comments (0)

A Reluctant Standard-Bearer for Chicago-School Antitrust

Max Huffman (IU Indianapolis) describes Scalia as A Reluctant Standard-Bearer for Chicago-School Antitrust.

ABSTRACT: Justice Scalia was part of the intellectual ferment that gave rise to the deregulatory mindset in the 1970s and 1980s. He was involved in the intellectual conversations around ideas including textualist interpretive philosophy (statutes), originalist interpretation (constitutions), and free-market economic thought. Justice Scalia adopted the originalist philosophy from Judge Bork and advanced it from the pulpit of the Supreme Court. For the most part, he did not take the same leadership role in advancing the Chicago School tradition in antitrust. It would be impossible, however, in light of his long tenure on the Court and his engagement with the core intellectual philosophies that underlie much of modern antitrust, for him not to have had an impact on the body of law. And in Kodak (dissenting), Empagran (concurring), and Trinko (for the majority), he did.

 

 

September 21, 2016 | Permalink | Comments (0)

The Blocking Injunction: A Comparative and Critical Review of the EU, Singaporean and Australian Regimes

Alpana Roy, Western Sydney University and Althaf Marsoof, King’s College London, Dickson Poon School of Law, Students describe The Blocking Injunction: A Comparative and Critical Review of the EU, Singaporean and Australian Regimes.

ABSTRACT: This article critically, and comparatively, evaluates the legal basis and key shortcomings of the blocking injunction, which has gained popularity in the EU, Singapore and lately Australia, as an alternative to the extrajudicial “notice and takedown” approach to enforcing intellectual property rights. The article concludes that there are problems not only with the remedy itself, but also in the manner in which the blocking injunction is implemented. The fact that multiple proceedings have to be filed in order to obtain a global level of enforcement and the possibility of blocking measures being circumvented are problems with the remedy itself. In the EU context, at least, not only does the implementation of the blocking injunction fall short of due process requirements, but also the legal basis for the remedy in the context of enforcing trade mark rights is questionable.

 

 

September 21, 2016 | Permalink | Comments (0)

Does Competition from Private Surgical Centres Improve Public Hospitals' Performance? Evidence from the English National Health Service

Zack Cooper; Stephen Gibbons and Matthew Skellern add Does Competition from Private Surgical Centres Improve Public Hospitals' Performance? Evidence from the English National Health Service.

ABSTRACT: This paper examines the impact of competition from government-facilitated entry of private, specialty surgical centres on the efficiency and case mix of incumbent public hospitals within the English NHS. We exploit the fact that the government chose the location of these surgical centres (Independent Sector Treatment Centres or ISTCs) based on nearby public hospitals' waiting times - not length of stay or clinical quality - to construct treatment and control groups that are comparable with respect to key outcome variables of interest. Using a difference-in-difference estimation strategy, we find that ISTC entry led to greater efficiency - measured by pre-surgery length of stay for hip and knee replacements - at nearby public hospitals. However, these new entrants took on healthier patients and left incumbent hospitals treating patients who were sicker, and who stayed in hospital longer after surgery.

September 21, 2016 | Permalink | Comments (0)

Tuesday, September 20, 2016

On the welfare cost of bank concentration

Sofa Bauducco, Central Bank of Chile and Alexandre Janiak, University of Chile provide thoughts On the welfare cost of bank concentration.

ABSTRACT: We build a model of bank concentration. Banks and entrepreneurs meet in a credit market characterized by search frictions and negotiate repayment rates à la Nash. Banks are large in the sense that they allocate credit to more than one entrepreneur through branches and there is bank heterogeneity in terms of their cost structure. Banks have incentives to overlend, generating a scale inefficiency and overconcentration of banks. We find that this friction also generates too much concentration on the goods market, lowering aggregate output and welfare. We calibrate the model with data on the distribution of branches across banks in the US and available estimates on X-efficiency in the banking sector to assess the quantitative importance of this effect. We find that aggregate output would increase by 2.4% had the scale inefficiency been absent, while loan rates would decrease by 1.2%.

September 20, 2016 | Permalink | Comments (0)

Acting Assistant Attorney General Renata Hesse of the Antitrust Division Delivers Opening Remarks at 2016 Global Antitrust Enforcement Symposium

Government-induced Production Commitment in the Open Economy

Hiroaki Ino (School of Economics, Kwansei Gakuin University) and Akira Miyaoka (Graduate School of Economics, Kansai University) investigate Government-induced Production Commitment in the Open Economy.

ABSTRACT: We investigate the welfare effects of the strategic regulation that induces a collusive leadership of the organized domestic incumbents under free entry of foreign firms. We formulate such a strategic regulation in the quantity-setting competition where the domestic firms can collusively make their production decision before the entry of foreign firms, and demonstrate how strongly the regulation works in terms of domestic social welfare by comparing to the welfare-maximizing import tariff policy. We show that when the products of firms are homogeneous, that strategic regulation always yields higher welfare than the import tariff does even if the regulator perfectly engages in the domestic-industry protection and ignores consumer surplus. We also consider the differentiated products and demonstrate that the similar result holds when the degree of differentiation is relatively small, but the converse holds when the degree of differentiation is relatively large even if the regulator is perfectly benevolent.

September 20, 2016 | Permalink | Comments (0)

Competition, Price Dispersion and Capacity Constraints: The Case of the U.S. Corn Seed Industry

Cornelia Ilin, University of Wisconsin and Guanming Shi, University of Wisconsin investigate Competition, Price Dispersion and Capacity Constraints: The Case of the U.S. Corn Seed Industry.

ABSTRACT: This study examines the effect of competition on price dispersion and argues that the effect is contingent on the ability of firms to meet market demand. Our comparative static results show that competition among symmetrically capacity-constrained firms leads to a price decrease in the lower tail of the price distribution and a price increase in the upper tail. In contrast, competition among symmetrically capacity-unconstrained firms, or among firms with asymmetric capacities leads to an overall price increase along the distribution function. To investigate these findings empirically, we use a novel data set from the U.S. corn seed industry with farm-firm-level sales information for conventional and genetically modified corn seeds between 2004 - 2009. We estimate the empirical model using the IV Quantile Regression, and found evidence consistent with the above mentioned comparative static results. The analysis also shows that capacity-unconstrained seed firms charge a price premium, confirming the positive relationship between product availability and pricing found in our theoretical model.

September 20, 2016 | Permalink | Comments (0)

ABA Section of International Law 2016 Fall Meeting

The ABA Section of International Law 2016 Fall Meeting in Tokyo has a number of antitrust panels.

2016 Fall Meeting Preliminary Brochure

September 20, 2016 | Permalink | Comments (0)

Tirole's Industrial Regulation and Organization Legacy in Economics

Drew Fudenberg states Tirole's Industrial Regulation and Organization Legacy in Economics.

ABSTRACT: Jean Tirole was awarded the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his analysis of market power and regulation. This paper provides an overview of some of that work, and of his related contributions to game theory.

September 20, 2016 | Permalink | Comments (0)

Monday, September 19, 2016

Competition, Innovation, and the Number of Firms

Pedro Bento (Texas A&M University, Department of Economics) empirically examines Competition, Innovation, and the Number of Firms.

ABSTRACT: I look at manufacturing firms across countries and over time, and find that barriers to competition actually increase the number of firms. This finding contradicts a central feature of all current models of endogenous markups and free entry, that higher barriers should reduce competition and firm entry, thereby increasing markups. To rationalize this finding, I extend a standard model in two ways. First, I allow for multi-product firms. Second, I model barriers as increasing the cost of entering a product market, rather than the cost of forming a firm. Higher barriers to competition reduce the number of products per firm and per market, but increase markups and the total number of firms. Calibrating the model to U.S. data, I estimate cross-country differences in consumption as large as 3-fold due to observed differences in barriers to competition. In addition, increasing barriers generates either a negative or inverted-U relationship between firm-level in! novation and markups. While higher markups encourage product-level innovation through the usual Schumpeterian mechanism, firm-level innovation (at least eventually) drops as firms reduce their number of products. I provide new evidence supporting these two novel implications of the model - that product-level innovation increases with barriers to competition, while the number of products per firm decreases.

September 19, 2016 | Permalink | Comments (0)

Production Networks, Geography and Firm Performance

Andrew B. Bernard; Andreas Moxnes and Yukiko U. Saito examine Production Networks, Geography and Firm Performance.

ABSTRACT: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.

September 19, 2016 | Permalink | Comments (0)

On Prices' Cyclical Behaviour in Oligopolistic Markets

Luca Lambertini (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy) and Luigi Marattin (Department of Economics, University of Bologna, Italy) provide thoughts On Prices' Cyclical Behaviour in Oligopolistic Markets.

ABSTRACT: We revisit the discussion about the relationship between price's cyclical features, implicit collusion and the demand level in an oligopoly supergame where a positive shock may hit demand and disrupt collusion. The novel feature of our model consists in characterising the post-shock noncooperative price and comparing it against the cartel price played in the last period of the collusive path, to single out the conditions for procyclicality to arise both in the short and in the long-run.

September 19, 2016 | Permalink | Comments (0)

Quantity Competition under Resale Price Maintenance when Most Favored Customers are Strategic

Yossi Aviv and Andrei Bazhanov and Yuri Levin and Mikhail Nediak conceptualize Quantity Competition under Resale Price Maintenance when Most Favored Customers are Strategic.

ABSTRACT: Legal studies usually treat a policy of a manufacturer or retailer as socially harmful if it reduces product output and increases the price. We consider a two-period model where the first-period price is fixed by resale price maintenance (RPM) and resellers endogenously decide to use another "collusion suspect," meet-the-competition clause with a most-favored-customer clause (MFC), to counteract strategic customer behavior. As a result of MFC, second-period (reduced) price increases, and resellers' inventories decrease. However, customer surplus may increase and aggregate welfare increases in the majority of market situations. MFC can not only decrease the losses in welfare and resellers' profits due to strategic customers but, under reseller competition, may even lead to higher levels of these values than with myopic customers, i.e., to gains from increased strategic behavior. MFC may create "MFC-traps" for resellers, where one of possible market outcome! s yields a gain from increased strategic behavior while another results in a reseller profit less than the worst profit in any stable outcome without MFC. With growing competition, benefits or losses from MFC can be higher than losses from strategic customer behavior.

September 19, 2016 | Permalink | Comments (0)

Friday, September 16, 2016

How Firms Navigate Cooperation and Competition in Nascent Ecosystems

Douglas Hannah, University of Texas at Austin - Red McCombs School of Business and Kathleen M. Eisenhardt, Stanford University - Management Science & Engineering discuss How Firms Navigate Cooperation and Competition in Nascent Ecosystems.

ABSTRACT: Competition and cooperation are fundamental to strategy, and often closely intertwined. But how firms successfully navigate both competition and cooperation over time, particularly in dynamic industries, is not clear. Via an in-depth multiple-case study of five firms in the US residential solar industry, we induct a theoretical framework to explain how firms successfully navigate nascent ecosystems over time. We identify three distinct strategies, each of which distinctively balances cooperation and competition, and each of which carries its own unique advantages and disadvantages. In doing so, we contribute insights into research on bottlenecks, kingpins, and the origins of strategy. Overall, we offer insight into the interplay between cooperation and competition, and crystallize the pivotal role of bottlenecks.

September 16, 2016 | Permalink | Comments (0)