Thursday, August 20, 2015
Losses from Horizontal Merger: An Extension to a Successive Oligopoly Model with Product Differentiation
Ramon Fauli‐Oller, Universidad de Alicante and Borja Mesa‐Sanchez, Universidad Carlos III de Madrid discuss Losses from Horizontal Merger: An Extension to a Successive Oligopoly Model with Product Differentiation.
ABSTRACT: This paper generalizes the model of Salant et al. (1983; Quarterly Journal of Economics, Vol. 98, pp. 185–199) to a successive oligopoly model with product differentiation. Upstream firms produce differentiated goods, retailers compete in quantities, and supply contracts are linear. We show that if retailers buy from all producers, downstream mergers do not affect wholesale prices. Our result replicates that of Salant's, where mergers are not profitable unless the size of the merged firm exceeds 80 per cent of the industry. This result is robust to the type of competition.
Rich Gilbert, Berkeley explains E-Books: A Tale of Digital Disruption.
ABSTRACT: E-book sales surged after Amazon introduced the Kindle e-reader at the end of 2007 and accounted for about one quarter of all trade book sales by the end of 2013. Amazon’s aggressive pricing led to allegations that e-books were bankrupting brick-and-mortar book booksellers. Amazon’s commanding position as a bookseller also raises concerns about monopoly power and publishers are concerned about Amazon’s power to displace them in the book value chain. I find little evidence that e-books are primarily responsible for the decline of independent booksellers. I also conclude that entry barriers are not sufficient to allow Amazon to set monopoly prices. Publishers are at risk from Amazon’s monopsony (buyer) power and they adopted agency pricing in an effort to promote retail competition and reduce Amazon’s influence as an e-retailer. Although challenged by the Department of Justice, agency pricing may yet prevail in some form as an equilibrium pricing model for e-book sales.
Leonardo J. Basso, Universidad de Chile - Civil Engineering Department, Nicolas Figueroa, Pontificia Universidad Catolica de Chile, and Jorge Vasquez, University of Wisconsin at Madison - Department of Economics analyze Monopoly Regulation Under Asymmetric Information: Prices vs. Quantities.
ABSTRACT: We compare two instruments to regulate a monopoly that has private information about its demand or costs: fixing the price or the quantity. For each instrument we consider two mechanisms: sophisticated (screening menus) and simple (single menus). We characterize the optimal mechanisms for every instrument, and make between and within comparisons. The two instruments are equivalent when costs are unknown. When demand is unknown and marginal costs are increasing, the sophisticated price mechanism dominates that of quantity, whereas the simple price mechanism dominates that of quantity when marginal costs are decreasing. In the remaining cases each instrument can dominate.
Barak Orbach, University of Arizona discusses The Durability of Formalism in Antitrust.
ABSTRACT: Antitrust formalism consists of commitments to interpretations of the antitrust laws that require courts to discount and even disregard relevant competitive effects. The phenomenon is more known as the use of rigid rules resting on premises that are correct under some circumstances but not all. Examples of antitrust formalism include per se rules, the analysis of collusion, the interpretation of the distinction between horizontal and vertical restraints, the “direct-purchaser” doctrine, and Twombly’s pleading standard. Competition-law rules that downplay competitive effects appear to run afoul of the goals of antitrust and, as such, antitrust formalism is counterintuitive. Antitrust formalism, however, has been a fixture in antitrust policy to which both liberal and conservative antitrust experts — lawyers and economists — have contributed since Congress enacted the Sherman Act. One way to describe antitrust formalism is that many individuals believe that their beliefs should define the law and that, in every generation, some individuals have the power or ability to promote such beliefs. This Article explains the durability of formalism in antitrust law and policy through some of the key facets of the phenomenon.
Wednesday, August 19, 2015
Marek Martyniszyn, Queen's University Belfast - School of Law provides thoughts On Extraterritoriality and the Gazprom Case.
ABSTRACT: The European Commission's (EC) investigation of Gazprom's business practices in the EU raises a number of questions. This article comments on the issue of the EC's jurisdiction in transnational cases in general and in particular—in the context of the Gazprom case, in light of another contribution dealing with this matter. It also sheds some light on the considerations which might have informed Russia's legislative response to the EC's investigation.
Jeffrey I. D. Lewis, Fried, Frank, Harris, Shriver & Jacobson LLP; Benjamin N. Cardozo School of Law and Maggie Wittlin, Columbia University - Law School have written Entering the Innovation Twilight Zone: How Patent and Antitrust Law Must Work Together.
ABSTRACT: Patent law and antitrust law have traded ascendancy over the last century, as courts and other institutions have tended to favor one at the expense of the other. In this Article, we take several steps toward stabilizing the doctrine surrounding these two branches of law. First, we argue that an optimal balance between patent rights and antitrust enforcement exists that will maximize consumer welfare, including promoting innovation and economic growth. Further, as Congress is the best institution to find this optimum, courts should enforce both statutes according to their literal text, which grants absolute patent rights but allows for more discretion in antitrust enforcement. Second, we propose three possible reasons for the historical conflict between these regimes: cultural cognition, political economy, and federal court structure. As a result, we propose two stabilizing solutions: research into culturally depolarizing communication techniques and a two-court “Innovation Circuit.”
Bjorn Lundqvist, Copenhagen Business School; Stockholm University - Faculty of Law and Helene Andersson, Stockholm University ask Access to Documents for Cartel Victims and Cartel Members – is the System Coherent?
ABSTRACT: In this paper we analyse the right to access documents for cartel victims and cartel members. We start with an analysis of the case law from the European Court of Justice and the General Court. The effects of the new Private Enforcement Directive will thereafter be scrutinized. These two sub-chapters are divided so that we analyse the requestors: (i) individuals or (ii) national courts, and the recipients of these requests: (iii) potential or real defendants, (iv) national competition authorities, or (v) the European Commission, separately. Different legal systems are triggered depending on who makes a request and who is the receiver of such a request, and the potential success of obtaining the documents varies considerably. Thereafter, we discuss the rights to the defence and access to documents while being subject to a cartel investigation by the Commission. Our finding is that different legal systems are triggered depending on who makes a request and who is the receiver of such a request, and the potential success of obtaining the documents varies considerably. In fact, the system is not coherent.
Kurt Richard Brekke, Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute), Luigi Siciliani, University of York, and Odd Rune Straume, University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute) discuss Hospital Competition with Soft Budgets.
ABSTRACT: We study the incentives for quality provision and cost efficiency for hospitals with soft budgets, where the payer can cover deficits or confiscate surpluses. While a higher bailout probability reduces cost efficiency, the effect on quality is ambiguous. Profit confiscation reduces both quality and cost efficiency. First‐best is achieved by a strict no‐bailout and no‐profit‐confiscation policy when the regulated price is optimally set. However, for suboptimal prices, a more lenient bailout policy can be welfare‐improving. When we allow for heterogeneity in costs and qualities, we also show that a softer budget can raise quality for high‐cost patients.
Tuesday, August 18, 2015
Ambarish Chandra, University of Toronto - Rotman School of Management and Matthew Weinberg, Drexel University - Department of Economics & International Business How Does examine Advertising Depend on Competition? Evidence from U.S. Brewing.
ABSTRACT: The relationship between market structure and advertising has been extensively studied, but has generated sharply opposing theoretical predictions, as well as inconclusive empirical findings, likely due to severe endogeneity concerns. We exploit the 2008 merger of Miller and Coors in the U.S. brewing industry to examine how changes in local concentration affect firms' advertising behaviour. Well-established regional preferences over beer brands, and the sharp increase in concentration from the merger, make this an excellent setting to analyze this question. We find a significant positive effect of local market concentration on advertising expenditures: a 100-point increase in the HHI measure of concentration increases advertising per capita by 6%. We then use this result to evaluate competing theories of advertising. We conclude that the most likely explanation is that advertising has positive spillovers, thus supporting recent findings in a range of settings.
Re-Pricing Through Disruption in Oligopolies with Tacit Collusion: A Framework for Abuse of Collective Dominance Law
Nicolas Petit, University of Liege - School of Law examines Re-Pricing Through Disruption in Oligopolies with Tacit Collusion: A Framework for Abuse of Collective Dominance Law.
ABSTRACT: This paper proposes an understanding of abuse of collective dominance or shared monopolization that does not outlaw oligopolistic tacit collusion as such, but that reputes abusive a set of tactics adopted by tacitly colluding oligopolists exposed to disruption. As much as deviation is an internal force likely to undermine tacit collusion, disruption is a powerful external force that can cause a return to the competitive equilibrium. The sources of disruption may be technological (eg radical innovation), economic (eg entry of a low-cost player) or legal (eg tax reform). But disruption may never deliver its pro-competitive promises if oligopolists tinker to restore a collusive equilibrium. This paper suggests that competition agencies (“agencies”) could use the dormant doctrine of abuse of collective dominance to illegalize oligopolists’ conduct that seeks to “re-price” through disruption, and elude its pro-competitive effect. This rationalized definition of abuse of collective dominance would both promote legal certainty by clarifying the messy state of the law in this field, and ensure economic efficiency by giving agencies a market-triggered ex post remedy in mature oligopolies with lethargic M&A activity.
This paper is divided in IV sections. First, it explains the case for more ex post enforcement in oligopolistic markets with tacit collusion (I). Second, it describes how disruption can undermine tacit collusion, and what oligopolists can do to overcome the competitive effect of disruption (II). Third, it discusses the pros and cons of this approach, in particular in comparison with alternative scholarly proposals to apply cartel law to tacit collusion (III). Fourth, it skims through EU cases decided at Member State level, to gain a better understanding of the existing antitrust policies on collective dominance (IV).
In this issue:
We're proud to present a special two-part issue, ably organized and managed by Guest Editor Ian McEwin, on the developing ASEAN competition law community. In creating a new economic union, all 10 ASEAN member states agreed to have competition laws in place by the end of 2015. This first part highlights progress in Cambodia, Myanmar, Indonesia, and Thailand; next week, we'll bring you Vietnam, Malaysia, Singapore, and the Philippines. (Ian brings us up to date on Brunei and Laos in his introduction.) Whether exploring the new or existing laws, you'll be current on the exciting growth in this global competition arena.
- ASEAN Competition Law: Part I
- R. Ian McEwin, Aug 17, 2015
While there are many differences between the competition laws, increasing regional integration is likely to lead to greater uniformity and the development of institutional mechanisms to deal with cross-border competition disputes—but these developments are highly unlikely to lead to an ASEAN competition law regulator with supranational powers.R. Ian McEwin (University of Malaya)
- David Fruitman, Aug 17, 2015
Given Cambodia’s lack of experience in competition law and policy, I am personally hoping that Cambodia resists the urge to leap into competition enforcement. David Fruitman (DFDL)
- Minn Naing Oo, Daren Shiau, Aug 17, 2015
It is critical for transitional economies to customize competition laws to that country’s specific features, which will have an impact on the manner in which Myanmar-based firms operate. Minn Naing Oo & Daren Shiau (Allen & Gledhill (Myanmar) Co., Ltd)
- Deswin Nur, Aug 17, 2015
Indonesian competition law has multiple objectives, namely public interest, national economic efficiency, equal opportunity, preventing unfair competition, and promoting effective and efficient business. Deswin NUR (KPPU, Indonesia)
- Sakda Thanitcul, Aug 17, 2015
Even though there have been nearly a hundred complaints over the past 16 years, to date there has yet to be any case filed, in relation to the Act, to the Court by any public attorney. Sakda Thanitcul (Chulalongkorn University)
- R. Ian McEwin, Aug 17, 2015
Antoine Duval, European University Institute; T.M.C. Asser Instituut and Ben Van Rompuy, T.M.C. Asser Instituut; Free University of Brussels (VUB) explore The Compatibility of Forced CAS Arbitration with EU Competition Law: Pechstein Reloaded.
ABSTRACT: In its Pechstein ruling, the Oberlandesgericht (OLG) Munchen based itself on German antitrust law to challenge the validity of arbitration clauses in favour of the Court of Arbitration for Sport (CAS), which are commonly used across the sporting world. Interestingly, competition law was used to indirectly secure a fundamental right enshrined in Article 6 of the European Convention of Human Rights: the right to a fair trial. In this paper we analyse whether the OLG could have come to a similar result based on Article 102 TFEU, the EU competition law provision prohibiting the abuse of a dominant position. If the reasoning used by the OLG can be transposed to EU competition law, this would have even more significant consequences for the future of the CAS. The finding of a violation of Article 102 TFEU would give the case a supranational scope and open the door for follow-on damage claims by athletes in all EU Member States.
The paper is structured as follows. The first part elucidates the legal underpinnings of the jurisdiction of the CAS and explicates the forced nature of CAS arbitration. The second part examines whether the imposition of forced CAS arbitration clauses by sports governing bodies may constitute an exploitative abuse of a dominant position under Article 102 TFEU. It will be argued that the answer to this question ultimately depends on the independence of the CAS. The third part, subsequently, scrutinizes whether the CAS fulfils this fundamental requirement. Finally, conclusions are drawn about the challenges ahead for the CAS in the aftermath of the Pechstein case.
Brett Hollenbeck, University of California, Los Angeles (UCLA) - Anderson School of Management studies Horizontal Mergers and Innovation in Concentrated Industries.
ABSTRACT: Antitrust authorities are increasingly concerned with the question: does allowing rival firms to merge increase or decrease incentives to invest and innovate? I examine this question in a dynamic oligopoly model with endogenous horizontal mergers. Firms produce differentiated goods and compete in prices and may merge with rival firms to increase the quality of their product or may continue to produce both products. The model is solved computationally and several counterfactuals are examined. I show that large firms substitute buyouts for investment but that this process creates a powerful incentive for firms to enter the industry and invest to make themselves an attractive merger partner. The result is significantly higher total investment with mergers than without. This result helps shed light on the larger question of the relationship between the competition and innovation.
Monday, August 17, 2015
Industrial policy is a serious concern in antitrust (see my most recent paper on the topic here). I am glad that I am not the only one concern. There European authors, Mario Mariniello, Damien Neven and Jorge Padilla discuss this is a new working paper Antitrust, regulatory capture and economic integration.
– There is growing worldwide concern about bias in the enforcement of competition law in favour of domestic firms. Even seemingly neutral antitrust laws can lead discrimination if they are enforced selectively.
– Authors investigate the distortions that national competition authorities generate when they pursue non-competition goals in favour of domestic firms, and discuss ways to address this negative policy development in a globalised world.
– The distortions identified in the paper would dissipate if governments agreed that the sole objective of competition law ought to be the protection of consumer welfare that competition-law institutions ought to be protected against capture.
– A realistic and effective way to prompt international convergence towards independent enforcement of competition laws is through the inclusion of competition clauses in bilateral trade agreements and the development of dispute-resolution mechanisms.
Jeremy K. West, Organisation for Economic Co-Operation and Development (OECD) discusses Disruptive Innovation.
Abstract: Disruptive technologies and business models profoundly affect existing markets. The most visible recent examples are Internet-based "sharing services" that are disrupting conventional taxi and hotel markets, but there are many others in diverse areas such as finance, retail electricity and automobiles.
Disruptive innovations can deliver important benefits to consumers and can stimulate innovation and price competition from established providers. However, they can also give rise to legitimate public policy concerns (e.g. safety, privacy) and create demands for regulation. Established providers will often lobby for existing regulations to be applied to new providers to lessen their competitive advantage, sometimes claiming rightly or wrongly that this advantage arises from an ‘unfair’ exclusion from regulatory rules.
But how far should regulation go, what role should competition policy play in these debates, and how might competition authorities participate?
This issues paper served as the backdrop for a June 2015 hearing held by the OECD's Competition Committee, in which experts and delegates discussed current competition policy challenges arising from disruptive innovations.
Vinci Construction e.a. v France: Limits on Unannounced Inspections on the Basis of the Rights to a Fair Trial and to the Respect for Privacy
Collette Rawnsley, Shearman & Sterling examines Vinci Construction e.a. v France: Limits on Unannounced Inspections on the Basis of the Rights to a Fair Trial and to the Respect for Privacy.
ABSTRACT: The European Court of Human Rights (the ‘ECtHR’) has upheld applications by construction companies Vinci Construction France (‘Vinci’) and GTM genie civil et services (‘GTM’) that certain aspects of the dawn raids carried out by the French competition authority (the ‘DGCCRF’) violated the companies' rights under Article 6(1) (right to a fair trial) and Article 8 (private and family life, home and correspondence) of the European Convention of Human Rights (‘ECHR’).
On the efficiency of Bertrand and Cournot equilibrium in the presence of asymmetric network compatibility effects
Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) offers thoughts On the efficiency of Bertrand and Cournot equilibrium in the presence of asymmetric network compatibility effects.
ABSTRACT: Based on a differentiated duopoly model, we consider the efficiency of Bertrand and Cournot equilibrium in the presence of network effects and product compatibility. In particular, we demonstrate that if an asymmetric product compatibility with a strong network effect between the firms arises, give certain conditions, Cournot equilibrium is more efficient than Bertrand equilibrium in terms of greater consumer, producer, and social surplus.
Trading Gains and Losses in Antitrust: Why Losses Should Count More than Gains — An Implication of Behavioral Economics for Antitrust Losses
Richard O. Zerbe Jr., University of Washington - Daniel J. Evans School of Public Affairs describes Trading Gains and Losses in Antitrust: Why Losses Should Count More than Gains — An Implication of Behavioral Economics for Antitrust Losses.
ABSTRACT: In mainstream antitrust law the nature of economic efficiency has not been investigated in great depth. Such an investigation has important implications for antitrust law and economics. Among these are the following: (1) Behavioral economics shows that consumer surplus measures of losses underestimate consumer damages, often considerably, while producer surplus measures generally do not. (2) Thus an efficiency-based approach to antitrust should weigh consumer losses much more heavily than producer gains. (3) This conclusion has profound effects on many areas of antitrust, including every area that involves both market power and efficiency effects. The fact is that consumer surplus measures of losses underestimate consumer damages, often considerably, while producer surplus (profits) measures generally do not. This is because economic efficiency requires that losses be weighed more than gains. This result suggests that the optimal antitrust penalty as suggested by Landes and Posner is an underestimate.
I show further that the concept of economic efficiency furnishes a justification for a focus on consumer protection as the correct role for antitrust law. This justification is related to the underestimates of consumer losses. The gain-loss disparity suggests a rationale in antitrust law for the emphasis on consumer protection rather than using a total surplus standard.
Competition and State Aid Implications of the Spezzino Judgment (C-113/13): The Scope for Inconsistency in Assessing Support for Public Services Voluntary Organisations
Albert Sanchez-Graells, University of Leicester - School of Law explores Competition and State Aid Implications of the Spezzino Judgment (C-113/13): The Scope for Inconsistency in Assessing Support for Public Services Voluntary Organisations.
ABSTRACT: This paper assesses the competition law and State aid implications of the CJEU Judgment in Azienda sanitaria locale n. 5 "Spezzino" and Others, C-113/13, EU:C:2014:2440 (Spezzino). It pays particular attention at the departure from the Altmark test for the assessment of public support granted to providers of public services; as well as on the change of mind by the CJEU regarding the special position of non-profit entities in the direct award of public service contracts.
Friday, August 14, 2015
Paul K. Gorecki, Economic and Social Research Institute, Dublin and Department of Economics, Trinity College Dublin and Francis O’Toole, Department of Economics, Trinity College Dublin explain The dangers of ad hoc changes to merger control regulation: the Irish financial crisis.
ABSTRACT: Ireland’s policy-makers were confronted with difficult decisions concerning the financial sector and competition policy during the recent financial crisis. In response, Ireland’s Credit Institutions (Financial Support) Act 2008 (‘CIFS Act 2008’) introduced ad hoc policy changes to the review of mergers deemed necessary for the stability of the Irish financial system. These changes were repealed in August 2013. This article explores the adequacy of the temporary ad hoc approach and highlight its significant shortcomings, on both procedural and competition assessment grounds. In contrast to this ad hoc temporary-changes approach, this article argues that in the context of a crisis, financial, or otherwise, requiring changes to merger control regulation, the competition agency should conduct the initial competition assessment and only then should non-competition criteria be applied by the relevant Minister and/or independent institution. The major lesson from the Irish experience is that side-lining competition concerns by a series of ad hoc short-term responses to problems in the financial sector is likely to damage growth and the recovery in the medium to longer term.