Tuesday, April 7, 2015
Angelo Castaldo (Sapienza Universita di Roma) and Laura Ferrari-Bravo (Sapienza Universita di Roma) discuss Mergers in declining industries: puzzles from competition and industrial policies.
ABSTRACT: Exit strategies referred to specific industry characteristics have been widely studied in the economic literature (Harrigan, 1980; Ghemawat et al., 1985, 1990; Lieberman, 1990; Reynolds, 1988; Fundenberg et al., 1989; Baptista et al., 2006). These studies show that exit dynamics – by setting new boundaries and changing the dynamic of sectorial competition – may reallocate activities towards more efficient outcomes. In declining industries particularly exit strategies play a crucial role in granting efficiency. When demand declines, efficiency rules call out for a shrink in production capacity. We focus on M&A as a strategy of orderly exiting from a declining industry. We argue that merger strategies in such a context could represent an efficient solution to the attrition game. However, mergers often give rise to competitive concerns. This raises the question of how to reconcile the enforcement of competition rules with the need of mergers as efficient devices for orderly exiting from declining industries. We suggest a two-step approach to merger scrutiny that, beginning from market definition from both a competition law and industrial policy perspective, attempts to solve the trade-off between fostering competition and recovering from decline, thereby reducing the possibility of committing Type I and II errors in assessing the competitive impact of mergers.
Thomas Brenner (Economic Geography and Location Research, Philipps-University, Marburg) and
Matthias Duschl (Economic Geography and Location Research, Philipps-University, Marburg) are Modelling Firm and Market Dynamics - A Flexible Model Reproducing Existing Stylized Facts.
ABSTRACT: This paper presents a firm and market model that is able to reproduce the empirically observed patterns on firm growth and its statistical characteristics. It goes beyond the existing firm models by reproducing all stylized facts established in the literature. Furthermore, the model is flexible so that it can be adapted to certain industries and life-cycle stages. We analyse and discuss the options that are provided by the various parameters in this sense.
Monday, April 6, 2015
Brian Fung (Washington Post columnist of "The Switch") has a new op-ed on This class-action suit against Google just collapsed. That’s a good thing.
D. Daniel Sokol, University of Florida analyzes Tensions Between Antitrust and Industrial Policy.
ABSTRACT: Sound antitrust law and policy is in tension with industrial policy. Antitrust promotes consumer welfare whereas industrial policy promotes government intervention for privileged groups or industries. Unfortunately, industrial policy seems to be alive and well both within antitrust law and policy and within a broader competition policy worldwide. This Article identifies how industrial policy impacts both antitrust and competition policy. It provides examples from the United States, Europe and China as to how industrial policy has been used in antitrust. However, this article also makes a broader claim that the overt or subtle use of industrial policy in antitrust and a broader competition policy is a global phenomenon. The US experience teaches that industrial policy can be pushed to the margins in antitrust (and the failure to push such policy to the margins produces economic inefficiencies) and that successful competition advocacy can reduce the competitive distortions of a broader competition policy. This article first identifies the relationship between antitrust and industrial policy. It provides examples of industrial policy in the antitrust experiences of the United States, Europe, and China. Second, the article explores how a lack of procedural fairness in antitrust may be abused by inefficient competitors as a way to push industrial policy goals. Third, the article demonstrates how industrial policy hurts a broader competition policy and suggests potential competition advocacy interventions on the part of antitrust authorities to limit the anti-competitive effects of such policy. The article concludes with the suggestion that industrial policy is in fundamental tension with promoting consumer welfare and fostering long term economic growth and should be abandoned both explicitly and implicitly from the antitrust enterprise. Further, antitrust agencies should implement more competition advocacy interventions to stop the spread of industrial policy globally.
Igor G. Pospelov (National Research University Higher School of Economics) and Stanislav A. Radionov (National Research University Higher School of Economics) has written On The Social Efficiency In Monopolistic Competition Models.
ABSTRACT: We consider standard monopolistic competition models with aggregate consumer's preferences dened by two well-known classes of utility functions | the Kimball utility function and the variable elasticity of substitution utility function. It is known that market equilibruim is ecient only for the special case when utility function has a constant elasticity of substitution, but we nd that in both cases a special tax on rms' output may be introduced such that market equilibrium becomes ecient
Yohei Tenryu (Graduate School of Economics, Osaka University) and Keita Kamei (Graduate School of Economics, Kyoto University) explore Dynamic Voluntary Advertising under Partial Market Coverage.
ABSTRACT: We consider a dynamic voluntary advertising model with a duopoly. Firms can use advertising and price as competitive tools where product quality is a given and the market is not fully covered by consumers. Advertising also plays a role as a public good. In this situation, we investigate how advertising, profits, and welfare respond to changes in consumer preference and product quality. We mainly find that a higher maximum preference value leads to increases in advertising, profits, and consumer surplus but a decrease in incumbent consumers’ utility. We further find that a technology improvement by a low-quality firm increase its profit and consumer surplus if the technology gap is re! latively large but if this is not the case, then the innovation could have different effects on firms’ profits and consumer surplus.
Paul Hunermund, Philipp Schmidt-Dengler, and Yuya Takahashi analyze 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 efficiency. 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 generates 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.
Judith A. Chevalier and Anil K Kashyap offer Best Prices: Price Discrimination and Consumer Substitution.
ABSTRACT: We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the ideal price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.
Friday, April 3, 2015
A new Slate article explains Manischewitz Makes Terrible Food and Wine. How’d It Become So Popular?:
Manischewitz's sins against taste are by now familiar. Its sickly sweet wine is all but undrinkable unless used as a cocktail mixer. Its oddly dense gefilte fish, with its aromatic hints of cat food, has turned off an untold many to a dish that, made properly, should be the Jewish answer to the proud French quenelle.
HT: Lee Greenfield
Competition, Cooperation and Regulation: Understanding the Evolution of the Mobile Payments Technology Ecosystem
Jun Liu, Singapore Management University, Robert J. Kauffman, Singapore Management University, and Dan Ma, Singapore Management University analyze Competition, Cooperation and Regulation: Understanding the Evolution of the Mobile Payments Technology Ecosystem.
ABSTRACT: The past twenty years have been a time of many new technological developments, changing business practices, and interesting innovations in the financial information system (IS) and technology landscape. They have led to the increasing use of prior innovations that have supported e-commerce, and that are now being brought into financial services to support different kinds of improvements to core business processes. This research examines recent changes in the payment sector in financial services, specifically related to mobile payments (m-payments) that enable new channels for consumer payments for goods and services purchases, and other forms of economic exchange. We extend recent research on technology ecosystems and paths of influence analysis for how industry-centered technology innovations arise and evolve. We explore the extent to which they can be understood through the lens of several simple building blocks, including technology components, technology-based services, and the technology-supported infrastructures that provide foundations for the related digital businesses. Our extension of the prior research focuses on two key elements: (1) modeling the impacts of competition and cooperation on different forms of innovations in the aforementioned building blocks; and (2) representing the role that regulatory forces play in driving or delaying innovation in the larger scope of our modeling approach. To assess the efficacy of our approach, we use it to retrospectively analyze the past two decades of innovations in the m-payments space. Our results identify the industry-specific patterns of innovation that have occurred, suggest how they have been affected by competition, cooperation and regulation, and point out some more universal patterns of technology innovations that offer insights into the development of e-commerce.
Douglas A. Herman, Shawn W. Ulrick, U.S. Federal Trade Commission (FTC) and Seth B. Sacher, Federal Trade Commission offer Dominance Thresholds: A Cautionary Note.
ABSTRACT: As a threshold matter, high market shares are considered informative of potential underlying competitive dynamics, especially issues of market power and dominance. However, as is well known, high shares may not tell the entire story. Beyond issues related to market definition, entry, and efficiencies, this article notes an additional reason why caution may be warranted before drawing conclusions about dominance or market power from share evidence. Specifically, such conclusions can be statistically unsupportable in the presence of small sample issues. In markets with relatively few transactions (that is, “thinly” traded markets), the implications of observed high market shares are much less clear than in more thickly traded markets. It is entirely possible that situations that appear to implicate a dominant firm actually reflect pure random chance in a competitive process involving equally matched or nondominant firms. This article discusses theories and methods for distinguishing between outcomes that exhibit strong statistical evidence of dominance as opposed to those that merely reflect the random distribution of winnings among nondominant firms.
John Kirkwood (Seattle) advocates Reforming the Robinson-Patman Act to Serve Consumers and Control Powerful Buyers.
ABSTRACT: The conventional scholarly response to the Robinson-Patman Act is to urge that it be repealed. Too often R-P enforcement protects small business at the expense of consumers, and frequently it does not even protect small business. In this article I suggest that a better response is to reform the Robinson-Patman Act.
The first step would be to change its goal – to reorient it from a statute designed to protect small business to one designed to promote competition. This is easily done. The second step is to eliminate, in purely equitable actions, the meeting competition and cost justification defenses, since these defenses frequently block enforcement action against powerful buyers, even when their behavior endangers consumers. Though not the focus of this article, the final step would be to make conforming changes in the Act’s technical and jurisdictional requirements and its treatment of promotional discrimination.
These reforms would make it possible to stop – or mitigate the impact of – powerful buyers like Amazon and Wal-Mart when they extract concessions that do pose a serious threat to competition and consumer welfare. While buyer power could be addressed in other ways – courts might break up large buyers if they violate section 2 of the Sherman Act and Congress might subject them to common carrier regulation – neither remedy is likely to provide a desirable general solution. The best approach would be to reform the Robinson-Patman Act.
Thursday, April 2, 2015
Shawn W. Ulrick, U.S. Federal Trade Commission (FTC) and Seth B. Sacher, Federal Trade Commission ask How Big is Big? A Caveat Regarding Difference-in-Differences Analysis.
ABSTRACT: Difference-in-differences, or “D-in-D,” is perhaps the most broadly applied econometric technique in retrospective analyses of competition matters. We discuss a possible pitfall regarding this procedure. We argue that a positive and significant event variable coefficient is not a sufficient condition for concluding there have been anticompetitive price effects. We use simulations to demonstrate that even in cases where the alleged anticompetitive activity had no anticompetitive effect, the D-in-D procedure can still produce positive and significant event variables. This paper does not take issue with D-in-D in principle but rather as it is often practiced. Our results imply that while D-in-D is an important tool, the researcher must conduct additional analyses to put the D-in-D result into context before concluding a significant event variable is indicative of anticompetitive effects. We suggest a specific approach. We note that our results may have important implications for the current state of the academic literature regarding retrospectives in antitrust as well as for practitioners.
Olivier Bertrand, SKEMA Business School Sophia Antipolis and Fabrice Lumineau, Purdue University address Partners in Crime: The Effects of Diversity on the Longevity of Cartels.
ABSTRACT: Despite the importance of organizational misconduct, we still do not know much about coordinated misconduct between firms. In this study, we get a better understanding of how the profile of the partners involved in cartels affects the longevity of their joint misconduct activities. Drawing upon diversity theory, we leverage a distinction between three types of diversity — i.e., variety of age-based experience, separation in uncertainty avoidance, and power disparity — in collective organizational misconduct between firms and we study their respective influence on the longevity of cartels. Our empirical analysis gives support to our main arguments: the longevity of cartels tends to be increased by the level of variety of age-based experience and power disparity between partners but reduced by their level of separation in uncertainty avoidance. Implications for the literature on organizational misconduct are discussed.
David P. Byrne, University of Melbourne and Nicolas De Roos, University of Sydney have an interesting paper on Learning to Coordinate: A Study in Retail Gasoline.
ABSTRACT: We exploit a unique policy design in a retail gasoline market and an extensive sample of prices to document the evolution of pricing strategies and test between competing theories of price dynamics. We uncover a rich history of protracted price wars, repeated signalling, qualitative adjustments to price leadership and the standardization of pricing practices. We argue that the timing of play and pervasiveness of coordination difficulties is better captured by a simultaneous moves repeated games environment than the adoption of Markov strategies.
Spring Meeting 2015 University of Chicago Alumni event - Hot Topics in Antitrust Law, Competition, and Global Economics - DC
|Hot Topics in Antitrust Law, Competition, and Global Economics - DC|
Networking Breakfast:7:30am-8:30am Program: 8:30am-10:30am Cost: Free
This April, join the University of Chicago’s Alumni Law Society (ALS) DC Chapter and event co-sponsor Skadden, Arps, Slate, Meagher & Flom, LLP, DC, for a panel discussion highlighting current hot topic developments in antitrust and competition law from around the globe. The panel will explore the economic, regulatory, and ethical impacts of antitrust legislation on corporate actions in both domestic and international markets. The panel will also highlight best practices for legal practitioners in advising corporate clients towards regulatory compliance while balancing organizational objectives, strategic initiatives, and competitive activities.
Moderator: Ingrid Vandenborre (LL.M.’99), Partner, European Union and International Competition Law at Skadden, Arps, Slate, Meagher & Flom LLP, Brussels.
Saul Lach, Hebrew University of Jerusalem - Department of Economics; CEPR and Jose Luis Moraga-Gonzalez, VU University Amsterdam theorize on Asymmetric Price Effects of Competition.
ABSTRACT: In markets where price dispersion is prevalent the relevant question is not what happens to the price when the number of firms changes but, instead, what happens to the whole distribution of equilibrium prices. Using data from the gasoline market in the Netherlands, we find, first, that markets with a given number of competitors have price distributions that first-order stochastically dominate the corresponding price distributions in markets with one more firm. Second, the competitive response varies along the price distribution and is stronger at prices in the medium to upper part of the distribution. Finally, consumer gains from competition depend on how well informed they are and turn out to be larger for relatively attentive consumers. To account for these empirical results, we propose a generalisation of Varian's (1980) well-known model of sales that allows for richer heterogeneity in consumer price information.
Wednesday, April 1, 2015
We're still swimming in the murky waters of patents in this second of two issues on antitrust and patents, compiled with Danny Sokol's guidance. These articles continue exploring the turmoil with in-depth analyses on, among other issues, the importance of royalty stacking, the Chinese Qualcomm decision, very diverse opinions on the IEEE BRL, the patent ecosystem, and differentiating between SEPs and non-SEPs. Once finished, check out our previous issue for a complete picture of the antitrust/patent pool. The water gets calmer and clearer once you're immersed.
Antitrust and Patent Issues, Part II
- Jorge Contreras, Mar 31, 2015
The Federal Circuit should explicitly recognize the presence of royalty stacking as a factor impacting the potential reasonableness of patent royalties. Jorge L. Contreras (Univ. of Utah)
- James Rill, James Kress, Mar 31, 2015
The Application of China’s Anti-Monopoly Law to Essential Patent Licensing: The NDRC/QUALCOMM Action
It is the range of behavioral remedies agreed to that may well have the greatest long-term significance. James F. Rill & James Kress (Baker Botts)
- Michael Lindsay, Konstantinos Konstantinos, Mar 31, 2015
Using its procedures, IEEE-SA was able to achieve consensus on its policy update. Michael A. Lindsay (Dorsey & Whitney ) & Konstantinos Karachalios (IEEE Standards Association)
- Hugh Hollman, Mar 31, 2015
In this case, the changes appear to reflect a policy choice that favors technology users at the expense of patent holders. Hugh M. Hollman (Baker Botts)
- Roy Hoffinger, Mar 31, 2015
The 2015 DOJ IEEE Business Review Letter: The Triumph of Industrial Policy Preferences Over Law and Evidence
The IEEE BRL is deeply flawed and even disturbing. Roy E. Hoffinger
- John Harkrider, Mar 31, 2015
While SEPs could be a potential predator in the hands of a firm that wants to raise the costs of its rivals, the Administration’s intervention on SEP enforcement, while doing nothing with respect to non-SEPs, can have three unintended consequences. John D. Harkrider (Axinn, Veltrop & Harkrider)
- Jay Jurata, Adya Baker, Mar 31, 2015
Apples and Oranges: Comparing Assertions of SEPs and Differentiating Patents from an Antitrust Perspective
Avoiding confusion between SEPs and differentiating patents is critical to ensuring that the goals of both the antitrust and patent systems are achieved. Jay Jurata & Adya Baker (Orrick, Herrington & Sutcliffe LLP)