Antitrust & Competition Policy Blog

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

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Monday, October 13, 2014

Jean Tirole Wins Nobel Prize in Economics

Finally! Jean Tirole has won the Nobel Prize in economics.  Tirole's contributions to IO have been incredible. He helped bring the game theory revolution to the field.  Tirole revolutionized industrial organization with his famous textbook.  His articles and books have created the foundation of much contemporary study in antitrust and regulation. 

Just this weekend I had to reread his chapter of Foreclosure (with Patrick Rey) from the Handbook of Industrial Organization III for a project.  The writing was both concise and brilliant. His writing over the years on all issues relating to IO has made his contribution to the field unique.  This is a wonderful award for Tirole and for all of the Toulouse faculty.

 

October 13, 2014 | Permalink | Comments (0) | TrackBack (0)

On patent strength, litigation costs, and patent disputes under alternative damage rules

Bertrand Chopard, EconomiX UMR 7235 CNRS & Paris Ouest Nanterre, Thomas Cortade, BETA UMR CNRS 7522 and Universites de Lorraine et de Strasbourg, Eric Langlais, EconomiX UMR 7235 CNRS & Paris Ouest Nanterre provide thoughts On patent strength, litigation costs, and patent disputes under alternative damage rules.

ABSTRACT: This paper analyzes the effects of two damage rules (Lost Profit vs Unjust Enrichment) mainly used by Courts in patent litigations. In our model, the Infringer either is a mere imitator of the Patentee or introduces incremental innovations, and litigation costs are private information such that a pretrial settlement may be better for both litigants. We show that the Unjust Enrichment rule yields less trials than the Lost Profit one. But regarding three main objectives, Patentee's protection, incentives to invest in R&D, and social welfare maximization, we find that no rule is better than the other generally speaking. Our model also allows to emphasize how the combination between the size of litigation costs, the negotiation gains and the IPR strength, shapes the incentives to enforce as well infringe a IPR, although in a way specific to each rule.

October 13, 2014 | Permalink | Comments (0) | TrackBack (0)

Innovation, innovation strategy and survival

Stephen Roper (Warwick University Business School) and Helen Xia (Loughborough University)explore Innovation, innovation strategy and survival.

ABSTRACT:  Innovation has a recognised effect on survival. Undertaking more risky innovation, for example, may increase the risk of business failure, while more incremental innovation may reduce failure risk. Here, we investigate how firms’ innovation strategy choices – which may reduce the riskiness or costs of innovation and/or increase the innovation rewards – moderate the innovation-survival relationship. Our analysis is based on UK Community Innovation Survey data matched with survival data from firms’ published accounts. We are able to match nearly 80 per cent of UK CIS respondents. Contrary to expectations we find that innovation partnering and intellectual property protection have little or no moderating effect on the innovation-survival relationship. However, receiving public support for innovation has significant positive moderating effects. This suggests the notion of “survival additionality”, i.e. firms rece! iving public support derive more persistent benefits from innovation than firms which did not receive public support. Specifically, firms which receive public support for innovation are 2.7 per cent more likely to survive for eight years than firms which innovate but without public support. This result is strongest for product and service rather than process change, with implications for innovation policy design and evaluation.

October 13, 2014 | Permalink | Comments (0) | TrackBack (0)

Saturday, October 11, 2014

Breakfast and Marketing: The Case of Hello Kitty

The comment this morning from my two year old when I showed her her new yougurt (Hello Kitty from Yoplait) was the precious, "Oh my God! It is so beautiful because it is Hello Kitty and pink."  My girls cannot get enough Hello Kitty.  We have dolls, backpacks, shirts, etc. but have not shared with them the controversy that Hello Kitty may not be a cat.

What might be next in terms of food and marketing?  Hello Kitty cereal? Apprently so.  Hello Kitty pop tarts?  Yes - at one time.  We'll stick to the more nutricious yogurt option.

Update 10/12/14

Apparently there are Hello Kitty smartcars (including one driven by former NFL player) and even a long range Hello Kitty jets (used by Taiwan based Eva Air).  The next time I fly to Taipei, you know what airline I am taking.

October 11, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, October 10, 2014

Theoretical Perspectives on Localised Knowledge Spillovers and Agglomeration

Samuli Leppala (Cardiff Business School) provides Theoretical Perspectives on Localised Knowledge Spillovers and Agglomeration.

ABSTRACT: There is substantial empirical evidence that innovation is geographically concentrated. Unlike what is generally assumed, however, it is not clear that localised knowledge spillovers provide a theoretically valid explanation for this. Studying spillovers of cost-reducing technology between Cournot oligopolists we show that 1) localised knowledge spillovers of any level do encourage agglomeration, but 2) whether this leads to higher levels of effective R&D depends on the type and level of knowledge spillovers, the number of firms, and the industry's R&D efficiency.

October 10, 2014 | Permalink | Comments (0) | TrackBack (0)

Nothing so certain as your anchors? A consumer bias that might lower prices

Barna Bako and Andras Kalecz-Simon,Corvinus University of Budapest Faculty of Economics ask Nothing so certain as your anchors? A consumer bias that might lower prices.

ABSTRACT: Anchoring is a well-known decision-making bias: original guesses for a certain question could act as anchors and could influence our final answers. Reference prices - in a similar fashion - can lead to a bias in consumer valuations, and thus consumer demand will be coherent but not one derived from a utility framework. In our paper we investigate the effect of the existence of anchoring on how oligopolistic firms might change their pricing strategy. More specifically, we analyze the effect of anchoring on pricing when differentiated firms compete in Bertrand fashion. We show that if the anchoring effect is smaller than a threshold the average price is lower compared to the no-anchoring case.

October 10, 2014 | Permalink | Comments (0) | TrackBack (0)

One-seller assignment markets with multiunit demands

Francisco Robles (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)) and Marina Nunez (Facultat d'Economia i Empresa; Universitat de Barcelona (UB)) focus on One-seller assignment markets with multiunit demands.

ABSTRACT: We consider one-seller assignment markets with multi-unit demands and prove that the associated game is buyers-submodular. Therefore the core is non-empty and it has a lattice structure which contains the allocation where every buyer receives his marginal contribution. We prove that in this kind of market, every pairwise-stable outcome is associated to a competitive equilibrium and vice versa. We study conditions under which the buyers-optimal and the seller-optimal core allocations are competitive equilibrium payoff vectors. Moreover, we characterize the markets for which the core coincidences with the set of competitive equilibria payoff vectors. When agents behave strategically, we introduce a procedure that implements the buyers-optimal core allocation as the unique subgame perfect Nash equilibrium outcome.

October 10, 2014 | Permalink | Comments (0) | TrackBack (0)

Consumer Price Search and Platform Design in Internet Commerce

Consumer Price Search and Platform Design in Internet Commerce.

Michael Dinerstein (Stanford), Liran Einav (Stanford), Jonathan Levin (Stanford), and Neel Sundaresan (EBay) analyze Consumer Price Search and Platform Design in Internet Commerce.

ABSTRACT: Search frictions can explain why the "law of one price" fails in retail markets and why even firms selling commodity products have pricing power. In online commerce, physical search costs are low, yet price dispersion is common. We use browsing data from eBay to estimate a model of consumer search and price competition when retailers offer homogeneous goods. We find that retail margins are on the order of 10%, and use the model to analyze the design of search rankings. Our model explains most of the effects of a major re-design of eBay's product search, and allows us to identify conditions where narrowing consumer choice sets can be pro-competitive. Finally, we examine a subsequent A/B experiment run by eBay that illustrates the greater difficulties in designing search algorithms for differentiated products, where price is only one of the relevant product attributes.

October 10, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 9, 2014

Antitrust and the Patent System: A Reexamination

Herb Hovenkamp (Iowa) explores Antitrust and the Patent System: A Reexamination.

ABSTRACT: Since the federal antitrust laws were first passed they have cycled through extreme positions on the relationship between competition law and the patent system. Previous studies of antitrust and the patent system have generally assumed that patents are valid, discrete, and generally of high quality in the sense that they further innovation. As a result, increasing the returns to patenting increases the incentive to do socially valuable innovation. Further, if the returns to the patentee exceed the social losses caused by increased exclusion, the tradeoff is positive and antitrust should not interfere. If a patent does nothing to further innovation, however, then any amount of social loss from increased monopoly is harmful. In that case there is no additional benefit from innovation down the road. Since only a subset of patents are worthless, however, this naturally invites the question whether considerations of patent social value are a reasonable element of competition policy.
At various points in their history both antitrust law and patent law have engaged in considerable overreaching. Beginning in the late 1970s, however, antitrust law went through a lengthy and still ongoing process of court-imposed discipline that has brought its rules more closely into alignment with its stated concern, which is increasing consumer welfare by promoting competition. Antitrust cases are far more difficult to win, the per se rule is less frequently used, and we have considerably heightened the requirements of allegation and economic proof. By contrast, patent law has continued on an expansion course that is only now showing some signs of abating. Patent law largely still awaits the consumer welfare revolution that has already occurred in antitrust doctrine. Writing in the mid-sixties Ward S. Bowman and Robert H. Bork warned of a "crisis in antitrust," presaging the significant reform that was to follow. Today we are facing a crisis in patent law.
This article first examines antitrust and patent law as regulatory institutions with legislative mandates to regulate in their given areas, but subject to limitations that all regulatory institutions face -- namely, high cost, imperfect information, and special interest capture. One failed approach to this regulatory enterprise was the view that the patentee acts improperly when it engages in activity "beyond the scope" of the patent. The flip side is that activity that is not "beyond the scope" is permissible. A more sensible way to view the interaction between the patent and antitrust regulatory systems is to divide patent activity into two parts: pre-issuance and post-issuance conduct. Secondly one must look for explicit statutory authorization of the conduct in question. Post-issuance conduct that is not statutorily authorized is generally amenable to antitrust scrutiny. Next I examine the antitrust and patent systems as regulatory institutions, finding that today the presence of special interest capture is far stronger in the patent system than the antitrust system, although that may not always have been the case. After that I turn to the very different ways that antitrust and the patent system approach economic policy. The antitrust system is empirical, market based, and acutely sensitive to market diversity. In sharp contrast, the patent system is dominated by a much more myopic set of queries concerned with the boundaries of individual property rights and largely indifferent to market performance and diversity.
Finally this article develops a set of rules for evaluating specific disputes that implicate both antitrust and the patent system, focusing mainly on the difference between pre-issuance patent conduct, which is intensely regulated, and post-issuance conduct; as well as the differences between practices that are expressly authorized by the Patent Act and those that are not. Given the level of producer capture exhibited by the Patent Act, the search for express authorization is particularly important. A regulatory statute that bargains away the public interest must be followed, but silence and ambiguity should be construed against the interests in control of the legislative process. These principles are applied to a number of practices, including price-fixing in patent licenses, vertical practices, pay-for-delay settlements and other naked market division agreements, and improper patent enforcement actions.

October 9, 2014 | Permalink | Comments (0) | TrackBack (0)

The Commission Investigation into Pay TV Services: Open Questions

Pablo Ibanez Colomo (LSE) addresses The Commission Investigation into Pay TV Services: Open Questions.

ABSTRACT:  In January 2014, the Commission launched an investigation into pay TV services in the context of a review of EU copyright rules and following the ruling in Murphy, where the ECJ held that exclusive territorial licensing agreements may be restrictive by object. Vice-President Almunia's statement expresses concerns with restraints limiting the passive sales of pay TV services and with the ‘portability’ of subscriptions across borders. The Commission envisions a form of cross-border competition between pay TV operators that is not easy to reconcile with the observable industry dynamics. It is not clear to what extent the suggested approach considers the ‘economic and legal context’ in which agreements between studios and broadcasters are concluded.

October 9, 2014 | Permalink | Comments (0) | TrackBack (0)

Optimal Leniency Programs When Firms Have Imperfect Cumulative and Asymmetric Evidence

Marc Blatter, University of Bern, Winand Emons, University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR), Silvio Sticher, University of Bern discuss Optimal Leniency Programs When Firms Have Imperfect Cumulative and Asymmetric Evidence.

ABSTRACT: An antitrust authority deters collusion using fines and a leniency program. Unlike in most of the earlier literature, our firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports: reporting makes conviction only more likely, the more so, the more firms report. Furthermore, the evidence is distributed asymmetrically among firms. Asymmetry of the evidence can increase the cost of deterrence if the high-evidence firm chooses to remain silent. Minimum-evidence standards may counteract this effect. Under a marker system only one firm reports; this may increase the cost of deterrence.

October 9, 2014 | Permalink | Comments (0) | TrackBack (0)

Market Structure Control and Restriction of Anticompetitive M&As and 'Concentration' of Enterprises' Market Power in BRICS Countries: General Approaches (Asia - China and India, Euro-Asia - Russia and Africa - South Africa - In Focus)

Ksenia Belikova, Peoples' Friendship University of Russia describes Market Structure Control and Restriction of Anticompetitive M&As and 'Concentration' of Enterprises' Market Power in BRICS Countries: General Approaches (Asia - China and India, Euro-Asia - Russia and Africa - South Africa - In Focus).

ABSTRACT: The articles represents a research of general approaches of BRICS countries legislation and legal order to counteraction against such an anticompetitive market strategy as abuse of dominant market power in legal orders of China, India, Russia and South Africa. The author pays particular attention to current legislation of BRICS countries in the field of competition protection with regard to provisions related to market structure control and restrictions of anticompetitive mergers & acquisitions (further on - M&As) and “concentration” of enterprises' market power control fixed by Asian (China and India), Euro-Asian (Russia) and African (South Africa) legal orders. The analysis of substantial contents of laws on competition and monopolies of the above mentioned BRICS countries and relevant case law shows the existence of a number of conventional generally acknowledged (unified) provisions and norms. At the same time there are specific features making them different. These generally acknowledged provisions and peculiarities will be in focus in the article.

October 9, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 8, 2014

BRIDGING EU CONCERTED PRACTICES WITH U.S. CONCERTED ACTIONS

Federico Ghezzi, Bocconi University and Mariateresa Maggiolino, Bocconi University have a comparative paper on BRIDGING EU CONCERTED PRACTICES WITH U.S. CONCERTED ACTIONS.

ABSTRACT: The recent analysis developed by William Page on the U.S. notion of concerted actions raised the idea to develop an article that parses in depth the EU meaning of concerted practices and that skein of U.S. doctrines that focuses on phenomena from invitations to collude to multilateral facilitating practices. According to Page, the current definition of concerted actions in the U.S. legal system misses the opportunity to use inter-firm communications to differentiate cases of collusive pricing practices and cases of interdependent parallel behavior that results in the same market price. On the contrary, the current EU definition of concerted practices accomplishes this purpose. By characterizing strategic inter-firm contacts as one of its building blocks, the EU definition supplies antitrust enforcers with a theoretical tool that distinguishes unlawful collusive conduct from oligopolistic non-coordinated behavior. Yet the current EU definition of concerted practices does something more. By encompassing a very strong presumption—that firms exchanging strategic information cannot do anything else but accordingly shape their internal pricing decisions—this notion catches cartels that emerge only from these strategic inter-firm contacts, regardless of firms' actual pricing conduct. The current EU notion of concerted practices is thus a powerful prosecuting tool that deserves to be compared with the U.S. case law about interdependence, parallelism, and exchanges of information.

October 8, 2014 | Permalink | Comments (0) | TrackBack (0)

ASYMMETRIC PRICE INCREASE IN CRITICAL LOSS ANALYSIS: SURREPLY TO DALJORD, SORGARD, AND THOMASSEN

James Langenfeld, Navigant Economics and Wenqing Li, Navigant Economics provide ASYMMETRIC PRICE INCREASE IN CRITICAL LOSS ANALYSIS: SURREPLY TO DALJORD, SORGARD, AND THOMASSEN.

ABSTRACT: The criterion for critical loss analysis derived by Oystein Daljord, Lars Sorgard, and Oyvind Thomassen is correct when one uses the Lerner condition to infer actual loss of sales, even though their critical loss formula in the first step of the analysis is incorrect. However, their criterion is not correct in the more general case where one merely estimates actual loss in sales rather than arithmetically deriving actual loss from observed price-cost margin.

October 8, 2014 | Permalink | Comments (0) | TrackBack (0)

Prices versus Prizes: Patents, Public Policy, and the Market for Inventions

Dan Spulber, Northwestern discusses Prices versus Prizes: Patents, Public Policy, and the Market for Inventions.

ABSTRACT: I consider whether government prizes should replace market prices for inventions. The America COMPETES Reauthorization Act of 2010 establishes a framework for government prizes. I examine how antitrust and public policy towards patents should take into account the economic benefits of the market for inventions. I consider the limitations of a prize system in terms of economic efficiency. I find that the deadweight welfare loss argument for replacing market prices with government prizes is flawed. I show how prices in the market for inventions provide state-contingent signals that guide invention, commercialization, innovation, financing, and complementary inventions. I examine how prices in the market for inventions provide indicators of technological change. I conclude that replacing market prices with government prizes would harm invention, innovation and economic growth.

October 8, 2014 | Permalink | Comments (0) | TrackBack (0)

How Patents Provide the Foundation of the Market for Inventions

Dan Spulber, Northwestern explores How Patents Provide the Foundation of the Market for Inventions. Recommended!

ABSTRACT: The paper develops a comprehensive framework demonstrating how patents provide the foundation of the market for inventions. Patents support the establishment of the market in several key ways. First, patents provide a system of intellectual property (IP) rights that increases transaction efficiencies and stimulates competition by offering exclusion, transferability, disclosure, certification, standardization, and divisibility. Second, patents provide efficient incentives for invention, innovation, and investment in complementary assets so that the market for inventions is a market for innovative control. Third, patents as intangible real assets promote the financing of invention and innovation. The market foundation role of patents refutes the economically incorrect “rewards” view of patents. The discussion considers how economic benefits of the market for inventions should guide IP policy and antitrust policy.

October 8, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 7, 2014

Methodologies for Determining F/RAND Royalty Rates and Damages - October 22, 2014

Methodologies for Determining F/RAND Royalty Rates and Damages                                                                                            

 
Date:
October 22, 2014                                    
Time:
12:00 PM - 1:15 PM ET                                    
 
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Several courts recently have issued rulings in cases involving royalty rates for RAND-encumbered patents, but many questions remain. In this joint program hosted by the ABA Section of Antitrust Law and the ABA Section of Intellectual Property Law, panelists will provide insights into how the courts and the Federal Trade Commission have addressed various aspects of RAND licensing and where the battle lines will be drawn in future cases.

Moderator:  Logan Breed, Hogan Lovells

Speakers:

* Anne Layne-Farrar, Charles River Associates * Greg Leonard, Edgeworth Ecnomics * Koren Wong-Ervin, Federal Trade Commission

FREE:  Antitrust Section Members, Government, Non-profit Employees and Students $25.00: Other Non-Members

Learn about Section membership or call&nbsp; 800-285-2221&nbsp; to join with sourc code:&nbsp; RAT14IP25.&nbsp; Instructions for accessing the live program will be provided in a confirmation email.&nbsp; For this an all upcoming events visit:&nbsp; <a href="http://ambar.org/ATEevents" data-mce-href="http://ambar.org/ATEevents">http://AmBar.org/ATEevents</a>.

CLE The ABA is not seeking CLE credit for this program. 

Audio Archive Provided all releases are obtained, MP3 recordings of this program will be available to Section Members on the Commmittee Program Audio page.

October 7, 2014 | Permalink | Comments (0) | TrackBack (0)

Antitrust in Zero-Price Markets

John M. Newman, University of Memphis - Cecil C. Humphreys School of Law describes Antitrust in Zero-Price Markets.

ASTRACT: This Article examines “zero-price markets,” where firms set the price of their goods or services at $0. Creative content, software, search functions, social media platforms, mobile applications, travel booking, navigation and mapping systems, and myriad other goods and services are now widely distributed at zero prices. But despite the exponential increase in zero-price products, scholars have paid almost no attention to how the absence of positive prices impacts traditional legal principles and methodologies.
Antitrust law in particular is firmly grounded in neoclassical economics, which is in turn based on price theory. This heavy dependence on positive prices has led U.S. antitrust-enforcement agencies to overlook potentially massive consumer-welfare harms. The dramatic consolidation of the broadcast-radio industry as a result of deregulation in the late 1990s provides one example: the Department of Justice failed even to consider potential harm to listeners, instead focusing solely on harm to advertisers.
That an agency well-staffed with professional antitrust analysts could commit such an error suggests how fundamentally zero-price markets challenge traditional theories and analytical frameworks. Zero-price markets raise unanswered questions regarding market definition, market power, consumer standing, harm, and damages calculations. They also call into question the role and efficacy of antitrust — and of competition itself. In light of the critical importance of zero-price markets to the broader economy, antitrust institutions must evolve. This Article offers multiple suggested solutions, including modifying the traditional “SSNIP” test for market definition, reevaluating the legal standard for market power, and multiple means of calculating consumer damages for nonprice antitrust injuries.

October 7, 2014 | Permalink | Comments (0) | TrackBack (0)

Anticompetitive Injunctions, Unprotected Market Entry, and Diagonal Integration in Patent Disputes

Erik N. Hovenkamp, Northwestern University Department of Economics and Thomas F. Cotter, University of Minnesota Law School have an interesting new paper on Anticompetitive Injunctions, Unprotected Market Entry, and Diagonal Integration in Patent Disputes. Download it now!

ABSTRACT: The current approach for determining when courts should award injunctions in patent disputes involves a myopic focus on the hardships an injunction might impose on the litigants and the public. This article demonstrates, however, that courts sometimes could rely instead on a consideration far more relevant to the patent system's goal of promoting dynamic welfare: the extent to which the right to exclude was actually a necessary quid pro quo for the plaintiff's decision to bring its products to market. We begin with a discussion of a recent Federal Circuit decision, Trebro Mfg. Inc. v. FireFly Equipment, LLC, in which the court held that injunctive relief may be appropriate when a defendant infringes a patent that the plaintiff-competitor does not practice, and against which it lacked any legal protection when it entered the market in which the parties now compete. We then present a simple economic model demonstrating that under these circumstances — which are increasingly common in industries with rich markets for secondhand patents, resulting in the formation of what we refer to as “diagonally integrated” nonpracticing entities — injunctive relief poses a threat to consumer welfare that is not offset by any plausible benefit to innovation. The model’s implications extend to a range of topics at the core of contemporary patent policy debates, including patent privateering, FRAND-encumbered standard essential patents, and preemptive patenting. In addition, we show that diagonally integrated NPEs are more likely to seek high licensing fees and aggressively seek injunctive relief than are conventional, “unintegrated” NPEs.

October 7, 2014 | Permalink | Comments (0) | TrackBack (0)

The Deterrent Effect of Anti-Cartel Enforcement: A Tale of Two Tails

S. W. Davies, University of East Anglia (UEA) and Peter L. Ormosi, University of East Anglia (UEA) - Centre for Competition Policy; Norwich Business School describe The Deterrent Effect of Anti-Cartel Enforcement: A Tale of Two Tails.

ABSTRACT: This paper investigates how anti-cartel enforcement deters consumer harm. First, it draws on a theoretical model to establish the conditions of deterrence increasing or decreasing with the harm caused by cartels. Empirically, the paper uses cartel overcharges as a measure of harm and employs time periods when cartels were legal to capture a world without deterrence. Evidence is provided that the lowest and the highest harm cartels are the most likely to be deterred.

October 7, 2014 | Permalink | Comments (0) | TrackBack (0)