Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, September 19, 2014

How Bank Competition Affects Firms' Access to Finance

Inessa Love (University of Hawaii) and Maria Soledad Martinez Peria (World Bank) explain How Bank Competition Affects Firms' Access to Finance.

ABSTRACT: Using multi-year, firm-level surveys for 53 countries, this paper explores the impact of bank competition on firms’ access to finance. We find that low competition, as measured by high values on the Lerner index or Boone indicator, diminishes firms’ access to finance. In addition, the impact of competition on access to finance depends on the quality and scope of credit information sharing mechanisms, and better credit information mitigates the damaging impact of low competition. Overall, our paper offers consistent international evidence that supports the market power hypothesis, which argues that market power reduces access, and rejects the information hypothesis, which suggests that low competition improves access because it allows banks to internalize the investment in building firm-specific relationships.

September 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Screening Instruments for Monitoring Market Power in Wholesale Electricity Markets – Lessons from Applications in Germany

Marc Bataille, Monopolies Commission, Alexander Steinmetz, Monopolies Commission, and Susanne Thorwarth, Monopolies Commission provide Screening Instruments for Monitoring Market Power in Wholesale Electricity Markets – Lessons from Applications in Germany.

ABSTRACT: While liberalization in energy markets has been a widely successful process all over the world, incumbents often still hold a dominant position. Thus, electricity wholesale markets are subject to market surveillance. Nevertheless, consolidated findings on abusive practices of market power and their cause and effect in wholesale electricity markets are scarce and non-controversial market monitoring practices fail to exist. Our application of the established measure of market concentration RSI shows that it serves as a decent indicator for the rents that can be gained in the market but also reveals considerable weaknesses of the RSI. Therefore, we propose and apply the "Return on Withholding Capacity Index" (RWC) representing a measure of the firms’ incentive of withholding capacity as a complementary index to the RSI.

September 19, 2014 | Permalink | Comments (0) | TrackBack (0)

When Economics Met Antitrust: The Second Chicago School and the Economization of Antitrust Law

Patrice Bougette. University of Nice Sophia Antipolis - Law, Economics, and Management Research Group (UMR CNRS 7321 GREDEG). Marc Deschamps. Université de Lorraine; University of Strasbourg - Bureau of Economic Theory and Application (BETA), and Frederic M. Marty, Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) describe When Economics Met Antitrust: The Second Chicago School and the Economization of Antitrust Law.

ABSTRACT: In this article, we use a history of economic thought perspective to analyze the process by which the Chicago School of Antitrust emerged in the 1950s and became dominant in the US. We show the extent to which economic objectives and theoretical views shaped antitrust laws in their inception. After establishing the minor influence of economics in the promulgation of U.S. competition laws, we then highlight U.S. economists' very cautious views about antitrust until the Second New Deal. We analyze the process by which the Chicago School developed a general and coherent framework for competition policy. We rely mainly on the seminal and programmatic work of Director and Levi (1956) and trace how this theoretical paradigm was made collective, i.e. the 'economization' process took place in US antitrust. Finally, we discuss the implications, if not the possible pitfalls, of such a conversion to economics-led competition law enforcement.

September 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 18, 2014

New Issue of CPI: Motorola Mobility and the FTAIA

In this issue:

In Motorola Mobility, the Seventh Circuit is readying to rehear a lawsuit that will (hopefully) clarify the extent of U.S. antitrust law’s reach outside of the United States. The issue concerns the Foreign Trade Antitrust Improvements Act, which was ostensibly passed to clarify the reach and limits of the Sherman Act for U.S. companies doing business abroad. However, given divergent court opinions, matters have become quite messy. This issue will bring you up to date on the history, the issues, and the significant ramifications at stake. As Eleanor Fox writes in her article, this situation raises the possibility that "U.S. law is in danger of creating a void in the reach of U.S. antitrust law to reprehend anticompetitive acts by foreigners abroad destined to raise the price of goods and services to U.S. consumers."

The FTAIA and the Sherman Act: Motorola Mobility and Other Cases
  1. Joseph Harrington, Sep 17, 2014

    Motorola Mobility and the FTAIA: A Deterrence-Based Definition of “Direct” Effect


    Potentially even more detrimental to the cause of preventing harm to U.S. commerce, the Seventh Circuit’s definition of “direct” effect would seem to provide a vertical disintegration loophole for avoiding liability. Joseph E. Harrington, Jr. (Wharton, Univ. of Pennsylvania)

  2. Eleanor Fox, Sep 17, 2014

    Extraterritoriality and Input Cartels: Life in the Global Value Lane—The Collision Course with Empagran and How to Avert It


    There is a looming danger that judge-made exceptions from U.S. antitrust law for foreign conduct are swallowing the proscriptions of the Sherman Act against modern-style international cartels. Eleanor Fox (NYU School of Law)

  3. Randy Stutz, Sep 17, 2014

    Comity, Domestic Injury, and the Metaphysics of the FTAIA


    Why is it unreasonable to apply [the antitrust] laws to foreign conduct insofar as that conduct causes domestic harm that is dependent on the foreign harm that gives rise to the plaintiff’s claim? Randy M. Stutz (American Antitrust Institute)

  4. David Barth, Sep 17, 2014

    Deterrence and Efficiency Considerations Warrant an Expansive Reading of the FTAIA


    A ruling benefiting defendants would increase the incentives foreign firms have to engage in cartel behavior, and it would create new incentives to change otherwise efficient supply chain behavior. David Barth (Bates White Economic Consulting)

  5. James Martin, Sep 17, 2014

    Fermat’s Principle and the FTAIA: What Courts Can Learn From Optics


    The much simpler, and mathematically sensible, approach would be to acknowledge that the cartelists’ guilty pleas and jury verdict already established that the Sherman Act applies to the conduct. James R. Martin (Dickstein Shapiro)

  6. Robert Connolly, Sep 17, 2014

    Repeal the FTAIA! (Or At Least Consider It as Coextensive with Hartford Fire)

September 18, 2014 | Permalink | Comments (0) | TrackBack (0)



ABSTRACT: I show that when firms can change the quantity of product offered in each package, the standard pass-through rate calculations need to be adjusted. In particular, if a firm's cost increases, the firm decreases the quantity of the product offered and the price of the package, resulting in a negative pass-through rate. Calculating the pass-through rate using the per-unit quantity price restores the expected positive pass-through rate. The results are confirmed by many observations from the industry and continue to hold when firms offer a product line and engage in second-degree price discrimination.

September 18, 2014 | Permalink | Comments (0) | TrackBack (0)




October 11, 2014, 4.30- 6.30 PM (EST)
World Bank Group Headquarters (1818 H street NW, Washington, D.C.)

Room MC4-800


Click below to RSVP


Notes Users, Click this link

Outlook Users, Click this link


EXTERNAL GUESTS need to register by SEPTEMBER 22nd at the Annual Meetings webpage


Click HERE to register for the Annual Meetings

Dear colleagues,

You are cordially invited to the official award ceremony of the 2013 Competition Advocacy Contest, an initiative launched by the World Bank Group’s Competition Policy Thematic Group  to showcase the role of competition authorities in promoting competition in emerging economies.


How can competition reforms be a driver for sustainable economic growth and competitiveness?  What is the impact of policies that open markets and remove anticompetitive regulations in key sectors? This event will offer the opportunity to discuss the role of competition advocacy as a tool to make markets work for development.  Leaders from competition agencies, senior officials of the World Bank Group, representatives from academia, NGOs and the private sector will share their experience on how to overcome political economy constraints and successfully reform markets for the benefit of consumers. This round table will be followed by a cocktail reception and the conferral of the awards of the World Bank Group Competition Advocacy Contest to Chile, Colombia, Egypt and Pakistan (winners) and to El Salvador, Mexico, Moldova, South Africa and Turkey (Honorable mentions). 

This event will be chaired by Anabel Gonzalez, Senior Director of the Trade and Competitiveness Global Practice.


Round table participants:


  • Allan Fels,      Professor at Melbourne University and former Chairman of the Australian      Competition and Consumer Commission;
  • Francis Kariuki,      Executive Director, Kenyan Competition Authority and former Chairman of      the African Competition Forum;
  • Carlos      Marino, former CEO of Avantel Colombia;
  • Maureen K. Ohlhausen, Commissioner, US Federal Trade Commission;
  • Rijit Sengupta, Associate Director, CUTS International;
  • Augusto de la Torre, Chief Economist LAC Region, The World Bank Group.


Representatives from awarded competition authorities:


  • Tembinkosi Bonakele, Commissioner, South African Competition Commission;
  • Viorica Carare, Head, Competition Council of Moldova
  • Benjamin Contreras, Commissioner, Federal Competition Commission of Mexico;
  • Francisco Diaz, Head, Competition Authority of El Salvador      (Superintendence of Competition);
  • Mona El Garf,      Head, Egypt Competition Authority;
  • Juan Pablo Herrera, Chief Economist, Competition Authority of Colombia      (Superintendence of Industry and Trade);
  • Felipe Irrazabal, Head, Competition Authority of Chile (National Economic      Prosecutor);
  • Nurettin Kaldirimci, Head, Turkish Competition Authority.
  • Joseph Wilson, Head, Competition Commission of Pakistan;


September 18, 2014 | Permalink | Comments (0) | TrackBack (0)



ABSTRACT: Sometimes what appears to be a little, almost imperceptible change can have a huge impact on a policy regime. The recently revised Department of Justice and Federal Trade Commission Horizontal Merger Guidelines contain such a change, as the document recognizes the importance of Critical Loss Analysis in defining a market but introduces a theoretical construct to control the analysis. This approach imposes a structure based on the economist's Lerner index and then applies a specific style of diversion analysis to compute the actual loss to a hypothetical price increase. We show that this methodology almost guarantees narrow markets, a change that could support a very significant increase in the level of merger enforcement. However, we also show how this aggressive policy result depends on specific assumptions that are often not justified. Change these assumptions, and the traditional implications of a Critical Loss Analysis are restored. The recent Department of Justice (DOJ) challenge of H&R Block's proposed acquisition of the TaxACT software is used to illustrate the problem. Unjustified theoretical assumptions allowed the DOJ's expert economist to testify to a narrow market that virtually guaranteed that the merger would be found anticompetitive. In effect, theory, if allowed to control market definition analysis, would significantly reduce the plaintiff's burden of proof and expand the potential for merger enforcement.

September 18, 2014 | Permalink | Comments (0) | TrackBack (0)

GCR Live 6th Annual Brussels: The conference about the bigger picture

GCR Live 6th Annual Brussels: The conference about the bigger picture

Day one - Wednesday, 12 November

13.30: Welcome coffee and registration

14.00: Chairs’ welcome

John Davies, Freshfields Bruckhaus Deringer Derek Ridyard, RBB Economics

14.15: Keynote speaker

  • A review of the enforcement of merger control during 2013/14 and expected priorities under the new Commission
  • The proposals on regulation of non-controlling minority shareholdings
  • The rise of national protectionism
  • Procedural issues: internal document review, use of economic models, use of upfront buyer solutions in divestiture remedies

Carles Esteva Mosso, Acting Deputy Director General for Policy and Strategy, DG Competition, European Commission

15.15: EU merger control and the national public interest

  • The rise of protectionism at Member State level
  • Intervention by governments including by France, Germany and the UK
  • The application of Article 21(4) EUMR to mergers of community dimension
  • The implications of the rules on free movement of capital to mergers without community dimension
  • Case law on golden shares

Moderator: Marc Pittie, Bredin Prat

Commentator: Carles Esteva Mosso, Acting Deputy Director General for Policy and Strategy, DG Competition, European Commission

Panel: Natalie Yeung, Slaughter and May John Davies, Freshfields Bruckhaus Deringer Patrick Smith, RBB Economics

16.30: Coffee break

16.45: Developments on private antitrust actions in EU competition law

  • “Creative solutions” developed by judges in the UK and the Netherlands on: - Access to documents - Attribution of liability - Passing-on
  • Uncertain future for claims vehicles in Germany following the rejection of CDCs claims in the cement case
  • Quantification of damages under the new directive – can presumptions help?
  • The influence of the new directive on settlements
  • Collective claims - lessons to be learned from the US and other jurisdictions

Moderator: Jolling de Pree, De Brauw Blackstone Westbroek

Panel: Helen Jenkins, Oxera Consulting James Webber, Shearman & Sterling Daniel Beard QC, Monckton Chambers Christoph Stadler, Hengeler Mueller

18.00: Conclusion of day one

19.30 onwards: All delegates are invited to attend a drinks reception and conference dinner at the Hotel Amigo kindly hosted by Shearman & Sterling

Dinner speaker: Brad Staples, President, International and Chair of Global Development, APCOWorldwide Inc.

Day two - Thursday, 13 November

8.30: Welcome coffee and registration

9.00: Chairs’ welcome

9.05: Morning speaker – Richard Whish’s year in review

Richard Whish QC, King’s College London

10.35: Coffee break

11.00: Object infringements – recent developments and key practical issues

  • “Classic” object infringements and recent developments (GSK Spain, Pierre Fabre, Murphy, Allianz Hungary, Lundbeck etc.)
  • Analysis and proof in object infringements cases
  • Object infringements and Article 101(3) TFEU

Moderator: Francisco Enrique González-Díaz, Cleary Gottlieb Steen & Hamilton

Panel: Richard Whish QC, King's College London Alexander Rinne, Milbank, Tweed, Hadley & McCloy Matthew Bennett, Charles River Associates Nigel Parr, Ashurst

12.00: Networking lunch

13.20: Key issues in state aid – a master class for general competition lawyers

State aid is an ever more important area of competition enforcement. This panel will provide updates on all major developments general competition practitioners should be aware of:

  • Fields of economic activity that are being shaped by state aid enforcement – where do we go from here? - Financial services - Energy - Corporate taxation - Privatisations
  • The role of economic assessment in state aid cases
  • Where are we on state aid modernisation (SAM)? new priorities, new tools?

Moderator: Andreas von Bonin, Freshfields Bruckhaus Deringer

Panel: Conor Quigley QC, Serle Court Lorenzo Coppi, Compass Lexecon Gert Jan Koopman, Deputy Director-General for State Aids, DG Competition, European Commission

14.30: Coffee break

14.45: Sifting the wreckage of the intel general court judgment

  • Where does the judgment leave: - The debate between effects-based and form-based enforcement? - The as-efficient competitor principle? - The scope for an efficiency defence/exemption under A102? - The A102 enforcement guidelines?
  • Are the ground rules different between high tech and other industry sectors?
  • Could the ECJ come to the rescue?

Moderator: Derek Ridyard, RBB Economics

Panel: Riccardo Celli, O'Melveny & Myers Simon Baxter, Skadden, Arps, Slate, Meagher & Flom Massimo Motta, Chief Competition Economist, DG Competition, European Commission (invited) Frank Maier-Rigaud, NERA Economics Consulting

16.00: Closing remarks by chairs

16.15: Close of conference


September 18, 2014 | Permalink | Comments (0) | TrackBack (0)


Luca Aguzzoni, LEAR Elena Argentesi, University of Bologna Paolo Buccirossi, LEAR, Lorenzo Ciari, European Bank for Reconstruction and Development, Tomaso Duso, DICE, Massimo Tognoni, U.K. Competition Commission and Cristiana Vitale, OECD, offer A RETROSPECTIVE MERGER ANALYSIS IN THE U.K. VIDEOGAME MARKET.

ABSTRACT: We study the effect of a merger in a dynamic high-technology industry—the videogame market—which is characterized by the frequent introduction of new products. To assess the impact of the merger between two large specialist retailers in the United Kingdom—Game Group PLC and Games Station Limited—we perform a difference-in-differences analysis comparing the price evolution of the merging parties with that of their 7 major competitors on an original sample of 196 videogames belonging to 6 different consoles. The results of our econometric analyses suggest that there has been a reduction in the general level of prices of both new and pre-owned games after the merger. This decline has been more marked for the merging parties, which suggests that the merger between Game Group PLC and Games Station Limited did not lead to a substantial lessening of competition; rather, it is consistent with the existence of efficiency gains.

September 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Reflections on the Past Year At the Antitrust Division

Optimal bid disclosure in license auctions with downstream interaction

Cuihong Fan, Shanghai University, Byoung Heon Jun, Korea University and Elmar G. Wolfstetter, Humboldt-University and Korea University explain Optimal bid disclosure in license auctions with downstream interaction.

ABSTRACT: The literature on license auctions for process innovations in oligopoly assumed that the auctioneer reveals the winning bid and stressed that this gives firms an incentive to signal strength through their bids, to the benefit of the innovator. In the present paper we examine whether revealing the winning bid is optimal. We consider three disclosure rules: full, partial, and no disclosure of bids, which correspond to standard auctions. We show that more information disclosure increases the total surplus divided between firms and the innovator as well as social surplus. More disclosure also increases bidders’ payoff. However, no disclosure maximizes the innovator’s expected revenue.

September 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 17, 2014

Increasing the Efficiency of Spectrum Allocation

Gregory Rosston (Stanford University) describes Increasing the Efficiency of Spectrum Allocation.

ABSTRACT: Over the past 80 years, the Federal Communications Commission has been responsible for the allocation of non-governmental use of the radio frequency spectrum. Over that time, here have been significant changes in spectrum use that have been driven by changes in demand and technology. The technical, regulatory, and business obstacles in past reallocations shed light on some of the FCC’s implementation decisions for its upcoming two-sided auction.

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Supplier Innovation in the Presence of Buyer Power

Zhiqi Chen (Department of Economics, Carleton University) explores Supplier Innovation in the Presence of Buyer Power.

ABSTRACT: A theoretical framework is constructed to derive general conditions under which increased buyer power weakens or strengthens a supplier’s incentive to innovate. These conditions are then applied to two sets of specific models: one on product innovation and the other on process innovation. The analysis shows that the effects of buyer power depend on the type of innovation, the source of buyer power, and the channel through which buyer power manifests itself. It identifies circumstances under which an increase in buyer power has a negative, positive or zero impact on innovation. The welfare consequences of buyer power are also investigated.

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Latest news from AAI: opportunities for young lawyers, Comcast-Time Warner Cable Merger — Further Concerns About Exclusionary Gatekeeping and the Emergent Access Problem, and AAI Urges Reject Conduct Remedy for Hospital Merger

09-16-2014 - AAI Offers Young Lawyers Special Session at Private Enforcement Conference

On Tuesday, December 2, 2014, the American Antitrust Institute will host its 8th Annual Private Antitrust Enforcement Conference at the National Press Club in Washington D.C.  This year, the day kicks off early with a Young Lawyers Breakfast.

In a letter to the U.S. Department of Justice, AAI furthered the case against the proposed Comcast-Time Warner Cable merger.

In Comments filed with the Massachusetts Attorney General’s Office, the American Antitrust Institute (AAI) urged the state superior court to reject a proposed settlement which would allow the dominant hospital system in Eastern Massachusetts to acquire

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Relative profit maximization in asymmetric oligopoly

Atsuhiro Satoh, Doshisha University and Yasuhito Tanaka, Doshisha University discuss Relative profit maximization in asymmetric oligopoly.

ABSTRACT: We analyze Bertrand and Cournot equilibria in an asymmetric oligopoly in which the firms produce differentiated substitutable goods and seek to maximize their relative profits instead of their absolute profits. Assuming linear demand functions and constant marginal costs we show the following results. If the marginal cost of a firm is lower (higher) than the average marginal cost over the industry, its output at the Bertrand equilibrium is larger (smaller) than that at the Cournot equilibrium, and the price of its good at the Bertrand equilibrium is lower (higher) than that at the Cournot equilibrium.

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Maureen Ohlhausen speech at 2nd GCR Live New York on Chinese AML Enforcement

For those who missed the 2nd GCR Live New York conference yesterday (including me who was supposed to have moderated the panel but had to deal with family health issues), FTC Commissioner Maureen Ohlhausen gave a very thoughful and important speech on Chinese AML enforcement.  See here.

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Trust, Leniency and Deterrence

Maria Bigoni, University of Bologna - Department of Economics, Sven-Olof Fridolfsson, Research Institute of Industrial Economics (IFN), Chloe Le Coq, SITE-Stockholm School of Economics and Giancarlo Spagnolo, Stockholm School of Economics (SITE) have an interesting paper on Trust, Leniency and Deterrence. Highly recommended!

ABSTRACT: This paper presents results from a laboratory experiment on the channels through which different law enforcement strategies deter cartel formation. With leniency policies offering immunity to the first reporting party a high fine is the main determinant of deterrence, having a strong effect even when the probability of exogenous detection is zero. Deterrence appears then mainly driven by 'distrust,' the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected fine matter more, and low fines are exploited to punish defections. The results appear relevant to several other crimes sharing cartels' strategic features, including corruption and financial fraud.

September 17, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 16, 2014

Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts

Joanna Tsai, Federal Trade Commission and Joshua D. Wright, Federal Trade Commission; George Mason University School of Law discuss Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts.

ABSTRACT: A large and growing number of regulators and academics, while recognizing the benefits of standardization, view skeptically the role standard setting organizations (SSOs) play in facilitating standardization and commercialization of intellectual property rights (IPRs). Competition agencies and commentators suggest specific changes to current SSO IPR policies to reduce incompleteness and favor an expanded role for antitrust law in deterring patent holdup. These criticisms and policy proposals are based upon the premise that the incompleteness of SSO contracts is inefficient and the result of market failure rather than an efficient outcome reflecting the costs and benefits of adding greater specificity to SSO contracts and emerging from a competitive contracting environment. We explore conceptually and empirically that presumption. We also document and analyze changes to eleven SSO IPR policies over time. We find that SSOs and their IPR policies appear to be responsive to changes in perceived patent holdup risks and other factors. We find the SSOs’ responses to these changes are varied across SSOs, and that contractual incompleteness and ambiguity for certain terms persist both across SSOs and over time, despite many revisions and improvements to IPR policies. We interpret this evidence as consistent with a competitive contracting process. We conclude by exploring the implications of these findings for identifying the appropriate role of antitrust law in governing ex post opportunism in the SSO setting.

September 16, 2014 | Permalink | Comments (0) | TrackBack (0)

Variety, Mergers, and Consumer Well-Being: Towards a Capability Approach to Merger Law

Jennifer E. Sturiale, Georgetown University Law Center discusses Variety, Mergers, and Consumer Well-Being: Towards a Capability Approach to Merger Law.

ABSTRACT: Revisions incorporated into the Horizontal Merger Guidelines in 2010 claim that the DOJ and FTC consider anticompetitive effects to “variety” when evaluating mergers. The Guidelines do not, however, explain the methodology or tools that can and should be used to evaluate such effects. At the same time, there is an ongoing normative debate over antitrust’s consumer welfare standard, one strain of which is a disagreement over the meaning of the word “welfare.” This Article considers how variety effects could be evaluated — first, under normative welfare economics, and then under an alternative to welfare economics, the Capability Approach. The Capability Approach is a normative framework for evaluating individual well-being that stands in contrast to welfare economics. Rather than assess individual well-being in terms of an individual’s utility as determined from the individual’s subjective perspective, as welfare economics attempts to do, the Capability Approach evaluates individual well-being in terms of an individual’s capability to achieve the kind of life that the individual has reason to value. Ultimately, this is an assessment of what an individual is able to be and to do.

September 16, 2014 | Permalink | Comments (0) | TrackBack (0)

Nonlinear Pricing and Exclusion: I. Buyer Opportunism

Philippe Chone, National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) and Laurent Linnemer, National Institute of Statistics and Economic Studies (INSEE) - Laboratory of Industrial Economics; CESifo (Center for Economic Studies and Ifo Institute) address Nonlinear Pricing and Exclusion: I. Buyer Opportunism.

ABSTRACT: We study the exclusionary properties of nonlinear price-quantity schedules in an Aghion-Bolton style model with elastic demand and product differentiation. We distinguish three regimes depending on whether and how the price of the incumbent good is linked to the quantity purchased from the rival firm. We find that the supply of rival good is distorted downwards. Moreover, given the quantity supplied from the rival, the buyer may opportunistically purchase inefficiently many units from the incumbent to pocket quantity rebates. We show that the possibility for the buyer to dispose of unconsumed units attenuates the opportunism problem and limits the exclusionary effects of nonlinear pricing.

September 16, 2014 | Permalink | Comments (0) | TrackBack (0)