Antitrust & Competition Policy Blog

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

Thursday, May 19, 2016

Bidding for input in oligopoly

Roberto Burguet and Jozsef Sakovics are Bidding for input in oligopoly.

ABSTRACT: We present a model where firms producing substitutes bid for inputs (especially labor) in a decentralized market. We show that downstream market power increases the intensity of competition for input through a new channel: local competitive foreclosure. In our model each unit of input (worker) is sold in a separate local market and Â…rms try not just to get it, but also to keep it from their rivals. This externality leads to Â…firms targeting the same units of input and the price of these is bid up. This effect mitigates the output reducing effect of downstream market power and in the limit (linear Cournot with constant returns) can even restore efficiency. As a result of coordination, there exist further equilibria, with prices above cost even with price taking suppliers –in the labor application this leads to involuntary unemployment. When, instead of targeting, firms post prices, coordination no longer plays a role and we have a unique(!) equilibrium that clears the market, still internalizing the externality. Finally, we show that targeting can also result in endogenous market segmentation and price/wage differentials.

May 19, 2016 | Permalink | Comments (0)

Wednesday, May 18, 2016

Consumer Search in Retail Gasoline Markets

David P. Byrne (University of Melbourne) ; Nicolas de Roos (University of Sydney) examine Consumer Search in Retail Gasoline Markets.

ABSTRACT: This paper develops novel direct tests for search behavior in retail gasoline markets. We exploit a unique market-level dataset that allows us to directly measure search intensity with daily web traffic data from a gasoline price reporting website and perfectly measure daily changes in price levels and dispersion. Our simple yet powerful tests provide strong evidence of both cross-sectional and intertemporal price search behavior.

May 18, 2016 | Permalink | Comments (0)

Does Bank Branch Competition Alleviate Household Credit Constraints?Evidence from Korean Household Data

Saeyeon Oh (Department of Economics, Sogang University, Seoul) ; Jungsoo Park ask Does Bank Branch Competition Alleviate Household Credit Constraints?Evidence from Korean Household Data.

ABSTRACT: This paper provides empirical evidence on how bank branch competition affects household credit constraints based on Korean household and nation-wide bank branch data. The main findings are as follow. First, regression results show that banks alleviate household credit constraint when bank branch competition is strong. Second, relaxation of credit constraint occurs at the internal margin, while external margin is not affected. Finally, main beneficiaries from increase in banking competition are older households with head age 35 or above. These results are consistent with the fact that most Korean banks are multi-branch nation-wide banks transacting based on hard information. Banks are compelled to provide more household credit in order to compensate for the lower profitability in competitive market.

May 18, 2016 | Permalink | Comments (0)

Concentration, Product Variety and Entry-for-Merger: Evidence from New Product Introductions in the U.S. Food Industry

Bhattacharya, Haumanti ; Innes, Robert explore Concentration, Product Variety and Entry-for-Merger: Evidence from New Product Introductions in the U.S. Food Industry.

ABSTRACT: Competing theories in industrial organization predict that more concentrated industries will lead to a smaller and more efficient variety of products, or alternately, a larger and less efficient array of products. This paper presents an empirical study of these competing implications that estimates the impact of market concentration on new product introductions in a panel of nine food processing industries over 1983 to 2004. Controlling for industry-level unobservables (using fixed effects) and endogeneity of industry market structure, we find that industry concentration promotes the introduction of new products. Preliminary evidence also suggests that new product introductions spur subsequent food industry mergers. Both conclusions are consistent with the “entry for merger” theory of product variety wherein small firms introduce new products in anticipation of profitable future mergers with concentrated firms.

May 18, 2016 | Permalink | Comments (0)

Exclusionary Practices in Two-Sided Markets: The Effect of Radius Clauses on Competition Between Shopping Centers

Tim Bruhn (University of Giessen) and Georg Gotz (University of Giessen) are rethink Exclusionary Practices in Two-Sided Markets: The Effect of Radius Clauses on Competition Between Shopping Centers.

ABSTRACT:  This paper analyzes exclusionary conduct of platforms in two-sided markets. Motivated by recent antitrust cases against shopping centers introducing radius restrictions on their tenants, we provide a discussion of the likely positive and normative effects of exclusivity clauses, which prevent tenants from opening outlets in other shopping centers covered by the clause. In a standard two-sided market model with two competing shopping centers, we analyze incentives to introduce exclusivity clauses and the likely effects on social welfare. We show that exclusivity agreements are especially profitable for shopping centers and detrimental to social welfare if competition is intense between the two shopping centers. We argue that the focus of courts on market definition is misplaced in markets determined by competitive bottlenecks.

May 18, 2016 | Permalink | Comments (0)

Tuesday, May 17, 2016

Toward a Theory of Monopolistic Competition

Mathieu Parenti (National Research University Higher School of Economics) ; Philip Ushchev (National Research University Higher School of Economics) ; Jacques-Francois Thisse (National Research University Higher School of Economics) move Toward a Theory of Monopolistic Competition.

ABSTRACT: We propose a general model of monopolistic competition which encompasses existing models while being exible enough to take into account new demand and competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shock are characterized through necessary and sucient conditions. Furthermore, we show that the attention to the constant elasticity of substitution (CES) based on its normative implications was misguided: constant mark-ups, additivity and homotheticity are neither necessary nor sucient for the market to deliver the optimum outcome. Our approach can cope with heterogeneous rms once it is recognized that the elasticity of substitution is rm-specic. Finally,! we show how our set-up can be extended to cope with multiple sectors.

May 17, 2016 | Permalink | Comments (0)

Price-setting Behavior and Competition in Developing Countries: An Analysis of Retail Outlets in Lesotho

Mamello Nchake, Lawrence Edwards and Asha Sundaramstudy Price-setting Behavior and Competition in Developing Countries: An Analysis of Retail Outlets in Lesotho.

ABSTRACT: We study the relationship between price-setting behavior and the degree of competition in a setting where markets and information flows are relatively imperfect. Using a unique dataset that combines survey data on retail outlets in Lesotho, and detailed historical information on their product prices, we find a non-monotonic relationship between the frequency of price changes and perceived competition, measured by the number of reported competitors. This non-monotonic relationship is consistent with a model of increasing costs of coordinating price changes under tacit collusion with few competitors, and a breakdown of collusion at higher levels of competition.

May 17, 2016 | Permalink | Comments (0)

Challenges of Indonesian Competition Law and Some Suggestions for Improvement

Manaek SM PASARIBU (Commission For The Supervision of Business Competition (KPPU)) suggests Challenges of Indonesian Competition Law and Some Suggestions for Improvement.

ABSTRACT: This paper discusses the problems in the implementation of Law No. 5 of 1999, the Indonesian Competition Law, explains the substance of the law, and provides recommendations for amending the Indonesian competition law. Existing loopholes in the enforcement of competition law in Indonesia, both in substantive and procedural terms, have created difficulties in practice. One way to solve this problem would be to amend the competition law. Our suggestions for the amendment of the Indonesian Competition Law relate to institutional status, dawn raid authority, indirect evidence, leniency programme, procedural law, private litigations, legal aspects of cross border enforcement, and merger notification. We expect that amending said law will result in a balance between procedural and substantive law and that implementing the competition law will finally create legal certainty regarding competition law enforcement in Indonesia.

May 17, 2016 | Permalink | Comments (0)

Antidumping and Market Competition: Implications for Emerging Economies

Chad P. Bown and Rachel McCulloch offer Antidumping and Market Competition: Implications for Emerging Economies.

ABSTRACT: While the original justification of the antidumping laws in the industrial economies was to protect domestic consumers against predation by foreign suppliers, by the early 1990s the laws and their use had evolved so much that the opposite concern arose. Rather than attacking anti-competitive behavior, dumping complaints by domestic firms were being used to facilitate collusion among suppliers and enforce cartel arrangements. This paper examines the predation and anti-competitiveness issues from the perspective of the “new users” of antidumping—the major emerging economies for which antidumping is now a major tool in the trade policy arsenal. We examine these concerns in light of important ways in which the world economy and international trading system have been changing since the early 1990s, including more firms and more countries participating in international trade, but also more extensive links among suppliers and consumers through multinationa! l firm activity and vertical specialization.

May 17, 2016 | Permalink | Comments (0)

Monday, May 16, 2016

DHL Express (Italy) v Commission: Guidance on Parallel Immunity/Leniency Applications

Cristoforo Osti, Chiomenti Studio Legale; Universita del Salento. explores DHL Express (Italy) v Commission: Guidance on Parallel Immunity/Leniency Applications.

ABSTRACT: The European Competition Network Model Leniency Programme is not binding on national competition authorities (NCAs); in case a firm lodges a leniency application for a reduction in the fine with the European Commission and a summary application for full immunity with a NCA, regarding the same cartel but covering a portion of the conduct which was not expressly covered by the former application, nothing prevents the NCA from granting full immunity for that specific part of the conduct and denying it to the firm which came in first at the European level.


May 16, 2016 | Permalink | Comments (0)

Is anyone in antitrust interested in the revenge business?

Is very strange. I have been in the revenge business so long, now that it's over, I don't know what to do with the rest of my life.

Inigo Montoya in the Princess Bride

Well, I have found a website that details how best to extract revenge.  The website tagline begins, "Imagine all the people who annoy you the most. An irritating colleague. School teacher. Your ex-wife. Filthy boss. Jealous neighbour. That successful former classmate. Or all those pesky haters."

See here for details.

May 16, 2016 | Permalink | Comments (0)

Judgments in the Cement Case: Requirement for Greater Clarity, Specificity, and Justification of Information Requests from the Commission

Francesco Carloni and Gabriela Da Costa (K&L Gates) explain Judgments in the Cement Case: Requirement for Greater Clarity, Specificity, and Justification of Information Requests from the Commission.

ABSTRACT:  On 10 March 2016, the Court of Justice of the European Union (‘CJEU’) annulled the formal requests for information issued by the European Commission (the ‘Commission’) to several cement producers and clarified the limits of the Commission's investigative powers, requiring the Commission to provide clear and concrete reasons where it requests information.


May 16, 2016 | Permalink | Comments (0)

The Growth of the Broadband Internet Access Market in California: Deployment, Competition, Adoption, and Challenges for Policy

James E. Prieger, Pepperdine University - School of Public Policy examines The Growth of the Broadband Internet Access Market in California: Deployment, Competition, Adoption, and Challenges for Policy.

ABSTRACT: This report examines the great progress made in availability and adoption in the broadband market over the past few decades and shows how Californian residents and businesses have come to use broadband widely. The policy issues involved with continuing the tremendous strides already made are discussed, along with recommendations for policy-makers.

The report begins by documenting the rapid growth of Internet usage in the U.S. and California. There is a review of the current state of competition in voice and broadband markets, discussing the decline of traditional telephone service, which is rapidly approaching irrelevance, and the rise of wireless and Internet services. California consumers dropped one in five of their remaining traditional voice lines in 2013, leaving only 9 percent residential voice lines in California as traditional POTS lines. As of the first half of 2014, 47 percent of U.S. households relied only on wireless phones.

The report discusses policy issues of availability and adoption of broadband, both overall and broken out by race, ethnicity, poverty status, age, and size of business. Since availability is nearly ubiquitous, policy focus should switch to the remaining barriers to adoption. State and federal policy toward universal service (CASF, CAF, Lifeline) is reviewed. The report presents detailed statistics on the availability of broadband in California. Growth in availability since 1999 to today’s nearly ubiquitous coverage is presented. Broadband has been growing at an annualized rate of 30.4 percent since 1999 and more than 130 broadband providers have entered the market in the state. Mobile broadband now accounts for 70 percent of broadband connections. The data show rapidly increasing quality of service, with speeds rising from 7 Mbps in 2008 to 55 Mbps in 2015. Over the same time period, there was a significant decline in the quality-adjusted price for broadband, from $12.89/Mbps in 2008 to $3.42 in 2015.

The report concludes with policy recommendations to expand broadband access and adoption, including deploying low cost options to achieve broadband parity, coordinating state and federal rural access subsidies to prevent waste, and updating state and federal Lifeline programs to support broadband. Other policy implications discussed include the need to remove barriers to deploying broadband infrastructure such as access to municipal rights of way, and retargeting CASF funds to unserved (rather than underserved) areas.

May 16, 2016 | Permalink | Comments (0)

Global Competition and Consumer Law Careers

Hear from the Program Director of the Melbourne Law School’s fully online masters program in global competition and consumer law about the exciting career opportunities that program opens up...Watch video

May 16, 2016 | Permalink | Comments (0)

The Law on Fines Imposed in EU Competition Proceedings: Consolidating the Foundations Before the Tide Goes Out

Eric Barbier de La Serre and Eileen Lagathu (both Jones Day) have written on The Law on Fines Imposed in EU Competition Proceedings: Consolidating the Foundations Before the Tide Goes Out.

ABSTRACT: While the case law on fines was not as rich in 2015 as in previous years, it nevertheless yielded important developments relating, for instance, to the statute of limitations, the Commission's discretion in finding mitigating circumstances, and the broad scope of the Tomkins principle on joint and several liability.

The recent refocussing of the Courts on the key concept of ‘undertaking’ has led to a significant change in the application of the aggravating circumstance of repeat offence to parent companies held liable for infringements perpetrated by their subsidiaries.

The year 2015 also marks the first judgment delivered on a settlement case.

May 16, 2016 | Permalink | Comments (0)

Saturday, May 14, 2016

Jonathan B. Baker Receives 2016 Jerry S. Cohen Award for Antitrust Scholarship

Mazal tov to American University's Jon Baker for his excellent article Taking the Error Out of 'Error Cost' Analysis: What's Wrong with Antitrust's Right, 80 Antitrust L.J. 1 (2015), which has won the American Antitrust Institute's 2016 Jerry S. Cohen Award for Antitrust Scholarship.  Jon is one of the world's very best antitrust scholars. I always find his work well thought out and highly policy relevant.  He is also a kind and decent human being with a good sense of humor.  He is highly deserving of the award this year and indeed, most years.


May 14, 2016 | Permalink | Comments (0)

Friday, May 13, 2016

Assessment of Post-Merger Coordinated Effects: Characterization by Simulations

Marc Ivaldi, Toulouse School of Economics; Centre for Economic Policy Research (CEPR) and Vicente Lagos, University of Toulouse 1 - Toulouse School of Economics (TSE) have an interesting paper on the Assessment of Post-Merger Coordinated Effects: Characterization by Simulations.

ABSTRACT: This paper aims at evaluating the coordinated effects of horizontal mergers by simulating their impact on firms' critical discount factors. We consider a random coefficient model on the demand side and heterogeneous price-setting firms on the supply side. Results suggest that mergers strengthen the incentives to collude among merging parties, but weaken the incentives of non-merging parties, with the former effect being stronger. To assess the magnitudes of these effects, we introduce the concepts of Asymmetry in Payoffs and Change in Payoffs effects, which allow us to identify appropriate screening tools according to the relative pre-merger payoffs of merging parties.



May 13, 2016 | Permalink | Comments (0)

Patent Prospect Theory and Competitive Innovation

Erik Hovenkamp, Northwestern University, Department of Economics Patent has written on Prospect Theory and Competitive Innovation.

ABSTRACT: In his seminal “prospect theory” of patents, Edmund Kitch contends that patents should be relatively broad in order to promote post-grant follow-on innovation and development. The argument rests critically on the assumption that post-grant competition will diminish such efforts. This is just a special case of the more general claim that a market will be more innovative when it is less competitive. When an innovator invents a new technology, it enters (or creates) a market for the relevant technology class, and the breadth of its patent determines how competitive this market can become. Prospect theory asserts that this post-grant market should involve little or no competition, and infers from this that patents should be broad.

However, economists have long debated the relationship between competition and innovation. A leading view among contemporary economists – the inverted-U hypothesis – contends that aggregate innovation is maximized somewhere in between monopoly and perfect competition; that is, the market should be relatively competitive, but not too competitive. This hypothesis is strongly supported by recent theoretical and empirical economic research, much of which suggests that the socially optimal market structure is in fact closer to perfect competition than monopoly. Although this theory has not previously been related to the question of optimal patent breadth, it provides perhaps the best economic machinery for addressing this problem. In particular, it suggests that, in contrast to the teachings of prospect theory, patent breadth should be fairly modest in order to elicit a relatively significant degree of post-grant competition.

May 13, 2016 | Permalink | Comments (0)

Trump and Antitrust: Amazon has a huge problem

The first significant policy statement on antitrust by Republican likely nominee Donald Trump is that Amazon has a HUGE antitrust problem.

May 13, 2016 | Permalink | Comments (0)

Patent Thickets: An Economic Appraisal

Edward F Sherry and David Teece, University of California, Berkeley - Business & Public Policy Group offer Patent Thickets: An Economic Appraisal.

ABSTRACT: We discuss various economic aspects of different types (or taxa) of “patent thickets” identified in a companion article co-authored by one of us. We analogize patent thickets to “tangible input thickets” (in which manufacturers of complex products need a large number of different physical inputs, supplied by different firms), pointing out the similarities and differences between the patent thicket and tangible input thicket situations. We discuss certain issues applicable to various taxa of patent thickets.



May 13, 2016 | Permalink | Comments (0)