Antitrust & Competition Policy Blog

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

Monday, April 10, 2017

On Competitive Nonlinear Pricing

Attar, Andrea ; Mariotti, Thomas and Salanié, François provide thoughts On Competitive Nonlinear Pricing.

ABSTRACT:  We study a discriminatory limit-order book in which uninformed market makers compete in nonlinear tariffs to serve an informed insider. Our model allows for general nonparametric specifications of preferences and for arbitrary discrete distributions for the insider's private information. We show that adverse selection severely restricts possible equilibrium outcomes: in any pure-strategy equilibrium, tariffs must be linear and at most one type may trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances. The Bertrandlike logic underlying these results markedly differs from Cournot-like analyses of the limit-order book that postulate a continuum of types. We argue that these contrasting outcomes can be reconciled when one considers "-equilibria of either the game with a large number of market makers or the game with a large number of insider types. Mixed-strategy equilibria, by contrast, lead to a new class of equilibrium predictions that calls for further analysis.

April 10, 2017 | Permalink | Comments (0)

Saturday, April 8, 2017

The Cambridge Handbook of Antitrust, Intellectual Property, and High Tech

Roger Blair (University of Florida) and D. Daniel Sokol (University of Florida have edited The Cambridge Handbook of Antitrust, Intellectual Property, and High Tech.

BOOK ABSTRACT: This Cambridge Handbook, edited by Roger D. Blair and D. Daniel Sokol, brings together a group of world-renowned professors in the fields of law and economics to assess the theory and practice of antitrust, intellectual property, and high tech. With the increased globalization of antitrust, a better understanding of how law and economics shape this interface will help academics, policymakers, and practitioners to understand the existing state of academic literature, its limits, and its relevance to real-world antitrust. The book will be an essential resource for anyone seeking to understand academic and policy considerations shaping the world of antitrust, intellectual property, and high tech.

Table of Contents

List of figures
List of contributors
Introduction Roger D. Blair and D. Daniel Sokol
Part I. Economics of Antitrust-IP:
1. Economics of innovation Joshua S. Gans
2. Antitrust and intellectual property: developments in pharmaceuticals Sumanth Addanki
3. The economics of the internet Babette E. Boliek
4. The economics of FRAND Anne Layne-Ferrar
Part II. Institutional Design Country Overviews:
5. Antitrust and intellectual property: a brief introduction Keith N. Hylton
6. The antitrust and intellectual property intersection in European Union law Nicolas Petit
7. The IP-antitrust interface in China: an uncharted territory Thomas K. Cheng
8. Intellectual property and antitrust in Japan Masako Wakui
9. Competition law and intellectual property in Korea Hwang Lee
Part III. Monopolization:
10. Is Pepsi really a substitute for Coke?: market definition in antitrust and IP Mark A. Lemley and Mark P. McKenna
11. Monopoly power and intellectual property Roger D. Blair and Wenche Wang
12. Exploitative abuses of intellectual property rights Harry First
13. Patent holdups Daryl Lim
14. Walker process and sham litigation Leon Greenfield
15. Does antitrust have a role to play in regulating big data? D. Daniel Sokol and Roisin Comerford
Part IV. Competitor Collaboration:
16. Drug patent settlements Michael A. Carrier
17. Copyright licensing and the EU digital single market strategy Pablo Ibáñez Colomo
18. Patent pools and related technology sharing Erik Hovenkamp and Herbert Hovenkamp
Part V. Vertical Relations:
19. Bundling and high-tech industries Daniel J. Gifford and Robert T. Kudrle
20. Tying arrangements and intellectual property Christopher R. Leslie
21. Online RPM John B. Kirkwood
Part VI. Mergers in High Technology:
22. US merger enforcement in the information technology sector Jeffrey A. Eisenach
23. Competition assessment of IPRs in China's merger control Liyang Hou

 

April 8, 2017 | Permalink | Comments (0)

Friday, April 7, 2017

On Globally Optimal Punishments in the Repeated Cournot Game

F. Delbono and L. Lambertini provide thoughts On Globally Optimal Punishments in the Repeated Cournot Game.

ABSTRACT: We challenge the global optimality of one-shot punishments in infinitely repeated games with discounting. Specifically, we show that the stick-and-carrot punishment à la Abreu (1986) may not be globally optimal. We prove our result by investigating tacit collusion in the infinite repetition of a linear Cournot game. We illustrate the existence of the stick-and-carrot globally optimal punishment for large cartels, and fully characterise it. Then, we show that for mall cartels, global optimality may be reached only with two-period punishments.

April 7, 2017 | Permalink | Comments (0)

Competitive Cross-Subsidization

Zhijun Chen and Patrick Rey have a good paper on Competitive Cross-Subsidization. Worth reading!

Abstract:  Cross-subsidization arises naturally when firms with different comparative ad- vantages compete for consumers with diverse shopping patterns. Firms then face a form of co-opetition, being substitutes for one-stop shoppers and complements for multi-stop shoppers. Competition for one-stop shoppers then drives total prices down to cost, but firms subsidize weak products with the profit made on strong products. While firms and consumers would benefit from cooperation limiting cross- subsidization (e.g., through price caps), banning below-cost pricing instead increases firms profits at the expense of one-stop shoppers; this calls for a cautious use of below-cost pricing regulations in competitive markets.

April 7, 2017 | Permalink | Comments (0)

Vertical Licensing, Input Pricing, and Entry

Elpiniki Bakaouka and Chrysovalantou Milliou have a theory paper on Vertical Licensing, Input Pricing, and Entry.

ABSTRACT: We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm. We find that it opts for licensing even when licensing induces the entry of the licensee in the final goods market. In fact, although the entry of the licensee reduces the licensor's efficiency and the competition that it faces, it reinforces, instead of weakens, the licensing incentives. Vertical licensing is always welfare-enhancing and it is even more welfare-enhancing when it triggers entry.

April 7, 2017 | Permalink | Comments (0)

Thursday, April 6, 2017

Don Rickles 1926-2017

Antitrust is only part of my life.  I was saddened to discover that comedian Don Rickles died today at age 90.  To say that Don Rickles was funny is to say that water is wet.  Don Rickles may have been the funniest and most offensive comic of his generation.  My daughters knew him from his role as Mr. Potato Head from the Toy Story movies.  I knew him from his stand up and earlier movies.  What I liked about him is that he really was his own person - a modern day iconoclast.  Nothing was sacred for him and beyond the reach of his humor.  There is a great documentary on his life that was produced a decade ago - Mr. Warmth, The Don Rickles Project, which was directed by John Landis.

 

 

 

April 6, 2017 | Permalink | Comments (0)

Hospitals and the generic versus brand-name prescription decision in the outpatient sector

Gerald J. Pruckner and Thomas Schober analyze Hospitals and the generic versus brand-name prescription decision in the outpatient sector.

ABSTRACT: Healthcare payers try to reduce costs by promoting the use of cheaper generic drugs. We show strong interrelations in drug prescriptions between the inpatient and outpatient sectors by using a large administrative dataset from Austria. Patients with prior hospital visits have a significantly lower probability of receiving a generic drug in the outpatient sector. The size of the effect depends on both the patient and doctor characteristics, which could be related to the differences in hospital treatment and heterogeneity in the physicians’ adherence to hospital choices. Our results suggest that hospital decisions create spillover costs in healthcare systems with separate funding for inpatient and outpatient care.

April 6, 2017 | Permalink | Comments (0)

Resale price maintenance post Leegin: A model of rpm incentives

William Comanor and David Salant offer Resale price maintenance post Leegin: A model of rpm incentives.

ABSTRACT: The prominent Babies R Us decision (McDonough et al., v. Toys R US, Inc., 2009) was the first to explore the economic consequences of resale price maintenance after the Supreme Court’s Leegin Decision. Previously, litigation concerned the presence or absence of an agreement; but that changed with the new jurisprudence which instead emphasized the restraint’s direct anti-competitive effects. While the district court’s decision in the Babies R Us case rested on the factual circumstances of the case, it did not have before it an economic model through which those facts could be integrated. This paper offers such a mode, the predicates of which are drawn from the case. The conclusions that are drawn from the model are fully consistent with the court’s decision

April 6, 2017 | Permalink | Comments (0)

Deterring corruption and cartels : in search of a coherent approach

Auriol, Emmanuelle; Hjelmeng, Erling ; and Soreide, Tina describe Deterring corruption and cartels : in search of a coherent approach.

ABSTRACT: This article addresses how the rules intended to protect consumers and taxpayers from economic crime, namely leniency and cartel settlements in competition law, criminal sanctions and debarment of suppliers from participation in public tenders for bribery, work together. While the economic reasoning behind these rules makes sense when considering each one of them in isolation, their impact is weaken when they are opposing each other. Competition authorities are narrowly mandated to control competition, and they do not seek out corruption. For criminal law investigators problems are created if they interfere (because it would undermine the leniency program); conversely, there are problems if they stay away (because that would undermine enforcement of corruption and other economic crimes). We propose to strengthen the regulation of corporate misconduct through better collaboration and integration of the other law enforcement functions and institutions that exist. The first step is to maintain and share a centralized database on firms’ offenses and settlements with anti-trust and procurement authorities. The second step is to expand the mandate and competence of competition authorities to search for, and react against, corruption.

April 6, 2017 | Permalink | Comments (0)

A Note on Consumer Surplus and the Structure of Preferences

Paolo Bertoletti (Department of Economics and Management, University of Pavia) offers A Note on Consumer Surplus and the Structure of Preferences.

ABSTRACT: We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated multiproduct pricing. In particular, we discuss the role of substitutability "within group" and with the outside commodity, deriving a Slutsky-like decomposition of the price effect. We use our results to show that Ramsey prices are proportional to marginal costs only if preferences are fully homothetic, and that commodities with larger outside substitutability have smaller Lerner indexes.

April 6, 2017 | Permalink | Comments (0)

Wednesday, April 5, 2017

Alternative Objectives in an Oligopoly Model : An Aggregative Game Approach

Itaya, Jun-ichi ; Cornes, Richard describe Alternative Objectives in an Oligopoly Model : An Aggregative Game Approach.

ABSTRACT:  A rapidly growing literature analyzes models in which firms maximize objectives other than profit and enjoy market power. Examples include the labor-managed firm, mixed oligopoly, and delegation models. These models typically retain the aggregative structure of the conventional Cournot model of imperfect competition. We exploit this fact and apply the framework recently developed by Cornes and Hartley (2005, 2011) to analyze the properties of the equilibrium in such games. We show that existing treatments often make more restrictive assumptions than necessary to generate their results. Specifically, we identify conditions sufficient to ensure the existence of a unique equilibrium, and we explore the comparative static properties of these conditions.

April 5, 2017 | Permalink | Comments (0)

Agglomeration and (the Lack of) Competition

Yao Amber Li (Hong Kong University of Science and Tech) ; Joseph Kaboski (University of Notre Dame) ; and Wyatt Brooks (University of Notre Dame) have written on Agglomeration and (the Lack of) Competition.

ABSTRACT: Industrial clusters are generally viewed as good for growth and development, but clusters can also enable non-competitive behavior. This paper studies the presence of non-competitive pricing in geographic industrial clusters. We develop, validate, and apply a novel identification strategy for collusive behavior. We derive the test from the solution to a partial cartel of perfectly colluding firms in an industry. Outside of a cartel, markups depend on a firm’s market share but not on the total market share of firms in the agglomeration, but in the cartel, markups are constant across firms and depend only on the overall market share of the agglomeration. Empirically, we validate the test using plants with a common owner, and we then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is roughly four times higher in China’s “special economic zones.

April 5, 2017 | Permalink | Comments (0)

Oligopolistic competition and welfare

Robert Ritz describes Oligopolistic competition and welfare.

ABSTRACT: This chapter provides a selective survey of recent developments in the study of social welfare under oligopoly. The main topics covered are (i) the rate of cost pass through as a tool to analyze market performance; (ii) the quantification of welfare losses due to market power in Cournot-style models; and (iii) new results from models with endogenous entry. The chapter highlights common themes across these topics and identi.es areas for future research.

April 5, 2017 | Permalink | Comments (0)

Tuesday, April 4, 2017

Some Efficiency Aspects of Monopolistic Competition: Innovation, Variety and Transaction Costs

Tamara Toradova explores Some Efficiency Aspects of Monopolistic Competition: Innovation, Variety and Transaction Costs.

ABSTRACT:  We stress some efficiency aspects of monopolistic competition justifying it on account of its tendency to innovate and the questionable excess capacity paradigm. Some further efficiency aspects revealed are product variety and transaction cost savings. We view the monopolistically competitive firm as an essential source of technological innovation, product variety and cost economies. While perfect competition is universally considered a benchmark and a social optimum, we consider it a strongly unrealistic theoretical setup where the monopolistically, rather than the perfectly, competitive firm turns out to be the true type of competition and social optimum in the real world of positive transaction costs. The monopolistically competitive firm not only offers product variety and innovation but is the optimal institutional arrangement under positive transaction costs.

April 4, 2017 | Permalink | Comments (0)

Multiproduct Pricing Made Simple

Mark Armstrong (Oxford) and John Vickers (Oxford) offer Multiproduct Pricing Made Simple.

ABSTRACT:  We study multiproduct firms in the contexts of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then discuss a tractable class of preferences that involve a generalized form of homotheticity. Profit-maximizing quantities are proportional to efficient quantities. We discuss optimal monopoly regulation when the firm has private information about its cost vector, and find situations where optimal regulation leaves relative price decisions to the firm.

April 4, 2017 | Permalink | Comments (0)

Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions

Murillo Campello ; Daniel Ferrés ; and Gaizka Ormazabal ask Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions.

ABSTRACT: Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors serving on their boards. This finding is robust to self-selection and is more pronounced when those directors hold more outside directorships and have fewer stock options — when they have fewer economic ties to the indicted firms. Results are stronger when independent directors’ appointments were attributable to SOX, preceded the CEO’s appointment, or followed class action suits — when they have fewer direct ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support across their directorships in other firms. Moreover, firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs and to dismiss CEOs after cartel indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to reduce those costs. Understanding these incentives is key for antitrust authorities in designing strategies for cartel prosecution.

April 4, 2017 | Permalink | Comments (0)

Information Asymmetry and Market Power in the African Banking Industry

Boateng, Agyenim ; Asongu, Simplice ; Akamavi, Raphael ; and Tchamyou, Vanessa discuss Information Asymmetry and Market Power in the African Banking Industry.

ABSTRACT: This study investigates the role of information sharing offices and its association with market power in the African banking industry. The empirical evidence is based on a panel of 162 banks from 42 countries for the period 2001-2011. Five simultaneity-robust estimation techniques are employed, namely: (i) Two Stage Least Squares; (ii) Instrumental Fixed effects to control for the unobserved heterogeneity; (iii) Instrumental Tobit regressions to control for the limited range in the dependent variable; (iv) Generalised Method of Moments (GMM) to control for persistence in market power and (v) Instrumental Quantile Regressions (QR) to account for initial levels of market power. The following findings have been established from non-interactive regressions. First, the effects of information sharing offices are significant in Two Stage Least Squares, with a positive effect from private credit bureaus. Second, in GMM, public credit registries increase market power. Third, from Quintile Regressions, private credit bureaus consistently increase market power throughout the conditional distributions of market power. Given that the above findings are contrary to theoretical postulations, we extended the analytical framework with interactive regressions in order to assess whether the anticipated effects can be established if information sharing offices are increased. The extended findings show a: (i) negative net effect from public credit registries on market power in GMM regressions and; (ii) negative net impacts from public credit registries on market power in the 0.25th and 0.50th quintiles of market power.

April 4, 2017 | Permalink | Comments (0)

On Competitive Nonlinear Pricing

Attar, Andrea ; Mariotti, Thomas ; and Salanié, François provide thoughts On Competitive Nonlinear Pricing.

ABSTRACT: We study a discriminatory limit-order book in which uninformed market makers compete in nonlinear tariffs to serve an informed insider. Our model allows for general nonparametric specifications of preferences and for arbitrary discrete distributions for the insider's private information. We show that adverse selection severely restricts possible equilibrium outcomes: in any pure-strategy equilibrium, tariffs must be linear and at most one type may trade, leading to an extreme form of market breakdown. As a result, such equilibria only exist under exceptional circumstances. The Bertrandlike logic underlying these results markedly differs from Cournot-like analyses of the limit-order book that postulate a continuum of types. We argue that these contrasting outcomes can be reconciled when one considers "-equilibria of either the game with a large number of market makers or the game with a large number of insider types. Mixed-strategy equilibria, by contrast, lead to a new class of equilibrium predictions that calls for further analysis.

April 4, 2017 | Permalink | Comments (0)

Measuring competition in the UK deposit-taking sector

J A de-Ramon, Sebastian (Bank of England) and Straughan, Michael (Bank of England) are Measuring competition in the UK deposit-taking sector.

ABSTRACT: We use a new regulatory dataset to measure the intensity competition in the UK deposit-taking sector. The novelty of this study is two-fold. First, the dataset allows us to explore trends in competition intensity over an extended, 24-year period from 1989 to 2013 using data for UK-regulated firms which encompasses a wider range of firms than for previous studies. Second, we take a portmanteau approach and estimate a number of different performance-based competition measures common in the literature to support conclusions on the intensity of competition over the period. Our estimates of the Lerner index, the Panzar-Rosse H-statistic and the Boone indicator suggest that competition intensity was strong at the beginning of our sample, but became less intense in the early 2000s. However, the deposit-taker business model bundles together activities in several markets simultaneously, so strong competition in some markets can be offset by the extraction of market rents in others. Importantly, competition intensity decreased (and the ability of UK deposit-takers to extract market rents from customers increased) in the period immediately ahead of the financial crisis (2003–07).

April 4, 2017 | Permalink | Comments (0)

Monday, April 3, 2017

Moot de Libre Competencia 2017 - with US$10,000 prize for the winning team

Moot de Libre Competencia 2017

Bullard Falla Ezcurra + junto a las Facultades de Derecho y Economía de la Universidad del Pacífico organizan la competencia en la que estudiantes de Derecho y Economía pondrán a prueba sus destrezas y conocimientos de Derecho de la Competencia y Análisis de Mercados.
Para conocer el Caso, Cronograma y Reglamento, ingresa a:


Moot de Libre Competencia 2017

April 3, 2017 | Permalink | Comments (0)