Thursday, February 2, 2017
Mark Armstrong, University of Oxford and John Vickers, University of Oxford examine 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.
The Practicalities and Pitfalls of the Smallest Saleable Patent Practicing Unit Doctrine: A Review of Teece and Sherry
Anne Layne-Farrar, CRA offers The Practicalities and Pitfalls of the Smallest Saleable Patent Practicing Unit Doctrine: A Review of Teece and Sherry.
ABSTRACT: Dr. Anne Layne-Farrar reviews a paper by Teece and Sherry who assess the economics of the SSPPU doctrine. She summarizes each argument made in support of the application of SSPPU and evaluates their logical underpinnings. She also discusses the practical difficulties that arise in applying the SSPPU doctrine and discusses the policy implications. Many limitations raised by Teece and Sherry caution against a broad, automatic application of the SSPPU doctrine and suggest and more careful use of the doctrine when it is applied.
Steven C. Salop, Georgetown University Law Center and Carl Shapiro, University of California, Berkeley - Haas School of Business ask Whither Antitrust Enforcement in the Trump Administration?
ABSTRACT: The Trump Administration might follow Donald Trump’s populist campaign rhetoric and adopt an approach to antitrust enforcement that emphasizes reining in corporate power. This approach would honor the preferences of the working-class voters who have put Trump into office by vigorously enforcing the antitrust laws controlling mergers and exclusionary conduct by dominant firms. Alternatively, the Trump Administration might adopt a highly permissive, laissez-faire approach to antitrust. That approach would allow further consolidation of corporate power and would disappoint the substantial majority of Americans who believe that the American economy is rigged to advantage the rich and powerful. We discuss these alternative approaches and offer a number of suggestions for how the Trump Administration can use antitrust enforcement and competition policy to rein in corporate power while respecting antitrust precedent and staying true to modern antitrust principles.
The Ties that Bind: Railroad Gauge Standards, Collusion, and Internal Trade in the 19th Century U.S.
Daniel Gross, Harvard Business School has written The Ties that Bind: Railroad Gauge Standards, Collusion, and Internal Trade in the 19th Century U.S..
ABSTRACT: Technology standards are pervasive in the modern economy, and a target for public and private investments, yet evidence on their economic importance is scarce. I study the conversion of 13,000 miles of railroad track in the U.S. South to standard gauge between May 31 and June 1, 1886 as a large-scale natural experiment in technology standards adoption that instantly integrated the South into the national transportation network. Using route-level freight traffic data, I find a large redistribution of traffic from steamships to railroads serving the same route that declines with route distance, with no change in prices and no evidence of effects on aggregate shipments, likely due to collusion by Southern carriers. Counterfactuals using estimates from a joint model of supply and demand for North-South freight transport suggest that if the cartel were broken, railroads would have passed through 50 percent of their cost savings from standardization, generating a 10 percent increase in trade on the sampled routes. The results demonstrate the economic value of technology standards and the potential benefits of compatibility in recent international treaties to establish transcontinental railway networks, while highlighting the mediating influence of product market competition on the public gains to standardization.
Raphael Auer, Swiss National Bank; Bank for International Settlements (BIS) and Philip U. Saure, Swiss National Bank - International Research and Technical Assistance Division explore Dynamic Entry in Vertically Differentiated Markets.
ABSTRACT: We develop a model of vertical innovation in which firms incur a market entry cost and choose a unique level of quality. Once established, firms compete for market shares, selling to consumers with heterogeneous tastes for quality. The equilibrium of the pricing game exists and is unique within our setup. Exogenous productivity growth induces firms to enter the market sequentially at the top end of the quality spectrum. A central feature of the model is that optimization problems of consecutive entrants are self-similar so that new firms enter in constant time-intervals and choose qualities that are a constant fraction higher than incumbent qualities. The asymmetries of quality choice, which inevitably arise because the quality spectrum has top and a bottom, is thus overcome by sequential entry. Our main contribution lies in handling these asymmetries.
Wednesday, February 1, 2017
The Effect of Retail Competition on Relationship-Specific Investments: Evidence from New Car Advertising
Charles Murry, Penn State University examines The Effect of Retail Competition on Relationship-Specific Investments: Evidence from New Car Advertising.
ABSTRACT: State regulations restrict car manufacturers from terminating relationships with dealers, which creates differences in dealer competition across markets and brands. I use this variation as an instrument to identify the causal effect of dealer competition on dealer and manufacturer advertising. I find that greater intra-brand dealer competition is associated with lower dealer advertising and greater local advertising by manufacturers. The results are evidence that manufacturers can encourage retail relationship-specific investments by providing downstream market power. Additionally, the results provide novel evidence on the substitution of selling effort within vertical relationships and the optimal design of retail networks. I discuss the relevance of these findings to the effects of state automobile franchise regulation and the recent financial troubles of US car manufacturers.
Jong-Hee Hahn (Yonsei University); Jinwoo Kim (Seoul National University); and Sang-Hyun Kim (University of East Anglia); Jihong Lee (Seoul National University) analyze Price Discrimination with Loss Averse Consumers.
ABSTRACT: This paper proposes a theory of price discrimination based on consumer loss aversion. A seller offers a menu of bundles before a consumer learns his willingness to pay, and the consumer experiences gain-loss utility with reference to his prior (rational) expectations about contingent consumption. With binary consumer types, the seller finds it optimal to abandon screening under an intermediate range of loss aversion if the low willingness-to-pay consumer is sufficiently likely. We also identify sufficient conditions under which partial or full pooling dominates screening with a continuum of types. Our predictions are consistent with several observed practices of price discrimination.
Nicolo Zingales, Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg Institute for Law, Technology, and Society (TILT) and Olia Kanevskaia, Tilburg University, Tilburg Law and Economics Center (TILEC), describe The IEEE-SA Patent Policy Update Under the Lens of EU Competition Law.
ABSTRACT: In 2015, the Institute of Electrical and Electronics Engineers (IEEE) Standardization Association made some controversial changes to its patent policy. The changes include a recommended method of calculation of FRAND royalty rates, and a request to members holding a standard essential patent (SEP) to forego their right to seek an injunction except under limited circumstances. The updated policy was adopted by the IEEE Board of Directors after obtaining a favorable Business Review Letter by the US Department of Justice, which found any potential competitive harm from the policy to be outweighed by potential pro-competitive benefits.
In this paper, we examine whether the same favorable conclusion would be reached under EU competition analysis. After discussing the role of patent policies of Standard-Setting Organizations (SSO) and the rules and principles applicable to the IEEE’s activities, the paper concludes that standardization agreements based on the updated policy may constitute a violation of article 101 TFEU.
Arbitrability of EU Competition Law-Based Claims: Where Do We Stand after the CDC Hydrogen Peroxide Case?
Damien Geradin, Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws and Emilio Villano, EDGE Legal ask Arbitrability of EU Competition Law-Based Claims: Where Do We Stand after the CDC Hydrogen Peroxide Case?
ABSTRACT: In this paper, we discuss the extent to which EU competition rules are arbitrable. There is a wide consensus that Articles 101 and 102 TFEU are fully arbitrable and we share that opinion. More challenging questions may, however, arise when the dispute subject to arbitration raises issues under the other competition provisions of the TFEU, i.e., Articles 106 to 108, as well as in secondary EU competition legislation (e.g., the EU Merger Control Regulation). Moreover, in the recent CDC Case, the question has arisen as to whether arbitration is a suitable method to settle claims for damages arising from breaches of competition law made by one of the parties to a contract containing an arbitration clause. We discuss AG Jääskinen’s controversial Opinion, the judgment of the CJEU, and their possible implications on the arbitrability of damages actions based on breaches of EU competition rules.
The Opinion of AG Wahl in Intel: Bringing Coherence and Wisdom into the CJEU's Pricing Abuses Case-Law
Damien Geradin, Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws offers The Opinion of AG Wahl in Intel: Bringing Coherence and Wisdom into the CJEU's Pricing Abuses Case-Law.
ABSTRACT: On 20 October 2016, Advocate General (AG) Wahl delivered its Opinion in Intel’s appeal to the Court of Justice of the EU against the judgment of the General Court of the EU. In this Opinion, in which AG Wahl advises the Court of Justice to set aside the judgement of the General Court, AG Wahl addresses questions of fundamental importance with respect to pricing conduct by dominant firms. The most remarkable feature of AG Wahl’s Opinion is that it brings coherence in an otherwise seemingly incoherent case-law in explaining that all forms of pricing conduct should be assessed under a similar test, whereby the assessment of whether the conduct is capable of producing foreclosure effects should require an analysis of “all the circumstances” of the case. Besides bringing coherence in the abusive pricing case-law, the Opinion brings the analysis of exclusive or more generally loyalty rebates in line with the teachings of economics whereby it is not the form of the rebates but their effects on competition that matters.
Tuesday, January 31, 2017
It is official, President Trump has nominated Neil Gorsuch to the Supreme Court. He regularly teaches as antitrust law at the University of Colorado. Perhaps of interest, in his 2013 class, the first day's assignment was from the Pitofsky casebook (which some remember as the Milton Handler casebook). This is not the standard econ heavy antitrust casebook (indeed, the only major casebook without an econ PhD author) and is probably the most left leaning of all of the major casebooks in terms of sales (Gavil, Baker, Kovacic & Wright, Areeda, Kaplow & Edlin; and Sullivan, Hovenkamp, Shelasnki & Leslie).
Updated: Correction - Gorsuch wrote Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Circuit 2013) and Four Corners Nephrology Associates, P.C. v. Mercy Medical Center of Durango, 582 F.3d 1216 (10th Circuit 2009). As a lawyer in private practice, he was involved in the famous Conwood case. Ben Klein and Josh Wright have a discussion of that case in an article here.
Further update: See also his opinion in KAY ELEC. CO-OP. v. CITY OF NEWKIRK, OKLA., 647 F.3d 1039 (10th Cir. 2011).
Sandra Marco Colino, The Chinese University of Hong Kong (CUHK) describes Brexit, Post-Truth Politics and the Triumph of a Messy Vision of Democracy over Technocracy.
ABSTRACT: On 23 June 2016, the people of the United Kingdom voted to leave the European Union in a historic referendum. This paper is a reflection on the wider implications of the result, the adequacy of deciding such technical matters through direct democracy means, and the problems related to the disdain of technocracy and expert opinions in the era of post-truth politics. It stresses the need to value democracy by giving it a constructive meaning, and by protecting it from the populism and misinformation that can tarnish it. But the responsibility of the EU, it is argued, should not be ignored. Its institutions must strive towards greater engagement of the wider population in its benefits. In this sense, Brexit could be an opportunity to re-think the direction in which the European project is advancing. The author shares both her own personal experience as a Spaniard who lived and worked in the UK for 12 years, and her professional perspective as an expert on EU law and competition law.
Going Digital: How Online Competition Changed Market Definition and Swayed Competition Analysis in Fnac/Darty
Simon Genevaz and Jerome Vidal (both French Competition Authority) describe Going Digital: How Online Competition Changed Market Definition and Swayed Competition Analysis in Fnac/Darty.
ABSTRACT: On 27 July 2016, the French Competition Authority cleared Fnac's acquisition of its rival consumer electronics retailer Darty. The clearance was subject to a limited number of divestiture commitments (six stores), an admittedly leaner remedy than early observers may have expected. Online competition played a key role in the assessment of the transaction, a 3-to-2 merger in nationwide retail chains. In fact, the Fnac/Darty decision may be among the first in Europe to find that online and physical retailing are sufficiently substitutable to form a single product market. Evidently, including online retailers in the relevant market greatly contributed to mitigating the merger's anticompetitive effects and accepting relatively narrow remedies. This article explains the methodology and evidence used to broaden the relevant market and how the Authority analysed competition exerted by internet retailers on physical retail chains. It also assesses the decision's impact on future enforcement.
The Bottom-Up Approach on Competition – A Study on How Institutional, Procedural and Sanctionatory Frameworks Touch on the Very Substance of the EU Antitrust Desideratum
Vlad Dan Roman, Romanian Competition Council offers The Bottom-Up Approach on Competition – A Study on How Institutional, Procedural and Sanctionatory Frameworks Touch on the Very Substance of the EU Antitrust Desideratum.
ABSTRACT: One of today’s main policy concerns for the competition community in Brussels is the way in which national institutional, procedural and sanctioning frameworks have the aptitude and are sufficiently harmonized to guarantee a coherent application of the substantive aspects that European Union competition theory and law imply. As competition policies between the still twenty eight Member States have long been harmonized as the legal substantive similarities reflect this matter of fact, it is for the institutional and procedural set-ups to be assessed, in order to perceive the level of enforcement effectiveness that each European Competition Network party is able to deliver. With this regard, domestic instruments and procedures must exist and be interpreted in accordance with the Treaty objectives, so as to avoid any potential vulnerability for the complete achievement of the Union antitrust desideratum.
Roberto Grasso, Wilmer advocates Standard Essential Patents: Royalty Determination in the Supply Chain.
ABSTRACT: Royalties must be calculated based, at most, on the smallest saleable patent-practicing unit, rather than the price of the end-product that incorporates that component. The value of a technology must correspond to the incremental inventive value of that technology as compared to alternative technologies before the standard is set. In case of complex end-products, a royalty must take into account the potential aggregate royalty demands for other SEPs. An SEP-holder must negotiate with and provide a FRAND license to anyone who requests it, regardless of which level of the value chain it operates.
Monday, January 30, 2017
Romano Subiotto QC and Jacopo Figus Diaz (both Cleary) describe Lundbeck v Commission: Reverse Payment Patent Settlements as Restrictions of Competition by Object.
ABSTRACT: The General Court upheld the Commission's finding that Lundbeck and generic producers of citalopram were at least potential competitors, that the reverse payment patent settlements at issue restricted competition by object, and that the Commission was not required to examine the situation that would have arisen had the agreements not been concluded.
Gerard Llobet, Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR) and Jorge Padilla, Compass Lexecon discuss The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents.
ABSTRACT: It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royalty-stacking effect would hurt efficiency and downstream competition. In this paper we show that when we consider patent litigation and introduce heterogeneity in the portfolio of different firms these results change substantially due to what we denote the Inverse Cournot effect. We show that the lower the total royalty that a downstream producer pays, the lower the royalty that patent holders restricted by the threat of litigation of downstream producers will charge. This effect generates a moderation force in the royalty that unconstrained large patent holders will charge that may overturn some of the standard predictions in the literature. Interestingly, though, this effect can be less relevant when all patent portfolios are weak making royalty stacking more important.
On February 23, 2017 the George Mason Law Review will be putting on its 20th Antitrust Symposium entitled “Twenty Years in Antitrust and Lessons for a New Administration.”
Twenty Years in Antitrust and Lessons for a New Administration
- Thursday, February 23, 2017
8:00 AM - 8:30 AMRegistration & BreakfastFounders Hall Multipurpose Room 8:30 AM - 8:35 AMWelcome & IntroductionAll Panels will be held in Founders Hall Auditorium
Henry N. Butler, Dean - George Mason University Antonin Scalia Law School
8:35 AM - 9:30 AMOpening Keynote Discussion
Introduction – The Globalization of Competition Law in the Past 20 Years and the Advent of Brazilian Competition Law:
Terry Calvani, Of Counsel - Freshfields Bruckhaus Deringer LLP
Alexandre Cordeiro Macedo, Commissioner - Administrative Council for Economic Defense (CADE)
9:45 AM - 11:00 AMPanel One: Chinese Merger Law
Confirmed Speakers include:
Jing He, Senior Consultant - AnJie Law Firm
Randy Tritell, Director - Federal Trade Commission
Joanna Tsai, Vice President - Charles River Associates
Mark Whitener, Senior Counsel - General Electric Company
Moderator: H. Steve Harris, Jr., Partner - Winston & Strawn LLP
11:15 AM - 12:30 PMPanel Two: From Staples to Staples – 20 Years of Merger Enforcement in the United States
Confirmed Speakers include:
Orley Ashenfelter, Joseph Douglas Green 1895 Professor of Economics - Princeton University
George Cary, Partner - Cleary Gottlieb
Deborah Feinstein, Director - Federal Trade Commission
Matthew J. Reilly, Partner - Kirkland & Ellis LLP
Chetan Sanghvi, Managing Director - NERA Economic Consulting
Moderator: Paul Denis, Partner - Dechert LLP
12:30 PM - 2:00 PMLuncheon Conversation - FTC Commissioner Ohlhausen and former FTC Commissioner Wright
Maureen K. Ohlhausen, Commissioner - US Federal Trade Commission
Joshua D. Wright, University Professor - George Mason University Antonin Scalia Law School; Senior Of Counsel - Wilson Soncini Goodrich & Rosati.
2:00 PM - 3:15 PMPanel Three: The Intersection of Intellectual Property & Competition Law
Confirmed Speakers include:
Hiram Andrews, Counsel - Freshfields Bruckhaus Deringer US LLP
Jim Harlan, Director of Standards and Competition Policy - InterDigital
Greg Sivinski, Assistant General Counsel - Microsoft
Koren Wong-Ervin, Director - Global Antitrust Institute
Moderator: Anne Layne-Farrar, Vice President - Charles River Associates
3:30 PM - 5:00 PMPanel Four: Globalization of Cartel Enforcement
Confirmed Speakers include:
Vinicius Marques de Carvalho, Fmr. President - CADE; current Yale World Fellow
Minji Kim, Deputy Director - Korea Fair Trade Commission
Bruce McCulloch, Partner - Freshfields Bruckhaus Deringer US LLP
Gary Spratling, Partner - Gibson Dunn
John Taladay, Partner - Baker Botts
Moderator: The Honorable Douglas H. Ginsburg, Senior Judge - United States Court of Appeals for the District of Columbia Circuit; Professor of Law - George Mason University School of Law
5:00 PM - 5:10 PMClosing Remarks 5:00 PM - 6:00 PMReceptionFounders Hall Gallery
Steven Tadelis, University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) identifies Reputation and Feedback Systems in Online Platform Markets.
Abstract: Online marketplaces have become ubiquitous, as sites such as eBay, Taobao, Uber, and Airbnb are frequented by billions of users. The success of these marketplaces is attributed to not only the ease in which buyers can find sellers, but also the trust that these marketplaces help facilitate through reputation and feedback systems. I begin by briefly describing the basic ideas surrounding the role of reputation in facilitating trust and trade, and offer an overview of how feedback and reputation systems work in online marketplaces. I then describe the literature that explores the effects of reputation and feedback systems on online marketplaces and highlight some of the problems of bias in feedback and reputation systems as they appear today. I discuss ways to address these problems to improve the practical design of online marketplaces and suggest some directions for future research.
Matthew E. Kahn, University of Southern California; National Bureau of Economic Research (NBER) and Jerry Nickelsburg, UCLA Anderson Forecast offer An Economic Analysis of U.S. Airline Fuel Economy Dynamics from 1991 to 2015.
ABSTRACT: Airline transport generates a growing share of global greenhouse gas emissions but as of late 2016, this sector has not faced U.S. fuel economy or emissions regulation. At any point in time, airlines own and lease a set of durable vehicles and have invested in human and physical capital and an inventory of parts to maintain these vehicles. Each airline chooses whether to scrap and replace airplanes in their fleet and how to utilize and operate their fleet of aircraft. We model these choices as a function of real jet fuel prices. When jet fuel prices are higher, airlines fly fuel inefficient planes slower, scrap older fuel inefficient planes earlier and substitute miles flown to their more fuel efficient planes.