Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Monday, February 16, 2015

On firm choice between online and physical markets

Yijuan Cheny, ANU, Xiangting Hu, Renmin, and Sanxi Li, Renmin have written On firm choice between online and physical markets.

ABSTRACT: Consumers buying goods online often cannot physically inspect the products prior to purchase. Thus an online market may turn what is usually regarded as a search good into an experience good. We investigate how this feature, together with other features of the marketplace, affects a firms choice between online and physical markets. Using a simple yet flexible framework, we show that the choice of a marketplace can be used to disclose or hide product quality. If the production cost is convex with respect to quality, the firm's choice will be characterized by a cutoff quality level, below which the firm will choose the online market, and above which the firm will choose the physical market. However, if the production cost of qua! lity is concave, there are situations where the highest qualities pool with the lowest ones in the online market, leaving the physical market to intermediate qualities.

February 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector

Mathias Kifmann (Hamburg) and Luigi Siciliani (York)  explore Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector.

ABSTRACT: This study investigates hospitals' dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients' severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.

February 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Shrinking Goods

Daniel Levy, Emory University, Bar-Ilan University, and RCEA and Avichai Snir, Netanya Academic College, Department of Banking and Finance describe Shrinking Goods.

ABSTRACT: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices don't change. We study a situation where producers adjust the quantity per package rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information.

February 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Friday, February 13, 2015

Price Versus Non-price Incentives for Participation in Quality Labeling: The Case of the German Fruit Juice Industry

Roland Herrmann, Institute of Agricultural Policy and Market Research, Justus Liebig University Giessen, and and Simon Bleich, Produkt + Markt Marketing Research examine Price Versus Non-price Incentives for Participation in Quality Labeling: The Case of the German Fruit Juice Industry.

ABSTRACT: Quality assurance and labeling play an important and increasing role in firms’ marketing strategies. In almost all cases, a price incentive has been stressed as the major incentive for firms to participate in such schemes. We argue here that important non-price incentives for participation in quality labeling may exist, too. In German retailing, it can be observed that discount retailers are listing more and more foods with quality labels. Processors may then participate in voluntary quality labeling in order to enter the large and growing market of discount retailers. The price-premium versus the market-entry hypothesis are analyzed theo-retically. We investigate then in an empirical hedonic pricing model for the German fruit juice market and for participation in the quality label of the Deutsche Landwirtschafts-Gesellschaft (DLG) which of the two hypotheses is consistent with the data. There is strong support for the market-entry hypothesis.

February 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Concurrences Antitrust Writing Awards Vote Now

 
It's not too late to cast your votes!
The deadline to vote for the best antitrust articles and your favorite soft laws has been extended to FEBRUARY 27. You have 2 more weeks to read online and vote for the nominated articles, temporarily in free access.
10 Categories, 20 Awards:
  • General Antitrust: Eleanor Fox, Douglas Ginsburg, Roy Hoffinger, Richard Parker, Spencer Waller, Dan Sokol…
  • Anticompetitive Practices: James Keyte, Einer Elhauge, Herbert Hovenkamp, Alec Burnside, Akiva Miller…
  • Dominance: James Venit, Hans Zenger, Jonathan Jacobson, Nicolas Petit, Dan Rubinfeld...
  • Mergers: François-Charles Laprévote, Mark Powell, George Cary, Charlotte Breuvart, Maurice Stucke...
  • Intellectual Property: Janusz Ordover, Alison Jones, Carl Shapiro, James Killick, Martin Coleman...
  • Private Enforcement: Michael Hausfeld, Robert Lande, Michael Osborne, Sebastian Peyer...
  • Cross-Border Issues: John DeQ. Briggs, Beau Buffier, Jeremy Evans, Roxane Busey...
  • Procedure: Flavio Laina, Kyriakos Fountoukakos, Chris Hockett, Thomas Barnet...
  • Asian Antitrust: Ian Forrester, Nathan Bush, Fei Deng, Mel Marquis, James Modrall...
  • Economics: Ariel Ezrachi, Jonathan Baker, Jan Bouckaert, Leslie Marx, Elizabeth Wang...
The deadline has been extended also to vote for your favorite soft laws issued in 2014 bydifferent competition authorities worldwide.
Winners will be announced at the Gala Dinner to be held in Washington DC on 14 April 2015 by Bill Kovacic.
Thousands of readers have already expressed their votes.  If you have not done it yet, browse theAntitrust Writing Awards Websiteto read and vote now!

 

February 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Deregulation, Competition, and Market Integration in China's Electricity Sector

Yanrui WU (University of Western Australia) explores Deregulation, Competition, and Market Integration in China's Electricity Sector.

ABSTRACT:  This report presents an updated and expanded review of reforms in China’s electricity sector. It aims to examine the impact of reforms on competition, deregulation, and electricity market integration in China. The findings are used to draw policy implications for electricity market development, particularly the promotion of energy market! integration (EMI).

February 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage

Marika Cabral Michael Geruso Neale Mahoney ask Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage.

ABSTRACT: The debate over privatizing Medicare stems from a fundamental disagreement about whether privatization would primarily generate consumer surplus for individuals or producer surplus for insurance companies and health care providers. This paper investigates this question by studying an existing form of privatized Medicare called Medicare Advantage (MA). Using difference-in-differences variation brought about by payment floors established by the 2000 Benefits Improvement and Protection Act, we find that for each dollar in increased capitation payments, MA insurers reduced premiums to individuals by 45 cents and increased the actuarial value of benefits by 8 cents. Using administrative data on the near-universe of Medicare beneficiaries, we show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that insurer market power is an important determinant of the division of surplus, with premium pass-through rates of 13% in the least competitive markets and 74% in the markets with the most competition.

February 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, February 12, 2015

Harvey Goldschmid 1940-2015

Columbia Law Professor Harvey Goldschmid has died.  His most important antitrust contribution was as the primary casebook author of what had been known as the Milton Handler casebook but in its current incarnation is Pitofsky, Goldschmid and Wood's Trade Regulation, 6th.  For many years, it was the market leader in antitrust casebooks.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Defining a Cluster Market: The Case of the Korean Internet Portal Service Market

Youngsun Kwon, Department of Business & Technology Management, KAIST, Daejeon, Republic of Korea, is Defining a Cluster Market: The Case of the Korean Internet Portal Service Market.

ABSTRACT: In a cluster market, many related and unrelated products or services are sold. Examples of cluster markets are Tesco, Sears, Carrefour, Walmart, JCPenny, and Meijer. Because of certain unique characteristics of cluster markets, studies of cluster market definition have been very scant. This paper reviews the market definition issues of cluster markets, proposes a statistical market definition method for cluster markets, and applies the method to the Korean Internet portal service market. The results of analyses show that there is one market for the Korean Internet portals and confirm the concern that the a priori definition of the Internet portal service market using a representative group of services like 1S4C, which was used by the Korea Fair Trade Commission in 2008, did not reflect the actual structure of competition in the Korean Internet portal service market. According to the analyses, the third ranked player in the Korean Internet portal service market, Nate, is more akin to a specialty service provider, not a player competing in the cluster market with Naver and Daum.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

A price concentration study on European mobile telecom markets: Limitations and insights

Pauline Affeldt (E.CA Economics, ESMT European School of Management and Technology) and Rainer Nitsche (E.CA Economics) provide A price concentration study on European mobile telecom markets: Limitations and insights.

ABSTRACT: Price concentration studies investigate the relationship between market concentration and price levels. They are increasingly used in the mobile telecom industry. This paper provides a detailed account of the limitations of such studies. In addition, it proposes a specific approach in order to account for quality differences across countries, which are likely important when explaining price differences. When applying our approach to European mobile telecom markets from 2003 to 2012, we find that there is no positive relationship between concentration and prices and some indications that the relationship may be negative.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

On the antitrust economics of the electronic books industry

Germain Gaudin, DICE and Alexander White, Tsinghua provide thoughts On the antitrust economics of the electronic books industry.

ABSTRACT: When Apple entered the ebook market, prices rose. A recent court decision found Apple guilty of colluding with publishers, blaming the price hike, in part, on agency agreements and prohibiting their use. Building a model to compare these with traditional wholesale agreements, we identify a single, pivotal condition that leads prices under agency to be higher than under wholesale with two-part tariffs but lower with linear pricing. Our model shows that the increase in ebook prices can be explained, instead, by heightened competition for reading devices, and it guides our understanding of when restricting agency agreements is advisable.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Forward trading and collusion of firms in volatile markets

Markus Aichele, Tubingen examines Forward trading and collusion of firms in volatile markets.

ABSTRACT:  Commodity markets are characterized by large volumes of forward contracts as well as high volatility. They are often accused of weak competitive pressure. This article extends the existing literature by analyzing tacit collusion of firms, forward trading and volatility simultaneously. The expected collusive pro t may depart from the monopoly outcome in a volatile market (Rotemberg and Saloner, 1986). Introducing forward trading enables firms to gain the expected monopoly pro t for a broader range of parameters. In contrast to a deterministic market (Liski and Montero, 2006), trading forward in a volatile market may lead to an expected collusive pro t below the monopoly one.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 11, 2015

Preemption Games under Levy Uncertainty

Svetlana Boyarchenko (Department of Economics, University of Texas at Austin) and Sergei Levendorskii (Department of Mathematics, University of Leicester) identify Preemption Games under Levy Uncertainty.

ABSTRACT: We study a stochastic version of Fudenberg--Tirole's preemption game. Two firms contemplate entering a new market with stochastic demand. Firms differ in sunk costs of entry. If the demand process has no upward jumps, the low cost firm enters first, and the high cost firm follows. If leader's optimization problem has an interior solution, the leader enters at the optimal threshold of a monopolist; otherwise, the leader enters earlier than the monopolist. If the demand admits positive jumps, then the optimal entry threshold of the leader can be lower than the monopolist's threshold even if the solution is interior; simultaneous entry can happen either as an equilibrium or a coordination failure; the high cost firm can become the leader. We characterize subgame perfect equilibrium strategies in terms of stopping times and value functions. Analytical expressions for the value functions and thresholds that define stopping times are derived.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Supplier fixed costs and retail market monopolization

Stephane Caprice, Toulouse, Vanessa von Schlippenbach, DIW Berlin, and Christian Wey, DICE, discuss Supplier fixed costs and retail market monopolization.

ABSTRACT: Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Changes to the UK Cartel Offence—Be Careful What You Wish For

Paul Gilbert, Clearey, describes Changes to the UK Cartel Offence—Be Careful What You Wish For.

ABSTRACT: The UK Government has removed the requirement to show ‘dishonesty’ from the criminal cartel offence. In reforming the law, the Government introduced a number of new safeguards, in the form of legal exceptions and defences. Recent announcements about ongoing cases suggest that the reforms could make it more, not less, difficult to bring prosecutions.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Parental Liability: Rebutting the Presumption of Decisive Influence

Lukas Solek, Linklaters and Stefan Wartinger, Eisenberger & Herzog Rechtsanwalts GmbH investigate Parental Liability: Rebutting the Presumption of Decisive Influence.

ABSTRACT: The jurisprudence holding the ultimate parent company jointly and severally liable leads to considerable fines being imposed on the group of companies involved in the infringement. However, it is based on a presumption that can be rebutted by providing factual evidence demonstrating that the parental company had no decisive influence over the perpetrator.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 10, 2015

Homogeneous platform competition with endogenous homing

Thomas D. Jeitschko, Michigan State and Mark J. Tremblay, Michigan State Homogeneous platform competition with endogenous homing.

ABSTRACT: We develop a model for two-sided markets with consumers and producers, who interact through a platform. Typical settings for the model are the market for smartphones with phone users, app producers, and smartphone operating systems; or the video game market with game players, video game producers, and video game consoles. Only consumers who purchase the platform can access content from the producers. Consumers are heterogeneous in their gains from the producer side; and producers are heterogeneous in their costs of bringing apps to the platform. We consider competition between two homogeneous platforms that allows consumers and firms to optimize with respect to how they home, i.e. we allow both individual consumers and individual producers to multi-home or single-home depending on whether it is optimal based on their type. This leads to multiple equilibrium allocations of consumers and firms - all of which are seen in existing markets. We then find conditions under which a monopoly platform generates higher surplus than two competing homogeneous platforms.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Detecting Collusion in Spatially Differentiated Markets

Agnes Kugler (Department of Economics, Vienna University of Economics and Business) and Matthias Firgo (WIFO - Austrian Institute of Economic Research) are Detecting Collusion in Spatially Differentiated Markets.

ABSTRACT:  The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behavior among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

2015 Practitioner's Survey - ICN Merger Recommended Practices (please take)

2015 Practitioner's Survey - ICN Merger Recommended Practices

For the past two years practitioners from more than 30 countries have participated in surveys developed by fellow practitioners who also serve as Non-Government Advisers to the International Competition Network (“ICN”).  The survey in 2013 was on Transparency and Due Process in Competition Proceeding and the survey in 2014 examined the Treatment of Confidential Information in Competition Proceedings.  Both of these surveys were done to inform the ICN Agency Effectiveness Working Group and its Investigative Process Project.  Last year the survey work was awarded the NGA Contribution of the Year honors by the ICN.

For 2015 the practitioner survey will seek to provide feedback to the ICN Merger Working Group which is chaired by Canada, the European Union, and India. The ICN has previously issued 48 Recommended Practices for Merger Notification Procedures a This survey examines to what degree these ICN recommended practices are followed.

Each question provides or tracks with the ICN recommendations. Responses should focus on experiences before a specific competition enforcement agency. If a question doesn't apply to your jurisdiction or you don't know the answer you can skip it. If you would like to discuss experiences from MORE THAN ONE AGENCY, please COMPLETE THIS SURVEY ONE TIME FOR EACH JURISDICTION.

We recognize that this survey may request potentially sensitive information. ALL OF THE IDENTITIES OF SURVEY PARTICIPANTS WILL BE KEPT CONFIDENTIAL AND CARE WILL BE TAKEN TO PRESENT SURVEY ANSWERS IN A GENERAL MANNER.  All respondents will have an opportunity to review the summary report in DRAFT form before it is provided to ICN Merger Working Group co-chairs.

THE DEADLINE FOR RESPONSE IS MARCH 20th. The NGAs listed below are responsible for initiating this survey, and they will be the only people who will see the raw data collected by the survey. As noted above, the summary report that is generated as a result of this survey will be provided to the ICN Merger Working Group Co-Chairs to encourage them to consider the views and experiences of practitioners. In addition, the summary report will be released at the 2015 ICN meeting in Sydney, Australia April 28th - May 1st.

Questions about this survey or the process can be directed to any one of the following members of the steering committee that has been assembled to develop this survey and compile the results.  You can also email an inquiry to grc@uschamber.com.   Thank you in advance for your participation in this effort.

Sean Heather – ICN NGA United States Heather Irvine – ICN NGA South Africa Youngjin Jung – ICN NGA Korea Rob Kwinter – ICN NGA Canada Frank Montag – ICN NGA Germany Eduardo Perz Motta – ICN NGA Mexico Dave Poddar –  ICN NGA Australia James Rill – ICN NGA United States Barbara Rosenberg –ICN NGA Brazil Pallavi Shroff – ICN NGA India Harumichi Uchida –ICN NGA Japan

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria

Yuko Onishi (Graduate School of Economics, The University of Tokyo) and Yasuhiro Omori (Faculty of Economics, The University of Tokyo) undertake Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria.

ABSTRACT:   Entry game models are often used to study the nature of firms’ profit and the nature of competition among firms in empirical studies. However, when there are multiple players in an oligopoly market, resulting multiple equilibria have made it difficult in previous studies to estimate the payo↵ functions of players in complete information, static and discrete games without using unreasonable assumptions. To overcome this difficulty, this paper proposes a practical estimation method for an entry game with three players using a Bayesian approach. Some mild assumptions are imposed on the payoff function, and the average competitive effect is used to capture the entry e! ffect of the number of firms. Our proposed methodology is applied to Japanese airline data in 2000, when there are three major airline companies, ANA, JAL and JAS. The model comparison is conducted to investigate the nature of strategic interaction among these Japanese airline companies.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)