Tuesday, August 12, 2014
Germain Gaudin (Dusseldorf Institute for Competition Economics, Heinrich Heine University) and Alexander White (Tsinghua University) provide thoughts On the antitrust economics of the electronic books industry.
ABSTRACT: We show that the rise in ebook prices following Apple's entry into the market can be explained by Amazon's Kindle device losing its essential position. When consumers began accessing Amazon's ebooks using third-party devices, such as the iPad, Amazon's incentive to keep ebook prices low diminished. This explanation contrasts with a recent U.S. court decision claiming that price increases stem from a switch in the form of contracts used by ebook publishers and retailers. We show that, if contracts revert to their prior form, as stipulated by the court decision, this will likely push ebook prices up even further.
Monday, August 11, 2014
Lisa Bruttel, University of Konstanz, discusses The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior.
ABSTRACT: This paper presents results from an experiment on the effects of retail-price recommendations (RPRs) on consumer and retailer behavior. Despite their non-binding nature, RPRs may influence consumers willingness to pay by setting a reference point. Loss averse consumers will then be reluctant to pay a price higher than the recommended one. Furthermore, at a given price level consumers will demand a larger quantity the higher the RPR is. We find evidence for both effects. They are stronger when the price recommendation contains information about the value of the product to the consumer instead of providing an uncorrelated anchor only. Retailers in this study react to RPRs in a similar way as consumers do, but they do not anticipate consumers behavior well.
Lisa Bruttel, University of Konstanz asks Buyer power in large buyer groups?
ABSTRACT: This paper studies the exertion of market power in large buyer groups confronting an incumbent monopolist and a potential market entrant in a repeated trade situation. In the experiment, buyer power can either occur as demand withholding when only the incumbent is present in the market, or it can take the form of buying at higher prices from the entrant in order to foster future re-entry. Comparing markets with groups of two and eight buyers, we find that both forms are prevalent irrespective of the number of buyers. However, a control treatment shows that seemingly strategic behavior is better explained by inequality aversion of the buyers towards the two different sellers.
Ioannis Pinopoulos (Department of Economics, University of Macedonia) addresses Equilibrium Downstream Mark-up and Upstream Free Entry. Kudos also for the shortest abstract I have ever seen.
ABSTRACT: In a successive Cournot oligopoly with upstream free entry, we show that the equilibrium downstream mark-up may increase with the number of downstream firms.
Sunday, August 10, 2014
94% of Academic Economists Admit to Unacceptable Research Practices, Including Sex for Co-authorship and Promotion
The Inside Higher Ed article Sex, Lies, Economists reports on results from an anonymous survey of 400 members of the European Economics Association that is forthcoming in the article Scientific Misbehavior in Economics. Among the findings is that some people have sex for co-authorship (a small percentage and therefore not that interesting a finding but certainly the most salacious one). For the record, I have never had sex with any of my economist co-authors or any other co-authors.
Most of the research practices that the article finds problematic focus on strategic gaming of the peer review process. To the strategic gaming of peer review concern, I have one simple point based on my peer review experiences - the moment before you have a revise and resubmit, the paper is yours. After that moment, the editors and outside reviewers own your paper.
Saturday, August 9, 2014
The Appropriate Legal Standard and Sufficient Economic Evidence for Exclusive Dealing Under Section 2: The FTC's McWane Case
Steven C. Salop, Georgetown University Law Center, Sharis A. Pozen, Skadden, Arps, Slate, Meagher & Flom LLP, and John R. Seward, Skadden, Arps, Slate, Meagher & Flom LLP offer The Appropriate Legal Standard and Sufficient Economic Evidence for Exclusive Dealing Under Section 2: The FTC's McWane Case.
ABSTRACT: The FTC recently found McWane, Inc. liable for unlawful monopoly maintenance by a 3-1 majority. The dispute among the FTC Commissioners raises important and interesting issues regarding the law and economics of exclusive dealing and the proper evaluation of the competitive effects of exclusionary conduct. Commissioner Wright’s Dissent proposes and utilizes a new legal standard that requires the plaintiff to show “clear evidence” of harm to competition before shifting the burden to the defendant to show procompetitive efficiency benefits. This burden of proof and production on the plaintiff is much higher than showing “probable effect” based on a preponderance of the evidence standard. Application of this higher burden to interbrand exclusivity restraints by monopolists is not supported either by the case law, economic theory or empirical evidence. In evaluating harm to competition, this legal standard places no weight on certain important factors, including the fact that McWane was a monopolist with the explicit purpose of raising the costs and reducing the distribution of its only competitors. His proposed standard also does not consider whether McWane’s efficiency claims were valid, in the absence of other clear evidence of competitive harm. Commissioner Wright limits his economic analysis to only a single possible mechanism of exclusionary effect, whether the entrant was prevented from reaching minimum efficient scale of production, rather than a broader analysis of whether the entrant’s costs were raised or whether its ability to expand output was so limited by the exclusives that it was unable to prevent the maintenance of McWane’s monopoly pricing. Commissioner Wright also fails to credit the direct evidence of price effects found by the Commission. In our view, this proposed type of legal standard and economic approach is not an “enquiry meet for the case.” It creates a serious risk of leading to false negatives, under-enforcement and under-deterrence.
Friday, August 8, 2014
Nick Vikander (Department of Economics, Copenhagen University) describes Sellouts, Beliefs, and Bandwagon Behavior.
ABSTRACT: This paper examines how a firm can strategically use sellouts to influence beliefs about its good's popularity. A monopolist faces a market of conformist consumers, whose willingness to pay is increasing in their beliefs about aggregate demand. Consumers are broadly rational but have limited strategic reasoning about the firm's incentives. I show that in a dynamic setting, the firm can use current sellouts to mislead consumers about future demand and increase future profits. Sellouts tend to occur when demand is low, they are accompanied by introductory pricing, and certain consumers benefit from others being misled.
Juan I. Beccuti, Universitat Bern has written on Optimal Selling Mechanisms under Imperfect Commitment: Extending to the Multi-Period Case.
ABSTRACT: This paper studies the optimal mechanism for a seller (she) that sells, in a sequence of periods, an indivisible object per period to the same buyer (he). Buyer's willingness to pay remains constant along time and is his private information. The seller can commit to the current period mechanism but not to future ones. Our main result is that a seller cannot do better than posting a price in every period. We give a complete characterization of the optimal mechanism and equilibrium payoffs for every prior. Also, we show that, when agents are arbitrarily patient, the seller does not learn about buyer's type except in extreme cases, posting a price equal to the minimum buyer's willingness to pay in every period. This result is a reminiscence of the Coase's conjecture, where a monopolist cannot exert her monopoly power due to the lack of long-term commitment.
Dragan Jovanovic (Goethe Univesity Frankfurt) analyzes Mergers, managerial incentives, and efficiencies.
ABSTRACT: We analyze the effects of synergies from horizontal mergers in a Cournot oligopoly where principals provide their agents with incentives to cut marginal costs prior to choosing output. We stress that synergies come at a cost which possibly leads to a countervailing incentive effect: The merged firm's principal may be induced to stifle managerial incentives in order to reduce her agency costs. Whenever this incentive effect dominates the well-known direct synergy effect, synergies actually reduce consumer surplus which opposes the use of an efficiency defense in merger control.
Thursday, August 7, 2014
The Pacific Legal Foundation's blog has on its blog its brief and some blog posts in the N.C. Dental Examiners case.
Krystyna Kowalik-Banczyk, Technical University of Gdansk asks Reforms of Polish Antitrust Law: Closer to, of Farther From, the European Model?
ABSTRACT: The Polish Act on the Protection of Competition and Consumers has been recently amended. Changes include the introduction of a two-phase-based merger control, a more efficient leniency program, and the administrative liability of individuals involved in antitrust agreements.
IS THERE A MARKET FOR ORGANIC SEARCH ENGINE RESULTS AND CAN THEIR MANIPULATION GIVE RISE TO ANTITRUST LIABILITY?
James D. Ratliff (Compass Lexecon) and Daniel L. Rubinfeld (Berkeley and NYU) ask IS THERE A MARKET FOR ORGANIC SEARCH ENGINE RESULTS AND CAN THEIR MANIPULATION GIVE RISE TO ANTITRUST LIABILITY?
ABSTRACT: Google has been accused of manipulating its organic search results to favor its own services. We explore possible choices of relevant antitrust markets that might make these various antitrust allegations meaningful. We argue that viewing Internet search in isolation ignores the two-sided nature of the search-advertising platform and the feedback effects that link the provision of organic search results to consumers on the one hand, and the sale to businesses of advertising on the other. We conclude that the relevant market in which Google competes with respect to Internet search is at least as broad as a two-sided search-advertising market. We also ask whether Google has a duty to provide organic search results that are neutral with respect to whether the displayed listing is for a Google rather than a non-Google business. We articulate and apply a standard that asks whether various practices related to Google's organic search results would harm competition that would have otherwise occurred.
Aldo Gonzalez (University of Chile) and Alejandro Micco (University of Chile) have an interesting paper on PRIVATE VERSUS PUBLIC ANTITRUST ENFORCEMENT: EVIDENCE FROM CHILE.
ABSTRACT: This article measures the impact of Fiscalia Nacional Economica (FNE), the agency responsible for enforcing competition law, on the outcome of antitrust trials in Chile. Using statistics on lawsuits since the inception of the new Competition Tribunal in 2004, we find that involvement of the public agency increases the probability of obtaining a guilty verdict in an antitrust lawsuit by 40 percentage points. Conditional upon a verdict, prosecutor participation raises the likelihood of a conviction by 38 percentage points. The results are robust to possible selection bias by the public agency. The prosecutor is likely to take part in cases involving sensitive markets and in accusations of collusion. The state-related character of the accused entity, in addition to its size, does not affect the probability of agency intervention.
Implication of Globalisation for Competition Policy: The Need for International Co-Operation in Merger and Cartel Enforcement
Antonio Capobianco, OECD Competition Division, John Davies, Organization for Economic Co-Operation and Development (OECD), and Sean F Ennis, Organization for Economic Co-Operation and Development (OECD) - Competition Division have a nice overview paper on the Implication of Globalisation for Competition Policy: The Need for International Co-Operation in Merger and Cartel Enforcement.
ABSTRACT: The complexity of co-operation in cross-border competition law enforcement increased significantly between 1990 and 2011, underlining the urgency to improve techniques and tools of competition authority co-operation. As international trade has increased, the number of competition law enforcement activities related to cross-border mergers and cartels has risen substantially (up by about 250-466% since the 1990s). At the same time, the number of competition authorities has increased by a factor of 6 since 1990, from under 20 to 120 as of 2013. The spread of competition law is a positive development but co-operation has become more complicated as a result. Between 1990 and 2011, an index of complexity of co-operation on cross-border cases has increased by between 23 and 53 times. As trade and cross-border business activity increases in the future, and young competition authorities become more active, effective co-operation will become even more complicated. Ultimately, the complexity of co-operation can lead to undesirable outcomes, such as inconsistent decisions and unchallenged illegal conduct. The costs of failures of co-operation are identified, and found to be substantial. To overcome potential failures in co-operation, new and enhanced methods of competition law co-operation should be explored.
Wednesday, August 6, 2014
Soren Rud Kristensen, University of Manchester, Luigi Siciliani, University of York (UK), and Matt Sutton, University of Manchester Optimal Price-Setting in Pay for Performance Schemes in Health Care.
ABSTRACT: The increased availability of process measures implies that quality of care is in some areas de facto verifiable. Optimal price-setting for verifiable quality is well-described in the incentive-design literature. We seek to narrow the large gap between actual price-setting behaviour in Pay-For-Performance schemes and the incentive literature. We present a model for setting prices for process measures of quality and show that optimal prices should reflect the marginal benefit of health gains, providers altruism and the opportunity cost of public funds. We derive optimal prices for processes incentivised in the Best Practice Tariffs for emergency stroke care in the English National Health Service. Based on published estimates, we compare these to the prices set by the English Department of Health. We find that actual tariffs were lower than optimal, relied on an implausibly high level of altruism, or implied a lower social value of health gains than previously used.
DongJoon Lee, Nagoya University of Commerce and Business Administration, Kangsik Choi, Pusan National University, and Tatsuhiko Nariu, Kyoto University discuss First-Mover and Second-Mover Advantage in a Vertically Related Market.
ABSTRACT: We consider the issue of first- and second-mover advantages in a vertically related market. First, we show that the standard conclusions about sequential-move games under Bertrand and Cournot competitions can change in the context of a vertically related market. This is because an upstream monopoly can control first- and second-mover advantages by adjusting input prices. Ultimately, the upstream firm can achieve optimal profits by removing the first-mover (second-mover) advantage under Cournot (Bertrand) competition. Moreover, the profit of the upstream firm and social welfare are equal between Cournot and Bertrand com- petition under both simultaneous- and sequential-move games in a vertically related market.
Stefan Behringer, University of Duisburg-Essen - Mercator School of Management and Lapo Filistrucchi, Tilburg University, Department of Economics, CentER & TILEC; University of Florence, Dipartimento di Scienze Economiche describe Areeda-Turner in Two-Sided Markets.
ABSTRACT: Areeda and Turner (1975) were the first to argue that a price below marginal costs should be considered a sign of predation. Recognizing that marginal cost data were typically unavailable, the authors concluded that a price below average variable cost should be presumed unlawful. This socalled Areeda-Turner Rule has become the standard to assess claims of predation. We first show that in two-sided markets price cost margins on the two-sides of the market are interrelated and that a monopolist, even in the absence of actual or potential competition, may find it optimal to charge a price below marginal cost on one side of the market. As a result, showing that the price is below average variable cost on one side of the market cannot be considered a sign of predation in such markets. This is in contrast to a recent decision of the Commercial Court of Paris that sanctioned Google for giving away for free its online mapping services. We thus extend the Areeda-Turner rule to two-sided markets. We argue that one should apply the rule by taking into account revenues and costs from both sides of the market. As applications, we analyse three alleged cases of predatory behaviour in the market for daily newspapers. Our examples highlight that applying a one-sided Areeda-Turner rule may lead to assess a perfectly legitimate profit maximizing pricing policy as a predatory attempt.
Abuses of Information and Informational Remedies: Rethinking Exchange of Information Under Competition Law?
Fabiana Di Porto, University of Salento - Department of Economic Sciences asks about Abuses of Information and Informational Remedies: Rethinking Exchange of Information Under Competition Law?
ABSTRACT: Traditionally, the way competition law has viewed the exchange or sharing of information among competing firms, has been to some extent mainly negative, at least from the supply side. Present market conditions, an excessively transparent market, where operators exchange detailed and (prospect) commercially sensitive data on a regular basis, can amount to a practice facilitating collusion, or be itself an anti-competitive agreement violating Article 101 TFEU.
Interestingly, though, while a great deal of literature and case-law exists that reflects on the difficult relationship between the exchange of information and Article 101 (collusive scenarios and oligopolistic interdependence), the relationship between the exchange of information and Article 102 is a much less scrutinised issue.
A closer look at the Article 102 case-law suggests a less strict and skeptical approach towards exchange of information, compared to that on Article 101: it is the lack of information exchange or the misuse of information by dominant firms that are deemed anticompetitive and abusive.
At the same time, this closer look reveals that many Article 102 cases are adjudicated via remedies imposing an exchange of information or a duty to disclose information. Such behavioural remedies resemble much – as regards the rationale of intervention, the institutional resources employed and the powers exercised – to traditional regulation: it is therefore suggested to call them ‘para-regulatory’, to distinguish them from pure, traditional regulatory interventions.
In such a scenario, a risk may arise of conflicts with existing information-based regulation (e.g. access and disclosure regulation), leading to legal uncertainty, conflict of decisions and inconsistency; furthermore, information exchange obligations to remedy informational abuses under Article 102 can become suspicious under Article 101, as they can possibly ease unlawful collusion.
The Chapter is therefore organised as follows. Part 2 reviews a selection of Article 102 (or homologous norms in other jurisdictions) decisions dealing with information flows. In particular, two lines of cases are presented: those where exchanges of information are the subject-matter of abuse cases (at 2.1 below), and those where such exchanges are the object of “para-regulatory” remedies enforced pursuant to Article 102 (at 2.2 below). Part 3 focuses on the different treatment exchange of information receives under Articles 101 and 102 TFEU. Thereby possible internal clashes between these two branches of competition law will be analysed. The conclusion explores the theoretical possibility of reconciling such clashes, suggesting a framework for competition agencies to adequately intervening on market information flows.
Tuesday, August 5, 2014
Dominant Market Position and Prohibition of Abuse of Market Power in BRICS Countries: General Approaches
Ksenia Belikova, Peoples Friendship University of Russia analyzes Dominant Market Position and Prohibition of Abuse of Market Power in BRICS Countries: General Approaches.
ABSTRACT: The articles represents a research of general approaches of BRICS countries legislation and legal order to counteraction against such an anticompetitive market strategy as abuse of dominant market power in legal orders of China, India, Russia and South Africa. The author pays particular attention to current legislation of BRICS countries in the field of competition protection with regard to provisions related to criteria of establishment of a dominant market position fixed by Asian (China and India), Euro-Asian (Russia) and African (South Africa) legal orders and prohibition of abuse of market power. This article argues that our society is interested in the engagement of a population in trade and industrial activity. This is the general rule. Nowadays, however, this rule allows exceptions: restrictions of a freedom of trade can be justified by exceptional circumstances in certain cases and under certain circumstances (e.g. exemption necessary in the interest of security of the state or public interest, etc.).
The Distinction between Anti-Competitive Object and Effect after Allianz: The End of Coherence in Competition Analysis?
Csongor Istvan Nagy, University of Szeged, Faculty of Law; Budapest University of Technology and Economics asks The Distinction between Anti-Competitive Object and Effect after Allianz: The End of Coherence in Competition Analysis?
ABSTRACT: The article analyses the distinction between object and effect in competition analysis in the context of the CJEU’s recent ruling in Allianz. First, it examines the rationale and traditional notion of anti-competitive object. Secondly, it provides an outlook to the structure of antitrust analysis in US law and compares it with EU competition law.Thirdly, it gives an overview and assessment on the Allianz ruling as to the grasp of ‘object type’ agreements.The article criticizes the CJEU’s ruling and submits proposals.