Antitrust & Competition Policy Blog

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

Friday, July 21, 2017

'The Big Chill'? A Comparative Analysis of Effects-Based Tests for Misuse of Market Power

Katharine Kemp, University of New South Wales (UNSW) - Faculty of Law asks 'The Big Chill'? A Comparative Analysis of Effects-Based Tests for Misuse of Market Power.

ABSTRACT: In November 2016, the Australian government recently made the controversial announcement that it plans to amend the prohibition of misuse of market power in section 46(1) of the Competition and Consumer Act 2010 (Cth) (‘CCA’) to incorporate an effects-based test, the ‘substantial lessening of competition’ test, in line with the recommendations of the Competition Policy Review Panel. This proposal has met with vigorous opposition, particularly by those who argue that the amendment would in fact deter firms with substantial market power from engaging in conduct which is procompetitive and in the interests of consumers: that is, it would ‘chill’ competition. This article provides vital context for this debate by explaining the origins of these arguments and making a comparative analysis of the proposed amendment to section 46(1) of the CCA against several effects-based tests for unilateral anti-competitive conduct proposed or adopted in other jurisdictions. It concludes that, while claims regarding the ‘chilling’ effects of the proposed amendment have been overstated, there are more subtle weaknesses in the proposal which may create disincentive effects for dominant firms.

July 21, 2017 | Permalink | Comments (0)

Thursday, July 20, 2017

Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate

Timothy J. Layton, Harvard Medical School - Department of Health Care Policy, Ellen Montz, Harvard Medical School - Department of Health Care Policy, and Mark Shepard, Harvard University - Harvard Kennedy School (HKS) investigate Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate.

ABSTRACT: The Affordable Care Act Marketplaces were introduced in 2014 as part of a reform of the U.S. individual health insurance market. While the individual market represents a small slice of the U.S. population, it has historically been the market segment with the lowest rates of take-up and greatest concerns about access to robust coverage. As part of the reform of the individual insurance market, the Marketplaces invoke many of the principles of regulated competition including (partial) community rating of premiums, mandated benefits, and risk adjustment transfers. While the Marketplaces initially appeared to be successful at increasing coverage and limiting premium growth, more recent outcomes have been less favorable and the stability of the Marketplaces is currently in question. In this paper, we lay out in detail how the Marketplaces adopt the tools of regulated competition. We then discuss ways in which the Marketplace model deviates from the more conventional model and how those deviations may impact the eventual success or failure of these new markets.

July 20, 2017 | Permalink | Comments (0)

Complementary Monopolies and Multi-Product Firms

Michael Kopel, University of Graz, Clemens Löffler, Vienna University of Economics and Business, and Thomas Pfeiffer, University of Vienna - Accounting and Control offer Complementary Monopolies and Multi-Product Firms.

ABSTRACT:  According to the classical result on complementary monopolies, a single-product firm unambiguously prefers purchasing complementary inputs from an integrated monopolistic supplier rather than from different non-integrated monopolistic suppliers. In this note, we account for the fact that firms often manufacture multiple products and show that the classical result on complementary monopolies can be reversed in such a case. Purchasing complementary inputs from non-integrated suppliers can be optimal for multi-product firms.

July 20, 2017 | Permalink | Comments (0)

Advertising Competition in the Free-to-Air TV Broadcasting Industry

Marc Ivaldi, Toulouse School of Economics; Centre for Economic Policy Research (CEPR) and Jiekai Zhang, CREST-ENSAI study Advertising Competition in the Free-to-Air TV Broadcasting Industry.

ABSTRACT: This paper empirically investigates the advertising competition in the French broadcast television industry within a two-sided market framework. We use a unique dataset on the French broadcast television market including audience, prices, and quantities of advertising of twenty-one TV channels from March 2008 to December 2013. We specify a structural model of oligopoly competition and identify the shape and magnitude of the feedback loop between TV viewers and advertisers. We also implement a simple procedure to identify the conduct of firms on the market. We find that the nature of competition in the French TV advertising market is of the Cournot type. Further, we provide empirical evidence that the price-cost margin is not a good indicator of the market power of firms operating on two-sided markets. Finally, we provide a competition analysis. The counterfactual simulation suggests that the merger of advertising sales houses would not have significantly affected the equilibrium outcomes in this industry because of the strong network externalities between TV viewers and advertisers. These results provide a critical evaluation of the 2010 decision of the French competition authority to authorize the acquisition of two broadcast TV channels by a large media group under behavioral remedies.

July 20, 2017 | Permalink | Comments (0)

Wednesday, July 19, 2017

UK competition policy post-Brexit: taking back control while resisting siren calls

Bruce Lyons, David Reader, and Andreas Stephan comment on UK competition policy post-Brexit: taking back control while resisting siren calls.

ABSTRACT: A notable effect of ‘Brexit’ is that it will create new freedoms for the UK to shape its competition policy outside the EU, but these freedoms come at a cost and could prove damaging to competitive markets. In merger control, the UK will be free to employ more frequent public interest interventions (especially for foreign acquisitions), but these could be misused and create uncertainty. In State aid, there will be pressure for greater protection of UK industries through State interventions, but such freedom will constrain, and be constrained by, the UK’s new trade arrangements and could prove wasteful. In antitrust, the UK will be free to set its own path, for example by fully criminalizing its cartel enforcement regime, but cooperation with other EU competition agencies will dwindle. The UK also faces difficulties in continuing to benefit from the significant level of fines currently imposed by the European Commission on its behalf. The article concludes that any immediate changes to policy should be avoided and that it may even be necessary to legislate to limit the exercise of some new freedoms. We also note how, for current EU/UK levels of enforcement to be maintained, the Competition and Markets Authority’s resource requirement may have to be doubled.

July 19, 2017 | Permalink | Comments (0)

The interplay between consumer protection and competition law in India

Suhail Nathani and Pınar Akman discuss The interplay between consumer protection and competition law in India.

ABSTRACT: The protection of the interests of consumers is a central aspect of all modern competition laws as well as a direct aim of consumer protection laws. However, despite being complementary in many ways, competition and consumer protection laws cover different issues and employ different methods to achieve their goals. While consumer protection rules are built upon the premise that consumers are the weaker party to transactions and should be directly protected for this reason in their dealings with traders through certain consumer rights, competition law only indirectly protects the consumers’ economic well-being by ensuring that the markets are subject to effective competition. This article explores the interplay between consumer protection and competition law in the Indian context with some comparison with the EU position, where relevant. After an examination of the relevant legislation and case law, the article finds that given that the mandate of the Competition Commission of India is to prevent practices having an adverse effect on competition, in cases of overlap between consumer protection and competition laws, the Authority should act only on the basis of adverse effects on competition. The treatment of ‘unfair trade practices’ is used to demonstrate the appropriateness of this approach.

July 19, 2017 | Permalink | Comments (0)

Tuesday, July 18, 2017

Testing Justification for Segment Based Relevant Product Market Definition in Merger Control: Evidence From Turkey

Gönenç Gürkaynak and Ekrem Kalkan are Testing Justification for Segment Based Relevant Product Market Definition in Merger Control: Evidence From Turkey.

ABSTRACT: In this paper, we aim to investigate whether different segments of beer products can constitute a separate relevant product market within the framework of competition law. This question gained importance when the merger between Anheuser-Busch InBev and SABMiller became subject to a Phase II investigation by the Turkish Competition Authority in March 2016, which ultimately ended with an unconditional clearance decision, based on an intact “beer” market, recognizing that the relevant product market regarding beer brands in Turkey must be wider than the premium segment. To answer the research question above concerning relevant product market definition, we implement a Hypothetical Monopolist Test in two steps. In the first step, the aggregate price elasticity of demand for the premium segment is estimated econometrically by using a nested logit demand model. This model tests whether products in the same group are closer substitutes than products in different groups. We conclude that the correlation of beers within the same group is not statistically significant. Since the data in our study are obtained at the retail level, the price elasticity of demand at the brewer level is derived from the estimate at the retailer level by using very conservative assumptions with regard to the pass-through rates. In the second step, the hypothetical monopolist test is implemented by using the critical elasticity which is calculated by using the profit margins for the premium beer segment at brewer/supplier level under both 5 percent and 10 percent SSNIP. It is seen that the actual elasticity of demand for the premium segment is larger than the critical elasticity (in absolute value) under both scenarios. These findings show that the relevant product market regarding beer brands in Turkey must be wider than the premium segment.

July 18, 2017 | Permalink | Comments (0)

Whither evidence (Act) based reasoning?: towards an effects-based approach in Indian competition jurisprudence

Rahul Singh, National Law University Bangalore asks Whither evidence (Act) based reasoning?: towards an effects-based approach in Indian competition jurisprudence.

ABSTRACT: India has a nascent competition enactment. But it has an old evidence law—the Indian Evidence Act—of 1872 vintage. The competition commission has shown scepticism towards the applicability of the evidence law to competition proceedings. This article argues that such scepticism is mistaken. Based upon an intrinsic reasoning (ie arguments from the autonomous discipline of law) and two ‘instrumental’ reasonings (ie arguments emphasizing the consequences of the counterfactual), this article underscores that the competition commission ought to develop fidelity towards the Indian Evidence Act. Such fidelity (rather than scepticism) would move the needle of competition jurisprudence towards an effects-based approach in decision-making.

July 18, 2017 | Permalink | Comments (0)

Empirical Models of Firms and Industries

Victor Aguirregabiria, University of Toronto - Department of Economics and Margaret Slade, University of British Columbia (UBC) offer Empirical Models of Firms and Industries.

ABSTRACT: We review important developments in Empirical Industrial Organization (IO) over the last three decades. The paper is organized around six topics: collusion, demand, productivity, industry dynamics, inter-firm contracts, and auctions. We present models that are workhorses in empirical IO, and describe applications. For each topic, we discuss at least one empirical application using Canadian data.

July 18, 2017 | Permalink | Comments (0)

What Can the FTC's Section 6(b) PAE Study Teach Us? A Practical Review of the Study's Methodology, Results, and Policy Recommendations

Anne Layne-Farrar, CRA asks What Can the FTC's Section 6(b) PAE Study Teach Us? A Practical Review of the Study's Methodology, Results, and Policy Recommendations.

ABSTRACT: On October 6, 2016, the Federal Trade Commission (FTC) released its survey of patent assertion entities (PAEs) and certain licensing and manufacturing firms. The study, conducted under authority of Section 6(b) of the FTC Act, aimed to move past the limited information that can be gleaned from litigation records—an important goal given that over 90 percent of patent enforcement activity occurs outside the courtroom. By compiling and publishing nonpublic data on licensing agreements and patent acquisition practices from 2009 through 2013, the study provides new insight into how certain PAEs operate. The empirical approach the FTC took, however, does impose constraints on the study's reported results. And importantly, the report presents case studies that cannot be generalized, calling into question the policy recommendations that would apply to all patent infringement suits. This article summarizes the key findings reported by the FTC and explains how the study's methodology limits its conclusions and is disconnected from its policy recommendations. The study provides interesting case studies of certain PAE practices, particularly in terms of litigation. In regards to licensing practices, the study's design restricts its ability to provide definitive information, but does offer some intriguing hints at different types of PAEs and should inspire additional empirical research. The study results, however, do not provide empirical support for the stated policy proposals, and moreover the proposals would impact more than PAEs.

July 18, 2017 | Permalink | Comments (0)

Save the Date and Call for Submissions: 5th Biennial NYU School of Law/American Bar Association, Section of Antitrust Law Next Generation of Antitrust Scholars Conference, January 26, 2018

January 26, 2018
NYU School of Law

This is a call for papers the 5th Biennial NYU School of Law/American Bar Association, Section of Antitrust Law Next Generation of Antitrust Scholars Conference.  The purpose of this day-long conference is to provide an opportunity for antitrust/competition law professors who began their full time professorial tenure track career in or after 2010 to present their latest research.  Senior antitrust scholars and practitioners in the field will comment on the papers (due September 15, 2017). We have lively discussion and we encourage audience participation. Please submit papers to sokold@law.ufl.edu.

Participants pay their own way but we provide free breakfast, coffee and lunch.

 

Conference co-organizers:

Ned Cavanagh, St. John's
Harry First, NYU
D. Daniel Sokol, University of Florida

July 18, 2017 | Permalink | Comments (0)

Complementary Monopolies and Multi-Product Firms

Michael Kopel, University of Graz, Clemens Loffler, Vienna University of Economics and Business, and Thomas Pfeiffer, University of Vienna - Accounting and Control discuss Complementary Monopolies and Multi-Product Firms.

ABSTRACT: According to the classical result on complementary monopolies, a single-product firm unambiguously prefers purchasing complementary inputs from an integrated monopolistic supplier rather than from different non-integrated monopolistic suppliers. In this note, we account for the fact that firms often manufacture multiple products and show that the classical result on complementary monopolies can be reversed in such a case. Purchasing complementary inputs from non-integrated suppliers can be optimal for multi-product firms.

July 18, 2017 | Permalink | Comments (0)

Monday, July 17, 2017

Welcome www.regulation.org.uk 

Martin Stanley, former Chief Executive of the UK Competition Commission, is building up an 'Understanding Regulation' website at www.regulation.org.uk which acts, inter alia, as a gateway to more advanced resources.  It is proving particularly popular with young students who are encountering economic regulation for the first time.  Please bookmark it.

July 17, 2017 | Permalink | Comments (0)

The Effects of Piracy on Competition: Evidence from Subscription TV

Christian Rojas, University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics and Arturo Briceño examine The Effects of Piracy on Competition: Evidence from Subscription TV.

ABSTRACT: Competition studies that focus on antitrust issues (e.g. market definition, market power) are typically conducted in markets where all firms are assumed to operate legally (competitors are tax-abiding entities, pay for all inputs used in their production process, have paid the proper government licenses to do so, etc.). We investigate competition issues in a market characterized by widespread piracy: subscription TV in Perú. Estimates suggest that 50% of subscription TV users in Perú (30% in Latin America) use an illegal provider. We make use of a unique dataset in which households provided crucial information regarding the (il)legality of their paid TV supplier. Using quantitative antitrust tools based on demand estimation techniques we study the impact that the presence of the informal sector has on competition. Our estimates suggest that the illegal operators constitute a close substitute for (and henceforth significantly constraint the pricing power of) legal operators. This finding can have important antitrust implications: the failure to account for piracy could lead to erroneous conclusions regarding market power measurement and the delineation of the relevant (antitrust) market. This may be particularly important in several industries (especially in the developing world) where the leading operator may be cataloged as “dominant” only in the absence of illegal providers.

July 17, 2017 | Permalink | Comments (0)

Vertical Integration and Firm Productivity

Hongyi Li, UNSW Australia Business School, School of Economics, Yi Lu, National University of Singapore (NUS) - Department of Economics, and Zhigang Tao, The University of Hong Kong - School of Business explore Vertical Integration and Firm Productivity.

ABSTRACT: This paper uses three cross‐industry datasets from China and other developing countries to study the effect of vertical integration on firm productivity. Our findings suggest that vertical integration has a negative impact on productivity, in contrast to recent studies based on U.S. firms. We argue that in settings with poor corporate governance, vertical integration reduces firm productivity because it enables inefficient rent‐seeking by insiders.

July 17, 2017 | Permalink | Comments (0)

EU Competition Law's Fair Trial Revolution: Much Ado About Nothing?

Csongor István Nagy, University of Szeged, Faculty of Law EU has written on Competition Law's Fair Trial Revolution: Much Ado About Nothing?

ABSTRACT: The paper examines the right to fair trial in the context of the judicial review of competition authority decisions. It briefly presents the general models of judicial review and analyses the recent jurisprudence of the European Court of Human Rights and the Court of Justice of the European Union. The paper argues that although the reader of the recent jurisprudence on the standard of review may easily get the impression that it is no exaggeration to speak about a revolution in Europe, when taking a closer look at the case law, it becomes clear that it is very far from a qualitative change taking the form of a leap.

July 17, 2017 | Permalink | Comments (0)

An Empirical Evaluation of the Normative Justifications for Cartel Criminalisation

Andreas Stephan, University of East Anglia (UEA) - Centre for Competition Policy An Empirical Evaluation of the Normative Justifications for Cartel Criminalisation.

ABSTRACT: A growing number of jurisdictions treat ‘hardcore’ cartel conduct as crime, in the belief that the threat of incarceration is necessary for deterrence. The significant economic harm caused by cartels is generally undisputed, but there is disagreement over whether cartel conduct is morally offensive enough to justify criminalisation. Critics argue that it is another example of ‘over-criminalisation’, seeking to regulate an activity that is morally ambiguous. Those in favour have sought to formulate normative justifications for why cartel conduct should be crime. Many of these rely on the assumption that members of society expect markets to be competitive and believe cartels are undesirable. This paper makes a significant contribution by testing this question empirically. Public surveys from the UK, Germany, Italy and the US are used to critically analyse the extent to which normative justifications for cartel conduct have empirical backing.

July 17, 2017 | Permalink | Comments (0)

Friday, July 14, 2017

The Impact of Multi-Homing in a Ride-Hailing Market

Qihong Liu, University of Oklahoma - Department of Economics, Oksana Loginova, University of Missouri, and X. Henry Wang, University of Missouri-Columbia analyze The Impact of Multi-Homing in a Ride-Hailing Market.

ABSTRACT: Platforms such as Uber, Lyft and Airbnb serve two-sided markets with drivers (property  owners) on one side and riders (renters) on the other side. Some agents multi-home. In the case of ride-hailing, a driver may drive for both Uber and Lyft, and a rider may use both apps and request a ride from the company that has a driver close by. In this paper, we are interested in welfare implications of multi-homing in such a market. Our model abstracts away from entry/exit by drivers and riders as well as pricing by platforms. Both drivers’ and riders’ surpluses are determined by the average time between a request and the actual pickup. The benchmark setting is a monopoly platform and the direct comparison is a single-homing duopoly. The former is more efficient since it has a thicker market. Next, we consider two multi-homing settings, multi-homing on the rider side and multi-homing on the driver side respectively. Relative to single-homing duopoly, we find that multi-homing on either side improves the overall welfare. However, multi-homing drivers potentially benefit themselves at the cost of single-homing drivers. In contrast, multi-homing riders benefit themselves as well as single-homing riders, representing a more equitable distribution of gains from multi-homing.

July 14, 2017 | Permalink | Comments (0)

Do hospitals respond to rivals' quality and efficiency? a spatial econometrics approach

Francesco Longo (Department of Economics and Related Studies, University of York, York, UK) ; Luigi Siciliani (Department of Economics and Related Studies, University of York, York, UK) ; Hugh Gravelle (Centre for Health Economics, University of York, York, UK.) ; and Rita Santos (Centre for Health Economics, University of York, York, UK.) ask Do hospitals respond to rivals' quality and efficiency? a spatial econometrics approach.

ABSTRACT: We investigate whether hospitals in the English National Health Service increase their quality (mortality, emergency readmissions, patient reported outcome, and patient satisfaction) or efficiency (bed occupancy rate, cancelled operations, and cost indicators) in response to an increase in quality or efficiency of neighbouring hospitals. We estimate spatial cross-sectional and panel data models, including spatial cross-sectional instrumental variables. Hospitals generally do not respond to neighbours’ quality and efficiency. This suggests the absence of spillovers across hospitals in quality and efficiency dimensions and has policy implications, for example, in relation to allowing hospital mergers.

July 14, 2017 | Permalink | Comments (0)

Partial cross ownership and explicit collusion

Johannes Paha and Samuel de Haas analyze Partial cross ownership and explicit collusion.

ABSTRACT: This article studies the unilateral and coordinated effects of non-controlling minority shareholdings (NCMS). It provides a comprehensive model by integrating the established models of Reynolds and Snapp (1986), Flath (1991), Malueg (1992), and Gilo et al. (2006). It is the first to add a competition authority. The model finds that NCMS lower the sustainability of collusion under a greater variety of situations than was indicated by earlier literature. The collusion destabilizing effect of NCMS is particularly prevalent in the presence of an effective antitrust authority.

July 14, 2017 | Permalink | Comments (0)