Tuesday, February 10, 2015
The ICN will hold its annual meeting this year in Sydney, Australia. It promises to be an amazing conference. The ACCC is one of the great competition authorities. Rodd Sims, Chairman of the ACCC welcomes people to the conference website with the following words:
I'm proud of the ACCC's long history as a founding member of the ICN. I'm also grateful for the development and leadership opportunities the ICN has given the ACCC over the years. The ICN has a diverse membership. Working together on current and emerging issues and initiatives is what makes us strong and effective.
I look forward to hosting the 2015 meeting and seeing you all in Sydney to share ideas on how best to continue to promote competition for the benefit of businesses and consumers in light of our dynamic domestic economies and growing global supply chains.
The practitioner and academic communities in Australia are also first rate. My friends at Gilbert & Tobin won the GCR deal of the year award last year. The academic community in both antitrust law and economics is very strong. I will be teaching the global cartel course at the University of Melbourne LLM in Competition Law in July so I take pride in Australia's moment to shine globally for its rich competition policy.
In honor of my friends and colleagues in Australia, I include an embedded video of a documentary of my favorite band growing up, Midnight Oil. Watching them live remains one of the most memorable and amazing experiences of my life.
Martin C. Byford (RMIT University) and Joshua S. Gans (Toronto) have an interesting paper on Permission to Exist.
ABSTRACT: We provide a new model that generates persistent performance differences amongst seemingly similar enterprises. Our model provides a mechanism whereby efficient incumbent rivals can give permission for an inefficient firm to exist in the presence of efficient entrants. We demonstrate that, in a repeated game, an efficient incumbent has a unilateral incentive to establish a relational contract that softens price competition to either strengthen the inefficient firm in a war of attrition that emerges post-entry or reduce the value to the inefficient firm of selling its position to entrants. The paper provides conditions under which that equilibrium exists and derives a number of empirical predictions as implications of the model! . It is demonstrated that performance differences are likely to be associated with stability in the identity of firms in the market.
Monday, February 9, 2015
DongJoon Lee, Nagoya University of Commerce and Business, Kangsik Choi, Pusan National and Kyu-Chan Hwang, University, Tokai Gakuen University have written on Reverse First-mover and Second-mover Advantage in a Vertical Structure.
ABSTRACT: This paper examines the issue of the first-mover and second-mover advantage in a vertical structure in which each manufacturer trades with a separated retailer via two-part tariffs. Compared to the canonical result in one-tier market, we find that the manufacturers' preference orderings over sequential versus simultaneous play are reversed in a vertical structure. We show that the Stackelberg leader (Stackelberg follower) had the first (second)-mover advantage in the downstream Cournot (Bertrand) competition. The first (second)-mover advantage compels its manufacturer to set the wholesale price higher than that of rival. Finally, we show that the manufacturer in which its retailer moves second (first) in a downstream Stackelb! erg Cournot (Bertrand) competition earns higher profits than the other in which its retailer moves first (second) in a downstream Stackelberg Cournot (Bertrand) competition.
Gabriel Desgranges (THEMA) and Stephane Gauthier (CES) examine Rationalizability and Efficiency in an Asymmetric Cournot Oligopoly.
ABSTRACT: We study rationalizable solutions in a linear asymmetric Cournot oligopoly. We show that symmetry across firms favors multiplicity of rationalizable solutions: A merger (implying a greater asymmetry across firms) makes out-of-equilibrium behavior less likely and should dampen &lquo;coordination&rquo; volatility. The market structure maximizing consumers' surplus at a rationalizable solution is not always the competitive one: This may be a symmetric oligopoly with few firms. An empirical illustration to! the airlines industry shows that a reallocation of 1% of market share from a small carrier to a larger one yields a 1.3% decrease in volatility, measured by the within carrier standard error of the number of passengers.
Emily Clark (Ashurst) and Ruth Sander (Ashurst) are Navigating the Quantum Minefield in Cartel Damages Cases.
ABSTRACT: After a period of stop-start, the momentum behind private enforcement of competition law has built up considerably, at both EU and national level.
This article considers some of the key practical issues facing parties involved in private actions in relation to the quantification of damages, including the important role of economic evidence.
Sunday, February 8, 2015
Bill Baer (DOJ) gave a speech at GCR Miami that provided Reflections on Elements of Effective Antitrust Enforcement. It was good to hear it live.
Friday, February 6, 2015
Judith A. Chevalier, Yale and Anil K. Kashyap, Chicago analyze Best Prices: Price Discrimination and Consumer Substitution.
ABSTRACT: We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the ideal price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.
The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings
Joseph E. Harrington Jr, University of Pennsylvania, Roberto Hernan Gonzalez, University of Granada, and Praveen Kujal, Middlesex University examine The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings.
ABSTRACT: Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communication are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.
I am in South Beach for the GCR Live antitrust conference. The conference topics and the speakers are all very strong. Kudos to Blake's & CRA for another brilliant program. This year the University of Florida is also a conference co-sponsor.
I look forward to a day and a half of a very interesting programs. At the drinks reception last night, I was struck by the good looks and good style of so many antitrust practitioners at the conference as well as a number of the academics (Mike Salinger, this includes you). Is it the location, or is it the antitrust has become the new career choice for the "beautiful set" of men and women, particularly in the age group of 35-55? Who knew that critical loss analysis had such sex appeal?
Niklas Horstmann, Karlsruhe Institute of Technology, Jan Kraemer, University of Passau, and Daniel Schnurr, Karlsruhe Institute of Technology ask How Many Competitiors Are Enough to Ensure Competition? — A Note on Number Effects in Oligopolies.
ABSTRACT: There is general agreement on the fact that the competitiveness of an industry increases with the number of competitors. However, contrary to prominent believe, our meta-study on oligopoly experiments reveals that the competitiveness does not strictly increase with the number of competitors. In fact, triopolies are found to be at least as competitive as quadropolies. Thus, our results bear important implications for merger control and ex-ante regulation of markets in which the number of potential competitors is limited.
Thursday, February 5, 2015
Alan Meese (William & Mary) has written about Robert Bork's Forgotten Role in the Transaction Cost Revolution.
ABSTRACT: This essay, prepared for a conference examining Robert Bork’s antitrust contributions, examines Bork’s hitherto unknown role in the transaction cost economics (“TCE”) revolution. The essay recounts how, in 1966, Bork helped rediscover Coase’s 1937 article, The Nature of the Firm and employed Coase’s reasoning to explain how various forms of partial integration could reduce transaction costs. As the essay shows, Bork described how exclusive territories, customer restrictions and horizontal minimum price fixing that accompanied otherwise valid integration were voluntary efforts to overcome the costs of relying upon unfettered markets to conduct economic activity. To be sure, Bork did not develop a complete account of TCE capable of informing a full-fledged research program. Nonetheless, Bork did articulate and apply various tools of TCE, tools that reflected departures from the applied price theory tradition of industrial organization.
The essay also offers some brief speculation regarding why scholars have not recognized Bork’s early contributions to TCE. For one thing, Bork did not purport to offer a new economic paradigm. Instead, Bork repeatedly characterized his work as an application of basic price theory, the very economic paradigm that TCE overthrew with respect to the interpretation of non-standard contracts. Moreover, Bork did not persist in his critique of price theory’s once-dominant account of non-standard contracts. After reiterating his views in 1968, for instance, he did not revisit the economics of non-standard agreements for nearly a decade. Finally, when Bork did return to the topic, he deemphasized TCE-based arguments and focused more on the claim that such agreements could not add to the market power already possessed by manufacturers and thus could not produce economic harm. In short, Bork’s failure to reiterate his TCE-based interpretation of non-standard agreements seems partly responsible for the lack of recognition his early contributions have received.
Matthias Firgo, Austrian Institute of Economic Research (WIFO) and Agnes Kuegler, Vienna University of Economics and Business Administration - Department of Economics and 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 behaviour 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. We show that prices of ski resorts forming alliances are higher and increase with the size and towards the spatial center of an alliance. Strategic interaction in pricing is higher within than outside alliances. All results are in line with the findings of theoretical models on collusion in horizontally differentiated markets.
Competition Policy and Regulation in Credit Card Markets: Insights from Single-Sided Market Analysis
Dennis W. Carlton, University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER) and Ralph A. Winter, University of British Columbia - Sauder School of Business Competition Policy and offer Regulation in Credit Card Markets: Insights from Single-Sided Market Analysis.
ABSTRACT: This paper reexamines the economics of two common features of credit card networks: the interchange fee paid by merchant banks, or acquirers, to cardholder banks, or issuers; and the restraint commonly placed on merchants against surcharging for credit card transactions. We show that the parallels with the economics of conventional one-sided markets offer insights that have been overlooked in the credit card economics literature, which stresses the two-sided nature of the market. The characterization of the optimal interchange fee is equivalent to the Dorfman-Steiner theorem from conventional price theory. The principle that the interchange fee maximizes output when an optimum exists and the possibility of interchange fee neutrality also have precise parallels in one-sided markets with promotion. Our analysis shows that the no-surcharge rule is equivalent to a retail MFN constraint. The no-surcharge rule raises prices to merchants due to a competition-suppression effect as well as a cost-externalization effect. The market condition underlying interchange neutrality (when surcharging is allowed) eliminates the impact of the no-surcharge rule in the case of a credit-card duopoly. Yet the same condition magnifies the impact in the presence of cash customers.
Avirup Bose, Competition Commission of India, explains Lessons to Be Learned from India's Latest High Profile Merger Review: The Jet-Etihad Deal.
ABSTRACT: The Competition Commission of India recently approved the largest investment in the Indian aviation sector. The clearance decision provides important lessons about the Commission’s approach in reviewing composite transactions in India. The decision marks the first: dissent of the Indian competition bench in the area of merger control, merger approval to be challenged (on merits), competitive analysis of collaborative ventures under Indian competition law, besides being a rare instance where the Commission analyzed the concept of ‘control’ under Indian merger control law.
Iwan Bos, Maastricht University, and Joseph E. Harrington Jr, University of Pennsylvania have an interesting paper on Competition Policy and Cartel Size.
ABSTRACT: This paper examines endogenous cartel formation in the presence of a competition authority. Competition policy is shown to make the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either decrease or increase their size and, in the latter case, the collusive price can rise.
Wednesday, February 4, 2015
Comparative Analusis of Antitrust Policy Against Collusion in Some Transition Economies: Challenges for Effectiveness
Andrey V. Makarov, National Research University Higher School of Economics offers a Comparative Analusis of Antitrust Policy Against Collusion in Some Transition Economies: Challenges for Effectiveness.
ABSTRACT: This article focuses on the development of antitrust policy in transition economies in the context of preventing explicit and tacit collusion. Experience of BRICS, Kazakhstan, Ukraine and CEE countries (Bulgaria, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, Czech Republic, Estonia) in the creation of antitrust institutions was analyzed, including both legislation and enforcement practice. This article analyzes such enforcement problems as: classification problems (tacit vs explicit collusion, vertical vs horizontal agreements), flexibility of prohibitions (“per se” vs “rule of reason”), design of sanctions, private enforcement challenge, leniency program mechanisms, the role of antitrust authorities etc. Main challenges for policy effectiveness in this field were shown.
Is there a level of competition intensity that maximizes investment in the mobile telecommunications industry?
Georges Vivien Houngbonon (Paris School of Economics and Orange) and Francois Jeanjean (Orange) ask Is there a level of competition intensity that maximizes investment in the mobile telecommunications industry?
ABSTRACT: This paper empirically assesses the impact of the intensity of competition on investment in new technologies within the mobile telecommunications industry. Using firm level panel data and an instrumental variable estimation it finds an inverted-U relationship between competition intensity and investment. The intermediate level of competition intensity that maximizes investment stands at 62 percent, whereby competition intensity is measured by 1-Lerner index at the firm level. This means that the maximal level of investment is reached, on average, when the operating pro t represents 38 percent of total revenue. This result is rationalized through a theoretical model that yields an inverted-U relationship between competition and investment. It shows that the potential technological progress, measured by the impact of investment on the reduction of marginal cost, is the main determinant of the investment maximizing intermediate level of competition. The higher the potential technological progress, the lower the level of competition intensity that maximizes investment
Fight Cartels or Control Mergers? On the Optimal Allocation of enforcement Efforts within Competition Policy
Andreea Cosnita (EconomiX - CNRS, Universite Paris X) and Jean-Philippe Tropeano (CES - Centre d'economie de la Sorbonne) ask Fight Cartels or Control Mergers? On the Optimal Allocation of enforcement Efforts within Competition Policy.
ABSTRACT: This paper deals with the optimal enforcement of competition law between merger and anti-cartel policies. We examine the interaction between these two branches of antitrust, given the budget constraint of the public agency, and taking into account the ensuing incentives for firms in terms of choice between cartels and mergers. To the extent that a tougher anti-cartel action triggers more mergers and vice-versa, we show that the two antitrust branches are complementary. However, if the merger's coordinated effect is taken into account, then for a sufficiently large such effect the agency may optimally have to refrain from controlling mergers and instead spend all resources on fighting cartels.
Market Structure and Competition: Assessment of Malaysian Pharmaceutical Industry based on the Modified Structure-Conduct-Performance Paradigm
Hooi Ying Chong and Tze-Haw Chan, Graduate School of Business, Universiti Sains Malaysia, Graduate School of Business, Universiti Sains Malaysia, describe Market Structure and Competition: Assessment of Malaysian Pharmaceutical Industry based on the Modified Structure-Conduct-Performance Paradigm.
ABSTRACT: This study assesses the market structure and competitiveness of Malaysian pharmaceutical industry. A panel analysis of 41 pharmaceutical manufacturing firms over 2004-2012 is conducted founded on the modified Structure-Conduct-Performance (SCP) framework. Our study reveals that the Malaysian pharmaceutical industry is highly concentrated (oligopoly) and the major findings are threefold. First, anti-competitive practices subsist among the pharmaceutical firms. Major players may have greater control over the markets and potentially colluded to gain better profits. Second, selling intensity is evident to raise the firms’ business performance, suggesting that advertisement, marketing campaigns, product differentiations and distribution efforts could be effective in building competencies over the rivals. Third, the study has tackled the endogeneity problem of traditional SCP with dual causal effects found between business conduct and business performance. Firms and authorities should consider the interactive mutual influences of structure-conduct-performance when formulating their respective management decisions and regulatory rules.
Tuesday, February 3, 2015
Guiomar Ibanez Zarate, Universitat Roveria analyzes Innovation and horizontal mergers in a vertically related industry.
ABSTRACT: This paper analyzes the effects of horizontal mergers on innovation and consumer welfare in a vertically related industry context, in which downstream firms compete for customers with a differentiated final good and can undertake R&D activities to reduce their unit costs. Upstream and downstream horizontal mergers can take place. The results suggest that competition authorities aiming to promote innovation and consumer welfare should treat upstream and downstream mergers differently, since horizontal mergers between upstream firms are detrimental to innovation and consumer welfare. By contrast, policy makers should evaluate the market characteristics under downstream integration. We show that downstream horizontal mergers can be both innovation and consumer welfare enhancing in the short run, when the markets are sufficiently small. Keywords: Horizontal Mergers. Innovation. Vertical Relations.