Antitrust & Competition Policy Blog

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

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Wednesday, July 30, 2014

Luton Buses: Refusal to Supply and the Difficult Path to Economic Tests in Litigation (UK)

Paolo Siciliani, BBC explores Luton Buses: Refusal to Supply and the Difficult Path to Economic Tests in Litigation (UK).

ABSTRACT: As appears in this case decided in the UK, refusal to supply cases are subject to a trade-off between short-term benefits from increased competitive rivalry and long-term detriment from reduced incentives to invest in innovation. To frame an alleged abuse of dominance as an exclusionary conduct should not be taken as a shortcut to bypass the demanding standard of proof normally required for an allegation of exploitative abuse in the form of excessive prices. Judges in stand-alone private actions should treat economic evidence produced by a party's expert witness with caution and circumspection.

July 30, 2014 | Permalink | Comments (0) | TrackBack (0)

The Market for Keywords

Kfir Eliaz, Brown University and Rani Spiegler, Tel Aviv University discuss The Market for Keywords.

ABSTRACT: Can a competitive market implement an ideal search engine? To address this question, we construct a two-sided market model in which consumers with limited, idiosyncratic vocabulary use keywords to search for their desired products. Firms get access to a keyword if they pay its competitive price-per-click. An underlying "broad match" function determines the probability with which a firm will enter the consumer's search pool as a function of the keyword it "buys" and the consumer's queried keyword. The main question we analyze is whether there exists a broad match function that gives rise to an efficient competitive equilibrium outcome. We provide necessary and sufficient conditions, in terms of the underlying search cost and the joint distribution over consumers' tastes and vocabulary, and characterize equilibrium keyword prices under such equilibria. The Bhattachayyara coefficient, a measure of closeness of probability distributions, turns out to play a key role in the analysis.

July 30, 2014 | Permalink | Comments (0) | TrackBack (0)

OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market

Rolf Golombek, University of Oslo - Frisch Centre, Alfonso Irarrazabal, Norge Bank and Lin Ma, Norwegian University of Life Sciences (NMBU) OPEC's discuss Market Power: An Empirical Dominant Firm Model for the Oil Market.

ABSTRACT: In this paper we estimate a dominant firm-competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986-2009 period. All the estimated structural parameters have the expected sign and are significant at standard test levels. We find that OPEC exercised its market power during the sample period. Counterfactual experiments indicate that world GDP is the main driver of long-run oil prices, however, supply (depletion) factors have become more important in recent years.

July 30, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 29, 2014

The Market-Participant Exception to State-Action Immunity from Antitrust Liability

Jarod M. Bona, Bona Law PC and Luke Anthony Wake, National Federation of Independent Business describe The Market-Participant Exception to State-Action Immunity from Antitrust Liability.

ABSTRACT: The federal antitrust laws embody fundamental values of free enterprise and economic competition. At the same time, our federal system supports a strong degree of state sovereignty. In most cases, these values peacefully co-exist. But in a subset of cases — federal antitrust lawsuits against state and local government entities — they can collide.

Beginning with the U.S. Supreme Court’s 1943 Parker v. Brown decision, the courts have developed a doctrine called state-action immunity that isolates narrow government conduct that is state-sovereign activity and exempts it from antitrust scrutiny. But, the Supreme Court has hinted — without ever deciding — that antitrust law may still apply to these government actors when they are engaged in active competition with private business. The circuits are currently split on the question. Some recognize this “market-participant exceptions,” while others wait for further Supreme Court guidance. In this article, the authors argue that both experience and policy support this commercial-conduct exception to the limited state exemption from the federal antitrust laws. This article further explores how the market-participant doctrine would work if applied in Sherman Act cases and explains why the doctrine is consistent with federalism principles. Finally, the article discusses the possible scope of the market participant exception, including its potential application in cases where government actors have enacted regulations for the sole purpose of displacing competition in a manner that insulates a public enterprise from competition.

July 29, 2014 | Permalink | Comments (0) | TrackBack (0)

The Implied Antitrust Immunity

Barak Orbach (University of Arizona) describes The Implied Antitrust Immunity.

ABSTRACT: In 1963, Richard Posner, then Justice William Brennan’s motivated clerk, drafted for the Supreme Court the iconic United States v. Philadelphia National Bank (“PNB”) decision. Addressing a set of issues in antitrust and regulation, Posner introduced several important doctrinal innovations and clarifications. Among others, PNB emphasized the primacy of competition over regulation and framed the implied antitrust immunity as a clear antitrust presumption: “Repeals of the antitrust laws by implication from a regulatory statute are strongly disfavored.” The logic of the implied antitrust immunity has not changed much since its early days: the doctrine’s primary rationale is the elimination of conflicts between administrative agencies and federal courts. Over time, however, the immunity’s narrative and nature have considerably transformed. Born in the late nineteenth century as an application of the presumption against implied repeals, in PNB, the doctrine turned into an independent antitrust presumption. During the past five decades, the doctrine has transformed into an evaluative framework whose underlying premises tilt its outcomes toward preclusion of antitrust law.The implied immunity doctrine is exceptionally important because it gives antitrust courts the power to preclude the application of antitrust law and influence national competition policy without meaningful a consideration of tradeoffs. Indeed, the doctrine is frequently invoked in courts. Yet, the doctrine has always been murky and confusing. This Article studies and clarifies the operation and applications of the implied immunity, as well as its structure, premises, and flaws.

July 29, 2014 | Permalink | Comments (0) | TrackBack (0)

Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?

Bruce M. Owen, Stanford Institute for Economic Policy Research (SIEPR); Stanford University Public Policy Program asks Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?

ABSTRACT: Hearing on "Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?" Testimony of Bruce M. Owen before the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, Committee on the Judiciary, U.S. House of Representatives, Washington DC, June 20, 2014.

July 29, 2014 | Permalink | Comments (0) | TrackBack (0)

Merger Control in China: Understanding MOFCOM’s Unique Approach

Sebastien J. Evrard & Baohui Zhang (Jones Day) analyze Merger Control in China: Understanding MOFCOM’s Unique Approach.

ABSTRACT: Almost 15 years ago, the European Commission decided to block the merger between GE and Honeywell, which had been cleared by the US Department of Justice and a number of other jurisdictions. This decision unleashed a firestorm of criticism. Since then, the enforcement of merger control provisions on both sides of the Atlantic has been - by and large – consistent.

As merger control enforcement in the US and EU was converging, China developed as a third major antitrust jurisdiction. The Anti-Monopoly Law (“AML”) came into force in 2008 and its enforcement frequently makes the headlines. On the merger control side, MOFCOM does not hesitate to take decisions in global transactions that are not consistent with those taken by other antitrust enforcers.

MOFCOM’s unique approach in some global transaction has not resulted in the same level of criticism as what the European Commission had to endure in the wake of GE/Honeywell. This could be because the additional remedies imposed were not perceived by the parties as onerous enough to complain publicly. This could also be because of the recognition that MOFCOM is a relatively new enforcer and is therefore going through a learning curve.

In this note, we review the most recent decisions in which MOFCOM did not follow its foreign counterparts and propose some explanations for its unique approach. Understanding MOFCOM’s thinking will enable potential merging parties to identify early on some of the possible sticking points, adapt their message and engage with the appropriate stakeholders.

July 29, 2014 | Permalink | Comments (0) | TrackBack (0)

An Empirical Analysis of Search Costs and Price Dispersion

Joshua Sherman, University of Vienna and Avi Weiss, Bar-Ilan University - Department of Economics; Institute for the Study of Labor (IZA) provide An Empirical Analysis of Search Costs and Price Dispersion.

ABSTRACT: We exploit cross-sectional and temporal differences in search intensity in order to examine the relationship between search costs and price dispersion using a hand-collected panel data set from Jerusalem’s Shuk Mahane Yehuda outdoor market. We present empirical evidence that price dispersion increases with the cost of search using several different measures of price dispersion, however, our interpretation of this finding is sensitive to the search proxy in question. We also address several acute difficulties facing empiricists seeking to test theoretical price-dispersion models in which consumers are heterogeneous in their search behavior.

July 29, 2014 | Permalink | Comments (0) | TrackBack (0)

Monday, July 28, 2014

Good luck on the Bar Exam!

Today is a day of prayer, even for those whose daily life is agnostic at best, for tomorrow is the dreaded bar exam. I wish everyone great luck with a positive outcome, particuarly in the hard jurisdictions (New York and California).

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

WSJ Story - Q&A: Columbia Law Professor Tim Wu Talks About His Entry Into Politics

Columbia Law professor Tim Wu (Columbia) coined the term "net neutrality". He has a recent piece in the Yale Law Journal on Parallel Exclusion.  He worked at the FTC and is slated to teach Antitrust Law this year at Columbia.  He is also running for Lt. Governor of NY. The Wall Street Journal has an interesting interview of him in today's paper. See here

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals

Pierre Dubois, Toulouse and Laura Lasio are Identifying Industry Margins with Unobserved Price Constraints: Structural Estimation on Pharmaceuticals.

ABSTRACT: We provide a method allowing to identify margins in an oligopoly price competition game when prices may not be freely chosen in some markets, for example due to regulation. We use our identification strategy to study the effects of regulatory constraints in the pharmaceutical industry, which is heavily regulated in some countries, and particularly in France. We use data from the US, Germany and France to identify country-specific demand models and then recover price cost margins under the regulated price setting constraints on the French market. To do so, we estimate a structural model on the market for anti-ulcer drugs that allows us to explore the drivers of demand, to identify whether regulation in France truly affects margins and prices and to relate regulatory reforms to industry pricing equilibrium. We provide the first structural estimation of price-cost margins on a regulated market with price constraints and show how to identify unknown possibly binding constraints thanks to three different markets (US, Germany and France) with varying regulatory constraints. Empirical results show that margins have increased over time in France but that firms were especially constrained in price setting after the different reforms in price setting that occurred in 2004. Counterfactual simulations show that overall total spending has significantly increased over the 2004-2007 period because of new regulation of price setting that reduced branded drugs prices but increased sales quantities by displacing part of the demand from generics to branded drugs.

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Monopoly Insurance with Endogenous Information

Johan N. M. Lagerlof and Christoph Schottmuller describe Monopoly Insurance with Endogenous Information.

ABSTRACT: We study a monopoly insurance model with endogenous information acquisition. Through a continuous effort choice, consumers can determine the precision of a privately observed signal that is informative about their accident risk. The equilibrium effort is, depending on parameter values, either zero (implying symmetric information) or positive (implying privately informed consumers). Regardless of the nature of the equilibrium, all offered contracts, also at the top, involve underinsurance. The reason is that underinsurance at the top discourages information gathering. We identify a sorting effect that explains why the insurer wants to discourage information acquisition. Moreover, a public policy that decreases the information gathering costs can hurt both parties. Lower information gathering costs can harm consumers because the insurer adjusts the optimal contract menu in an unfavorable manner.

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Dynamic Oligopoly Pricing: Evidence from the Airline Industry

Caspar Siegert, University of Munich and Robert Ulbricht, Toulouse School of Economics explore Dynamic Oligopoly Pricing: Evidence from the Airline Industry.

ABSTRACT: We explore how pricing dynamics in the European airline industry vary with the competitive environment. Our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination. First, the rate at which prices increase towards the scheduled travel date is decreasing in competition, supporting the idea that competition restrains the ability of airlines to price-discriminate. Second, the sensitivity to competition is substantially increasing in the heterogeneity of the customer base, reflecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination. These patterns are quantitatively important, explaining about 83 percent of the total within-flight price dispersion, and explaining 17 percent of the observed cross-market variation of pricing dynamics.

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Pricing Internet Traffic: Exclusion, Signalling and Screening

Bruno Jullien (Toulouse) and Wilfried Sand-Zantman address Pricing Internet Traffic: Exclusion, Signalling and Screening.

ABSTRACT: We consider a network that intermediates traffic between free content providers and consumers. While consumers do not know the traffic cost when deciding on consumption, a content provider knows his cost but may not control the consumption. We study how pricing consumers' and content providers' sides allows both profit extraction from the network and efficient information transmission. In the case of uniform tariff, we argue that a positive price-cap on the charge to content is optimal (with no constrain on the consumer side). Proposing menus helps signaling useful information to consumers and therefore adjusting consumption to traffic cost. In the case of menus, we show that optimal mechanisms consist in letting the content producers choose between different categories associated with different prices for content and consumers. Our results are robust to competition between ISPs and to competition between contents. We al! so show that when (competitive) content providers choose at small cost between a pay and a free business model, a price-cap at cost on the price for content improves efficiency.

July 28, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, July 25, 2014

Competition Law in Leisure Markets - Competition Law Scholars Forum XXIII Workshop - 26 September 2014

Competition Law in Leisure Markets

Competition Law Scholars Forum XXIII Workshop

26 September 2014

Download Program XXIII clasf madrid


July 25, 2014 | Permalink | Comments (0) | TrackBack (0)

Market Outcomes and Dynamic Patent Buyouts

Alberto Galasso, Matthew Mitchell, and Gabor Virag address Market Outcomes and Dynamic Patent Buyouts.

ABSTRACT: Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify alternatives to patents that could lower prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government's innovation policy, and are also widely implemented by private philanthropists. In this paper we describe situations in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent's life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives.

July 25, 2014 | Permalink | Comments (0) | TrackBack (0)

Profiting from Innovation: Firm Level Evidence on Markups

Bruno Cassiman, IESE Business School and Stijn Vanormelingen discuss Profiting from Innovation: Firm Level Evidence on Markups.

ABSTRACT: While innovation is argued to create value, private incentives of firms to innovate are driven by what part of the value created firms can appropriate. In this paper we explore the relation between innovation and the markups a firm is able to extract after innovating. We estimate firm-specific price-cost margins from production data and find that both product and process innovations are positively related to these markups. Product innovations increase markups on average by 5.1% points by shifting out demand and increasing prices. Process innovation increases markups by 3.8% points due to incomplete pass-through of the cost reductions associated with process innovation. The ability of the firm to appropriate returns from innovation through higher markups is affected by the actual type of product and process innovation, the firm's patenting and promotion behavior, the age of the firm and the competition it faces. Moreover,! we show that sustained product innovation has a cumulative effect on the firm's markup.

July 25, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 24, 2014

Reputation and Entry in Procurement

Jeff Butler, Enrica Carbone, Pierluigi Conzo, and Giancarlo Spagnolo (Stockholm School of Economics, Universita di Roma Tor Vergata) discuss Reputation and Entry in Procurement.

ABSTRACT: There is widespread concern that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement game with reputational incentives for quality and the possibility of entry. We allow also the entrant to start off with a positive reputational score. Our results suggest that while some past-performance based reputational mechanisms do reduce the frequency of entry, appropriately designed mechanisms can significantly increase it. Moreover, the reputational mechanism we investigate typically increases quality but not prices, suggesting that well designed mechanisms may generate very large gains for buyers and taxpayers.

July 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Transparency in Buyer-Determined Auctions: Should Quality be Private or Public?

Sebastian Stoll, University of Munich and Gregor Zottl, University of Erlangen/Nuremberg ask Transparency in Buyer-Determined Auctions: Should Quality be Private or Public?

ABSTRACT: We study non-binding procurement auctions where both price and non-price characteristics of bidders matter for being awarded a contract. The outcome of such auctions critically depends on how information is distributed among bidders during the bidding process. As we show theoretically, whether it is in the buyer's interest to conceal or to disclose non-price information most importantly depends on how important the quality aspects of the good to be procured are to the buyer: The more important the quality aspects are to the buyer, the more interesting concealment becomes. We then empirically study the impact of a change in the information structure using data from a large European online procurement platform for different categories of goods. In a counterfactual analysis we analyze the reduction of non-price information available to the bidders. In the data we find that the choice of information structure indeed matters.! Confirming the hypothesis obtained in our theoretical framework, we find that in auction categories where bidders' non-price characteristics are of little importance for the decisions of the buyers, concealment of non-price information decreases buyers' welfare by up to 6% due to reduced competitive pressure leading to higher bids. In contrast, for categories where bidders' non-price characteristics strongly influence buyers' decisions concealment of non-price information increases buyers' welfare by up to 15%.

July 24, 2014 | Permalink | Comments (0) | TrackBack (0)

The Strength of the Waterbed Effect Depends on Tariff Type

Steffen Hoernig, Nova School of Business and Economics, Universidade Nova de Lisboa discusses The Strength of the Waterbed Effect Depends on Tariff Type .

ABSTRACT: We show that the waterbed effect, i.e. the pass-through of a change in one price of a firm to its other prices, is much stronger if the latter include subscription rather than only usage fees. In particular, in mobile network competition with a fixed number of customers, the waterbed effect is full under two-part tariffs, while it is only partial under linear tariffs.

July 24, 2014 | Permalink | Comments (0) | TrackBack (0)