Antitrust & Competition Policy Blog

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

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Thursday, November 27, 2014

Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie

Nicolas Petit, University of Liege - School of Law offers Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie.

ABSTRACT: In European Union ("EU") competition law, the supply policy of a dominant input provider can be deemed unlawful, if his wholesale and retail price-mix forces rival input purchasers to compete at a loss on the downstream market. This is known as an abusive "margin squeeze". Whilst this stands to reason, the TeliaSonera case-law adds that there can also be an "exclusionary" abuse when rivals’ margins are "positive", by virtue, for instance of "reduced profitability". In other words, there is an infringement of Article 102 TFEU even if rivals maintain the ability to competitively sell their products at prices above costs. We call this the positive margin squeeze theory. After a quick overview of TeliaSonera and of its context (I), this paper shows that the positive margin squeeze theory is flawed on economic grounds (II). To this end, it resorts to a simple numerical example. Further, this paper explains that the positive margin squeeze theory is wrong on legal grounds, and that it has since been overruled by a subsequent judgment of the Court of Justice of the EU ("CJEU") (III). Finally, we conclude that the positive margin squeeze theory can be disregarded in positive competition law.

November 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Innovation and Competition in the Retail Banking Industry: An Industrial Organization Perspective

Carlotta Mariotto, Ecole Nationale Superieure des Mines de Paris and Marianne Verdier, Universite Paris 2 Pantheon Assas analyze Innovation and Competition in the Retail Banking Industry: An Industrial Organization Perspective.

ABSTRACT: Over the recent years, the development of mobile banking and Internet banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several Internet Service Providers or large retailers have started to offer innovative financial products to their customers. In this paper, we analyse how the industrial organization literature can be used to study recent innovations in retail banking and discuss some perspectives for future research.

November 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 26, 2014

Optimal Cartel Prices in Two-Sided Markets

Federico Boffa, Universita degli Studi di Macerata and Lapo Filistrucchi, Tilburg University, Department of Economics, CentER & TILEC; University of Florence, Dipartimento di Scienze Economiche discuss Optimal Cartel Prices in Two-Sided Markets.

ABSTRACT: We study optimal cartel prices in a two-sided market. We present a simple model showing that prices above the two-sided monopoly price may prevail on one side of a two-sided market as a means to enhance the sustainability of the cartel. We prove that in such a case a higher benefit from the network effect may compensate customers on that side of the market for the higher prices they are charged. We then provide both sufficient and necessary conditions for these results to hold in more complex models of two-sided markets. Our analysis extends to cartels in two-sided markets a result previously known for cartels selling complementary products, despite the fact that products in a two-sided market are not complements for customers, since customers typically buy only one of the two products (e.g. in the case of newspapers, advertisers buy advertising slots while readers buy content) and products on each side are substitutes (e.g. newspapers publishers compete for readers and for advertisers).

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

CPI Antitrust Chronicle: Global Pharm Update—Product Hopping & Pay-for-Delay

CPI Antitrust Chronicle: Global Pharm Update—Product Hopping & Pay-for-Delay

NOV-14(2)

Autumn 2014, Volume 11 Number 2

 

In the antitrust debate arena, health care topics are the gifts that just keep on giving—always something new to discuss, analyze, or understand. This issue focuses primarily on two segments, product hopping and pay-for-delay. The first paper describes and analyzes, while the next two papers contrast regulatory approaches. Then we present case studies of two countries presenting novel twists in the field—Canada, which has introduced criminal charges to pay-for-delay cases—and India, which has targeted the distribution chain, rather the manufacturers, for its antitrust focus.

Pharm Update

Michael Carrier, Nov 24, 2014

Pharmaceutical Antitrust Complexity

With layer piled upon layer, and defenses based on patents, innovation, and settlement that cannot easily be dismissed, brands are using complexity to their advantage. Michael Carrier (Rutgers Law School)

 

Ingrid Vandenborre, Julia York, Michael Frese, Nov 24, 2014

“Product Hopping” on Both Sides of the Pond: A Survey of U.S. and EU Case Law

The approaches in the United States and the European Union with respect to “product hops” appear to be similar in that direct, affirmative steps that prevent generic competition could give rise to antitrust scrutiny. Ingrid Vandenborre, Julia K. York, & Michael J. Frese (Skadden, Arps)

Seth Silber, Jonathan Lutinski, Ryan Maddock, Nov 25, 2014

“Good Luck” Post-Actavis: Current State of Play on “Pay-for-Delay” Settlements

This article examines the current quagmire in the courts, the FTC’s recent activities, and finally explores growing interest outside the United States in getting into the “pay-for-delay” fray. Seth Silber, Jonathan Lutinski, & Ryan Maddock (Wilson Sonsini)

Alan Gunderson, Nov 24, 2014

Competition Issues in the Canadian Pharmaceutical Industry

One approach to help determine whether a Settlement has created an SPLC is to consider whether the value transfer to the generic is in excess of what the patentee could have been expected to pay in the event it had lost the litigation. Alan Gunderson (Canadian Competition Bureau)

Kalyani Singh, Nov 24, 2014

The Rising Tide: Competition Law Enforcement in the Indian Pharmaceutical Sector

Notably, in India, it is the distribution chain that has been in the limelight for anticompetitive practices. Kalyani Singh (Luthra and Luthra Law Offices)

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Modeling the E ects of Mergers in Procurement

Nathan Miller, Georgetown has a new paper on Modeling the Effects of Mergers in Procurement.

ABSTRACT: In procurement settings, mergers among suppliers reduce buyers' choice sets and can harm buyers by eliminating their preferred supplier or reducing their negotiating leverage. I develop a stochastic economic model that predicts the e ects of mergers based on information that commonly is available to antitrust authorities. I derive general expressions for the ex ante expected changes in price, buyer utility, and supplier profit. Each becomes tractable under certain distributional assumptions. The model predicts that average prices will increase by more than 40% due to the recently litigated acquisition of Power Reviews by Bazaarvoice, in the absence of an effective remedy.

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Comprehensive Economic and Legal Analysis of Tying Arrangements

Guy Sagi, Netanya Academic College offers Comprehensive Economic and Legal Analysis of Tying Arrangements.

ABSTRACT: The law of tying arrangements as it stands does not correspond with modern economic analysis. Therefore, and because tying arrangements are so widely common, the law is expected to change and extensive academic writing is currently attempting to guide its way. Part II will present a comprehensive economic analysis that demonstrates that tying arrangements, despite their anticompetitive potential, also hold exceedingly significant pro-competitive efficiency potential. Part II will then review and critique the current law relating to tying arrangements. In Part III, I will present the potential legal rules for analyzing tying arrangements and the two leading approaches in academic writing regarding their appropriate implementation—the approach of the Chicago Harvard Schools and the approach of Professor Einer Elhauge. In Part IV, I will discuss various tying scenarios and present my position regarding their appropriate legal analyses. In concurrence with the Chicago- Harvard Schools’ approach, I support the implementation of the legal per se rule for tying arrangements that do not foreclose the tied product’s market. However, for tying arrangements that do foreclose the tied product’s market, I will propose, based on economic theory and empirical evidence, the implementation of a rule of reason analysis that does not raise a presumption against the tying arrangement. Lastly, Part V will conclude the discussion.

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Renata Hesse on Recent Developments in US antitrust law - London 9 December 2014

Recent Developments in US Antitrust Law

 

by Renata Hesse, Deputy Assistant Attorney General US Department of Justice

on 

 Tuesday 9 December 2014

Registration at 12:45pm, Lecture from 1.05 - 2pm
at the UCL Faculty of Laws 

 

About the speaker: Renata B. Hesse is Deputy Assistant Attorney General for Criminal and Civil Operations at the U.S. Department of Justice’s Antitrust Division. From November 16, 2012, until the confirmation of Assistant Attorney General Bill Baer, Ms. Hesse served as Acting Assistant Attorney General for the Antitrust Division. She rejoined the Antitrust Division in March of 2012, having previously served in several different capacities at the Division between 1997 and 2006. Immediately prior to returning to the Division, Ms. Hesse served as Senior Counsel to the Chairman for Transactions at the Federal Communications Commission, where she oversaw the Commission’s investigation of AT&T’s proposed acquisition of T-Mobile. Before that, Ms. Hesse was a partner in the Washington, DC office of Wilson Sonsini Goodrich & Rosati. Ms. Hesse has been recognized in Chambers USA: America’s Leading Business Lawyers (2007- 2011), The International Who’s Who of Competition Lawyers & Economists (2009-2011), and received the Attorney General’s Distinguished Service Award in 2005.

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Politics should not be part of Google investigation

Ed Black, Computer & Communications Industry Association has a reply in the Financial Times that Politics should not be part of Google investigation.

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Bundling and Tying

Nick Economides, NYU describes Bundling and Tying.

ABSTRACT: We discuss strategic ways that sellers can use tying and bundling with requirement conditions to extract consumer surplus. We analyze different types of tying and bundling creating (i) intra-product price discrimination; (ii) intra-consumer price discrimination; and (iii) inter-product price discrimination, and assess the antitrust liability that these practices may entail. We also discuss the impact on consumers and competition, as well as potential antitrust liability of bundling “incontestable” and “contestable” demand for the same good.

November 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 25, 2014

THE HIDDEN COSTS OF FREE GOODS: IMPLICATIONS FOR ANTITRUST ENFORCEMENT

Michal Gal, University of Haifa and Daniel Rubinfeld, University of California, Berkeley have a new paper on THE HIDDEN COSTS OF FREE GOODS: IMPLICATIONS FOR ANTITRUST ENFORCEMENT.

ABSTRACT: Today a growing number of goods and services are provided in the marketplace free of charge; indeed, free or the appearance of free, have become part of our ecosystem. More often than not, free goods and services provide real benefits to consumers and are clearly pro-competitive. Yet free goods may also create significant costs. We show that despite the fact that the consumer does not pay a direct price, there are indirect prices that reflect the opportunity cost associated with the consumption of free goods. These indirect costs can be overt or covert, in the same market in which the product is distributed or in related markets, monetary or non-monetary, and short-term or long-term. Most of the economic literature on free goods has focused on two-sided markets in which the free good is provided in exchange for attention or information. We analyze the welfare effects of additional cases that are becoming commonplace in our economy. Our analysis indicates that even goods that are offered for philanthropic motivations might sometimes harm competition and welfare. The article also stresses the need to evaluate the pricing strategies of firms that offer free goods in light of new research pointing to the "irrational" behavioral response of consumers when faced by a free option.

This welfare analysis serves as a basis for the exploration of the antitrust implications of the provision of free goods, which has been relatively neglected. Indeed, as this paper shows, free goods raise significant issues for antitrust enforcement, which run the gamut from market definition to market power and to the evaluation of the competitive effects of mergers and more generally to strategic business behavior. We use examples from diverse jurisdictions and markets to exemplify our arguments and, in particular, focus on three case studies: free search services, free internet browsers and free newspapers.

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

Substitution between fixed-line and mobile access: the role of complementarities

Lukasz Grzybowski, Telecom ParisTech & Frank Verboven, University of Leuven discuss Substitution between fixed-line and mobile access: the role of complementarities.

ABSTRACT: We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process. We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.

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

How do Consumers Respond to Gasoline

David P. Byrne (Melbourne), Gordon Leslie (Stanford) and Roger Ware (Queens) ask How do Consumers Respond to Gasoline.

ABSTRACT: This paper empirically studies how consumers respond to retail gasoline price cycles. Our analysis uses new station-level price data from local markets in Ontario, Canada, and a unique market-level measure of consumer responsiveness based on web traffic from gasoline price reporting websites. We first document how stations use coordinated pricing strategies that give rise to large daily changes in price levels and dispersion in cycling gasoline markets. We then show consumer responsiveness exhibits cycles that move with these price fluctuations. Through a series of tests we further show that forward-looking stockpiling behavior by consumers plays a central role in generating these patterns.

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

Using Remedies In Russian Merger Control

Anastasiya Redkina (National Research University Higher School of Economics) is Using Remedies In Russian Merger Control.

ABSTRACT: This article is motivated by a growing interest in the problem of merger control quality assessment. Remedies are one of the instruments of merger control and have a significant influence on the results of it. This paper aims to build and empirically evaluate a discrete choice model of merger remedies implementation in Russian merger control. The database consists of 443 merger cases accepted by the Russian antimonopoly agency between 2008 and 2011. We analyse the agency’s decisions to find which characteristics of merging firms and markets lead the Federal Antimonopoly Service to decide whether to allow conditional acceptance. We find that variables related to high market power lead more frequently to a remedy outcome. Such industries as the energy sector, communications and insurance positively affect the probability of a structural remedy. We do not find significant effects of “non-structural” variables, such as! the world leader and the nationality of the firm-buyer

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

Taxation and the Sustainability of Collusion: Ad Valorem versus Specific Taxes

Helmuts Azacis (Cardiff Business School) and David R. Collie (Cardiff Business School) have a paper on Taxation and the Sustainability of Collusion: Ad Valorem versus Specific Taxes.

ABSTRACT: Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly as well as for Bertrand oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment strategies. In a Cournot duopoly model with linear demand and quadratic costs, it is shown that the critical discount factor is lower with an ad valorem tax than with a specific tax. However, in contrast to Colombo and Labrecciosa (2013), it is shown that revenue is always higher with an ad valorem tax than with a specific tax.

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

Monday, November 24, 2014

Collusion in regulated pluralistic markets

Giovanni Crea, Marisa Miraldo, Roberta Longo, and Andrew Street analyze Collusion in regulated pluralistic markets.

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

Signalling quality with posted prices

Peyman Khezr (School of Economics, The University of Queensland) and Abhijit Sengupta (School of Economics, University of Sydney) are Signalling quality with posted prices.

ABSTRACT: We study a game in which the seller of an indivisible object wants to sell her object to a finite number of potential buyers with a posted price. The environment is such that the seller has some private information about the quality of the object that cannot be communicated with buyers at zero cost. We focus on the separating equilibrium of this game in which the seller signals her actual type via the posted price. The conditions of the existence and the uniqueness of this equilibrium are studied. In an example, we calculate the seller’s expected payoff at this equilibrium and further discuss some comparative statistics.

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

A Model of Quality Uncertainty with a Continuum of Quality Levels

Christopher Gertz (Center for Mathematical Economics, Bielefeld University) offers A Model of Quality Uncertainty with a Continuum of Quality Levels.

ABSTRACT: This work takes a closer look on the predominant assumption in usual lemon market models of having finitely many or even only two different levels of quality. We model a situation which is close to the classical monopolistic setting but admits an interval of possible quality values. Additionally, to make the model interesting, the consumer receives a signal which is correlated to the quality level and is her private information. We introduce a new concept for the consumer reaction to the received information, encompassing rationality but also allowing for a certain degree of imperfection. We find that there is always a strictly positive price-quality relation in equilibrium but the classical adverse selection effects are not observed. In contrast, low quality levels do not make any sales. After applying a refinement to these equilibria, we show that when the additional signal is very precise, more low quality levels are ! excluded from the market. In the limit of perfect information, the market breaks down, a behavior completely opposed to the original perfect information case. These different and quite extreme results compared to the classical lemon market case should serve as a warning to have a closer look at the assumption of having finitely many quality levels.

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

Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price

Philipp Kircher, University of Edinburgh and Kyungmin Kim, University of Iowa discuss Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price.

ABSTRACT: We consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction is adopted as the trading protocol, then cheap talk can be perfectly informative, and the resulting market outcome is efficient, constrained only by search frictions. We also show that the performance of an alternative trading protocol in the cheap-talk environment depends on the level of price dispersion generated by the protocol: If a trading protocol compresses (spreads) the distribution of prices relative to the first-price auction, then an efficient fully revealing equilibrium always (never) exists. Our results identify the settings in which cheap talk can serve as an efficient competitive instrument, in the sense that the central insights from the literature on competing auctions and competitive search continue to hold unaltered even without ex ante price commitment.

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

Friday, November 21, 2014

Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment

Jos Jansen and Andreas Pollak explore Strategic Disclosure of Demand Information by Duopolists: Theory and Experiment.

ABSTRACT: We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where firms may fail to receive information, we show that firms selectively disclose information in equilibrium in order to influence their competitor's product-market strategy. Subsequently, we analyze the firms' behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in the information structure, the mode of competition, and the degree of product differentiation. Moreover, subjects in our experiment display product-market conduct that is largely consistent with theoretical predictions.

November 21, 2014 | Permalink | Comments (0) | TrackBack (0)

Brief of Amici Curiae Antitrust Law Professors in O'Bannon v. NCAA

Thomas C. Arthur, Emory University School of Law, Amitai Aviram, University of Illinois College of Law, Edward D. Cavanagh, St. John's University - School of Law, Jorge L. Contreras, University of Utah - S.J. Quinney College of Law, Daniel A. Crane, University of Michigan Law School, Susan Beth Farmer, The Pennsylvania State University Dickinson School of Law, Herbert J. Hovenkamp, University of Iowa - College of Law, Keith N. Hylton, William Fairfield Warren Distinguished Professor, Boston University; Professor of Law, Boston University School of Law, Michael S. Jacobs, DePaul University - College of Law, Alan J. Meese, William & Mary Law School, Salil K. Mehra, Temple University - James E. Beasley School of Law, William H. Page, University of Florida - Fredric G. Levin College of Law, Gary R. Roberts, Indiana Univ. Robert H. McKinney School of Law, D. Daniel Sokol, University of Florida - Levin College of Law; George Washington University Law School Competition Law Center, and Alexander Volokh, Emory University School of Law today filed a Brief of Amici Curiae Antitrust Law Professors in O'Bannon v. NCAA

ABSTRACT:  On November 21, 2014, 15 professors of antitrust law at leading U.S. universities submitted an amicus brief in the O'Bannon v. NCAA 9th Circuit appeal in support of the NCAA. They have an interest in the proper development of antitrust jurisprudence, and they agree that the court below misapplied the “less restrictive alternative” prong of the rule of reason inquiry for assessing the legality of restraints of trade under Section 1 of the Sherman Act, 15 U.S.C. § 1. They are concerned that the district court’s approach to the antitrust rule of reason, if affirmed, would grant undue authority to antitrust courts to regulate the details of organizational rules, and would also undermine the NCAA’s goal of amateurism in collegiate athletics, a goal that courts have recognized universally as valid and important—and in which the undersigned, as academics themselves, are deeply interested.

November 21, 2014 | Permalink | Comments (0) | TrackBack (0)