Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, August 7, 2015

On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products

Philip Gayle, Kansas State University and Chi-Yin Wu, Feng Chia University have written On the Extent to which the Presence of Intermediate-stop(s) Air Travel Products Influences the Pricing of Nonstop Air Travel Products.

ABSTRACT: Analysts of air travel markets, which include antitrust authorities, are interested in understanding the extent to which the presence of intermediate stop(s) products influences the pricing of nonstop products. This paper uses a structural econometric model to investigate the potential pricing interdependence between these two product types in domestic air travel markets. Counterfactual experiments using the estimated model suggest that in many (but far from a majority) markets the current prices of nonstop products are at least 5% lower than they would otherwise be owing to the presence of intermediate-stop(s) products.

August 7, 2015 | Permalink | Comments (0)

Thursday, August 6, 2015

Firm-Specific Information and Explicit Collusion in Experimental Oligopolies

Francisco Gomez-Martin (University of Amsterdam); Sander Onderstal (University of Amsterdam); and Joep Sonnemans (University of Amsterdam) explore Firm-Specific Information and Explicit Collusion in Experimental Oligopolies.

ABSTRACT: We experimentally study the effect of information about competitors’ actions on cartel stability and firms’ incentives to form cartels in Cournot markets. As in previous experiments, markets become very competitive when individualized information is available and participants cannot communicate. In contrast, when communication is possible, results reverse: Markets become less competitive and cartels become more stable when individualized information is available. We also observe that the extra profits that firms obtain thanks to the possibility to communicate are higher when individualized information is present, suggesting that firms have greater incentives to form cartels in that situation.

August 6, 2015 | Permalink | Comments (0)

Competition and Bank Risk Taking in a Differntiated Oligopoly

Kaniska Dam and Martin Basurto (Division of Economics, CIDE) offer Competition and Bank Risk Taking in a Differentiated Oligopoly.

ABSTRACT:  We re-examine the relationship between the degree of deposit market competition and bank risk taking in a model where banks compete in differentiated deposit services. When banks invest their deposits directly, as has already been established in the extant literature, an increased degree of competition, measured either by greater degree of substitutability or by greater number of banks, induces the banks to take more risk in equilibrium. When banks invest their deposits in loans, and their borrowers choose the level of risk, the risk of bank failure is independent of the degree of competition in the deposit market.

August 6, 2015 | Permalink | Comments (0)

Pharmaceutical regulation, mandatory substitution, and generic competition

Laura Birg,University of Gottingen examines Pharmaceutical regulation, mandatory substitution, and generic competition.

ABSTRACT: This paper studies the effect of two regulatory instruments - a price cap and a reference price system - a mandatory substitution rule, and the combination of both on generic competition in a Salop-type model with an off-patent brand-name drug and n differentiated generic versions. The price cap reduces only the brand-name price, the reference price system reduces the brand-name price and generic prices. Both regulatory instruments reduce the generic market share and the number of generic competitors. The mandatory substitution rule decreases the brand-name price, but increases generic prices. It increases the generic market share and the number of generic competitors. Under mandatory substitution, price decreases under both regulatory instruments are lower. Mandatory substitution weakens the negative effect of the price cap on the generic market share and the number of generic competitors, but it amplifies the negative effect of the reference price syste! m on the generic market share and the number of generic competitors.

August 6, 2015 | Permalink | Comments (0)

Upstream incentives to encourage downstream competition in a vertically separated industry

Joel Sandonis, University of Alicante and Javier M. Lopez-Cunat, University of Alicante write on Upstream incentives to encourage downstream competition in a vertically separated industry.

Abstract: We show in this paper that a dominant supplier, under observable two-part tariff contracts and an alternative, less efficient supply of the input, could benefit from more intense competition downstream provided that it has strong enough market power upstream. This implies that the incentives of upstream suppliers to foreclose downstream firms are less important than the previous literature had suggested. In fact, we find that the result also holds under observable linear contracts when we consider free entry in the downstream market.

August 6, 2015 | Permalink | Comments (0)

Wednesday, August 5, 2015

India’s digital revolution

Daniel Sokol, University of Florida (me) and Chirantan Chatterjee, Indian Institute of Management Bangalore have an op-ed on India’s digital revolution - It is up to regulators to ensure that India’s technology sector is poised to secure its place in the world’s top echelon of tech epicentres.

August 5, 2015 | Permalink | Comments (0)

Price setting in online markets: does IT click?

Gorodnichenko, Yuriy (University of California, Berkeley); Sheremirov, Viacheslav (Federal Reserve Bank of Boston) ; Talavera, Oleksandr (University of Sheffield) asks Price setting in online markets: does IT click?

ABSTRACT: Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, this paper explores how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. High-quality data are not only useful to estimate price rigidity and other properties of price adjustment in online commerce but also allow comparing the behavior of those properties with estimates available from brick-and-mortar stores.

August 5, 2015 | Permalink | Comments (0)

Patent Monopolies and the Costs of Mismarketing Drugs

Ravi Katari and Dean Baker describe Patent Monopolies and the Costs of Mismarketing Drugs.

ABSTRACT: Patent monopolies have long been used as a mechanism for financing innovation and research. The logic is that the government awards a monopoly on a product or process for a limited period of time in order to reward innovation. However, in addition to providing incentives for innovation and research, patent monopolies also provide incentives for a wide-range of rent-seeking behaviors, many of which can have major social costs. This paper attempts to calculate one category of these costs for prescription drugs. It produces estimates of the costs associated with mismarketing drugs. The estimates are based on assessments of the costs in the form of increased morbidity and mortality associated with five prominent cases of mismarketing over the last two decades.

August 5, 2015 | Permalink | Comments (0)

Free entry oligopoly, Cournot, Bertrand and relative profit maximization

Atsuhiro Satoh, Faculty of Economics, Doshisha University, and Yasuhito TanakaŽ Faculty of Economics, Doshisha University, examine Free entry oligopoly, Cournot, Bertrand and relative profit maximization.

ABSTRACT: We study a symmetric free entry oligopoly in which firms produce differentiated goods so as to maximize their relative profits. The relative profit of each firm is the difference between its profit and the average of the profits of other firms. We show that whether firms determine their outputs or prices, the equilibrium price when firms maximize their relative profits is lower than the equilibrium price when firms maximize their absolute profits, but the equilibrium number of firms under relative profit maximization is smaller than the equilibrium number of firms under absolute profit maximization. This is because each firm is more aggressive and produces larger output under relative profit maximization than under absolute profit maximization.

August 5, 2015 | Permalink | Comments (0)

How Does Foreign Bank Entry Affect Financial Inclusion in Emerging and Developing Economies?

Sasidaran Gopalan (Institute for Emerging Market Studies, Hong Kong University of Science and Technology) ; Ramikishen S. Rajan (School of Policy, Government and International Affairs (SPGIA), George Mason University) ask How Does Foreign Bank Entry Affect Financial Inclusion in Emerging and Developing Economies?

ABSTRACT: An important dimension of the effects of foreign bank entry on financial sector development relates to that of financial inclusion. Despite its policy significance, the empirical literature offers little evidence on the impact of bank competition generally or foreign bank entry specifically on financial inclusion. This paper examines the relationship between foreign bank entry and financial inclusion for a panel of 57 emerging and developing economies over the period 2004-2009. The empirical findings suggest that foreign banks have a positive impact in furthering financial inclusion, though the relationship turns negative when foreign bank entry is followed by greater banking concentration.

August 5, 2015 | Permalink | Comments (0)

Tuesday, August 4, 2015

Fast-Moving Tech Markets Prove Vibrant Competition in India

Gary Shapiro has a new piece in the Huffington Post on Fast-Moving Tech Markets Prove Vibrant Competition in India.

August 4, 2015 | Permalink | Comments (0)

CALL FOR PROPOSALS: Use of the Searle Database on Technology Standards and Standard Setting Organizations

 
Proposals Due: August 15, 2015
  The Searle Center on Law, Regulation, and Economic Growth is issuing a call for proposals for academic research projects using the Searle Center’s database on Technology Standards and Standard Setting Organizations (SSOs).     The selected research projects in economics, management strategy, and law can make use of original data on the rules and membership of SSOs, published technology standards, and declared standard-essential patents.   In addition, the data base offers in depth coverage of standardization processes at the 3rd Generation Partnership Project (3GPP).   Further information regarding the Searle Center Database and the Innovation Economics Project is here.   Selected applicants will be expected to present their working papers at the Fourth Annual Research Roundtable on Innovation Economics to be held in Spring, 2016 in Chicago, IL.   Applications for use of the database should include the following:
  • Full professional contact information, including title and affiliation of the main researchers
  • Brief bios of the main researchers
  • Short description (approx. 1 page) of your research project including your research question.  Please be sure to detail how you intend to utilize the data and if possible, please identify which parts of the data you would like to use
  • Priority will be given to projects that connect the Searle Center database with other databases. Please indicate what other data you would use in your research project, and whether this data is or can be made available to other researchers.
  Authors will be free to publish their work with appropriate acknowledgement of the Searle Center Database.   SUBMISSION DEADLINE: Proposals should be submitted to searlecenter@law.northwestern.edu no later than August 15, 2015.  Please indicate that these are proposals to use the Searle Center Database.
NOTIFICATION DEADLINE: Research Proposals will be reviewed by a scientific committee. Researchers will be notified of the committee’s decisions on or around September 1, 2015.   The Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law was established in 2006 to research how government regulation and interpretation of laws and regulations by the courts affect business and economic growth. Information on the Searle Center’s activities may be found at: www.law.northwestern.edu/searlecenter

August 4, 2015 | Permalink | Comments (0)

Price Leadership and Unequal Market Sharing: Collusion in Experimental Markets

Peter T. Dijkstra (Groningen University) examines Price Leadership and Unequal Market Sharing: Collusion in Experimental Markets.

ABSTRACT: We consider experimental markets of repeated homogeneous price-setting duopolies. We investigate the effect on collusion of sequential versus simultaneous price setting. We also examine the effect on collusion of changes in the size of each subject's market share in case both subjects set the same price.
Our results show that sequential price setting compared with simultaneous price setting facilitates collusion, if subjects have equal market shares or if the follower has the larger market share.
With sequential price setting, we find more collusion if subjects have equal market shares rather than unequal market shares. We observe more collusion if the follower has the larger market share than if the follower has the smaller market share.

August 4, 2015 | Permalink | Comments (0)

Inconvenient truths on merger retrospective studies

Greg Werden, DOJ argues Inconvenient truths on merger retrospective studies.

ABSTRACT: Inconvenient truths prevent econometric merger retrospective studies from substantially altering our understanding of competitive effects from horizontal mergers. Econometrics cannot definitively determine the effects of particular mergers, and if they could, econometric merger retrospectives could not provide enough evidence to ground merger assessments in data on actual merger effects rather than in economic theory and legal presumptions. If merger retrospectives are to have some prospect of recalibrating merger enforcement, they must be transformed from econometric exercises into case studies examining the details of the relevant agency’s assessment, but inconvenient truths likely prevent much from being learned through even such studies.

August 4, 2015 | Permalink | Comments (0)

Ginsburg and Wright on FRAND in Japan

Some of you might remember the Alphaville song Big in Japan from the 1980s (proving that the band that brought us Forever Young was a two hit wonder, not a one hit wonder).

 

What is big in Japan now? The draft JFTC Guidance on IP.  Judge Doug Ginsburg and FTC Commissioner Josh Wright (among many others) have submitted comments. See the Ginsburg/Wright comments here - Download JFTC Comment_Final

August 4, 2015 | Permalink | Comments (0)

Ginsburg and Wright on FRAND in Japan

Some of you might remember the Alphaville song Big in Japan from the 1980s (proving that the band that brought us Forever Young was a two hit wonder, not a one hit wonder).

 

What is big in Japan now? The draft JFTC Guidance on IP.  Judge Doug Ginsburg and FTC Commissioner Josh Wright (among many others) have submitted comments. See the Ginsburg/Wright comments here - Download JFTC Comment_Final

August 4, 2015 | Permalink | Comments (0)

China’s competition law experience in context

Bill Kovacic explores China’s competition law experience in context.

ABSTRACT: The development of an effective system of competition law typically is difficult and time- consuming. The challenge of building a competition law regime is particularly challenging in China, where the initial conditions conducive to successful implementation were largely lacking when the Antimonopoly Law took effect in 2008. Despite these impediments, China has made extraordinary progress in building the enforcement infrastructure and in applying the law. Continued improvement of China's competition law regime will require a reassessment of the existing distribution of authority across three agencies and consideration of a new framework that consolidates enforcement responsibility in one agency with greater decision making autonomy. Enhancements in resources, personnel, procedures, and judicial oversight also will advance the implementation of China's competition law system.

August 4, 2015 | Permalink | Comments (0)

Merger Remedies in Oligopoly under a Consumer Welfare Standard

Markus Dertwinkel-Kalt, Heinrich-Heine University Dusseldorf and Christian Wey, Heinrich-Heine University Dusseldorf, analyze Merger Remedies in Oligopoly under a Consumer Welfare Standard.

ABSTRACT: We analyze the welfare effects of structural remedies on merger activity in a Cournot oligopoly if the antitrust agency applies a consumer surplus standard. We derive conditions such that otherwise price-increasing mergers become externality-free by the use of remedial divestitures. In this case, the consumer surplus standard ensures that mergers are only implemented if they increase social welfare. If the merging parties can extract the entire surplus from the asset sale, then the socially optimal buyer will be selected under a consumer standard.

August 4, 2015 | Permalink | Comments (0)

Monday, August 3, 2015

COMPETITION LAW AND ENVIRONMENTAL PROTECTION: THE DUTCH AGREEMENT ON COAL-FIRED POWER PLANTS

Erik Kloosterhuis, Authority for Consumers & Markets, the Netherlands and Machiel Mulder, Authority for Consumers & Markets, the Netherlands write on COMPETITION LAW AND ENVIRONMENTAL PROTECTION: THE DUTCH AGREEMENT ON COAL-FIRED POWER PLANTS.

ABSTRACT: Agreements between firms to jointly reduce production capacity generally violate competition law, unless specific conditions are met. These conditions imply that the agreements need to realize benefits for consumers that could not otherwise be realised. Together, we call them “efficiency defence.” Initiated by a societal debate in the Netherlands, we analyze how environmental benefits can be included in this framework. We apply this analysis to a proposed agreement among electricity producers to jointly advance the closure of a number of coal-fired power plants. Using shadow prices as developed in environmental economics, we assess the environmental benefits of this proposed agreement. We conclude that the environmental benefits for the consumers involved are significantly smaller than the loss of consumer welfare resulting from the increase in the electricity price caused by the closure of power plants. Hence, such an agreement would infringe competition law. This case, however, shows that it is feasible to incorporate environmental effects into an efficiency defence of an anticompetitive agreement made for the purpose of sustainability.

August 3, 2015 | Permalink | Comments (0)

Digital Markets: New Rules for Competition Law

Daniel Zimmer, Chairman of the German Monopolies Commission and Professor of Law at the University of Bonn addresses Digital Markets: New Rules for Competition Law.

ABSTRACT: Many people are concerned about the strong market position of certain individual companies of the digital economy. The largest  search engine processes about 90 per cent of all queries from Europe. The largest social network receives 15 times as many  clicks as the second largest. How can this strong market concentration be explained? And, is it cause for concern?

August 3, 2015 | Permalink | Comments (0)