Antitrust & Competition Policy Blog

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

Thursday, January 14, 2016

Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act

WAN, Yunyun and MIYAGIWA, Kaz describe Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act.

ABSTRACT: We present a formal analysis that sheds new light on the Hatch-Waxman Act. Hatch-Waxman restores incentives to develop new drugs by extending the patent life for them, but also promotes generic entry by reducing entry costs and by providing 180-day marketing exclusivity to a first challenger to the patent. Although these two objectives appear incompatible, our model shows that marketing exclusivity, with a significant entry cost reduction, contributes to incentive restoration. It finds however that social welfare is lower with marketing exclusivity. Finally, our analysis suggests that marketing exclusivity not be granted in the case of drugs for rare diseases.

January 14, 2016 | Permalink | Comments (0)

A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design

Andrew Sweeting (Department of Economics, University of Maryland) offers A Model of Non-Stationary Dynamic Price Competition with an Application to Platform Design.

ABSTRACT: I develop a tractable framework for conducting platform design counterfactuals in settings where many sellers compete and set prices dynamically, using approaches developed in the recent literature on Oblivious Equilibria. As an initial application, I use the model to study a simple platform design counterfactual using data from the secondary event ticket market on Stubhub.com where the perishability of the product being sold results in sellers facing a dynamic and non-stationary pricing problem. Currently, most transactions happen at low prices close to the event. Motivated by some simple theoretical examples, I investigate how the dynamics of prices, the timing of transactions, platform revenues and participant surplus would be a affected if a commission structure that encouraged earlier transactions was introduced.

January 14, 2016 | Permalink | Comments (0)

Wednesday, January 13, 2016

Dynamics of Compatibility under Switching Costs

Doh-Shin Jeon (Toulouse School of Economics and CEPR); Domenico Menicucci (Dipartimento di Scienze per l'Economia e l'impresa, Universita degli Studi di Firenze); Nikrooz Nasr (Toulouse School of Economics) explore Dynamics of Compatibility under Switching Costs.

ABSTRACT: We study firms choices of compatibility in a dynamic setting. Current compatibility choice shapes the distribution of consumers switching costs and thereby affects competition and compatibility choice in the future. Given today’s market shares, the dynamics of compatibility is asymmetric in that firms are more likely to embrace compatibility tomorrow if products are compatible today but no such inertia exists for incompatibility. However, this asymmetry disappears when the market shares are endogenous. Contrary to what happens in a static setting, when consumer lock-in arises due to a significant switching cost, firms make their systems incompatible in order to soften future competition, which hurts consumers and tends to reduce welfare.

January 13, 2016 | Permalink | Comments (0)

The ordoliberal concept of "abuse" of a dominant position and its impact on Article 102 TFEU

Peter Behrens explores The ordoliberal concept of "abuse" of a dominant position and its impact on Article 102 TFEU.

ABSTRACT: This paper explores the impact of ordoliberal thinking on the drafting of the prohibition of "abuse" of a dominant position in the market that was included in the competition rules of the Rome Treaty establishing the European Economic Community as well as on its interpretation by the Commission and the Court of Justice of the European Union (CJEU). Firstly, it is shown that the ordoliberal school must not be regarded as a set of ideas frozen in its formative period of 1933 to 1950 or 1957 when the "Freiburg School" was established but rather as an approach that has been dynamically developed and refined over the last 75 years (i.e. over four generations of ordoliberals) up to the present day by integrating important new insights without, however, giving up its core tenets and convictions. Secondly, it is shown on the basis of the preparatory work which lead in the 1950ies to the Rome Treaty that the adoption of the concept of "abuse" for the control of do! minant undertakings was due to the strong influence of the German negotiating team that consisted of (in the meantime second generation) ordoliberals. Thirdly, it is explained how ordoliberal thinking about the "system of undistorted competition" and the protection of "residual competition against exclusionary practices" has influenced the application of the "abuse" concept in the jurisprudence of the Commission and the CJEU from the Continental Can case to the recent Intel case. This approach has come under attack from welfare-economic approaches which emphasize efficiency instead of competition and which have accused the ordoliberal approach of formalism, lack of sufficient economic analysis, preoccupation with fairness, protection of competitors instead of competition, obsession with interventionist regulation etc. This paper demonstrates that all of these characterizations are based on fundamental misunderstandings of what ordoliberal thinking originally meant and what it stands for today.

January 13, 2016 | Permalink | Comments (0)

Retail Sector Transformation in Russia

Komendrovskaya, Irina ; Bobojonov, Ihtiyor ; Glauben, Thomas describe Retail Sector Transformation in Russia.

ABSTRACT:  Russia’s agrifood industry, including processing, wholesale, and retail underwent tremendous changes since the collapse of the Soviet Union. In this transition from the planned to a market economy, supermarkets emerged as important players in Russia, affecting agrifood system via organizational and institutional changes including centralization of procurement from farmers and demanding private standards on product quality and safety.This study examines the penetration of supermarket chains and factors contributing to development of modern retailing in Russia. The panel data at regional level is used in order to investigate the factors influencing on modernization of retail sector in Russia.

January 13, 2016 | Permalink | Comments (0)

HETEROGENEITY IN PRICE CHANGES IN THE GERMAN BUTTER MARKET

Tifaoui, Said and Von Cramon-Taubadel, Stephan show HETEROGENEITY IN PRICE CHANGES IN THE GERMAN BUTTER MARKET.

ABSTRACT: We show how the measurement scale affects the results of the vertical price transmission analysis. We aim to answer the following question: how changes in wholesale prices (i.e. changes in the margin) affect the changes in the retail price of butter in Germany? We find that the average margin of the chains which change more frequently their prices is twofold the standard deviation of average margin in the German butter market, whereas, the chains characterized by less frequency in their price changes have an average margin which is a fold the standard deviation below this average margin.

January 13, 2016 | Permalink | Comments (0)

Tuesday, January 12, 2016

Competition policy as a lever for industrial policy: Some reflections on horizontal cartels prosecution in the post-war France

Claude Didry (IDHE - Institutions et Dynamiques Historiques de l'Economie - CNRS - Universite Paris VIII - Vincennes Saint-Denis - UP10 - Universite Paris 10, Paris Ouest Nanterre La Defense - ENS Cachan - Ecole normale superieure - Cachan - UP1 - Universite Pantheon-Sorbonne); Frederic Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - UNS - Universite Nice Sophia Antipolis) have an interesting paper on Competition policy as a lever for industrial policy: Some reflections on horizontal cartels prosecution in the post-war France.

ABSTRACT:The Establishment of the cartels technical committee in 1953, which prefigured the contemporary French competition authority, seems to participate in the same movement than the German competition law and the Treaty of Rome four years later. However some differences have to be put into relief. First, it didn’t deal with individual abuses of dominance. Second, the collusive practices targeted mainly concerned bid-rigging in public procurement in the reconstruction and modernisation plan. Thus, if this competition policy experience contrasts with war experiences and the interwar period arguments for a regulated competition, it cannot be assimilated with West German one, inspired by the Ordoliberal School. Sanctioning horizontal collusion makes sense within an industrial policy model based on a close co-operation between Government and some national champions. In that sense, the French competition law beginnings may be analysed as a tool for ensuring the implementation of a vertically conceived industrial policy.

January 12, 2016 | Permalink | Comments (0)

The welfare effects of endogenous quality choice in cable television markets

Gregory S. Crawford ; Oleksandr Shcherbakov ; Matthew Shum discuss The welfare effects of endogenous quality choice in cable television markets.

ABSTRACT: We measure the welfare consequences of endogenous quality choice in imperfectly competitive markets. We introduce the concept of a "quality markup" and measure the relative importance for welfare of market power over price versus market power over quality. For U.S. cable-television markets between 1997-2006, we find that prices are 33% to 74% higher and qualities 23% to 55% higher than socially optimal. This "quality inflation" contradicts classic results in the literature and reflects our flexible specification of consumer preferences. Furthermore, we find market power over quality is responsible for 54% of the total welfare change from endogenous prices and qualities.

January 12, 2016 | Permalink | Comments (0)

Heterogeneous consumers and market structure in a monopolistically competitive setting

Osharin Alexander and Verbus Valery examine Heterogeneous consumers and market structure in a monopolistically competitive setting.

ABSTRACT: The present paper extends the traditional Dixit and Stiglitz set-up by introducing consumers’/workers’ heterogeneity into a general equilibrium model of monopolistic competition. The model obtains a closed-form solution for a symmetric equilibrium and shows how the market outcome depends on the joint distribution of consumers’/workers’ taste and labor productivities. In contrast to the traditional framework, our model predicts that the short-run equilibrium price may vary with the number of firms, demonstrating both anti- and pro-competitive behavior, which is in accordance with economic intuition and empirical evidence. Proposed approach is also capable to explain variability of the long-run equilibrium markups, which is observed empirically. Unlike the standard CES model, where markups are constant, in our setting the equilibrium markups depend on the covariance of tastes and productivity.

January 12, 2016 | Permalink | Comments (0)

Stability and Chaos in a Multi-Market Oligopoly with Economies of Scale

Marcelo J. Villena and Axel A. Araneda describe Stability and Chaos in a Multi-Market Oligopoly with Economies of Scale.

ABSTRACT: In an oligopolistic setting under a Cournot scheme, the strategy of each economic player depends on its own quantity decision, but also on its rivals' reaction. Since Puu's seminal work, different oligopoly games have been studied in terms of their stability, as nonlinear discrete time varying systems. Most works in this line of research have concentrated on single markets with linear production structures (i.e. assuming constant returns to scale). Nevertheless, oligopolistic competition seems today to present multi-market phenomena, exhibiting, in some cases, important economies of scale, especially in the retail and service industry. In this paper, we study the stability of a multi-market Cournot-Nash equilibrium with global economies of scale. In other words, we look at the scale level that is related to the total production of firms, in all markets, as opposed to local economies of scale presented at each store individually. The modeling confirms the ! fact that economies and diseconomies of scale make the Cournot equilibrium very unstable for certain values of the scale of the producers. On the other hand, stability is achieved when the firm reaches absolute advantage with respect to its competition.

January 12, 2016 | Permalink | Comments (0)

Monday, January 11, 2016

Price Competition in Product Variety Networks

Ushchev, Philip and Zenou, Yves identify Price Competition in Product Variety Networks.

ABSTRACT: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degree of substituabilities (edges). In this network, we also locate consumers so that the location of each consumer (node) corresponds to her "ideal" variety. We show that there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by firms' weighted Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.

January 11, 2016 | Permalink | Comments (0)

The Passing-On of Price Overcharges in European Competition Damages Actions: A Matter of Causation and an Issue of Policy

Claudio Lombardi, HSE discusses The Passing-On of Price Overcharges in European Competition Damages Actions: A Matter of Causation and an Issue of Policy.

ABSTRACT: This paper analyses the functioning of the passing-on of price overcharges in damages actions for breaches of EU competition law and aims to give a critical appraisal of the present regulatory framework in Europe. In particular, this paper maintains that the European Directive 2014/104, in order to facilitate the claims of damages caused by the infringement of European competition rules and to provide full compensation for those damages, has adopted a complex set of rules placing the burden of proof on the party that has, assumedly, the best access to evidence on the relevant issue. Moreover, it is noted that these rules give a strict definition of the overcharge harm and of its diffusion through the market chain. In this connection, it is argued that the objectives of the Directive are partly compromised by the fact that this restrictive approach fails to take into consideration a number of other subjects who may potentially be damaged by the passing-on of the overcharge harm.

Secondly, this paper maintains that the set of rules laid down by the Directive 2014/104 creates a system of presumptions, which, contrary to its intended purpose, is likely to discourage damages actions. Finally, this paper argues that actions by indirect purchasers based on the passing-on of the overcharge will still need to heavily rely on domestic civil law rules in particular on local principles of causation and evidence.

January 11, 2016 | Permalink | Comments (0)

Bundling of RAND-Committed Patents

Anne Layne-Farrar, Charles River Associates; Northwestern University and Michael A. Salinger, Boston University - Questrom School of Business have an interesting paper on Bundling of RAND-Committed Patents.

ABSTRACT: We extend a simplified version of the Gilbert-Katz [Richard Gilbert and Michael Katz (2006)] (GK) model of patent bundling to incorporate RAND commitments and then use the model to consider whether a patent holder violates a RAND commitment if it ties a license to its RAND-encumbered patents to licenses for patents on which it has not made a RAND commitment. In the GK model, the ability to engage in patent tying makes a patent-owner willing to engage in long term contracting that prevents it from charging “hold-up” royalties. But a RAND commitment accomplishes the same objective; and tying licenses to patents without RAND obligations to RAND-encumbered patents creates a risk of reneging on the RAND commitment. Mixed bundling, where the licensor offers licensees the option of taking a license to RAND-committed patents only or taking a license to the full portfolio honors the patent-holder’s RAND commitment provided that the royalty for the RAND-encumbered patents is RAND (regardless of the royalty for the larger portfolio of patent rights). (Pure) patent bundling/tying is, however, a common practice that often has sound efficiency justifications. A patent-holder can engage in pure bundling/tying of licenses to RAND-encumbered and non-RAND encumbered patents and still honor its RAND commitments provided that it charges a royalty that would be RAND for the RAND-encumbered patents alone. The patent owner cannot deduct the value of non-RAND committed patents from the license fee for the bundle and argue that it has honored its RAND commitment as long as the difference is RAND for the RAND-committed patents.

 

 

January 11, 2016 | Permalink | Comments (0)

Monopsony and Competition: The Impact of Rival Leagues on Player Salaries During the Early Days of Baseball

John Charles Bradbury, Kennesaw State University describes Monopsony and Competition: The Impact of Rival Leagues on Player Salaries During the Early Days of Baseball.

ABSTRACT: During the early days of professional baseball, the dominant major leagues imposed a “reserve clause” designed to limit player wages by restricting competition for labor. Entry into the market by rival leagues challenged the incumbent monopsony cartel’s ability to restrict compensation. Using a sample of player salaries from the first 40 years of the reserve clause (1880-1919), this study examines the impact of inter-league competition on player wages. Positive salary effects are observed during the twentieth century, but not during the nineteenth century. Structural differences in the competitive environments may explain differences in the effects between the two eras.

January 11, 2016 | Permalink | Comments (0)

Saturday, January 9, 2016

US senator accuses Europe of using antitrust cases to disguise tech interests

Friday, January 8, 2016

Assessment of Antitrust Agencies' Impact and Performance: A Proposal for an Analytical Framework

Juan Delgado, Global Economics Group, Hector Otero, Global Economics Group, LLC, and Eduardo Perez, Bank of Spain are offering Assessment of Antitrust Agencies' Impact and Performance: A Proposal for an Analytical Framework.

ABSTRACT: The assessment of antitrust agencies' impact and performance serves three goals: first, to assess how well competition agencies have done their job; second, to help to correct their future strategy and to improve the allocation of limited resources and, finally, to respond to the need for accountability of public agencies. In this paper, we propose a methodology to evaluate the impact of the interventions of antitrust agencies (e.g. infringement decisions, merger control decisions, advocacy work, etc.). The methodology proposed combines comprehensiveness (including all activities by agencies) and simplicity (through a number of synthetic indicators). The methodology classifies interventions according to their nature and impact measurability and proposes activity, relevance and impact indicators to assess agencies' performance.

January 8, 2016 | Permalink | Comments (0)

Monopsony Exploitation in Professional Sport: Evidence from Major League Baseball Position Players, 2000-2011

Brad R. Humphreys, West Virginia University - Department of Economics and Hyunwoong Pyun, West Virginia University - Department of Economics describe Monopsony Exploitation in Professional Sport: Evidence from Major League Baseball Position Players, 2000-2011.

ABSTRACT: Some professional athletes still face monoposony power in labor markets, underscoring the importance of estimating players' marginal revenue product (MRP) to assess its effects. We introduce two new empirical approaches, spline revenue functions and fixed-effects stochastic production functions, into the standard Scully (1974) approach to MRP estimation, and calculate Monoposony Exploitation Ratios (MERs) for position players in Major League Baseball over the 2001-2011 seasons. Estimates indicate that MERs are about 0.89 for rookie players, 0.75 for arbitration eligible players, and 0.21 for free agents. Recent collective bargaining agreements have reduced MERs for free agents, but had no effect on MERs for other players.

January 8, 2016 | Permalink | Comments (0)

The Dynamics of Leniency Application and Cartel Enforcement Spillovers

Eric Van Damme, TILEC and CentER, Tilburg University and Jun Zhou, Zhejiang Wanli University; Tilburg Law and Economics Center (TILEC); Bruegel examine The Dynamics of Leniency Application and Cartel Enforcement Spillovers.

ABSTRACT: We study the timing of leniency applications using a novel application of multi-spell discrete-time survival analysis for a sample of cartels prosecuted by the European Commission (EC) between 1996 and 2014. The start of an EC investigation does not affect the rate by which conspirators apply for leniency in the market investigated but increases the rate of application in separate markets in which a conspirator in the investigated market also engaged in collusion. The introduction of the EC’s 2002 Leniency increases the rate of pre-investigation applications. Our results shed light on enforcement efforts against cartels and other forms of conspiracy.

January 8, 2016 | Permalink | Comments (0)

Thursday, January 7, 2016

Challenging Anti-competitive Governmental Decisions Under the Egyptian Competition Regime

Mohamed Elfar, Queen Mary - University of London and Mahmoud A. Momtaz, The Egyptian Competition Authority (ECA) are Challenging Anti-competitive Governmental Decisions Under the Egyptian Competition Regime.

ABSTRACT: It has been noted that market players at some points are able to influence governmental bodies to issue administrative decisions in their favour. This Article is intended to address this concern. As will be shown, the ECA tried to overcome this challenge by various methodologies. Nonetheless, the hurdle remained. This article explores an alternative route to address those anticompetitive administrative decisions by revoking them directly before administrative courts.

January 7, 2016 | Permalink | Comments (0)

The Tests of Illegality Under Articles 101 and 102 TFEU

Pinar Akman, University of Leeds analyzes The Tests of Illegality Under Articles 101 and 102 TFEU.

ABSTRACT: This article aims to assess one of the many contributions of ECONOMICS AND THE INTERPRETATION AND APPLICATION OF U.S. AND E.U. ANTITRUST LAW by Richard Markovits to our understanding of US and EU antitrust laws. That specific contribution is the tests of illegality adopted in Markovits’ study to interpret Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). This article also examines the claim that none of these tests is an economic-inefficiency test of illegality. In order to achieve its aim, the article first comments on the “specific-anticompetitive-intent test” that is proposed to be the test of illegality under the object branch of the prohibition of Article 101 and under the abuse prohibition of Article 102 TFEU, before moving onto separate discussions of the tests of illegality in the specific contexts of Article 101 TFEU and subsequently of Article 102 TFEU. The article finds that there is still considerable ambiguity concerning some of the most fundamental concepts of antitrust law such as “competition on the merits” at least in the EU but perhaps also in the US. The article reaches the conclusion that there is significant scope for discussion and disagreement on what makes a conduct anticompetitive, irrespective of whether such conduct is of the type prohibited under Article 101 TFEU or of the type prohibited under Article 102 TFEU.

January 7, 2016 | Permalink | Comments (0)