Monday, September 29, 2014
Iacopo Grassi, Universita Federico II analyzes Cartel Sustainability and Piracy in a Vertically Differentiated Oligopoly.
ABSTRACT: In recent years economic literature has deeply analyzed piracy and copyright violation. Nevertheless most of the contributions focus on the study of digital markets and monopoly. In this paper we concentrate on the effect the entry of a pirate may have in a vertically differentiated duopoly where originally two firms compete producing a high quality and a low quality good. We show that, under general conditions payoffs of firms might increase with piracy, since piracy may support collusion between the two firms producing the original goods and the collusive profits of the firms in presence of piracy may be bigger than the profits of Nash without piracy. This result may explain the reason why in some markets, like the fashion market, where the producers of the original brands basically control the supply chain of the sector, piracy and production of high quality fakes is huge.
Friday, September 26, 2014
James J. Anton, Duke University, Gary Biglaiser, University of North Carolina, and Nikolaos Vettas, Athens University of Economics and Business - Department of Economics; University of Athens - Faculty of Economics; Centre for Economic Policy Research, analyze Dynamic Price Competition with Capacity Constraints and a Strategic Buyer.
ABSTRACT: We analyze a simple dynamic durable good model. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition, making it possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller.
Why we need a European energy union: EU consumers would benefit directly as more competitive markets lead to lower prices
Marek Martyniszyn, U Belfast, has an op-ed in today's Irish Times on Why we need a European energy union: EU consumers would benefit directly as more competitive markets lead to lower prices.
Gianpaolo Parise, Swiss Finance Institute discusses Competition and Financial Structure: Evidence from Airlines.
ABSTRACT: Using a large dataset of flight routes, I study the effect of route competition on financial variables in the airline industry. I find that growing route competition pushes airlines to accumulate cash reserves, affects the maturity structure of their liabilities and reduces their propensity to lease airplanes. Cash hoarding policies are driven by small and financially constrained airlines. Conversely, competition affects the debt maturity structure of large and financially unconstrained air carriers. To establish causality, I exploit two quasi-natural experiments: the industry deregulation during Carter's administration and the introduction of high-speed trains in the north-east corridor. Overall, my results suggest that the main response to competition in the airline industry is the lengthening of the maturity of the debt. However, the increasing number of airlines that cannot borrow long-term drove up average cash holdings in the industry.
Oz Shy, Federal Reserve Banks - Federal Reserve Bank of Boston, Rune Stenbacka, Hanken School of Economics, and Vladimir Yankov, Federal Reserve Board discuss Limited Deposit Insurance Coverage and Bank Competition.
ABSTRACT: Deposit insurance schemes in many countries place a limit on the coverage of deposits in each bank. However, no limits are placed on the number of accounts held with different banks. Therefore, under limited deposit insurance, some consumers open accounts with different banks to achieve higher or full deposit insurance coverage. We compare three regimes of deposit insurance: No deposit insurance, unlimited deposit insurance, and limited deposit insurance. We show that limited deposit insurance weakens competition among banks and reduces total welfare relative to no or unlimited deposit insurance.
Thursday, September 25, 2014
Alexei Alexandrov, Consumer Financial Protection Bureau and Daniel F. Spulber, Northwestern University - Kellogg School of Management make Sufficient Decisions in Multi-Sided and Multi-Product Markets.
ABSTRACT: We show that in many applied economic models, it is possible to reduce the dimensionality of the space of actions to what we call "sufficient decisions." We find that for monopoly and oligopoly in multi-sided markets and multi-product markets, the market equilibrium can be transformed into an isomorphic market equilibrium in which each firm makes a single decision. Because profit maximization connects a firm's decisions to each other, it is often possible to introduce a constraint linking the firm’s decisions. For example, the bid-ask spread is a sufficient decision for a monopolist in a two-sided market. We provide a general regularity condition for that constraint that determines whether or not the model can be reduced to one in which each firm makes a sufficient decision. This is useful for addressing public policy questions using standard intuition and comparative statics developed for one-dimensional economic models.
Ancillary Copyright for News Publishers: Would Google Really Have to Pay? – A Competition Law Analysis
Christian Kersting, Heinrich Heine University Dusseldorf - Faculty of Law and Sebastian Dworschak, Heinrich-Heine University Dusseldorf - Faculty of Law ask Ancillary Copyright for News Publishers: Would Google Really Have to Pay? – A Competition Law Analysis.
ABSTRACT: At the time the first paper was published, the ancillary copyright for news publishers had not yet been adopted by the German legislator. However, the conclusions drawn in both papers are still valid. The introduction of an ancillary copyright for news publishers was intended to allow news publishers to prohibit search engines to display snippets of their content, which until then did not enjoy copyright protection. Even though the ancillary copyright for news publishers was adopted in 2013, it is uncertain whether the snippets displayed by search engines enjoy copyright protection. A well-founded opinion argues that snippets still do not enjoy copyright protection. If, however, snippets enjoyed copyright protection, search engines would need to either stop displaying such snippets or license them from the publishers. Using Google as an example, this article discusses the plausibility of a potential competition law obligation to index publishers' content and pay publishers if snippets appear on a search results page. We conclude this is not the case: Google can avoid paying for snippets by refraining from indexing and displaying this content.
Katri Havu, University of Helsinki describes Fault in EU Law Based Competition Restriction Damages Cases.
ABSTRACT: This article discusses fault as a (possible) condition for awarding damages in the context of claims for compensation relating to infringing EU competition law. Private damages cases are heard by the national courts, which must find the relevant legal norms amongst a floating mass of EU law and national law. It is submitted that current EU law, that is, mainly case-law, does not in principle prevent applying national law that sets a requirement of fault or of proving fault – intention or negligence – by the infringer. What the detailed content of the applicable combination of EU law and national law is and what constitutes relevant EU law that should be taken into account by the national courts are, however, more intricate questions.
Wednesday, September 24, 2014
Michelle P. Connolly, Duke University - Department of Economics and James E. Prieger, Pepperdine University - School of Public Policy offer A Basic Analysis of Entry and Exit in the US Broadband Market, 2005-2008.
ABSTRACT: We conduct a basic analysis of entry and exit in the US broadband market, using a complete FCC census of providers from 2005 to 2008. There is a tremendous amount of (simultaneous) entry and exit in the US broadband market. Most entry is from existing providers expanding into new geographic areas. Entry and exit vary widely across the various modes of provision, which argues against treating broadband as a homogenous service in theoretical or empirical work. The highest entry rates also generally have the highest entrant shares. Entry rates display positive autocorrelation, and the same is true for exit. There is also positive correlation between the entry and exit rates at various leads and lags, suggesting that there are systematic differences among the broadband types in the height of entry and exit barriers. We discuss some implications these results may have for both policy purposes and future work in the broadband market.
Jose Luis Moraga Gonzalez, VU University Amsterdam - Faculty of Economics and Business Administration, Zsolt Sandor, University of Groningen, and Matthijs R. Wildenbeest, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy have written on Prices, Product Differentiation, and Heterogeneous Search Costs.
ABSTRACT: We study price formation in the standard model of consumer search for differentiated products but allow for search cost heterogeneity. In doing so, we dispense with the usual assumption that all consumers search at least once in equilibrium. This allows us to analyze the manner in which prices affect the decision to search rather than to not search at all, which is an important but often neglected aspect of the price mechanism. Recognizing the role the equilibrium price plays in consumers’ participation decisions turns out to be critical for understanding how search costs affect market power. This is because the two margins that determine prices - the intensive search margin, or search intensity, and the extensive search margin, or search participation - may be affected in opposing directions by a change in search costs. When search costs go up, fewer consumers decide to search, which modifies the search composition of demand such that demand can become more elastic. At the same time, the consumers who choose to search reduce their search intensity, which makes demand less elastic. Whether the effect on the extensive or the intensive search margin dominates depends on the range and shape of the search cost density. We identify conditions for higher search costs to result in higher, constant, or lower prices. Similar results are obtained when the marginal gains from search vary across consumers.
Vasiliki Brisimi, Koutalidis Law Firm discusses The Interface between Competition and the Internal Market. Market Separation under Article 102 TFEU.
BOOK ABSTRACT: This book explores the interface between competition law and market integration in the application of Article 102 of the Treaty on the Functioning of the European Union (TFEU), focusing on the notion of ?market separation??namely conduct that may hinder cross-border trade. The discussion reviews, among other things, the treatment of geographic price discrimination and exclusionary abuse, by which out-of-state competitors are affected. ?Market separation? cases are treated in the book as a case study for appraising the interface between competition and the Internal Market. On this basis, the book provides a comparative analysis of the Treaty requirements under Article 102 TFEU when applied in ?market separation? cases and the Treaty requirements under the free movement provisions. In addition, it utilises ?market separation? cases as a springboard for advancing an informed reformulation of the application of Article 102 TFEU when state action comes into play. All in all, the analysis presented in the book deconstructs the elements for establishing ?market separation? as an abuse of the dominant position. It shows that there is nothing that would justify a distinctive treatment of ?market separation? under Article 102 TFEU, other than a principled understanding of Internal Market law as a whole: whatever understanding one reaches about the proper shape of the Internal Market, interrogation of the proper application of competition law comes after that and thus should be informed by this understanding.
Suzanne Rab, Serle Court Chambers and Alison Sprague, Competition Economists Group have a new book on Media Ownership and Control, Law, Economics and Policy in an Indian and International Context.
BOOK ABSTRACT: Competition and diversity in media and communications are fundamental to a healthy economy and democracy. In India and internationally there is no consensus on the exact manner and scope of interventions that are appropriate to protect competition and pluralism in media markets. Many emerging economies including India are seeking to adopt their own regulation in this area taking their lead from the UK. The issues have been brought into sharp focus in India in recent years. First, the enactment and implementation of modern - but sector neutral - competition law under the Competition Act 2002 has caused a step change in regulation towards an economics and effects-based approach. Second, in 2013 the India telecoms regulator launched controversial reform proposals to apply a media-specific approach to ownership regulation. As academics, lawyers, businesses, regulators and policy-makers in India cast a glance at the international experience, this book examines the legal, economic and policy issues relating to regulation of ownership and control of media markets. The focus of comparative assessment is on examples from the European Union, EU Member States and the US.
Tuesday, September 23, 2014
Stephen P. King, Monash University - Department of Economics; Centre for International Finance and Regulation (CIFR); Economic Regulation Authority of Western Australia (ERA) and Rodney Maddock, Monash University - Faculty of Business and Economics; Centre for International Finance and Regulation (CIFR); Victoria University analyze Regulation, Competition and Banking Markets.
ABSTRACT: Banks use a mix of wholesale and deposit funds to finance lending. If a country is a net importer of wholesale funds, then a financial crisis in a foreign country can 'infect' the banking system by raising the cost of wholesale funds. Indeed, countries such as Australia imported a crisis through the wholesale funding market in the recent global financial crisis. We present a model to show how a rise in the costs of wholesale funding can trigger a crisis in an otherwise healthy banking sector. We also consider a range of government policies, such as 'bailouts', minimum equity requirements, entry restrictions and limits on wholesale funding, that may be deployed to prevent such a crisis. In particular, we focus on the implications of such policies for the structure and level of competition in banking and the rates paid by borrowers and received by depositors, in 'normal times'. We show that some policies, such as minimum equity requirements, can stabilise the banking sector, while ad hoc policies, such as debt guarantees or bailouts, destabilise the banking sector. Other policies, such as licensing, can limit competition but have ambiguous implications for bank stability.
Marc Winerman discusses International Issues in the FTC's First Decade (1915-1925) — And Before.
ABSTRACT: The Federal Trade Commission’s Office of International Affairs was created in 2007, and its component parts and functions had roots that extend back as far as the 1980s. But the Commission’s international work extends back much further. International concerns played a role, albeit indirectly, in the FTC’s origin. Then, once the Commission opened its doors, it quickly undertook international functions and, in its first decade, even had two separate international divisions. Further, some (though far from all) of the agency’s early international work has strong similarities to the work of today’s Office of International Affairs.
Ramiro Losada, Comision Nacional del Mercado de Valores is Measuring Market Power in the Spanish Mutual Funds Industry for Retail Investors.
ABSTRACT: The mutual fund industry is characterized by high concentration and a high number of offered funds. During last year, the Spanish management companies have reported for the whole market a margin, measured by the Lerner index, of between 25 and 28 per cent. By using an econometric structural model of competition among management companies, it is shown how mutual fund elasticities are low in the retail market. This result casts doubts about the effectiveness of the fee-caps at work. Moreover, a simple model of monopolistic competition pricing is assumed, what it provides estimations of their actual margins above 40 per cent in that market. In order to address this lack of competition, some regulatory measures are proposed.
Corinna Hentschker, Rhine-Westphalia Institute for Economic Research (RWI-Essen), Andreas Schmid, University of Bayreuth, and Roman Mennicken, Landschaftsverband Rheinland; Rhine-Westphalia Institute for Economic Research (RWI-Essen) are Defining Hospital Markets – An Application to the German Hospital Sector.
ABSTRACT: The correct definition of the product market and of the geographic market is a prerequisite for assessing market structures in antitrust cases. For hospital markets, both dimensions are controversially discussed in the literature. Using data for the German hospital market we aim at elaborating the need for differentiating the product market and at investigating the effects of different thresholds for the delineation of the geographic market based on patient flows. Thereby we contribute to the scarce empirical evidence on the structure of the German hospital market. We find that the German hospital sector is highly concentrated, confirming the results of a singular prior study. Furthermore, using a very general product market definition such as “acute in-patient care” averages out severe discrepancies that become visible when concentration is considered on the level of individual diagnoses. In contrast, varying thresholds for the definition of the geographic market has only impact on the level of concentration, while the correlation remains high. Our results underline the need for more empirical research concerning the definition of the product market for hospital services.
Monday, September 22, 2014
Competition Law Review - Volume 10 Issue 1
Editorial - ‘Competition law and the Courts’ in view of the Interface between Law and Economics
One of the criticisms against the new rules applicable to the granting of State aid to finance the provision of services of general economic interest (SGEI) in the ‘Almunia package’ is that enforcement is likely to be their weakest point. Similarly, in the more general setting of the ‘private’ enforcement of State aid rules, the 2006 Study on the Enforcement of State Aid Law at National Level recommended that the European Commission create a common minimum standard of remedies applicable in all EU jurisdictions, stressing that ‘one possible means of creating such a standard would be to adopt a remedies directive for State aid cases, which could be modelled on the remedies directive for procurement cases’. Building upon these considerations, the extent to which the existing remedies within the system for the enforcement of EU public procurement rules provide an effective platform to enforce EU State aid rules, particularly those for the financing of SGEI, before public procurement review bodies and courts is assessed. The paper describes the main groups of cases where public procurement litigation ‘phagocytises’ State aid considerations. It then proceeds to explore the viability, from an EU law perspective, of configuring public procurement review bodies and courts as ‘State aid courts’ for the purposes of the simultaneous enforcement of both sets of rules in a single setting of ‘private’ litigation. It also submits that using the public procurement system in this way provides effective remedies for the enforcement of the Almunia Package for the financing of SGEI, and adds consistency in terms of harmonisation of the material rules to be applied.
EU competition law decisions and enforcement structures at both the supranational and national levels have increasingly been subject to intensified judicial scrutiny by the Court of Justice of the European Union. As a result, different and comprehensive supranational judicial review standards, both guiding and structuring EU competition law, have simultaneously emerged across several enforcement levels. This paper identifies those different standards and relates their simultaneous emergence to modernisation debates in, and the developing more economic approach towards, EU competition law enforcement. In particular, the paper argues that differentiated comprehensive standards better allow the Court to construct the legal boundaries within which economic arguments can effectively be translated into justiciable claims as a matter of EU competition law.
The recovery remedy as administered by the European Commission in case of incompatible but already granted state aid is currently understood and substantiated in a way that allows Member States to fulfill its recovery obligations by merely asking a refund of the state aid amount plus interest from the aid beneficiary. However, it is argued that “recovery” in this current one-dimensional interpretation and substantiation falls short in contributing to the achievement of the economic outcome pursued by EU state aid law. It is argued that “recovery” should be perceived as a multi-dimensional remedy, leaving room to tailor this remedy in view of the situation in order to achieve the economic outcome pursued by EU state aid law, which is efficiency and welfare.
The problems of defining the limits to the application of national procedural rules and the alternate emergence of public and private enforcement of EU competition law lie at the root of the strand of case law of the Court of Justice of the EU regarding antitrust damages actions. While this case-law seems to encourage private claimants and to call national judges to take on new and delicate responsibilities, the new package presented by the Commission, which should be aimed at strengthening private enforcement, is based on a rather conservative approach, privileging the role of public enforcers. It has to be admitted that in a number of cases the latter are in a better position to detect and deal with competition law infringements; moreover, the evolution of the case-law of the Court of Justice, in line with the basics of the EU legal system, paves the way for a step-by-step approach to a greater role for public enforcement, including collective litigation (thus only partially and gradually imitating the US model). Integrating public and private enforcement seems the best way forward and hopefully the draft Directive on antitrust damages actions will be amended in the course of the legislative process with a view to favouring such an integration.
Case Comment – Case C-557/12 Kone AG and Others v ÖBB Infrastruktur AG
S Vande Walle, Private Antitrust Litigation in the European Union and Japan (Maklu, 2013); D McFaden, The Private Enforcement of Competition Law in Ireland (Hart Publishing, 2013); and, D Ashton & D Henry, Competition Damages Actions in the EU (Edward Elgar, 2013)
Martin C. Byford, RMIT University - School of Economics, Finance and Marketing and Joshua S. Gans, University of Toronto - Rotman School of Management; NBER have a wonderful paper on Exit Deterrence. Recommended!
ABSTRACT: This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the unilateral accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits.
Cung Truong Hoang, Centre for European Economic Research (ZEW), Kai Huschelrath, Centre for European Economic Research (ZEW), Ulrich Laitenberger, Centre for European Economic Research (ZEW) - Competition and Regulation Research Group; KU Leuven - Department of Managerial Economics, Strategy, and Innovation, and Florian Smuda, Centre for European Economic Research (ZEW) have an interesting paper on Determinants of Self-Reporting Under the European Corporate Leniency Program.
ABSTRACT: We empirically investigate the determinants of self-reporting under the European corporate leniency program. Applying a data set consisting of 442 firm groups that participated in 76 cartels decided by the European Commission between 2000 and 2011, we find that the probability of a firm becoming the chief witness increases with its character as repeat offender, the size of the expected basic fine, the number of countries active in one group as well as the size of the firm’s share in the cartelized market. Our results have important implications for an effective prosecution of anti-cartel law infringers.