Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, August 26, 2014

Do "Reverse Payment" Settlements of Brand-Generic Patent Disputes in the Pharmaceutical Industry Constitute an Anticompetitive Pay for Delay?

Keith M. Drake, Martha A. Starr, Thomas McGuire ask Do "Reverse Payment" Settlements of Brand-Generic Patent Disputes in the Pharmaceutical Industry Constitute an Anticompetitive Pay for Delay?

ABSTRACT: Brand and generic drug manufacturers frequently settle patent litigation on terms that include a payment to the generic manufacturer along with a specified date at which the generic would enter the market.  The Federal Trade Commission contends that these agreements extend the brand’s market exclusivity and amount to anticompetitive divisions of the market.  The parties involved defend the settlements as normal business agreements that reduce business risk associated with litigation.  The anticompetitive hypothesis implies brand stock prices should rise with announcement of the settlement.  We classify 68 brand-generic settlements from 1993 to the present into those with and without an indication of a “reverse payment” from the brand to the generic, and conduct an event study of the announcement of the patent settlements on the stock price of the brand.  For settlements with an indication of a reverse payment, brand stock prices rise on average 6% at the announcement.  A “control group” of brand-generic settlements without indication of a reverse payment had no significant effect on the brands’ stock prices.  Our results support the hypothesis that settlements with a reverse payment increase the expected profits of the brand manufacturer and are anticompetitive.

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

Monday, August 25, 2014

Hospital Mergers with Regulated Prices

Kurt R. Brekke (Dept. of Economics, Norwegian School of Economics and Business Administration), Luigi Siciliani (University of York) and Odd Rune Straume (University of Minho) explore Hospital Mergers with Regulated Prices.

ABSTRACT: We study the effects of a hospital merger using a spatial competition framework with semialtruistic hospitals that invest in quality and expend cost-containment effort facing regulated prices. We find that the merging hospitals always reduce quality, whereas non-merging hospitals respond by increasing (reducing) quality if qualities are strategic substitutes (complements). A merger leads to higher average treatment cost efficiency and, if qualities are strategic substitutes, might also increase average quality in the market. If a merger leads to hospital closure, the resulting effect on quality is positive (negative) for all hospitals in the market if qualities are strategic substitutes (complements). Whether qualities are strategic substitutes or complements depends on the degree of altruism, the effectiveness of cost-containment effort, and the degree of cost substitutability between quality and treatment volume.

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

Patent litigants, patent quality, and software: lessons from the smartphone wars

Ron Cass (Boston University) offers Patent litigants, patent quality, and software: lessons from the smartphone wars.

ABSTRACT: Commentators, public officials, and scholars have sounded alarms over the smartphone patent wars — hundreds of cases asserting infringement of patents by makers of smartphones and tablet computers—often suggesting broad, categorical “fixes” to problems this litigation reveals. In general, these recommendations sweep too broadly, throwing out good claims as well as bad and needed remedies as well as questionable ones. However, calls for attention along two margins promise improvements. One factor, the identity of the enterprise asserting patent rights, already is being used by courts in considering appropriate patent infringement remedies but its use needs to be refined. The other factor, patent quality—especially in software patents, where the existence of parallel schemes of intellectual property protection exacerbates quality problems—is even more critical to the way the system operates. Addressing the patent quality issue (which is distinct from patent clarity or patent notice) can do more than other reforms to reduce costs without reducing innovation incentives.

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

Bank Competition and Credit Constraints in Developing Countries: New Evidence

Florian LEON (Universite d'Auvergne) explores Bank Competition and Credit Constraints in Developing Countries: New Evidence.

ABSTRACT: Whether competition helps or hinders small firms' access to finance is in itself a much debated question in the economic literature and in policy circles, especially in the developing world. Economic theory offers conflicting predictions and empirical contributions provide mixed results. This paper considers the consequences of interbank competition on credit constraints using firm level data covering 70 developing and emerging countries. In addition to the classical concentration measures, competition is assessed by computing three non-structural measures (Lerner index, Boone indicator, and H-statistics). The results show that bank competition alleviates credit constraints, while bank concentration measures are not robust predictors of a firm's access to finance. Findings highlight that bank competition not only leads to less severe loan approval decisions but also reduces borrowers' discouragement. In addition, a secondary result of this paper documents that banking competition enhances credit availability more by reducing prices than by increasing relationship lending.

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

Bank Competition, Borrower Competition and Interest Rates

Carlos Bellon explains Bank Competition, Borrower Competition and Interest Rates.

ABSTRACT: The effect bank competition has on interest rates should depend on the fact that borrowers compete against each other. The borrowing rate of a firm affects its ability to compete in the industrial marketplace, and ultimately, its ability to repay its loans. Thus, competition amongst borrowers acts as a limit to the amount of rents financial oligopolists can extract. I find evidence that firms that operate within areas of limited bank competition face higher rates than their peers. I also identify an innovative control group that can be used in tests of bank market structure.

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

Friday, August 22, 2014

Measuring competition in banking: A critical review of methods

Florian LEON (Universite d'Auvergne) is Measuring competition in banking: A critical review of methods.

ABSTRACT: Many studies have attempted to investigate the determinants and implications of competition in the banking industry. The literature on the measurement of competition can be divided between the structural and non-structural approaches. The structural approach infers the degree of competition from the structure of the market. The non-structural approach, based on the New Empirical Industrial Organization, assesses the degree of competition directly by observing behavior of firms in the market. This paper reviews the most frequently-used structural and non structural measures of competition in banking. It highlights their strengths and weaknesses, especially for studies based on a limited number of observations.

August 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Market Power in a Power Market with Transmission Constraints

Mette Bjorndal (Dept. of Business and Management Science, Norwegian School of Economics), Victoria Gribkovskaia (Dept. of Business and Management Science, Norwegian School of Economics) and Kurt Jornsten (Dept. of Business and Management Science, Norwegian School of Economics) explore Market Power in a Power Market with Transmission Constraints.

ABSTRACT: In this paper we present a model for analysing the strategic behaviour of a generator and its short run implications on an electricity network with transmission constraints. The problem is formulated as a Stackelberg leader-follower game. The upper level problem is generator’s profit maximisation subject to the solution of the lower level problem of optimal power flow (OPF) solved by system operator. Strategic bidding is modelled as an iterative procedure where the supply functions of the competitive fringe are fixed while the strategic player’s bids are changed in a successive order until the bid giving maximum profit is found. This application rests on the assumption of supply function Nash equilibrium when the supplier believes that changes in his bids will not influence other actors to alter their bid functions. Numerical examples are presented on a simple triangular network.

August 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Progressive entry and the incentives to invest in alternative infrastructures

Marc Bourreau (Telecom ParisTech) and Joeffrey Drouard (Universite de Rennes 1) discuss Progressive entry and the incentives to invest in alternative infrastructures.

ABSTRACT: In this paper we study an entrant's incentives to build a network infrastructure, when there is an initial phase of service-based competition where it leases access to the incumbent's infrastructure. We build a model in which the phase of service-based competition allows the entrant to step into the market by progressively acquiring market experience. We show that the acquisition of experience in the phase of service-based competition delays the entrant's investment when the prospects for infrastructure investment are good, and accelerates investment otherwise. We also show that when the acquisition of experience depends on the entrant's current customer base and facility-based entry is a long-term possibility, setting a low access price can accelerate the entrant's investment.

August 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 21, 2014

Does anti-competitive service sector regulation harm exporters? Evidence from manufacturing firms in Spain

Monica Correa Lopez and Rafael Domenech (both BBVA Research) ask Does anti-competitive service sector regulation harm exporters? Evidence from manufacturing firms in Spain.

ABSTRACT:  In a panel study of firm-level data from Spanish manufacturers, we show that reducing anti-competitive regulation in the provision of upstream services has a positive and sizeable effect on the volume of exports of downstream firms. Our estimates indicate that deregulation is very beneficial for the export performance of large corporations, especially if they are foreign-owned multinationals, while the evidence for SMEs is much weaker. Hence, firm characteristics matter for the connection between regulation and exports. Simulation exercises suggest that large firms increased their volume of exports by an average of 49% as a result of deregulation, such that the industries that benefited the most were typically more dependent on service inputs. The improvements in the regulatory framework of transportation services and energy provision that took place over the 1990s and 2000s in Spain had particularly strong effects on th! e volume of foreign sales.

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

Supermarket Promotions and Food Prices

H. Lan, University of East Anglia, T.A. Lloyd, University of Nottingham and C.W. Morgan, University of Nottingham discuss Supermarket Promotions and Food Prices.

ABSTRACT: Using a sample comprising nearly a quarter of a million weekly prices from the largest seven supermarket chains in the UK, we present statistical evidence on two pricing practices that have attracted public interest. Analysing price dynamics before and after periods of promotional discounting the investigation finds first, no evidence of a general tendency for sales to disguise rises in the regular price, and second, some evidence for prices to rise prior to sales in a manner that is consistent with the exaggeration of the discount. As such, the results parallel the competition authority’s view of supermarkets use of promotions and also point to the useful contribution that retail price microdata might play in keeping prices in check.

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

Competition between firms in developing and developed countries

Koichiro Kimura, Institute of Development Economics investigates Competition between firms in developing and developed countries.

ABSTRACT: We analyze competition in emerging markets between firms in developing and developed countries from the viewpoint of the boundaries of the firm. Although indigenous firms generally face a disadvantage in technology compared with foreign firms, they have an advantage in marketing as local firms. Moreover, they have opportunities to leave weaker fields to independent specialized firms and use lower wages. On the other hand, foreign firms also have their own advantages and disadvantages for growth. Therefore, entry conditions for indigenous firms can vary greatly depending on the situation. We classify these conditions into eight cases by developing a model and showing each boundary choice for indigenous firms.

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

Financial decisions, market competition and firm performance: Empirical evidence for Ibero-American countries

Manuel Sanchez Valadez, Banco de Mexico provides Financial decisions, market competition and firm performance: Empirical evidence for Ibero-American countries.

ABSTRACT:  Economic literature had shown the existence of the interrelationship between the financial decisions of the firms and their competitive decisions; either by convenience or by data availability, most of empiric papers addressed separately the influence of both kinds of decisions over firm performance. With it, this paper through a cross-section model, which uses information of around 3,900 enterprises in 14 Iberoamerican countries, explores jointly the possible effects of both kinds of decisions of the firms (financial and competitive) over their performance. The results suggest the existence of differences in the relationships between variables accordingly the market competition intensity. Also the results suggest that the financial decisions of the firms could be used as an additional tool of the competitive strategy of the firms.

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

Wednesday, August 20, 2014

Competition and Environmental Externalities in the European Market of Municipal Waste

Francesco Silvestri (Dipartimento di Economia e Management, Universita di Ferrara) describes Competition and Environmental Externalities in the European Market of Municipal Waste.

ABSTRACT: The article focuses on the European Union Municipal Waste (MW) industry, exploring the effects of the conjoint implementation of Self Sufficiency Principle and of Proximity Principle (SSP/PP), that force local community to divert MW in the same district where it is generated. Since the number of disposing facilities allowed to operate in a district is regulated by (regional) public planning, forbidding through SSP/PP the opportunity to divert MW outside the district reduces the degree of competition in the whole sector. The rationale for a rule that denies a pillar of EU thinking such as competition policy seems to be to limit the end-of-the-pipe disposal of MW, and to favour the alternative strategy of selected collection and reuse-recycling. Setting an Industrial Organization model and solving it through backward induction, we show that in facts any increased competition in the industry leads to higher environmental externality, but even that the a compensation scheme from gainers to losers would be for effective than SSP/PP. This is true for any consistent value of the relevant variables, apart the case when the marginal external cost is over a specific threshold; in that unique case, the use of SSP/PP as a command and control environmental standard is justified.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

COST PASS-THROUGH IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER

Thore Holm, Christian-Albrechts- Universitat, Carsten Steinhagen, Christian-Albrechts- Universitat and Jens-Peter Loy, Christian-Albrechts- Universitat, Thomas Glauben Leibniz-Insititute IAMO analyze COST PASS-THROUGH IN DIFFERENTIATED PRODUCT MARKETS: A DISAGGREGATED STUDY FOR MILK AND BUTTER.

ABSTRACT: In food retailing a high degree of static price dispersion between and within stores and between brands has been documented, but at the brand and/or retail outlet level the dynamic behaviour of prices, as well as its causes, have not been analysed in the European food market context. In this paper we estimate the dynamic pricing behaviour of brands at various retail outlets to identify the role of private (low-price brands) and national (high-price brands) labels to explain the dispersion of retail price dynamics. The results indicate significant asymmetries in cost pass-through processes, which vary between brands and outlets. In particular, private labels (low-price brands) adjust prices faster than national labels (high-price brands). Moreover, cost pass-through is slightly more (positive) asymmetrical for private labels than for high-price national brands.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Administrative Antitrust

Justin (Gus) Hurwitz, University of Nebraska at Lincoln - College of Law has written on Administrative Antitrust. Worth downloading!

ABSTRACT: Antitrust has long been treated as exceptional by the courts. This article argues that the Supreme Court is moving away from this exceptionalist treatment of antitrust, and is working to bring antitrust within a normalized administrative law jurisprudence. That is, we are moving into an era of Administrative Antitrust, where, to the extent possible, antitrust matters are to be handled in the first instance by administrative agencies.
This transition to administrative antitrust results from three factors in the Supreme Court’s recent jurisprudence: the Court’s growing discomfort with the vicissitudes of economic theory; the Court’s preference for agencies, with Congressionally-delegated policy-making authority, to make policy decisions instead of the courts; and the Court’s growing preference for generalized administrative procedure over field-specific law. 
To make this argument, this article presents a new synthesis of the Court’s recent antitrust and regulatory cases, using them to argue that in the modern administrative state, our traditional approach to antitrust is backwards: where possible, courts should embrace agency jurisdiction over antitrust issues, and exercise the same procedural oversight over substantive agency decisionmaking that characterizes the relationship between agencies and the courts in every other area of regulatory law. In antitrust terms, this can be seen as a strong revitalization of the implied repeal doctrine; in Constitutional terms, this can be seen as based on a separation of powers understanding, one that is driving much of the Court's anti-exceptionalism agenda.
This argument is largely descriptive, describing the developing state of antitrust law under principles of modern administrative law. The normative conclusion is more complex: while the trajectory suggested in this article is sound as a matter of administrative and regulatory law, it paints a potentially troubling picture for the future of sound antitrust law.

 

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Bank Competition and Account Penetration: Evidence from Mexico

Ana Georgina Marin (Banco de Mexico) and Rainer Schwabe (Banco de Mexico) investigate Bank Competition and Account Penetration: Evidence from Mexico.

ABSTRACT: This paper documents a positive relation between bank competition and the penetration of bank accounts at the municipal level in Mexico. To account for potential biases in our regressions due to the endogeneity of market structure, we employ a two-stage estimation approach based on an equilibrium structural model. Our preferred estimate implies that moving from a monopoly to a duopoly will lead to an increase of 1,016 accounts per 10,000 adults, a 42% increase over the cross-municipality mean. This is comparable to the effect of large increases in per capita income and years of schooling, or the establishment of an additional branch by a bank who is already present in the local market. Our results suggest that competition policy should be given a prominent role in the financial inclusion agenda.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Welcome Le Concurrentialiste

There is a new French blog site on economic law, Le Concurrentialiste. Thibault Schrepel writes the monthly antitrust column.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Retail Pricing Patterns and Driving Factors of Price Variation

Chenguang Li, University College Dublin and Richard Volpe, United States Department of Agriculture analyze Retail Pricing Patterns and Driving Factors of Price Variation.

ABSTRACT: This study explores the strategic pricing behaviors across retail chains for produce products. We adopt a Panel-VAR model to identify the driving factors of retail price variation and find that retail price history, competition, product cost are among the key drivers of retail price change. Forecast Error Variance Decomposition (FEVD) is used to quantify the relative impact of driving factors to retail price changes and show how they affect prices differently across retail chains. We also find that higher responsiveness to competition may indicate superior management ability in price setting that associates with better profitability in practice.

August 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2014

New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry

Federico Etro (Department of Economics, University of Venice Ca' Foscari) and Lorenza Rossi (Department of Economics and Management, University of Pavia) discuss New-Keynesian Phillips Curve with Bertrand Competition and Endogenous Entry.

ABSTRACT: We derive a New Keynesian Phillips Curve under Calvo staggered pricing and price competition. Firms strategic interactions induce price adjusters to change their prices less when there are more firms that do not adjust. This reduces the slope of the Phillips curve and generates an additional source of real rigidity that magnifies the impact of monetary shocks on the economic activity. Endogenous entry amplifies the impact of both monetary and real shocks. We study the design of the optimal Taylor rule in the case of a fixed number of firms and we characterize the optimal monetary policy to restore the social planner allocation and the optimal Ramsey steady state in the case of endogenous entry.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)

The Structure and Evolution of Buyer-Supplier Networks

Takayuki Mizuno (National Institute of Informatics, Graduate School of Economics, University of Tokyo, The Canon Institute for Global  Studies), Wataru Souma (College of Science and Technology, Nihon University) and Tsutomu Watanabe (Graduate School of Economics, University of Tokyo, The Canon Institute for Global Studies) study The Structure and Evolution of Buyer-Supplier Networks.

ABSTRACT: In this paper, we investigate the structure and evolution of customer-supplier networks in Japan using a unique dataset that contains information on customer and supplier linkages for more than 500,000 incorporated non-financial firms for the five years from 2008 to 2012. We find, first, that the number of customer links is unequal across firms; the customer link distribution has a power-law tail with an exponent of unity (i.e., it follows Zipf’s law). We interpret this as implying that competition among firms to acquire new customers yields winners with a large number of customers, as well as losers with fewer customers. We also show that the shortest path length for any pair of firms is, on average, 4.3 links. Second, we find that link switching is relatively rare. Our estimates indicate that the survival rate per year for customer links is 92 percent and for supplier links 93 percent. Third and finally, we find that! firm growth rates tend to be more highly correlated the closer two firms are to each other in a customer-supplier network (i.e., the smaller is the shortest path length for the two firms). This suggests that a non-negligible portion of fluctuations in firm growth stems from the propagation of microeconomic shocks – shocks affecting only a particular firm – through customer-supplier chains.

August 19, 2014 | Permalink | Comments (0) | TrackBack (0)