Antitrust & Competition Policy Blog

Cheap talk, monitoring and collusion

Cheap talk, monitoring and collusion

By:	David Spector (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
Abstract:	Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.
URL:	http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01983037&r=com

Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth

Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth

By:	Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University)
Abstract:	This article considers the effect of a discrete entry barrier (i.e. an integer number of firms) in an endogenous growth model to draw conclusions about the relationship between contestability, innovation and growth. Sector-specific workers provide a tool for calibrating numerical examples. Sectors with lower entrepreneurial contestability have lower innovation and sectors characterized by Cournot oligopoly have lower innovation than sectors characterized by Bertrand. Wage inequality varies depending on the extent that the entry barrier is binding upon a marginal entrant. The model offers policy implications to support entrepreneurial entry, particularly in relatively small or isolated regional economies.
URL:	http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1804&r=com

Organizing Competition for the Market

Organizing Competition for the Market

By:	Iossa, Elisabetta; Rey, Patrick; Waterson, Michael
Abstract:	The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefi t from a cost advantage. The paper fi rst compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other fi rms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.
URL:	http://d.repec.org/n?u=RePEc:tse:wpaper:33261&r=com

Horizontal product differentiation with limited attentive consumers

Horizontal product differentiation with limited attentive consumers

By:	Saur, Marc P.; Schlatterer, Markus G.; Schmitt, Stefanie Yvonne
Abstract:	We analyze the effects of consumers' limited attention on welfare in a model of horizontal product differentiation. We present a novel approach of modeling limited attention: an attention radius. Each consumer only notices goods that are within her attention radius, i.e., goods that are sufficiently similar to her preferred version of the good. Limited attention induces firms to differentiate their products in a way that is beneficial to consumers. In addition, prices may be lower under limited than under full attention. Consumer surplus and welfare are not maximized under full attention but increase for some degree of limited attention.
URL:	http://d.repec.org/n?u=RePEc:zbw:bamber:143&r=com

Assessment of Collusion Damages in First Price Auctions

M. Florencia Gabrielli, Conicet - UNCuyo and Manuel Willington, Escuela de Gobierno - Universidad Adolfo Ibáñez offer an Assessment of Collusion Damages in First Price Auctions.

ABSTRACT: In this paper we propose a structural method for estimating the efficiency and revenue losses associated with bidding rings in symmetric and asymmetric first-price auctions. It is based on the auction estimation literature (Guerre, Perrigne, and Vuong [2000]) and is consistent with damage assessment methodologies used in antitrust cases, in the sense that we build a but-for (competitive) scenario and then estimate the differences between the but-for scenario and the factual one. We show in a Monte Carlo exercise that our methodology performs very well in moderate size samples. We apply our methodology to California highway procurement data after first identifying a potential set of colluders using standard tests in the literature.

Compliance Programs and Abuse of Dominance Under Brazilian Competition Law: A Roadmap for Compliance Monitor

Victor Oliveira Fernandes University of São Paulo (USP) explores Compliance Programs and Abuse of Dominance Under Brazilian Competition Law: A Roadmap for Compliance Monitor.

ABSTRACT: The Brazilian antitrust authority (Portuguese acronym CADE) has been following a worldwide trend in encouraging the adoption of competition law compliance programs. Nevertheless, one can see an apparent policy gap in the current optimal incentives for compliance program adoption in antitrust enforcement. While programs aimed to detect cartels are being increasingly rewarded with reductions in fines for antitrust infringements imposed by the competition authority, there is still little guidance on how compliance programs should be structured to detect prior and avoid abuse of dominance practices. As CADE’s approach to monopolization practices has relied on a variety of presumptions of lawfulness, this article explores three main elements that should be incorporated into an effective antitrust compliance program aimed to prevent monopolization: (i) a conservative assessment of market power; (ii) a strict and proportional standard for measuring efficiency justifications and (iii) a viable mechanism for submitting consultations to CADE’s Tribunal. From the perspective of both the business community and enforcers, competition law compliance programs should be viewed as a catalyst for improving antitrust enforcement against abuse of dominance practices.

Search and Equilibrium Prices: Theory and Evidence from Retail Diesel

Luis M. B. Cabral, New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR), Dominik Schober, ZEW – Leibniz Centre for European Economic Research, and Oliver Woll, ZEW – Leibniz Centre for European Economic Research - Competition and Regulation Research Group identify Search and Equilibrium Prices: Theory and Evidence from Retail Diesel.

ABSTRACT: We examine the relation between consumer search and equilibrium prices when collusion is endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a €.025/liter price variation due to the variation in the measure of searchers.

ALGORITHMS, MACHINE LEARNING, AND COLLUSION

Ulrich Schwalbe discusses ALGORITHMS, MACHINE LEARNING, AND COLLUSION.

ABSTRACT: This paper discusses whether self-learning price-setting algorithms can coordinate their pricing behavior to achieve a collusive outcome that maximizes the joint profits of the firms using them. Although legal scholars have generally assumed that algorithmic collusion is not only possible but also exceptionally easy, computer scientists examining cooperation between algorithms as well as economists investigating collusion in experimental oligopolies have countered that coordinated, tacitly collusive behavior is not as rapid, easy, or even inevitable as often suggested. Research in experimental economics has shown that the exchange of information is vital to collusion when more than two firms operate within a given market. Communication between algorithms is also a topic in research on artificial intelligence, in which some scholars have recently indicated that algorithms can learn to communicate, albeit in somewhat limited ways. Taken together, algorithmic collusion currently seems far more difficult to achieve than legal scholars have often assumed and is thus not a particularly relevant competitive concern at present. Moreover, there are several legal problems associated with algorithmic collusion, including questions of liability, of auditing and monitoring algorithms, and of enforcing competition law.

 

The Competition Law Scholars Forum WorkshopCo-organized by the School of Law, University College Cork Thursday 5th September 2019

The Courts and Competition Law

The Competition Law Scholars Forum Workshop
Co-organized by the School of Law, University College Cork
Thursday 5th September 2019
Moot Court Room, School of Law, Aras na Laoi, UCC, Cork
Mandatory prior registration by 2nd September 2019 at Declan.Walsh@ucc.ie
PROGRAMME
09:30 – 09.50: Registration and coffee
09.50: Introduction: Barry Rodger (CLaSF), Mark Poustie (Dean of Law, UCC)
10.00-10.45 Keynote Speaker – tbc
Coffee 10.45-11

11-12 The EU Context and Private Enforcement, chair: tbc
Charlotte Leskinen, Striking a Balance between Public and Private Enforcement – the Impact of the Case Law of the Court of Justice, IE University
Alexandru Gabriel Soptica-Vid, CJEU case law developments and current issues in allocating jurisdiction in cross-border EU competition law damages actions, UCD

12.00.-13:30 National Experiences, chair: tbc
Barry Rodger, Competition Law Private Enforcement: driven by EU institutions, Principles and Instruments or National Mechanisms? An analysis of aspects of Key Themes in Recent UK Case-law; University of Strathclyde
Rita Griguolaite, Is there any room left for purely domestic situations? The analysis of EU competition law application by Lithuanian Supreme Administrative Court in antitrust cases where no Art 101/102 TFEU infringement found, Motieka, Vilnius
Paul Gorecki, The Courts & Competition Law: The Irish Experience, Trinity College Dublin

13:30-14:45 LUNCH

14:45- 15.45 The Courts and Procedural Issues, chair: tbc
Helene Andersson, Accessing Evidence of Competition Law Infringements through National Courts – A Mission Impossible?; Stockholm University
Haukur Logi Karlsson, Courts and the political mode of deciding, compensating for undue procedural delays in EU’s competition procedure, Reykjavik University

15.45-16.00 Coffee Break

16.00- 17.00 Review of Competition Authority decision-making, chair: tbc
Francisco Marcos, The judicial challenge of the fines imposed by Competition Authorities in Spain: An empirical analysis; IE University
Vincent Power, When does the court of justice of the European Union disagree with the merger decisions of the European Commission?; A & L Goodbody, Dublin

17:00-17:15 Closing remarks: Declan Walsh (UCC), Barry Rodger (CLaSF)

17.45 Drinks Reception at The Kiln, Lady’s Well Brewery, Leitrim St, Cork, kindly hosted by Heineken Ireland

19.30 Speakers Dinner, Venue TBC, kindly sponsored by A&L Goodbody Solicitors

 

Penalizing cartels—a spectrum of regimes

Yannis Katsoulacos Evgenia Motchenkova David Ulph analyze Penalizing cartels—a spectrum of regimes.

Abstract: There has been much discussion by both academics and policymakers of the most appropriate way of penalizing cartels taking account of both the effects of different penalty regimes on welfare as well as various implementation considerations such as ease/cost of implementation and transparency/legal certainty. Consequently there now exists a range of proposed penalty regimes—including two put forward by ourselves. While these can all seem like very distinct regimes, in this article we show that they can usefully be thought of as lying along a spectrum, inter-connected by the idea of trying to penalize cartels in relation to the damage they cause. They differ in their informational requirements, and in particular whether some key factors needed to calculate the penalty are case-specific or an average across a wide range of cases. Subtle differences in what information is required and how it is used can sometimes cause significant changes in either the welfare or implementation properties of regimes. This new perspective may provide a helpful way of organizing the discussion about the pros and cons of the different proposals.

Justice John Paul Stevens (1920-2019)

Supreme Court Justice and former antitrust law practitioners and professor John Paul Stevens has passed away.  Spencer Waller (Chicago Loyola) wrote a paper that analyzes Stevens' antitrust jurisprudence a decade ago.  See here.

The extent of market concentration in South Africa’s product markets

Thembalethu Buthelezi, Thando Mtani, and Liberty Mncube describe The extent of market concentration in South Africa’s product markets.

Abstract: Competitive markets can benefit consumers, workers, entrepreneurs, small businesses, and the economy more generally but several indicators suggest the persistence of high levels of market concentration in many of South Africa’s economic sectors. The causes underlying the high levels of concentration and corresponding market power are not clear. This article uses recent data from notified mergers to show the extent of the static level of market concentration (measured using the Herfindahl–Hirschman index). This article argues that consumers and workers would benefit from additional actions to promote effective competition and inclusion in markets.

Basic principles for the design of antitrust analysis for multisided platforms

David Evans, Global Economics Group offers Basic principles for the design of antitrust analysis for multisided platforms.

ABSTRACT: This article presents some basic principles for conducting the antitrust analysis of multisided platforms that courts could adapt to the particulars of their jurisdictions and case laws. It has a particular focus on measuring consumer surplus for platform businesses and the implications of that for the design of antitrust rules. It shows how multisided platforms increase welfare by reducing transactions costs and resolving externalities among economic agents. It presents three normative principles for policy interventions and illustrates these principles by showing how they apply to recent debates over privacy. The article then develops a framework for considering antitrust rules in light of these principles given the objectives of antitrust law, error costs, and developing administrable rules. It lastly considers the competing approaches to analysing multisided platforms that were presented to the Supreme Court in the American Express litigation and the Court’s decision in light of these principles.

 

The Italian Guidelines on Antitrust Compliance Programs and the Difficult Goal of Matching Deterrence, Education, and Business Ethics

Federico Cesare Guido Ghezzi, Bocconi University - Department of Law has written on The Italian Guidelines on Antitrust Compliance Programs and the Difficult Goal of Matching Deterrence, Education, and Business Ethics.

Abstract: In 2018, the Italian Competition Authority issued the “Guidelines on antitrust compliance programs”. The Guidelines identify the adoption and implementation of a robust and effective compliance program as a mitigating circumstance in the calculation of fines for anti-competitive violations. Specifically, the Guidelines allow for a reduction of up to 15% of the fine in the event the antitrust compliance program is adopted before the beginning of an investigation (so-called ex ante facto programs) and a more limited reduction, up to 5% of the fine, for compliance programs implemented during the investigation (so-called ex post facto programs). These reductions are applicable to fines imposed as a result of anticompetitive arrangements and abuses of a dominant position under both the European and Italian competition provisions. In this paper we argue that while the decision to incentivize compliance programs is justified by the lack of competition culture and the structure of the Italian industrial sector, the design of the incentive provided for in the Guidelines is wrong. In particular, the Guideines try to protect its most important enforcement tool, i.e. the leniency program, by conditioning the reward for successful compliance programs to the self-reporting to the competition authority. We suggest a different set of incentives that should protect the leniency program while maintaining the interest in adopting a compliance program. We furthermore suggest a change in the Italian fining Guidelines in order to make the incentives for the adoption of ex ante compliance programs more effective, especially for small and medium sized enterprises.

Assessment of Collusion Damages in First Price Auctions

M. Florencia Gabrielli, Conicet - UNCuyo, and Manuel Willington Escuela de Gobierno - Universidad Adolfo Ibáñez address Assessment of Collusion Damages in First Price Auctions .

Abstract: In this paper we propose a structural method for estimating the efficiency and revenue losses associated with bidding rings in symmetric and asymmetric first-price auctions. It is based on the auction estimation literature (Guerre, Perrigne, and Vuong [2000]) and is consistent with damage assessment methodologies used in antitrust cases, in the sense that we build a but-for (competitive) scenario and then estimate the differences between the but-for scenario and the factual one. We show in a Monte Carlo exercise that our methodology performs very well in moderate size samples. We apply our methodology to California highway procurement data after first identifying a potential set of colluders using standard tests in the literature.

Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence

Kwanghyuk Yoo University of Iowa, College of Law discusses Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence.

ABSTRACT: Titanic-scale multistate generic pricing antitrust litigation has been underway since December 2016, increasingly involving a myriad of generic drug manufacturers and drugs. Forty-seven states allege a pricing conspiracy wherein twenty defendants participated in a multitude of specific horizontal conspiracies to fix prices and markets for fifteen generic drugs in a manner to injure robust generic competition. However, this litigation may have overshadowed an overlooked but important concern. This article argues that the behind-the-scenes conspiracy between generic manufacturers and so-called Pharmacy Benefit Managers (PBMs) may have constituted an integral part of the overarching conspiracy alleged in the litigation. PBMs play a pivotal role as intermediaries in the pharmaceutical supply chain and orchestrate a multitude of inter-generic conspiracies. The pharmaceutical industry situates PBMs in a dominant position to have exclusive and full access to price information and exert influence over profit-maximizing pricing strategies of generic manufacturers. This fact serves as strong evidence that generic manufacturers locked in the PBM-constrained industrial structure are highly incentivized to buy off PBMs in order to control the overarching pricing conspiracy. PBMs’ role in the pharmaceutical logistical chain allows them to further anticompetitive generic collusion, taking the form of vigorous manipulation of two cost-saving schemes: manufacturer rebates and pharmacy reimbursement. This article thoroughly examines the mechanics of how PBMs specifically manipulate these schemes utilizing the complex pricing system, and further provides circumstantial and economic evidence strongly implicating the generic-PBM conspiracy and pragmatic suggestions for the prospective investigation.

The Principle of Relative Responsibility in Antitrust Damages

Enrique Sanjuan, University of Malaga - Facultad de Derecho discusses The Principle of Relative Responsibility in Antitrust Damages.

Abstract: The present work focuses on the principle of relative responsibility set in the Damage Directive 2014/104/EU. The principle of relative responsibility “supposes a modulation (that does not qualify) to the principles of full compensation and joint and several liabilities insofar as it channels that responsibility, on the one hand, according to the criteria of the participation of the offender in the conduct that violates the rules of competition from its infringing participation fee; and on the other, it delimits and limits this responsibility based on the cooperation that the aforementioned offender has had on the basis of the leniency programs or the possible agreements reached with the injured parties."

EU Competences and the Damages Directive: The Continuum Between Minimum and Full Harmonisation

Max Hjärtström Lund University and Julian Nowag Lund University - Faculty of Law; Oxford Centre for Competition Law and Policy explain EU Competences and the Damages Directive: The Continuum Between Minimum and Full Harmonisation.

ABSTRACT: The paper examines the Damage Directive and focuses accordingly on the issue of competence allocation between the Union and the Member States. It examines the degree of comprehensiveness and detail of the Directive, as well as future perspectives of exhaustive harmonisation on EU level. It is argued that the distinction between minimum and maximum (or full) harmonisation is not particularly helpful. Instead, we suggest an alternative understanding of harmonisation in the area, based on a continuum. This continuum emerges between Union competences on the one side of the spectrum, and national procedural autonomy on the other. This new perspective allows for a better understanding of the current and future functioning of the Directive, and shows that in certain areas, EU competence provides a firmer ground for comprehensive regulation, whilst in other areas, more deference to the Member States’ legal orders is necessary. The first part of this paper examines the judge-made right to compensation for loss suffered as a result of antitrust harm, and shows that the Directive is, by and large, seen as a form of minimum harmonisation. The second part then highlights why this characterisation seems problematic, introduces the continuum and explains the rationale for greater or lesser intrusion on the part of the EU. The concluding section finally provides an outlook as to what action could be expected from the EU based on the continuum-approach.

Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions

Riccardo Fadiga, Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP describes Horizontal Shareholding within the European Competition Law Framework: Discussion of the Proposed Solutions.

ABSTRACT: The literature shows that horizontal shareholding engenders significant anticompetitive effects and that no suitable instrument exists within European competition law which reliably and effectively can be applied to curtail such intrinsic effects. This Article analyses several proposals which have been put forward by the scholarship and the institutions in order to compare and contrast their advantages and disadvantages, and shows that enforcement against horizontal shareholding on the basis of Article 102 TFEU affords substantial benefits compared to other solutions, with no comparable disadvantages.

Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab

Francisco Gomez-Martinez, Universidad Carlos III Madrid, Sander Onderstal, University of Amsterdam; Tinbergen Institute, and Maarten Pieter Schinkel, University of Amsterdam - Department of Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ask Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab.

ABSTRACT: Competition has been argued to erode socially responsible behavior in markets, suggesting that allowing cartel agreements among firms may promote public interest objectives. We test this idea in a laboratory experiment. Participants playing the role of firms choose between offering a ‘fair’ and an ‘unfair’ good to a consumer participant. When the unfair good is traded, a negative externality is imposed on a third party. We vary whether or not the firms are allowed to coordinate on the type of good they sell. We find that the opportunity to coordinate has no significant impact on the fraction of fair goods traded on the market, but polarizes: more of the same good, fair or unfair, is offered. Consumer surplus and profit are, on average, not affected. Irrespective of whether coordination between firms is allowed, participants are more likely to trade the fair good, the stronger their third-party preferences are. These findings suggest that both consumer and managerial values are more important drivers of socially responsible behavior than opportunities for firms to coordinate their CSR activities. We highlight implications for competition policy, where cartels may be exempted on CSR grounds.