Wednesday, October 31, 2007

Competition and Regulation in India

Posted by D. Daniel Sokol

CUTS International has released a report entitled Competition and Regulation in India, 2007.  The report is comprehensive in its coverage.

October 31, 2007 | Permalink | Comments (0) | TrackBack (0)

University of Chicago Law and Economics Fellow

Posted by D. Daniel Sokol

The John M. Olin Program in Law and Economics

Law and Economics Fellow

The Law School's Program in Law and Economics seeks to appoint a law and economics fellow for the 2008-9 academic year.


Each candidate's record must demonstrate distinguished work in legal or economic scholarship.


To be considered as a candidate for this position please send a cover letter, resume, research statement and writing samples to:

CONTACT: Marjorie Holme
John M. Olin Program in Law and Economics
University of Chicago Law School
1111 East 60th Street
Chicago, IL 60637

The deadline for submission of applications is June 1, 2008. The University of Chicago is an Affirmative Action/Equal Opportunity Employer. If you have any questions about the position or the hiring procedures, please contact Marjorie Holme at: [email protected].

October 31, 2007 | Permalink | Comments (0) | TrackBack (0)

Milestone Reached

Posted by D. Daniel Sokol

At some point last night while I was sleeping (or perhaps while I was changing a diaper of my almost 5 month old daughter), the Antitrust and Competition Policy Blog reached its 100,000th visit.  Shubha and I want to thank all of the readers of this blog for your continued interest.  When I joined the blog in January 2007, we averaged 1,000 hits a month.  We are now up to 7,000 hits a month and continue on an upward trajectory. 

October 31, 2007 | Permalink | Comments (1) | TrackBack (0)

Sharpening Canada’s Competitive Edge

Posted by D. Daniel Sokol

The Canadian Competition Policy Review Panel  released its consultation paper: Sharpening  Canada’s Competitive Edge.

The report includes an analysis of competition policy in Canada. 

The Competition Policy Review has invited written submissions that respond to the paper. Submissions will be accepted to a maximum of 20 pages (including attachments), until January 11, 2008.  See here for details.

October 31, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 30, 2007

The Place of Competition Law in the Future Community Legal Order

Posted by D. Daniel Sokol

A November 8 conference in Brussels is perhaps the most important conference of the year in European competition law.  See here for registration and details for The Place of Competition Law in the Future Community Legal Order.

October 30, 2007 | Permalink | Comments (0) | TrackBack (0)

Mueller Graduate Fellowship in Idustrial Organization

Posted by D. Daniel Sokol

The Agriculture and Applied Economics Department at the University of Wisconsin-Madison is seeking applicants for the Muller Graduate Fellowship. Preference will be given to top applicants studying applied industrial organization (IO), which can be combined with other interests including finance, trade, econometrics, policy, environment, development, or other related fields. Research interests may include:  performance of the U.S. and global food systems, competition law and policy analysis, international competition analysis, regulated monopolies, and the interactive role between competition policy and investment, foreign direct investment, trade and technical innovation.

Applicants to the AAE graduate program for Fall 2008 should specify their interest in being considered for the fellowship: there is no special application form.

If you know of a top undergraduate or MS candidate at your institution that might be interested, please forward this email to him/her. Information about the department's industrial organization research activities, IO course offerings, and some example curriculum plans, is available at the web page for the Food System Research Group ( Please contact Kyle W. Stiegert with further questions.

Kyle W. Stiegert, Director
Food System Research Group
[email protected]

October 30, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition and Mergers Among Nonprofits

Posted by D. Daniel Sokol

Jens Prufer of the University of Tilburg Department of Economics questions whether the analysis in mergers among nonprofits should be different than among profit maximizing firms in his paper Competition and Mergers Among Nonprofits.

ABSTRACT: Should mergers among nonprofit organizations be regulated differently than mergers among for-profit firms? The relevant empirical literature is highly controversial, the theoretical literature is scarce. I analyze the question by modeling duopoly competition with quality-differentiated goods. I compare welfare effects of mergers between firms with the effects of mergers between nonprofits dominated by consumers, workers, suppliers, and pure donors respectively. I find that mergers both among firms and among most types of nonprofits do not increase welfare. Mergers among consumer-dominated nonprofits, however, can improve welfare. These results imply for competition law and regulation that ?nonprofit? might be too crude a label for organizations with varying goals. Consequently, mergers among certain nonprofit organizations should not necessarily be treated in the same way as mergers among for-profit firms ? a notion that is absent in current merger guidelines both in the US and the EU.

October 30, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, October 29, 2007

Wintel Under the Antitrust Microscope: A Comparison of the European Intel Case with the U.S. Microsoft Cases

Posted by D. Daniel Sokol

Norman W. Hawker, AAI Senior Fellow and Associate Professor, Haworth College of Business, Western Michigan University, offers a comparative analysis of the Intel and Microsoft cases in Wintel Under the Antitrust Microscope: A Comparison of the European Intel Case with the U.S. Microsoft Cases.

ABSTRACT: The European Union has issued a statement of objections to Intel regarding the company’s conduct aimed at suppressing competition from Intel’s chief rival, AMD. Although the statement of objections remains confidential, the allegations in AMD’s private litigation are public and provide a useful basis for analysis. Intel dominates the PC chip market almost to the same degree that Microsoft dominates the PC operating system market. As in the Microsoft case, Intel’s aggressive marketing tactics prevented OEMs from offering rival products to consumers. And like Microsoft, Intel has engaged in this conduct to maintain its existing monopoly. These parallels between the Microsoft and Intel suggest that Intel’s anticompetitive practices harm consumers, including American consumers, by denying them the access to innovative products at lower prices from rivals. The United States established that Microsoft repeatedly and willfully violated the antitrust laws, but failed to achieve an effective remedy. The EU, however, should have an easier time achieving an effective remedy. First, unlike the OS market, a viable competitor still exists in the chip market, i.e., AMD. Second, Intel has relied primarily on exclusionary rebates, not commingling of intellectual property, to maintain its monopoly. Consequently, the EU should be able to fashion a remedy that does not require Intel to redesign its product.

October 29, 2007 | Permalink | Comments (1) | TrackBack (0)

Sunday, October 28, 2007

DG Comp Seeks Comments on Settlement Procedure for Cartels

Posted by D. Daniel Sokol

Details are available here.  Hat tip to Latham's Susanne Zuehlke.

October 28, 2007 | Permalink | Comments (0) | TrackBack (0)

Saturday, October 27, 2007

Cartel Damages Claims and the Passing-On Defense

Posted by D. Daniel Sokol

Frank Verboven of Katholic University of Leuven Department of Economics and Theon van Dijk of Lexonomics address the issue of how to address Cartel Damages Claims and the Passing-On Defense.

ABSTRACT: We develop a general economic framework for computing cartel damages claims by purchaser plaintiffs. We decompose the lost profits from the cartel in three parts: the direct cost effect (or anticompetitive price overcharge), the pass-on effect and the usually neglected output effect. The pass-on effect is the extent to which the plaintiff passes on the price overcharge by raising its own price, and the output effect is the lost business resulting from this passing-on. We subsequently introduce various models of imperfect competition for the plaintiffs industry. This enables us to evaluate the relative importance of the cost, pass-on and output effects. We show that an adjusted passing-on defense (i.e. accounting for the output effect) is justified under a wide variety of circumstances, provided that sufficiently many firms in the plaintiff's market are affected by the cartel. We derive exact discounts to the direct cost effect, which depend on relatively easy-to-observe variables, such as the pass-on rate, the number of firms, the number of firms affected by the cartel, and/or the market shares. We finally extend our framework to assess the cartel's total harm, further demonstrating the crucial importance of the output effect. Our results are particularly relevant in light of the recent developments by U.S. and European antitrust authorities to make cartel damages claims more in line with actually lost profits.

October 27, 2007 | Permalink | Comments (1) | TrackBack (0)

Friday, October 26, 2007

EC Competition Law: A Critical Assessment

Posted by D. Daniel Sokol

Hart Publishing recently released the book EC Competition Law: A Critical Assessment.

ABSTRACT: This book, co-written by a team of European competition law specialists, offers critical perspectives on the whole range of issues in EC competition law. The book has two distinctive features: the first is that unlike similar works which present the law from either an enforcement agency or practitioner perspective in a fairly conventional manner, this work offers fresh, critical reflections on the state of the law. The second is that the authors are young academics, practitioners and administrators who have worked in the relevant fields and who are relatively new "voices" in the competition law literature. Drawn from diverse jurisdictions and professional backgrounds the authors bring a distinctively "European" feel (for instance not drawing exclusively on English language literature), and manage to introduce debates that have been taking place in the non-English language world, thereby assisting a more comprehensive dialogue in this field. The diversity in their professional backgrounds means that each chapter adopts a different perspective, with some chapters focusing on practical solutions to problems, and others exploring more general theoretical questions.
The textbook-like structure places the issues in their appropriate contexts and ensures that readers see how the discussion in each chapter links with the body of law as a whole.

The book is aimed at academic lawyers and practitioners, complementing existing textbooks and allowing the reader to extend his or her understanding of the subject and provide a quick source of reference to the main doctrinal debates on the subject, and offer fresh perspectives on the topics covered. The impact of EC competition law beyond Europe also means that this book will appeal to lawyers in the US, Australia, Canada and beyond.

October 26, 2007 | Permalink | Comments (0) | TrackBack (0)

Pasta Price Fixing Cartel - Mama Mia!

Posted by D. Daniel Sokol

Today's BNA reports that Italian antitrust enforcers have begun a price fixing investigation into Italy's two largest pasta associations.

October 26, 2007 | Permalink | Comments (1) | TrackBack (0)

Thursday, October 25, 2007

How to Address "Invisible" Cartels

Posted by D. Daniel Sokol

Antitrust enforcers know they are out there, ripping off consumers.  Yet, how do you prove the existence of a cartel when it seems to be invisible.  Peter A.G. van Bergeijk of the Economic Policy Directorate Ministry of Economic Affairs answers this question in the Dutch context with his article On the Allegedly Invisible Dutch Construction Sector Cartel, which appears in the latest issue of the excellent Journal of Competition Law and Economics (a must read publication).

ABSTRACT: This paper considers an extensive cartel contamination of markets in the Dutch construction sector. Overwhelming legal evidence of bid rigging in this sector was obtained in 486 leniency applications in which complete secret accounts were submitted. I offer a case study and a broadly based post mortem of methodologies that were applied earlier to detect malfunctioning markets in the Netherlands, but failed to identify the construction sector as problematic. It is concluded that these studies were seriously flawed. Theoretical and empirical economic forensics (if properly applied) creates value for antitrust authorities in detection of antitrust violations directly, or by informing them where to look for direct evidence.

October 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Cartels Book - A Must Read

Posted by D. Daniel Sokol

Elgar has just published a two volume anthology titled Cartels edited by Margaret C. Levenstein and Stephen W. Salant of 61 articles dealing with cartels with articles dating from 1890 to 2005.


Volume I
Introduction Margaret C. Levenstein and Stephen W. Salant
1. (1891), ‘Agreement of the Southern Railway and Steamship Association’
2. Document ref #080017 – Agreement Between the Dow Chemical Company and the Deutsche Bromkonvention regarding the Global Bromine Market, Midland, MI: Post Street Archives
3. (1943), ‘International Steel Agreement. September 30, 1926’
4. (1945), ‘International Sulphur Agreement of 1934’ and ‘Sulphur Agreement of 1936’
5. (1945), ‘World Copper Agreement of 1935’
6. (1945), ‘American-German Agreement of 1938 Concerning Electro Appliances’
7. (1974), Marketing Agreement for Navel Oranges Grown in Arizona and Designated Part of California, Washington, DC: US Department of Agriculture, Consumer and Marketing Service, Fruit and Vegetable Division and Submission on Behalf of the California Arizona Citrus League
8. (1980), International Electrical Association: A Continuing Cartel, Report prepared for the Use of the Committee on Interstate and Foreign Commerce United States House of Representatives and the Subcommittee on Oversight and Investigation, June, Washington, DC: US GPO
9. (2000), An Inside Look at a Cartel at Work: Common Characteristics of International Cartels, Speech by James M. Griffin, Deputy Assistant Attorney General, Antitrust Division of the U.S. Department of Justice, April 6
A Theoretical
10. Don Patinkin (1947), ‘Multiple-Plant Firms, Cartels, and Imperfect Competition’
11. Joe S. Bain (1948), ‘Output Quotas in Imperfect Cartels’
12. George J. Stigler (1964), ‘A Theory of Oligopoly’
13. D.K. Osborne (1976), ‘Cartel Problems’
B Empirical
14. Richard A. Posner (1970), ‘A Statistical Study of Antitrust Enforcement’
15. Joseph C. Gallo, Kenneth Dau-Schmidt, Joseph L. Craycraft and Charles J. Parker (2000), ‘Department of Justice Antitrust Enforcement, 1955–1997: An Empirical Study’
A Theoretical
16. James W. Friedman (1971), ‘A Non-cooperative Equilibrium for Supergames’
17. Edward J. Green and Robert H. Porter (1984), ‘Noncooperative Collusion under Imperfect Price Information’
18. Dilip Abreu, David Pearce and Ennio Stacchetti (1990), ‘Toward a Theory of Discounted Repeated Games with Imperfect Monitoring’
19. Peter C. Cramton and Thomas R. Palfrey (1990), ‘Cartel Enforcement with Uncertainty About Costs’
20. Drew Fudenberg, David Levine and Eric Maskin (1994), ‘The Folk Theorem with Imperfect Public Information’
21. Julio J. Rotemberg and Garth Saloner (1986), ‘A Supergame-Theoretic Model of Price Wars during Booms’
22. John Haltiwanger and Joseph E. Harrington, Jr. (1991), ‘The Impact of Cyclical Demand Movements on Collusive Behavior’
23. Jean-Pierre Benoit and Vijay Krishna (1985), ‘Finitely Repeated Games’
24. B. Douglas Bernheim and Michael D. Whinston (1990), ‘Multimarket Contact and Collusive Behavior’
B Empirical
25. Robert H. Porter (1983), ‘A Study of Cartel Stability: The Joint Executive Committee, 1880–1886’
26. Glenn Ellison (1994), ‘Theories of Cartel Stability and the Joint Executive Committee’
27. Margaret C. Levenstein (1997), ‘Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry’
28. Margaret E. Slade (1992), ‘Vancouver’s Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies’
29. Severin Borenstein and Andrea Shepard (1996), ‘Dynamic Pricing in Retail Gasoline Markets’
30. Gérard Gaudet and Stephen W. Salant (1991), ‘Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes’
31. Claude D’Aspremont, Alexis Jacquemin, Jean Jaskold Gabszewicz and John A. Weymark (1983), ‘On The Stability of Collusive Price Leadership’
32. Joel M. Podolny and Fiona M. Scott Morton (1999), ‘Social Status, Entry and Predation: The Case of British Shipping Cartels 1879–1929’
33. George Symeonidis (2000), ‘Price Competition and Market Structure: The Impact of Cartel Policy on Concentration in the UK’
Name Index

Volume II
An introduction by the editors to both volumes appears in Volume I
1. Steven N. Wiggins and Gary D. Libecap (1987), ‘Firm Heterogeneities and Cartelization Efforts in Domestic Crude Oil’
2. William S. Hallagan (1985), ‘Contracting Problems and the Adoption of Regulatory Cartels’
3. Jonathan Cave and Stephen W. Salant (1995), ‘Cartel Quotas Under Majority Rule’
4. Barbara J. Alexander (1997), ‘Failed Cooperation in Heterogeneous Industries Under the National Recovery Administration’
5. Joseph E. Harrington Jr. (1991), ‘The Determination of Price and Output Quotas in a Heterogeneous Cartel’
6. Olivier Compte, Frédéric Jenny and Patrick Rey (2002), ‘Capacity Constraints, Mergers and Collusion’
7. B. Douglas Bernheim and Michael D. Whinston (1985), ‘Common Marketing Agency as a Device for Facilitating Collusion’
8. Elizabeth Granitz and Benjamin Klein (1996), ‘Monopolization by “Raising Rivals’ Costs”: The Standard Oil Case’
9. Patrick Rey and Joseph Stiglitz (1995), ‘The Role of Exclusive Territories in Producers’ Competition’
10. Glenn C. Loury (1986), ‘A Theory of ‘Oil’igopoly: Cournot Equilibrium in Exhaustible Resource Markets with Fixed Supplies’
11. Charles F. Mason and Stephen Polasky (2005), ‘What Motivates Membership in Non-Renewable Resource Cartels?: The Case of OPEC’
12. Stephen Polasky (1992), ‘Do Oil Producers Act as ‘Oil’igopolists?’
13. Jeffrey K. MacKie-Mason and Robert S. Pindyck (1987), ‘Cartel Theory and Cartel Experience in International Minerals Markets’
14. Debora L. Spar (1994), ‘The Power to Persuade and the Success of the International Diamond Cartel’
15. Gary D. Libecap and James L. Smith (2004), ‘Political Constraints on Government Cartelization: The Case of Oil Production Regulation in Texas and Saudi Arabia’
16. Kai-Uwe Kühn (2001), ‘Fighting Collusion by Regulating Communication between Firms’
17. Valerie Y. Suslow (2005), ‘Cartel Contract Duration: Empirical Evidence from Inter-War International Cartels’
18. David Genesove and Wallace P. Mullin (2001), ‘Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case’
19. Margaret E. Slade (1990), ‘Strategic Pricing Models and Interpretation of Price-War Data’
20. Chaim Fershtman and Ariel Pakes (2000), ‘A Dynamic Oligopoly with Collusion and Price Wars’
21. Carl Davidson and Raymond Deneckere (1990), ‘Excess Capacity and Collusion’
22. Chaim Fershtman and Neil Gandal (1994), ‘Disadvantageous Semicollusion’
23. Frode Steen and Lars Sørgard (1999), ‘Semicollusion in the Norwegian Cement Market’
24. George Symeonidis (2001), ‘Price Competition, Innovation and Profitability: Theory and UK Evidence’
25. John M. Connor (2001), ‘“Our Customers Are Our Enemies”: The Lysine Cartel of 1992–1995’
26. Lawrence J. White (2001), ‘Lysine and Price Fixing: How Long? How Severe?’
27. Simon J. Evenett, Margaret C. Levenstein and Valerie Y. Suslow (2001), ‘International Cartel Enforcement: Lessons from the 1990s’
28. Margaret Levenstein and Valerie Y. Suslow (2004), ‘Contemporary International Cartels and Developing Countries: Economic Effects and Implications for Competition Policy’

October 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition in the Postal Sector

Posted by D. Daniel Sokol

One of my pet issues is competition in the postal sector (an issue that Rick Geddes and Greg Sidak have written about quite a bit).  The postal sector is among the most protected sectors in the world and antitrust agencies need to do more to ensure that there is increased competition.  Thankfully, DG Comp is up to the task.  A press release yesterday from DG Comp announed that the Commission has launched an investigation into France's unlimited state guarantee for its postal operator La Poste.  There might be less trans-Atlantic divergence if more efforts were made by trans-Atlantic enforcers to focus on one area in which there seems to be ideological convergence-- unjustified anti-competitive conduct on the part of the state.

October 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 24, 2007

Microsoft versus the Commission: With Great Power Comes Great Responsibility

Posted by D. Daniel Sokol

Philips Marsden of BIICL has a wonderfully titled piece on the impact of the EU Microsoft decision Microsoft versus the Commission: With Great Power Comes Great Responsibility.

ABSTRACT: In the Spiderman stories we are told that ‘with great power comes great responsibility’. The Court of First Instance has confirmed that dominant firms such as Microsoft have a special responsibility to help their rivals. The European Commission should be even more responsible when proceeding against dominant firms and issuing guidance on Article 82.

October 24, 2007 | Permalink | Comments (0) | TrackBack (1)

Revisiting Modernisation: The European Commission, Policy Change and the Reform of EC Competition Policy

Posted by D. Daniel Sokol

Change is in the air.  The leaves are turning colors here in beautiful Columbia and I needed to break out my winter coat for a trip to the supermarket last night.  Change is underway in antitrust as well.  In the EU, there has been a modernization and reform process for a number of years.  This is the subject of the new article Revisiting Modernisation: The European Commission, Policy Change and the Reform of EC Competition Policy by Hussein Kassim and Katheryn Wright, both of the University of East Anglia's Centre for Competition Policy. 

ABSTRACT: The modernisation of EC antitrust rules timed to coincide with the 2004 enlargement of the European Union is widely recognised as an historic and revolutionary reform.

According to the dominant view that has emerged in both law and political science, the change is to be explained in terms of the interest and ability of the European Commission to engineer a reform that, behind the guise of decentralisation to national authorities, has in practice extended its power and influence over the control of anti-competitive agreements. Drawing on original research, this paper contests the conventional wisdom and the image of the Commission as an imperialistic actor that underlines it. It argues that such a view dramatically overstates the Commission's power and that a more sophisticated explanation is required. First, the Commission was motivated more by changes in the thinking within an epistemic community of competition practitioners and lawyers than by an impulse to expand its authority. Second, contrary to the monolithic conception of the Commission on which the dominant view depends, the Commission was internally differentiated and the development of its reform proposals the product of internal negotiation and conflict, rather than the expression of an inner drive to expansionism.

Third, scrutiny reveals the Commission to be a constrained organisation, rather than a body able to re-write competition law autonomously.

October 24, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 23, 2007

Private Rights of Action in the EU - Lessons From the US Experience

Posted by D. Daniel Sokol

Gavil One of the heavyweights in US antitrust law, Andrew Gavil of Howard Law School (and author of the excellent casebook ANTITRUST LAW IN PERSPECTIVE: CASES CONCEPTS AND PROBLEMS IN COMPETITION POLICY along with Baker and Kovacic that you could purchase from our exclusive sponsor-- see the ad to the right of this post) has an insightful analysis on private rights of action worth reading titled The Challenges of Economic Proof in a Decentralized and Privatized European Competition Policy System: Lessons from the American Experience.

ABSTRACT: Since the announcement in late 2002 of the Modernization Plan, and continuing in 2005 with the release of the Green Paper on damages actions, the European Commission has been committed to a significant restructuring of the EU's approach to enforcing competition laws. Under the revised system as envisioned by the Commission, national competition authorities and private parties will assume a far greater role in supplementing the work of the Commission, which for 50 years has been the predominant competition policy enforcer in Europe. The goal is not only to produce a system of shared enforcement authority, but to promote the continued evolution in Europe of a "culture of competition, while avoiding the creation of a "culture of litigation. If national competition authorities and private parties accept this invitation, however, they are likely to face the same kinds of demands for substantial economic evidence from their national courts that the EC has faced from the Court of First Instance and the European Court of Justice in some of its most complex and challenging recent cases. This paper asks whether national level enforcers, public and private, will have the procedural and evidentiary tools necessary to respond to demands for such economic proof. Drawing on the Commission's recent experiences, as well as lessons from the U.S. experience, it asks whether the Green Paper's treatment of economic evidence is adequate given the importance that economic proof plays today in competition law cases. It then urges the Commission to devote additional attention to identifying and advocating reforms that will more actively facilitate the disclosure, development, and presentation of economic evidence. This paper particularly questions the Green Paper's preference for the use of court-appointed experts in lieu of party-secured expert witnesses. It argues that party and court-appointed experts can perform very different functions in competition law cases and should not be viewed as substitutes. Moreover, it suggests that the Green Paper may significantly underestimate the degree to which party-secured expert economic witnesses will be necessary if national level enforcers—public and private—are to be adequately equipped to meet the burdens of proof they will face. If national enforcers systematically find that they lack the procedural tools necessary to develop the economic evidence they need to meet those burdens, they will reduce or abandon their efforts to initiate competition law actions and it will be less likely that the promise of decentralization and privatization can be realized.

October 23, 2007 | Permalink | Comments (0) | TrackBack (0)

ABA Antitrust Economics Committee Newsletter is Out

Posted by D. Daniel Sokol

The ABA Antitrust Economics fall newsletter is out.  The table of contents is as follows:

"Market Definition in Cases Involving Branded and Generic Pharmaceuticals" by Robert Larner and Caterina Nelson
"As Congress Responds to Higher Gasoline Prices: Is Tougher Merger Enforcement Really the Answer?" by Thomas Dowell
"'Unprofessional' Economic Testimony: Why It Is a Problem and How Technical Advisers Can Help" by Jonathan Tomlin and David Cooper
"The RPM Controversy: Dr MIles, Leegin, and Beyond" by Barak Orbach and Sivan Korn
"Antitrust Damages in Exclusionary Practice Cases" by Shankar Iyer

October 23, 2007 | Permalink | Comments (0) | TrackBack (0)

Airports, Aviation Competition and the Best Proposal on This Issue in Years

Posted by D. Daniel Sokol

Tomorrow I will be flying to a conference.  Invariably, I will be delayed at some point in my trip at the airport because of inefficient allocation of landing slots.  My heroes at the Economic Analysis Group of DOJ Antitrust, W. Tom Whalen, Dennis W. Carlton, Ken Heyer, and Oliver Richard have a proposal that is so simple, elegant and brilliant that of course Congress is likely to ignore it-- use slot auctions to promote more efficient use of gate capacity and promote competition.  They describe their proposal here.

I reproduce their proposal below:

Our preferred method to allocate scarce airport capacity is to auction slots for landings and takeoffs by time of day and to convey upon their purchasers well-defined property rights. Unlike access pricing, which may require the airport authority to continuously adjust prices, slot auctions require only that the airport authority set at the outset the total number of takeoffs and landings that the airport can accommodate in each time period under normal weather conditions. This approach plays to the strengths of airport authorities and the FAA, who have far greater expertise in determining an airport's capacity than they do at setting prices.

These slots should then be auctioned off through a market-based bidding process where each airline decides how much it would be willing to pay for each slot. The prices obtained for slots would reflect the degree of scarcity of capacity. The price could be close to zero at times of the day where capacity is great relative to demand, and it will be highest during periods where demand is at its greatest. Property rights would be awarded to the highest bidders, as long as acquisitions do not anti-competitively enhance market power. Prohibiting airlines from scheduling flights at times when they do not have the right to use one of the auctioned slots would efficiently address the problem of airport delay. Moreover, this market-based auction would allocate these scarce slots to their highest valued uses.

Slot holders should also be permitted to sell or lease slots in a secondary market. As service patterns and market conditions change, particular airlines may want to move some of their operations at slot constrained airports to different times, and the right to sell or lease would facilitate these types of efficient adjustments. Having well-defined property rights should encourage the development of a robust secondary market for slots, helping to ensure that slots are allocated to their highest valued uses.

An important component of our proposal is that general aviation users, such as corporate jets, be required to bid for access rights in competition with all others who wish to use them. Under the current system, a number of slots are reserved for general aviation aircraft. … The creation of priority rights through slots auctions may be used to further improve the efficiency of our current system. Weather issues at almost any airport in the system frequently force airlines to delay or cancel flights, as the FAA temporarily limits operations to respond to weather conditions. When those conditions arise, not all slot holders will be able to exercise the right conveyed by the slot, and the reduced capacity will have to be rationed. A question then arises as to how most efficiently to allocate that capacity among slot holders. One approach would be for the property rights of each slot to include a cancellation priority in the event of weather-related cancellations. This could be accomplished by ordering the slots in each time period, each with a different priority. As weather conditions required cancellations, slots would be canceled in order of their priority. Airlines could thus choose to pay a premium to acquire slots that are less likely to be canceled, and they would be able to advertise this high priority service to customers who value a lower probability of delay. Such tickets likely would command a premium. Moreover, during the delay period, the secondary market for slots would allow the airlines to efficiently transact slots for that day. In particular, an airline with a valuable departure could "buy up" to a higher priority position, while an airline with a priority slot but a less valuable flight on that day, could sell its priority position (though it could obviously not do so if it had sold its flight as a "high priority" one).

Significantly as well, under our proposal the slot auctions would generate revenues for the FAA and airport authorities. One possible use for the revenues generated by slot auctions would be to help fund expansion projects designed to increase capacity, such as the NextGen satellite navigation system the FAA is constructing to improve capacity utilization of air space. Indeed, it is difficult to justify subsidizing airlines by granting them for free rights to use valuable public assets whose sale at auction could generate considerable revenue.

October 23, 2007 | Permalink | Comments (3) | TrackBack (1)