Antitrust & Competition Policy Blog

Measurement of the Consumer Benefit of Competition in Retail Outlets

Posted by D. Daniel Sokol

Toshiyuki Matsuura (Economics, Keio University) and Mitsuru Sunada (Competition Policy Research Center, Japan Fair Trade Commission) address Measurement of the Consumer Benefit of Competition in Retail Outlets in a new working paper.

ABSTRACT: In this paper, we estimate the consumer benefits of competition in the retail industry. In our analysis, we incorporated the service quality of retail outlets as outputs. In Japan, in the process of the deregulation of entry restriction on large-scale retail stores, specialty supermarkets have increased their market share with a low price strategy. At the same time, despite their high prices, convenience stores have increased their market share through 1990s. We demonstrate changes in market share for each retail format are explained by the changes in each formats respective service quality.

Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered

Posted by D. Daniel Sokol

Christian A. Ruzzier (Harvard Business School) addresses Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered.

ABSTRACT: A point repeatedly stressed by transaction cost economics is that the more specific the asset, the more likely is vertical integration to be optimal. In spite of the profusion of empirical papers supporting this prediction, recent surveys and casual observation suggest that higher levels of asset specificity need not always lead to vertical integration. The purpose of this paper is to uncover some of the factors driving firms to (sometimes) choose to remain separated, rather than integrate, in the presence of high specificity. Its main economic message is that in a world where outside options matter and investments are multidimensional, high levels of asset specificity can foster nonintegration: a low level of specificity provides the most misdirected incentives when transacting in a market (because the outside option of external trade becomes so tempting), thus making a stronger case for nonintegration when specificity is high. 

2008 Annual Review of Antitrust Law Developments

Posted by D. Daniel Sokol

The ABA Antitrust Section has just published the 2008 Annual Review of Antitrust Law Developments.

BOOK ABSTRACT: For over 36 years, Antitrust Law Developments and its annual supplements have been recognized as the single most authoritative and comprehensive set of research tools for antitrust practitioners. The 2008 Annual Review of Antitrust Law Developments summarizes developments during 2008 in the courts, at the agencies, and in Congress.

An Empirical Model of Search with Vertically Differentiated Products

Posted by D. Daniel Sokol

Matthijs R. Wildenbeest (Indiana University, Kelley School of Business) provides An Empirical Model of Search with Vertically Differentiated Products.

ABSTRACT: This paper presents a non-sequential search model that allows for vertical product differentiation. In the unique symmetric equilibrium forms with different characteristics draw utilities from a common utility distribution, resulting in asymmetric price distributions. The model therefore provides a theoretical rationale for explaining price dispersion as a result of quality differences and search frictions together. More specifically, the model can explain the frequent and asymmetric price changes reported in several empirical papers, but also why some firms have persistently higher prices than others. Using the equilibrium conditions derived from the model, we show how to estimate search costs by maximum likelihood using only prices. The method is applied to a data set of prices for grocery items from supermarkets in the UK. Estimates reveal that most of the observed price variation can be explained by supermarket heterogeneity and that the estimated amount of search is low in this market. We show that ignoring vertical product differentiation results in an overestimation of search costs. Moreover, estimated search costs using a basket of organic items are on average higher than that of a similar non-organic basket. We also simulate how changes in search costs will affect behavior of stores and consumers.

Financial Market Pressures, Tacit Collusion and Oil Price Formation

Posted by D. Daniel Sokol

A team of Finn Roar Aune (Statistics Norway), Klaus Mohn (University of Stavanger - Industrial Economics), Petter Osmundsen (University of Stavanger - Industrial Economics) and Knut Einar Rosendahl (Statistics Norway) investigate Financial Market Pressures, Tacit Collusion and Oil Price Formation.

ABSTRACT: We explore a hypothesis that a change in investment behaviour among international oil companies (IOC) towards the end of the 1990s had long-lived effects on OPEC strategies, and on oil price formation. Coordinated investment constraints were imposed on the IOCs through financial market pressures for improved short-term profitability in the wake of the Asian economic crisis. We apply a partial equilibrium model for the global oil market to compare the effects of these tacitly collusive capital constraints on oil supply with an alternative characterised by industrial stability. Our results suggest that even temporary economic and financial shocks may have a long-term impact on oil price formation.

Antitrust Law and Economics Professors on the Move

Posted by D. Daniel Sokol

For the second year, I hope to compile a list of antitrust professors in law and economics who are on the move to new schools.  Please submit names in the comments section below any moves (entry level or lateral). Also include any upcoming visits for the 2009-10 academic year.  This list is not exclusive to North America so please feel free to include any moves elsewhere in the world.

DOJ Opens Antitrust Inquiry Into Google Books Deal

Posted by D. Daniel Sokol

Last week I posted an interesting new working paper by Randy Picker on the antitrust implications of Google Books.  Today we learn via the NY Times that DOJ is investigating the deal.

The Interface Between Regulation and Competition Law

Posted by D. Daniel Sokol

Neelie Kroes (European Commissioner for Competition Policy) gave as speech yesterday on The Interface Between Regulation and Competition Law.

Section 2 and the Section 2 Report

Posted by D. Daniel Sokol

Our friends over at Truth and the Market will host an online symposium on Section 2 and the Section 2 Report.

As Geoff Manne wrote me:

We’ve organized the symposium across the three days so that each day will have a different emphasis. The first day, Monday the 4th, we’ll discuss some introductory themes and set the context with some more-broadly-oriented perspectives on the Section 2 Report, including the enforcement perspective from inside the antitrust agencies and economists’ views, among others. The second day, Tuesday the 5th, we’ll devote to the general Section 2 standards debate. And we’ll finish up on Wednesday the 6th focusing on specific substantive areas, tracking the Section 2 Report and its substantive content in greater depth and detail.

The participants:
Alden Abbott, FTC
Tim Brennan, University of Maryland
Dan Crane, Cardozo/Michigan Law
David Evans, LECG/UCL/Chicago Law
Herbert Hovenkamp, Iowa Law
Keith Hylton, BU Law
Bruce Kobayashi, George Mason Law
William Kolasky, WilmerHale/former DAAG
Thom Lambert, Missouri Law/Truth on the Market
Tad Lipsky, Latham & Watkins/former DAAG
Geoffrey Manne, LECG/Lewis & Clark Law/Truth on the Market
Howard Marvel, Ohio State
Bill Page, Florida Law
Michael Salinger, BU/LECG/former Director, Bureau of Economics, FTC
Josh Wright, George Mason Law/former Scholar-in-Residence, FTC/Truth on the Market

How Competition Policy Benefits SMEs

Posted by D. Daniel Sokol

Neelie Kroes (European Commissioner for Competition Policy) recently gave a speech on How Competition Policy Benefits SMEs.

FTC Issues Final Rules Amending Parts 3 and 4 of the Agency’s Rules of Practice

Posted by D. Daniel Sokol

In an important practice development, the FTC Issued Final Rules Amending Parts 3 and 4 of the Agency’s Rules of Practice.  The press release notes:

The Federal Trade Commission today adopted as final the interim rules amending Parts 3 and 4 of the agency’s Rules of Practice that were announced last December, and also further amended several rules and eliminated one. The amendments are designed to streamline and improve the agency’s “Part 3” adjudicative proceedings. They expedite the prehearing, hearing, and appeal phases; streamline discovery and motion practice; and ensure that the FTC can apply its substantive expertise, as appropriate, earlier in the process.

Competition Between Payment Systems

Posted by D. Daniel Sokol

George Gardner (Reserve Bank of Australia) and Andrew Stone (Reserve Bank of Australia) analyze Competition Between Payment Systems.

ABSTRACT: This paper is the first of two companion pieces examining competition between payment systems. Here we develop a model of competing platforms which generalises that considered by Chakravorti and Roson (2006). In particular, our model allows for fully endogenous multi-homing on both the merchant and consumer sides of the market. We develop geometric frameworks for understanding the aggregate decisions of consumers to hold, and merchants to accept, different payment instruments, and how these decisions will be influenced by the pricing choices of the platforms. We also illustrate a new potential source of non-uniqueness in the aggregate behaviour of consumers and merchants which is distinct from the well-known ‘chicken and egg’ phenomenon – and indeed can only arise in the context of multiple competing platforms. Finally, we briefly discuss how this new source of non-uniqueness may nevertheless shed light on the ‘chicken and egg’ debate in relation to the development of new payment systems.

The Institutionalists’ Reaction to Chamberlin’s Theory of Monopolistic Competition

Posted by D. Daniel Sokol

Luca Fiorito (University of Palermo - Politics) discusses The Institutionalists’ Reaction to Chamberlin’s Theory of Monopolistic Competition.

ABSTRACT: Edwin Chamberlin's The Theory of Monopolistic Competition is often described as containing omportant traces of institutionalist influence. This is also confirmed by Chamberlin himself who, repeadetly, referred to the work of Veblen, and John Maurice Clark among his inspirational sources. The aim of this paper is to analyse the institutionalist reaction to the publication of the Theory of Monopolistic Competition. What will be argued is that the institutionalist response to Chamberlin was a mixed one, and involved some substantial criticisms of his analysis of market structures both on methodological and theoretical grounds. The paper is organized as follows. The first section presents a sketch of the main theoretical implications contained in The Theory of Monopolistic Competition. The second section analyses the general aspects of the institutionalist reaction to Chamberlin. The third and fourth sections deal with the more theoretical aspects of the institutionalist criticism of Chamberlin. The final section presents a conclusion.

9th Annual Loyola Antitrust Colloquium

Posted by D. Daniel Sokol

This Friday I will participate in the 9th Annual Loyola Antitrust Colloquium.

9th Annual Loyola Antitrust Colloquium
Friday, May 1, 2009
Loyola University Chicago School of Law
25 East Pearson Street
Chicago IL. 60611
10th Floor Ceremonial Courtroom
Schedule of Events

Friday, May 1, 2009
8:45 a.m.	Continental Breakfast and Registration Loyola University Chicago School of Law 25 E. Pearson 10th Floor Ceremonial Courtroom Chicago, IL. 60611
9:20 a.m.	Welcome Professor Spencer Weber Waller Professor and Director Institute for Consumer Antitrust Studies Loyola University Chicago School of Law
9:30 a.m.	Susan Beth Farmer Penn State University Dickinson School of law The Chinese Anti-Monopoly Law Commentators: Danny Sokol University of Florida Mike Jacobs DePaul University
10:45 a.m.	Coffee Break
11:00 a.m.	Mike Carrier Rutgers-Camden School of Law Unsettling Drug Patent Settlements: A Framework for Presumptive Illegality Commentators: William Conanor University of California - Santa Barbara Meg Simpson Jenner & Block, Chicago IL
12:30 p.m.	Lunch Kasbeer Hall 15th Floor 25 E. Pearson
1:45 p.m.	Chris Sagers Cleveland State University School of Law Antitrust Epistemology Commentators: Andy Gavil Howard University Rudy Peritz New York Law School
3:00 p.m.	Ice Cream Sundae Break
3:20 p.m.	Josh Davis University of San Francisco School of Law Judicial Resolution of Contested Facts in Antitrust Cases Commentators: Max Huffman Indiana University - Indianapolis Steve Shadowen Hangley Aronchick Segal & Pudlin Harrisburg, PA

Entry in Collusive Markets: An Experimental Study

Posted by D. Daniel Sokol

Marie Goppelsroeder, University of Amsterdam - Economics, has an interesting new paper on Entry in Collusive Markets: An Experimental Study.

ABSTRACT: In this paper we present an experiment in which we test the effects of sequential entry on the stability of collusion in oligopoly markets. Theoretical as well as experimental research suggests that a larger number of firms in an industry makes collusion harder to sustain. In this study, we explore to what extent collusion can be upheld with exogenous entry when groups start off small and when it is common knowledge that the entrant is informed about the history of her group prior to entry. We find that collusion is indeed easier to sustain in the latter case than in groups starting large. We conjecture that an implicit coordination problem is resolved more easily in a smaller group and that coordination, once it has been established, can be transferred to the enlarged group by means of a common code of conduct. Moreover, the results suggest that entrants emulate the behavior of their group upon entry.

Is Cartelisation Profitable? A Case Study of the Rhenish Westphalian Coal Syndicate, 1893-1913

Posted by D. Daniel Sokol

Thorsten Lübbers (Max Planck Institute for Research on Collective Goods) has a nice historical work on Is Cartelisation Profitable? A Case Study of the Rhenish Westphalian Coal Syndicate, 1893-1913.

ABSTRACT: We examine the effect of one of the presumably most powerful cartels ever on the profitability of its members. More precisely, we consider the Rhenish-Westphalian Coal Syndicate, a coal cartel that operated in Imperial Germany in the late 19th and early 20th century, using a newly constructed dataset and two different methodological approaches. At first, we employ event study methodology to asses the reaction of the stock market to the foundation of the cartel and two major revisions of its original contract. Furthermore, we look at different performance measures calculated from accounting and financial data in a dynamic panel data framework. Overall, our results suggest that the investigated cartel had no significant effect on the profitability of its members. However, we also find that it was able to stabilise coal prices and powerful enough to ensure that on average, prices were set high enough to avert negative repercussions on company performance.

Chilean Congress Approves Reforms to Competition Law

Posted by D. Daniel Sokol

Last week the Chilean Congress approved some major reforms to the Chilean competition system.

Enforcement of Competition Law in CARICOM: Perspectives on Challenges to Meeting Regional and Multilateral Obligations

Posted by D. Daniel Sokol

Delroy Beckford (Jamaica Fair Trading Commission) focuses on Enforcement of Competition Law in CARICOM: Perspectives on Challenges to Meeting Regional and Multilateral Obligations.

ABSTRACT: The focus of this paper is to raise some issues that have implications for coherence between the competition law regimes at the multilateral level, in particular the General Agreement on Trade in Services (GATS) obligations, and that existing at the regional level made operative through the existence of FTAs. The particular FTA addressed here is CARICOM under the Revised Treaty of Chaguaramas, although the tentative observations made go beyond this FTA.

Oldale to be Chief Economist at Competition Commission

Posted by D. Daniel Sokol

Alison Oldale (LECG) has been named the new chief economist of the UK's Competition Commission.

Testing the Effectiveness of Regulation and Competition on Cable Television Rates

Posted by D. Daniel Sokol

Mary T. Kelly (Economics, Villanova University School of Business) and John S. Ying (Economics, University of Delaware) present an empirical analysis of Testing the Effectiveness of Regulation and Competition on Cable Television Rates.

ABSTRACT: Regulation of the cable television industry was marked by remarkable periods of deregulation, re-regulation, and re-deregulation during the 1980s and 1990s. Using FCC firm-level survey data spanning 1993 to 2001, we model and econometrically estimate the effect of regulation and competition on cable rates. Our calculations indicate that while regulation lowered rates for small system operators, it raised them for medium and large systems. Meanwhile, competition consistently decreased rates from 5.6 to 8.8 percent, with even larger declines during periods of regulation. Our results suggest that competition is more effective than regulation in containing cable prices.