Tuesday, August 25, 2009

Efficiencies in Merger Analysis: Alchemy in the Age of Empiricism?

Posted by D. Daniel Sokol

Tim Greaney, Saint Louis University School of Law, explores Efficiencies in Merger Analysis: Alchemy in the Age of Empiricism?

ABSTRACT: One is hard-pressed to find in law an undertaking more fraught with uncertainty than the application of the efficiencies defense in merger analysis. Generalist fact finders (judges) and politically-attuned government officials (prosecutors and regulators) are charged with two Herculean tasks: (1) predicting the outcome of organic changes in business enterprises and (2) comparing the magnitude of those changes to the equally uncertain amount of harm to future competition that the transaction will cause. Given the enormous, perhaps intractable, uncertainty of this inquiry, it is therefore paradoxical that many of the strongest advocates for strengthening the role of efficiencies analysis in merger reviews are self-described proponents of bringing a ‘new empiricism’ to antitrust analysis. This chapter focuses on the tensions inherent in incorporating an efficiencies defense (or evaluating efficiencies as part of the appraisal of mergers) and maintaining the rigour and impartiality promised by proponents of the ‘empirical’ approach. This argument should not be misconstrued as a brief for abandoning the efficiencies inquiry altogether. Rather, it is, first, an appeal for candour (and humility) by those undertaking the inquiry; and second, it is a brief for constraining discretion by imposing more clearly delineated presumptive rules of law on judges and insisting on greater transparency by agencies in deciding whether to challenge mergers.

August 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Coverage of Retail Stores and Discrete Choice Models of Demand: Estimating Price Elasticities and Welfare Effects

Posted by D. Daniel Sokol

Franco Mariuzzo (The Geary Institute University College Dublin) Patrick Paul Walsh (SPIRe and The Geary Institute University College Dublin) and Ciara Whelan (Univesity College Dublin) explain Coverage of Retail Stores and Discrete Choice Models of Demand: Estimating Price Elasticities and Welfare Effects.

ABSTRACT: Since retail stores tend to host a subset of products available in the market, Ackerberg and Rysman (2005) allow logit errors to represent idiosyncratic unobserved consumer preferences over retail stores and products. Having product level data on store coverage we are able to estimate their logit, nested logit and random coefficients logit models of product demand jointly with cost, in a structural model of equilibrium, for Carbonated Soft Drink products. As Ackerberg and Rysman's (2005) Monte Carlo study suggests; using standard logit errors does lead to predictable biases in estimated price elasticities and welfare. A counterfactual that imposes full coverage of stores by products, in our structural equilibrium, increases the estimated price elasticities and welfare. Competition in markets is more curtailed than assumed when one works with standard logit errors.

August 25, 2009 | Permalink | Comments (1) | TrackBack (0)

When Do Large Buyers Pay Less? Experimental Evidence

Posted by D. Daniel Sokol

Brad Ruffle (Ben Gurion - Econ) asks and answers When Do Large Buyers Pay Less? Experimental Evidence.

ABSTRACT: The rise in mega-retailers has contributed to a growing literature on buyer power and large-buyer discounts. According to Rotemberg and Saloner (1986) and Snyder (1998), large buyers' ability to obtain price discounts depends on their relative (rather than absolute) size and the degree of competition between suppliers. I test experimentally comparative statics implications of this theory concerning the number of sellers and the sizes of the buyers in the market. The results track the comparative statics predictions to a surprising extent. Subtle changes in the distribution of buyer sizes or the number of suppliers can create or negate large-buyer discounts. The results highlight the previously unexplored role of the demand structure in determining buyer-size discounts. Furthermore, the experiments establish the presence of small-buyer premia, not anticipated by the theory.

August 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, August 24, 2009

Windows 7 is Really Cool

Posted by D. Daniel Sokol

This past weekend I tested out a version of Windows 7.  I am not a tech geek.  Overall, my experience as a "regular guy" user of Vista was ok.  It worked fine but I didn't fall in love with it.  Windows 7 is much smoother and easier for me to use.  As someone convinced that there are security breaches everywhere, I like the added security features that Windows 7 provides.


August 24, 2009 | Permalink | Comments (3) | TrackBack (0)

Bundling and Competition for Slots: Sequential Pricing

Posted by D. Daniel Sokol

Doh-Shin Jeon (Toulouse School of Economics, Universitat Pompeu Fabra) and Domenico Menicucci (Università degli Studi di Firenze, Italy) explain Bundling and Competition for Slots: Sequential Pricing.

ABSTRACT: In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon-Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due ! to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments

Posted by D. Daniel Sokol

Victor Aguirregabiria (University of Toronto - Econ) and Chun-Yu Ho (Georgia Institute of Technology - Econ) analyze A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments.

ABSTRACT: This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors that may explain hub-and-spoke networks: (1) travelers may value the services associated with the scale of operation of an airline in the hub airport; (2) operating costs and entry costs in a route may decline with the airline's scale of operation in the origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As methodological contributions, we propose and apply a method to reduce the dimension of the state space in dynamic games, and a procedure to deal with the problem of multiple equilibria when using a estimated model to make counterfactual experiments. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Assessing the Implications of Upstream Buyer Power on Downstream Consumers

Posted by D. Daniel Sokol

For those who want an easy to follow overview of buyer power, James Mellsop (NERA) and Kevin Counsell (NERA) have a new short article on Assessing the Implications of Upstream Buyer Power on Downstream Consumers.

ABSTRACT: This article explores the factors that determine whether consumers are likely to be harmed or helped by upstream buyer power. The market factors that matter include the forces that shape market supply, the level of competition in the downstream market in which the buyer.

Download Antitrust Insights Summer 2009

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

The Abuse of Dominant Position Under Romanian Antitrust Law in Light of European Antitrrust Law

Posted by D. Daniel Sokol

Anca Daniela Chiriţă (University of Saarland, Europa-Institut) explains The Abuse of Dominant Position Under Romanian Antitrust Law in Light of European Antitrrust Law.

August 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Saturday, August 22, 2009

Fingleton named "Business big shot of the week" by the Times

Posted by D. Daniel Sokol

OFT head John Fingleton is the new Business big shot of the week.  Well done.

August 22, 2009 | Permalink | Comments (0) | TrackBack (0)

AAI Third Annual Invitational Symposium on the Future of Private Antitrust Enforcement

Posted by D. Daniel Sokol


On December 8, 2009 the American Antitrust Institute will host its third annual Invitational Symposium on the Future of Private Antitrust Enforcement at the National Press Club in Washington D.C.

This year, our program will cover some of the most current and relevant issues in antitrust, including the Empagran opinion, reverse payments in the pharmaceutical industry, Congress’s action on ACPERA, Iqbal’s expansion of Twombly’s reach, and the ongoing challenges to class certification.

Location: National Press Club, Holeman Lounge 529 14th St. NW, 13th Floor Washington, DC 20045 There is no cost for the program, but it is an invitational event. Invitations and complete agenda to come. If you would like to request an invitation, please email aai@antitrustinstitute.org.

August 22, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, August 21, 2009

Searching for the Long-Lost Soul of Article 82EC

Posted by D. Daniel Sokol

Pinar_akman3 Pinar Akman (Centre for Competition Policy, University of East Anglia) is Searching for the Long-Lost Soul of Article 82EC.

ABSTRACT:This article has two interrelated purposes, one of historical and one of contemporary significance. It first seeks to challenge the common view in the literature that Article 82EC is a product of ordoliberalism. This is done by directly examining the travaux préparatoires of the competition rules of the EC Treaty to discover the intent of the drafters of Article 82EC. This inquiry is important for a modernized approach to Article 82EC since it must be determined whether Article 82EC can be applied with a ‘consumer welfare’ standard without a Treaty amendment. This is because, if the provision is ‘ordoliberal’, its objective cannot be the enhancement of ‘consumer welfare’. As its second and policy-driven purpose, this article suggests that the intent of the drafters of Article 82EC provides the EC Commission and the courts with the means to apply Article 82EC in a modernized manner with a ‘more economic approach’. The article shows that the drafters of Article 82EC were mainly concerned with increasing ‘efficiency’. Hence, adopting a welfarist objective would not imply a fundamental change in the goals of Article 82EC. On the contrary, including efficiencies in the assessment would be a late but welcome recognition since efficiency is already imbedded in the provision.

August 21, 2009 | Permalink | Comments (0) | TrackBack (0)

Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits

Posted by D. Daniel Sokol

Oliver Budzinski (Environmental and Business Economics - University of Southern Denmark) explores Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits.

ABSTRACT: Naturally, competition policy is based on competition economics made applicable in terms of law and its enforcement. Within the different branches of competition economics, modern industrial economics, or more precisely game-theoretic oligopoly theory, has become the dominating paradigm both in the U.S. (since the 1990s Post-Chicago movement) and in the EU (so-called more economic approach in the 2000s). This contribution reviews the state of the art in antitrust-oriented modern industrial economics and, in particular, critically discusses open questions and possible limits of basing antitrust on modern industrial economics. In doing so, it provides some hints how to escape current enforcement problems in industrial economics-based competition policy on both sides of the Atlantic. In particular, the paper advocates a change of the way modern industrial economics is used in competition policy: instead of more and more case-by-cases analyses, the insights from modern industrial economics should be used to design better competition rules.

August 21, 2009 | Permalink | Comments (0) | TrackBack (0)

Ultrabroadband Competition in Two-Sided Markets

Posted by D. Daniel Sokol

Armando Calabrese, University of Rome I, Massimo Gastaldi, University of L'Aquila, Irene Iacovelli, University of Rome II, and Nathan Levialdi Ghiron, University of Rome II discuss Ultrabroadband Competition in Two-Sided Markets.

ABSTRACT: Network neutrality refers to a policy principle regarding access for online content and service providers to broadband infrastructures. It implies a general and ex ante obligation of non-discrimination for network operators when granting access to providers of online services, with the aim of excluding practices such as blocking access to non-affiliated content, degrading the quality of transmission, imposing unreasonable restrictions or prioritising affiliated content. Whether such obligation should be "cast in the Stone Tables" of the law was first fiercely debated in the United States, and the issue is now gaining increased attention in other parts of the world, including the European Union, where the regulatory framework for electronic communications is currently under review. This article examines whether existing rules already provide the relevant authorities with the necessary tools to take action against broadband providers illegitimately discriminating or blocking content of those who are not prepared to pay a "toll" for the use of higher speed networks or better quality services. It focuses in particular on the EU regulatory framework for electronic communications networks and services, including the reform proposals published by the European Commission on November 13th (type should be like 24th below) 2007 and the resolution adopted by the European Parliament on 24th September 2008.

August 21, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 20, 2009

Selective Distribution and Luxury Goods: The Challenge of the Internet?

Posted by D. Daniel Sokol

Emily Clark, Mat Hughes, & Denis Waelbroeck (all Ashurst) address Selective Distribution and Luxury Goods: The Challenge of the Internet?

ABSTRACT: On July 28, 2009 the European Commission published for consultation its proposals for a revised vertical agreements block exemption regulation ("the Block Exemption") to replace the current Block Exemption due to expire in May 2010; as well as revised draft Guidelines on Vertical Restraints ("the Guidelines"). The Commission's accompanying press release states that "the Commission considers that the rules are working well overall and should not be fundamentally modified."

One range of restrictions covered by the scope of the existing and draft Block Exemption relates to selective distribution which permits manufacturers to supply only authorized retailers who meet certain criteria. A key issue is the use of selective distribution by luxury goods producers and, in particular, whether the rationales which have traditionally been used to justify such arrangements can be applied to restrictions placed on a newer distribution channel, namely internet retailing.

Diametrically opposing views have been expressed on this subject.

August 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Hear No Evil, See No Evil: Why Antitrust Compliance Programmes May Be Ineffective at Preventing Cartels

Posted by D. Daniel Sokol

Andreas Stephan of the University of East Anglia Centre for Competition Policy has an interesting paper on Hear No Evil, See No Evil: Why Antitrust Compliance Programmes May Be Ineffective at Preventing Cartels.

ABSTRACT: Cartel practices attract enormous corporate fines, even where they only involve a handful of employees. Internal compliance programmes are thought to protect firms by training employees and auditing their activities. However, this paper argues that such programmes are ineffective because cartelists typically know what they are doing is illegal, go to great lengths to avoid detection and are usually senior managers. Moreover, compliance programmes do not mitigate cartel fines, despite their being imposed on the whole corporation years after an infringement has occurred. It is argued that the threat of criminal sanctions against individuals is essential to effective internal compliance.

August 20, 2009 | Permalink | Comments (0) | TrackBack (0)

An Agent Based Cournot Simulation with Innovation: Identifying the Determinants of Market Concentration

Posted by D. Daniel Sokol

Tim Kochanski (Systems Science Program – Department of Economics Portland State University) undertakes work in An Agent Based Cournot Simulation with Innovation: Identifying the Determinants of Market Concentration.

ABSTRACT: In this paper, I develop a hybrid model that contains elements of both agent based simulations (ABS) as well as analytic Cournot models, to study the effects of firm characteristics, market characteristics, and innovation on market concentration, as measured by a Herfindahl-Hirschman Index (HHI). The model accommodates the following components: multiple firms with heterogeneous marginal costs, market entry and exit, barriers to entry, low or high cost industries, changing demand, varying levels of marginal cost reducing returns-to-innovation, varying costs associated with innovation, increased returns to innovation from past experience innovating, and varying propensities to innovate within the market. The components mentioned above are commonly cited as determinants of market concentration. A sensitivity analysis which is robust to high degrees of model complexity demonstrates that the model provides results that are co! nsistent with economic theories of markets.

August 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Fines Against Hard Core Cartels in Europe: The Myth of Over Enforcement

Posted by D. Daniel Sokol

Emmanuel Combe, Université Panthéon-Sorbonne (Paris 1) and Constance Monnier, Université Panthéon-Sorbonne (Paris 1) discuss Fines Against Hard Core Cartels in Europe: The Myth of Over Enforcement.

ABSTRACT: Based on a sample of 64 cartels convicted by the European Commission from 1975 to 2009 and a methodology allowing to estimate restitution and dissuasive fines to be imposed on cartels from microeconomic variables on a case by case basis, this paper compares the level of fines actually inflicted to cartels participants to the illicit gain captured by the firms and estimates a range of restitution and dissuasive fines in each case. Our results show that fines imposed against cartels by the European Commission are overall sub optimal, whatever the level of the probability of detection.

August 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 19, 2009

Cartel Facilitators Beware—AC Treuhand Spurs Competition Authorities into Action

Posted by D. Daniel Sokol

Wilko van Weert (SJ Berwin) & Gordon Christian (SJ Berwin) write on Cartel Facilitators Beware—AC Treuhand Spurs Competition Authorities into Action.

ABSTRACT: It is uncontroversial that undertakings that are active in a particular industry (e.g. by manufacturing a product or providing a service) and who engage in anti-competitive behavior are guilty of illegal conduct. For example, price-fixing, market sharing, customer allocation, or bid rigging can all lead to large fines, possible criminal or civil penalties (depending on the jurisdiction) for directors or managers, and possibly significant liabilities arising from private enforcement damages actions.

However, until recently the position has been somewhat less clear in relation to cartel facilitators. Although such cartel facilitators, which are usually either consultancies or trade associations, have featured in cartels going back to the 1970’s, the enforcement focus of competition authorities in Europe has traditionally been on the undertakings that are active in the cartelized industry.

After the European Court of First Instance’s (“CFI”) judgment in the AC Treuhand case, however, cartel facilitators have found themselves under increased pressure from regulators. Whereas this article focuses on the approach taken on this issue by the Nederlandse Mededingingsautoriteit (“NMa”), the Dutch Competition Authority, it also charts the history of cartel facilitator jurisprudence at EC level and refers to a number of other cartel facilitator cases at national level.

August 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Antitrust Conference in Honor of Joseph Brodley

Posted by D. Daniel Sokol


Antitrust Conference in Honor of Joseph Brodley
Boston University
September 18, 2009 (Friday)

Professor Joe Brodley, after a long and distinguished career as an antitrust scholar, retired at the end of the Spring 2009 semester. Boston University Law School will host a symposium honoring Joe’s contributions to Antitrust on September 18, 2009 (Friday). The Boston University Law Review will publish the contributions. The symposium will consist of three panels. The first will focus on Joe's contributions. Panelists will reflect on Joe’s work, on their own work with Joe, on his contributions to the field, or on how his papers may have influenced their work. The second panel, a transition between between the first and third, will address topics that Joe wrote about: predatory pricing, joint ventures, mergers, antitrust standing, oligopoly, patent settlement, and the goals of antitrust law. The third panel will focus on the future, specifically what direction antitrust should take in the new administration. The conference schedule is as follows:

First Panel: 9:30 to 10:45
Eleanor Fox
Richard Brunnell
Hillary Greene

Second Panel: 11:00 to 12:15
Dennis Yao
Richard Dagan
Michael Salinger
Patrick Bolton (paper only)

Lunch: 12:30 to 2:00

Last Panel: 2:00 - 3:15
Einer Elhauge
William Kovacic
Herbert Hovenkamp (paper only)
Response from Joe Brodley

For more information, please contact Professor Keith Hylton (knhylton@bu.edu). If you plan to attend, please contact Mary Gallagher (marykg@bu.edu).

August 19, 2009 | Permalink | Comments (0) | TrackBack (0)

The Core of Antitrust and the Slow Death of Dr. Miles

Posted by D. Daniel Sokol

Thomas C. Arthur, Emory University School of Law explains The Core of Antitrust and the Slow Death of Dr. Miles.

ABSTRACT: In 1911 the Supreme Court held in Dr. Miles that all forms of resale price maintenance (RPM), whether connected to a cartel or not, violated section 1 of the Sherman Act. In 2007, the Court overruled Dr. Miles in Leegin. This decision has sharply criticized both as a departure from basic antitrust principles and for overruling a precedent that has been widely relied upon for nearly a century. These criticisms are misplaced. The Dr. Miles per se rule was not based on core antitrust principles, and the Court has permitted it to be evaded over most of its history.

In the last generation, the Supreme Court has been returning antitrust law to its statutory core: the problem of monopoly artificially created by cartels, large mergers and predation. In the process, it has produced a body of doctrine that is far more internally coherent and faithful to the original antitrust statues. Unless used to facilitate a cartel, RPM and other forms of intrabrand distributional restraints are not part of the core of antitrust. By the time of Leegin, Dr. Miles' per se rule was so inconsistent with the rest of section 1 doctrine and so eroded in its scope that, far from being an example of unprincipled judicial activism, the Court's decision was a textbook example of the law working itself clear.

August 19, 2009 | Permalink | Comments (0) | TrackBack (0)