Thursday, September 24, 2009

The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing

Posted by D. Daniel Sokol

Sandeep Mazumder (Wake Forest - Econ) explains The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing.

ABSTRACT: This paper estimates the price-marginal cost markup for US manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on Hall's (1988) framework involving the manipulation of the Solow Residual. However this paper argues that this notion is based on the unreasonable assumption that labor can be costlessly adjusted at a fixed wage rate. By relaxing this assumption, we are able to derive a generalized markup index, which when estimated using manufacturing data is highly countercyclical and decreasing in trend since the 1960s. When we then seek to explain what causes the manufacturing markup to behave in this way, the most important determinant is the share of imported goods in the industry. Thus, increasing foreign competition in manufacturing has led to a decline in the industry's markup over time.

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

Carve-Outs Under Airline Antitrust Immunity: In the Public Interest?

Posted by D. Daniel Sokol

Jan Brueckner (University of California, Irvine) & Stef Proost (KU Leuven, Brussels) address Carve-Outs Under Airline Antitrust Immunity: In the Public Interest?

ABSTRACT: Prohibitions on cross-border airline mergers preclude full integration of U.S. and foreign carriers, but a grant of antitrust immunity (“ATI”) allows substantial cooperation between a U.S. airline and its foreign alliance partners. Immunity allows collaboration in the provision of international service in two principal types of markets. One market type involves travel between smaller U.S. and foreign cities, which requires an “interline” trip that crosses the networks of the two alliance partners. The other market type involves nonstop travel between the partners' (larger) hub cities, where overlapping service allows the trip to be made using either the U.S. airline or its partner. Immunity has often been granted in conjunction with an open-skies agreement between the United States and the home country of a partner airline.

The effects of alliances and ATI on airfares have been extensively investigated in the economics literature...but despite the centrality of carve-outs in the latest ATI decisions, the economics literature on alliances offers no treatment whatsoever of this topic.

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

Wednesday, September 23, 2009

The Kinked Demand Model and the Stability of Cooperation

Posted by D. Daniel Sokol

Sergio Currarini (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari") and Marco Marini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino) analyze The Kinked Demand Model and the Stability of Cooperation.

ABSTRACT: This paper revisits a particular behaviour for rms competing in imperfect competitive markets, underlying the well known model of kinked demand curve. We show that under some symmetry and regularity conditions, this asymmetric behaviour of rms sustains monopoly pricing, and possesses therefore some "rationality" interpretation. We also show that such a behaviour can be generalized and interpreted as a norm of behaviour that sustains efficient outcomes in a more general class of symmetric games.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Markets for Heterogeneous Products: a Boundedly Rational Consumer Model

Posted by D. Daniel Sokol

Marco Valente (Economics - Università degli Studi dell'Aquila) has a new paper on Markets for Heterogeneous Products: a Boundedly Rational Consumer Model.

ABSTRACT: The paper is based on the acknowledgement that properties of markets stemming from features of demand are too frequently overlooked in the economic literature, and a re-balancing is necessary to properly account for theoretical and empirical phenomena. We sustain that one of the most relevant reasons for the neglect of the role of demand is the lack of an adequate representation of consumers. This claim is particu- larly relevant for evolutionary economics since its critique to the mainstream approach stopped at the representation of firms. The standard utility maximization approach to consumers' theory is even less defensible than the related assumption of producers' rationality, given the lack of competitive pressure on consumers. As a contribution to this theoretical gap, the paper presents a model for consumer based on the assumption of bounded rationality and inspired to the literature on experimental psychology. The proposed model can be applied to multi-dimensional products/services and relies on intuitive and potentially observable parameters, allowing for a wide range of theoretical and empirical applications. Moreover, the intrinsic structure of the model provides a clear definition of preferences, meant as ex-ante decisional criteria, distinguished from post-hoc justification of any decisional result. Though structurally simple, the proposed model is very flexible and allows for a clear exploration of the impact of specific demand features on the produced results. Several experiments show that the model can be successfully applied both to generate standard results and to implement complex configurations such as those of generated by large markets with heterogeneous products. Among the results presented, the most relevant concerns the identification of two classes of market segmentation, generated by the identical suppliers and demand's exogenous factors, but different consumers' decisional mechanisms. The results produced are observationally equivalent, but are shown to have radically different properties, and are proposed as initial elements of a taxonomy for the classification demand classes, likely to explain common properties across different markets.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Final Descent? The Future of Antitrust Immunity in International Aviation

Posted by D. Daniel Sokol

Benjamin Bradshaw (O'Melveny & Myers) & Bimal Patel (O'Melveny & Myers) ask, Final Descent? The Future of Antitrust Immunity in International Aviation.

ABSTRACT: It is no secret that the Department of Justice (“DOJ”) and the Department of Transportation (“DOT”) traditionally have not seen eye to eye on the issue of antitrust immunity in international aviation. This year is no different. Indeed, 2009 has brought arguably the widest rift between the agencies since the modern era of immunity grants began following the conclusion of the U.S.-Netherlands Open Skies agreement in 1992. The lightning rod of course was Continental Airlines’ bid to join the Star Alliance, including its request to team with United in the so-called Atlantic Plus-Plus (“A++”) joint venture—an integrated and (now) immunized agreement involving Air Canada, Continental, Lufthansa, and United.

The A++ agreement not only elevated the serious disagreements between DOJ and DOT on whether, and in what circumstances, air carriers should be immune from the antitrust laws, but it saw the rise of significant Congressional opposition to the mere concept of antitrust immunity, with a key Member of Congress proposing legislation to phase out current grants of antitrust immunity.

Meanwhile, carriers remain caught in the middle of the agency positions, arguing on the one hand that competing carriers’ immunity requests should be limited or denied, but not so forcefully as to jeopardize their own calls for immunity. Given DOJ’s and DOT’s deep-seated and very public differences of opinion over antitrust immunity, as well as Congress’s readiness to jump into the fray, antitrust immunity in international aviation finds itself at a crossroads.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Technical Standards Setting Organizations & Competition: A Case for Deference to Markets

Posted by D. Daniel Sokol

IP specialist Raymond T. Nimmer (University of Houston - Law Center) has posted Technical Standards Setting Organizations & Competition: A Case for Deference to Markets.

ABSTRACT: There exists a risk of standards-setting organizations (SSO's) becoming improper surrogates for the marketplace by attempting to choose between two or more competing standards supported entities that are or aspire to be competitors in the relevant market. While the theory of most SSO's is that they make neutral, technologically sound decisions, the reality is often far different. Instead, competitors predictably bring their competition into the SSO setting, seeking the market advantages that winning a standard achieves. The technocrats involved in the standards-setting cannot help but be affected. The solution lies not in regulation, antitrust rule, or purported mandates from the SSO, but in mounting an SSO process that defers to the market, avoiding standards-setting where the market has yet to settle on a choice or, when the market remains unsettled, structuring standards that avoid foreclosing competition among competing technologies or assisting one over the other.

September 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 22, 2009

The Kroes Legacy Coming to a Close

Posted by D. Daniel Sokol

Check out the following story in the NY Times about the last months of Kroes' tenure at the Commission in terms of case load with a global ramification including speculation of a Microsoft settlement.

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

Varney on Merger Guidelines Workshops

Posted by D. Daniel Sokol

Christine Varney (DOJ) explained the Merger Guidelines Workshops at today's Third Annual Georgetown Law Global Antitrust Enforcement Symposium.

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

Mixed Duopoly with Price Competition

Posted by D. Daniel Sokol

Prabal Roy Chowdhury has written on Mixed Duopoly with Price Competition.

ABSTRACT: This paper examines coalition-proof Nash equilibria (CPNE) of a mixed duopoly with price competition where the public firm meets all the demand coming to it. If the private firm is free to supply less than demand, then the unique CPNE involves the competitive price. If however the private firm also has to supply all its demand, then the set of CPNE prices turns out to be an interval, with prices ranging from the socially optimal one, to the price under complete privatization.

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

Refusals to Deal

Posted by D. Daniel Sokol

The OECD has published Refusals to Deal.

ABSTRACT: The term “refusal to deal” describes a situation in which one firm refuses to sell to another firm, or is willing to sell only at a price that is considered “too high” or only under conditions that are deemed unacceptable. RTDs may harm competition by preventing entry that would have eroded or eliminated the dominant firm’s position. They may also restrict competition in markets where the dominant firm’s product is an input or a complement.

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

Department of Justice and Federal Trade Commission to Hold Workshops Concerning Horizontal Merger Guidelines

Posted by D. Daniel Sokol

The Department of Justice and the Federal Trade Commission (FTC) announced today that they will solicit public comment and hold joint public workshops to explore the possibility of updating the Horizontal Merger Guidelines that are used by both agencies to evaluate the potential competitive effects of mergers and acquisitions.

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

Railroad Antitrust Reform—A Train to Nowhere?

Posted by D. Daniel Sokol

Don Baker (Baker & Miller PLLC) & Bill Mullins (Baker & Miller PLLC) ask Railroad Antitrust Reform—A Train to Nowhere?

ABSTRACT: There is an obvious déjà vu quality in today’s loudly promoted “Railroad Antitrust Enforcement Act of 2009” bills that have been introduced by Senator Herbert Kohl (D-WI) (S. 146) and his Wisconsin colleague, Congresswoman Tammy Baldwin (D) (H.R. 233). But it seems that they may well have arrived at the station quite a while after the antitrust train had pulled out..

Will the removal of the few antitrust exemptions currently granted to the rail industry be likely to result in the type of antitrust relief required to curtail what the shippers view as an abuse of market power?.

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

Bank Competition and Firm Growth in the Enlarged European Union

Posted by D. Daniel Sokol

Gábor Pellényi (research fellow, ICEG European Center) and Tamás Borkó (research fellow, ICEG European Center) examine Bank Competition and Firm Growth in the Enlarged European Union.

ABSTRACT:We examine the impact of bank competition and institutional factors on net firm entry in a sample of European manufacturing industries over the 1995-2006 period. Taking into account industry differences in the need for external finance, we find that bank competition helps firm entry. In addition, better institutions - especially legal structure and property rights - also have a positive impact, particularly through a better functioning financial system.

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

Monday, September 21, 2009

EC Decision Against Intel is Available

Posted by D. Daniel Sokol

Here it is.  I am under tight deadlines for overdue papers so I have not had time to read it.

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

Important Changes to Antitrust Litigation Course: Preparing and Trying an Antitrust Case

Posted by D. Daniel Sokol

ABA SECTION OF ANTITRUST LAW
Antitrust Litigation Course: Preparing and Trying an Antitrust Case
Have You Registered?

Important Change to Litigation Course: Trying a Merger Case

As the Chinese proverb goes, “we live in interesting times.” In the current economic environment it is critical that our Section respond to the needs of our members—even if it means that the Section incurs some additional financial costs. In response to budgetary constraints being faced by antitrust practitioners in both the private and public sectors, we are making some important changes to our upcoming litigation course that we hope will allow the Section to provide value to its members:

  • The litigation course will now be held in Washington, D.C.—not Chicago—at the offices of Hogan & Hartson LLP—making it more accessible to a greater number of our members.
  • The course will be on one day—October 16, 2009—thereby decreasing time away from the office and travel expenses.
  • The costs have been substantially reduced as follows
    • government lawyers $150 (Section members)/$200 (non Section members)
    • other attendees $375 (Section members)/$475 (non Section members)

Although we have made these changes, please be assured that the quality of the program will not be affected. We will have the same stellar faculty; we will still use the same fantastic course materials, which will provide useful examplars for an antitrust litigation practice; and we will still have all phases of the trial demonstrated.

I would like to thank the entire steering committee, the ABA staff, Program Officer Barry Nigro, as well as the faculty of this course and Hogan & Hartson LLP for helping me, on very short notice, to make these changes possible in response to the current financial environment.

For further information and to register, please go to http://www.abanet.org/antitrust/litigation2009.html.

I hope to see you and your colleagues in Washington, D.C. on October 16th.


Ilene Knable Gotts
Chair, Section of Antitrust Law



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

Measurement of the Market Power of Firms: The Japanese Case in the 1990s

Posted by D. Daniel Sokol

Kozo Kiyota, Yokohama National University - Faculty of Business Administration, Takanobu Nakajima, Keio University - Faculty of Business and Commerce, and Kiyohiko G. Nishimura address Measurement of the Market Power of Firms: The Japanese Case in the 1990s.

ABSTRACT: This article presents a new simple econometric framework for the estimation of individual firms’ markup over their marginal cost, taking account of firm heterogeneity, demand-driven cyclical price changes, and the limited availability of firm-level information. The framework is applied to study markup of Japanese firms in manufacturing and wholesale/retail trade for 1994-2002. The results indicate that, on average, the Japanese markets become more competitive in the 1990s than before even in non-manufacturing industries. We also find sizable heterogeneity and non-negligible pro-cyclicality in the markup of the Japanese firms.

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

Collusion, competition and piracy

Posted by D. Daniel Sokol

Francisco Martínez-Sánchez (Universidad de Alicante) offers his thoughts on Collusion, competition and piracy.

ABSTRACT: In this paper we analyze firms' ability to tacitly collude on prices in an infinitely repeated duopoly game of vertical product differentiation. We show that firms collude if and only if their discount factor is high enough, i.e. if they value future profits sufficiently. We also show that a lower cost of copying facilitates collusion but that a higher quality of the copy hinders collusion. Thus, the overall effect of these new characteristics of copies made by consumers is ambiguous.

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

Justice Department Submits Views on Proposed Google Book Search Settlement

Posted by D. Daniel Sokol

Because of Rosh Hashana, I did not post on the biggest news of the weekend - the DOJ Antitrust Divisions submitted  its views on the Google Book Search Settlement.

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

Relative Profitability of Dynamic Walrasian Strategies

Posted by D. Daniel Sokol

Weihong Huang (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore) writes on Relative Profitability of Dynamic Walrasian Strategies.

ABSTRACT: The advantage of price-taking behavior in achieving relative profitability in oligopolistic quantity competition has been much appreciated recently from economic dynamics and evolutionary game theory, respectively. The current research intends to provide a direct economic interpretation as well as intuitive justification and further to build a linkage between different perspectives. In particular, a detailed illustration of an arbitrary oligopoly that produce a homogenous product is presented. So long as the outputs of other firms are fixed and the residual demand is downward sloping, for any two identical firms whose cost functions are convex, their output space can be divided symmetrically into mutually exclusive relatively profitability regimes. Furthermore, there exist infinitely many relative-profitability reactions for each firm in such “residual” duopoly, all of which intersect at the “residual” Walrasian ! equilibrium. This suggests that sticking to this dynamical equilibrium output constantly (i.e., the static Walrasian strategy) turns out to be a relative-profitability strategy at each period. On the other hand, regardless of what strategies its rival may take, a firm adopting price-taking strategy or more generally defined dynamic Walrasian strategies can achieve the relative profitability if an intertemporal equilibrium is reached. The methodology adopted and the conclusions arrived clarify the confusions and misunderstandings due to the different usages of same terminologies under different frameworks and generalize the previous available results in the literature to a higher level and a broader context.

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

Competition Come Full Circle? Pending Legislation to Repeal the U.S. Railroad Exemptions

Posted by D. Daniel Sokol

Chris Sagers (Cleveland State Law) asks Competition Come Full Circle? Pending Legislation to Repeal the U.S. Railroad Exemptions.

ABSTRACT: The single oldest and probably most convoluted story in American antitrust is its relationship with the railroads. Railroads were among the first business entities in the United States to be perceived as social problems in and of themselves, regardless of any aid or preference gotten from government. The “populism” that had been a part of American politics since colonial times shifted from fear of government-supported aristocracy to fear of private economic power in its own right, and the railroads were among the first to embody that free-standing power. Perceived railroad abuses were chief motivations for the first state and federal antitrust statutes, and railroads were defendants in many of the earliest antitrust decisions. Even before there was a federal antitrust law, the Interstate Commerce Commission (“ICC”), the first federal regulator of an economic sector, was set up to constrain their power.

And yet the railroads were also among the early beneficiaries of a new kind of economic thinking that arose around the turn of the twentieth century, which led to near consensus that railroads and the other heavy infrastructure industries simply could not function on a competitive basis. And so was born a period of regulation under which government controlled entry, exit, and prices in the American transportation, communications, and energy industries. Because competition was displaced, those industries were also exempted from most antitrust scrutiny. Thus, not that long after their perceived wrongdoing precipitated the first antitrust legislation, the railroads managed to escape it more or less entirely by statutory exemption, and they have retained some degree of exemption ever since.

In all of these industries, though, the regime of rate-and-entry regulation has largely been dismantled, as a result of a complex series of deregulatory steps begun during the Carter administration and continuing ever since.

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