Monday, July 26, 2010

The Impact of Competition on Management Quality: Evidence from Public Hospitals

Posted by D. Daniel Sokol

Nicholas Bloom (Stanford - Econ) Carol Propper (Imperial College - Econ), Stephan Seiler (LSE - Econ), and John Van Reenen (LSE - Econ) explore The Impact of Competition on Management Quality: Evidence from Public Hospitals.

ABSTRACT: In this paper we examine the causal impact of competition on management quality. We analyze thehospital sector where geographic proximity is a key determinant of competition, and English publichospitals where political competition can be used to construct instrumental variables for marketstructure. Since almost all major English hospitals are government run, closing hospitals in areaswhere the governing party has a small majority is rare due to fear of electoral punishment. We findthat management quality - measured using a new survey tool - is strongly correlated with financialand clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreimportantly, we find that higher competition (as indicated by a greater number of neighboringhospitals) is positively correlated with increased management quality, and this relationshipstrengthens when we instrument the number of local hospitals with loca! l political competition.Adding another rival hospital increases the index of management quality by one third of a standarddeviation and leads to a 10.7% reduction in heart-attack mortality rates.

July 26, 2010 | Permalink | Comments (0) | TrackBack (0)

The Economics of Payment Card Interchange Fees and the Limits of Regulation

Posted by D. Daniel Sokol

Todd Zywicki has an interesting piece on The Economics of Payment Card Interchange Fees and the Limits of Regulation.

ABSTRACT: Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees” - transaction charges integral to payment card systems - through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure, inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee - currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paper-based payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.

July 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Comparing Monopoly and Duopoly on a Two-Sided Market without Product Differentiation

Posted by D. Daniel Sokol

Enrico Böhme and Christopher Müller (Johann Wolfgang Goethe-University, Frankfurt) explore Comparing Monopoly and Duopoly on a Two-Sided Market without Product Differentiation.

ABSTRACT: We propose both a monopoly and a duopoly model of a two-sided market. Both settings are fully comparable, as we impose a homogeneous good produced at zero costs without capacity constraints, as well as identical parameterization of market sizes. We determine the duopoly equilibrium and the monopoly optimum in terms of the parameters and obtain solutions with and without subsidization (prices below marginal cost) of one market side. We show that there exists a continuum of economically plausible parameter sets for which duopoly equilibrium prices exceed optimal monopoly prices and one with no observable price effect of competition, i.e. one where optimum and equilibrium prices become equal. Despite the fact that virtually everything except for the number of platform operators is identical in the latter situations, total demand on both market sides in the duopoly market exceeds total demand in the monopoly market. Furtherm! ore, even though there is no observable price effect, there is still a competitive effect in so far that total profits in the duopoly equilibrium are strictly smaller than monopoly profits. The relationship of total welfare is ambiguous in subsidization cases, while it is strictly greater in duopoly, if no subsidization takes place. Our results sharply contradict economic intuition and common economic knowledge from one-sided markets.

July 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Downstream labeling and upstream price competition

Posted by D. Daniel Sokol

Olivier Bonroy & Stéphane Lemarie (both Université Grenoble 2) discuss the implications of Downstream labeling and upstream price competition.

ABSTRACT: The paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects : a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low quality input price, the label acts then as a subsidy which assures an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of the public labeling in cases like restaurants or GMOs.

July 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition Policy and the Transition to a Low-Carbon, Efficient Electricity Industry

Posted by D. Daniel Sokol

John E. Kwoka, Jr., Northeastern University - Department of Economics and Diana L. Moss, American Antitrust Institute (AAI) explain Competition Policy and the Transition to a Low-Carbon, Efficient Electricity Industry.

ABSTRACT: U.S. industries are facing intense pressures to become more energy efficient, driven by the need to lower the carbon footprints of energy-intensive sectors and to achieve energy security. A successful transition to a new era of efficient, low-carbon electricity production and usage will require fundamental changes in the way we plan for, produce, deliver, and price a critically important commodity. The purpose of this article is to explore the importance of competition policy in a transitioning electricity industry. It starts by setting out the important precondition of the new era: market participants have fundamentally different objectives than in the old regime, and these changed objectives need to be recognized in order to fashion appropriate policy. Next, the paper presents some of the major competitive issues that are likely to arise in the new era, including: access and demand response technologies, the design of markets for CO2 emissions allowances, and transmission planning. The paper concludes with a number of recommendations for how competition policy can best promote a successful transition.

July 26, 2010 | Permalink | Comments (0) | TrackBack (0)

Saturday, July 24, 2010

Antitrust Enforcement in Argentina Under Stricter Judicial Scrutiny

Posted by D. Daniel Sokol

Julián Peña, Allende & Brea explains Antitrust Enforcement in Argentina Under Stricter Judicial Scrutiny.

ABSTRACT: In the past couple of years, the courts have become increasingly stricter when reviewing decisions taken by the antitrust authorities in Argentina. Although historically the courts of appeals have sometimes overturned fines imposed by the antitrust authorities, in recent months different courts of appeals have questioned certain powers of either the Comisión Nacional de Defensa de la Competencia ("CNDC") or the Secretariat of Domestic Trade ("SDT") and have even annulled several decisions taken by such agencies. These court decisions have been taken both in anticompetitive behavior investigations as well as in merger control cases and most of them relate to cases that are still in the pipeline.

Although the courts have always played an important role in antitrust cases and have revoked different CNDC and SDT decisions on grounds of insufficient evidence, the type of control exercised by the courts in recent times goes further since it even questions the CNDC's and the SDT's power to take decisions. This process started in 2003 with the "judicialization" of antitrust enforcement due to the institutional fragility derived from the lack of implementation of the Tribunal Nacional de Defensa de la Competencia ("TNDC"), an independent agency created by law in 1999 to replace the CNDC that even today has not yet been implemented.

The greater importance of competition cases (much higher fines and important merger cases) has forced the courts to a stricter scrutiny of the decisions taken by the Argentine antitrust enforcers.

July 24, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, July 23, 2010

Evidence of a Modest Price Decline in US Broadband Services

Posted by D. Daniel Sokol

Shane Greenstein (Northwestern Kellogg School) and Ryan McDevitt (Northwestern Econ) provide Evidence of a Modest Price Decline in US Broadband Services.

ABSTRACT: In this paper, we construct a price index for broadband services in the United States between 2004 and 2009. We analyze over 1500 service contracts offered by DSL and cable providers in the United States. We employ a mix of matched-model methods and hedonic price index estimations to adjust for qualitative improvements. In general, we find some evidence of a quality-adjusted price decline, but the evidence points towards a modest decline at most. Our estimates of the price decline range from 3% to 10% in quality-adjusted terms for the five-year period, which is faster than the BLS estimates for the last three years. These modest price declines look nothing like other parts of electronics, such as computers or integrated circuits, which raises many questions. The results also inform a range of policy discussions about US broadband services.

July 23, 2010 | Permalink | Comments (0) | TrackBack (0)

New Kids on the Block: Retailer-driven Vertical Practices and the New Regulation of Vertical Restraints in EU Competition Law

Posted by D. Daniel Sokol

Ioannis Lianos (University College London) describes New Kids on the Block: Retailer-driven Vertical Practices and the New Regulation of Vertical Restraints in EU Competition Law.

ABSTRACT: By integrating more fully the retailer power story, the new vertical restraints guidelines and block exemption regulation provide for a more equilibrated regime for vertical restraints in Europe. The objective of the Commission was not only to address the important concern of retailer power and its possible anticompetitive effects in a retail sector that is characterized by increasing concentration, although not necessarily increasing profitability, but also to respond to the concerns (and political pressure) over big distribution and the power of multi-brand retailers that have been expressed at the national level, with the adoption of a hard or a soft law type of approach in order to regulate the relation between suppliers and retailers. By bringing these concerns within the realm of EU competition law, the Commission offers an alternative relief valve that takes more into account the effect of these practices on consumers than the regulations adopted at the national level.

July 23, 2010 | Permalink | Comments (0) | TrackBack (0)

The New EC Block Exemption for Vertical Restraints: A Step Forward and a Missed Opportunity

Posted by D. Daniel Sokol

Paul Lugard (TILEC) & Theon van Dijk (Lexonomics) have mixed comments on EU policy in their piece The New EC Block Exemption for Vertical Restraints: A Step Forward and a Missed Opportunity.

ABSTRACT: Today, more than 10 years after the adoption of Regulation 2790/1999, much has changed. First, while the adoption of Regulation 279/1999 marked a more favorable reception of economic insights in EU competition law, those insights have, to some extent, subsequently been laid down in the Article 81(3) Notice of 2004 and have nowadays become commonplace. This is despite a somewhat ill-defined preference for empirical research (as opposed to theoretical insights), in particular in the area of resale price maintenance, and the continuing treatment of a number of specific vertical restraints as hardcore restrictions that do not necessarily decrease consumer welfare.

Second, following the adoption of Regulation 1/2003, the enforcement of competition law in the area of vertical restraints has become predominantly a matter for national competition agencies. In fact, since the entry into force of Regulation 2790/1999, there have only been a few Commission decisions specifically dealing with vertical restraints. But with the decentralizing of the overview of these types of restraints to national competition agencies, the risk of diverging analytical approaches and prioritization approaches increases. For instance, during the discussions on what would become Regulation 330/2010, four member states questioned whether resale price maintenance should continue to be treated as a hardcore violation.

Three additional developments seem to have had a clear impact on the new regime for vertical restraints.

July 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition Commission (CC) Publishes its Annual Report and Accounts for 2009/10

Posted by D. Daniel Sokol

The Competition Commission (CC) has published its Annual Report and Accounts for 2009/10.  See here.

July 23, 2010 | Permalink | Comments (0) | TrackBack (0)

The New Verticals Block Exemption Regulation and Guidelines—Practical Implications

Posted by D. Daniel Sokol

Kyriakos Fountoukakos & Kristien Geeurickx (Herbert Smith) explain The New Verticals Block Exemption Regulation and Guidelines—Practical Implications.

ABSTRACT: The new verticals block exemption Regulation and Guidelines came into force on June 1, 2010. Agreements which as of May 31, 2010 satisfied the exemption criteria of Regulation 2790/99 will continue to be exempt for another year, but any new agreements will need to comply with the new Regulation in order to benefit from the automatic exemption. The aim of this article is to look at the practical implications of the new regime for businesses.

The Commission's decision to renew the block exemption Regulation and Guidelines for vertical agreements has been widely welcomed. A clear analytical framework that provides guidance on the Commission's approach to vertical agreements is particularly important in the post-notification era where businesses need to assess by themselves the compatibility of their agreements with competition rules. The regime is also important for national competition authorities and national courts, by providing them with a common framework that contributes to a European wide level playing field.

Although it had been widely accepted that the previous regime has worked well in practice, the Commission, understandably, wanted to take the opportunity of the need to renew the block exemption Regulation and Guidelines to reflect its experience and introduce a number of changes that take account of market developments over recent years. The key changes, some of which were hotly debated during the consultation period, relate to the calculation of the relevant market share threshold, which now applies to both the supplier's and the buyer's market shares, additional guidance regarding online sales restrictions, and additional guidance on the efficiency defense under Article 101(3) which continues the theme of the Commission moving to a more economic, effects-based approach.

Some of these changes seem to have resulted in a stricter approach to vertical agreements whereas others would appear to indicate a relaxation of the rules. It is too early to tell whether on balance the new regime will be more or less strict than the previous one, as much will depend on how the framework is used in practice by businesses and their advisers and how competition authorities, in particular at the national level, apply the new rules.

July 23, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, July 22, 2010

Innovation, Competition and Incentives for R&D

Posted by D. Daniel Sokol

Martin Woerter (KOF Swiss Economic Institute, ETH Zurich, Switzerland), Christian Rammer (Centre for European Economic Research (ZEW), Department of Industrial Economics and International Management, Mannheim), and Spyros Arvanitis (KOF Swiss Economic Institute, ETH Zurich, Switzerland) explore Innovation, Competition and Incentives for R&D.

ABSTRACT: This paper analyses the relationship between past innovation output, competition, and future innovation input in a dynamic econometric setting. We distinguish two dimensions of competition that correspond to the concepts of product substitutability and entry barriers due to fixed costs. Based on firm-level panel data for Germany and Switzerland we obtain consistent results for both countries. Innovation output in t-1 as measured by the sales share of innovative products is positively related to the degree of product obsolescence in t, and negatively to the degree of substitutability in t in both countries. Further, we find that rapid product obsolescence provides positive incentives for higher – primarily product-oriented – R&D investments in t+1, while high substitutability exerts negative incentives for future R&D investment.

July 22, 2010 | Permalink | Comments (0) | TrackBack (0)

How the National Competition Authorities’ Decisions Fed Into the Modernization of the EU Vertical Agreements Block Exemption Regulation and Guidelines: The Example of the French Autorité de la Concurrence

Posted by D. Daniel Sokol

Luiza Bellulo, Umberto Berkani, & Valerie Meunier (French Autorité de la Concurrence) explain How the National Competition Authorities’ Decisions Fed Into the Modernization of the EU Vertical Agreements Block Exemption Regulation and Guidelines: The Example of the French Autorité de la Concurrence.

ABSTRACT: On April 20, 2010, The European Commission adopted a new Block Exemption Regulation on vertical restraints and its supplementary Guidelines. They replace the corresponding texts that dated back from 1999 and provide a new framework for analyzing distribution agreements for the next twelve years.

The main novelty of the BER lies in its Article 3, which narrows the "safe harbour" by taking into account buyer power. In addition to the incumbent 30 percent market share threshold for manufacturers, it introduces a new threshold that applies to distributors, and which is measured on the upstream market. This will induce a more detailed analysis at national or local levels and provide more refined tools to national competition authorities.

But this should not eclipse two major updates of the Guidelines in which NCAs' experience and decisional practice were important contributors and which will significantly affect future enforcement, i.e. hardcore restrictions (I) and online sales (II).

July 22, 2010 | Permalink | Comments (0) | TrackBack (0)

The Application of European Competition Law in the Financial Services Sector

Posted by D. Daniel Sokol

Thomas Jestaedt and Marcus Pollard (both Jones Day) discuss The Application of European Competition Law in the Financial Services Sector.

ABSTRACT: The central role of financial services in the drama of the economic crisis that continues to unfold today, has subjected this sector to enhanced political scrutiny and growing public distrust. However, the application of European competition law in 2009 and the first half of 2010 by the European Commission and the Court of Justice was not thrown off by background noises off-stage. Instead, competition law was applied consistently, rigorously and was successfully targeted as a means of solving the problems in this sector. State aid law was rapidly adjusted and swiftly enforced in over 100 decisions in 2009 alone relating to national schemes in 19 Member States. Following on from a number of high profile banking mergers across the EU in 2008, the last 18 months have seen few significant developments in this area. The merciless application of Articles 101 and 102 TFEU continued with antitrust cases and policy being launched or progressed further against rating agencies, payment systems and a number of banks. As we now begin to emerge from the crisis and focus shifts from rescue to regulation, competition law will nonetheless continue to have a key role in this sector with the second half of 2010 bringing the prospect of a number of significant developments.

July 22, 2010 | Permalink | Comments (0) | TrackBack (0)

The Wider Concerns of Competition Law

Posted by D. Daniel Sokol

Okeoghene Odudu (Cambridge - Law) has posted The Wider Concerns of Competition Law.

ABSTRACT: In his recent book, Article 81 EC and Public Policy, Dr Christopher Townley promotes a vision of competition law that can be used to promote the general well-being of European Union citizens by requiring economic entities to promote general well-being and so participate in society as moral actors. This review article argues that the legitimate task of European Union competition law is much more modest than Townley envisions so that his version of competition law exceeds the limited competences conferred on the Union and the limits of justiciability.

July 22, 2010 | Permalink | Comments (0) | TrackBack (0)

How Market Power Influences Bank Failures Evidence from Russia

Posted by D. Daniel Sokol

Zuzana Fungacova (BOFIT, Bank of Finland) and Laurent Weill (LaRGE Research Center, Université de Strasbourg) explain How Market Power Influences Bank Failures Evidence from Russia.

ABSTRACT: There has been a notable debate in the banking literature on the impact of bank competition on financial stability. While the dominant view sees a detrimental impact of competition on the stability of banks, this view has recently been challenged by Boyd and De Nicolo (2005) who see the reverse effect. The aim of this paper is to contribute to this literature by providing the first empirical investigation of the role of bank competition on the occurrence of bank failures. We analyze this issue based on a large sample of Russian banks over the period 2001-2007 and in line with the previous literature we employ the Lerner index as the metric of bank competition. Our findings clearly support the view that tighter bank competition enhances the occurrence of bank failures. The normative implication of our findings is therefore that measures that increase bank competition could undermine financial stability.

July 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 21, 2010

Role of Economics in Competition Law and Practice

Posted by D. Daniel Sokol

UCL Jevons Institute: The Role of Economics in... Logo

The UCL Jevons Institute is pleased to announce that it will again run it successful Role of Economics in Competition Law and Practice course, starting in the Autumn 2010. 

 

This course introduces the economic theories that underlie competition law and the methods that are used to assess whether business practices are nefarious, benign, or healthy.  This year it is taught by Dr. Andrea Coscelli, Director of Competition Economics at Ofcom, and Professor David S. Evans who teaches at University of Chicago as well as University College London.  During the year, there will be guest lecturers primarily drawn from current or ex-officials of competition authorities as well as judges and visiting academics.

The course consists of two parts:
The first part involves an introduction to microeconomics and industrial organization theory. It provides a basic introduction to the economics of markets including how firms maximise profits, the theory of demand, the role of costs, perfect competition, monopoly, oligopoly, product differentiation, vertical relationships, and multi-sided markets.

The second part involves the application of economics to competition policy. It includes the analysis of market power, market definition, cartels and other coordinated  behaviour, unilateral conduct including predatory and exclusionary practices, horizontal and vertical mergers, two-sided markets and the web economy, and antitrust and intellectual property. The course is designed to provide students with a deep understanding of how economics is applied to competition policy as well as practical tools for applying this to cases.

Although both parts provide a rigorous introduction to the topic, the course does not require students to have any previous coursework or knowledge of economics and does not require students to a know anything beyond very basic math. Lectures rely on graphs and verbal descriptions to convey key concepts. Typical students generally have undergraduate degrees in law or other liberal arts subjects.  Most students who take the course go on to practice as competition lawyers or in another field of law in which knowledge of economics is helpful.

BOOK BEFORE THE END OF JULY AND RECEIVE A 15% DISCOUNT ON THE REGISTRATION FEES. 

To view the full schedule of lectures and book your place, please click on the link below or go to: 
http://ucl-competition-10-11.eventbrite.com/ 

Alternatively you can download a brochure about the course from the UCL Jevons Institute website: 
http://www.ucl.ac.uk/laws/jevons/events

With best wishes,

Lisa Penfold
Events Manager, UCL Faculty of Laws
Tel: 020 7679 1514
email: lisa.penfold@ucl.ac.uk 

 

You are invited to the following event:
UCL Jevons Institute: The Role of Economics in Competition Law & Practice

Date:
Tuesday, October 05, 2010 at 6:00 PM
- to -
Tuesday, March 08, 2011 at 8:00 PM (GMT)


Location:
UCL Faculty of Laws
Bentham House
Endsleigh Gardens
WC1H 0EG London
United Kingdom

July 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Competition In Digital Media and the Internet

Posted by D. Daniel Sokol

Joaquin Almunia (DG Competition) provides comments on Competition In Digital Media and the Internet in a speech delievered at UCL.

July 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Consumer Choice as the Best Way to Recenter the Mission of Competition Law

Posted by D. Daniel Sokol

Bob Lande (University of Baltimore Law) suggests Consumer Choice as the Best Way to Recenter the Mission of Competition Law.

ABSTRACT: This article will (1) define the consumer choice approach to competition law or antitrust law and show how it differs from other approaches; (2) discuss the types of situations where a consumer choice focus is likely to make a difference in enforcement outcomes, producing better results than the other paradigms; (3) show that another important advantage of using the consumer choice approach would be to nudge decisions in the right direction; and (4) offer a brief overview of implementation issues.

This is a chapter of a forthcoming ASCOLA book, and is a condensation and update of Neil W. Averitt & Robert H. Lande, 'Using The "Consumer Choice" Approach to Antitrust Law', Antitrust Law Vol. 74, 2007, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1121459

July 21, 2010 | Permalink | Comments (0) | TrackBack (0)

Dominant Firms Beware - the KFTC Will be Focusing Efforts on You

Posted by D. Daniel Sokol

A news story reports that the KFTC will focus efforts on dominant firm conduct.  The manufacturing sector is a particular target according to the story.

July 21, 2010 | Permalink | Comments (1) | TrackBack (0)