Antitrust & Competition Policy Blog

Competition Policy and Green Growth

Posted by D. Daniel Sokol

The Nordic competition authorities have authored a new report on Competition Policy and Green Growth.

1. Executive Summary

...................................................................................................5

2. Background and Structure of the Repor

t..............................................................11

3. Competition Policy and Environmental Policy

.....................................................12

3.1 Brief Introduction to Environmental Policy............................................................12

3.2 The Benefits of Competition ..................................................................................13

3.3 The Relationship between Competition Policy and Environmental Policy .........15

3.3.1. The Impact of Environmental Policy on Competition...........................................16

3.3.2. The Environmental Impacts of Restrictive Practices...............................................17

3.4 Concluding Remarks................................................................................................18

4. Environmental Policy Instruments and Competition Implications

...................20

4.1 Taxes and Subsidies.................................................................................................20

4.1.1 Taxes.........................................................................................................................20

4.1.2 Subsidies...................................................................................................................21

4.2 Tradable Emission Permits.......................................................................................24

4.2.1 ETS and the Importance of Effective Competition ................................................24

4.3 Green Public Procurement .....................................................................................27

4.3.1 GPP as an Environmental Policy Tool ...................................................................27

4.3.2 GPP in a Competition Policy Perspective...............................................................29

4.3.3 Case Material ...........................................................................................................31

4.3.4 Concluding Remarks................................................................................................33

4.4 Restrictive Effects of Green Measures and the Importance of Advocacy. ...........33

4.4.1 Competition Assessment of Green Measures ........................................................34

4.4.2 Advocacy of Market Based Instruments in Environmental Policy.........................44

5. Business Practices in Green Markets

.....................................................................46

5.1 Antitrust and Green Markets....................................................................................47

5.2 Restrictive Practices in Recycling and Waste Management....................................49

5.2.1 Spillover effects........................................................................................................49

5.2.2 Bundling of Demand...............................................................................................51

5.2.3 Pricing and Fee Structure .......................................................................................54

5.3 Certification Arrangements and Competition Concerns.........................................58

5.3.1 Economic Theory and Certification Effects.............................................................59

5.3.2 Certification, Differentiation and Price Premiums..................................................61

5.3.3 Certification and Trade............................................................................................63

5.3.4 Concluding Remarks................................................................................................63

6. Future Challenges on the Path to Green Growth

..................................................66

The Interplay Between Competition and Clinical Integration: Why the Antitrust Agencies Care About Medical Care Delivery Styles

Posted by D. Daniel Sokol

Gregory Vistnes (CRA) discusses The Interplay Between Competition and Clinical Integration: Why the Antitrust Agencies Care About Medical Care Delivery Styles.

ABSTRACT: The Affordable Care Act provides for the formation of Accountable Care Organizations ("ACOs"). These ACOs will be composed of health care providers (hospitals and physicians) that will work together to manage and coordinate care for Medicare beneficiaries. Through this coordination of care-sometimes referred to as clinical integration-Medicare hopes that ACOs will lead to lower costs and increased quality of care for Medicare beneficiaries.

Medicare, however, is not the only government agency interested in ACOs and the clinical integration that will likely characterize those entities. In particular, state and federal antitrust agencies ("the Agencies") are also quite interested in ACOs. The Agencies' interest in ACOs, however, differs somewhat from Medicare's, and stems from the concern that, under some circumstances, ACOs may not benefit consumers, but instead lead to higher healthcare costs and lower quality of care.

This paper outlines why the Agencies care about clinical integration, an issue that might seem primarily an issue of concern to the healthcare community and not antitrust enforcers, and how the Agencies typically evaluate the competitive significance of clinical integration. This discussion should help prospective ACOs understand how to pursue the benefits envisioned by the Affordable Care Act while avoiding antitrust concerns.

Give to Charity

Posted by D. Daniel Sokol

There are lots of worthy charities.  Judd Aptow (The 40-Year-Old Virgin, Knocked Up) has directed a video about one that I believe deserves your contributions.  See here.

 

Antitrust and Vertical Integration in ‘New Economy’ Industries

Posted by D. Daniel Sokol

Bruce Owen (Stanford - Econ) addresses Antitrust and Vertical Integration in ‘New Economy’ Industries.

ABSTRACT: Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality” – including President Obama and the current FCC majority – believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation transcending present-day antitrust law enforcement. Their objective is to protect the free and open culture of the Internet from efforts to foreclose or limit competition in the provision of content, including online video services, which they see as potential competition to older video distribution methods.

In the economic terms used in debates on competition policy, the concern is with vertical integration which may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. Antitrust laws already provide tools to deal with such concerns, as illustrated by the antitrust breakup of the old Bell System, designed to remedy precisely these offenses. But, except in merger cases, antitrust usually is an ex post remedy. Do “new economy” industries have characteristics that make vertical integration so potentially pernicious that ex ante regulation is justified? Or do “new economy” industries on the contrary exhibit features that make ex ante regulation futile or even dangerous?

The air in Washington is alive with contending voices taking sides on these issues. I engage the debate first by attempting to deconstruct the terms “vertical integration” and “new economy;” which turn out to be surprisingly elusive concepts. I briefly review theoretical and empirical work on vertical integration as it relates to antitrust policy, especially in “new economy” industries. I assume that the policy objective is to promote welfare. My goal is to identify circumstances in which vertical integration creates suspicion of adverse welfare effects sufficient to justify prophylactic (ex ante) regulation.

The paper’s central point is that virtually every production process in the economy is in part vertically integrated, and economics predicts changes in the extent of vertical integration – that is, changes in the boundaries of the firm – in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets.

While there is no shortage of theoretical models in which vertical integration may be harmful, most such modes have restrictive assumptions and ambiguous welfare predictions – even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial – again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality is an unfortunate idea.

Market Power, Bank Megamergers, And the Welfare of Bank Borrowers

Posted by D. Daniel Sokol

Donald R. Fraser, Texas A&M University - Department of Finance, James W. Kolari, Texas A&M University - Department of Finance, Seppo Pynnonen, University of Vaasa - Department of Mathematics and Statistics, and T. Kyle Tippens, Texas A&M University - Department of Finance address Market Power, Bank Megamergers, And the Welfare of Bank Borrowers.

ABSTRACT: We assess the effects on the welfare of corporate borrowers of the recent wave of bank consolidations in the United States that has produced a small number of very large banks. Our evidence from a sample of more than 3,000 commercial borrowers from banks involved in large mergers indicates that the wealth effects on these borrowers are highly negative, statistically significant, and economically important. These negative investor perceptions seem to be driven largely by the expectation of changes in banks’ market power resulting from the mergers.

Does market concentration of downstream buyers squeeze upstream suppliers’ market power?

Posted by D. Daniel Sokol

Carlos F. Alves (CEF.UP, Faculdade de Economia, Universidade do Porto) and Cristina Barbot (CEF.UP, Faculdade de Economia, Universidade do Porto) ask Does market concentration of downstream buyers squeeze upstream suppliers’ market power?

ABSTRACT: Using a theoretical model, we examine both the relationship between a downstream dominant firm’s market share and an upstream monopoly’s Lerner index and the relationship between upstream and downstream price elasticities of demand, in a regulated industry context. We undertake an empirical study that confirms our theoretical predictions, namely that the market share of a leader downstream firm is significant in explaining the upstream producers’ Lerner indexes. Also in accordance with the results of the theoretical model, the Lerner index is negatively influenced by the competition that suppliers face and by the level of economies of density, amongst other variables.

ATM Direct Charging Reform: the Effect of Independent Deployers on Welfare

Posted by D. Daniel Sokol

Jocelyn Donze and Isabelle Dubecy (both Toulouse School of Economics (GREMAQ)) discuss ATM Direct Charging Reform: the Effect of Independent Deployers on Welfare.

ABSTRACT: In Australia, on the 3rd of March 2009, the interchange fees on shared ATM transactions were removed and replaced by fees directly set and received by the ATM owners. We develop a model to study how the entry of independent ATM deployers (IADs) aspects welfare under this direct charging scheme. Paradoxically, we show that the IAD entry benefits banks. It may be good for consumers if they sufficiently value the associated growth of the ATM network.

The Revised Merger Guidelines: Did the Agencies Heed the Lessons of the Past?

Posted by D. Daniel Sokol

Deborah Feinstein (Arnold & Porter) asks some tough questions on the merger guidelines in her comment The Revised Merger Guidelines: Did the Agencies Heed the Lessons of the Past?

The Impact of Mergers on the Degree of Competition in the Banking Industry

Posted by D. Daniel Sokol

Vittoria Cerasi (Bicocca University), Barbara Chizzolini (Bocconi University), and Marc Ivaldi (Toulouse School of Economics and EHESS, Toulouse University) analyze The Impact of Mergers on the Degree of Competition in the Banking Industry.

ABSTRACT: This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers.

The effect of competition on process and outcome quality of hospital care; An empirical analysis for the Netherlands

Posted by D. Daniel Sokol

Michiel Bijlsma, Pierre Koning, Victoria Shestalova, and Ali Aouragh explain The effect of competition on process and outcome quality of hospital care; An empirical analysis for the Netherlands.

ABSTRACT: The paper focuses on the relationship between competition and quality in the Dutch hospital sector. We analyse the period of 2004-2008, in which a healthcare reform took place in the Netherlands, introducing competition in the healthcare sector. The increased attention to hospital quality and its growing importance in a new institutional environment have resulted in a gradual increase of the voluntary disclosure of quality indicators by Dutch hospitals. We use panel data on Dutch general and academic hospitals in 2004-2008, including both process indicators (e.g., share of operation cancellations on short notice and share of diagnoses within 5 days) and outcome indicators (e.g., mortality rates) of hospital quality. We take the correlation between the disclosure decision and the level of the disclosed quality indicators explicitly into account by estimating a bivariate model. We find that competition explains differences! in performance on process indicators, but not on outcome indicators.

Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter

Posted by D. Daniel Sokol

David Bardey (Ecole Polytechnique de Paris, Toulouse School of Economics (GREMAQ) and University of Rosario (Bogota)), Chiara Canta (Toulouse School of Economics (GREMAQ)) and Jean-Marie Lozachmeur (Toulouse School of Economics (IDEI and GREMAQ-CNRS)) discuss Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter.

ABSTRACT: This paper analyzes the regulation of payment schemes for health care providers competing in both quality and product differentiation of their services. The regulator uses two instruments: a prospective payment per patient and a cost reimbursement rate. When the regulator can only use a prospective payment, the optimal price involves a trade-off between the level of quality provision and the level of horizontal differentiation. If this pure prospective payment leads to underprovision of quality and overdifferentiation, a mixed reimbursement scheme allows the regulator to improve the allocation efficiency. This is true for a relatively low level of patients’transportation costs. We also show that if the regulator cannot commit to the level of the cost reimbursement rate, the resulting allocation can dominate the one with full commitment. In particular, some cost reimbursement might be optimal even for higher levels of t! ransportation costs.

The Antitrust Review of the Americas 2010

Posted by D. Daniel Sokol

Dear Global Competition Review reader, We wanted to bring the latest edition of The Antitrust Review of the Americas to your attention. Leading competition lawyers and economists provide overviews and analysis of the main themes in antitrust enforcement and trade policy in the Americas. Click here to access the content free of charge. We welcome your feedback on this edition and hope you find our publications informative and interesting. However, if you prefer not to receive information about special reports in this format please click on 'unsubscribe' at the bottom of this e-mail. Yours faithfully, Global Competition Review
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Joaquín Almunia speech to Businesseurope & US Chamber of Commerce Competition conference Brussels, 25 October 2010

Posted by D. Daniel Sokol

The link is here. Commissioner Almunia's states that the Commission does not intend to reduce fines (or otherwise grant preferential treatment to companies) due to the existence of antitrust leniency programs ("the answer is no"). I think that this is not the correct approach and in a few weeks I will post a paper on SSRN explaining why. For those who cannot wait that long, I will be speaking about this topic at UCL in November at a talk called "Cartels and Corporate Compliance". See here for details for free registration for my talk.

Prosecution and Leniency Programs: a Fool's Game

Posted by D. Daniel Sokol

Julien SAUVAGNAT discusses Prosecution and Leniency Programs: a Fool's Game.

ABSTRACT: We present a model where the Antitrust Authority is privately informed about the strength of the case against a given cartel. In this context, the Antitrust Authority may obtain cartel members' confessions even when it opens an investigation knowing that it has no chance to find hard evidence. More generally, we show that offering leniency allows to raise the conviction rate, which in turn enhances cartel desistance and cartel deterrence. A second contribution of the paper is to show that the optimal leniency scheme involves a single informant rule. That is, amnesty should be given only if a unique cartel member reports information.

The 2010 Horizontal Merger Guidelines: A Static Compass in a Dynamic World?

Posted by D. Daniel Sokol

Jay Ezrielev (Compass Lexcon) and Janusz A. Ordover (NYU Economics) ask The 2010 Horizontal Merger Guidelines: A Static Compass in a Dynamic World?

Leniency programs for multimarket firms: The effect of Amnesty Plus on cartel formation

Posted by D. Daniel Sokol

Yassine LeFouili (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL)) and Catherine Roux (University of Lausanne, Faculty of Business and Economics) have an interesting paper on Leniency programs for multimarket firms: The effect of Amnesty Plus on cartel formation.

ABSTRACT: We examine the effect of the Amnesty Plus policy on the incentives of firms to engage in cartel activities. Amnesty Plus is aimed at attracting amnesty applications by encouraging firms, convicted in one market, to report their collusive agreements in other markets. It has been vigorously advertised that Amnesty Plus weakens cartel stability. We show to the contrary that Amnesty Plus may not have this desirable effect, and, if improperly designed, may even stabilize a cartel. We suggest a simple discount-setting rule to avoid this anticompetitive effect.

Competition and growth: reinterpreting their relationship

Posted by D. Daniel Sokol

Daria Onori (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; University of Rome "La Sapienza", Faculty of Economics) addresses Competition and growth: reinterpreting their relationship.

ABSTRACT: In this paper we modify a standard quality ladder model by assuming that R&D is driven by outsider firms and the winners of the race sell licenses over their patents, instead of entering directly the inter- mediate good sector. As a reward they get the aggregate profit of the industry. Moreover, in the intermediate good sector firms compete à la Cournot and it is assumed that there are spillovers represented by strategic complementarities on costs. Our goal is to prove that there exists an interval of values of the spillover parameter such that the relationship between competition and growth is an inverted-U-shape.

Ambiguous Information and Market Entry: An Experimental Study

Posted by D. Daniel Sokol

Jordi Brandts (Department of Business Economics, Universitat Autonoma de Barcelona and Instituto de Analisis Economico (CSIC)) and Lan Yao (School of Economics, Shanghai University of Finance and Economics) study Ambiguous Information and Market Entry: An Experimental Study.

ABSTRACT: We study experimentally how entry into a market with uncertain capacity is affected by the type of information potential entrants have available. Our focus is on behavior in a two-market entry game. In the risky information market there are two possible market capacities, both known to occur with probability 1/2. In the ambiguous information market the two possible market capacities effectively occur with probability 1/2 but participants are only told that there is uncertainty about capacities. We find that average entry is higher under ambiguous information than under risky information. To control for comparison effects and the effects of strategic interaction in the two market environment we also study a two-lottery individual decision problem and one market entry games with ambiguous and risky information. For these two cases the experimental results show no difference between information conditions. Our results are c! onsistent with the notion that complex strategic interaction leads to higher market entry under ambiguous information.

Polska Telefonia Cyfrowa: Pricing of Number Portability: Cost- or Demand-Based?

Posted by D. Daniel Sokol

Yves Van Gerven - Vermulst Verhaeghe Graafsma & Bronckers and Anne Vallery discuss Polska Telefonia Cyfrowa: Pricing of Number Portability: Cost- or Demand-Based?

ABSTRACT: In a judgment of 1 July 2010 (C-99/09 Polska Telefonia Cyfrowa), the European Court of Justice of the European Union (ECJ) has further clarified the pricing principles with respect to the portability of telephone numbers between communications networks. This ruling constitutes a welcome complement to the Court's existing case law on the topic (Case C-438/04 Mobistar [2006] ECR I-6675).

The New Legal Framework for Motor Vehicle Distribution: A Toolkit to Deal with Real Competition Breakdowns

Posted by D. Daniel Sokol

John Clark and Stephan Simon discuss The New Legal Framework for Motor Vehicle Distribution: A Toolkit to Deal with Real Competition Breakdowns.

ABSTRACT: The new rules on motor vehicle distribution are closer to the general regime applicable to vertical restraints. As the scope of the exemption is being limited, an increasing number of agreements will have to be assessed individually. A lower threshold will facilitate action against abuses on aftermarkets, such as abuses of warranties or failures to grant technical information. The alignment on the general regime facilitates the task of antitrust lawyers with clients in different industries