Wednesday, November 24, 2010

Is a Margin Squeeze an Antitrust or Regulatory Violation?

Posted by D. Daniel Sokol

Alberto Heimler (Scuola Superiore della Pubblica Amministrazione) asks Is a Margin Squeeze an Antitrust or Regulatory Violation?

ABSTRACT:Margin squeezes can be evaluated under a predation or a refusal-to-deal standard. Both Carlton and Sidak argue in favor of using the predation standard. However, should the conditions for an abusive refusal to deal be satisfied, then margin squeezes should be prohibited even when prices are not predatory. It is sufficient that they are exclusionary. According to the U.S. Supreme Court decision in linkLine, when a vertically integrated company is not subject to an obligation to supply, there cannot be a margin-squeeze case. However, the Court does not establish how to define a margin squeeze when there is an antitrust duty to supply. In those circumstances, the EC approach in the Deutsche Telekom case helps to identify a standard. In any event, remedies in margin-squeeze cases should make sure that incentives to eliminate double-marginalization are maintained.

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

The Use of Surveys in Merger and Competition Analysis

Posted by D. Daniel Sokol

Steven Hurley (CAT) describes The Use of Surveys in Merger and Competition Analysis.

ABSTRACT:Data generated from surveys have long been used to gather information from a large population efficiently. Used properly by competition authorities and professional advisors, surveys can assist in measuring how consumers value product attributes and make purchasing decisions, which can be invaluable information in assessing whether a particular transaction or conduct is ultimately likely to result in harm to consumer welfare. However, a robust survey takes time, effort, and substantial resources to construct and carry out. There are a significant number of potential pitfalls that, if not carefully considered and managed, can render results wholly unreliable. Nevertheless, by taking appropriate care and applying best practices, surveys and the data they generate are valuable additional empirical tools that can assist competition authorities and advisors in assessing how markets work.

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

On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game

Posted by D. Daniel Sokol

Hassan Benchekroun Department of Economics, CIREQ. McGill University and Cees Withagen Department of Spatial Economics, VU University Amsterdam provide thoughts On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game.

ABSTRACT: We consider a nonrenewable resource game with one cartel and a set of fringe members. We show that (i) the outcomes of the closed-loop and the open-loop nonrenewable resource game with the fringe members as price takers (the cartel-fringe game à la Salant 1976) coincide and (ii) when the number of fringe firms becomes arbitrarily large, the equilibrium outcome of the closed-loop Nash game does not coincide with the equilibrium outcome of the closed-loop cartel-fringe game. Thus, the outcome of the cartel-fringe open-loop equilibrium can be supported as an outcome of a subgame perfect equilibrium. However the interpretation of the cartel-fringe model, where from the outset the fringe is assumed to be price-taker, as a limit case of an asymmetric oligopoly with the agents playing Nash-Cournot, does not extend to the case where firms can use closed-loop strategies.

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

Supreme Court Verdict in CCI v SAIL: Setting the Ground Rules for the Commission and the Appellate Tribunal

Posted by D. Daniel Sokol

Parthsarathi Jha (Trilegal) describes Supreme Court Verdict in CCI v SAIL: Setting the Ground Rules for the Commission and the Appellate Tribunal.

ABSTRACT: In a recent telling judgment, the Supreme Court of India effectively and judiciously delineated the scope and manner of exercise of powers by the Competition Appellate Tribunal (hereinafter "the Tribunal") and the Competition Commission of India under the new Competition Act of 2002. The Supreme Court was hearing an appeal filed by the Competition Commission against the Tribunal order dated February 15, 2000. The dispute, being the first before the Supreme Court in relation to the Competition Act, has generated lot of curiosity and euphemism among lawyers, academia, and students. Even though the dispute did not involve interpreting any substantive concepts of competition law, the judgment will have significant bearing on the functioning of the Competition Commission of India and the Tribunal in times to come.

In this paper, I describe the judgment's importance for those readers having a special interest in competition law developments in India. Part II of the paper briefly sets out the background against which the Competition Act was enacted and enforced. Part III summarizes the main provisions of the Competition Act. Part IV briefly captures the facts of the dispute and order of the Tribunal. Part V paper deals with the issues framed by the Supreme Court and its findings. Finally, in Part VI, I draw conclusions.

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

Banking sector competition in Russia

Posted by D. Daniel Sokol

Diego Anzoategui, María Soledad Martínez Pería and Martin Melecky (all World Bank)discuss Banking sector competition in Russia.

ABSTRACT: The Russian banking sector includes approximately 1,000 banks, but is it competitive? This paper analyzes bank competition in Russia during 2002-2008. The authors examine indicators of concentration and contestability, and compute non-structural measures of competition. They compare competition in Russia to that in Brazil, China, and India, and contrast competition across different groups of banks within Russia. Contestability in Russia is obstructed by uneven supervisory practices and an unclear exit process. Non-structural measures reveal that banks in Russia are less competitive than those in Brazil. Within Russia, large banks and state-owned banks exert more market power than the smaller and privately-owned institutions. Finally, business-oriented banks are more competitive than those concentrating on lending to individuals.

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

Tuesday, November 23, 2010

Economics of Open Source: A Dynamic Approach

Posted by D. Daniel Sokol

Jeongmeen Suh (KIEP) and Murat Yilmaz (Bogaziçi University) describe the Economics of Open Source: A Dynamic Approach.

ABSTRACT: This paper analyzes open innovation projects and their e¤ects on incentives for innova- tion. We model basic features of the General Public License (GPL), one of the most popular open source licenses and study how firms behave under this license. Under the GPL, there is a trade-off between stimulating innovation and promoting disclosure. By using the open source, a firm can increase its technology level and therefore its probability of innovation success and of achieving a greater profit in that period. However, any innovative findings using open source would be also open source in subsequent periods. This obligation decreases the expected future revenue of the firm. We analyze this trade-off and show that if a firm has the same technology level as the open source, it does not use the source. On the other hand, if a firm has a lower level of production technology than the open source, it is optimal to use the source.

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

Land Use Regulation as a Barrier to Entry: Evidence from the Texas Lodging Industry

Posted by D. Daniel Sokol

Junichi Suzuki has posted Land Use Regulation as a Barrier to Entry: Evidence from the Texas Lodging Industry.

ABSTRACT: This paper examines the anticompetitive effects of land use regulation using microdata on mid-scale chain hotels in Texas. I construct a dynamic entry-exit model that endogenizes hotel chains\' reactions to land use regulation. Estimation results indicate that imposing stringent regulation increases costs considerably. Hotel chains nonetheless enter highly regulated markets even if entry probabilities are lower, anticipating fewer rivals and hence greater market power. Consumers incur the costs of regulation indirectly in the form of high prices.

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

Targeting in Advertising Markets: Implications for Offline vs. Online Media

Posted by D. Daniel Sokol

Dirk Bergemann (Yale - Econ) and Alessandro Bonatti (MIT Sloan School) address Targeting in Advertising Markets: Implications for Offline vs. Online Media.

ABSTRACT:We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium has a different ability to target advertising messages. We characterize the competitive equilibrium in the media markets and evaluate the implications of targeting in advertising markets. An increase in the targeting ability leads to an increase in the total number of purchases (matches), and hence in the social value of advertising. Yet, an improved targeting ability also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing in the targeting ability. We trace out the implications of targeting for competing media. We distinguish o­ ine and online media by their targeting ability: low versus high. As consumers’ relative exposure to online media increases, the revenues of o­fline media decrease, even though the price of advertising might increase.

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

Optimal Leniency Programs in Antitrust

Posted by D. Daniel Sokol

Andrea Pinna (Queen Mary, University of London and CRENoS) discusses Optimal Leniency Programs in Antitrust.

ABSTRACT: This paper analyses the incentive structure underlying the adoption of leniency programs in antitrust enforcement. The enforcement of competition law is treated as the delegation of the economic activity from the government to private firms. The model contributes to the debate over desirability of granting leniency to more than one cartelists. For this purpose, I introduce a probability of conviction that depends on authority-specific characteristics. This results in the optimal number of leniencies being specific to national authorities and market structures. The model confirms a result widely acknowledged in the antitrust literature - a program that merely reduces sanctions to the first reporter is ineffective.

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

Monday, November 22, 2010

CRA Annual Conference: Economic developments in European competition policy Wednesday 8 December 2010

Posted by D. Daniel Sokol

CRA Annual Conference Economic developments in European competition policy
Wednesday 8 December 2010
Conrad Hotel, Brussels

Download Full_Programme_-_CRA_Annual_Brussels_Conference_-_8_December_2010[1]


Confirmed speakers

Alexander Italianer, Director General, DG Competition
Prof Carl Shapiro, Deputy Assistant Attorney General, DOJ
Prof Joseph Farrell, Director of Bureau of Economics, FTC
Prof Damien Neven, Chief Economist, DG Competition
Amelia Fletcher, Chief Economist / Head of Mergers, OFT
Prof Steven Salop, Georgetown University
Prof Kai-Uwe Kühn, University of Michigan
John Fingleton, CEO, UK OFT
Alison Oldale, Chief Economist, UK Competition Commission
Prof John Van Reenen, Centre for Economic Performance, LSE
Andreas Mundt, President, Bundeskartellamt
Thibaud Vergé, Chief Economist, Autorité de la concurrence
Prof Maarten-Pieter Schinkel, University of Amsterdam
Christian Ewald, Chief Economist, Bundeskartellamt
Matthew Bennett, Director of Economics, OFT
Miguel de la Mano, Deputy Chief Economist, DG Competition
Prof Patrick Rey, IDEI, Toulouse
Prof Luís Cabral, IESE and NYU

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

Price Increasing Competition? Experimental Evidence

Posted by D. Daniel Sokol

Cary Deck (Department of Economics, University of Arkansas) and Jingping Gu (Department of Economics, University of Arkansas) provide interesting findings on Price Increasing Competition? Experimental Evidence.

ABSTRACT: Economic intuition suggests that increased competition generates lower prices. However, recent theoretical work by Chen and Riordan (2008) shows that a monopolist may set a lower price in the absence of a competitor selling a differentiated product. The direction of the predicted price change is dependent upon the joint distribution of buyer values for the two products. We explore this relationship using controlled laboratory experiments. Our results indicate that the distribution of buyer values does affect prices in a manner consistent with the theoretical predictions, although price increasing competition is rare due in part to overly intense competition regardless of the distribution of buyer values.

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

Antitrust Market Definition and Taxes

Posted by D. Daniel Sokol

We can be sure about two things - death and taxes.  It turns out that taxes come up, even in the antitrust context.  Fernando H. Navajas, Fundacion de Investigaciones Economicas Latinoamericanas (FIEL), Universidad Nacional de La Plata and Santiago Urbiztondo, National University of La Plata and FIEL, Argentina has a new paper on Antitrust Market Definition and Taxes.

ABSTRACT: This paper considers the effect of taxes on the definition of relevant markets in antitrust analysis by examining various measures used within the hypothetical monopoly test. We show that the use of net margins (between producer prices and marginal cost) is a proper correction, but that it is only sufficient in the absence of specific unit taxes. When the latter exist, the price-elasticity of net demand is lower than the estimated price-elasticity based on market prices, and the use of net margins is insufficient to avoid biased conclusions.

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

The 2010 Merger Guidelines and the “Litigation Mulligan”: Better Economics but Not (Necessarily) More Clarity Before the Agencies and the Courts

Posted by D. Daniel Sokol

Hill Wellford & Gregory Wells (Bingham McCutchen) explain The 2010 Merger Guidelines and the “Litigation Mulligan”: Better Economics but Not (Necessarily) More Clarity Before the Agencies and the Courts.

ABSTRACT: The new Horizontal Merger Guidelines, issued by the U.S. antitrust Agencies on August 19, 2010, mark a clear change from their 1992 predecessor.They reduce the importance of traditional market definition, increase Herfindahl-Hirschman Index ("HHI") thresholds, and expand the types of evidence considered. Most commentary to date has focused on the fact that the new Guidelines largely codify hitherto-unofficial (although widely known) practices of Agency staff, and this is true, with some key exceptions. But such commentary suggests a no-big-deal view of the new Guidelines that misses something important.

The big development of the new Guidelines is that, read as a whole, they embrace three trends with the potential to make merger work significantly longer and less predictable. Those trends are (1) the pursuit of economic-analytical perfection; (2) the identification of ever-smaller groups of customers that might be subject to a discrete, unquantifiable, or even speculative harm; and (3) an indifference to the growing divergence between merger advocacy before the Agencies and merger litigation before the courts. If these trends continue, the 2010 Guidelines will turn out to be a big deal indeed.

The Agencies' stated goal for the new Guidelines is to increase "clarity and transparency, and provide business with ... greater understanding of how we review transactions." This statement is more complex and controversial than it might immediately appear. If the focus is on the "we," meaning the Agencies, and the "how," meaning the process alone, then the 2010 Guidelines soundly accomplish the goal: they put merging firms on notice that the Agencies have changed their internal approach. But if the focus is on "clarity and transparency," the new Guidelines' impact is harder to judge. Merging firms are only tangentially interested in the "how" of the Agencies' internal processes. What firms really want is "clarity and transparency" as to the ultimate outcome of a merger review. That requires something the Guidelines do not necessarily improve: better prediction of ultimate agency decisions and, in hotly contested cases, outcomes of litigation or at least of hard-fought consent decrees that will be negotiated in (and thus colored by) litigation's shadow.

 

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

Boletin Latinoamericano de Competencia Issue 27 is Out

Posted by D. Daniel Sokol

BOLETIN LATINOAMERICANO DE COMPETENCIA


ARGENTINA
TEST CONSTITUCIONAL DEL PROGRAMA DE CLEMENCIA: NEMO TENETUR Por Luis D. Barry
EL PODER JUDICIAL Y LA LEY 25.156: CONFLICTOS DE JURISDICCION Y FALTA DE COMPRENSIÓN A UNA DÉCADA DE LA APROBACIÓN DE LA LEY Por Marco Botta

BRASIL
A REESTRUTURAÇÃO DO SISTEMA BRASILEIRO DE DEFESA DA CONCORRÊNCIA PROJETO DE LEI nº 6 / 2009 Por Maria Cecília Andrade y Adriana Rocha Cordeiro

PROTOCOLO DE COOPERAçÃO TÉNICA SBDC-ACP
ANTITRUST ACTIONS IN THE MINING SECTOR: EXPECTED DEVELOPMENTS By Leonardo Peres da Rocha e Silva & Ricardo Ferreira Pastore

COLOMBIA
RÉGIMEN DE COMPETENCIA EN MATERIA DE TECNOLOGÍAS DE LA INFORMACIÓN Y LAS COMUNICACIONES Por Mauricio Velandia
DECRETO N° 2896 DE 5/8/2010 QUE REGLAMENTA ART.14 DE LEY 1340-2009
DECRETO N° 2897 DE 5/8/2010 QUE REGLAMENTA ART. 7 DE LEY 1340-2009
MERCOSUR
LA PROTECCIÓN JURÍDICA DE LA COMPETENCIA EN LOS PAÍSES DEL MERCOSUR Por Belikova Ksenia
MEXICO
COMENTARIOS A LAS REFORMAS A LA LEY FEDERAL DE COMPETENCIA ECONÒMICA por Xavier Ginebra Serrabou
PARAGUAY
REVITALIZANDO EL PROYECTO DE LEY DE "DEFENSA DE LA COMPETENCIA" Por Bruno Hug de Belmont Valdominos
RUSSIA
ANTIMONOPOLY ROMAN (BYZANTINE) CONSTITUTIONS OF 473 AND 483 IN CONTEXT OF ACTUAL PROBLEMS OF COMPETITION DEFENSE FROM UNWARRANTED ACTS OF PUBLIC ADMINISTRATION IN MODERN RUSSIA By Pisenko Kirill

UNION EUROPEA
EL PAPEL DE LOS SERVICIOS PUBLICOS EN LA UE DE 2020 Por Joaquín Almunia
THE ADDED VALUE OF COMPETITION LAW PROVISIONS IN THE EU-MERCOSUR FTA By Pablo Sánchez Iglesias
PARLAMENTO EUROPEO: RELACIONES COMERCIALES UNION EUROPEA - AMERICA LATINA
NOTAS DE PRENSA SOBRE RESOLUCION DEL PE
UNA PELIGROSA LLAMADA A LA CREACIÓN DE CÁRTELES CRISIS: A PROPÓSITO DE LA STS DE 20/OI/2010 (CECASA) Por Francisco Marcos

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

Pricing, Advertising, and Market Structure with Frictions

Posted by D. Daniel Sokol

Pedro Gomis-Porqueras, Research School of Economics Australian National University, Benoit Julien, School of Economics & CAMA University of New South Wales and Chengsi Wang, School of Economics University of New South Wales address Pricing, Advertising, and Market Structure with Frictions.

ABSTRACT: This paper develops a model of pricing and advertising in a matching environment with capacity constrained sellers and uncoordinated buyers. Sellers' search intensity attracts buyers only probabilistically through costly informative advertisement. Equilibrium prices and profit maximizing advertising levels are derived and their properties analyzed. The model generates an inverted U-shape relationship between individual advertisement and market tightness which is robust to alternative advertising technologies. The well known empirical fact in the IO literature reflects the trade-off between price and market tightness-matching effects. Finally, in this environment we can alleviate the discontinuity problem, allowing for unique symmetric equilibrium price to be derived.

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

Friday, November 19, 2010

Sorting versus screening: search frictions and competing mechanisms

Posted by D. Daniel Sokol

Jan Eeckhout and Philipp Kircher (both UPenn - Econ) address Sorting versus screening: search frictions and competing mechanisms.


ABSTRACT: In a market where sellers compete by posting trading mechanisms, we allow for a general search technology and show that its features crucially affect the equilibrium mechanism. Price posting prevails when meetings are rival, i.e., when a meeting by one buyer reduces another buyer's meeting probability. Under price posting buyers reveal their type by sorting ex-ante. Only if the meeting technology is sufficiently non-rival, price posting is not an equilibrium. Multiple buyer types then visit the same sellers who screen ex-post through auctions.

November 19, 2010 | Permalink | Comments (0) | TrackBack (0)

The 2010 Merger Guidelines: Do We Need Them? Are They All We Need?

Posted by D. Daniel Sokol

Gregory Leonard (NERA) asks The 2010 Merger Guidelines:  Do We Need Them?  Are They All We Need?

ABSTRACT: The release of the 2010 Merger Guidelines was largely an anticlimax. Unlike the 1982 and 1992 Merger Guidelines, the 2010 Merger Guidelines did not offer any radical changes in Agency policy or introduce any innovative principles or modes of analysis. Instead, the 2010 Merger Guidelines can best be characterized as reflecting existing Agency practices. To be sure, those practices have evolved over the last 18 years and, consequently, the 2010 Merger Guidelines differ from the 1992 Merger Guidelines in important respects. For example, the 2010 Merger Guidelines' focus on diversion ratios and margins reflects economic thinking about unilateral effects developed since the 1992 Merger Guidelines were issued. However, that the Agencies analyze diversion ratios and margins in merger review should not be news to any experienced antitrust practitioner.

Some commentators view the downplaying of market definition in the 2010 Merger Guidelines as a major development. However, this also should not have come as a shock to anyone. For years, many economists, including chief Agency economists Carl Shapiro and Joe Farrell, have stressed the supremacy of direct evidence of competitive effects over market definition when such direct evidence is available. Moreover, in Whole Foods, the Federal Trade Commission ("FTC") explicitly adopted this position.

Some commentators argue that a significant change in the 2010 Merger Guidelines as compared to the 1992 Merger Guidelines is a greater ambiguity as to the specific approach the Agencies will take in a given case, which creates uncertainty for the business community. This characterization of the difference between the 1992 and 2010 Merger Guidelines is accurate. However, it was well-known that the Agencies typically did not follow the script of the 1992 Merger Guidelines-look no further than the HHI thresholds, which were largely ignored. Again, the 2010 Merger Guidelines give a more accurate picture of actual Agency practice, which is not to follow any particular mode of analysis, but instead to focus on the mode that is most relevant given the data available and the nature of the industry.

November 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Exploding Offers and Buy-Now Discounts

Posted by D. Daniel Sokol

Mark Armstrong and Jidong Zhou (both UCL - Econ) discuss Exploding Offers and Buy-Now Discounts.

ABSTRACT: A common sales tactic is for a seller to encourage a potential customer to make her purchase decision quickly. We consider a market with sequential consumer search in which firms often encourage first-time visitors to buy immediately, either by making an “exploding offer” (which permits no return once the consumer leaves) or by offering a “buy-now discount” (which makes the price paid for immediate purchase lower than the regular price). Prices often increase when these policies are used. If firms cannot commit to their sales policy, the outcome depends on whether consumer incur an intrinsic cost of returning to a firm: if there is no such return cost, it is often an equilibrium for firms to offer a uniform price to both first-time and returning visitors; if the return cost is positive, however, firms are forced to make exploding offers.

November 19, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, November 18, 2010

Partial collusion with asymmetric cross-price effects

Posted by D. Daniel Sokol

Luca Savorelli (University of Bologna - Econ) explains Partial collusion with asymmetric cross-price effects.

ABSTRACT: Asymmetries in cross-price elasticities have been demonstrated by several empirical studies. In this paper we study from a theoretical stance how introducing asymmetry in the substitution effects influences the sustainability of collusion. We characterize the equilibrium of a linear Cournot duopoly with substitute goods, and consider substitution e¤ects which are asymmetric in magnitude. Within this framework, we study partial collusion using Friedman (1971) solution concept. Our main result shows that the interval of quantities supporting collusion in the asymmetric setting is always smaller than the interval in the symmetric benchmark. Thus, the asymmetry in the substitution effects makes collusion more difficult to sustain. This implies that previous Antitrust decisions could be reversed by considering the role of this kind of asymmetry.

November 18, 2010 | Permalink | Comments (0) | TrackBack (0)

Managerial Incentives and Stackelberg Equilibria in Oligopoly

Posted by D. Daniel Sokol

Marcella Scrimitore (University of Salento - Econ) explores Managerial Incentives and Stackelberg Equilibria in Oligopoly.

ABSTRACT: The paper investigates both quantity and price oligopoly games in markets with a variable number of managerial and entrepreneurial firms which defines market structure. Following Vickers (Economic Journal, 1985) which establishes an equivalence between the equilibrium under unilateral delegation and the Stackelberg quantity equilibrium, the outcomes of these games are compared with the ones in sequential multi-leaders and multi-followers games. The profitability of a managerial/entrepreneurial attitude vs leadership/followership is shown to critically depend upon the kind of strategy, price or quantity, and upon the assumed market structure. Indeed, the latter turns out to be crucial in determining the equivalence result that is shown to be contingent on the assumption that just one leader or one managerial firm operate in the market. A welfare analysis finally highlights the differences between the delegation and the se! quential games, focusing on the impact of market structure and imperfect substitutability on the equilibria of the two games.

November 18, 2010 | Permalink | Comments (0) | TrackBack (0)