Wednesday, January 25, 2012

Institutional Coherence and Effectivity of a Regional Competition Policy: The Case of the West African Economic and Monetary Union (WAEMU)

Posted by D. Daniel Sokol

Mor Bakhoum, Max Planck Institute for Intellectual Property and Competition Law and Julia Molestina, Max Planck Institute for Intellectual Property and Competition Law have written on Institutional Coherence and Effectivity of a Regional Competition Policy: The Case of the West African Economic and Monetary Union (WAEMU).

ABSTRACT: In the context of globalization the shift from the national to the global has become an economic reality and advanced the emergence of regional integration groups alongside regional competition policies. In the same vein, the West African Economic and Monetary Union (WAEMU) has adopted a regional competition law, which entered into force in 2003.

WAEMU follows a centralized approach to its competition policy, in which the Union not only has the exclusive competence to legislate on anticompetitive practices, but also bears the exclusive decision-making power regarding the enforcement of the law. National competition-law authorities are mainly excluded from the decision-making process and limited to consulting or executive functions.

However, the centralized approach is not flawless. The expected reforms in the member states are still pending, the collaboration of national structures and the community is not effective and the regional institutional level, which was supposed to constitute a strong authority, faces severe constraints in terms of resources and flexibility. The regional case law also remains limited. The effectiveness of the community competition law thus far has failed to live up to its expectations.

This paper builds on WAEMU’s eight years experience of enforcement as well as other regional integration experiences, such as ECOWAS or the EU, and identifies a certain number of criteria, which should be taken into account when designing a regional competition policy. The so called “competition constraints” are the number of states and the level of integration of the regional market, the fluidity of trade between member states, the respective institutional capacities of the member states and the Union, the existence or lack of a competition culture in the member states and the time dimension.

By analyzing the interaction between the competition constraints and the institutional design of a regional competition policy, one can extract certain principles of orientation regarding the applicable substantive law and the distribution of competences.

Applying the lessons learned to the case of WAEMU, the insufficient involvement of the national competition law authorities appears as one of the main deficiencies of the institutional framework of WAEMU. Therefore, this paper calls for a “controlled decentralization”, which includes the installation of a new collaboration framework between the regional and the national level.

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Call For Papers Searle Center on Law, Regulation, and Economic Growth Third Annual Conference on Internet Search and Innovation

Posted by D. Daniel Sokol

Call For Papers
Searle Center on Law, Regulation, and Economic Growth Third Annual Conference on Internet Search and Innovation


Northwestern University, Thursday, June 21st, 2012 - Friday, June 22nd, 2012

The Searle Center on Law, Regulation, and Economic Growth is issuing a call for original research papers to be presented at the Third Annual Conference on Internet Search and Innovation. The conference will be held at the Northwestern University School of Law in Chicago, IL. The conference will run from approximately 12:00 P.M. on Thursday, June 21st, 2012 to 3:00 P.M. on Friday, June 22nd, 2012. There will be a dinner reception and keynote address on Thursday night.

CONFERENCE DETAILS: The conference is organized by Professor Daniel F. Spulber, Research Director, Searle Center on Law, Regulation, and Economic Growth and Elinor Hobbs Distinguished Professor of International Business, Professor of Management Strategy, Kellogg School of Management, and Professor of Law, Northwestern University School of Law (Courtesy). The goal of this conference is to provide a forum where economists and legal scholars can gather together with Northwestern's own distinguished faculty to present and discuss highquality research relevant to Internet search and innovation. The conference will cover academic work on Internet search and innovation and the discussion will examine related public policy issues in antitrust, regulation, and intellectual property.

TOPICS: Topics include:
- Internet search and antitrust
- Privacy issues in Internet search and marketing
- Competition and barriers to entry in two-sided markets
- Business method inventions and patents for Internet inventions
- The Internet, innovation, and intellectual property
- Market design, platforms, and e-commerce
- R&D and innovation in high-tech
- Open standards and entrepreneurship
- Data portability
- Cloud computing
- Joint work in economics and computer science on search algorithms and other topics related to Internet search

PAPER SUBMISSION PROCEDURE: Papers for the conference should be submitted to the following email address: editjems@kellogg.northwestern.edu

PARTICIPATION: Attendance for this conference is by invitation only. Potential attendees should indicate their interest in receiving an invitation by sending a message to Derek Gundersen at: d-gundersen@law.northwestern.edu

Authors will receive an honorarium of $1,500 per paper. The honorarium is intended to cover reasonable transportation expenses. Government employees and non-US residents may be reimbursed for travel expenses up to the honorarium amount. Authors are expected to attend and participate in the full duration of the conference. If more than one author attends the conference, the honorarium or travel reimbursement will be divided equally between the attending authors.

The Searle Center will make hotel reservations and pay for rooms for authors and discussants for the night of Thursday, June 21st. For those travelling from the West Coast or from out of the country, we will also reserve and pay for the night of Wednesday, June 20th. The Searle Center gratefully acknowledges the support and participation of Microsoft and Google.

REVIEW PROCEDURE AND TIMELINE: Conference Papers Submission Deadline: Papers for the conference should be submitted to the following email address: editjems@kellogg.northwestern.edu by February 7, 2012.

NOTIFICATION DEADLINE: Authors will be notified of decisions by February 23, 2012. Potential attendees should send a message indicating their interest to Derek Gundersen at d-gundersen@law.northwestern.edu by June 17, 2012.

The conference is organized in cooperation with the Journal of Economics & Management Strategy (JEMS), which is edited by Daniel F. Spulber. JEMS encourages submissions on Internet search and innovation. Submissions are independent of the conference. Authors presenting papers at the conference need not submit to JEMS and are welcome to publish their work in other venues (with appropriate acknowledgement of the Searle Center). To submit to the Journal of Economics & Management Strategy, access ScholarOne at http://mc.manuscriptcentral.com/jems

Papers prepared for the conference will be permanently hosted on the Searle Center website: http://www.law.northwestern.edu/searlecenter

The Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law was established in 2006 to research how government regulation and interpretation of laws and regulations by the courts affect business and economic growth. Information on the Searle Center's activities may be found at: http://www.law.northwestern.edu/searlecenter


January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

An Examination of Frank Wolak's Model of Market Power and Its Application to the New Zealand Electricity Market

Posted by D. Daniel Sokol

Lewis T. Evans, Victoria University of Wellington - New Zealand Institute for Study of Competition and Regulation Inc. (ISCR) and Graeme Guthrie, Victoria University of Wellington - School of Economics & Finance An Examination of Frank Wolak's Model of Market Power and Its Application to the New Zealand Electricity Market.

ABSTRACT: We appraise the theoretical basis and the consequent empirical work of Frank Wolak in his study of the New Zealand Electricity market in a report to the New Zealand Commerce Commission released in March 2009. The report found no multilateral actions, but concluded there was evidence of market power. We find that the theoretical and empirical methodologies employed do not imply the existence of unilateral market power in oligopoly electricity markets.

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Measuring Antitrust Agency Performance

Posted by D. Daniel Sokol

This photo of Thurman Arnold gives you a sense that we have yet to solve agency effectiveness issues and that we are not much closer today than when this photo was taken.

http://images.google.com/hosted/life/04b06411fbe19fa5.html

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Recent Amendments to Hong Kong's Competition Bill

Posted by D. Daniel Sokol

Ping Lin (Lingnan University of Hong Kong) & Jingjing Zhao (Norton Rose) have an update on Recent Amendments to Hong Kong's Competition Bill.

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Public Procurement: An Overview of EU and National Case Law (from an EU Competition Law Perspective)

Posted by D. Daniel Sokol

Albert Sanchez Graells, Comillas Pontifical University offers Public Procurement: An Overview of EU and National Case Law (from an EU Competition Law Perspective).

ABSTRACT: This foreword to a special issue of e-competitions explores the EU competition law implications of public procurement activities. More specifically, it tries to highlight how bid rigging seems pervasive in the public procurement setting despite increased enforcement efforts (a situation that should come as no surprise to economists) (Part I), how there are very significant limitations and almost absolute difficulties in curving the market behavior of power public buyers (Part II) and how other issues, such as the treatment of mergers or State aid in public procurement markets may require more refined analyses than those applied so far (Part III). References to EU and national case law are used to color the depiction of the current situation in the enforcement of EU competition law in the public procurement setting, but the selection of cases or jurisdictions considered does not attempt to be exhaustive.

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Antitrust Issues in Defining Markets in the Newspaper Industry

Posted by D. Daniel Sokol

Seth B. Sacher, FTC analyzes Antitrust Issues in Defining Markets in the Newspaper Industry.

ABSTRACT: A variety of antitrust market definition questions arise in the newspaper industry. One crucial factor affecting this industry with respect to market definition is that it involves two-sided platforms, with the two key groups being advertisers and readers. For the most part antitrust cases in the newspaper industry have focused on the impact of practices or transactions on advertisers. Despite the growth of so-called new media and its likely role in the continued decline in newspaper circulation rates both the DOJ and the courts continue to view the product market for newspapers fairly narrowly and to argue that various media operate in separate product markets. Geographic markets also tend to be viewed locally, such as a single city or MSA. A key factor leading to such findings is that price discrimination can be exercised with respect to those advertisers that are less able to substitute across media or geographic areas.

January 25, 2012 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 24, 2012

Merger Control: Key International Norms and Differences

Posted by D. Daniel Sokol

I have a new working paper up with Bill Blumenthal of Clifford Chance for a chapter in INTERNATIONAL RESEARCH HANDBOOK ON COMPETITION LAW that Ariel Ezrachi (Oxford) is editing.

D. Daniel Sokol (University of Florida - Law) and William Blumenthal (Clifford Chance) discuss Merger Control: Key International Norms and Differences.

ABSTRACT: More than ninety jurisdictions have some form of merger control regime under their antitrust or competition laws. Numerous other jurisdictions lack a formal merger control mechanism, but reserve the right to review and challenge mergers under their general competition laws, sector-specific laws, or regional trade agreements. Observing the substantive approaches to merger analysis across jurisdictions, one sees many commonalities, but also some important areas of variation. The procedural approaches across merger control regimes are even more varied.

This chapter seeks to identify and catalog the key substantive and procedural norms and differences in various systems, to provide a sense of the direction of the academic scholarship on various issues and to offer some analytical underpinnings for optimal merger enforcement based on the reality of merger control in recent years. We conclude with suggestions regarding the future direction of merger control.

January 24, 2012 | Permalink | Comments (1) | TrackBack (0)

In Defense of Market Definition

Posted by D. Daniel Sokol

Malcolm B. Coate, U.S. Federal Trade Commission (FTC) and Joseph J. Simons, Paul, Weiss, Rifkind, Wharton & Garrison LLP write In Defense of Market Definition.

ABSTRACT: Market definition, a concept that has long served to structure competitive analysis, is under assault from theoreticians who object to the inability of the standard analysis to define a market compatible with their models of unilateral effects. Although these unilateral models have not been shown to reliably predict competitive behavior in the real world, our paper raises other concerns associated with substituting unilateral effects models for market definition. We suggest that the criticisms of market definition are misplaced, because the theoretical analyses lack the benchmarks necessary to establish findings of monopoly power. Moreover, market analysis serves to build the foundation for a case-specific competitive analysis that reaches well beyond the confines of any one particular economic model.

Market definition, structured by the hypothetical monopolist test, and implemented with critical loss analysis, remains a valuable tool for antitrust analysis. As usually applied, the test accepts a proposed market definition as relevant for antitrust analysis whenever the predicted loss in volume (Actual Loss) from a small, but significant and non-transitory increase in price is less than the computed break-even loss in volume (Critical Loss). We discuss how markets can be defined in homogeneous goods, static differentiated goods, and dynamic differentiated goods structures, drawing examples from the case law. Within a relevant market, a case-specific analysis, structured by the concepts in the Merger Guidelines, is able to determine if the merger at issue is likely to substantially lessen competition. Comparable economic analyses can be defined to evaluate a range of other potentially anti-competitive behavior associated using the Rule-of-Reason as a guide.

January 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Entry and Competition in Differentiated Products Markets

Posted by D. Daniel Sokol

Catherine Schaumans, Tilburg University and rank Verboven, Katholieke Universiteit Leuven - Faculty of Business and Economics (FBE) have written on Entry and Competition in Differentiated Products Markets.

ABSTRACT: We propose a methodology for estimating the competition effects from entry when firms sell differentiated products. We first derive precise conditions under which Bresnahan and Reiss’entry threshold ratios (ETRs) can be used to test for the presence and to measure the magnitude of competition effects. We then show how to augment the traditional entry model with a revenue equation. This revenue equation serves to adjust the ETRs by the extent of market expansion from entry, and leads to unbiased estimates of the competition effects from entry. We apply our approach to seven different local service sectors. We find that entry typically leads to significant market expansion, implying that traditional ETRs may substantially underestimate the competition effects from entry. In most sectors, the second entrant reduces markups by at least 30%, whereas the third or subsequent entrants have smaller or insignificant effects. In one sector, we find that even the second entrant does not reduce markups, consistent with a recent decision by the competition authority.

January 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Firm Market Power and the Earnings Distribution

Posted by D. Daniel Sokol

Douglas A. Webber, Cornell University explores Firm Market Power and the Earnings Distribution.

ABSTRACT: Using the Longitudinal Employer Household Dynamics (LEHD) data from the United States Census Bureau, I compute firm-level measures of labor market (monopsony) power. To generate these measures, I extend the dynamic model proposed by Manning (2003) and estimate the labor supply elasticity facing each private non-farm firm in the US. While a link between monopsony power and earnings has traditionally been assumed, I provide the first direct evidence of the positive relationship between a firm's labor supply elasticity and the earnings of its workers. I also contrast the semi-structural method with the more traditional use of concentration ratios to measure a firm's labor market power. In addition, I provide several alternative measures of labor market power which account for potential threats to identification such as endogenous mobility. Finally, I construct a counter-factual earnings distribution which allows the effects of firm market power to vary across the earnings distribution. I estimate the average firm's labor supply elasticity to be 1.08, however my findings suggest there to be significant variability in the distribution of firm market power across US firms, and that dynamic monopsony models are superior to the use of concentration ratios in evaluating a firm's labor market power. I find that a one-unit increase in the labor supply elasticity to the firm is associated with wage gains of between 5 and 18 percent. While nontrivial, these estimates imply that firms do not fully exercise their labor market power over their workers. Furthermore, I find that the negative earnings impact of a firm's market power is strongest in the lower half of the earnings distribution, and that a one standard deviation increase in firms' labor supply elasticities reduces the variance of the earnings distribution by 9 percent.

January 24, 2012 | Permalink | Comments (0) | TrackBack (0)

AAI White Paper on Restrictive Paperless Tickets

Posted by D. Daniel Sokol

The American Antitrust Institute presented the U.S. Federal Trade Commission and several State Attorneys General a 71-page white paper. Download it here.

January 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Inefficiencies in the sale of ideas: theory and empirics

Posted by D. Daniel Sokol

Marie-Laure Allain (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X),Emeric Henry (Sciences Po - Department of Economics) and Margaret Kyle (TSE - Toulouse School of Economics - Toulouse School of Economics) discuss Inefficiencies in the sale of ideas: theory and empirics.

ABSTRACT: The sale of ideas (e.g. through licensing) facilitates vertical specialization and the division of labor between research and development. This specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an idea should assume development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the idea and where this asymmetry decreases as the product is developed, the seller of the idea may delay the sale to the more efficient firm, thus incurring higher development costs. We obtain a condition for the equilibrium timing of the sale and examine how factors such as the intensity of competition between potential buyers influence it. Empirical analysis of licensing contracts signed between firms in the pharmaceutical industry supports our theoretical predictions.

January 24, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, January 23, 2012

Learning and Collusion in New Markets with Uncertain Entry Costs

Posted by D. Daniel Sokol

Francis Bloch (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X), Simona Fabrizi (Massey University - SIERC) and Steffen Lippert (University of Otago - Department of Economics) address Learning and Collusion in New Markets with Uncertain Entry Costs.

ABSTRACT: This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.

January 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Measuring Consumers' Attachment to Geographical Indications: Implications for Competition Policy

Posted by D. Daniel Sokol

Daniel Hassan TSE (GREMAQ-INRA), Sylvette Monier-Dilhan TSE (GREMAQ-INRA) and Valerie Orozco TSE (GREMAQ-INRA) have written on Measuring Consumers' Attachment to Geographical Indications: Implications for Competition Policy.

ABSTRACT: Geographical Indications (GIs) are considered as upmarket products because they are based on tradition and convey information about their geographical origin. Otherwise, the limitation of the geographical areas devoted to GIs and the exclusivity they benefit on the product lead to suspicions of monopoly power. Quality and market power should however reflect a stronger attachment, making consumers less price sensitive than for standard goods. This research aims to compare theses conjectures to empirical measures concerning the French cheese market. Price elasticities are computed from a demand model on 21 products, 11 Protected Designation of Origin (PDO) products and 10 non PDOs. The results are counterintuitive, PDOs being as price elastic as or more price elastic than standard products. This finding thus challenges the widespread idea that PDOs systematically correspond to high quality. It also has important implications in terms of competition policy, showing that PDO cheeses suppliers cannot decide on price increases without suffering large reductions in demand.

January 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Does Inter-Market Competition Lead to Less Regulation?

Posted by D. Daniel Sokol

Sarah Draus (CSEF) asks Does Inter-Market Competition Lead to Less Regulation?

ABSTRACT: This paper presents a model to analyze the consequences of competition in order-flow between a profit maximizing stock exchange and an alternative trading platform on the decisions concerning trading fees and listing requirements. Listing requirements, set by the exchange, provide public information on listed firms and contribute to a better liquidity on all trading venues. It is sometimes asserted that competition induces the exchange to lower its level of listing standards compared to a situation in which it is a monopolist, because the trading platform can free-ride on this regulatory activity and compete more aggressively on trading fees. The present analysis shows that this is not always true and depends on the existence and size of gains related to multi market trading. These gains relax competition on trading fees. The higher these gains are, the more the exchange can increase its revenue from listing and trading ! when it raises its listing standards. For large enough gains from multi-market trading, the exchange is not induced to lower the level of listing standards when a competing trading platform appears. As a second result, this analysis also reveals a cross - subsidization effect between the listing and the trading activity when listing is not competitive. This model yields implications about the fee structures on stock markets, the regulation of listings and the social optimality of competition for volume.

January 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Evaluation of the Risks of Collective Dominance in the Audit Industry in France

Posted by D. Daniel Sokol

Olivier Billard (Bredin Prat), Marc Ivaldi (Toulouse School of Economics) and Sebastien Mitraille (Toulouse Business School) discuss Evaluation of the Risks of Collective Dominance in the Audit Industry in France.

ABSTRACT: The financial crisis drew attention to the crucial role of transparency and the independence of financial certification intermediaries, in particular, statutory auditors. Now any anticompetitive practice involving coordinated increases in prices or concomitant changes in quality that impacts financial information affects the effectiveness of this intermediation. It is therefore not surprising that the competitive analysis of the audit market is a critical factor in regulating financial systems, all the more so as this market is marked by various barriers to entry, such as the incompatibility of certification tasks with the preparation of financial statements or consulting, the expertise on (and the ability to apply) international standards for the presentation of financial information, the need to attract top young graduates, the prohibition of advertising, or the two-sided nature of this market where the quality of fina! ncial information results from the interaction between the reputation of auditors and audited firms. Against this backdrop, we propose a legal and economic study of the risks of collective dominance in the statutory audit market in France using the criteria set by Airtours case and, in particular, by analyzing how regulatory obligations incumbent on statutory auditors may favour the appearance of tacit collusion. Our analysis suggests that nothing prevents collective dominance of the auditors of the Big Four group in France to exist, which is potentially detrimental to the economy as a whole as the audit industry may fail to provide the optimal level of financial information.

January 23, 2012 | Permalink | Comments (0) | TrackBack (0)

Saturday, January 21, 2012

Antitrust Concerns from Partial Ownership Interest Acquisitions: New Developments in the European Union and the United States

Posted by D. Daniel Sokol

Samuel R. Miller, Marc E. Raven, & David Went (Sidley Austin) address Antitrust Concerns from Partial Ownership Interest Acquisitions: New Developments in the European Union and the United States.

ABSTRACT: This article will focus on recent developments in the European Union and the United States relating to antitrust issues arising from the acquisition of partial ownership interests in an entity. An important distinction exists in the treatment of partial ownership acquisitions between the European Union and the United States. While the European Commission (the "EC") does not (currently at least) have competence under its merger control rules to review partial ownership acquisitions that do not confer control on the purchaser, the U.S. authorities (and certain EU Member States) have broader jurisdiction.

January 21, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, January 20, 2012

Natural Barrier to Entry in the Credit Rating Industry

Posted by D. Daniel Sokol

Doh-Shin Jeon (Toulouse) and Stefano Lovo (HEC) describe Natural Barrier to Entry in the Credit Rating Industry.

ABSTRACT: We present an infinite horizon model that studies the competition between a relatively ineffective incumbent Credit Rating Agency (CRA) and a sequence of entrant CRAs that are potentially more e¤ective but whose ability in appraising default risk is unproven at the time they enter the market. We show that free entry competition in the credit rating business fails in selecting the most competent CRA as long as two conditions are met. First, investors and issuers trust the incumbent CRA to provide a sincere, although imperfect, assessment of issuers’ default risk. Second, CRAs cannot charge higher fees for low rating than for high rating. Under these conditions a rather incompetent CRA can dominate the market without being worried about potentially more competent entrants. We derive policy implications.

January 20, 2012 | Permalink | Comments (0) | TrackBack (0)

Competition and Industry Structure for International Rail Transportation

Posted by D. Daniel Sokol

Guido Friebel (Goethe University Frankfurt), Marc Ivaldi (Toulouse School of Economics) and Jerome Pouyet (Paris School of Economics) address Competition and Industry Structure for International Rail Transportation.

ABSTRACT: This paper investigates various options for the organization of the railway industry when network operators require the access to multiple national networks to provide international (freight or passenger) transport services. The EU rail system provides a framework for our analysis. Returns-to-scale and the intensity of competition are key to understanding the impact of vertical integration or separation between infrastructure and operation services within each country in the presence of international transport services. We also consider an option in which a transnational infrastructure manager is in charge of offering a coordinated access to the national networks. In our model, it turns out to be an optimal industry structure.

January 20, 2012 | Permalink | Comments (0) | TrackBack (0)