Tuesday, March 27, 2012

Competition and Illicit Quality

Posted by D. Daniel Sokol

Victor Manuel Bennett (USC Marshall School of Business), Lamar Pierce (Washington University in St. Louis), Jason A. Snyder (Anderson School of Management, University of California at Los Angeles) and Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit) explore Competition and Illicit Quality.

ABSTRACT: Competition among firms can have many positive outcomes, including decreased prices and improved quality. Yet competition can have a darker side when firms can gain competitive advantage through illicit and corrupt activities. In this paper, we argue that competition can lead organizations to provide illicit quality that satisfies customer demand but violates laws and regulations and that this outcome is particularly likely when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a form of illicit quality that customers value but is illegal and socially costly. Firms with greater numbers of local competitors pass customers at considerably higher rates and are more likely to lose customers they fail to pass, suggesting that the alternatives that competition provides to customers intens! ify pressure to illegally provide leniency. We also show that, at least in contexts when pricing is restricted, firms use illicit quality as an entry strategy.

March 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Differentiation and the relationship between product market competition and price discrimination

Posted by D. Daniel Sokol

MANUEL BECERRA (Instituto de Empresa) and JUAN SANTALO (Instituto de Empresa) discuss Differentiation and the relationship between product market competition and price discrimination.

ABSTRACT: We investigate how the effect of competition on price discrimination varies depending on the level of quality provided by companies in the hospitality industry. Our findings reconcile conflicting results of previous literature on this topic. Namely, we provide strong empirical evidence that competition affects differently the price of single and double rooms of hotels with greater quality versus those with lower quality. In the presence (absence) of differentiation, competition increases (decreases) price discrimination. Our findings are robust to the use of econometric techniques that alleviate endogeneity concerns.

March 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Does Independence Affect Regulatory Performance? The case of national competition authorities in the European Union

Posted by D. Daniel Sokol

Mattia Guidi (EUI) asks Does Independence Affect Regulatory Performance? The case of national competition authorities in the European Union.

ABSTRACT: Despite having always been assumed to be true, a relationship between the independence of regulatory agencies and their performance has never been formally tested. This paper aims at verifying whether formal regulatory independence affects the performance of national competition authorities in the EU member states. The author presents and discusses a statistical analysis which shows that greater formal independence leads competition authorities to investigate more cases and to issue more decisions.

March 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Private antitrust enforcement revisited: The role of private incentives to report evidence to the antitrust authority

Posted by D. Daniel Sokol

Tim Reuter (Department of Economics, University of Konstanz, Germany) addresses Private antitrust enforcement revisited: The role of private incentives to report evidence to the antitrust authority.

ABSTRACT: It is commonly believed that the possibility to sue privately for antitrust damages decreases the number of type II errors in enforcement at the cost of creating more type I errors. We extend the analysis by taking into account the fact that private parties often submit evidence during public prosecution. Such parties consider private suit as a partial substitute for public prosecution, as both imply desistance of the violation. The trial option might induce these parties to be less willing to contribute evidence to public cases. Private trials crowd out public prosecution and can have ambiguous effects on the number of enforcement errors.

March 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, March 26, 2012

2012 ABA Antitrust Section Spring Meeting This Week and Thoughts on Outside Law Firms

Posted by D. Daniel Sokol

This week is the always excellent ABA Antitrust Section Spring Meeting. It is the 60th annual Spring Meeting or roughly the amount of time that Milton Handler was active as an antitrust professor for his career. This year I will not make it as I cannot justify leaving my wife at home alone with the baby (and our other girls) for such an extended period of time. Every year I have attended the program has been great and what always strikes me is how international the meetings have become.

At the Spring Meeting, one thing that I always love to do is to talk to in-house antitrust counsel. They are the front lines of dealing with the business unit on issues such as compliance, pricing and product strategies, M&A, etc. Oftentime I hear from counsel who rely very heavily on their outside law firms. Last week in my antitrust mergers class, I had the privilege of having Ron Stern of GE and his outside counsel Debbie Feinstein of Arnold & Porter discuss competition issues in the Comcast/NBC Universal merger. The two worked incredibly well together in the presentation and you can tell that they have a great working relationship. This semester has been incredible in terms of the talent that has discussed merger cases for my class (more on that in a future post includes lots of thank yous).

Given that antitrust lawyers try to work so hard to create success for their clients, I tried to think of a musical theme for the Spring Meeting that captured this relationship. My choice is an acoustic version of Weezer's "Jamie", in which Weezer sings lovingly about their lawyer.

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

The Robustness of Exclusion in Multi-dimensional Screening

Posted by D. Daniel Sokol

Paulo Barelli (University of Rochester), Suren Basov (La Trobe University), Mauricio Bugarin (Insper Institute) and Ian King (University of Melbourne) explore The Robustness of Exclusion in Multi-dimensional Screening.

ABSTRACT: We extend Armstrong's result on exclusion in multi-dimensional screening models in two key ways, providing support for the view that this result is generic and applicable to many different markets. First, we relax the strong technical assumptions he imposed on preferences and consumer types. Second, we extend the result beyond the monopolistic market structure to generalized oligopoly settings with entry. We also analyze applications to several quite different settings: credit markets, the automobile industry, research grants, the regulation of a monopolist with unknown demand and cost functions, and involuntary unemployment in the labor market.

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

OFT Competition Law Compliance Resources

Posted by D. Daniel Sokol

Steven Preece (OFT) explains OFT Competition Law Compliance Resources.

ABSTRACT: But enforcement is only one aspect of the OFT's work. The OFT recognizes that the majority of businesses wish to comply with competition law. The documents published in 2011 aim to assist businesses to do so, and avoid breaching competition law in the first place.

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

Compliance with Competition Rules—The Way to Go

Posted by D. Daniel Sokol

Ingrid Breit, Jeroen Capiau, and Andrew Essilfie (DG Comp) discuss Compliance with Competition Rules—The Way to Go.

ABSTRACT: Any effort by a company to ensure compliance with EU competition rules is important. But what is critical is the fact that the rules are actually complied with. When it comes to taking practical steps to ensure compliance, firms should keep in mind that their efforts will be assessed by competition authorities on the basis of results or, in other words, by their success in avoiding infringements.

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

The Strategic Use of Public and Private Litigation in Antitrust as Business Strategy

Posted by D. Daniel Sokol

D. Daniel Sokol (University of Florida Levin College of Law) has a new article on The Strategic Use of Public and Private Litigation in Antitrust as Business Strategy.

ABSTRACT: This Article claims that there may be a subset of cases in which private rights of action may work with public rights as an effective strategy for a firm to raise costs against rival dominant firms. A competitor firm may bring its own case (which is costly) and/or have government bring a case on its behalf (which is less costly). Alternatively, if the competitor firm has sufficient financial resources, it can pursue an approach that employs both strategies simultaneously. This situation of public and private misuse of antitrust may not happen often. As the Article will explore, it is not only a theoretical argument. This Article will provide examples of where this may have occurred both in antitrust's formative years and in its present.

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

Evolution of competition in Vietnam industries over the recent economic transition

Posted by D. Daniel Sokol

Tinh Doan, Ministry of Economic Development, New Zealand has written on Evolution of competition in Vietnam industries over the recent economic transition.

ABSTRACT: Understanding the degree and evolution of competition across industries is an important step towards understanding the impact of economic reform and competition on economic growth in Vietnam during the economic transition. In this paper, the author investigates the evolution of competition in Vietnam during the economic transition using the price-cost margin (PCM) or mark-up that has been widely applied in the economic literature and the profit elasticity (PE) recently developed by Boone in his paper Competition (2000). This paper provides the first empirical study of intensity and evolution of competition across selected industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO).

March 26, 2012 | Permalink | Comments (0) | TrackBack (0)

Saturday, March 24, 2012

Best Shabbat Music Video - Antitrust Edition

Posted by D. Daniel Sokol

We are off to synagogue but before we go, the Sokol girls asked why it is that after they posted their picks for the best music videos for Rosh Hashana, Chanukah and Purim, we do not honor the Sabbath with its own best video. Good point. The girls have chosen I've Got a Feeling (The Shabbat Song) to the tune of Black Eyed Peas I've Got a Feeling (which does include lyrics of "Mazal tov" and "L'Chaim").

Runner up Six13: Good Shabbos  

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

European Commission launches Public Consultation on the Access to Interoperability Information of Digital Products and Services

Posted by D. Daniel Sokol

The European Commission has launched a Public Consultation on the Access to Interoperability Information of Digital Products and Services. From the website:

The purpose of this questionnaire is to obtain structured input from stakeholders and interested parties on the needs, barriers and opportunities for measures leading significant market players to license interoperability information not covered by standards, as proposed in the Digital Agenda for Europe communication: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010DC0245:FIN:EN:HTML under Pillar 2 (page 15-16) HT: Pedro Callol

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

Friday, March 23, 2012

Market structure and market performance in e-commerce

Posted by D. Daniel Sokol

Franz Hackl, Michael E. Kummer, Rudolf Winter-Ebmer, and Christine Zulehner (all ZEW) analyze Market structure and market performance in e-commerce.

ABSTRACT: We investigate the effect of market structure on market performance in the market for consumer electronics. This research is novel, because we exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail-data on whole sale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game. Using this information for 80 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price-leader.

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

Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending

Posted by D. Daniel Sokol

Jason Allen (Bank of Canada), Robert Clark (HEC Montreal) and Jean-Francois Houde (University of Wisconsin-Madison) explore Price Competition and Concentration in Search and Negotiation Markets: Evidence from Mortgage Lending.

ABSTRACT: This paper examines the impact of bank consolidation on mortgage rates in order to evaluate the extent to which mortgage markets are competitive. Mortgage markets are decentralized and so rates are determined through a search and negotiation process. The primary effect of a merger therefore is to reduce the number of partners available with whom to negotiate, although it can also change the characteristics of the product, and impact the search effort of consumers. Using a Canadian merger as a case study, we find that, overall, consolidation had little effect on rates suggesting that, on average, the mortgage market is fairly competitive. However, a decomposition of the aggregate treatment effect reveals important heterogeneity in the impact of the merger. We find that consumers gathering multiple quotes are affected by the merger, while those who do not search are not. These results suggest that market power originates in large part from the presence of asymmetric search costs.

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

E new era in retail: Private-label production by national-brand manufacturers and premium-quality private labels

Posted by D. Daniel Sokol

A.M. ter Braak (Tilburg University) explores E new era in retail: Private-label production by national-brand manufacturers and premium-quality private labels.

ABSTRACT: Private labels have witnessed considerable growth in grocery retailing. While existing academic studies have provided valuable insights concerning the evolution of private labels, several issues remain largely unexplored. First, in the face of these large private-label volumes, private-label production opportunities arise. Due to increased private-label competition, national-brand manufacturers increasingly pursue a dual-branding strategy and engage in private-label production next to their national-brand activities. In chapter two of this dissertation, a major motivation for national-brand manufacturers to engage in private-label production, namely whether it creates retailer goodwill, is investigated. It shows that private-label production is indeed rewarded: national-brand manufacturers involved in private-label production for a discounter have a higher likelihood of obtaining national-brand shelf presence at that discounter. The third chapter focuses on one of the main reasons why retailers push private labels, i.e. because they generate high margins, and considers how a retailer’s private-label margins vary within categories. It demonstrates that a retailer’s private-label margins depend on the nature of the private-label supplier-retailer relationship, that they differ across quality tiers and package sizes, and that they are affected by a supplier’s extent of national-brand focus next to its private-label production for the retailer. Finally, this dissertation concentrates on the recent premium private-label trend. Even though premium private labels are seen as “one of the hottest trends in retailing,” retailers are selective in picking their battles with top-quality national brands and do not feel the need to extend their standard private label with a premium private label in every category. The fourth chapter provides insight into why retailers offer premium private labe! ls in some categories, but not in others. The research presented in th is dissertation is among the first to empirically investigate the phenomenon of private-label production, and to shed light on the recent trend of premium private labels.

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

Thursday, March 22, 2012

Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers

Posted by D. Daniel Sokol

Vigen Nikogosian and Tobias Veith (both ZEW) discuss Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers.

ABSTRACT: The literature on vertical integration in markets with regulated upstream prices suggests that the integrated upstream firm might engage in non-price discrimination. Several studies provide policy recommendations derived either from case study approaches or based on theoretical modeling which addresses the unbundling issue. In this study we analyze the impact of vertical integration of retail incumbent and network operator on retail prices and upstream charges. As the vertical structure is heterogeneous across the 850 German electricity submarkets for residential customers (there exist legally unbundled, vertically integrated or fully separated firms), we use firm level data to analyze the effects of different vertical structures and regulation schemes on retail electricity prices. We find significantly higher prices in markets with vertically integrated firms compared to markets with fully separated firms. This finding could indicate non-price discrimination. Furthermore, we find no evidence that legal unbundling eliminates the incentives for non-price discrimination because the prices do not differ from prices in markets under vertical integration.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling

Posted by D. Daniel Sokol

Linda Gratz (University of Munich) explores Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling.

ABSTRACT: In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

Passing judgment on crisis state aid: control: the ING MEIP case

Posted by D. Daniel Sokol

OEXRA has a new article on Passing judgment on crisis state aid: control: the ING MEIP case.

ABSTRACT: In a landmark judgment, the General Court ruled in March 2012 that the European Commission had overstated the state aid received by Dutch bank, ING Groep NV, during the financial crisis by up to €2 billion, and, as such, ING may be relieved from certain remedies imposed by the Commission. What was the Court’s reasoning, and does it have a bearing on the support given to other banks in recent years?

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

PRIVATE ENFORCEMENT AND JUDICIAL DISCRETION IN THE EVOLUTION OF ANTITRUST IN THE UNITED STATES

Posted by D. Daniel Sokol

Reza Rajabiun (Ryerson University) ponders PRIVATE ENFORCEMENT AND JUDICIAL DISCRETION IN THE EVOLUTION OF ANTITRUST IN THE UNITED STATES.

ABSTRACT: The role of private enforcers in the implementation of laws against anticompetitive practices remains a subject of considerable controversy. The economic approach to the analysis of crime and punishment suggests that private rights of action can complement the information and incentives of public agents in the identification and deterrence of costly market behavior. This article studies the complementarities between public and private enforcement mechanisms. Long-term data on case filings, administrative resources, and judicial outcomes from the United States reveal that mixed regimes allow for the specialization of tasks between public and private enforcers: competition authorities focus on the regulation of dominance, while private litigants tend to identify collusion in contractual relations. The analysis further documents how judicial discretion under the rule-of-reason approach to substantive interpretation limits the predictability and credibility of legal constraints against anticompetitive practices.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)

COMPETITION WITHIN FIRMS

Posted by D. Daniel Sokol

Lisa Bruttel (Professor, Department of Economics, University of Konstanz) and Simeon Schudy (Professor, Department of Economics, University of Konstanz) have written on COMPETITION WITHIN FIRMS.

ABSTRACT: We investigate the role of incentives set by a parent firm for competition among its subsidiaries. In a Cournot experiment, four subsidiaries of the same parent operate in the same market. Parents earn a specific share of the joint profit, and can choose how to distribute the remaining surplus (or loss). Results show that parents allocating profits equally among their subsidiaries reach outcomes close to collusion. However, almost half of the parent firms employ a proportional sharing rule instead. These groups end up with profits around the Cournot level.

March 22, 2012 | Permalink | Comments (0) | TrackBack (0)