Antitrust & Competition Policy Blog

Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland

Posted by D. Daniel Sokol

Joni Hokkanen, Centre for Health and Social Economics, National Institute for Health and Welfare, Aki Kangasharju, Nordea Markets, Ismo Linnosmaa, Centre for Health and Social Economics, National Institute for Health and Welfare, and Hannu Valtonen, Department of Health and Social Management, University of Eastern Finland Kuopio, discuss Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland.

ABSTRACT: The present paper evaluates the quantitative impact of a pharmaceutical reform on pharmaceutical prices. A generic substitution policy was introduced in Finland in 2003 to contain rising pharmaceutical expenditure. After the reform pharmacists were obliged to propose a cheaper alternative to a prescribed pharmaceutical product whenever a substitutable product was available. There were three possible channels through which the price effect might have been transmitted.

First, the policy might have affected manufacturers? pricing behaviour for existing pharmaceutical products. Second, firms might have introduced new product variants of existing drugs to the market in the form of new generics or different package sizes. Third, the policy might have affected prices through the market structure, with more firms offering new product variants entering the market.

Consolidation and Merger Activity in the United States Banking

Posted by D. Daniel Sokol

Robert M. Adams (Federal Reserve) describes Consolidation and Merger Activity in the United States Banking Industry from 2000 through 2010.

ABSTRACT: This study investigates trends in consolidation and merger activity in the United States banking industry from 2000 through 2010. Over this period, the U.S. banking industry has consistently experienced over 150 mergers annually, with the largest banking organizations holding an increasing share of banking assets. While the industry has undergone considerable consolidation at the national level, local banking markets have not experienced significant increases in concentration. The dynamics of consolidation raise concerns about competition, output, efficiency, and financial stability. This study uses a comprehensive proprietary data set to examine mergers and acquisitions involving banks and thrifts. The methodology in this paper expands the definition of mergers to include more types of transactions than previous studies on bank mergers.

Horizontal Product Differentiation: Disclosure and Competition

Posted by D. Daniel Sokol

Maarten C. W. Janssen (University of Vienna) and Mariya Teteryanikova (University of Vienna) discuss Horizontal Product Differentiation: Disclosure and Competition.

ABSTRACT: The unraveling argument says that when a rm may produce dierent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally dierentiated. This paper argues that with horizontally dierentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.

An experimental study of mixed strategy equilibria in simultaneous price-quantity games

Posted by D. Daniel Sokol

Daniel Cracau (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg) Benjamin Franz (Mathematical Institute, University of Oxford) describe An experimental study of mixed strategy equilibria in simultaneous price-quantity games.

ABSTRACT: We study oligopoly games with firms competing in prices and quantities at the same time. We systematically compare our experimental results to the theoretical predictions using the mixed strategy equilibria for linear demand functions. For the duopoly game, we observe that the mixed strategy equilibrium predicts average outcomes better than Cournot and Bertrand do. Subjects' price choices are mainly between marginal cost and monopoly level but do not follow the equilibrium distribution. Although average prices and profits are above theoretical values, we do not observe a high level of collusion as expected in the literature. By comparing simulations based on the mixed strategy equilibrium to our experimental outcomes, we conclude that in this game price setting can be explained by strategic reaction to preceding round results. In contrast to the equilibrium prediction, we observe a decrease in prices and negative average! profits for the triopoly game.

Private Enforcement Of Antitrust Law In The United States: A Handbook

Posted by D. Daniel Sokol

Albert A. Foer and Randy M. Stutz (AAI) have edited Private Enforcement Of Antitrust Law In The United States: A Handbook.

Description
Private Enforcement of Antitrust Law in the United States is a comprehensive Handbook, providing a detailed, step-by-step examination of the private enforcement process, as illuminated by many of the country’s leading practitioners, experts, and scholars.

 

Contents
Contributors: W.K. Arends, A.C. Briggs, W.J. Bruckner, P.B. Clayton, C.C. Corbitt, E.L. Cramer, M.B. Eisenkraft, A.A. Foer, A.J. Gaughan, P. Gilbert, J. Goldberg, D.E. Gustafson, M.D. Hausfeld, K. Kinsella, R.H. Lande, J. Langenfeld, S. Martin, K.J.L. O’Connor, H.L. Renfro, J.D. Richards, V. Romanenko, J.L. Rubin, M.R. Salzwedel, A.E. Shafroth, D.C. Simons, S.P. Slaughter, R.M. Stutz, B.E. Sweeney, J. Tabacco, M.J. Waters, S. Wheatman, K.C. Wildfang, G.G. Wrobel, J.A. Zahid

Further information

Private Enforcement of Antitrust Law in the United States is a comprehensive Handbook, providing a detailed, step-by-step examination of the private enforcement process, as illuminated by many of the country’s leading practitioners, experts, and scholars.

Written primarily from the viewpoint of the complainant, the Handbook goes well beyond a detailed cataloguing of the substantive and procedural considerations associated with individual and class action antitrust lawsuits by private individuals and businesses. It is a collection of thoughtful essays that delves deeply into practical and strategic considerations attending the decision-making of private practitioners.

This eminently readable and authoritative Handbook will prove to be an invaluable resource for anyone associated with the antitrust enterprise, including both inexperienced and seasoned practitioners, law professors and students, testifying and consulting economists, and government officials involved in overlapping public/private actions and remedies.

Full table of contents

Contents:

Preface
Albert A. Foer and Randy M. Stutz

Introduction: Benefits of Private Enforcement
Robert H. Lande

1. Defining Antitrust Violations in the United States
Bonny E. Sweeney

2. Pre-complaint Activities
Craig C. Corbitt, Judith A. Zahid and Patrick B. Clayton

3. Parties Entitled to Pursue a Claim
Eric L. Cramer and Daniel C. Simons

4. Initiation of a Private Action
Michael D. Hausfeld

5. Class Actions
J. Douglas Richards, Michael B. Eisenkraft and Abigail E. Shafroth

6. Procedural Defenses Short of Trial
Jonathan L. Rubin

7. Pretrial Discovery in Civil Litigation
Joseph Goldberg and Dan E. Gustafson

8. Economic Experts
James Langenfeld, Gregory G. Wrobel and Michael J. Waters

9. Plaintiffs’ Remedies
W. Joseph Bruckner and Matthew R. Salzwedel

10. Funding Litigation
K. Craig Wildfang and Stacey P. Slaughter

11. Interaction of Public and Private Enforcement
Kevin J.L. O’Connor, Anthony J. Gaughan, Hannah L. Renfro, Adam C. Briggs and Wendy K. Arends

12. Settlement Practice from Both a Plaintiff and Defense Perspective
Joseph Tabacco and Scott Martin

13. Class Notice and Claims Administration
Katherine Kinsella and Shannon Wheatman

14. Cy Pres as a Remedy in Private Antitrust Litigation
Albert A. Foer

15. Proposals for Reform
Pamela Gilbert and Victoria Romanenko

Index

Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads?

Posted by D. Daniel Sokol

Diana L. Moss, American Antitrust Institute asks Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads?

ABSTRACT: Competitive concerns in the U.S. healthcare industry have focused largely to date on providers, such as large hospital and managed care organizations. Recent attention has been drawn, however, to potential competitive concerns in other important parts of the supply chain, namely intermediaries or “middlemen.” Of particular interest are Pharmacy Benefit Managers (PBMs) and buying groups such as Group Purchasing Organizations (GPOs) and Physician Buying Groups (PBGs). Healthcare intermediaries can enhance economic efficiency by achieving scale and scope economies through access to larger product portfolios and multiple distribution networks. Buying group intermediaries can also reduce transactions costs by negotiating prices on behalf of multiple buyers, thus aggregating demand and leveraging buying power to obtain more favorable pricing for health plans, hospitals, and physician practices. In doing so, buying groups can potentially counteract the exercise of seller market power elsewhere in the supply chain. Intermediaries thus offer, at least in principle, benefits to competition and consumers.

Intermediary markets, however, have undergone fundamental changes, and those changes may provide a powerful motivation for re-examining the conventional wisdom. For example, mergers of intermediaries drive higher levels of market concentration and create dominant firms. Vertical integration also extends the influence of some intermediaries to other levels in the supply chain. Some intermediary markets may therefore be conducive to anticompetitive outcomes that are not outweighed by claimed efficiencies. Yet federal antitrust authorities generally have not challenged intermediary conduct or consolidation, much like the merger approved by the Federal Trade Commission (FTC) in April 2012 between the two largest PBMs, Express Scripts and Medco.

The foregoing developments in intermediary markets lay the groundwork for growing competitive concerns, including exclusionary practices and anticompetitive agreements. Anticompetitive practices impair beneficial vertical and horizontal competition while unduly influencing outcomes in markets upstream and downstream of intermediaries, many of which are highly concentrated. A complex overlay of legislated safe harbors, antitrust exemptions, and tailored antitrust policies governing the evaluation of healthcare intermediaries exacerbate competitive concerns.

Intermediary conduct that is potentially designed to constrain competition affects a number of participants in the healthcare supply chain. Smaller manufacturers of pharmaceuticals, medical devices, and medical supplies, smaller distributors, and independent pharmacies are particularly exposed. Intermediate consumers of medical products (e.g., hospitals and physician practices) bear the adverse effects of antitcompetitive practices, which are passed on to insurers and, in turn, to the ultimate consumer or patient. The potential harm that flows from exclusionary practices is reflected in the traditional antitrust metrics of higher prices, restricted output, lower quality, less choice, barriers to entry, and slower innovation.But it is also apparent in more indirect ways that threaten to impair the achievement of healthcare policy goals such as affordable healthcare, choice in medical products, a stable supply chain, and diversity of supply.

This American Antitrust Institute (AAI) White Paper examines the competitive role of healthcare intermediaries. These entities have become increasingly powerful and entrenched in the supply chain, a fact that has not escaped the attention of Congress, regulators, and state antitrust enforcers. The White Paper does not conclude that intermediary practices are anticompetitive – only thorough antitrust investigations can do that. However, it does articulate, using examples, the reasons that the conduct of certain healthcare intermediaries may be potentially detrimental to competition and consumers. Section II examines major features of intermediaries that are relevant to the analysis. Section III examines the intersection between public policy concerns and competition issues in healthcare. Section IV gives a brief overview of antitrust enforcement issues and the state of the law involving bundled discounts and exclusive contracts. To illustrate potential competitive and public policy concerns, Section V presents three case studies of healthcare intermediaries: (1) pediatric vaccines and PBGs, (2) drug shortages and GPOs, and (3) pharmacy choice and PBMs. Section VI concludes with policy recommendations and suggestions for further study.

Buyer Power and Suppliers' Incentives to Innovate

Posted by D. Daniel Sokol

Christian Koehler, Centre for European Economic Research (ZEW) Christian Rammer, Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research explore Buyer Power and Suppliers' Incentives to Innovate.

ABSTRACT: Buyer power is widely considered to decrease innovation incentives of suppliers. However, there is little empirical evidence for this statement. Our paper analyses how buyer power influences innovation incentives of upstream firms while taking into account the type of competition in the downstream market, namely price and technology. We explore this relationship empirically for a unique dataset containing 1,129 observations of German firms from manufacturing and service sectors including information on the economic dependency of firms from their buyers. Using a generalised Tobit model, we find a negative effect of buyer power on a supplier’s likelihood to start R&D activities. This negative effect is mitigated if the supplier faces powerful buyers operating under strong price competition. There is also weak evidence for a negative effect of buyer power on suppliers’ R&D intensity if the powerful buyer operates under strong technology competition.

A Bad Antitrust Policy by the Florida Bar

Posted by D. Daniel Sokol

Earlier today, I received the following email from the Florida Bar:

I am a member of the Florida Bar's Antitrust and Trade Certification Committee, and just wanted to let you know that you may have an opportunity to get a certification without taking an exam--assuming you have been a member of the Bar for 20 plus years. Have you? If not, you can still certify but would have to take an exam.

I was horrified by this policy. My response was as follows:

As a policy matter, let me suggest that at automatic 20 year grandfathering clause reduces the quality signal of the certification as many people with one off experiences 15 years ago would claim antitrust expertise. This cheapens the certification for those practitioners who do have antitrust skills.

Antitrust by its nature is an area of complex economic regulation. I don't think that large companies will hire based on an antitrust certificate. However, unsophisticated middle sized firms with real antitrust problems as potential victims as well as individuals caught in a cartel investigation might be duped into hiring a shlock lawyer based on this bogus standard and the bar does a disservice by promoting bad lawyers without antitrust skills as so-called experts. 

This policy suggests a real problem with the Florida Bar regarding its standards. In my opinion, makes the state bar look rather pedestrian.

Interview with FTC Commissioner Maureen Ohlhausen

Posted by D. Daniel Sokol

The Antitrust Source provides an Interview with FTC Commissioner Maureen Ohlhausen.

Due Process in EU Competition Cases Following the Introduction of the New Best Practices Guidelines on Antitrust Proceedings

Posted by D. Daniel Sokol

Anne MacGregor (Cadwalader) and Bogdan Gecic explore Due Process in EU Competition Cases Following the Introduction of the New Best Practices Guidelines on Antitrust Proceedings.

ABSTRACT: Commission decisions have unprecedented legal and practical effects that require stringent procedural safeguards in order to satisfy due process. The current state of EU judicial review is as yet insufficient to counterbalance the far-reaching impact of Commission decisions. The Commission's recently adopted antitrust best practices package does not cure the inadequacies of the broader enforcement model and to some extent exacerbates the due process problem. The Commission's procedure could be reformed into a full two-tier system, modelled on robust Continental civil administrative systems, which would add to its actual and perceived fairness.

Balancing Enforcement with Advocacy: A Constant Challenge

Posted by D. Daniel Sokol

Malgorzata Krasnodebska-Tomkiel explains Balancing Enforcement with Advocacy: A Constant Challenge.

ABSTRACT: In over 20 years of its existence, the Polish Office of Competition and Consumer Protection has faced many challenges. Some were more tenacious than others, but in the end, only one appears to be constantly defying our Office. How to render our enforcement more effective, how to better detect and react to competition infringements? At the same time, how to prevent violations and promote a compliance culture? Balancing between enforcement and advocacy is and will always be our major preoccupation, one that we share with all other competition authorities.

The Rule of Reason Re-Examined

Posted by D. Daniel Sokol

Ned Cavanagh, St. John's University - School of Law has a new work on The Rule of Reason Re-Examined.

ABSTRACT: This article analyzes the application of the Rule of Reason as articulated by Justice Brandeis in Chicago Board of Trade v. United States to alleged restraints of trade in violation of section 1 of the Sherman Act. It argues that the Brandeis formulation, which requires courts to consider a broad range of economic factors and then weigh procompetitive benefits against anticompetitive effects, has proven unwieldy in the hands of trial judges. Because the Brandeis formulation provides little guidance as to how these factors should be weighed, courts have struggled to develop clear, predictable, and consistent standards under section 1. This article considers several alternatives to the Brandeis formulation and recommends that courts can revitalize the Rule of Reason by using the highly structured approach of the D.C. Circuit in the Three Tenors case to develop antitrust rules that are clear, predictable, and administrable.

Discriminatory Pricing in Software Sales and Competition Law: More Efficiency than Harm?

Posted by D. Daniel Sokol

Qiang Yu, Leiden Law School asks Discriminatory Pricing in Software Sales and Competition Law: More Efficiency than Harm?

ABSTRACT: Discriminatory Pricing is a practice that can be used either to eliminate competitors or to charge consumers deserving prices, both of which are condemned by competition law. However, Discriminatory Pricing is often accompanied by certain positive effects. For instance, it allows more consumers to consume the product and thus commit to economies of scale. Therefore, there are no illegal issues associated with Discriminatory Pricing per se. This paper observes that Discriminatory Pricing practices occur in the software market. The software market is a new market that differs from traditional markets in many aspects. Although factors such as network effects and innovation competition provide an environment conducive to the proliferation of Discriminatory Pricing, these factors also remove the eliminative and exploitative aspects of Discriminatory Pricing in the software market. Traditional regulation is not well suited to regulating software Discriminatory Pricing. Software Discriminatory Pricing is a commonly used marketing strategy and should not be subject to restrictions by competition law. This paper analyzed the possibility of abusive Discriminatory Pricing in the software market and suggested a test for assessing such abuse. Accordingly, this paper has concluded that software Discriminatory Pricing is efficient.

Collective Dominance Based on Tacit Collusion in Nigerian Telecommunications Markets

Posted by D. Daniel Sokol

Chukwudiebube Bede Opata, University of Nigeria - Faculty of Law analyzes Collective Dominance Based on Tacit Collusion in Nigerian Telecommunications Markets.

ABSTRACT: The regulation of collective dominance is a relatively novel concept in most African telecommunications sectors. This article argues that the Nigerian legal framework for regulation of collective dominance, which was modeled substantially on EU law, although an improvement on previous rules, requires refinement to provide clarity and regulatory certainty.

European Commission seeks to raise money for its budget via antitrust fines

Posted by D. Daniel Sokol

If this news report is to be believed, antitrust is being used as a revenue raising weapon to fill the EU budget gap. This is politicalization of antitrust in a way that is not welfare enhancing. The Washingtin Times reports:

The European Commission says it needs an additional $11.7 billion to meet all of the commitments to the European Union in the 2012 budget. The commission, the EU’s executive arm, adopted an amending budget last week, but it must be approved by the European Parliament and the 27 EU national leaders. The EU says about a third of the money can be raised from antitrust fines and other penalties. (italics added)

Network of Industrial Economists Winter Conference 14th December 2012

Posted by D. Daniel Sokol

Network of Industrial Economists Winter Conference

On 14th December 2012 we are delighted to be hosting the Network of Industrial Economists (NIE) Winter Conference. The 1-day event will be looking at Competition Issues in the Health Sector.

Our venue is 10-11 Carlton House Terrace, London - a classically-styled terrace and home to The British Academy.

The draft programme appears below: if you would like to attend please use the booking form which can be downloaded or accessed via the navigation to your left.

09:45-10:15	Registration, coffee/tea available
10:15-10:30	Welcome
10:30-12:30	Session 1: Moderator: Morten Hviid, University of East Anglia, Law School and Director of the ESRC Centre for Competition Policy. Pierre Dubois, Toulouse School of Economics & CEPR, "The effects of price regulation on pharmaceutical industry margins: A structural estimation for anti-ulcer drugs" Gautham Gowrisankaran, University Arizona, Department Economics, "Mergers when prices are negotiated: Evidence from the hospital industry"
12:30-13:30	Lunch
13:30-14:45	Session 2: New Researcher Presentations Moderator: Franco Mariuzzo, University of East Anglia, School of Economics & ESRC Centre for Competition Policy Charlotte Davies, University of East Anglia, Medical School "Market structure in medical devices: An example of the hip prostheses market" Sotiris Vandoros, London School of Economics Health, "tbc" Kathleen Nosal, University of Mannheim, Department of Economics, "Estimating switching costs for Medicare advantage plans"
14:45-15:00	Break, coffee/tea available
15:00-17:00	Session 3: Empirical lessons on Mergers and Acquisitions in the Health Sector. Moderator: Steven Davies, University of East Anglia, School of Economics & ESRC Centre for Competition Policy Farasat Bokhari, University of East Anglia, School of Economics & ESRC Centre for Competition Policy, "Specifications in demand systems for drugs: logits v. aids" Hugh Gravelle, University of York, Centre for Health Economics, "Competition, prices, and quality: Australian GPs"
17:00-17:30	Closing Remarks: TBC

IPRs, Competition and Standard Setting: In Search of a Model to Address Hold-Up

Posted by D. Daniel Sokol

Valerio Torti, University of Southampton discusses IPRs, Competition and Standard Setting: In Search of a Model to Address Hold-Up.

ABSTRACT: Standard setting is a field where the interaction IPRs-competition clearly comes to light. Misleading behaviors by IPRs owners taking part in standards institutes may compromise the crucial goal of standardization activities: making consumers’ lives better. These conducts may ultimately be caught by competition rules. In order to limit the risks of unfair practices, it seems crucial to strike an optimal balance between the innovators’ interests and the standards bodies’ objectives.

Antitrust Agencies Right to Expand Scrutiny of Patent Transfers and Acquisitions

Posted by D. Daniel Sokol

David Balto argues Antitrust Agencies Right to Expand Scrutiny of Patent Transfers and Acquisitions.

Second Mover Advantage and Entry Timing

Posted by D. Daniel Sokol

Vinh Du Tran, TNK, David S. Sibley, University of Texas at Austin - Department of Economics, and Simon Wilkie, University of Southern California describe Second Mover Advantage and Entry Timing.

ABSTRACT: We describe a model of entry timing assuming that a second mover can benefit from observing the experience of a first mover. We focus on how market attractiveness characteristics such as size and cost affect the time until first entry. The effects depend on whether the number of participants is exogenous or endogenous. In the former case, a more attractive market leads to earlier entry. In the latter case, it leads to later entry. Treating the number of firms as an integer, free entry leads to non‐monotone, but testable, effects of market attractiveness on entry timing.

Cartel Organization, Price Discrimination and the Trans-Atlantic Passage, 1899-1911

Posted by D. Daniel Sokol

George Deltas, University of Illinois at Urbana-Champaign - Department of Economics and Richard A. Sicotte, University of Vermont - Department of Economics discuss Cartel Organization, Price Discrimination and the Trans-Atlantic Passage, 1899-1911.

ABSTRACT: This paper studies the operation of trans-Atlantic passenger shipping cartels during the period 1899-1911 and its effects on passenger traffic. We systematically document and categorize cartel agreements on the basis of key aspects of internal organization. Then, we exploit the variation in internal organization across markets and over time to investigate whether any specific organizational aspects were more effective in reducing flows from competitive levels. We find some evidence that the assessment of fines for violations of the agreement enhanced collusion, but no evidence that the posting of bonds (to guarantee the fines) or the formation of pooling arrangements had any incremental effect. We also take advantage of the richness of the data on passenger flows to show that collusion had a smaller effect on first and second-class passenger flows relative to third class service. Finally, we provide estimates of consumer substitution across passenger classes due to collusion and show that such substitution was small but non-negligible, especially during periods of normal cartel operation. Our study has broader implications for the theory of collusion, and on how collusion affects the quality, rather than the quantity, of products purchased by consumers.