Antitrust & Competition Policy Blog

Using Cost Pass-Through to Calibrate Demand

Posted by D. Daniel Sokol

Nathan H. Miller, U.S. Department of Justice, Antitrust Division, Economics Analysis Group, Marc Remer and Gloria Sheu are Using Cost Pass-Through to Calibrate Demand.

ABSTRACT: We demonstrate that cost pass-through can be used to inform demand calibration, potentially eliminating the need for data on margins, diversion, or both. We derive the relationship between cost pass-through and consumer demand using a general oligopoly model of Nash-Bertrand competition and develop specific results for four demand systems: linear demand, logit demand, the Almost Ideal Demand System (AIDS), and log-linear demand. The methods we propose may be useful to researchers and antitrust authorities when reliable measures of margins or diversion are unavailable.

Controlling regional monopolies in the natural gas industry: The role of transport capacity

Posted by D. Daniel Sokol

Farid Gasmi, Toulouse School of Economics (ARQADE & IDEI) and Juan Daniel Oviedo, Universidad del Rosario address Controlling regional monopolies in the natural gas industry: The role of transport capacity.

ABSTRACT: This paper analyzes some optimal fiscal, pricing, and capacity investment policies for controlling regional monopoly power in the natural gas industry. By letting the set of control instruments available to the social planner vary, we provide a characterization of the technological and demand conditions under which “excess” capacity in the transport network arises in response to the loss of the two other control instruments, namely, transfers and pricing. Hence, the analysis yields some insights on an economy’s incentives to in- vest in infrastructures for the purpose of integrating geographically isolated markets.

The effect of pharmacies’ right to negotiate discounts on the market share of parallel imported pharmaceuticals

Posted by D. Daniel Sokol

David Granlund (Department of Economics, Umea School of Business and Economics) analyzes The effect of pharmacies’ right to negotiate discounts on the market share of parallel imported pharmaceuticals.

ABSTRACT: The market share for parallel imports when pharmacies can negotiate discounts with parallel traders and sellers of locally sourced products is analyzed both theoretically and empirically. The theoretical model shows that, with discount negotiations, pharmacies will sell locally sourced products to all consumers that prefer these or are indifferent between these and parallel imported products. The explanation is that the parallel traders have cost disadvantages because of their repacking and trading costs. Sellers of locally sourced products will therefore always underbid the marginal prices of parallel traders and this gives pharmacies an incentive to sell locally sourced products. The empirical results show that a reform allowing discount negotiations reduced the market share for parallel imports by about 11 percentage points to reach 31%. The most important mechanism is that the reform has reduced the probability that pharmacies offer consumers cheaper parallel imported substitutes.

Press Release - Baer Now in Charge at DOJ Antitrust

Posted by D. Daniel Sokol

The press release is here, which means that Bill Baer can really pop the cork from the champaign bottle tomorrow night. Baer is very qualified - one of the very elite antitrust practitioners in the United States. Let us also take a moment to thank the three very strong Acting DOJ Antitrust heads - Sharis Pozen, Joe Wayland and Renata Hesse who very capably ran the Division before we had a permanent head of the Antitrust Division.

Most Downloaded SSRN Antitrust Law Professors 2012

Posted by D. Daniel Sokol

The most downloaded SSRN full time* antitrust law professors (writing in antitrust from 2010-12) for the 2012 calendar year are below.

Name                                  School                Downloads

1. Mark Lemley               Stanford               20,252
2. Herbert Hovenkamp    Iowa                     11,203
3. Michael Carrier           Rutgers Camden      7,107
4. Joshua Wright             George Mason         4,974
5. Tim Wu                      Columbia                3,650
6. Maurice Stucke           Tennessee              3,235
7. Robert Lande              Baltimore               2,537
8. D. Daniel Sokol           Florida                   2,390
9. Spencer Waller           Chicago Loyola        2,367
10. Randal Picker             Chicago                  2,159
11. Louis Kaplow              Harvard                  2,107
12.  Barak Orbach            Arizona                   1,956
13. Jonathan Baker          American                1,792
14. Scott Hemphill          Columbia                 1,699
15.  Keith Hylton             BU                          1,431
16. Bruce Kobayashi        George Mason          1,421

* Four part time antitrust law professors would easily make the list: David Evans (Chicago, UCL) 7,963; Damien Geradin (Tilburg, Michigan) 6,498; Wouter Wils (Kings College) 4,903; Greg Sidak (Tilburg) 2,891.   

December 21, 2012 update - Spencer Waller was accidentally ommitted. I have added him to the rankings.


         

Best Antitrust Scholarship of 2012

Posted by D. Daniel Sokol

Best Antitrust Articles of 2012 - From Our Group of Experts (see here for the 2011 list)

• Alberto Heimler (Italian School of Public Administration) - Antidumping and Market Competition: Implications for Emerging Economies, Chad P. Bown & Rachel McCulloch
• Max Huffman (Indiana University) - The Simplicity of Antitrust, Richard Steuer
• Salil Mehra (Temple) - A Capitalism for the People, Luigi Zingales
• D. Daniel Sokol (University of Florida) - The Economics of Collusion: Cartels and Bidding Rigging, Robert C. Marshall and Leslie M. Marx; Loss Leading as an Exploitative Practice Zhijun Chen and Patrick Rey
• Andreas Stephan (University of East Anglia) - The war on cartels and the social meaning of deterrence, Christine Parker
• Spencer Waller (Chicago Loyola) - The Simplicity of Antitrust, Richard Steuer

 

An Overview of the FTC's New and Improved Green Guides

Posted by D. Daniel Sokol

Randal Shaheen and Amy Ralph Mudge (Venable) provide An Overview of the FTC's New and Improved Green Guides.

ABSTRACT: The Federal Trade Commission released the final version of its revised Guides for the Use of Environmental Marketing Claims (2012 Green Guides) on October 11, 2012—almost two years to the day from when the FTC proposed them, and some twenty years after its prior Green Guides were first issued in 1992. The Prior Green Guides themselves followed on the heels of various regulatory enforcement efforts undertaken by the FTC and state attorneys general, as well as increasing (and often inconsistent) state efforts to regulate specific claims—such as a product’s being “biodegradable” or “recycled” properties—that prompted many companies to call upon the FTC to provide a consistent set of trade regulation rules or guidance.

The Design of Competition Law Institutions: Global Norms, Local Choices

Posted by D. Daniel Sokol

Michael Trebilcock (Toronto) and Eleanor Fox (NYU) have edited The Design of Competition Law Institutions: Global Norms, Local Choices. You can download the first chapter here. The book uses a common template for each of the chapters to go through similarities and differences of the various country cases studies. A number of the chapters are really well done. I particularly like the Canada, Chile, US, and Japan chapters.

BOOK ABSTRACT: Competition (or antitrust) law is national law. More than 120 jurisdictions have adopted their own competition law. Is there a need for convergence of the competition law systems of the world? Much effort has been devoted to nudging substantive law convergence in the absence of an international law of competition. But it is widely acknowledged that institutions play as great a role as substantive principles in the harmonious - or dissonant - application of the law.

This book provides the first in depth study of the institutions of antitrust. It does so through a particular inquiry: Do the competition systems of the world embrace substantially the same process norms? Are global norms embedded in the institutional arrangements, however disparate?

Delving deeply into their jurisdictions, the contributors illuminate the inner workings of the systems and expose the process norms embedded within. Case studies feature Australia/New Zealand, Canada, Chile, China, Japan, South Africa, the USA, and the European Union, as well as the four leading international institutions involved in competition: the World Trade Organization, the Organization for Economic Cooperation and Development, the United Nations Conference on Trade and Development, and the International Competition Network; and the introductory and synthesizing chapter by the directors of the project draws also from the new institutional arrangements of Brazil and India. The book reveals that there are indeed common process norms across the very different systems; thus, this study is a counterpart to studies on convergence of substantive rules. The synthesizing chapter observes an emerging 'sympathy of systems' in which global process norms, along with substantive norms, play a critical role. The book provides benchmarks for the field and suggests possibilities for future development when the norms are embraced in aspiration but not yet in practice. It offers insights for all interested in competition law and global governance.

Maximizing Efficiencies: Getting Credit Where Credit Is Due?

Posted by D. Daniel Sokol

Michael Bernstein and Justin Hedge (Arnold & Porter) ask Maximizing Efficiencies: Getting Credit Where Credit Is Due?

ABSTRACT: Efficiencies are frequently a significant part of the business rationale for a transaction. However, receiving credit for the efficiency-enhancing aspects of a combination in a merger review is often difficult. By the Federal Trade Commission and Department of Justice’s own account, “the antitrust laws give competition, not internal operational efficiency, primacy in protecting customers” and “efficiencies are most likely to make a difference in merger analysis when the likely adverse competitive effects, absent the efficiencies, are not great.” Recent transactions, such as H&R Block/Tax Act, AT&T/T-Mobile, and OSF Healthcare/Rockford, continue to confirm that receiving credit for efficiencies is no easy task.

I was happy to read that they cited my article with Jim Fishkin, Antitrust Merger Efficiencies in the Shadow of the Law.

The Determinants of Supply and Demand for Mobile Applications

Posted by D. Daniel Sokol

Michael Sinkinson (The Wharton School, University of Pennsylvania) analyzes The Determinants of Supply and Demand for Mobile Applications.

ABSTRACT: Since 2008, multiple smartphone platforms have launched versions of “app stores”, marketplaces where consumers can purchase and download software applications for their smartphone. This paper provides evidence for both demand and supply of “apps” using data on the size and composition of smartphone user bases and of the apps available for competing platforms. Results from the estimation of a structural model show that the composition of users on a platform is a key determinant of app supply, and counterfactual simulations show that this effect is greater than the effects of within-platform competition and multi-homing costs in explaining the observed market outcome.

First mover advantages in mobile telecommunications: Evidence from OECD countries

Posted by D. Daniel Sokol

Johannes Muck (Dusseldorf Institute for Competition Economics) and Ulrich Heimeshoff (Dusseldorf Institute for Competition Economics) discuss First mover advantages in mobile telecommunications: Evidence from OECD countries.

ABSTRACT: We explore the existence of first mover advantages in mobile telecommunications markets. Building on a data set comprising monthly penetration rates, market concentration, number of active operators, and market shares of 90 followers from 33 OECD countries, we estimate a dynamic growth model. Our analysis delivers five key results. Regarding a follower's longrun market share, we observe that (1) the penetration rate at the time of market entry exerts an inverted u-shaped effect, suggesting the existence of an optimal time for issuing additional licenses for mobile network operation; (2) the concentration rate at market entry exerts a positive effect, implying that it is easier for followers to enter a more concentrated market; (3) both the number of active operators at market entry and the number of currently active operators have a negative impact. Furthermore, we find that a follower's rate of convergence to the long-r! un market share is (4) negatively influenced by the current market concentration and number of active operators; (5) negatively affected by changes in the penetration rate since market entry, which strongly indicates the presence of substantial first mover advantages for pioneering network operators.

How This Cookie Crumbled: Deciphering the Compliance Obligations Around the EU’s Cookie Directive

Posted by D. Daniel Sokol

Saira Nayak (TRUSTe) explains How This Cookie Crumbled: Deciphering the Compliance Obligations Around the EU’s Cookie Directive.

ABSTRACT: In the past few years, online advertising practices have increasingly come under the regulatory microscope on both sides of the Atlantic. Much of this attention has been centered on the use of technology by online advertisers—particularly the use of “cookies” and similar tracking technologies in advertising online. In recent years, advertisers have configured cookies and similar technologies to track a user’s online activity over time and then serve the user ads based on such activity. Different names apply to this type of advertising. The Federal Trade Commission has labeled and defined this as “behavioral advertising.” The industry refers to it as interest-based advertising—to highlight that as a result of being tracked, the user almost always receives an ad that is relevant or “of interest.”3 Regardless of the label, the use of technology to track a specific user’s online activity continues to raise privacy concerns—particularly as cookie and tracking technology evolves.

Inferior Factor in Cournot Oligopoly Revisited

Posted by D. Daniel Sokol

Paolo Bertoletti (Department of Economics and Management, University of Pavia) and Pierre Von Mouche (Economics of Consumers and Households, Wageningen University) discuss Inferior Factor in Cournot Oligopoly Revisited.

ABSTRACT: We reconsider the recent work by [Oku10] on (possibly asymmetric) Cournotian firms with two production factors, one of them being inferior. It is shown there that an increase in the price of the inferior factor does raise equilibrium industry output. In addition of providing a simpler and more rigorous proof of such a result, we generalize it to the case of technologies with s = 2 factors and allow some firms not to use the inferior one.

Market-Share Discounts Scrutinized by Third Circuit

Posted by D. Daniel Sokol

Elai Katz (Cahill) in his regular antitrust column in the New York Law Journal discusses Market-Share Discounts Scrutinized by Third Circuit.

Monopolistic Competition: CES Redux?

Posted by D. Daniel Sokol

Paolo Bertoletti (Department of Economics and Management, University of Pavia) and Paolo Epifani (Department of Economics, IGIER and Baffi Centre, Università Bocconi) ask Monopolistic Competition: CES Redux?

ABSTRACT: We investigate competitive, selection and reallocation effects in monopolistic competition trade models. We argue that departing from CES preferences in an otherwise standard Dixit-Stiglitz setup with additive preferences seems to involve implausible assumptions about consumer behavior and inconsistent competitive effects. In the presence of trade costs, selection effects à la Melitz (2003) are instead generally robust to the assumptions about preferences. However, they are unambiguously associated to aggregate productivity gains only when preferences are CES. We also study competitive effects in alternative monopolistic competition settings featuring non-additive preferences, strategic interaction and consumers’ preference for an ideal variety. We find that none of the these setups delivers a compelling pro-competitive mechanism. Overall, our results suggest that in monopolistic competition, consistent with CES prefe! rences, larger markets select more aggressively on productivity rather than forcing firms to move down their average cost curves.

Competing for Customers in a Social Network

Posted by D. Daniel Sokol

Pradeep Dubey (Department of Economics, Stony Brook University), Rahul Garg (Opera Solutions, INDIA) and Bernard De Meyer (Cermsem, Univesit´e Paris 1, Paris, FRANCE) explain Competing for Customers in a Social Network.

ABSTRACT: There are many situations in which a customer’s proclivity to buy the product of any firm depends not only on the classical attributes of the product such as its price and quality, but also on who else is buying the same product. Under quite general circumstances, it turns out that customers’ influence on each other dynamically converges to a steady state. Thus we can model these situations as games in which firms compete for customers located in a “social network”. A canonical example is provided by competition for advertisement on the web. Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. If there are no a priori biases between customers and firms, then there is a cut-off level above which high cost firms are blockaded at an NE, while the rest compete uniformly throughout the network. Otherwise there ! is a tendency towards regionalization, with firms dominating disjoint territories. We also explore the relation between the connectivity of a customer and the money firms spend on him. This relation becomes particularly transparent when externalities are dominant: NE can be characterized in terms of the invariant measures on the recurrent classes of the Markov chain underlying the social network. Finally we consider convex (instead of linear) cost functions for the firms. Here NE need not be unique as we show via an example. But uniqueness is restored if there is enough competition between firms or if their valuations of clients are anonymous.

Endogeneous Risk in Monopolistic Competition

Posted by D. Daniel Sokol

Vladislav Damjanovic (Department of Economics, University of Exeter) addresses Endogeneous Risk in Monopolistic Competition.

ABSTRACT: We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between the risk measured as a probability of default and the degree of competition is established.

FTC Monetary Remedies Policy and the Limits of Antitrust

Posted by D. Daniel Sokol

Alden Abbott (Research in Motion) discusses FTC Monetary Remedies Policy and the Limits of Antitrust.

ABSTRACT: The Federal Trade Commission’s abrupt July 2012 withdrawal of its 2003 Policy Statement on Monetary Equitable Remedies in Competition Cases (MER Statement)1 marks a change of direction in the FTC’s approach to monetary remedies—and, in particular, disgorgement and restitution— for antitrust violations. This action, which was taken without the benefit of advance notice and public comment, raises troubling questions. By increasing business uncertainty, the withdrawal may substantially chill efficient business practices that are not well understood by enforcers. In addition, it raises the specter of substantial error costs in the FTC’s pursuit of monetary sanctions. In short, it appears to represent

Collusive market sharing with spatial competition

Posted by D. Daniel Sokol

Kai Andree (University of Potsdam) and Mike Schwan have written on Collusive market sharing with spatial competition.

ABSTRACT: This paper develops a spatial model to analyze the stability of a market sharing agreement between two firms. We find that the stability of the cartel depends on the relative market size of each firm. Collusion is not attractive for firms with a small home market, but the incentive for collusion increases when the firm’s home market is getting larger relative to the home market of the competitor. The highest stability of a cartel and additionally the highest social welfare is found when regions are symmetric. Further we can show that a monetary transfer can stabilize the market sharing agreement.

Competition in Multi-Modal Transport Networks: A Dynamic Approach

Posted by D. Daniel Sokol

Adriaan Hendrik van der Weijde (VU University Amsterdam), Erik T. Verhoef (VU University Amsterdam) and Vincent van den Berg (VU University Amsterdam) explain Competition in Multi-Modal Transport Networks: A Dynamic Approach.

ABSTRACT: We analyse the behaviour of market participants in a multi-modal commuter network where roads are not priced, but public transport has a usage fee, which is set while taking the effects on the roads into account. In particular, we analyse the difference between markets with a monopolistic public transport operator, which operates all public transport links, and markets in which separate operators own each public transport link. To do so, we consider a simple transport network consisting of two serial segments and two parallel congestible modes of transport. We obtain a reduced form of the public transport operator's optimal fare setting problem and show that, even if the total travel demand is inelastic, serial Bertrand-Nash competition on the public transport links leads to different fares than a serial monopoly; a result not observed in a static model. This results from the fact that trip timing decisions, and therefor! e the generalized prices of all commuters, are influenced by all fares in the network. We then use numerical simulations to show that, contrary to the results obtained in classic studies on vertical competition, monopolistic fares are not always higher than duopolistic fares; the opposite can also occur. We also explore how different parameters influence the price differential, and how this affects welfare.