Antitrust & Competition Policy Blog

FTC Triumphs over Phoebe Putney in 9-0 Supreme Court Decision

Posted by D. Daniel Sokol

The Supreme Court decision is out - see here. The Supreme Court ruled against Phoebe Putney in a 9-0 decision by Justice Sotomayor. The Court made the right call. I am not a fan of state action (see here) and the facts in this case were really bad for Phoebe Putney.

Consolidation and Merger Activity in the United States Banking Industry from 2000 Through 2010

Posted by D. Daniel Sokol

Robert M. Adams, Federal Reserve Board has written on 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.

Developments in New Zealand Competition Law and Policy

Posted by D. Daniel Sokol

Mark Berry (New Zealand Commerce Commission) explains Developments in New Zealand Competition Law and Policy.

ABSTRACT: The New Zealand Commerce Commission is an independent statutory body with responsibility for enforcing competition law. The Commerce Act 1986 prohibits anticompetitive behavior and structures in markets. It applies broadly across the economy, including the public sector. The NZCC also enforces consumer legislation and is the industry-specific economic regulator for the electricity lines, gas pipelines, telecommunications, dairy, and airport sectors.

The NZCC functions as both an enforcement agency with sanctions requiring decisions by New Zealand's High Court; and a quasi-judicial body, with power to give clearances and authorizations for business acquisitions, and authorizations for certain restrictive trade practices.

William E. Kovacic: An Antitrust Tribute Liber Amicorum - Volume I

Posted by D. Daniel Sokol

Now out is WILLIAM E. KOVACIC: AN ANTITRUST TRIBUTE - LIBER AMICORUM (Vol. I), Editors: Nicolas Charbit - Elisa Ramundo - Anna Chehtova - Abigail Slater.

BOOK ABSTRACT: This Antitrust Tribute is a selection of 31 essays providing an insightful and original look at the antitrust law to which Prof. William E. Kovacic has contributed so much. This first volume, mainly covering issues of U.S. and European antitrust law, gathers articles by prominent authors among Professor Kovacic’s friends and colleagues. It is organized into two parts. Part I, entitled “An Antitrust Career”, consists of 9 papers that pay tribute to Kovacic as a man, professor, and public official. They offer an original as well as enthralling picture of his scholarship and public enforcement efforts. Part II, entitled “New Frontiers of Antitrust”, includes 22 articles covering different aspects of competition law, ranging from cartels in the U.S. and Europe to mergers analysis, private rights of action, antitrust settlements, etc. The overall result is a collective work that offers the opportunity to look over the antitrust world not only as a “cold” field of law, but also as a lively discipline to whose growth Prof. Kovacic has contributed greatly. Volume II will focus on the international career of William E. Kovacic and on international and bilateral antitrust issues.

I contributed a chapter along with Christine Wilson and Joe Nord titled Grading the Professor: Evaluating Bill Kovacic’s Contributions to Antitrust Engineering.

Anticompetitive Exclusion in Related Markets

Posted by D. Daniel Sokol

Paolo Ramezzana, Compass Lexecon discusses Anticompetitive Exclusion in Related Markets.

ABSTRACT: This paper shows how monopolization of a given market through exclusive contracts can affect the profitability of monopolization of another market in a model with two incumbent firms, each producing a distinct substitute or complementary good and each facing a distinct potential entrant. Externalities between incumbents operate through a "scale effect" and a "profit extraction effect". With linear demand, when both potential entrants have intermediate levels of entry costs there exist multiple equilibria. In particular, when the goods are strong complements there exist an equilibrium with monopolization in both markets and an equilibrium with entry in both markets. When the goods are subsitutes or weak complements there exist two asymmetric equilibria, each with a different incumbent monopolizing its market while the other does not. The equilibrium is instead unique when at least one of the two potential entrants has very high or very low entry costs. I discuss implications for antitrust enforcement in markets for complementary inputs and for national antitrust policy-making in the presence of international trade in substitute goods.

Mapping the (New) Limits of Antitrust

Posted by D. Daniel Sokol

Marek Martyniszyn (Chicago Loyola Law) has written a book review Mapping the (New) Limits of Antitrust of my book The Global Limits of Antitrust.

BOOK REVIEW ABSTRACT: The Global Limits of Competition Law is the first book in the new series Global Competition Law and Economics, edited by Ioannis Lianos and D. Daniel Sokol, and published by Stanford University Press. The aim of this new series is to analyse “how law, economics, and institutions respond to an increasingly global and interconnected antitrust community.” While acknowledging that economic concepts are used as a common vocabulary in the ongoing international discourse on competition law, the series editors recognize that there are also other important features calling for analysis and understanding. For example, institutional framework and culture play an important role in competition law and policy. In their words, “Too often policy makers merely reference the ready-made solutions adopted by more established competition law systems . . . without due regard to local factors.” Hence, this series carries a promise of being a valuable outlet for rigorous thinking about competition law from a broader perspective, both geographically and more importantly conceptually.

A Basic Analysis of Entry and Exit in the US Broadband Market, 2005-2008

Posted by D. Daniel Sokol

Michelle P. Connolly, Duke University - Department of Economics and James E. Prieger, Pepperdine University - School of Public Policy describe A Basic Analysis of Entry and Exit in the US Broadband Market, 2005-2008.

ABSTRACT: We conduct a basic analysis of entry and exit in the US broadband market, using a complete FCC census of providers from 2005 to 2008. There is a tremendous amount of (simultaneous) entry and exit in the US broadband market. Most entry is from existing providers expanding into new geographic areas. Entry and exit vary widely across the various modes of provision, which argues against treating broadband as a homogenous service in theoretical or empirical work. The highest entry rates also generally have the highest entrant shares. Entry rates display positive autocorrelation, and the same is true for exit. There is also positive correlation between the entry and exit rates at various leads and lags, suggesting that there are systematic differences among the broadband types in the height of entry and exit barriers. We discuss some implications these results may have for both policy purposes and future work in the broadband market.

Models of Competition between Firms: Endogenous Market Structure in the Kaleckian Model

Posted by D. Daniel Sokol

Takashi Ohno, Ritsumeikan University analyzes Models of Competition between Firms: Endogenous Market Structure in the Kaleckian Model.

ABSTRACT: The purpose of this paper is to incorporate free entry into the Kaleckian model. To this end, we consider a model with monopolistic competition, mark‐up pricing and a free‐entry condition. Using this model, the Kaleckian model is unstable under a wage‐led growth regime, and it is stable under a profit‐led growth regime, when the interest rate is supposed to be constant. Stability under a wage‐led growth can be achieved if the interest rate is allowed to respond positively to capacity utilization. We also find that a goods market policy, but not an income distribution policy, is then effective from an economic growth perspective.

Demand Substitutability and Channel Performance Analysis of Pay TV Program Genres

Posted by D. Daniel Sokol

Chun-Il Park, Sookmyung Women's University - School of Communication & Media, Jaekyoung Ahn, Seoul National University of Science & Technology and Nam-Wook Cho, Seoul National University of Science & Technology explain Demand Substitutability and Channel Performance Analysis of Pay TV Program Genres.

ABSTRACT: Although the SSNIP (Small but Significant and Non-transitory Increase in Price) test is a commonly used methodology for market definition, it can hardly be applied to the market definition of pay TV program genres. In this paper, a social network analysis has been applied to the market definition of pay TV movie genre. By analyzing the channel selection behavior of users, we examined the existence of substitute in the pay TV movie genre.

In addition, this paper also investigated the potential to deteriorate the quality in the programs after the merger between the movie channels throughout the profit and loss statements analyses of each movie channel. Regression analysis on the viewer ratings and advertising revenue showed that the higher the viewer ratings are, the larger the advertising revenue is, and consequently it is very probable that even a small decrease in the viewer ratings results in huge amount of drops in the advertising revenue. Therefore, the merger corporate is not willing to reduce the program qualities on purpose. We have concluded that merger and acquisition of movie program channels could be an advisable alternative for restructuring the movie contents market.

Competition Law Developments in Malaysia

Posted by D. Daniel Sokol

May Fong Cheong (University of New South Wales) describes Competition Law Developments in Malaysia.

ABSTRACT: The preceding two years have been instrumental for Malaysia in the area of competition law. After many years of germination, the Fair Trade Practices Policy, which was approved in 2006, finally evolved into competition legislation. In 2010, the Malaysian Parliament passed the Competition Act 2010 ("the CA") and the Competition Commission Act 2010 ("the CCA"). The CA has only been in force since January 1, 2012, while the CCA became effective a year before. The Chairperson of the Competition Commission, a former judge of Malaysia's apex court, was appointed in April 2011 with nine other Commissioners appointed the following month.

Within the relatively short span, there have been significant developments. The purpose of this article is to provide a brief introduction to the competition law regime in Malaysia and the developments that have taken place in the last two years.

CONSOLIDATION IN HEALTH CARE MARKETS: A Review of the Literature

Posted by D. Daniel Sokol

David A. Balto and James Kovacs have written CONSOLIDATION IN HEALTH CARE MARKETS: A Review of the Literature.

ABSTRACT: In Consolidation in Health Care Markets: A Review of the Literature, authors David Balto and James Kovacs in a study funded by and submitted to the Robert Woods Johnson Foundation discuss the recent literature concerning consolidation across various health care markets. The paper focuses on consolidation of hospital, provider, and health insurance markets with the goal of understanding the impact consolidation has on health care prices, quality of care, and overall costs. The paper seeks to provide an overview of the key research and present findings in different areas of healthcare to facilitate further investigation. The authors find that while there is consolidation across many health care markets, some of the literature suggests consolidation can lead to greater efficiencies and higher quality care. The authors also focus on specific Affordable Care Act provisions which have the goal of not only increasing access but improving the quality of care. The paper then concludes with specific conclusions and policy implications including a discussion of agency antitrust enforcement and congressional action.

An Empirical Analysis of the Demand for Fixed and Mobile Telecommunications Services

Posted by D. Daniel Sokol

Yongkyu Kim, Hanyang University - Department of Economics, Jin-Soo Yoo, Sookmyung Women's University - Department of Economics, Seonghoon Jeon, Sogang University - Department of Economics, and Yoon-Jae Whang, Seoul National University - School of Economics offer An Empirical Analysis of the Demand for Fixed and Mobile Telecommunications Services.

ABSTRACT: In this paper, we estimate the own- and cross-price elasticities and income elasticity of various fixed and mobile telephone services using monthly time series data. We estimate expenditure share of various telecommunications services such as local, toll, LM (Land to Mobile), Mobile Voice and Short Message Services. We employ AIDS (Almost Ideal Demand System) as the estimation model and employ Triangular Error Correction Model in the estimation to consider the cointegrated relationship between variables. We show that the own-price elasticity of the demand for local call is -1.06 and the own-price elasticity of the demand for mobile is -0.85. This result is consistent with those of previous studies.

Attention Rivalry among Online Platforms and Its Implications for Antitrust Analysis

Posted by D. Daniel Sokol

David Evans (Global Economics Group, University of Chicago, UCL) explains Attention Rivalry among Online Platforms and Its Implications for Antitrust Analysis.

ABSTRACT: Many online businesses, including most of the largest platforms, seek and provide attention. These online attention rivals provide products and features to obtain the attention of consumers and sell some of that attention, through other products and services, to merchants, developers and others who value it. The multi-sided business of seeking and providing attention is fluid with rivalries crossing boundaries defined by the features of the products and services. It is also dynamic. Rivals introduce new products and services, some involving drastic innovation, frequently. Online attention rivals impose competitive constraints on each other. Product differentiation tempers the significance of these constraints in particular situations. But the relevant differentiation mainly involves aspects of the attention that is procured and sold rather than, necessarily, particular features of the products and services used for acquiring and delivering that attention. Antitrust analysis should consider these competitive constraints in evaluating market definition, market power, and the potential for anticompetitive effects. Most importantly, antitrust analysis should focus on competition for seeking and providing attention rather than the particular products and services used for securing and delivering this attention. The existence of competition among attention rivals does not imply that antitrust should reduce the vigor with which it examines mergers and exclusionary practices among these platforms. It just needs to look for problems in the right places.

Libor, Strategy, and International Cartel Investigations

Posted by D. Daniel Sokol

Chai Lim has written on Libor, Strategy, and International Cartel Investigations.

ABSTRACT: Cartel investigations are under way into practices deemed to be manipulative of the LIBOR index. The international effect and circumstances of these practices are favourable towards cooperation and coordination between investigating authorities for various reasons—including preventing parties from tactically assessing which authorities have the necessary resources and evidence to prosecute. This article discusses defence strategies available to counsel acting to defend the banks.

Commission v Microsoft: How to Set Reasonable Rates for Access to Interoperability Information and Evaluate their Innovative Character?

Posted by D. Daniel Sokol

Stefano Barazza, Studio Legale Barazza asks Commission v Microsoft: How to Set Reasonable Rates for Access to Interoperability Information and Evaluate their Innovative Character?

ABSTRACT: The General Court upheld the Commission's Decision which condemned Microsoft for failure to provide interoperability information on reasonable and non-discriminatory terms, reducing the periodic penalty payment imposed.

The Relationship between Service Quality, Economic and Switching Costs in Retail Banking

Posted by D. Daniel Sokol

Faruk Anıl Konuk, Sakarya University and Filiz Konuk, Sakarya University dsicuss The Relationship between Service Quality, Economic and Switching Costs in Retail Banking.

ABSTRACT: The objective of this study is to examine the structural relationships between service quality, economic and switching costs, loyalty and word-of-mouth intentions. For this aim, we proposed a conceptual model based on literature review and proposed hypothesis according to this model. In order to test the hypothesis structural equation modeling technique were applied to the data. Data were collected from 397 retail banking customers during May 2012 in Sakarya/Turkey. The results of this empirical study reveal that service quality has positive effect on economic and switching costs and these costs have positive effect on both loyalty and word-of-mouth intentions. The results also indicate negative relationship between economic costs and switching costs and behavioral intentions. In addition, positive relationship was found between service quality, loyalty and word-of-mouth intentions. At the end of this study some managerial implications are discussed based on the findings.

Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure

Posted by D. Daniel Sokol

Chiara Fumagalli, Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR), Massimo Motta, Universitat Pompeu Fabra and Thomas Ronde, University of Copenhagen - Department of Economics; Center for Economic and Business Research (CEBR); Centre for Economic Policy Research (CEPR) have an interesting paper on Exclusive Dealing: Investment Promotion May Facilitate Inefficient Foreclosure.

ABSTRACT: This paper studies a model whereby exclusive dealing (ED) can both promote investment and foreclose a more efficient supplier. Since ED promotes the incumbent seller's investment, the seller and the buyer realize a greater surplus from bilateral trade under exclusivity. Hence, the parties involved may sign an ED contract that excludes a more efficient entrant in circumstances where ED would not arise absent investment. The paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ED.

Successive Oligopolies with Differentiated Firms and Endogeneous Entry

Posted by D. Daniel Sokol

Markus Reisinger, WHU - Otto Beisheim School of Management, CESifo (Center for Economic Studies and Ifo Institute for Economic Research) andv Monika Schnitzer, University of Munich - Department of Economics, Centre for Economic Policy Research (CEPR) describe Successive Oligopolies with Differentiated Firms and Endogeneous Entry.

ABSTRACT: We develop a model of successive oligopolies with endogenous entry, allowing for varying degrees of product differentiation and entry costs in both markets. We show that downstream conditions dominate the overall profitability of the two‐tier structure while upstream conditions mainly affect the distribution of profits. We analyze how two‐part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects. In contrast to previous literature, we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization. This is because linear prices induce more downstream market entry.

American Airlines/US Air Merger

Posted by D. Daniel Sokol

The merger between American Airlines and US Air has been announced.  I think that you will worry more about how often you will get a seat upgrade than you will if the American Airlines/US Air merger will be blocked on antitrust grounds. There are few direct overlaps. Given that DOJ allowed United/Continental, Delta/Northwest, and Southwest/AirTran in recent years, I think that this merger will go through. Maybe the parties will need to give up some slots.

Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending

Posted by D. Daniel Sokol

Stefan Arping (University of Amsterdam) has a paper on Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending.

ABSTRACT: In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.