Antitrust & Competition Policy Blog

Swedish Competition Authority Starts a Working Paper Series

Posted by D. Daniel Sokol

The Swedish Competition Authority has started a working paper series. See here.

Competition, Equity and Quality in Healthcare

Posted by D. Daniel Sokol

Maija Halonen-Akatwijuka, University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) and Carol Propper, University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO); analyze Competition, Equity and Quality in Healthcare.

ABSTRACT: In this paper we focus on the implications of consumer heterogeneity for whether competition will improve outcomes in health care markets. We show that competition generally favours the majority group as higher quality for the majority is an effective way to increase the quality signal and attract patients. A regulator who is concerned about equity may protect the minority group by not introducing competition. Alternatively, if the minority group is favoured by the providers under monopoly, competition can improve equity by forcing the providers to increase quality for the majority group.

Market Power and Industrial Performance in Pakistan

Posted by D. Daniel Sokol

Akbar Ullah (Pakistan Institute of Development Economics, Islamabad), Ejaz Ghani (Pakistan Institute of Development Economics, Islamabad) and Attiya Y. Javed (Pakistan Institute of Development Economics, Islamabad) explore Market Power and Industrial Performance in Pakistan.

ABSTRACT: Using a panel of eight Pakistani manufacturing industries, we have examined the changes in price-cost margin (gross profitability) during 1998- 2009. In this study the traditional industrial organization approach of Structure- Performance has been applied to analyse the effects of concentration and import intensity on price-cost margins. It has been found that market concentration measured by four-firm concentration leads to high price-cost margin. Imports have the tendency to make the domestic firms more competitive, but their effect on more-concentrated firms is smaller as compared to non-concentrated firms. The minimum efficient scale and assets of industry have positive effects on margins while capital intensity has been found to reduce gross profitability.

Endogenous Cartel Organization and Antitrust Fine Discrimination

Posted by D. Daniel Sokol

Tim Reuter(Department of Economics, University of Konstanz) has written on Endogenous Cartel Organization and Antitrust Fine Discrimination.

ABSTRACT: Third parties such as trade associations often assist cartels by collecting and evaluating market behaviour at the firm level. Under incomplete information neutral market oversight helps to distinguish defecting from complying behaviour, increasing the effectiveness of punishments for defectors and increasing cartel persistence. We investigate how cartels sort themselves into different organizational forms and whether cartel enforcement can be improved by setting fines contingent on the organizational form. A fine reduction for firms operating without the help of a third party causes some cartels to switch to a less persistent organizational form. Two drawbacks of this fine differentiation are that some new cartels will arise and that some of the existing cartels will become more persistent as the need to punish defectors decreases. Our paper is the first in the marginal deterrence literature to identify this second effect.

The profit-sharing rule that maximizes sustainability of cartel agreements

Posted by D. Daniel Sokol

Joao Correia-da-Silva (CEF.UP and Faculdade de Economia, Universidade do Porto) and Joana Pinho (FCT and RGEA, Universidad de Vigo) describe The profit-sharing rule that maximizes sustainability of cartel agreements.

ABSTRACT: We propose a profit-sharing rule that maximizes sustainability of cartel agreements. This rule is such that the critical discount factor is the same for all the firms. If a cartel applies this rule, then asymmetries among firms may not hinder collusion (contrarily to the typical finding in the literature). In the simplest case of a Cournot duopoly in which firms differ in their stocks of capital, we find that the cartel is the least sustainable when one of the firms is approximately two times bigger than the other.

Pricing Strategies in Advance Selling: Should a Retailer Offer Pre-order Price Guarantee?

Posted by D. Daniel Sokol

Oksana Loginova (Department of Economics, University of Missouri-Columbia) asks Pricing Strategies in Advance Selling: Should a Retailer Offer Pre-order Price Guarantee?

ABSTRACT: Advance selling is a marketing strategy by a firm that allows consumers to submit pre-orders for a new to-be-released product. It helps the firm to reduce uncertainty about future demand and consumers to avoid stock-out risks. At the same time, consumers might be reluctant to place advance orders if they are uncertain about their valuations for the product or when they expect future price cuts. To induce early purchases, the firm may offer pre-order price guarantee. This paper examines the firm's profit-maximizing strategy in a two-period setting characterized by market size uncertainty, consumer valuation uncertainty, and consumer experience/inexperience with the product. I show that when consumers are less heterogeneous in their valuations, the firm should implement advance selling and offer pre-order price guarantee. For some parameter configurations pre-order price guarantee acts as a commitment device not to decreas! e the price in the regular selling season. In other situations, it enables the firm to react to the information obtained from pre-orders by increasing or decreasing the price. When consumers are more heterogeneous in their valuations and the market size uncertainty is small, or the fraction of experienced consumers in the population is high, the firm should not implement advance selling.

Analyzing Competition Among Internet Players: Qihoo 360 v. Tencent

Posted by D. Daniel Sokol

David S. Evans, Vanessa Yanhua Zhang, & Howard H. Chang (Global Economics Group) are Analyzing Competition Among Internet Players: Qihoo 360 v. Tencent.

ABSTRACT: In one of the most significant antitrust decisions since China implemented the Anti-Monopoly Law ("AML") in 2008, the Guangdong High People's Court ("Guangdong High Court") dismissed claims on anticompetitive bundling and exclusionary practice brought by Qihoo 360 against Tencent. The Guangdong High Court issued an 80-page decision that provided a relatively sophisticated and nuanced analysis of market definition and market power that examined internet-based competition, recognized the importance of multi-sided platforms in this competition, and highlighted the critical role of dynamic competition.

Although Qihoo 360 has appealed the decision to China's Supreme Court it now stands as both a landmark decision in China and an exemplar of serious antitrust analysis of the internet sector for courts and competition authorities around the world.

Market Definition in Two-Sided Markets: Theory and Practice

Posted by D. Daniel Sokol

Lapo Filistrucchi, Tilburg University, Department of Economics, CentER & TILEC; University of Florence, Dipartimento di Scienze Economiche; Damien Geradin, Tilburg University - Tilburg Law and Economics Center (TILEC); University of Michigan Law School; Covington & Burling; Eric Van Damme, TILEC and CentER, Tilburg University; Pauline Affeldt, E.CA Economics describe Market Definition in Two-Sided Markets: Theory and Practice.

ABSTRACT: Drawing from the economics of two-sided markets, we provide suggestions for the definition of the relevant market in cases involving two-sided platforms, such as media outlets, online intermediaries, payment cards companies and auction houses. We also discuss when a one-sided approach may be harmless and when instead it can potentially lead to a wrong decision. We then show that the current practice of market definition in two-sided markets is only in part consistent with the above suggestions. Divergence between our suggestions and practice is due to the failure to fully incorporate the lessons from the economic theory of two-sided markets, to the desire to be consistent with previous practice and to the higher data requirements and the higher complexity of empirical analysis in cases involving two-sided platforms. In particular, competition authorities have failed to recognize the crucial difference between two-sided transaction and non-transaction markets and have been misled by the traditional argument that where there is no price, there is no market.

Discount Pricing

Posted by D. Daniel Sokol

Mark Armstrong, Oxford - Economics and Yongmin Chen, University of Colorado at Boulder - Department of Economics analyze Discount Pricing.

ABSTRACT: We investigate the marketing practice of framing a price as a discount from an earlier price. We discuss two reasons why a discounted price --- rather than a merely low price --- can make a consumer more willing to purchase. First, a high initial price can indicate the product is high quality. Second, a high initial price can signal a bargain relative to other options, and there is less incentive to search. We also discuss a behavioral model where the propensity to buy increases when others pay more. A seller has an incentive to offer false discounts, where the initial price is exaggerated.

Cartel Detection And The Use Of Screens To Uncover Price Conspiracies

Posted by D. Daniel Sokol

Cartel Detection And The Use Of Screens To Uncover Price Conspiracies

 

Introduction:

The use of screens has been integral in cartel detection, but also has a very meaningful place in cartel prevention and defense. This briefing room starts by reviewing the way screens, as well as other detection tools, are used in practice to uncover pricing conspiracies and to determine whether collusion is present in a specific market. Leading off this discussion in the form of an engaging webinar series will be a panel of knowledgeable experts widely recognized as the premier thought leaders in the subject. This first webinar, to be held on May 22nd, will be a nuanced overview of cartel detection headlined by guest editor Rosa Abrantes-Metz (GlobalEcon, NYU Stern School of Business), Antonio Capobianco (OECD), Carlos Mena-Labarthe (Federal Competition Commission of Mexico), and Carlos Ragazzo (Administrative Council for Economic Defense, Brazil). It will be moderated by David S. Evans (GlobalEcon, University of Chicago Law School).

We then turn our focus to a robust webinar discussion on the value of screens in cartel prevention and the
creative usage of screens on the defense side. This second webinar, held a week after the first on May 28th, will feature guest editor Rosa Abrantes-Metz (GlobalEcon, NYU Stern School of Business), Kai Huschelrath (ZEW), Donald C. Klawiter (Sheppard Mullin Richter & Hampton LLP), Daniel Sokol (Levin College of Law at the University of Florida). This will also be moderated by David S. Evans (GlobalEcon, University of Chicago Law School).

REGISTER NOW

About the Experts:

 

Rosa Abrantes-Metz is a principal in the antitrust, securities and financial regulation practices of Global Economics Group and an Adjunct Associate Professor at NYU's Stern School of Business. She is the author of several articles on econometric methods and screens and flagged the LIBOR conspiracy in 2008. Her work is regularly featured in the media.	Antonio Capobianco is responsible for proceedings of the Working Party No. 3 of the OECD Competition Committee, Working Party on International Co-operation and Competition Law Enforcement. In this position, Mr Capobianco was responsible for a series of projects and work streams, including the development of the 2009 Guidelines for Fighting Bid Rigging in Public Procurement.
Kai Hüschelrath is head of the research group “Competition and Regulation” at ZEW (Center for European Economic Research). And Assistant Professor of Industrial Organization and Competitive Strategy at WHU Otto Beisheim School of Management in Vallender.	Don Klawiter is a partner at Sheppard Mullin in Washington, DC.. His practice focuses on antitrust investigations and litigation with a special emphasis on international cartel matters. In 2005-2006, he served as Chair of the ABA Section of Antitrust Law. Recently, he served as Co-Chair of the Section of Antitrust Law’s Presidential Transition Report Task Force, which made recommendations to the Antitrust Division and FTC on enforcement policy and procedures.
Carlos Mena-Labarthe is head of cartel investigations at the Federal Competition Commission of Mexico (CFC). Prior to his joining the Mexican competition authority he worked for national and international law firms including Basham, Ringe y Correa; Barrera, Siqueiros y Torres Landa and Haynes and Boone. He teaches Competition Law, Regulation and Public Policy at graduate and postgraduate level at ITAM.	Carlos Ragazzo is General Superintendent of Brazil’s competition authority, CADE. Before joining CADE he was a Lawyer for Pinheiro Net Avogados and worked as a trainee at the US's FTC. He was general coordinator of antitrust at the Secretariat of Economic Monitoring in the Ministry of Finance. He is currently an Adjunct Professor of Antitrust Law in Rio de Janeiro at Gertulio Vargas.
Daniel Sokol is an Associate Professor of Law at University of Florida’s Levin College of Law. He has provided technical assistance and capacity building to antitrust agencies and utilities regulators from around the world. He is a co-editor of the book series Global Competition Law and Economics.	David S. Evans is Chairman of Global Economics Group and Lecturer, University of Chicago Law School. Evans is the co-author with Professor Abrantes-Metz of a widely discussed proposal for replacing LIBOR.

Pro-Business and Anti-Efficiency: How Conservative Procedural “Innovations” Have Made Litigation Slower, More Expensive, and Less Efficient

Posted by D. Daniel Sokol

J. Douglas Richards & Michael B. Eisenkraft (Cohen Milstein) discuss Pro-Business and Anti-Efficiency: How Conservative Procedural “Innovations” Have Made Litigation Slower, More Expensive, and Less Efficient.

ABSTRACT: As detailed in a recent popular book by Jacob Hacker & Paul Pierson, recent decades have brought to America a well-orchestrated political campaign to favor the economic interests of large corporations over those victimized by torts and other wrongful corporate acts. Hallmarks of that campaign have included propagandistic messaging from the United States Chamber of Commerce and others about such supposedly widespread phenomena as "nuisance suits," "frivolous litigation," "class action abuse," "hydraulic pressure to settle," and the like. The Chamber of Commerce has even gone so far as to release multiple movie trailers, for exhibition in connection with feature films, which consisted largely of propaganda about "costly and frivolous" lawsuits.

Respected commentators who have scrutinized these claims about the litigation process have generally found them to possess little or no factual foundation. For example, Professor Arthur Miller observed "the picture generally portrayed is incomplete and is distorted by a lack of definition and empirical data regarding the alleged negative aspects of federal litigation. This generates rhetoric that often reflects ideology or economic self-interest, rather than reality." Other academic observers have made similar observations.

Antitrust as facilitating factor for collusion

Posted by D. Daniel Sokol

Iwan Bos, Wilko Letterie, and Dries Vermeulen (all Maastricht University) analyze Antitrust as facilitating factor for collusion.

ABSTRACT: We study collusion in an infinitely repeated prisoners' dilemma when firms' discount factor is private information. If tacit collusion is not feasible, firms that are capable of sustaining high prices may still be willing and able to collude explicitly. Firms eager to collude may signal their intentions when forming the agreement is costly, but not too costly. As antitrust makes explicit collusion costly in expected terms, it may in fact function as a signaling device. We show that there always exists a cost level for which explicit collusion is viable. Moreover, our analysis suggests that antitrust enforcement is unable to fully deter collusion.

Sensible Discovery: Effective Strategies to Streamline the Discovery Process and Save Clients’ Money

Posted by D. Daniel Sokol

Robert Corp & Chul Pak (Wilson Sonsini Goodrich & Rosati) explore Sensible Discovery: Effective Strategies to Streamline the Discovery Process and Save Clients’ Money.

ABSTRACT: Defending private antitrust litigation can be a pricey undertaking, the result of several factors. The nature of the allegations often prompts courts to allow plaintiffs to engage in broad discovery that can cost a company millions and, given the typically high-stakes nature of antitrust matters, the defending companies have no choice but to invest significant resources to respond. Plaintiffs litigate these cases aggressively, particularly class-action lawyers, pushing prices further upwards. Antitrust cases often span a number of years, with millions of documents collected, produced, and reviewed. The recent explosion in electronic document generation and storage has significantly increased the litigation expenses.

With these daunting cost pressures, controlling discovery costs is an essential function of outside counsel and, fortunately, there are effective ways that can help reduce the litigation costs. A key theme running through each of these strategies is that they occur early in the case, as topics perhaps considered mundane or procedural can determine whether costs will eventually spiral out of control.

Excessive supplier pricing and high-quality foreclosure

Posted by D. Daniel Sokol

Martin Obradovits (University of Vienna - Economics) has written on Excessive supplier pricing and high-quality foreclosure.

ABSTRACT: This article shows that entry of a more input-effcient, but lower quality downstream producer, compared to a high-quality downstream incumbent, might be detrimental to social welfare. In particular, if the entrant is extremely ecient, a monopolist upstream supplier reacts by charging an excessive price, driving the high-quality incumbent out of the market and reducing social welfare. However, despite the entrant's low input requirement, the supplier's profit increases for all but the most effcient entrant technologies. Enabling the supplier to engage in third degree price discrimination may increase social welfare.

Cost inefficiency and Optimal Market Structure in Spatial Cournot Discrimination

Posted by D. Daniel Sokol

Ricardo Biscaia (CIPES - Centro de Investigacao de Politicas de Ensino Superior), Paula Sarmento (FEP - Faculdade de Economia do Porto) discuss Cost inefficiency and Optimal Market Structure in Spatial Cournot Discrimination.

ABSTRACT: This paper analyzes the location patterns of firms in Cournot spatial discrimination setting. The innovation step is that firms are allowed to have different marginal costs of the production. When analyzing the two-stage location-quantity game, we conclude that firms choose the central agglomeration outcome whatever the marginal cost difference between them. When maximizing social welfare, the social planner chooses the central location for both firms as well if the marginal cost differences are not too big. When allowed to decide if the inefficient firm should be in the market or not, the social planner removes the inefficient firm from the market if its cost is too high.

Fixed-Mobile Integration

Posted by D. Daniel Sokol

Steffen Hoernig (Nova School of Business and Economics, Lisbon, Portugal), Marc Bourreau (Telecom ParisTech, Department of Economics and Social Sciences), and Carlo Cambini (Politecnico di Torino, DIGEP) analyze Fixed-Mobile Integration.

ABSTRACT: Often, fixed-line incumbents also own the largest mobile network. We consider the effect of this joint ownership on market outcomes. Our model predicts that while fixed-to-mobile call prices to the integrated mobile network are more efficient than under separation, those to rival mobile networks are distorted upwards, amplifying any incumbency advantage. As concerns potential remedies, a uniform off-net pricing constraint leads to higher welfare than functional separation and even allows to maintain some of the efficiency gains.

International Cooperation at the Antitrust Division: A View from the Trenches

Posted by D. Daniel Sokol

Patricia Brink, Director of Civil Enforcement (DOJ Antitrust) has given a speech on International Cooperation at the Antitrust Division: A View from the Trenches.

A Cost-Cutting Solution to the Discovery Burdens of Antitrust Disputes

Posted by D. Daniel Sokol

James Bo Pearl & J. Hardy Ehlers (O’Melveny & Myers) offer A Cost-Cutting Solution to the Discovery Burdens of Antitrust Disputes.

ABSTRACT: Litigating an antitrust case has always been a costly endeavor for all parties involved. Just in the last 30 years, sprawling cases such as Microsoft, Intel, and price-fixing cases involving LCDs, vitamins, and memory have chewed up hundreds of millions of dollars in fees and expert costs. There are myriad reasons for the staggering expense: The scope of these cases often comprises all aspects of a defendants' business, a searching inquiry of the relevant markets at issue, and battles between pricey economists who conduct vast econometric market studies to support their side's view of the case. And while the unrelenting explosion of electronic data has affected all litigation segments to some extent, it has impacted antitrust litigation in a particularly profound way. Rapidly expanding discovery costs now force settlements in situations where, in the past, defendants might make the pragmatic business decision to litigate when they believed they did nothing wrong.

The costs do not impact only defendants. Plaintiffs' lawyers who in the past may have worked a case from the ground up may be more hesitant to invest in a multi-year discovery battle. Such attorneys may be more likely to simply trail government investigations in which a plea deal portends a higher likelihood of a success.

As it stands now, the law is not well situated to rein in the mushrooming discovery costs.

Re-examining the Effects of Switching Costs

Posted by D. Daniel Sokol

Andrew Rhodes (Oxford) is Re-examining the Effects of Switching Costs.

ABSTRACT: Consumers often incur costs when switching from one product to another. Recently there has been renewed debate within the literature about whether these switching costs lead to higher prices. We build a theoretical model of dynamic competition and solve it analytically for a wide range of switching costs. We provide a simple condition which determines whether switching costs raise or lower long-run prices. We also show that switching costs are more likely to increase prices in the short-run. Finally switching costs redistribute surplus across time, and as such are shown to sometimes increase consumer welfare.

Measuring Unilateral Effects in Partial Acquisitions

Posted by D. Daniel Sokol

Duarte Brito, Universidade Nova de Lisboa, Ricardo Ribeiroz, Universidade Catolica Portuguesa and Helder Vasconcelos, Faculdade de Economia do Porto are Measuring Unilateral Effects in Partial Acquisitions.

ABSTRACT: Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial acquisitions involving pure financial interests and/or effective corporate control on prices, market shares,firm profits and consumer welfare. The proposed methodology can deal with differentiated products industries, with both direct and indirect partial ownership interests and nests full mergers (100% financial and control acquisitions) as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.