Thursday, May 16, 2013

Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark

Posted by D. Daniel Sokol

Ulrich Kaiser (University of Zurich), Susan J. Mendez, (University of Zurich), Thomas Ronde (Copenhagen Business School) and Hannes Ullrich (University of Zurich) provide Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark.

ABSTRACT: Reference prices constitute a main determinant of patient health care reimbursement in many countries. We study the effects of a change from an "external" (based on a basket of prices in other countries) to an "internal" (based on comparable domestic products) reference price system. We find that while our estimated consumer compensating variation is small, the reform led to substantial reductions in list and reference prices as well as co-payments, and to sizeable decreases in overall producer revenues, health care expenditures, and co-payments. These effects differ markedly between branded drugs, generics, and parallel imports with health care expenditures and producer revenues decreasing and co-payments increasing most for branded drugs. The reform also induced consumers to substitute from branded drugs – for which they have strong preferences – to generics and parallel imports. This substitution also explains the small increase in consumer welfare despite a substantial decrease in expenditures.

May 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Big Bang Theory: Does Section 5 of the FTC Act Have Limits or Can It Achieve Infinite Expansion?

Posted by D. Daniel Sokol

The American Bar Association Section of Antitrust Law and Center for Professional Development are sponsoring a great CLE on Big Bang Theory: Does Section 5 of the FTC Act Have Limits or Can It Achieve Infinite Expansion?

Big Bang Theory: Does Section 5 of the FTC Act Have Limits or Can It Achieve Infinite Expansion?

Date: Tuesday, June 18,  2013
Format: Live Webinar and Teleconference
Duration: 60 minutes
         
Teleconference Format  Webinar Format

 

Sponsors:
            The American Bar Association Section of Antitrust Law and Center for Professional Development

4:00 PM-5:00 PM                         Eastern

3:00 PM-4:00 PM                         Central

2:00 PM-3:00 PM                         Mountain

1:00 PM-2:00 PM                         Pacific

Program Description

The FTC has viewed Section 5's broad prohibition of  "unfair methods of competition" as giving it the authority to attack  everything from unilateral "invitations to collude" that lack the  agreement necessary to violate Section 1 (including ones in the form of public  communications on calls with securities analysts or in letters to a distributor  network), to anticompetitive "courses of conduct" that would be  dismissed as "monopoly broth" if challenged under Section 2.   The faculty will discuss:

  • What       are the limits when Section 5 is used to attack conduct that would fail to       meet the accepted requirements for liability under Section 1 or Section 2       of the Sherman Act?
  • Will       the FTC's new push in this area also involve trying to revive old theories       like "facilitating practices" and "collective dominance“?
  • Can       expanded Section 5 liability effectively be limited, as some have       advocated, to practices that significantly reduce or distort the consumer       choices available on the market?

This program will explore these and other issues, and  will provide some practical advice for in-house counsel on where the limits may  be, and how to manage the risks created by the ongoing uncertainty in this  area.  

Program Faculty

Susan Creighton
Partner
Wilson Sonsini  Goodrich & Rosati
Washington,  DC

Robert H. Lande
      Professor
University of  Baltimore School of Law
      Baltimore,  MD

Tom Rosch
      Of  Counsel  
Latham & Watkins
      San  Francisco, CA

Joe Sims
      Partner
Jones Day
      Washington,  DC

Carter B. Simpson (Moderator)
      Of  Counsel
Dentons US LLP
  Washington, DC

May 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Differential market entry determinants for for-profit and nonprofit long-term care providers

Posted by D. Daniel Sokol

Katsuyoshi Nakazawa (University of Toyo) explores Differential market entry determinants for for-profit and nonprofit long-term care providers.

ABSTRACT: This study considers market entry determinants for both for-profit and non-profit at-home longterm care providers in Japan. It examines market structure incentives and barriers to entry using a panel dataset of 48 Japanese municipalities for the 2003–2011 period. Estimation results show that forprofits and non-profits face different determinants of entry. Potential for-profit entrants are sensitive to profit considerations and therefore adapt to the market structure and clear barriers to entry. However, potential non-profits with preferential tax treatment and the constraint of non-distribution of profits enter disadvantaged municipalities. Both profits and non-profits have become integrated in Japanese at-home care markets.

May 16, 2013 | Permalink | Comments (0) | TrackBack (0)

Determinants of Generic vs. Brand Drug Choice: Evidence from Population-wide Danish Data

Posted by D. Daniel Sokol

Niels Skipper (Department of Economics and Business, Aarhus University) Rune Vejlin (Department of Economics and Business, Aarhus University) find Determinants of Generic vs. Brand Drug Choice: Evidence from Population-wide Danish Data.

ABSTRACT: When prescription medications go off patent, vastly cheaper generic drugs usually enters the market. However, the original brand medication often maintains non-negligible market shares. This paper investigates whether demand for branded medications in post-patent markets is patient- or doctor driven. We use population-wide Danish register data including all prescriptions for seven blockbuster drugs from 1998-2008. At the outset, descriptive statistics suggest large variation in drug choice over doctors. Nonetheless, using a two-way fixed effects model we find that the primary determinants of brand drug use are unobserved patient characteristics and price effects, while observed and unobserved doctor characteristics in general explain only 0.7 % of the variation in drug choice. This is suggestive evidence that the doctors in the Danish setting with no incentives to push expensive brand drugs do indeed not do so. Our results also suggest that one should be careful when applying fixed effects in small samples.

May 16, 2013 | Permalink | Comments (1) | TrackBack (0)

Wednesday, May 15, 2013

Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation

Posted by D. Daniel Sokol

Audrey Boilley (CRESE) explores Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation.

ABSTRACT: We compare duopoly competition with a regulated public monopoly in the health care insurance sector using the two-sided market approach. Health plans allow policyholders and physicians to interact. Policyholders have a preference for one of two health plans and value the diversity of physicians. Physicians value the number of policyholders because they are paid on a fee-for-service basis. This is a positive network externality. We find that the resulting Nash equilibria are explained by the two standard effects of product differentiation: the price competition effect and the market share effect, and by two opposing effects related to the network externality. We call these the positive earning effect and the negative spending effect. Overall the comparison between the two types of organizations shows that regulation is preferred when the physicians' market is not covered and competition is preferred when it is covered. Bu! t each time the choice is made at the expense of one type of agent.

May 15, 2013 | Permalink | Comments (0) | TrackBack (0)

Consumer-goods markets: A litmus test for competition policy

Posted by D. Daniel Sokol

Commissioner Almunia gave a speech on Consumer-goods markets: A litmus test for competition policy.

May 15, 2013 | Permalink | Comments (0) | TrackBack (0)

Market Structure and Cost Pass-Through in Retail

Posted by D. Daniel Sokol

Gee Hee Hong (Bank of Canada) and Nicholas Li (University of Toronto) have posted Market Structure and Cost Pass-Through in Retail.

ABSTRACT: We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that accounting for the interaction of vertical and horizontal structure is important in understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.

May 15, 2013 | Permalink | Comments (0) | TrackBack (0)

The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products

Posted by D. Daniel Sokol

Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University) and Tetsuya Shinkai (School of Economics, Kwansei Gakuin University) explain The Economics of Cannibalization: A Duopoly in which Firms Supply Two Vertically Differentiated Products.

ABSTRACT: In this paper, we consider and propose a new duopoly model of cannibalization in which firms produce and sell two vertically differentiated products in the same market. We show that each firm produces the high-quality good more (less) than the low-quality good if the upper limit of taste of consumers is sufficiently high(not so high). Further, we find that the increase in the difference in quality between two goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. Furthermore, we conduct a welfare analysis.

May 15, 2013 | Permalink | Comments (0) | TrackBack (0)

Price Setting in an Innovative Market

Posted by D. Daniel Sokol

Adam Copeland, Federal Reserve Bank of New York and Adam Hale Shapiro, Federal Reserve Bank of San Francisco study Price Setting in an Innovative Market.

ABSTRACT: We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. In particular, we analyze how, in light of these forces, the downstream firm sets the price of the product over its life cycle. We focus on personal computers (PCs) and introduce two novel data sets that describe prices and sales in the industry. Our main result is that a vintage-capital model that combines a competitive market structure with a rapid rate of innovation is well able to explain the observed paths of prices, as well as sales and consumer income, over a typical PC’s product cycle. The analysis implies that rapid price declines are not caused by upstream innovation alone, but rather by the combination of upstream innovation and a competitive environment.

May 15, 2013 | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 14, 2013

Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models

Posted by D. Daniel Sokol

Hiroaki Ino (School of Economics, Kwansei Gakuin University) and Toshihiro Matsumura (Institute of Social Science, the University of Tokyo) have written on Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models.

ABSTRACT: We investigate a Stackelberg oligopoly model in which m leaders and N-m followers compete. We find an asymmetric welfare implication of the Stackelberg model. Introducing a small number of leaders into the Cournot model can reduce welfare. However, introducing a small number of followers into the Cournot model always improves welfare. The key result behind this asymmetry is contrasting limit results in the cases where m → 0 and m → N. We also discuss the optimal number of leaders and the integer constraint for the number of the firms.

May 14, 2013 | Permalink | Comments (0) | TrackBack (0)

An Introduction into Competition Law: The Substantive Provisions of the Malaysian Competition Act in Light of Its European Origins

Posted by D. Daniel Sokol

Julian Nowag, University of Oxford - Faculty of Law provides An Introduction into Competition Law: The Substantive Provisions of the Malaysian Competition Act in Light of Its European Origins.

ABSTRACT: This paper gives an introduction into the concepts of competition law and its economic foundations. The main focus of the paper are the substantive provisions of the Malaysian Competition Act. The paper first sets out the basic economic models underpinning the competition law analysis. In a second step the paper examines the substantive provisions of the Competition Act while making due reference to its origin in the equivalent provisions in European competition law. The article also briefly highlights the phenomenon of globalisation and the extraterritorial application of competition law. Finally, the paper again summarises the advantages of competition law and makes some suggestion for the initial period after the coming in force of the Act.

May 14, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition Law and UK Retail Banking

Posted by D. Daniel Sokol

Cosmo Graham, University of Leicester offers his thoughts on Competition Law and UK Retail Banking.

ABSTRACT: This paper examines the application of competition law and policy to retail banking in the UK primarily from 2000 until the present. Retail banking markets are characterised by high concentration, low levels of switching, a lack of transparency of pricing and significant entry barriers. The paper examines all these areas and finds that UK competition authorities have concentrated on switching and transparency measures although there are characteristics of consumer behaviour that are likely to limit the effectiveness of this approach. Since the financial crisis concentration in the industry has increased because of governmental decisions. Entry barriers remain significant.

May 14, 2013 | Permalink | Comments (0) | TrackBack (0)

Preventing the Cure: Corporate Compliance Programmes in EU Competition Law Enforcement

Posted by D. Daniel Sokol

Katharina Voss, Stockholm University Department of Law discusses Preventing the Cure: Corporate Compliance Programmes in EU Competition Law Enforcement.

ABSTRACT: The article suggests a way in which the European Commission could integrate corporate compliance programmes in their enforcement of EU competition law. For this purpose, Braithwaite's concept of responsive regulation is discussed and amanded in a way that it could accomondate the Commission's current enforcement methods and use corporate compliance programmes.

May 14, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, May 13, 2013

The Goals of Antitrust: Welfare Trumps Choice

Posted by D. Daniel Sokol

Joshua D. Wright, George Mason University School of Law and Douglas H. Ginsburg, U.S. Court of Appeals for the District of Columbia; New York University School of Law argue that in The Goals of Antitrust: Welfare Trumps Choice.

ABSTRACT: The promotion of economic welfare as the lodestar of antitrust law -- to the exclusion of social, political, and protectionist goals -- transformed and gave intellectual coherence to a body of law Robert Bork had famously described as paradoxical. Welfare-based standards have benefitted consumers and the economy and have led to greater predictability in judicial and agency decision making. In the latest of numerous challenges to the welfarist understanding of antitrust, Neil Averitt and Robert Lande propose their "consumer choice" standard as an alternative they claim takes better account of the nonprice dimensions of the competitive process. Adoption of the consumer choice framework would have seriously detrimental consequences for consumers, however. Both economic theory and empirical evidence are replete with examples of business conduct that simultaneously reduces choice and increases consumer welfare through lower prices, increased innovation, or higher quality products and services. Moreover, the welfarist approach already incorporates the tradeoffs between price and quality that consumers face. The flaw of the choice standard is that it altogether rejects the economic approach to dealing with those tradeoffs and instead imposes a structural presumption that the number of firms or brands in competition is directly correlated with consumer welfare. Shifting to defendants the burden of justifying any reduction in consumer choice would be merely a revival of the long ago repudiated inhospitality tradition in antitrust that should and likely will be rejected by the enforcement agencies and the courts.

May 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Avoiding the 'Robin Hood Syndrome' in Developing Antitrust Jurisdictions

Posted by D. Daniel Sokol

Alden F. Abbott, Government of the United States of America - Federal Trade Commission and Seth B. Sacher, Federal Trade Commission counsel on Avoiding the 'Robin Hood Syndrome' in Developing Antitrust Jurisdictions.

ABSTRACT: It has been our observation that in many developing jurisdictions, competition agencies intervene in what are essentially regulatory or contracting matters or even law enforcement matters. Sometimes this is done of their own volition, but it is frequently in response to requests from regulators or other enforcement agencies, possibly due to shortcomings in these agencies’ own enforcement capabilities, We call this tendency of competition enforcers in developing jurisdictions to shoulder responsibilities beyond antitrust enforcement the “Robin Hood Syndrome.” While the lines between antitrust, regulation and contract law may not always be definitively drawn, and all competition agencies struggle with the appropriate boundaries, we argue that competition enforcers in newer agencies should be particularly mindful of the distinction. Undertaking such roles can undermine good competition enforcement as well as hinder the development of an effective regulatory regime and undermine the rule of law. Competition agencies have a vital role to play in advancing social welfare in developing economies by focusing on enforcing competition law and promoting market-oriented reforms. To avoid undermining their effectiveness, they should stick to this role, and avoid pressures or temptations to engage in activities beyond their core competencies.

May 13, 2013 | Permalink | Comments (0) | TrackBack (0)

The Determinants of Cartel Duration

Posted by D. Daniel Sokol

Rosa M. Abrantes-Metz, Global Economics Group, LLC; New York University - Leonard N. Stern School of Business - Department of Economics, John M. Connor, Purdue University; American Antitrust Institute (AAI), and Albert D. Metz, Moody's Investors Service examine The Determinants of Cartel Duration.

ABSTRACT: In this paper we model cartel duration as a mixed proportional hazard model and condition on cartel characteristics such as the agency first detecting the cartel, industry, if it is a bid rigging or price fixing cartel, the number of countries affected, the affected sales, and measures of the economic cycle and trend. Results are intuitive and fairly consistent across models, and conform well with theory and prior empirical work. We also found that the model results are sensitive to the presence of unobserved heterogeneity.

Among other results, we find that cartels first detected by United States or European Union agencies tend to be longer-lived, likely because those detected by other jurisdictions are primarily follow-ups of related larger and older cartels first uncovered in the United States or Europe. Bid rigging cartels tend to be longer-lived than others, while cartels distributed across geographies tend to be shorter-lived. Cartel durations are increasing in the size of a cartel’s affected sales and sanctions. Industries such as Petroleum & Coal, Finance & Insurance, and Food, Feed, Tobacco & Transportation have shorter-lived cartels, while industries such as Electronic Products have longer-lived cartels. The state of the economy can impact the duration of a cartel as well. Cartels where the leading firm has a market share of at least 40% have longer durations. However, the wide variation in the unobserved frailty factor suggests that additional, significant covariates remain unaccounted for in our information set.

May 13, 2013 | Permalink | Comments (0) | TrackBack (0)

A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents

Posted by D. Daniel Sokol

Mark A. Lemley, Stanford Law School and Carl Shapiro, University of California, Berkeley - Haas School of Business offer A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents.

ABSTRACT: Standard Setting Organizations (SSOs) typically require their members to license any standard-essential patent on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. Unfortunately, numerous high-stakes disputes have recently broken out over just what these “FRAND commitments” mean and how and where to enforce them. We propose a simple, practical set of rules regarding patents that SSOs can adopt to achieve the goals of FRAND commitments far more efficiently with far less litigation. Under our proposed approach, if an standard-essential patent owner and an implementer of the standard cannot agree on licensing terms, the standard-essential patent owner is obligated to enter into binding baseball-style (or “final offer”) arbitration with any willing licensee to determine the royalty rate. This obligation may be conditioned on the implementer making a reciprocal FRAND Commitment for any standard-essential patents it owns that read on the same standard. If the implementer is unwilling to enter into binding arbitration, the standard-essential patent owner’s FRAND commitment not to go to court to enforce its standard-essential patents against that party is discharged. We explain how our proposed FRAND regime would work in practice. Many of the disputes currently arising around FRAND commitments become moot under our approach.

May 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Foreign Investment Review in Canada: Assessing Risk in the Wake of Nexen

Posted by D. Daniel Sokol

Julie Soloway & Charles Layton (Blake, Cassels & Graydon) discuss Foreign Investment Review in Canada: Assessing Risk in the Wake of Nexen. ABSTRACT: While many countries around the world have established procedures for reviewing transactions with national security implications, few have enacted statutes of general application that apply to all, or the vast majority of, foreign investments within their borders.

Canada represents one of the primary exceptions to this rule. Foreign direct investment has been regulated in Canada since 1973 and the current statute enabling foreign investment review, the Investment Canada Act, has been in force since 1985. While the Act engendered little controversy during the first 23 years of its existence, several foreign investment reviews since 2008 have garnered an unusual amount of attention, including those in respect of BHP Billiton's proposed acquisition of Potash Corporation and the Chinese National Offshore Oil Corporation's acquisition of Canadian oil and gas producer, Nexen Inc. As the recent quote cited above by Canadian Prime Minister Stephen Harper illustrates, particular scrutiny is now being directed at investments made in Canada by foreign state-owned enterprises. To that end, guidelines governing investments by SOEs in Canada were revised and strengthened in December 2012.

This paper examines recent trends in foreign investment review in Canada and considers the implications of these developments for the future negotiation and apportionment of foreign investment review risk in M&A transactions.

May 13, 2013 | Permalink | Comments (1) | TrackBack (0)

The Impact of Market Structure and Learning on the Tradeoff between R&D Competition and Cooperation

Posted by D. Daniel Sokol

David Besanko, Northwestern University - Kellogg School of Management and Jianjun Wu, Princeton Economics Group, Inc. discuss The Impact of Market Structure and Learning on the Tradeoff between R&D Competition and Cooperation.

ABSTRACT: This paper compares R&D competition and cooperation when firms can devote resources to a ‘safe’ investment or a risky R&D investment. When the discovery of a new product creates positive externalities on non‐discovering firms, equilibrium investment flow, ex ante investment, and welfare under R&D competition are less than or equal to what they are under research cooperation. With negative externalities, R&D cooperation results in the same or lower ex ante investment than under R&D competition, and social welfare may also be less. Our results have relevance for empirical studies of the impact of R&D cooperation on R&D outcomes.

May 13, 2013 | Permalink | Comments (0) | TrackBack (0)

Sunday, May 12, 2013

The Norwegian Government Proposes Amendments to the Competition Act: Welcome Changes Regarding the Control of Concentrations

Posted by D. Daniel Sokol

Beret Sundet, Harald K. Selte, & Eirik Osterud (Advokatfirmaet BA-HR DA) note The Norwegian Government Proposes Amendments to the Competition Act: Welcome Changes Regarding the Control of Concentrations.

ABSTRACT: On March 15, 2013, the Norwegian Government submitted its Proposition (Prop. 75 L (2012-2013)) for amendments to the Norwegian Competition Act (2004) to the Norwegian Parliament.

Included were important amendments that concern the control of concentrations, intended to ease the administrative burden of and adjust the Norwegian merger control regime without unduly impairing an effective control of potentially anticompetitive concentrations. Among other issues, the Government proposes a significant raise of the turnover thresholds for mandatory notifications to the Norwegian Competition Authority ("NCA"), a simplified notification system, and procedural changes for a swifter and better decision making process.

Provided the bill passes in Parliament, the amendments related to the control of concentrations are generally welcome improvements of the Norwegian regime for control of concentrations; a regime that arguably inflicts unnecessary costs and bureaucratic delays on (national and international) mergers and acquisitions and ties up an excessive share of the NCA's resources.

The amendments are proposed to take effect from January 1, 2014.

May 12, 2013 | Permalink | Comments (0) | TrackBack (0)