Tuesday, August 20, 2013

What Impact Does Antitrust Intervention Have on Competition? The Case of Public Drug Procurement in Russia

Posted by D. Daniel Sokol

Maria Ostrovnaya, National Research University Higher School of Economics and Elena A. Podkolzina, National Research University Higher School of Economics ask What Impact Does Antitrust Intervention Have on Competition? The Case of Public Drug Procurement in Russia.

ABSTRACT: In this paper we study antitrust intervention in long-term relationships between public procurer and his preferred supplier in one of the Russian regions. We presume that antitrust control of auctions held by affiliated procurer increases the risks of implementing long-term relationships with his preferred supplier. However we found out that after the intervention of antitrust agency the number of bidders in the auctions increased, but relative contract prices remained the same. We argue that procurer and preferred bidder invited firm with passive bidding strategy to decrease the risks of antitrust punishment. Thereby, antitrust intervention led to fake competition, but not to honest non-corrupt behavior in public auctions.

August 20, 2013 | Permalink | Comments (0) | TrackBack (0)

ON ENDOGENEITY OF RETAIL MARKET POWER IN AN EQUILIBRIUM ANALYSIS: A CONTROL FUNCTION APPROACH

Posted by D. Daniel Sokol

Vardges Hovhannisyan, University of Minnesota, Kyle W. Stiegert, University of Wisconsin-Madison, and Marin Bozic University of Minnesota provide thoughts ON ENDOGENEITY OF RETAIL MARKET POWER IN AN EQUILIBRIUM ANALYSIS: A CONTROL FUNCTION APPROACH.

ABSTRACT: The endogeneity of retail market power arises in the retail pricing equation due to the correlation between margins and unobserved cost components. Nevertheless, it has long been ignored in the equilibrium analysis of retail behavior. We address the issue via a control function approach in a new con- ceptual framework with consumer preferences represented by a benet function. We further oer three test procedures to evaluate the endogene- ity of retail market power. The empirical value of the model is illustrated in an application to the US yogurt industry. Outcomes from endogeneity tests provide strong evi- dence for market power endogeneity. Moreover, ignoring the issue results in downward bias in retail market power.

August 20, 2013 | Permalink | Comments (0) | TrackBack (0)

Production Arrangements and Strategic Brand Level Competition in a Vertically Linked Market

Posted by D. Daniel Sokol

Waseem Ahmad (University of Alberta), Sven Anders (University of Alberta) and Philippe Marcoul (University of Alberta) discuss Production Arrangements and Strategic Brand Level Competition in a Vertically Linked Market.

ABSTRACT: This paper develops and tests different theoretical models of competition in a vertically linked market assuming different production arrangements for retailer private label brands (PL). We then empirical estimate retailer manufacturer competitive behavior based on best-fit games and determine the impact of PL production arrangements on pricing strategies for PLs and NBs. Retailers are using different production arrangements to produce PL products. In fact, a retailer may own a production facility, a national brand manufacturer (NB) produces the PL product exclusively for the retailer or the retailer outsources PL production to a non-NB manufacturer. These possible, different production arrangements can have significant implications for the competitive interactions and market outcomes between retailers and NB manufacturers. Existing economic literature has identified a significant degree of variation in the type of competitive interactions across grocery product categories. However, the majority empirical studies in IO have typically imposed assumptions about the nature of vertical production arrangement without formally and explicitly investigating the nature of PL-NB competitive interaction under different production arrangements. The analysis builds on the Non-Nested Model Comparison (NNMC) approach and employs weekly store-level retail scanner data, for a major North American retail chain. The findings from different theoretical models and their empirical application reveal that no consistent pattern of competitive interactions exists between PLs and NBs across different food product categories. Competitive patterns and outcomes vary depending on the nature of the PL production arrangement. Our study contributes to the IO literature by being the first to consistently derive and estimate the impact of PL production arrangement on brand-level competition.

August 20, 2013 | Permalink | Comments (0) | TrackBack (0)

Monday, August 19, 2013

Blog Redesign

Many of you have noticed that the blog has been redesigned.  This is part of a broader redesign of the entire Law Prof Blog network.

Some new features:

  1. We now accept blog advertising.  If your school, law firm, economic consulting firm or other organization wants to advertise on the blog, this can now be accomodated, subject to the review of the Law Prof editor.
  2. Amazon. You can support the blog through a purchase via Amazon.  It costs you nothing additional.  Going forward, all book links will be through Amazon.
  3. Mobile devices. It should be easier to read the blog on mobile devices.

Enjoy

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

IBC Legal Conferences’ annual forum - Advanced Antitrust US Chicago 2013

Posted by D. Daniel Sokol

IBC Legal Conferences’ annual forum - Advanced Antitrust US Chicago 2013

Details in the link. Download FKW82425 latest agenda 14 8 13

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Driving Factors of Retail Price Variation

Posted by D. Daniel Sokol

Chenguang Li, University College Dublin and Richard Volpe, United States Department of Agriculture explain Driving Factors of Retail Price Variation.

ABSTRACT: This study explores the strategic pricing behaviors across retail chains for produce products. We adopt a Panel-VAR model to identify the driving factors of retail price variation and find that retail price history, competition, product cost are among the key drivers of retail price change. Forecast Error Variance Decomposition (FEVD) is used to quantify the relative impact of driving factors to retail price changes and show how they affect prices differently across retail chains. We also find that higher responsiveness to competition may indicate superior management ability in price setting that associates with better profitability in practice.

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Price-Matching leads to the Cournot Outcome

Posted by D. Daniel Sokol

Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University) and Mongoljin Batsaikhan (Georgetown University) argue that Price-Matching leads to the Cournot Outcome.

ABSTRACT: We study the effects of price-matching in a duopoly setting in which each firm selects both its price and output, simultaneously. We show that the availability of a pricematching option leads to the Cournot outcome in this setting. This result is a stark contrast to the one obtained in the standard Bertrand competition that the market price in the presence of a price-matching option ranges from the monopolistic price to the Bertrand price. Our result suggests that the effect of price-matching depends on whether the output is a choice variable for the firms.

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

The Dynamics of Bertrand Price Competition with Cost-Reducing Investments

Posted by D. Daniel Sokol

Fedor Iskhakov (CEPAR, University of New South Wales), John Rust (Georgetown University) and Bertel Schjerning (University of Copenhagen) describes The Dynamics of Bertrand Price Competition with Cost-Reducing Investments.

ABSTRACT: We present a dynamic extension of the classic static model of Bertrand price competition that allows competing duopolists to undertake cost-reducing investments in an attempt to “leapfrog” their rival to attain low-cost leadership—at least temporarily. We show that leapfrogging occurs in equilibrium, resolving the Bertrand investment paradox., i.e. leapfrogging explains why firms have an ex ante incentive to undertake cost-reducing investments even though they realize that simultaneous investments to acquire the state of the art production technology would result in Bertrand price competition in the product market that drives their ex post profits to zero. Our analysis provides a new interpretation of “price wars”. Instead of constituting a punishment for a breakdown of tacit collusion, price wars are fully competitive outcomes that occur when one firm leapfrogs its rival to become the new low cost leader. We s! how that the equilibrium involves investment preemption only when the firms invest in a deterministically alternating fashion and technological progress is deterministic. We prove that when technological progress is deterministic and firms move in an alternating fashion, the game has a unique Markov perfect equilibrium. When technological progress is stochastic or if firms move simultaneously, equilibria are generally not unique. Unlike the static Bertrand model, the equilibria of the dynamic Bertrand model are generally inefficient. Instead of having too little investment in equilibrium, we show that duopoly investments generally exceed the socially optimum level. Yet, we show that when investment decisions are simultaneous there is a “monopoly” equilibrium when one firm makes all the investments, and this equilibrium is efficient. However, efficient non-monopoly equilibria also exist, demonstrating that it is possible for firms to achieve efficient dynamic coordination in their investments while their customers also benefit from technological progress in the form of lower prices.

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Competition in the market for supplementary health insurance: The case of competing nonprofit sickness funds

Posted by D. Daniel Sokol

Alexander Ellert, University of Hamburg and Oliver Urmann, University of Hamburg study Competition in the market for supplementary health insurance: The case of competing nonprofit sickness funds.

ABSTRACT: This paper examines the competition of nonprofit sickness funds in the market for supplementary health insurance. We investigate product quality strategies when quality is costly and the sickness funds are competing for customers. As long as the sickness funds choose the qualities for simultaneously, any equilibrium will be nondifferentiated. Only if total demand is increasing in quality, both sickness funds provide the maximum quality. For decreasing total demand the existence of an equilibrium depends on the consumers' sensitivity. If there is no equilibrium in the simultaneous competition, sequential quality competition leads to a differentiated equilibrium with a first mover advantage.

August 19, 2013 | Permalink | Comments (0) | TrackBack (0)

Friday, August 16, 2013

Static vs. dynamic impacts of unbundling: Electricity markets in South America

Posted by D. Daniel Sokol

Dominik Schober (ZEW) has written on Static vs. dynamic impacts of unbundling: Electricity markets in South America.

ABSTRACT: Ownership unbundling and third party access are discussed as two options of unbundling in both the literature and political discussions. Focusing on the South American electricity sector, I contrast static and dynamic impacts of ownership unbundling and third party access regimes on customer prices. Substantially different results are found using dynamic rather than static analysis. In particular, negative short term effects of ownership unbundling found in static models are approximately cancelled out by subsequent positive impacts in the dynamic model. Third party access seems to allow for similar benefits while avoiding the (restructuring) costs of ownership unbundling. Previously estimated static models thus appear to suffer from either omitted variable biases or endogeneity problems of static non-difference models.

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

Financial Mergers and Their Consequences

Posted by D. Daniel Sokol

F.M. Scherer (Harvard) has posted Financial Mergers and Their Consequences.

ABSTRACT: This paper analyzes the massive merger wave that has led to substantially increased concentration of banking activity in the United States. One consequence is the rise of banks "too big to fail." The structural changes have also been associated with a striking change in financial institutions' share of all U.S. corporate profits along with employee compensation out of line with norms for individuals of comparable ability. Data on concentration in well-defined banking markets are quite scarce, but fragmentary evidence suggests considerable monopoly pricing power in some product markets. Mergers that lead to concentration have for decades been the focus of antitrust activity. But a review of the record shows an emphasis on mergers that raise local banking market concentration and nearly total neglect of other important lines on which data are lacking. If antitrust actions were to be taken against the concentration of power! in those lines, offsetting advantages in the form of realized scale economies would have to be weighed. A review of the most recent evidence suggest that difficult tradeoffs might be confronted.

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

Why does the Anti-Monopoly Law Bring Worries?

Posted by D. Daniel Sokol

D. Daniel Sokol (Florida) and Christine Varney (Cravath) have a column in Forbes China that asks Why does the Anti-Monopoly Law Bring Worries?

In the op-ed (in Chinese), we note that China has to decide the goal of the AML - is it to be based on political considerations or consumer welfare. We note both the successes and the limitations of the first five years of the AML.

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

The Effect of Mergers in Search Market: Evidence from the Canadian Mortgage Industry

Posted by D. Daniel Sokol

Jason Allen, Bank of Canada, Robert Clark, HEC Montreal and Jean-Francois Houde, Wharton and NBER discuss The Effect of Mergers in Search Market: Evidence from the Canadian Mortgage Industry.

ABSTRACT: We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation partner, weakening consumers bargaining positions. We combine reduced-form techniques to estimate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.

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

Thursday, August 15, 2013

Domestic and International Research Joint Ventures: The Effect of Collusion

Posted by D. Daniel Sokol

Ricardo Flores-Fillol, Universitat Rovira i Virgili, Guiomar Ibanez-Zarate, Universitat Rovira i Virgili and Bernd Theilen, Centre de Recerca en Economia Industrial i Economia Publica have posted Domestic and International Research Joint Ventures: The Effect of Collusion.

ABSTRACT: We analyze the effect of research joint ventures (RJVs) on consumer welfare in an international context when collusion can occur. The main novelty of our analysis is to study the differentiated effect of domestic and international RJVs. The recent literature shows that RJVs with collusion harm consumers. However, our results introduce a qualification to this statement: international RJVs with collusion might be beneficial for consumers when internationalization costs are high. The EU and US competition policy advises against RJVs that facilitate collusion on the grounds of their expected negative effects. Our results suggest that antitrust authorities should distinguish between domestic and international RJVs and, in certain cases, be more benevolent with international RJVs.

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

Airline networks, mergers, and consumer welfare

Posted by D. Daniel Sokol

Kai Huschelrath (ZEW) and Kathrin Muller (ZEW) study Airline networks, mergers, and consumer welfare.

ABSTRACT: We study the consumer welfare effects of mergers in airline networks. Based on the development of a general classification of affected routes, we apply a difference-indifferences approach to exemplarily investigate the price effects of the America West Airlines - US Airways merger completed in 2005. We find that although average prices increased substantially on routes in which both airlines competed either on a non-stop or one-stop basis prior to the merger, substantial average price reductions observed for routes without any premerger overlap suggest that the merger led to a net increase in consumer welfare.

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

ABA Section of Antitrust Law Antitrust and Intellectual Property Conference October 10, 2013 Stanford University Law School

Posted by D. Daniel Sokol

Antitrust and Intellectual Property Conference

When

October 10, 2013

Where

  • Stanford University Law School
  • 559 Nathan Abbott Way
  • Stanford, CA 94305-8602
  • United States of
    America
Primary Sponsors
  • Important to Know

Deadline for Hotel Reservations: Tuesday, September 17, 2013
Deadline for
Early Bird Registration & Cancellations: Thursday, September 19,
2013
Deadline for Online Registration: Wednesday, October 9, 2013
05:00
p.m. CST

Rates
  • Section Member Rate:
    $650.00
  • Academic Non-Sec Mem:
    $225.00
  • Academic Sec Mem:
    $125.00
  • DOJ Non-Section Member:
    $225.00
  • DOJ Section Member:
    $125.00
  • FTC Non-Section Member:
    $225.00
  • FTC Section Member:
    $125.00
  • Gov Agency Non-Sec Mem:
    $225.00
  • Gov Agency Sec Mem:
    $125.00
  • IPL Section Member:
    $650.00
  • Law Student Rate:
    $0.00
  • Non-Profit Non-Sect Mbr:
    $225.00
  • Non-Profit Section Member:
    $125.00
  • Non-Section Member:
    $850.00
  • Paralegal/Legal Assistant:
    $200.00
  • University Faculty/Alumni:
    $125.00

 

  • Greetings!

 

The biennial Antitrust and Intellectual Property Conference, co-sponsored with the Section of
IP Law, is a flagship Section program. This one-day program in the Silicon Valley will focus multiple panels of industry, government and academic luminaries on issues of most importance to those who advise companies about their intellectual property. Plan to attend this conference for a deep exploration of the key issues and risks related to patent aggregation, standard essential patents, as well as other issues inherent in the enforcement of intellectual property rights.

 

Lemley_mark

Pfeiffer_alfred
Sokol_daniel
Mark Lemley
Stanford Law School
Stanford, CA
Conference
Co-Chair
Alfred C. Pfeiffer, Jr.
Latham & Watkins LLP
San Francisco,
CA
Conference Co-Chair
D. Daniel Sokol
University of Florida College of Law
Gainesville,
FL
Conference Co-Chair

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

Who benefits from resale-below-cost laws?

Posted by D. Daniel Sokol

Noriaki Matsushima, Institute of Social and Economic Research, Osaka University and Akira Miyaoka, Graduate School of Economics, Osaka University ask Who benefits from resale-below-cost laws?

ABSTRACT: We investigate the effect of banning resale-below-cost offers. There are two retailers with heterogeneous bargaining positions in relation to a monopolistic manufacturer. Each retailer sells two goods: one procured from the monopolistic manufacturer and the other, from a competitive fringe. In equilibrium, banning resale-below-cost offers can decrease the retailers' prices. The ban can benefit the weak retailer in terms of bargaining position and increase the total consumer surplus, although it harms the dominant retailer and the monopolistic manufacturer. Contrary to the basic scenario, when the weak retailer is horizontally separated, the ban benefits the monopolistic manufacturer.

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

Can the FTC be a fair umpire?

Posted by D. Daniel Sokol

David Balto asks Can the FTC be a fair umpire?

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

Public and private enforcement of competition law: A differentiated approach

Posted by D. Daniel Sokol

Kai Huschelrath (WZB) and Sebastian Peyer (University of East Anglia) have posted Public and private enforcement of competition law: A differentiated approach.

ABSTRACT: We investigate the relationship between public and private enforcers introducing a more differentiated approach. In contrast to the existing literature, we take into account that the costs and benefits of detection and prosecution and, thus, the usefulness of each enforcement mode may change with a variation of the type of anticompetitive conduct. We define a set of parameters that determine the costs and benefits of both types to enforce the antitrust laws and discuss implications for European competition law and policy.

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

Wednesday, August 14, 2013

Competition policy and cartel size

Posted by D. Daniel Sokol

Iwan Bos (Maastricht University) and Joseph E. Harrington Jr. (Wharton) theorize about Competition policy and cartel size.

ABSTRACT: This paper examines endogenous cartel formation in the presence of a competition authority. Competition policy makes the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either increase or decrease their inclusiveness. Highly inelastic market demand is sufficient for the presence of a competition authority to cause the least inclusive stable cartels to increase in size.

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