Wednesday, August 14, 2013

Efficient Entry in Competing Auctions

Posted by D. Daniel Sokol

James Albrecht, Pieter Gautier, Susan Vroman (Department of Economics, Georgetown University) examine Efficient Entry in Competing Auctions.

ABSTRACT: In this paper, we demonstrate the e¢ ciency of seller entry in a model of competing auctions. We generalize the competitive search literature by simultaneously allowing for nonrival (many on one) meetings and private information. We consider both the case in which buyers learn their valuations before visiting a seller and the case in which they learn their valuations after visiting the seller. We also allow for seller heterogeneity with respect to reservation values.

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

The Antitrust Revolution: Economics, Competition, and Policy, Sixth Edition

Posted by D. Daniel Sokol

John E. Kwoka, Jr. (Northeastern) and Lawrence J. White (NYU) have come out with The Antitrust Revolution: Economics, Competition, and Policy, Sixth Edition.

BOOK ABSTRACT: Fully updated to reflect important developments in antitrust economics, The Antitrust Revolution, Sixth Edition, examines the critical role of economic analysis in recent antitrust case decisions and policy.

The case studies--more than half of which are entirely new--are written by prominent economists who participated in the proceedings of that case. Revised overview essays introduce the economics and law that are associated with the four sections: Horizontal Structure, Horizontal Practices, Vertical and Related Market Issues, and Network Issues.

New to this edition: Appendices for several chapters now provide readers with greater depth in theoretical or empirical treatment of the issues in those chapters.

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

Signalling Rivalry and Quality Uncertainty in a Duopoly

Posted by D. Daniel Sokol

Helmut Bester (Free University of Berlin) and Juri Demuth (Free University of Berlin) explore Signalling Rivalry and Quality Uncertainty in a Duopoly.

ABSTRACT: This paper considers price competition in a duopoly with quality uncertainty. The established firm (the `incumbent') offers a quality that is publicly known; the other firm (the `entrant') offers a new good whose quality is not known by some consumers. The incumbent is fully informed about the entrant's quality. This leads to price signalling rivalry because the incumbent gains and the entrant loses if observed prices make the uninformed consumers more pessimistic about the entrant's quality. When the uninformed consumers' beliefs satisfy the `intuitive criterion' and the `unprejudiced belief refinement', prices signal the entrant's quality only in a two-sided separating equilibrium and are identical to the full information outcome.

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

Broadband prices in the European Union: competition and commercial strategies

Posted by D. Daniel Sokol

Joan Calzada (Faculty of Economics, University of Barcelona) and Fernando Martinez (Competition Commission and Faculty of Economics, University of Barcelona) analyze Broadband prices in the European Union: competition and commercial strategies.

ABSTRACT: This paper analyses the determinants of broadband Internet access prices in a group of 15 EU countries between 2008 and 2011. Using a rich panel dataset of broadband plans, we show the positive effect of downstream speed on prices, and report that cable and fibre-to-the-home technologies are available at lower prices per Mbps than xDSL technology. Operators’ marketing strategies are also analysed as we show how much prices rise when the broadband service is offered in a bundle with voice telephony and/or television, and how much they fall when download volume caps are included. The most insightful results of this study are provided by a group of metrics that represent the situation of competition and entry patterns in the broadband market. We show that consumer segmentation positively affects prices. On the other hand, broadband prices are higher in countries where entrants make greater use of bitstream access and lower when they use more intensively direct access (local loop unbundling). However, we do not find a significant effect of inter-platform competition on prices.

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

Tuesday, August 13, 2013

Justice Department Files Antitrust Lawsuit Challenging Proposed Merger Between US Airways and American Airlines

Posted by D. Daniel Sokol

DOJ Antitrust has filed to block the US Airways/American Airlines merger. I guess some divestitures of gates at Reagan National were not enough.

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

The Impact of Persistent Shocks and Concave Objective Functions on Collusive Behavior

Posted by D. Daniel Sokol

Johannes Paha (University of Giessen) discusses The Impact of Persistent Shocks and Concave Objective Functions on Collusive Behavior.

ABSTRACT: The model proposed in this paper explains three stylized facts derived from case evidence: Cartel formation is more likely (i) when the industry has been hit by a negative profitability shock under the condition that (ii) this shock is rather persistent. (iii) This pattern is independent from the type of the shock, i.e. cost shocks, demand shocks etc. The paper analyzes the incentive for cartel formation when the industry switches between a good state with high profits and a bad state with low profits. The transition between states is modeled by a Markov-process that allows for transitory or persistent shocks. The decision maker incurs opportunity costs of collusion and chooses the conduct of a firm in order to maximize the present value of a concave objective function. The model shows that depending on the value of the opportunity costs and the discount factor collusion can be stable in no, one, or both states of the industry. When collusion is stable in only one state, this is the good state when industry conditions are transitory. When industry conditions are persistent, collusion is stable in the bad state.

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

China’s Anti-Monopoly Law: The First Five Years -- Symposium Recap

Posted by D. Daniel Sokol

Thank you to all of our guest reviewers.  You can read the posts of the various speakers via links below:

Allan Fels (Australia New Zealand School of Government)
Xu Guangyao (University of Tianjin)
Catriona Hatton (Baker Botts)
Liyang Hou (Koguan Law School, Shanghai Jiao Tong University)
Ping Lin (Lingnan University)
Mitsuo Matsushita (University of Tokyo)
D. Daniel Sokol (University of Florida)

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

Xu on China’s Anti-Monopoly Law: The First Five Years

Posted by Xu Guangyao

Antimonopoly law is not rooted in the Chinese traditional economy or culture, and people seldom had much knowledge about it when the Antimonopoly Law of China was enacted 6 years ago. The majority of undertakings had probably never even heard its name. The antimonopoly authorities were organized after the enactment of the law so their staff - as well as the judges of the courts - were not veru well prepared when the law was enforced on 1st August 2008, one year after its enactment. As a result, it is not strange that the early enforcement of this law has been criticized by both the public as well as the academic circle. There are indeed many defects and even mistakes both in the legislations and their application.

But the last two years have witnessed a relatively rapid progress in the number of cases, and some of them even involved advanced questions in the study of the antimonopoly law. For example, in the “Qihoo Technology Co Ltd v. Tencent Technology Co. Ltd.” case the court of first instance gave a quite extensive reasoning about the definition of the relevant market in the internet industry, although there may be something wrong with their use of the SSNIP test as the basis of their definition. There have also been several cases relating to maintenance of resale price.

The secondary legislations of the authorities have also increased quickly since 2011, and the Supreme Court adopted its judicial interpretation in 2012 to resolve the most urgent problems of litigation. So there have been rich new materials to support a systematic review of 5-years of enforcement of the Antimonopoly Law, and this book is the first and the only comprehensive achievement in this respect. The book includes articles on monopoly agreement and abuse of dominant position which summarize the basic provisions of the law and relevant secondary legislations, as well as providing a general overview of cartel cases that took place in the past 5 years. It also introduces economic and legal theories concerning antimonopoly analysis of restrictive practices such as information exchange, maintenance of resale price and refusal to deal. The first aspect will supply important clues for the readers to further their study, and save the time needed to search cases trialed in various courts or implemented by the authorities, and will show a full view of Chinese antimonopoly law to both foreign and domestic undertakings and commentators, while the second aspect will strengthen the ability of the authorities and courts to implement the law appropriately. In addition, the authors come from various fields related to antimonopoly law, including professors, officials, employees of undertakings, practitioners and judges, both domestic and foreign, and this makes the books an assembly of different points of view which supply broad reflections of the questions discussed. Therefore this book is bound to be one of the most important books which have been published ever since the beginning of the antimonopoly law study in 1990s.

But a more precise evaluation of this book depends on an idea of the function of the “5-year-view”. In my opinion, as mentioned above, there are indeed many problems in the legislation and its enforcement, and therefore the focus of the review should have been placed on concrete problems both in the legislations and the decisions of the courts and authorities. For example, the discussion on cartel cases should not have been limited to an introduction to the names of the cases and the fines imposed, but ought to analyze the proving of the existence of the agreements, and the confirmation of restricting and eliminating competition, etc. In the article about maintenance of resale price, detailed evaluation on the three reasons given by the Development and Reform Commission of Sichuan Province for its decision should not have been omitted - quite the contrary, this was a very precious opportunity to make clear the antimonopoly analysis toward this kind of practices because none of the three reasons was sufficient to prove the correctness of the decision. The decision may have been right for other reasons perhaps even in light with the theories contained in the article itself. The lack of this analyzing ability has caused many confusions and mistakes in both the regulations and the decisions made, and it should have been the fundamental object of this book to clarify or correct them. Many of them could have been resolved if some of the authors had paid more attention to combining theories and analyses with the case materials that they present.

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

Sokol on China’s Anti-Monopoly Law: The First Five Years

Posted by D. Daniel Sokol

Adrian Emch and David Stallibrass should be commended for putting together such an informative book.  If you really want to understand antitrust developments in China, buy a copy of China’s Anti-Monopoly Law: The First Five Years.  There are a mix of writers - competition authorities, academics and professionals among economists and lawyers.  Each brings a unique perspective to the challenges of Chinese antitrust.

After five years, we have an emerging sense of the critical issues thus far in the Chinese system as well as issues that remain unsettled.

If you read only one chapter, the first chapter by Huang Yong (UIBE Law) and Richean Li (Qualcomm) is the best of a really good collection.  They outline the current institutional structure of Chinese antitrust and explain the limitations of the current system.  Their chapter reinforces my own thoughts on the system - in short, the current institutional structure with three agencies in untenable.  There needs to be some sort of consolidation of antitrust authority.  This trend towards consolidation recently has included the UK, the Netherlands and Brazil.  

A number of chapters describe another theme to the Chinese system - there are competing goals under the AML -- industrial policy on the one hand and a competition economics based approach (with an unclear welfare standard) on the other.  This tension needs to be solved going forward.  In order to create a workable and effective competition system in terms of both process and analysis, the goal of the system must be clear.  A number of the chapters touch on the multiple goals, including those by Ng, Deng & Leonard and Hao Qian.  On this topic of multiple goals, the very last chapter by Wang Xiaoye provides a brutally honest assessment of the China Telecom and China Unicom case and its implications on the Chinese system.  Given some of the recent enforcement actions regarding RPM,the chapter by Dennis Lu and Guofu Tan hopefully can inject some much needed analysis into the debate.   I also really enjoyed the chapter by Stalibrass on the sort of economic analysis that can be practiced in a socialist market economy that is still in a relatively early stage of economic understanding of Industrial Organization economics.

Cake

The picture of the cake (above) is from the 5 year anniversary party hosted on August 1 in Beijing by  Norton Rose Fulbright, Charles River Associates and MLex. 

AML Sokol

At the AML party, I had a chance to talk with a number of old friends and make some new ones.  In the picture above, I am chatting with Professor Ping Lin (Lingnan University - Economics) and Joe Krauss (Hogan Lovells). Ping and I finally got to meet in person after many lengthy email conversations.  Joe was my first ever guest speaker in one of my antitrust classes.  He discussed international merger control in my 2007 international and comparative antitrust law and economics class at the University of Wisconsin.

 

 

 

 

 

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

Demand externalitites and price cap regulation: Learning from a two-sided market

Posted by D. Daniel Sokol

Zhu Wang (Federal Reserve of Richmond) examines Demand externalitites and price cap regulation: Learning from a two-sided market.

ABSTRACT: This paper studies unintended consequences of price cap regulation in the presence of demand externalities in the context of payment cards. The recent U.S. debit card regulation was intended to lower merchant card acceptance costs by capping the maximum interchange fee. However, small-ticket merchants found their fees instead higher after the regulation. To address this puzzle, I construct a two-sided market model and show that card demand externalities across merchant sectors rationalize card networks’ pricing response. Based on the model, I study socially optimal card fees and an alternative cap regulation that may avoid the unintended consequence on small-ticket merchants.

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

A theory of search with recall and uncertain deadlines

Posted by D. Daniel Sokol

Brennan Platt (Brigham Young University) and Nuray Akin (University of Miami) provide A theory of search with recall and uncertain deadlines.

ABSTRACT: We analyze an equilibrium search model where buyers seek to purchase a good before a deadline and face uncertainty regarding the availability of past price quotes in the future. Sellers cannot observe a potential buyer's remaining time until deadline nor his quote history, and hence post prices that weigh the probability of sale versus the profit once sold. The model's equilibrium can take one of three forms. In a late equilibrium, buyers initially forgo purchases, preferring to wait until the deadline. In an early equilibrium, any equilibrium offer is accepted as soon as it is received. In a full equilibrium, higher prices are turned down until near the deadline, while lower prices are immediately accepted. Equilibrium price and sales dynamics are determined by the time remaining until the deadline and the quote history of the consumer.

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

Monday, August 12, 2013

Dark Sides of Patent Pools with Compulsory Independent Licensing

Posted by D. Daniel Sokol

Akifumi Ishihara (Kyoto University) and Noriyuki Yanagawa (The University of Tokyo) explore Dark Sides of Patent Pools with Compulsory Independent Licensing.

ABSTRACT: This paper examines roles of patent pools with compulsory independent licensing. A seminal work by Lerner and Tirole (2004) have shown that requiring independent licensing or compulsory independent licensing is a useful tool to select only desirable patent pools. In this paper, however, we are going to show that their argument is not always true, If there are users who demand only a part of the pooled technologies, the compulsory independent licensing gives a tool for price discrimination for the patent holders, and that is welfare decreasing under some conditions. Moreover, the compulsory independent licensing may promote entry deterrence when there are lower grade entrants. Even in this sense, compulsory independent licensing decreases social welfare. The welfare under the patent pool with independent licensing may become lower than that under the competitive licensing.

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

Monotone Comparative Statics under Monopolistic Competition

Posted by D. Daniel Sokol

Peter Arendorf Bache (Department of Economics and Business, Aarhus University) and Anders Laugesen (Department of Economics and Business, Aarhus University) describe Monotone Comparative Statics under Monopolistic Competition.

ABSTRACT: We let heterogeneous firms face decisions on an arbitrary number of complementary activities in a monopolistically-competitive industry. The key insight is that firm-level complementarities may manifest themselves much more clearly at the industry level than at the firm level of analysis. The response of an individual firm to exogenous changes in the parameters of its profit maximisation problem is ambiguous due to indirect effects through changes in industry competition. Only in special cases are firm-level comparative statics monotone. Turning to the industry level, we provide sufficient conditions for firstorder stochastic dominance shifts in the equilibrium distributions of all activities regardless of the ambiguities prevailing at the firm level. Our results apply to many well-known models of international trade and provide strong, novel, and testable predictions. A technical contribution is to apply powerful superm! odular optimisation techniques in a context of monopolistic competition.

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

Matsushita on China’s Anti-Monopoly Law: The First Five Years

Posted by Mitsuo Matsushita

China is the country where one of the four oldest civilizations originated and thrived and the Chinese civilization has had a deep impact on the societies of the East Asia by providing Confucianism, Chinese characters, literatures, poems and models and patterns for political institutions and social life, just to name a few. More recently the Chinese economy has attracted attention of the whole world by its miraculous economic growth that led China to be the second largest economy of the world. Yet this economic growth has been accomplished not by a pure market economy or is it the result of socialism. It has been accomplished through “socialistic market economy”. Traditionally economists have classified economic systems into “market economy” and “directed economy” (or “non-market economy”). The Chinese economy is a unique hybrid of market and non-market principles and may present a new model for economic system to developing countries of the world.

Competition law and policy is said to be based on market economy. However, competition policy and law is part of the society in which it operates and necessarily reflects the features of society and politico-economic system of the country. China enacted the Antimonopoly Law (the AML) some years ago. The AML is based on the European model, e.g., the EU and German model. However, the features of the AML introduced from Europe will be blended with traditions and values in China as time passes, and ultimately it will provide a model for East Asian or Asian competition laws.

There are not many books and writings on the AML except for those written in Chinese language. It has not been easy for readers outside China to get a precise picture of what the AML is like. In this respect, the publication of this volume is most welcome by readers interested in competition policy in China and undoubtedly it will contribute much toward deeper understanding of the AML.

The Chinese Anti-Monopoly Law just published on 1 August 2013, edited by two prominent western experts in Chinese competition law, Adrian Emch and David Stallibrass, incorporates 9 chapters written by 42 authors. This is a critical analysis of the AML after the five year experience of the AML from the start of its enforcement. Some chapters contain more than one subject matters and written by several authors. The subject matters cover vast areas of competition laws; e.g., an overview, enforcement agencies (“Multiple Hands” as the author puts it), policy objectives, a unique characteristic of the enforcement in China, monopoly and abuse of dominant position, exchange of information between competitors, resale price maintenance, refusal to deal, merger control, merger remedies, joint ventures, business and government, uneasy relationship between antitrust and industrial policy, judicial and administrative remedies, guidance for private antitrust litigation by the Supreme People’s Court, private rights of action, administrative litigation, international dimension, effectiveness of technical assistance in capacity building, practice of the State Administration for Industry and Commerce (SAIC), enforcement divergence, monopolistic entity bribery, vertical restraint, intellectual property rights and the China Telecom and China Unincom Case and the future of Chinese Antitrust. This is indeed an exhaustive list of subject matters of competition laws.

One of the features of the book is that the authors are a mixed group of Chinese experts and foreign experts. Chinese experts offer their unique inside views while foreign experts express their views on the AML looked at from outside. This mixture represents a nice balance of inside and outside views. Another feature is that this book is not only a collection of descriptions of what the AML is like but also incorporates critical analysis of many aspects of the AML. By going through this book, a reader can get an insight into the depth of the issues underlying the AML .

As the subject matters in the book enumerated above show, the book covers almost every possible subject matters in competition policy and law. Any reader who wants to know some aspects of the AML are recommended to consult this book because any subject of interest in the AML is most likely to be covered and discussed in the book. Therefore, I would highly recommend this book to academics, lawyers, economists and policy makers.

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

Lin on China’s Anti-Monopoly Law: The First Five Years

Posted by Ping Lin

As arguably the most up-to-date scholarly book on China’s Anti-Monopoly Law, the editors and publishers are to be applauded for and congratulated on their introduction of The Chinese Anti-Monopoly Law on the 5th anniversary of the AML taking effect. Contributed by top scholars and practitioners on the AML from both China and internationally, the volume is comprehensive in coverage, up to date in content, and rich in both legal and economic assessments of the AML and its enforcement since the AML took effect on 1 August, 2008.

A distinguish feature of the volume is that it contains well-thought-out economic arguments concerning effective enforcement of the AML at the current stage of the development of the Chinese economy. These economic arguments can be seen from the following three chapters (among others): Enforcement Divergence and the Chinese Economy (Ch. 23, by David Stallibrass), The Role of China’s Unique Economic Characteristics in Antitrust Enforcement (Ch. 4, by Deng Fei and Goregory Leonard), and Resale Price Maintenance and the Anti-Monopoly Law (Ch. 8 by Dennis Lu and Guofu Tan), all written by internationally known competition economist and experts on China’s AML.

In Chapter 4, Deng and Leonard explore how the following major characteristics of China’s economy might influence the enforcement of the AML: the prominence of the SOEs, regional differences in the gains from the economic reforms, the legacies of the rapid growth, the Chinese viewpoints toward IPRs, and the importance of brand names. In addition to the arguments made regularly in the past on how China’s pursuit of industrial policy might lead to protection of national champions and national famous brand names, the authors went further to provide interesting and convincing observations and arguments. For example, they pointed out that two features of the Chinese economy have led to increased differentiation between foreign products and domestic products in the eyes of the Chinese consumers: One is the nation-wide concerns over product quality and safety of domestic products and the other is the pursuit of foreign luxury products by Chinese consumers as a signal of social status (the “halo” effect as the authors called it). Foreign products are often considered more superior and prestigious in relation to domestic brand names but more similar among themselves. This implies that a horizontal merger between two foreign firms is likely to generate stronger negative unilateral effects than a merger between a foreign firm and a domestic firm, because the products of the merging parties are closer substitutes in the former than in the latter. This is exactly the case according to the internationally accepted approach to assessing the competitive impacts of horizontal mergers, and is also consistent with the Interim Regulation on Assessment of the Competition Impacts of Concentrations (The Ministry of Commerce, 2011, Article 5). Given this, the Chinese anti-monopoly authorities should be less worried about a takeover of a domestic firm by a foreign company than a merger between two foreign firms, other things equal. The insight contained in this chapter is of great value both academically and to the Ministry of Commerce (MOFCOM).

Chapter 23 is similar in theme as Chapter 4 in that it stresses the need to first understand the distinctive characteristics of the Chinese economy in order to understand the observed features of Chinese anti-monopoly enforcement. The authors ask to what extent the economic assumptions or indicator of market power used by leading jurisdictions might be applied to China. First, the authors observed that market shares are frequently used in China’s AML and its enforcement as an important proxy for competitive analysis (e.g., in specifying the presumption for market dominance in the AML and in merger reviews by MOFCOM). By emphasizing that many, if not all, sectors in the Chinese economy have been undergoing structural changes, the authors rightly caution that “an over-reliance on market shares in a quickly changing market could lead to substantial errors”. They then provide some simple yet useful alternatives such as the use the three-year average of market shares rather that of a single year (or single quarter in some merger cases MOFCOM reviewed), or to use more sophisticated methods such as gross upward pricing pressure index. The authors also discuss whether Chinese firms may be more prone to collusion due to culture aspects. By examining the four merger cases where MOFCM explicitly appealed to coordinated effect theory of harms of mergers, the authors concluded that since all the relevant mergers involved foreign companies, MOFCOM’s impose of conditions on these mergers may have been for other reasons. Similarly, the authors looked at MOFCOM’s application of the conglomerate theories of harm in two of its 17 published merger decisions in order to infer the unobserved “concerns” or preferences of MOFCOM. The approach adopted by the authors is rather innovative and fresh. Chapter 8, which is on resale price maintenance under the AML, contains detailed economic analysis as well. The authors provide a comprehensive presentation of the possible pro-competitive and anti-competition effects of RPM, as suggested by modern economics, as well as some reference to empirical studies of RPM in the United States. In examining the provisions governing RPM under China’s AML, the authors rightly pointed out that “there is a lack of jurisprudence to suggest what the welfare standard should be when competitive effects of RRM are being assessed under the AML.” Indeed, five years after the AML took effect, it remains an unresolved issue, one that has not even received as much attention from both the academia and law enforcers as it should be, that whether China’s AML adopts the consumer welfare standard as in the US and EU, or the total welfare standard which also takes into account benefits to producers, or some combination of the two. Although the authors did not intend to provide answers or suggestions, it is hoped that their emphasis of the issue will help stimulate further research in the years to come.

The authors should also be applauded for having included detailed analysis of the high-profile investigations of Maotai Co. Ltd. and Wuliangye Co. Ltd., two of the leading producers of Chinese premier white liquor, in February, 2013. Although the publically available information on the cases is very limited, the authors did an excellent job in discussing various possible economic issues that may have been surrounding the cases within the conceptual framework set out in the earlier part of the chapter. Their discussions not only shed light on the Maotai and Wuliangye cases, they can also be seen as a demonstration of how economic analysis can be used in future resale price maintenance cases. Such exercises in all fields of AML enforcement, especially done by internationally known and experienced competition scholars like the authors, are of great value to China, as its AML enforcement is still at the learning-by-doing stage.

Taken together, the economic analyses and insights contained in this book are of great value to understanding and improving the enforcement of China’s AML.

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

Imitation by price and quantity setting firms in a differentiated market

Posted by D. Daniel Sokol

Abhimanyu Khan (Maastricht University) and Ronald Peeters (Maastricht University) discuss Imitation by price and quantity setting firms in a differentiated market.

ABSTRACT: We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a ``mutually non-aggressive'' outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously.

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

Forward Contracting and the Welfare Effects of Mergers

Posted by D. Daniel Sokol

Nathan Miller (DOJ) analyzes Forward Contracting and the Welfare Effects of Mergers.

ABSTRACT: I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated.

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

Sunday, August 11, 2013

Hatton on China’s Anti-Monopoly Law: The First Five Years

Posted by Catriona Hatton

In the world of international merger control, divergent approaches to jurisdiction, process and substantive analysis across multiple countries pose serious challenges for international transactions. In navigating the choppy waters of multijurisdictional merger control, China will often top the list of countries which pose a significant risk to a deal, either because of extended review of even non-complex transactions, or imposition of remedies at odds with the outcome in other major jurisdictions and sometimes not anticipated based on a classic economic and legal analysis of a transaction’s expected impact on competition. At last, a book that provides valuable insights into the application of the Chinese Anti-Monopoly Law and opens a window on an often opaque system. The impressive list of contributors and editors which include lawyers in private practice, in-house counsel, government officials, economists and academics combine their vast exprience to provide the background to the law, an overview of the main provisions, the institutions and procedures, legal analysis of decisions, comparative analysis with other jurisdictions and also practical guidance.

For those whose experience with China is primarily in the area of mergers and who may be tempted to jump straight to the chapter on merger control, I would urge you to read the earlier chapters. The authors provide the historical, political, economic and cultural perspective for antitrust law and enforcement in China and critically assess the institutional framework and policy. Drawing also on their international experience, they ‘reset’ the lens for those who view the AML from afar against the background of standards set by highly developed antitrust systems and allow for a better understanding of the divergences and the prospects for change. As regards the contributions which are focused on merger control, we are treated first to a valuable and practical comparative analysis of jurisdictional issues including notifiability of joint ventures, minority share acquisitions, intra-group transactions and domestic concentrations. The authors then provide a detailed overview of the length of the review process, based not only on what is specified in the law, but also on practical experience, for example, the usual duration of the ‘pre-acceptance period’ and the increasing tendency to enter into Phase 2 and even Phase 3 review. A section on ‘rights of defence’ provides a useful insight into Mofcom practices and the section on substantive analysis reminding the reader that Mofcom must assess «the impact of the concentration…on the development of the national economy », sets the scene for a comparative analysis of the outcome in cases such as Seagate/Samsung, Western Digital/Hitachi and Alpha V/Savio. The article on Merger Remedies provides an overview of the cases so far, looking at behavioural and structural remedies imposed by Mofcom in the 16 cases where it has imposed remedies and notes the increasing trend towards clearances with remedies in the last two years. The authors also set out the general procedure for negotiation of remedies from submission to market testing and finalization of remedies and provide practical tips on issues such as ensuring that the final decision accurately reflects the remedies offered by the parties.

The final article on merger control focuses on the application of merger control to joint ventures. Again, this contribution provides practical guidance on a range of topics including the application of merger control to non-full function JVs, JVs with no nexus to China and JVs with state-owned enterprises. The author also provides an overview and analysis of the three published Mofcom decisions on JVs where remedies were required, GE/Shenhua, Henkel/Tiande and ARM/Giesecke &Devrient/Gemalto.

This book provides a much-needed and insightful commentary on antitrust law and enforcement in China. For those practictioners whose clients are faced with the many challenges posed by Chinese antitrust enforcement, I expect this will be a well-thumbed book kept close to the desk.

August 11, 2013 | Permalink | Comments (0) | TrackBack (0)

Allan Fels on China's Anti-monopoly Law: The First Five Years

Posted by Allan Fels

Adrian Emch and David Stallibrass, the editors of China's Anti-monopoly Law: The First Five Years are to be congratulated on the production of a timely, comprehensive and authoritative volume concerning the antimonopoly law of China after five years.

The volume covers all the main areas. They include:

•Some general issues such as a general introduction to the law, an account of its background and context, an analysis of institutional arrangements and a discussion of its policy objectives and the role of China’s unique economic characteristics in relation to its antimonopoly law.

•Virtually all aspects of the law, including: ◦cartels matters and other horizontal anticompetitive agreements and practices; ◦abuse of dominance;

◦resale price maintenance;

◦refusal to deal;

◦pricing abuses.

 

The matters above are considered both from a horizontal and vertical perspectives. Indeed there is a later chapter on vertical restraints under the antimonopoly law and also a separate paper about monopolistic conduct versus “entity bribery”.

•Merger control including joint ventures.

•Government restrictions on competition.

•A number of important legal and procedural matters including judicial and administrative remedies against administrative monopoly, litigation, private rights of action and administrative and civil litigation.

•International dimensions and technical assistance.

•Intellectual property.

•Cross cutting issues.

•The outlook for the future.

Over 40 writers are involved in the publication. There are no obvious omissions from the volume and it therefore provides as full a picture as is possible of what has happened in Chinese antimonopoly law over the last five years. The editors, understandably, do not seek to bring together the numerous conclusions in specific chapters in a set of general conclusion.

Some obvious points, however, are:

•Clearly the foundations of a modern antitrust law have been laid, mostly very well. Moreover, some shortcomings identified in the volume simply reflect that it is an early time in the life of the law.

•The Chinese law seeks to reflect world best practice subject to the inclusion of a number of “Chinese characteristics”, that is, provisions which do not conform with standard approaches in most OECD countries. The Chinese usually defend these on the grounds that China has a social market economy approach rather than a pure free market approach and on the grounds that it is in a transition anyway from socialist characteristics to having more free market characteristics. It also contends that its stage of economic development is not the same as in OECD countries. These characteristics, however, also attract criticisms on the grounds that they hinder the development of a truly competitive economy.

•As the book makes clear, it is too early to discern how the Chinese characteristics are affecting the application of the law. The volume points out that some of the worst fears held about the law have not been realised.

•Throughout the volume, there are calls for better integration of enforcement institutions. This would be principally through merging the three main competition intuitions and possibly having a greater role for the antimonopoly commission. Whether the cure is worse than the disease would depend on how the integration is done.

•The institutions need more resources and the staff need more experience. The staff need to have a greater sense of permanence and of promotion prospects.

One question not addressed in the volume concerns the impact of the law on business operations across the economy. The purpose of antimonopoly law is to obtain compliance with the law from all businesses in the country and thereby to stamp out illegal anticompetitive practices. The instrument used to achieve compliance in all countries is principally enforcement through individual cases with the aim of using these cases to affect the behaviour of all business. It is not clear how far the actions of the antitrust authorities in China have started to affect business behaviour, nor whether there is a great deal of compliance with the new law. There are especially big issues concerning the application of the administrative monopoly provisions of the law. My view is that one of the most important challenges for antimonopoly law in the next 5 or 10 years will be to make sure it has a wider impact than at present.

Another major issue concerns the role of state owned enterprises. They continue to play a significant role in the economy. Professor Wang Xiaoye concludes the volume with a discussion of the China Telecom and China Unicom case. She is fully alive to and gives a full account of all the limitations and problems that have arisen when the agencies have tried to apply the law to these state owned enterprises but, having identified the problems, she does conclude on a somewhat optimistic note recognising that the investigation has been for all its limitations rather effective and has had some effect on reducing the anticompetitive behaviour of the businesses with some benefit for consumers and she concludes that “as the processes of deepening the market oriented economic reform continues its pace, the future of antitrust enforcement in China will be even brighter” (page 486).

A bigger issue to address concerns the role of competition law and policy in China’s economic future. Some indications of this are given in the recent important study published by the World Bank and the Development Research Centre of the State Council of China Towards 2030. This study concludes that a number of the drivers of China’s phenomenal economic growth in the last 20 years will be less powerful in the future. Much of China’s economic success has been dependent on having a supply of cheap labour and on its ability to use, adopt and copy foreign technology. These drivers are likely to be less powerful in the future.

China thus faces the problem of the “middle income trap”. China is one of many countries that have ascended from being low per capita income countries to middle per capita income countries. Most of the countries have, however, failed to move from that stage to a stage of being high income countries. The World Bank and the State Council Development Research Centre suggest that a key weakness for other countries has been the failure to have adequate institutions, including institutions concerning competition law and policy. On this view, much of China’s economic growth in the future depends, amongst other things, on having an adequate competition regime. To put it another way, these days most countries depend on the market for the delivery of goods and services but markets only work well if there is a strong competition law preventing monopoly abuse and inefficiency. What is particularly emphasised in the study is the need for China to do major pro market pro competition structural reform, including of its financial sector and of its state owned enterprises. Competition law and policy have an important role to play here. A further requirement for growth in future is that, as China catches up with established western technology, China is able to innovate on its own. Innovation policy is a key factor in the future growth of Chinese income. Competition law again plays a critical role in this area and some of the other challenges discussed in the volume, especially concerning moves towards having a greener environment and better resource management and moves to fiscal reform also raise a number of competition issues. These are the big questions for China as it moves ahead. In the meantime, we have a very useful study on where China is after five years.

August 11, 2013 | Permalink | Comments (0) | TrackBack (0)

Liyang Hou on China’s Anti-Monopoly Law: The First Five Years

Posted by Liyang Hou

It is 27th July 2013 today, five days to the fifth anniversary of China’s Anti-monopoly Law (“AML”) since its entering into force on 1st August 2008. At this moment around, there has been and will be a series of celebrational activities. The book, The Chinese Anti-Monopoly Law: the first five years, nonetheless stands out from others. While most, if not all, of the other activities aim mainly for Chinese audience, this book sets its clear targets for internationals. This intention goes in line with the effects of competition law that are unambiguously not limited to a single jurisdiction but go beyond continents. Thanks for Mr. Adrian Emch and Mr. David Stallibrass, this gap has been filled.

The willful design of the editors, which must have been done for years, leads to a compile of insightful contributions from a broad range of experts active or paying close attention to the AML. The backgrounds of the authors are well-balanced. They comprise experts from governmental officials, academics, economists, in-house lawyers and private practitioners. Nationality-wise international authors are given equal weight to domestic authors. What particularly interested me was that the book includes articles from two senior officials from Chinese competition agencies, XUE Qiang (Deputy Director in NDRC) and YANG Jie (Director in SAIC) and a judge from Chinese Supreme Court (ZHU Li). It also successfully attracts four prestigious antitrust scholars in China (Professor HUANG Yong, Professor WANG Xiaoye, Professor WANG Xianlin and Professor XU Shiying), the first three of whom are currently sitting in the Expert Committee of the Chinese Anti-Monopoly Commission. All of these not only ensure a collection of thoughts on almost every perspective of the AML, but also adds to a great extent authenticity to the findings and conclusions. Just even browsing this book raises the exact idea that the editors expressed in their preface “[a]s far as we know, this book is the first comprehensive analysis of the AML”. Indeed, they did it. During the last five years, many progresses in relation to enforcing the AML have been observed. However, it may be a pity that no single work was able to present the full picture. This book nevertheless offers us such a possibility. “Comprehensive” as it is, the discussion therein is not only theoretical but also practical, not only positive but also normative, not only dogmatic but also comparative, and not only legal but also economic. What’s more, the editorial skills of the editors are also praiseworthy as all the contributions are organized in such a way that gives less feeling of a simply compiled work but more of a well-structured monograph, which made me unable to stop reading until the last page.

Much to my surprise, the major body of the book explores the enforcement of the AML based on the examination of cases handled by Chinese competition agencies (NDRC, SAIC and Mofcom) and justice. It is perhaps well-known that the Chinese authorities are notorious for their non-transparency. There are so far still no officials channels to track down decisions of public enforcement, especially from NDRC and SAIC and judgments of the courts (note: Mofcom did slightly better as it is legally obliged to make public merger decisions of conditional clearance and disapproval). It therefore must have taken the authors tremendous efforts in collecting basically all the cases appearing in the last years. Moreover, they did not end there, and continued to offer in-depth analyses. This, together with the delicate way organized by the editors, can let readers have a profound view on what underwent the AML in the past. From this book readers can not only find out what the AML provides on paper but also know how it is run in practice. In addition, the book also conveys a strong message that competition law subjects reviewed by the Chinese authorities, despite their short living, were fully comparable with the more experienced international counterparts. The book touches upon cartels, information exchange, resale price maintenance, refusal to deal, price squeeze, price discrimination, behavioral or structural remedies in merger cases, standard of proof in private enforcement, conflict between competition law and sector-specific regulation, and so on. What was found in the EU or the USA was also taking place in China, a country with newly adopted competition law.

In addition to the legal discussions, the editors thoughtfully include articles shedding light on the socio-political environment in China. True, competition law is driven by economics that is in principle universal. However, the development of competition law in every jurisdiction is not without their own characteristics. Those introductions can without any doubt help readers with limited knowledge about China to understand the special antitrust policy here, as well as intriguing questions, including but not limited to, why three instead of one competition agencies is established, why abuse of administrative power to restrain competition is particularly included into the AML, why it is difficult to apply the AML to state-owned enterprises, etc.

Despite its inclusive observation on the AML, the book does leave some issues uncovered. Two may be of particularly importance for me. First, the limited resources currently possessed by the competition agencies as indicated in the book do not allow them to handle all the antitrust complaints. Consequently, a question arises how they will prioritize the investigation in the near future. Second, while the book points out that there have been a number of merger cases (literally 11 until now) that were decided both by Mofcom and the European Commission it does not further analyze whether the different conclusions between them has been able to reveal Mofcom’s analytical pattern in merger review. However, I have no doubt that analyses will soon be carried out based on the plentiful materials provided by the book.

All in all, this book offers both an informative overview and an intelligent assessment of the enforcement of the AML in the last five years. Most importantly, the encyclopedia of materials that are not easily accessible via public channels will prove its invaluableness in no time for all the others. This book does not only represent a significant achievement by itself but also serves a vehicle to stimulate new insights from old hands. Consequently, I honestly consider that this book is a must-read book for those who are researching, practicing or interested in the AML, and it can also appeal to anyone who wishes to gain a better understanding of competition law in general.

August 11, 2013 | Permalink | Comments (0) | TrackBack (0)