Antitrust & Competition Policy Blog

Decision time and steps of reasoning in a competitive market entry game

Florian Lindner, University of Innsbruck addresses Decision time and steps of reasoning in a competitive market entry game.

ABSTRACT: Entry decisions in market entry games usually depend on the belief about how many others are entering the market, the belief about the own rank in a real effort task, and subjects' risk preferences. In this paper I am able to replicate these basic results and examine two further dimensions: (i) the level of strategic sophistication, which has a positive impact on entry decisions, and (ii) the impact of time pressure, which has a (partly) negative influence on entry rates. Furthermore, when ranks are determined using a real effort task, differences in entry rates are explainable by higher competitiveness of males. Additionally, I show that individual characteristics are more important for the entry decision in more competitive environments.

Taking the Error Out of "Error Cost" Analysis: What's Wrong with Antitrust's Right

Jon Baker (American) has a great paper on Taking the Error Out of "Error Cost" Analysis: What's Wrong with Antitrust's Right. I heard the presentation of the paper at Yale on Friday. It is worth a download.

Should the Philadelphia National Bank Presumption Be Abandoned or Allowed to Evolve?

Should the Philadelphia National Bank Presumption Be Abandoned or Allowed to Evolve?; Reflections on Commissioner Wright’s Speech

Jonathan B. Baker & Steven C. Salop

 

In a recent speech, FTC Commissioner Joshua D. Wright called on courts to abandon the presumption established in Philadelphia National Bank (PNB) that mergers of rival firms with high market shares in concentrated markets harm competition.  We previously have written on this topic and wanted to comment on his proposal and suggest an alternative. We think that presumption should not be abandoned, but should continue to evolve.

First, in the fifty years since PNB, competitive effects analysis has evolved in economics and the courts and, as a result, the almost-irrebuttable presumption applied in that decision has eroded.  Today the presumption is both much weaker and rebuttable. The 1990 Baker Hughes opinion by the DC Circuit panel (which included future-Justices Ginsburg and Thomas) invited lower courts to undertake a wide-ranging and thorough economic analysis of the likely competitive effects of a transaction in which market concentration is just one of many relevant factors. The opinion explained that “Section 7 involves probabilities, not certainties or possibilities” and that market concentration “simply provides a convenient starting point for a broader inquiry into future competitiveness.”  The subsequent DC Circuit panel in Heinz also expressly rejected the contention that high concentration in a market with entry harriers alone entitles the government to a preliminary injunction, even in reviewing a “3 to 2” merger.  They accepted that a successful rebuttal requires evidence showing that the market share statistics provide "an inaccurate account of the [merger's] probable effects on competition," and recognized the possibility that an efficiencies defense could prevail. 

Second, the Heinz opinion also decisively rejected the view that concentration is irrelevant once the merging firms proffer evidence to rebut the government's prima facie case. According to the court, a rebuttal premised on the presence of "structural market barriers to collusion" in a merger to duopoly requires proof that tacit collusion is more difficult to achieve or maintain than in other industries. The more substantial weight accorded concentration in Heinz relative to Baker Hughes also appears to derive from the court's skepticism about the efficiency defense proffered by the merging firms.  Thus, it should not be interpreted as a rejection of Baker Hughes or a reversion to a 1960s interpretation of the structural presumption.  Instead, it reflects further evolution of the presumption.

Third, this evolution is consistent with modern economics.  Economic theory and empirical evidence certainly do not suggest ignoring market shares and concentration in merger analysis. There are several issues here.

• A wide range of theories of oligopoly conduct — both static and dynamic (supergame) models of firm interaction — is consistent with the view that fewer firms and more concentrated markets on average are associated with higher prices.  In general, the smaller the number of firms, the more likely the firms will be able to reach a mutually satisfactory outcome at a higher-than-competitive price.  Unilateral price increases or output restraints also are more likely to be profitable when the merged firm has a higher market share, ceteris paribus.  Accordingly, a horizontal merger reducing the number of rivals from four to three, or three to two, would be more likely to raise competitive concerns than one reducing the number from ten to nine, ceteris paribus.

 

• The empirical evidence is consistent with a weak positive relationship between
  market concentration and price.  (Although few economists today would accept an older view defending the structural presumption based upon a claimed relationship between market concentration and industry economic profits, the conclusion is different with respect to the thesis that concentration is related to price.)  The studies finding a relationship between concentration and price are imperfect.  (They do not always define markets properly, or adequately account for the reverse effect of price on concentration, for example.)  And, it certainly is true that collusion does not occur in every highly concentrated market while collusion sometimes does succeed in markets that are not so highly concentrated.  Still, Professor Richard Schmalensee's 1989 summary in his chapter in the Handbook of Industrial Organization remains a reasonable interpretation of the empirical studies: "In cross-section comparisons involving markets in the same industry, seller concentration is positively related to the level of price."

 

• At the same time, the empirical evidence makes it clear that other industry-specific and market-specific factors beyond concentration are also important in determining the competitive effects of mergers.  While a presumption based on market shares and concentration has an economic basis, other factors also go into determining the intensity of competition, including entry conditions, the similarities or differences among firms and their products, the size of buyers, and others.  Moreover, the empirical research does not reliably identify any particular concentration level common across industries at which price increases kick in.

 

• These caveats do not mean that concentration is irrelevant.  Studies have found that in some industries, increases in concentration, particularly substantial ones, may generate large increases in prices.  Accordingly, contemporary economic learning on the relationship between market concentration and price suggests that concentration be considered when undertaking competitive effects analysis — in conjunction with other factors suggested by the competitive effects theory – but not treated as an irrebuttable determinant of post-merger pricing.

This understanding of both law and economics is generally consistent with the way that the Merger Guidelines handle concentration in merger analysis today.  We think that the approach of the 2010 Horizontal Merger Guidelines is correct, and that it is neither necessary nor advisable  to
eliminate the current structural presumption from the case law, as it has been expressed by the D.C. Circuit.   In saying this, we certainly are not calling for a return to a mechanical,concentration-based approach to merger policy.  We support the Guidelines’ approach of describing the more detailed factual showings that would indicate whether a proposed horizontal merger would likely create various types of adverse competitive effects, coordinated or unilateral.  

Commissioner Wright is also concerned that the PNB presumption is sensitive to market definition.  A presumption based on market shares does require a market to be defined.  The 2010 Merger Guidelines recognize the imperfections and uncertainties inherent in market definition.  For this reason, we are skeptical of a merger policy that would overweight market shares and concentration.  However, Commissioner Wright’s proposal to totally eliminate any structural presumptions because of these imperfections comes at a cost that he does not address.  

As a matter of logical consistency, if he proposes to discard presumptions based on concentration and market shares on this basis, Commissioner Wright also must necessarily discard the safe harbors based on low HHIs or market shares.   This door swings both ways.   Flawed market definition can lead to erroneous low shares as well as erroneous high shares.     

Policy and legal presumptions are useful, so we are reluctant to eliminate any role for safe harbors and anticompetitive presumptions in merger analysis.  We think it is appropriate to update the presumptions to keep up with the evolution of competitive effects analysis.  The 2010 Merger Guidelines have taken steps down this road.  One evolutionary change involves  basing a safe harbor and anticompetitive presumption in unilateral effects cases on the closeness of substitution between the merging parties and price-cost margins (e.g., based on measures of upward pricing pressure). (For example, see Salop and Moresi.) 

Section 6.1 of the 2010 Merger Guidelines incorporate  a quasi-safe harbor in unilateral effects
cases based on the gross upward pricing pressure index (GUPPI), as described by then-Deputy AAG Carl Shapiro (p.727).  (In a speech while he was Deputy AAG, Shapiro also specified a GUPPI safe harbor of 5%.)  Another evolutionary change incorporated in Section 7.1 of the 2010 Merger Guidelines recognizes an anticompetitive presumption in coordinated effects cases when one of the merging firms is a “maverick” in a market vulnerable to coordination. (For further discussion, see
Baker and Shapiro.) 

In short, we think that the PNB-style structural presumptions should continue to evolve, rather than be abandoned. 

Public Policy Conference on Competition Among Online Platforms

Public Policy Conference on Competition Among Online Platforms

Thursday, October 10, 2013
George Mason University School of Law
Arlington, VA

Feedback equilibria in a dynamic renewable resource oligopoly: pre-emption, voracity and exhaustion

Luca Lambertini (University of Bologna & ENCORE) and Andrea Mantovani (University of Bologna & IEB) discuss Feedback equilibria in a dynamic renewable resource oligopoly: pre-emption, voracity and exhaustion.

ABSTRACT: We extend Fujiwara’s (2008) model to describe a differential oligopoly game of resource extraction under static, linear feedback and nonlinear feedback strategies, generalising his result that steady state feedback outputs are lower than monopoly and static oligopoly equilibrium outputs for any number of firms. Additionally, we show that (i) feedback rules entail resource exhaustion for a finite number of firms; and (ii) feedback strategies are more aggressive than static ones as long as the resource stock is large enough, in accordance with the acquired view based on the traditional pre-emption argument associated with feedback information.

The European Commission's Package on Private Enforcement in Competition Cases: Introduction to a CPI Antitrust Chronicle

Andreas Reindl (Leuphana University, Luneburg) discusses The European Commission's Package on Private Enforcement in Competition Cases: Introduction to a CPI Antitrust Chronicle.

ABSTRACT: Finally—it has arrived. After roughly a decade of intense and sometimes contentious policy debate, reflection, studies, and consultations on private actions for damages in competition matters, just before the summer break the Commission published a package of measures that is designed to facilitate and, to some extent, harmonize private enforcement of EU competition law across the European Union (the "Package"). At the core of the Package is the draft Directive on damages actions in competition cases, with rules on discovery, the EU-wide binding effect of competition authority decisions, passing-on of damages, joint liability, and limitation periods (the "Directive"). The Package also comprises the Commission's Working Paper on methods to quantify harm in competition cases, and a Recommendation on collective redress for consumers and SMEs.

This CPI Antitrust Chronicle provides a timely opportunity to review the proposal and to contribute to the discussion of some of the important and controversial measures contained in particular in the proposed Directive:

• Daniele Calisti & Luke Haasbeek provide an overview of the Directive and explain the intentions behind the Commission's initiative;
• Jeroen Kortmann & Rein Wesseling review and critique the Directive from the viewpoint of private practitioners with experience in private litigation and discuss in particular the Directive's effects on incentives to settle disputes;
• Sebastian Peyer examines the Directive's discovery rules, in particular with respect to discovery of leniency materials in light of European case law, and U.K. practice;Hans Friederiszick comments on the proposed solution for the pass-on defense and the calculation of interest in damages awards in light of the Commission's claim that the Directive will lead
  to a level playing field across Europe; and
• Stefano Grassani's contribution highlights
  concerns related to the proposed rule that would make all competition authority infringement decisions binding in follow-on damages actions across the EU.

...

When the Commission drafts legislation in a controversial area with no prior history of EU involvement, where the Commission has no particular expertise, and where first legislative efforts might be seen as needlessly encroaching on Member State prerogatives, one can expect that not every individual provision will be warmly welcomed by all stakeholders. The diversity of views expressed in this symposium and elsewhere, including the sometimes critical reactions to the
Commission's proposal, is therefore not particularly remarkable.

What is remarkable, though, is that there appears to be no common understanding as regards the policy goals behind legislation on private competition law enforcement. In fact, throughout the many years of debate on private enforcement the Commission has not been able to develop a clear and persuasive "story" for its work in this area and "sell" it to stakeholders. As a result, the proposed Directive and, more generally, the entire Package, lack a clear and coherently implemented vision.

I will use the remainder of this introductory note to focus on this question. I believe that the absence of such a convincing "story" makes specific provisions in the Directive more difficult to understand and accept, and affects the credibility of the entire Package among stakeholders.

Not as Easy as Advertised: New Challenges in Bringing a Successful § 43(a) False Advertising Case

Christopher Cole and Jason Crawford (Crowell) discuss Not as Easy as Advertised: New Challenges in Bringing a Successful § 43(a) False Advertising Case.

ABSTRACT: Section 43(a) of the Lanham Act historically has been an important tool for false advertising plaintiffs seeking redress through injunctive relief and money damages. While Section 43(a) remains an important cause of action, two important changes in the past decade have made obtaining relief difficult. First, in the aftermath of Twombly/Iqbal, it is harder to bring a Section 43(a) false advertising claim to trial because courts are applying a heightened “plausibility” standard that makes getting past a motion to dismiss more demanding.1 Second, the Supreme Court’s eBay and Winter decisions have made it more difficult in some circuits to obtain injunctive relief in false advertising cases because of the need to provide concrete evidence of harm, which can be difficult to do in false advertising cases.

Fall Networking Event with FTC Chairwoman Edith Ramirez and DOJ DAAG Renata Hesse

Fall Networking Event with FTC Chairwoman Edith Ramirez and DOJ DAAG Renata Hesse

November 12, 2013

6:00-8:00 PM Eastern

Location: Crowell & Moring LLP

1001 Pennsylvania Ave. N.W. Suite 1100, Washington D.C. 20004

Join us for a night of networking and good cheer as we learn about key antitrust and intellectual property developments from a distinguished panel of speakers.

The Foreign Trade Antitrust Improvements Act: Did Arbaugh Erase Decades of Consensus Building?

Tad Lipsky and Kory Wilmot (Latham) ask The Foreign Trade Antitrust Improvements Act: Did Arbaugh Erase Decades of Consensus Building?

ABSTRACT: Congress passed the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) to help resolve a simple and increasingly important issue: when does U.S. antitrust law apply to foreign conduct? Passage of the FTAIA capped an extended period of debate within the antitrust community (including judicial decisions, antitrust enforcement agency actions, guidelines and policies, and voluminous writings of practitioners and scholars from the U.S. and other jurisdictions) regarding the best answer to that question.

Vertical Practices and the Exclusion of Rivals Post Eaton

John Asker (Stern School of Business, NYU) & Shannon Seitz (Analysis Group, Inc.) discuss Vertical Practices and the Exclusion of Rivals Post Eaton.

ABSTRACT: In the wake of the ZF Meritor v. Eaton decision, there is new uncertainty regarding the kinds of vertical contracting practices that will attract antitrust scrutiny under U.S. law. In this case, the market share and loyalty rebates Eaton Corporation offered to truck manufacturers were found to violate antitrust law despite the fact that there was no evidence of pricing below cost. The court of appeals determined that the price-cost test, which, since Matsushita v. Zenith (1986) has been applied in cases in which predatory pricing is alleged, did not apply in Eaton. Elements of Eaton's agreements had more in common with exclusive dealing than predatory pricing, the court said.

Vertical agreements frequently include a variety of price and non-price restrictions, including market share and loyalty discounts, pre-specified sales territories, retail price restrictions (such as resale price maintenance), rebates, and product placement requirements. The Eaton decision, as well as several other recent cases involving exclusive dealing, illustrates the piecemeal fashion in which the courts have dealt with vertical agreements. It has been argued that decisions like Eaton, which move away from the broad application of the price-cost test, may discourage suppliers from offering non-predatory loyalty or market share discounts, as there may be no safe harbor, particularly when such discounts are part of a multidimensional vertical agreement.

In this article we describe recent academic research that provides a coherent framework for the analysis of a host of vertical agreements with price or non-price restraints, thereby helping courts and economic experts to determine the potential exclusionary impact of these arrangements. In truth, many vertical contracting practices share the same underlying economics: The vertical structure allows an upstream supplier and a downstream retailer to share industry profits gained through the supplier's increased market power. As a result, the retailer has an incentive to protect these profits by serving as a "gatekeeper," potentially limiting market access by upstream rivals. If an upstream rival cannot access the market without some help from the gatekeeper, then vertical-contracting practices may result in exclusion.

Later in the article, we focus on potential anticompetitive aspects of vertical arrangements. We consider the choice between framing a case as predation or exclusive dealing and compare the economics of predatory pricing practices to those of exclusive deals within vertical agreements. We look more closely at exclusive-dealing settings and propose several screens for the detection of antitrust harm, regardless of whether the vertical practice involves price or non-price restraints. And, finally, we weigh potential pro-competitive benefits of vertical agreements against the anticompetitive harm of exclusion in the specific context of resale price maintenance. In particular, we focus on one of the pro-competitive justifications for resale price maintenance raised in the majority judgment in Leegin v. PSKS (2007), the provision of retail services that may promote interbrand competition.

Not So Natural Experiments

Gregory K. Leonard (Edgeworth Economics LLC) discusses Not So Natural Experiments.

ABSTRACT: Over the last 20 years, the economics profession has moved away from the estimation of structural economic models and toward the use of experiments, either controlled experiments or so-called "natural" experiments, for the purposes of estimating the causal effects of programs, policies, and other interventions. While industrial organization economists have been slower to adopt the experimental approach, it is increasingly commonly seen in industrial organization settings. This is particularly so in the area of antitrust analysis. For example, experimental approaches have been used to analyze the effect of a firm's presence in a local market on another firm's prices in that market in the context of the proposed Staples/Office Depot and Whole Foods/Wild Oats mergers, the effects of consummated mergers on prices, and overcharges associated with price-fixing conspiracies. However, the experimental approach recently has been subject to somewhat of a backlash in the economics literature. Among the criticisms are that experiments, and particularly natural experiments, frequently answer a very limited question that is not the question of real interest and that the conditions required for the reliability of the results are often not well-articulated and, more importantly, are often not satisfied.

In light of the prominence of experimental approaches in economics, the increasing application of such approaches in industrial organization, and the emerging criticisms, this area of economic research is likely to have an impact on the way that antitrust analyses are performed. In this paper, I review the use of natural experiments in the antitrust context.

Most Favored Nation Clauses Moving Out of Favor

Joshua Gans (University of Toronto) discusses Most Favored Nation Clauses Moving Out of Favor.

ABSTRACT: "We will match our competitor's price!" sounds like the most competitive of slogans. And to a consumer who has just found out that there is another store with a lower price, it looks like opportunity. Unfortunately, this is one of those deals that is not as simple as it sounds. After all, why was it that, until a rival with a lower price was discovered by some consumer, the price was high? Could it be to catch the less savvy consumers out? Or would it ever be the case that you would be put in a position of having to comply with that promise? After all, your competitor does not gain from driving customers into your hands with their own lower price. That lower price is only valuable to them if they ensure your business. Otherwise they too may as well keep prices higher.

In broader business terms, price-matching guarantees have been given the name "most favored nation" clauses or MFNs. The origin of the name is in international trade negotiations where purchasing countries insisted on such clauses to profit from potential competition although, like my example above, these clauses did not necessarily produce that consequence. These days it is antitrust authorities who are taking a closer look at MFNs.

The reason for this new antitrust attention has to do with MFNs that are associated with platforms. While these fall under the general class of what former DOJ economist, Fiona Scott Morton, called "contracts that reference competitors" it is their association with platforms that leads to some difficult choices and trade-offs. This article will examine that association in more detail.

Free Software and the Law - Out of the Frying Pan and into the Fire: How Shaking Up Intellectual Property Suits Competition Law Just Fine

Angela Daly, Swinburne University of Technology describes Free Software and the Law - Out of the Frying Pan and into the Fire: How Shaking Up Intellectual Property Suits Competition Law Just Fine.

ABSTRACT: Free software is software which encompasses the freedom of the user to share, copy and modify the software. It is defined in opposition to ‘proprietary’ or ‘closed source’ software, which is licensed according to the exclusive right of the copyright holder usually in a much more restrictive fashion than with free software (such as imposing a charge on the licensee to use the software, withholding the source code, and prohibiting users from redistributing the software to others). Often proprietary software is not interoperable, and thus incompatible, with other software. Usually a user does not have to pay to access free software, whereas proprietary software will encompass a charge for the user. Although this is not necessarily the case, since what makes proprietary software proprietary is more the control that the copyright holder has over how the software is distributed, whereas with free software anyone with a copy can decide whether and how much to charge for a copy and related services – but then someone else with the same copy might decide to redistribute the same thing for free.

Free software may sometimes constitute what Benkler (2006) terms ‘commons based peer production’, that is, initiatives produced by decentralised individual users which constitute a nonhierarchical, non-market nonproprietary alternative to information production by corporate or State entities. However, free software projects are not homogenous (De Paoli, Teli & D’Andrea 2008), and in practice true examples of commons-based peer production are few and far between. There is corporate involvement in many free software projects, usually from the software industry. Corporations have various motivations to participate in free software projects, for example to benefit from the quick feedback and marketing provided freely by the user community built up around the project. Even if special licences are used to ensure the software can be used for free and freely, corporations may still be able to assert a copyright over the specific parts of the code their employees have produced which they may be able to re-licence under other, ‘traditional’ licences and so gain a profit (Robles, Duenas & Gonzalez-Barahoma 2007). While ‘true’ commons-based peer production might prove something of a headache for legal regimes such as competition law, as will be discussed in more detail below, initiatives which involve corporations while seeming at first blush unorthodox are more easily subsumed into the understanding of other regimes such as competition law.

From here, this article will firstly analyse the theoretical bases behind intellectual property and competition law, and their latter interaction with neoliberalism. Then, the potential clash between free software and competition law will be explained, followed by the two case studies, which will then be analysed, ending with some concluding remarks.

The Influence of Robert H. Bork on Antitrust Law: A Retrospective - September 27-28, 2013 Yale Law School

The Influence of Robert H. Bork on Antitrust Law: A Retrospective
September 27-28, 2013 Yale Law School

See the agenda here.

Beer, Butter, and Barristers: How Canadian Governments Put Cartels Before Consumers

Robert Mysicka, Stikeman Elliott LLP and Marty McKendry, Stikeman Elliott LLP explain Beer, Butter, and Barristers: How Canadian Governments Put Cartels Before Consumers.

ABSTRACT: In Canada, various sectors of the economy are subject to government regulations, many of which are designed to correct market failures. However, such regulations are generally inconsistent with federal competition law, which aims to promote economic efficiency by maintaining the integrity of competitive markets. The courts have resolved this tension by developing the Regulated Conduct Defence (RCD) – an interpretive judicial doctrine that immunizes various regulatory regimes from the application of competition law. In this Commentary we challenge the wisdom of the RCD from an economic and legal standpoint. In particular, we criticize the view, established by the courts, that regulations conflicting with competition law should be deemed to operate in the public interest.

We argue that certain regulatory regimes advance private interests at an unreasonable cost to consumers. Our analysis includes three examples of regulatory regimes that interfere with competitive forces but nevertheless benefit from immunity to competition law: agricultural supply management, private alcohol retail, and legal services.

We propose: (i) clarifying the Competition Act’s application to regulated conduct; (ii) where practicable, limiting the scope of immunity for regulated sectors such that if regulation is deemed necessary, it is narrowly tailored to be minimally impairing to competition; and (iii) requiring the federal government to assess the competitive effects of all legislation prior to enactment.

Competition Law in Malaysia: Renaissance and the Road Ahead

Wilson Tay Tze Vern, Taylor's Law School, Taylor's University Malaysia explores Competition Law in Malaysia: Renaissance and the Road Ahead.

ABSTRACT: The Competition Act 2010 and the Competition Commission Act 2010 mark a new beginning for competition law in Malaysia, bringing the nation into line with developed East and Southeast Asian states that have embraced a comprehensive regime of competition regulation. This article seeks to explore the implications of the new legislation, some likely challenges likely to arise in the Malaysian context, and the possible ways forward as Malaysia transitions towards the national goal of attaining a "high-income economy".

Remedies Matter: The Importance of Achieving Effective Antitrust Outcomes

Bill Baer (DOJ) delivered a speech on Remedies Matter: The Importance of Achieving Effective Antitrust Outcomes. 

Greasing the Wheels of Rural Transformation? Margarine and the Competition for the British Butter Market

Markus Lampe (Universidad Carlos III Madrid) and Paul Sharp (University of Southern Denmark) have an interesting historical paper on Greasing the Wheels of Rural Transformation? Margarine and the Competition for the British Butter Market. 

Personally, I don't care much for butter or margarine.  I also am technically underweight for my height, so perhaps there is a correlation. 

ABSTRACT:  We consider an example of the impact of a new good on producers of close substitutes: the invention of margarine and its rapid introduction into the British market from the mid-1870s. This presented a challenge to the traditional suppliers of that market, butter producers from different European countries. We argue that the capacity to react quickly to the appearance of this cheap substitute by improving quality and establishing product differentiation was critical for the fortunes of butter producers. We illustrate this by discussing the different reactions to margarine and quality upgrading in Ireland, Denmark and the Netherlands. A statistical analysis using monthly data for Britain from 1881-87 confirms that margarine had a greater impact on the price of poor quality butter than that of high quality butter, presumably because it was a stronger substitute.

A nonlinear product differentiation model a la Cournot: a new look to the newspapers industry

Mercedes Esteban-Bravo (University Carlos III Madrid) and Jose M. Vidal-Sanz (University Carlos III Madrid) offer A nonlinear product differentiation model a la Cournot: a new look to the newspapers industry.

ABSTRACT: In this work, we develop a new model for competition in markets with differentiated products. In addition, we present a consumer model designed to produce a flexible nonlinear inverse demand system that resembles the classical Multinomial Logit model, and discuss several extensions. We characterize firms competition in quantities based on the inverse demand system. The model is applied to the Spanish newspaper industry. This is a highly competitive two-sided market whose revenues are generated from sales and to a larger extent from advertising driven by its circulation. We then characterize the Perfect Equilibrium by conditional moment conditions, and estimate the parameters using the Generalized Method of Moments.

Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market

Patrick Andreoli-Versbach, International Max Planck Research School for Competition and Innovation, Munich Center for Innovation and Entrepreneurship Research and Ludwig-Maximilians-Universitat Munchen and Jens-Uwe Franck, Ludwig-Maximilians-Universitat Munchen describe Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market.

ABSTRACT: This article studies dynamic pricing strategies in the Italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky-pricing policy. Using daily Italian firm level prices and weekly average EU prices, we show that the effect of the new policy was twofold. First, it facilitated price alignment and coordination on price changes. After the policy change, the observed pricing pattern shifted from cost-based to sticky-leadership pricing. Second, using a dif-in-dif estimation and a synthetic control group, we show that the causal effect of the new policy was to significantly increase prices through sticky-leadership pricing. Our paper highlights the importance of price-commitment by a large firm in order to sustain (tacit) collusion.