Wednesday, June 25, 2014

Patent Trolls and Schumpeter's Creative Destruction

Karol Sledzik, University of Gdansk - Faculty of Management explores Patent Trolls and Schumpeter's Creative Destruction.

ABSTRACT: There is no doubt that intellectual property should be protected because it is particularly vulnerable to "stealing". However, under the law for some time this "protection" is used to make profit by "Not Practicing Entities" - (the NPE's) also called Patent Trolls. Activity of Patent Trolls companies can significantly contribute to inhibit the diffusion process in the knowledge based economy. As Schumpeter recognized the concept of dynamic capitalism was doomed to fail, because the increased efficiency of the capitalist enterprise would lead to monopolistic structures and loss of the idea of entrepreneurship. Today we may risk statement that over-regulation in the field of patent protection in conjunction with the unfair practices of companies Patent Trolls may lead to stop the development of Knowledge Based Economy. The purpose of this article is to describe the abuse of intellectual property rights protection for companies that are "Non-Practicing Entities" (Patent Trolls) in the light of J.A. Schumpeter’s creative destruction concept.

June 25, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 24, 2014

Pricing and Efficiency in the Market for IP Addresses

Benjamin G. Edelman, Harvard University - HBS Negotiations, Organizations and Markets Unit, and Michael Schwarz Yahoo! Research Labs; National Bureau of Economic Research (NBER) analyze Pricing and Efficiency in the Market for IP Addresses.

ABSTRACT: We consider market rules for transferring IP addresses, numeric identifiers required by all computers connected to the Internet. Transfers usefully move resources from lowest to highest-valuation networks, but transfers tend to cause socially costly growth in the Internet's routing table. We propose a market rule that avoids excessive trading and comes close to achieving social efficiency. We argue that this rule is feasible despite the limited powers of central authorities. We also offer a framework for reasoning about future prices of IP addresses, then explore the role of rentals in sharing information about the value of IP address and assuring allocative efficiency.

June 24, 2014 | Permalink | Comments (0) | TrackBack (0)

'Stealth Licensing' - Or Antitrust Law and Trade Regulation Squeezing Patent Rights

Nicolas Petit, University of Liege describes 'Stealth Licensing' - Or Antitrust Law and Trade Regulation Squeezing Patent Rights.

ABSTRACT: A “stealth licensing” paradigm is emerging across the globe. It can be seen through subtle interventions from policy makers, judicial organs and administrative agencies. Those interventions seek to facilitate compulsory licenses outside the TRIPS agreement exceptions and/or to water down those exceptions. Altogether, they ramp up pressure on patent owners to give away their freedom – it is actually a “right” – to exploit their innovations as they see fit. The present paper submits that stealth licensing is a significant phenomenon that adversely impacts the social welfare functions of the patent system. It risks undermining investment in technology, technology creation and the dissemination functions of the patent system at a critical juncture in time, as new critical technologies like green technology, the internet of things, machine to machine technology, smart medical devices or biotechnologies are being called for, and rolled out, across the globe. Moreover, stealth licensing is occurring despite the fact that both private and public investment in R&D is critical to help developed economies back on the path to growth, competitiveness, employment and prosperity.

This paper explores the concept and policy of “stealth licensing”. To that end, it first surveys the literature on the social functions of the patent system, and in particular, on the role of patents to incentivise (risky) R&D efforts and to disseminate successful technological innovations2 (I). In this context, it recalls that whilst divided on the exact function of patent law, scholars broadly concur that patents have social utility. This paper then shows the emergence a “stealth licensing” paradigm adversary to the social functions of the patent system. To aid understanding, it starts with a definition of the concept of “stealth licensing” (II). It then describes its emergence in international trade regulation where a “flexible” interpretation of the TRIPS compulsory licensing exceptions is making way (III); and in antitrust law, where a distinct though equally problematic “undercover” licensing paradigm is gaining prominence (IV). Finally, it explains the perils of squeezing patent rights through stealth licensing with two metaphors: that of a black swan (V) and that of a butterfly (VI).

June 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Bank Competition and Financial Stability: Evidence from the Financial Crisis

Brian Akins, Rice University - Jesse H. Jones Graduate School of Business, Lynn Li, Boston University - School of Management, Jeffrey Ng, Singapore Management University - School of Accountancy, and Tjomme O. Rusticus, London Business School; Northwestern University - Kellogg School of Management provide Bank Competition and Financial Stability: Evidence from the Financial Crisis.

ABSTRACT: We examine the link between bank competition and financial stability using the recent financial crisis as the setting. We utilize variation in banking competition at the state level and find that banks facing less competition are more likely to engage in risky activities, more likely to face regulatory intervention, and more likely to fail. Focusing on the real estate market, we find that states with less competition had higher rates of mortgage approval, experienced greater housing price inflation before the crisis, and a steeper housing price decline during it. Overall, our study is consistent with greater competition increasing financial stability.

June 24, 2014 | Permalink | Comments (0) | TrackBack (0)

A Primer on AIDS-Based Models in Antitrust Analysis

Shawn W. Ulrick (FTC) offers A Primer on AIDS-Based Models in Antitrust Analysis.

ABSTRACT: The purpose of this paper is to provide an introduction to AIDS-based demand systems (i.e., those based on Deaton and Muellbauer's Almost Ideal Demand System), which are commonly used in empirical antitrust analyses. We discuss derivation of the AIDS model from its microeconomic foundations, clearly state the assumptions underlying AIDS, and provide a primer on how to implement the model in practice. We use a high level of detail to show every step of the AIDS process. We detail the algebra because the original articles skip most of the steps. We discuss using the AIDS model by itself and in two variations of multilevel systems. We briefly discuss some pitfalls common to all demand systems.

June 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Monday, June 23, 2014

ANTITRUST IN EMERGING AND DEVELOPING COUNTRIES: China, India, Mexico, Brazil, South Africa ... Friday, October 24, 2014 from 8:30 AM to 7:00 PM (EDT)

ANTITRUST IN EMERGING AND DEVELOPING COUNTRIES 

Featuring China, India, Mexico, Brazil, South Africa...


The increasing number of competition regimes worldwide gives rise to new challenges for the antitrust enforcement on the global stage. This conference delves into the issues raised by the implementation and enforcement of antitrust rules in developing countries and offers the opportunity to discuss about the hottest topics with some of the most prominent antitrust academics, enforcers, and practitioners.

Speakers include, among others:


 - Eleanor Fox, NYU School of Law
 - Harry First, NYU School of Law
 - Daniel Rubinfeld, NYU School of Law
 - William Kovacic, GWU Competition Law Center
 - Geeta Gouri, former Competition Commission of India
 - Dennis Davis, South African Competition Court of Appeal
 - Frederic Jenny, OECD
 - Francis Kariuki, Competition Authority of Kenya
 - Alessandro Octaviani, CADE
 - Eduardo Perez Motta, AGON
 - Randy Tritell, FTC
 - Blanca Galindo Rodriguez, European Commission.
 

Panel sponsors are AGON, AZB & Partners, Campos Mellos Advogados, Cleary Gottlieb Steen & Hamilton, CRA, Levy & Salomão Advogados, Linklaters, NERA, White & Case, and Winston Strawn. Social event sponsors are Google and Qualcomm.

This conference will take place on Friday, October 24, 2014 from 8:30 am to 7:00 pm, at New York University, Greenberg Lounge, 40 Washington Square South, New York.

Early-bird fee is offered for registrations received by July 1st, 2014. To read the full program and register for the event click here:

https://antitrustdevelopingcountries.eventbrite.com

June 23, 2014 | Permalink | Comments (0) | TrackBack (0)

The Areeda-Turner Test for Exclusionary Pricing: A Critical Journal

Herb Hovenkamp (Iowa) discusses The Areeda-Turner Test for Exclusionary Pricing: A Critical Journal

ABSTRACT: Few works of legal scholarship have had the impact enjoyed by Areeda and Turner's 1975 article on predatory pricing.  Proof of predatory pricing under the Areeda-Turner test requires two things. The plaintiff must show a market structure such that the predator could rationally foresee "recouping the losses through higher profits earned in the absence of competition."  This requirement, typically called "recoupment," requires the plaintiff to show that, looking from the beginning of the predation campaign, the predator can reasonably anticipate that the costs of predation will be more than offset by the present value of a future period of monopoly profits, making the strategy a sound investment.  Second, the plaintiff must show that the defendant's prices over substantial sales were below a relevant measure of cost, presumptively average variable cost (AVC) or, in some cases, marginal costs over a relatively short run.

The effects of Areeda and Turner's predation test occurred in two waves, both devastating for plaintiffs.  For the first fifteen years the courts focused overwhelmingly on price-cost relationship, and it quickly became clear that proving predatory pricing under an AVC test is extremely difficult. The second wave occurred after the Supreme Court's formulation of the recoupment requirement in the Brooke Group case. Few plaintiffs have won a case, and the incidence of classical predatory pricing claims has declined dramatically.

That so many courts embraced the Areeda-Turner AVC test might seem surprising, given that contemporary assessments from economists were quite negative.  The criticisms can be grouped into three categories.  Even assuming that short run marginal cost is a useful legal test for predatory pricing, AVC is a reasonable surrogate for marginal cost only in equilibrium.  "Classic" predatory pricing is not an equilibrium strategy, however, but rather a nonsustainable high output strategy.  In this range AVC and MC diverge, making the Areeda-Turner test a "defendant's paradise."

The AVC test is particularly underdeterrent in markets characterized by high fixed costs, which are also the markets that are most conducive predation.  Because strictly defined AVC excludes fixed costs, many nonsustainable pricing strategies are identified as legal, even though many of these might be considered anticompetitive under a more holistic approach.

The most fundamental critique of the Areeda-Turner test is that, whether or not AVC is a workable surrogate for short run marginal cost, short-run measures are deficient because they exclude other types of strategic pricing behavior.  Longer run strategies may involve fully sustainable pricing.

What the Areeda-Turner test promised in exchange for its deficiencies was a query that narrowed the fact finder's focus and was easier to administer.  While the test largely succeeded on the first of these, ease of administration has proven elusive.  The test nonetheless survives.  First, it tends to keep predatory pricing cases out of court and away from juries, two properties that make it attractive to judges.  Second, no one has produced something better. A superior test would have to correct for Areeda-Turner’s false negatives without going too far in the other direction.  Second, it would have to be administrable by the full range of tribunals authorized to hear predatory pricing cases, which today includes jury trials.

June 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Absolute Territorial Protection and Competition in the EU: An Economic Approach

Alberto Heimler, Government of the Italian Republic (Italy) - National School of Administration and Kirtikumar Mehta, University of Fribourg analyze Absolute Territorial Protection and Competition in the EU: An Economic Approach.

ABSTRACT: Antitrust law enforcement against vertical restraints has made great progress since the 1970s, building on the advances in economic thinking. Challenges to vertical mergers are rare and most vertical restraints are not prohibited without an analysis of their anticompetitive effects. Most jurisdictions have moved from the strict judicial and administrative enforcement of the 1960s and 1970s to a more balanced view of vertical relationships and vertical restraints based on economics.There are some exceptions. In the US, tying is still nominally a violation per se, but the courts are requiring a showing of market power. In the EU, absolute territorial restrictions are prohibited by object (under Article 101 TFEU), and in all vertical contracts aiming at creating separate territories, irrespective of the market share of the parties involved, most channels of arbitrage between territories need to be left open. Similarly, absolute territorial restrictions imposed unilaterally are anticompetitive under Article 102 TFEU if they are put in place by a dominant company whether they produce an anticompetitive or a welfare increasing effect. This approach needs to be changed. Agreements and practices leading to territorial protection need to be assessed under an effects-based approach (both when they have their origin from an agreement and from a unilateral conduct). The trade-off between competition and market integration concerns does not exist. The more firms are left free to negotiate their contracts, the more competition is increased and the more convergent the internal market becomes. This extends also to absolute territorial restrictions that have to be analyzed on a case by case basis and under a market power constraint.

June 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Workshop on Conditional Pricing Practices Opening Remarks

The Relevent Market: Possible and Productive

Greg Werden (DOJ) explains The Relevent Market: Possible and Productive.

ABSTRACT: Professor Louis Kaplow capped off his series on the relevant market with a final essay in this the Antitrust Law Journal. His premise remains that relevant market is used only to help assess a firm’s market power based on its market share. He claims: (1) “there exists no valid way to make market power inferences from shares” of a multi-product market; (2) “it is impossible to determine which market definition is superior” in inferring market power “without already formulating one’s best estimate of market power”; and (3) delineating the relevant market is “counterproductive.” This essay demonstrates the relevant market’s utility. It also shows that: (1) Kaplow’s first claim rests on a distorted view of antitrust analysis and faulty economics; (2) Kaplow does not prove his second claim, but rather just that the relevant market is not needed for the purpose he allows for it; and (3) Kaplow’s third claim rests on a misapplication of the hypothetical monopolist test, faulty economics, and erroneous facts.

June 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Effects of Hostility Tradition in Antitrust: Leniency Programs and Cooperation Agreements

Natalia Pavlova, National Research University Higher School of Economics and Andrey E Shastitko, Lomonossov Moscow State University; Russian Presidential Academy of National Economy and Public Administration (RANEPA) explore Effects of Hostility Tradition in Antitrust: Leniency Programs and Cooperation Agreements.

ABSTRACT: The article focuses on the effects that type I errors can have on the incentives of firms to compete, collude or engage in efficiency promoting socially beneficial cooperation. Our results confirm that in the presence of type I errors the introduction of a leniency program can have ambiguous effects, including the destruction and prevention of welfare enhancing horizontal cooperation agreements. The obtained results help understand the negative impact the hostility tradition resulting in type I enforcement errors can have on social welfare when applied to the regulation of horizontal agreements.

June 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, June 20, 2014

The Two Types of Gas Network Foreclosure

Frank P. Maier-Rigaud IESEG School of Management (LEM-CNRS), Department of Economics and Quantitative Methods; NERA Economic Consulting explores The Two Types of Gas Network Foreclosure.

ABSTRACT: Effective competition in the gas sector can only develop further if entrants have access to gas, to the networks needed for transporting the gas and also to customers. This paper discusses network access or, in other words, foreclosure of gas networks in light of recent cases by national competition authorities and the European Commission. Besides providing an overview of some of the most important gas network foreclosure cases and the remedies imposed, it is argued that these cases can be classified in two broad categories based on the incentive structure underlying the abuse, namely quantity and entry foreclosure. Such an economic classification emphasizes the distinct theories of harm underlying the different types of foreclosure cases and thereby sheds light on their respective strengths and weaknesses. In addition this paper explores to what extent vertical integration is required for network foreclosure to occur.

June 20, 2014 | Permalink | Comments (0) | TrackBack (0)

The Effectiveness of Competition Policy: An Econometric Assessment in Developed and Developing Countries

Danilo Sama, LUISS "Guido Carli" University of Rome, Erasmus Rotterdam University, Ghent University, University of Aarhus - School of Business and Social Sciences, Toulouse School of Economics, University of Hamburg, Law & Economics LAB analyzes The Effectiveness of Competition Policy: An Econometric Assessment in Developed and Developing Countries.

ABSTRACT:   The ultimate objective of the present paper is to empirically investigate the effectiveness of competition policy in developed and developing countries. Although its importance is continuously increasing, the effectiveness of competition policy still seems to lack the attention that it would deserve. At the present state of art, the number of academic contributions that attempts to estimate its impact on relevant economic variables appears very limited, in particular for the less developed countries. However, an empirical literature aimed at measuring in objective terms the effect of competition policy on economic growth is emerging, starting from narrow variables of interest, such as Gross Domestic Product and Total Factor Productivity. As a result, the principal aim of the current work is to contribute to this branch of research, focusing on broader indicators of market performance, in order to understand whether the presence of an antitrust authority has a significant impact, thus an effective utility, on the level of competition of a country.

June 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Loyalty Programs : a study case in the Hospital Industry

Lubica Hikkerova (IPAG Business School) analyzes Loyalty Programs : a study case in the Hospitality Industry.

ABSTRACT: The widespread use of loyalty programs in the tourism sector raises questions about their differentiating capacity and more broadly about the real advantages they offer firms. We have chosen to focus on the hotel sector and propose a conceptual model on the determinants of loyalty to a hotel or a hotel chain. The subjacent hypothesis is to determine if a loyalty program and its associated advantages manage to take precedence over other factors which influence choice and thus modify the probability of the hotel being chosen. More precisely, we seek to better understand the antecedents of commitment and trust and look at how these factors influence customer loyalty and thus determine the impact of loyalty schemes. Our empirical study, carried out on a sample group of consumers, enabled us to identify the four antecedents of loyalty (economic value of the exchange, reputation in terms of quality of the firm, communication, ! and shared values) so as to make managerial recommendations concerning the effectiveness of loyalty programs.

June 20, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 19, 2014

The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German

Tomaso Duso, Annika Herr, and Moritz Suppliet (all DICE) explore The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti-diabetics.

ABSTRACT: We investigate the welfare impact of parallel imports using a large panel data set containing monthly information on sales, ex-factory prices, and further product characteristics for all 700 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand and, based on an oligopolistic model of multi- product firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports' policy by calculating a counter-factual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11% and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by e19 million per year (or e130 million in total) which is relatively small compared to the average annual market size of around e227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by e18 million (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers.

June 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Market structure in the banking sector: Evidence from a developing economy

Matousek, Roman (Sussex University, UK), Nguyen, Thao Ngoc (Nottingham Trent University, UK) and Stewart, Chris (Kingston University London) analyze Market structure in the banking sector: Evidence from a developing economy.

ABSTRACT: This paper examines the market structure of Vietnam’s banking system from 1999 to 2009 using the non-structural (Panzar-Rosse) model. We consider a more comprehensive range of specifications, in terms of a greater number of environmental covariates and different dependent variables, than in previous applications of this model. Further, this is the first study that uses lagged input prices (to avoid endogeneity) and excludes assets (to avoid specification bias) in such a study of the Vietnamese banking system. We find that the Vietnamese banking system operates in monopolistic competition with non-state owned commercial banks behaving more competitively than state owned commercial banks.

June 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Open Source, Dual Licensing and Software Competition

Eric Darmon (CREM UMR CNRS 6211, University of Rennes 1, France) and Dominique TORRE (GREDEG CNRS, Universite Nice Sophia-Antipolis, France) explore Open Source, Dual Licensing and Software Competition.

ABSTRACT: To distribute software, commercial vendors of proprietary software have the opportunity to use some dual licensing (DL) strategy i.e. to provide their software under two different licensing terms (proprietary and open source). We investigate the relevance and impacts of this distribution strategy in the presence of an incumbent open source software competitor. We determine the conditions for this strategy to be profitable for the commercial firm and its impact on price, market shares and welfare. We show that dual licensing may be used as a complement for proprietary software when development spillovers are large. We examine how, in this case, a dual licensing strategy can be used to exclude the open source software from the market and how this is compatible with higher price and lower market share for the proprietary distribution. This situation can also generate conflicts of interests between proprietary software and users! resulting in sub-optimal outcomes. Finally, our analysis reveals the key role played by development spillovers and software compatibility for the DL decision.

June 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Consumer flexibility, data quality and location choice

Irina Baye and Irina Hasnas analyze Consumer flexibility, data quality and location choice.

ABSTRACT: We analyze firms' location choices in a Hotelling model with two-dimensional consumer heterogeneity, along addresses and transport cost parameters (flexibility). Firms can price discriminate based on perfect data on consumer addresses and (possibly) imperfect data on consumer flexibility. We show that firms' location choices depend on how strongly consumers differ in flexibility. Precisely, when consumers are relatively homogeneous, equilibrium locations are socially optimal regardless of the quality of customer flexibility data. However, when consumers are relatively differentiated, firms make socially optimal location choices only when customer flexibility data is perfect. These results are driven by the optimal strategy of a firm on its turf, monopolization or market-sharing, which in turn depends on consumer heterogeneity in flexibility. Our analysis is motivated by the availability of customer data, which allows fir! ms to practice third-degree price discrimination based on both consumer characteristics relevant in spatial competition, addresses and transport cost parameters.

June 19, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 18, 2014

The Effects of Entry in Oligopoly with Bargained Wages

Robin Naylor (Department of Economics, University of Warwick) and Christian Soegaard Department of Economics, University of Warwick) determine The Effects of Entry in Oligopoly with Bargained Wages.

ABSTRACT:  We show that a firm's profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by decentralised bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. An incumbent monopolist will have an incentive to accommodate entry if the labour market effect dominates. We also show that this incentive is stronger if the incumbent anticipates that, post entry, it will be able to act as a Stackelberg leader.

June 18, 2014 | Permalink | Comments (0) | TrackBack (0)

Compatibility, Intellectual Property, Innovation and Efficiency in Durable Goods Markets with Network Effects

Athanasopoulos, Thanos (Department of Economics, University of Warwick) has written Compatibility, Intellectual Property, Innovation and Efficiency in Durable Goods Markets with Network Effects.

ABSTRACT: This paper analyses firms’ behaviour towards compatibility and the relation of these decisions with their incentives to invest into improving their durable, network goods. By using a sequential game where the dominant firm plays first, we give its competitor the ability to build on innovations previously introduced by the market leader. Recognizing the intertemporal linkage in forward looking customers’purchasing choices, we find that in anticipation of a relatively large quality improvement by the rival, strategic pricing leads the dominant firm to support compatibility even if it could exclude its rivals by using a patent for its invention. Furthermore, not only doesn’t interoperability de-facto maximise social welfare but we also identify no market failure when network effects are not particularly strong.

June 18, 2014 | Permalink | Comments (0) | TrackBack (0)