Thursday, February 12, 2015

Forward trading and collusion of firms in volatile markets

Markus Aichele, Tubingen examines Forward trading and collusion of firms in volatile markets.

ABSTRACT:  Commodity markets are characterized by large volumes of forward contracts as well as high volatility. They are often accused of weak competitive pressure. This article extends the existing literature by analyzing tacit collusion of firms, forward trading and volatility simultaneously. The expected collusive pro t may depart from the monopoly outcome in a volatile market (Rotemberg and Saloner, 1986). Introducing forward trading enables firms to gain the expected monopoly pro t for a broader range of parameters. In contrast to a deterministic market (Liski and Montero, 2006), trading forward in a volatile market may lead to an expected collusive pro t below the monopoly one.

February 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 11, 2015

Preemption Games under Levy Uncertainty

Svetlana Boyarchenko (Department of Economics, University of Texas at Austin) and Sergei Levendorskii (Department of Mathematics, University of Leicester) identify Preemption Games under Levy Uncertainty.

ABSTRACT: We study a stochastic version of Fudenberg--Tirole's preemption game. Two firms contemplate entering a new market with stochastic demand. Firms differ in sunk costs of entry. If the demand process has no upward jumps, the low cost firm enters first, and the high cost firm follows. If leader's optimization problem has an interior solution, the leader enters at the optimal threshold of a monopolist; otherwise, the leader enters earlier than the monopolist. If the demand admits positive jumps, then the optimal entry threshold of the leader can be lower than the monopolist's threshold even if the solution is interior; simultaneous entry can happen either as an equilibrium or a coordination failure; the high cost firm can become the leader. We characterize subgame perfect equilibrium strategies in terms of stopping times and value functions. Analytical expressions for the value functions and thresholds that define stopping times are derived.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Supplier fixed costs and retail market monopolization

Stephane Caprice, Toulouse, Vanessa von Schlippenbach, DIW Berlin, and Christian Wey, DICE, discuss Supplier fixed costs and retail market monopolization.

ABSTRACT: Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Changes to the UK Cartel Offence—Be Careful What You Wish For

Paul Gilbert, Clearey, describes Changes to the UK Cartel Offence—Be Careful What You Wish For.

ABSTRACT: The UK Government has removed the requirement to show ‘dishonesty’ from the criminal cartel offence. In reforming the law, the Government introduced a number of new safeguards, in the form of legal exceptions and defences. Recent announcements about ongoing cases suggest that the reforms could make it more, not less, difficult to bring prosecutions.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Parental Liability: Rebutting the Presumption of Decisive Influence

Lukas Solek, Linklaters and Stefan Wartinger, Eisenberger & Herzog Rechtsanwalts GmbH investigate Parental Liability: Rebutting the Presumption of Decisive Influence.

ABSTRACT: The jurisprudence holding the ultimate parent company jointly and severally liable leads to considerable fines being imposed on the group of companies involved in the infringement. However, it is based on a presumption that can be rebutted by providing factual evidence demonstrating that the parental company had no decisive influence over the perpetrator.

February 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 10, 2015

Homogeneous platform competition with endogenous homing

Thomas D. Jeitschko, Michigan State and Mark J. Tremblay, Michigan State Homogeneous platform competition with endogenous homing.

ABSTRACT: We develop a model for two-sided markets with consumers and producers, who interact through a platform. Typical settings for the model are the market for smartphones with phone users, app producers, and smartphone operating systems; or the video game market with game players, video game producers, and video game consoles. Only consumers who purchase the platform can access content from the producers. Consumers are heterogeneous in their gains from the producer side; and producers are heterogeneous in their costs of bringing apps to the platform. We consider competition between two homogeneous platforms that allows consumers and firms to optimize with respect to how they home, i.e. we allow both individual consumers and individual producers to multi-home or single-home depending on whether it is optimal based on their type. This leads to multiple equilibrium allocations of consumers and firms - all of which are seen in existing markets. We then find conditions under which a monopoly platform generates higher surplus than two competing homogeneous platforms.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Detecting Collusion in Spatially Differentiated Markets

Agnes Kugler (Department of Economics, Vienna University of Economics and Business) and Matthias Firgo (WIFO - Austrian Institute of Economic Research) are Detecting Collusion in Spatially Differentiated Markets.

ABSTRACT:  The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behavior among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

2015 Practitioner's Survey - ICN Merger Recommended Practices (please take)

2015 Practitioner's Survey - ICN Merger Recommended Practices

For the past two years practitioners from more than 30 countries have participated in surveys developed by fellow practitioners who also serve as Non-Government Advisers to the International Competition Network (“ICN”).  The survey in 2013 was on Transparency and Due Process in Competition Proceeding and the survey in 2014 examined the Treatment of Confidential Information in Competition Proceedings.  Both of these surveys were done to inform the ICN Agency Effectiveness Working Group and its Investigative Process Project.  Last year the survey work was awarded the NGA Contribution of the Year honors by the ICN.

For 2015 the practitioner survey will seek to provide feedback to the ICN Merger Working Group which is chaired by Canada, the European Union, and India. The ICN has previously issued 48 Recommended Practices for Merger Notification Procedures a This survey examines to what degree these ICN recommended practices are followed.

Each question provides or tracks with the ICN recommendations. Responses should focus on experiences before a specific competition enforcement agency. If a question doesn't apply to your jurisdiction or you don't know the answer you can skip it. If you would like to discuss experiences from MORE THAN ONE AGENCY, please COMPLETE THIS SURVEY ONE TIME FOR EACH JURISDICTION.

We recognize that this survey may request potentially sensitive information. ALL OF THE IDENTITIES OF SURVEY PARTICIPANTS WILL BE KEPT CONFIDENTIAL AND CARE WILL BE TAKEN TO PRESENT SURVEY ANSWERS IN A GENERAL MANNER.  All respondents will have an opportunity to review the summary report in DRAFT form before it is provided to ICN Merger Working Group co-chairs.

THE DEADLINE FOR RESPONSE IS MARCH 20th. The NGAs listed below are responsible for initiating this survey, and they will be the only people who will see the raw data collected by the survey. As noted above, the summary report that is generated as a result of this survey will be provided to the ICN Merger Working Group Co-Chairs to encourage them to consider the views and experiences of practitioners. In addition, the summary report will be released at the 2015 ICN meeting in Sydney, Australia April 28th - May 1st.

Questions about this survey or the process can be directed to any one of the following members of the steering committee that has been assembled to develop this survey and compile the results.  You can also email an inquiry to grc@uschamber.com.   Thank you in advance for your participation in this effort.

Sean Heather – ICN NGA United States Heather Irvine – ICN NGA South Africa Youngjin Jung – ICN NGA Korea Rob Kwinter – ICN NGA Canada Frank Montag – ICN NGA Germany Eduardo Perz Motta – ICN NGA Mexico Dave Poddar –  ICN NGA Australia James Rill – ICN NGA United States Barbara Rosenberg –ICN NGA Brazil Pallavi Shroff – ICN NGA India Harumichi Uchida –ICN NGA Japan

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria

Yuko Onishi (Graduate School of Economics, The University of Tokyo) and Yasuhiro Omori (Faculty of Economics, The University of Tokyo) undertake Bayesian Estimation of Entry Games with Multiple Players and Multiple Equilibria.

ABSTRACT:   Entry game models are often used to study the nature of firms’ profit and the nature of competition among firms in empirical studies. However, when there are multiple players in an oligopoly market, resulting multiple equilibria have made it difficult in previous studies to estimate the payo↵ functions of players in complete information, static and discrete games without using unreasonable assumptions. To overcome this difficulty, this paper proposes a practical estimation method for an entry game with three players using a Bayesian approach. Some mild assumptions are imposed on the payoff function, and the average competitive effect is used to capture the entry e! ffect of the number of firms. Our proposed methodology is applied to Japanese airline data in 2000, when there are three major airline companies, ANA, JAL and JAS. The model comparison is conducted to investigate the nature of strategic interaction among these Japanese airline companies.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

ICN 2015 Meeting in Australia

The ICN will hold its annual meeting this year in Sydney, Australia.  It promises to be an amazing conference.  The ACCC is one of the great competition authorities. Rodd Sims, Chairman of the ACCC welcomes people to the conference website with the following words:

I'm proud of the ACCC's long history as a founding member of the ICN. I'm also grateful for the development and leadership opportunities the ICN has given the ACCC over the years. The ICN has a diverse membership. Working together on current and emerging issues and initiatives is what makes us strong and effective.

I look forward to hosting the 2015 meeting and seeing you all in Sydney to share ideas on how best to continue to promote competition for the benefit of businesses and consumers in light of our dynamic domestic economies and growing global supply chains.

 

The practitioner and academic communities in Australia are also first rate.  My friends at Gilbert & Tobin won the GCR deal of the year award last year.  The academic community in both antitrust law and economics is very strong.  I will be teaching the global cartel course at the University of Melbourne LLM in Competition Law in July so I take pride in Australia's moment to shine globally for its rich competition policy.

In honor of my friends and colleagues in Australia, I include an embedded video of a documentary of my favorite band growing up, Midnight Oil.  Watching them live remains one of the most memorable and amazing experiences of my life.

 

 

 

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Permission to Exist

Martin C. Byford (RMIT University) and Joshua S. Gans (Toronto) have an interesting paper on Permission to Exist.

ABSTRACT:  We provide a new model that generates persistent performance differences amongst seemingly similar enterprises. Our model provides a mechanism whereby efficient incumbent rivals can give permission for an inefficient firm to exist in the presence of efficient entrants. We demonstrate that, in a repeated game, an efficient incumbent has a unilateral incentive to establish a relational contract that softens price competition to either strengthen the inefficient firm in a war of attrition that emerges post-entry or reduce the value to the inefficient firm of selling its position to entrants. The paper provides conditions under which that equilibrium exists and derives a number of empirical predictions as implications of the model! . It is demonstrated that performance differences are likely to be associated with stability in the identity of firms in the market.

February 10, 2015 | Permalink | Comments (0) | TrackBack (0)

Monday, February 9, 2015

Reverse First-mover and Second-mover Advantage in a Vertical Structure

DongJoon Lee, Nagoya University of Commerce and Business, Kangsik Choi, Pusan National and Kyu-Chan Hwang, University, Tokai Gakuen University have written on Reverse First-mover and Second-mover Advantage in a Vertical Structure.

ABSTRACT: This paper examines the issue of the first-mover and second-mover advantage in a vertical structure in which each manufacturer trades with a separated retailer via two-part tariffs. Compared to the canonical result in one-tier market, we find that the manufacturers' preference orderings over sequential versus simultaneous play are reversed in a vertical structure. We show that the Stackelberg leader (Stackelberg follower) had the first (second)-mover advantage in the downstream Cournot (Bertrand) competition. The first (second)-mover advantage compels its manufacturer to set the wholesale price higher than that of rival. Finally, we show that the manufacturer in which its retailer moves second (first) in a downstream Stackelb! erg Cournot (Bertrand) competition earns higher profits than the other in which its retailer moves first (second) in a downstream Stackelberg Cournot (Bertrand) competition.

February 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Rationalizability and Efficiency in an Asymmetric Cournot Oligopoly

Gabriel Desgranges (THEMA) and Stephane Gauthier (CES) examine Rationalizability and Efficiency in an Asymmetric Cournot Oligopoly.

ABSTRACT: We study rationalizable solutions in a linear asymmetric Cournot oligopoly. We show that symmetry across firms favors multiplicity of rationalizable solutions: A merger (implying a greater asymmetry across firms) makes out-of-equilibrium behavior less likely and should dampen &lquo;coordination&rquo; volatility. The market structure maximizing consumers' surplus at a rationalizable solution is not always the competitive one: This may be a symmetric oligopoly with few firms. An empirical illustration to! the airlines industry shows that a reallocation of 1% of market share from a small carrier to a larger one yields a 1.3% decrease in volatility, measured by the within carrier standard error of the number of passengers.

February 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Navigating the Quantum Minefield in Cartel Damages Cases

Emily Clark (Ashurst) and Ruth Sander (Ashurst) are Navigating the Quantum Minefield in Cartel Damages Cases.

ABSTRACT:  After a period of stop-start, the momentum behind private enforcement of competition law has built up considerably, at both EU and national level.

This article considers some of the key practical issues facing parties involved in private actions in relation to the quantification of damages, including the important role of economic evidence.

February 9, 2015 | Permalink | Comments (0) | TrackBack (0)

Sunday, February 8, 2015

Reflections on Elements of Effective Antitrust Enforcement

Bill Baer (DOJ) gave a speech at GCR Miami that provided Reflections on Elements of Effective Antitrust Enforcement. It was good to hear it live.

February 8, 2015 | Permalink | Comments (0) | TrackBack (0)

Friday, February 6, 2015

Best Prices: Price Discrimination and Consumer Substitution

Judith A. Chevalier, Yale and Anil K. Kashyap, Chicago analyze Best Prices: Price Discrimination and Consumer Substitution.

ABSTRACT: We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the ideal price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.

February 6, 2015 | Permalink | Comments (0) | TrackBack (0)

The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings

Joseph E. Harrington Jr, University of Pennsylvania, Roberto Hernan Gonzalez, University of Granada, and Praveen Kujal, Middlesex University examine The Relative Efficacy of Price Announcements and Express Communication for Collusion: Experimental Findings.

ABSTRACT: Collusion is when firms coordinate on suppressing competition, and coordination typically requires that firms communicate in some manner. This study conducts experiments to determine what modes of communication are able to produce and sustain collusion and how the efficacy of communication depends on firm heterogeneity and the number of firms. We consider two different communication treatments: non-binding price announcements and unrestricted written communication. Our main findings are that price announcements allow subjects to coordinate on a high price but only under duopoly and when firms are symmetric. While price announcements do result in higher prices when subjects are asymmetric, there is little evidence that they are coordinating their behavior. When subjects are allowed to engage in unrestricted communication, coordination on high prices occurs whether they are symmetric or asymmetric. We find that the incremental value to express communication (compared to price announcements) is greater when firms are asymmetric and there are more firms.

February 6, 2015 | Permalink | Comments (0) | TrackBack (0)

when did antitrust lawyers and economist become so good looking?

I am in South Beach for the GCR Live antitrust conference. The conference topics and the speakers are all very strong. Kudos to Blake's & CRA for another brilliant program. This year the University of Florida is also a conference co-sponsor.

I look forward to a day and a half of a very interesting programs. At the drinks reception last night, I was struck by the good looks and good style of so many antitrust practitioners at the conference as well as a number of the academics (Mike Salinger, this includes you). Is it the location, or is it the antitrust has become the new career choice for the "beautiful set" of men and women, particularly in the age group of 35-55? Who knew that critical loss analysis had such sex appeal?

February 6, 2015 | Permalink | Comments (0)

How Many Competitiors Are Enough to Ensure Competition? — A Note on Number Effects in Oligopolies

Niklas Horstmann, Karlsruhe Institute of Technology, Jan Kraemer, University of Passau, and Daniel Schnurr, Karlsruhe Institute of Technology ask How Many Competitiors Are Enough to Ensure Competition? — A Note on Number Effects in Oligopolies.

ABSTRACT: There is general agreement on the fact that the competitiveness of an industry increases with the number of competitors. However, contrary to prominent believe, our meta-study on oligopoly experiments reveals that the competitiveness does not strictly increase with the number of competitors. In fact, triopolies are found to be at least as competitive as quadropolies. Thus, our results bear important implications for merger control and ex-ante regulation of markets in which the number of potential competitors is limited.

February 6, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, February 5, 2015

Detecting Collusion in Spatially Differentiated Markets

Matthias Firgo, Austrian Institute of Economic Research (WIFO) and Agnes Kuegler, Vienna University of Economics and Business Administration - Department of Economics and Detecting Collusion in Spatially Differentiated Markets.

Abstract: The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behaviour among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria. We show that prices of ski resorts forming alliances are higher and increase with the size and towards the spatial center of an alliance. Strategic interaction in pricing is higher within than outside alliances. All results are in line with the findings of theoretical models on collusion in horizontally differentiated markets.

February 5, 2015 | Permalink | Comments (0) | TrackBack (0)