Tuesday, June 30, 2015
Eduardo P. S. Fiuza, Ipea offers Relevant Market Delineation and Horizontal Merger Simulation: A Unified Approach.
ABSTRACT: While often times the Hypothetical Monopolist Test (HMT) utilized in relevant market delineation is implemented with uniform price increases throughout all the goods in the candidate relevant market, since 1984 the versions of the U.S. Merger Guidelines have emphasized that these small but significant and non-transitory increase in prices (SSNIP) should be profit-maximizing, what would result in uniform increases only under very particular conditions. Such increases could then be analyzed–sufficient data existing for such–in the same manner as the simulations of unilateral effects of mergers, introduced in the 1980s and further developed in the 1990s. Thus, in this article, building on structural models of demand and supply and on recent contributions to the literature, we propose a unified framework for merger simulations and for the so-called HMT in its diversity of versions implemented in various countries along the years, and we better detail their differences. To illustrate those differences, we report the results of a Monte Carlo experiment using three demand specifications: isoelastic, linear and linearized Almost Ideal Demand System (AIDS), all of them in a two-stage budget setting. We conclude that the choice of the test version and of the demand specification may affect significantly the size of the relevant market found, depending on the distribution and magnitude of cross and own price elasticities in the potential market.
When Regulation Protects Privilege Instead of People: Government Restraints of Trade – A Competition Enforcer’s Perspective
FTC Commissioner Maureen Ohlhausen gave a speech When Regulation Protects Privilege Instead of People: Government Restraints of Trade – A Competition Enforcer’s Perspective.
Brent Snyder, DOJ has a speech up on Leniency in Multi-Jurisdictional Investigations: Too Much of a Good Thing?
Benjamin Eden (Vanderbilt University) explores Price dispersion and demand uncertainty: Evidence from US scanner data.
ABSTRACT: I use the Prescott (1975) hotels model to explain variations in price dispersion across goods sold by supermarkets in Chicago. I extend the theory to accounts for the monopoly power of chains and for non-shoppers. The main empirical finding is that the effect of demand uncertainty on price dispersion is highly significant and quantitatively important: More than 50% of the cross sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good.
Zoltan Racz, Corvinus University of Budapest and Attila Tasnadi, Corvinus University of Budapest offer A Bertrand-Edgeworth oligopoly with a public firm.
ABSTRACT: We determine conditions under which a pure-strategy equilibrium of a mixed Bertrand-Edgeworth oligopoly exists. In addition, we determine its pure-strategy equilibrium whenever it exists and compare the equilibrium outcome with that of the standard Bertrand-Edgeworth oligopoly with only private firms.
Juan Carlos Carbajal (University of New South Wales) and Jeffrey C. Ely (Northwestern University) offer A Model of Price Discrimination under Loss Aversion and State-Contingent Reference Points.
ABSTRACT: We study optimal price discrimination when a monopolist faces a continuum of consumers with reference-dependent preferences. A consumer's valuation for product quality consists of an intrinsic valuation affected by a private state signal (type), and a gain-loss valuation that depends on deviations of purchased quality from a reference point. Following Kőszegi and Rabin (2006), we consider loss-averse buyers who evaluate gains and losses in terms of changes in the consumption valuation, but in our model each buyer evaluates consumption outcomes relative to his own state-contingent reference quality level. We capture the process by which reference qualities are formed via a reference consumption plan, and use a generalization of the Mirrlees representation of the indirect utility to fully characterize optimal contracts for loss-averse consumers. We find that, depending on the reference plan, optimal price discrimination may exhibit (i) downward distortions! beyond the standard downward distortions due to screening; (ii) efficiency gains relative to second best contracts without loss aversion; (iii) upward distortions above first best quality levels without loss aversion. We consider ex-ante and ex-post consistent contracts in which quality offers by the firm coincide, in expectations or at every state realization, respectively, with the reference quality levels. We find the firm's unique preferred ex-ante and ex-post consistent contract menu and specify conditions under which, for the second case, it also constitutes the consumers' preferred menu.
Monday, June 29, 2015
Mikael C. Bergbrant (St. John’s University); Delroy M. Hunter (University of South Florida); and Patrick J. Kelly (New Economic School) discuss Product Market Competition, Capital Constraints and Firm Growth.
ABSTRACT: We examine the impact of product market competition on quantity-of-capital constraints in 58 countries. Prior work shows that competition increases the costs of debt and equity, which reduce the economic profit from investment. Capital constraints, however, may prevent firms from exploiting all positive NPV projects. Using econometric techniques and unique survey data, we avoid potential endogeneity problems common to the study of both capital constraints and product market competition. We show that product market competition increases capital constraints. Auxiliary analyses suggest that asymmetric information is one mechanism driving this linkage. We also show that quantity-of-capital constraints negatively impact firm growth.
Flavio Delbono, University of Bologna Luca Lambertini, University of Bologna are Ranking Bertrand, Cournot and Supply Function Equilibria in Oligopoly.
ABSTRACT: We show that the standard argument according to which supply function equilibria rank intermediate between Bertrand and Cournot equilibria may be reversed. We prove this result within a static oligopolistic game in which both supply function competition and Cournot competition yield a unique Nash equilibrium, whereas price setting yields a continuum of Nash equilibria. There are parameter regions in which Bertrand profits are higher than Cournot ones, with the latter being higher than in the supply function equilibrium. Such reversal of the typical ranking occurs when price-setting mimics collusion. We then show that the reversal in profits is responsible for a reversal in the welfare performance of the industry.
Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US
John M. Clapp (University of Connecticut); Stephen L. Ross (University of Connecticut); and Tingyu Zhou (Concordia University) have written on Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US.
ABSTRACT: From the perspective of an existing retailer, the optimal size of a cluster of retail activity represents a trade-off between the marginal increases in consumer attraction from another store against the depletion of the customer base caused by an additional competitor. We estimate opening and closing probabilities of multi-line department stores (“anchors”) as a function of pre-existing anchors by type of anchor store (low-priced, mid-priced or high-priced) using a bias corrected probit model with county and year fixed effects. We find strong negative competitive effects of an additional same type but no effect on openings of anchors of another type.
Gilad Sorek, Auburn University examines Health Insurance and Competition in Health Care Markets.
ABSTRACT: I study duopolistic market for differentiated medical products. Medical providers decide whether to sell on the spot market to sick consumers or to sell through competitive insurance market to healthy consumers. While shopping for insurance consumers know only the distribution of possible medical needs they may have if they get sick. Only when getting sick their actual medical need reveals and diagnosed. Hence consumers on the insurance market have lower taste differentiation than the sick consumers who are shopping on the spot market. I find that in equilibrium providers sell only on the insurance market, even though this intensifies competition because of lower taste differentiation. Competition between providers under insurance sales brings premiums low enough to motivate consumers buying insurance for both products. Insurance sales generate efficient horizontal product differentiation, lower prices, and efficiently higher quality.
Saturday, June 27, 2015
I am blogging from the annual Oxford Antitrust Enforcement Symposium. Commissioner Ohlhausen just gave a brilliant talk on antitrust and industrial policy. Yesterday she spoke at Kings College in London where her speech on antitrust and data privacy was equally spectacular (carefully analyzing the limits of both antitrust and data privacy law). Hopefully bopth speeches will be in the FTC website soon.
Friday, June 26, 2015
Broos, Sebastien (Universite de Liege, HEC Management School, Belgium) and Gautier, Axel (Universite catholique de Louvain, CORE, Belgium) analyze Competing one-way essential complements: the forgotten side of net neutrality.
ABSTRACT: We analyze the incentives of internet service providers (ISPs) to break net neutrality by excluding internet applications competing with their own products, a typical example being the exclusion of VoIP applications by telecom companies offering internet and voice services. Exclusion is not a concern when the ISP is a monopoly because it can extract the additional surplus created by the application through price rebalancing. When ISPs compete, it could lead to a fragmented internet where only one firm offers the application. We show that, both in monopoly and duopoly, prohibiting the exclusion of the app and surcharges for its use as a strong form of net neutrality‚is not welfare improving.
A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand
Dhouha DRIDI, Manouba University and Slim BEN YOUSSEF and ESC de Tunis offer A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand.
ABSTRACT: In this paper, we develop a game theoretic model for cooperative advertising in a supply chain consisting of a monopolistic manufacturer selling its product to the consumer only through competing duopolistic retailers. We consider a new form of the demand function which is an additive form. The demand is influenced by both retail price and advertising expenditures. To identify optimal advertising and pricing decisions, we discuss three possible games (two non cooperative games including Stackelberg-Cournot and Stackelberg-Collusion, and one cooperative game) and then we compare the various decision variables and the profits for all cases and also with similar results of the existing literature to develop some important insights.
Yongmin Chen (Coloroado) Jianpei Li (UIBE) theorize on Bundled procurement.
ABSTRACT: When procuring multiple products from competing firms, a buyer may choose separate purchase, pure bundling, or mixed bundling. We show that pure bundling will generate higher buyer surplus than both separate purchase and mixed bundling, provided that trade for each good is likely to be efficient. Pure bundling is superior because it intensifies the competition between firms by reducing their cost asymmetry. Mixed bundling is inferior because it allows firms to coordinate to the high prices associated with separate purchase. (Pure) bundling is more likely to be selected as a procurement strategy when: (i) the products' values are higher relative to their possible costs, (ii) costs for different goods are more negatively or less positively dependent, or (iii) the cost distribution of each product is more dispersed.
Thursday, June 25, 2015
Discovering the Miracle of Large Numbers of Antitrust Investigations in Russia: The Role of Competition Authority Incentives
Svetlana Avdasheva (National Research University Higher School of Economics); Dina Tsytsulina (National Research University Higher School of Economics); Svetlana Golovanova (National Research University Higher School of Economics); and Yelena Sidorova (National Research University Higher School of Economics) are Discovering the Miracle of Large Numbers of Antitrust Investigations in Russia: The Role of Competition Authority Incentives.
ABSTRACT: Many antitrust investigations in Russia continue to present a challenge for the assessment of competition policy and international enforcement ratings. On the one hand, many infringement decisions may be interpreted as an indicator of high enforcement efforts in the context of rigid competition restrictions and the significant related harm to social welfare. On the other hand, many investigations proceed under poor legal and economic standards; therefore, the impact of decisions and remedies on competition is questionable. In fact, large number of investigations may indicate the ineffectiveness of antitrust enforcement. The article explains the possible effects of antitrust enforcement in Russia. Using a unique dataset of the appeals of infringement decisions from 2008-2012, we classify the investigated cases according to their potential impact on competition. A case-level analysis reveals that the majority of cases would never be investigated under an appropriate understanding of the goals of antitrust enforcement, restrictions on competition and basic cost-benefit assessments of agency activity. There are diverse explanations for the distorted structure of enforcement, including the incompleteness and imperfection of sector-specific regulations, rules concerning citizen complaints against the executive authorities and the incentives of competition authorities. Our analysis shows that competition agencies tend to pay more attention to the investigation of cases, which requires less input and, at the same time, results in infringement decisions with a lower probability of being annulled
Competition Law Scholars Forum (CLaSF) - “Competition Law Public Enforcement Across the EU” 10 September 2015
The Competition Law Scholars Forum (CLaSF) and
LUMSA University, Roma – Law School, Workshop (sponsored by Cleary Gottlieb Steen and Hamilton)
“Competition Law Public Enforcement Across the EU”
At LUMSA Law School, Via Pompeo Magno, Roma on Thursday 10 September 2015
9.20: Introduction: Prof Barry Rodger (CLaSF), Dr Roberto Cisotta (LUMSA)
9.30-11.00 Co-operation and Enforcement Networks:- Marta Ottanelli, Institute for European Studies, Vrije Universiteit, Brussels, ‘Cooperation between National competition authorities and National Regulatory Authorities- Issues of Network Interaction’; Xingyu Yan, PHD researcher, University of Groningen, ‘Institutional Dynamics in antitrust Case Allocation: A comparative analysis of the EU and China’; Fabian Luetz, PHD researcher, University of Hagen, ‘Nudging Competition Authorities- why behavioural economics should be the public enforcement’s best friend in Europe’.
11.00-11.30 Coffee break
11.30-1.15 Comparative Aspects of Public Enforcement:-
Part 1- General
Dr Jurgita Malinauskaite, ‘Brunel University, ‘Public EU competition law enforcement in small member States: past, current and future challenges’; Dr Alexander Svetlicinii, Asst Prof, University of Vienna and Dr Maciej Bernatt, Asst. Prof., University of Warsaw, ‘The assessment of the Effect in trade by the National Competition Authorities of the “New” EU Member States: Another Legal Partition of the Internal Market?’;
Part 2- Fines
Francisco Marcos, IE Law School, Madrid, Patricia Pérez Fernández, Cleary Gottlieb Steen & Hamilton LLP, Brussels, ‘A ‘Deutsch-spanisches’ dilemma: how fines for violations of competition laws should be calculated?’; Dr Mary Catherine Lucey, UCD, Dublin, ‘Convergent fining powers: Still only a pipe dream for the NCA in Ireland?’
2.45- 4.15 Review of Public Enforcement Decision-Making:- Evi Mattioli, Advocaat, CMS ‘The judicial review paradox in a new enforcement culture: still a fundamental necessity or ‘too much of a good thing’?’; Dr Maciej Bernatt, Asst. Prof, University of Warsaw, ’Judicial review in EU Competition Law: Anything to Learn from US?’; Dr Arianna Andreangeli, Edinburgh University, ‘EU public enforcement of competition law and the accession to the ECHR: unfinished business or testing ground?’
4.15-4.30 Coffee Break
4.30- 5.30 Leniency and Enforcement:- Prof Miguel Sousa Ferro, University of Lisbon Law School and Evelyne Ameye, Evelyne Ameye Legal Services, ‘Leniency in the Iberian Peninsula: Two worlds Apart’; Lena Boucon, PHD researcher, EUI, ‘The Impact of Directive 2014/104/EU on EU national leniency programs analysed from a comparative analysis perspective: creation of uncertainty, deterrence or complementarity?’
5.30-5.45 Overview by Mario Siragusa, Cleary Gottlieb Steen and Hamilton, Rome, Brussels - College of Europe
5.45 Closing remarks, followed by post-workshop drinks and dinner
GAUTIER, Axel (Université catholique de Louvain, CORE, Belgium) and PETIT, Nicolas (University of Liege) discuss Optimal enforcement of competition policy: the commitments procedure under uncertainty.
ABSTRACT: Since the introduction of a formal commitments procedure in EU antitrust policy (Article 9 of Council Regulation 1/2003), the European Commission has extensively settled cases of alleged anticompetitive practices. In this paper, we use a formal model of law enforcement (Bebchuk, 1984; Shavell, 1988) to identify the optimal procedure to resolve cases in a context of uncertainty related to the law (L-uncertainty) and to the facts (F-uncertainty). We show that commitments are suboptimal when L-uncertainty is important. Furthermore, the generalized use of commitments creates an additional risk of under-enforcement when F-uncertainty is significant.
Zhiqi Chen (Department of Economics, Carleton University); Subhadip Ghosh (Grant MacEwan University); and Thomas W. Ross (Sauder School of Business, University of British Columbia) explore Denying Leniency to Cartel Instigators: Costs and Benefits.
ABSTRACT: A large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price-fixers. This paper studies a feature of some of these programs that has received relatively little attention in the literature: the inclusion of “No Immunity for Instigators Clauses” (NIICs). These provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders. Our results show that NIICs can lead to increased or decreased levels of cartel conduct. By removing the instigator’s benefit from cooperating with the authorities, a NIIC undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability. On the other hand, the instigator faces an asymmetrically severe punishment under a NIIC and this can reduce the incentive to instigate in! the first place.