Tuesday, October 20, 2015

Vertical integration and accommodation effects under Cournot competition

Christos Constantatos (Department of Economics, University of Macedonia) and Ioannis Pinopoulos (Department of Economics, University of Macedonia) study Vertical integration and accommodation effects under Cournot competition.

ABSTRACT: We consider a two-tier industry where a vertically integrated firm sells input to, and competes against a downstream rival. We show that when the upstream division of the integrated firm uses a two-part tariff contract, the downstream division will behave less agressively despite common presumption that Cournot conjectures preclude such behavior. By limiting its quantity, the downstream division increases rival's profits that can be recouped by the upstream division via a fixed fee. This ac- commodation effect allows the integrated firm to achieve full decisions-coordination between its divisions, and Stackelberg-leader profits, even though downstream decisions are taken simultaneously.

October 20, 2015 | Permalink | Comments (0)

Network Effects and Switching Costs in the US Wireless Industry

Stefan Weiergraber analyzes Network Effects and Switching Costs in the US Wireless Industry.

ABSTRACT: I develop an empirical framework to disentangle different sources of consumer inertia in the US wireless industry. The use of a detailed data set allows me to identify preference heterogeneity from consumer type-specific market shares and switching costs from churn rates. Identification of a localized network effect comes from comparing the dynamics of distinct local markets. The central condition for identification is that neither the characteristics defining consumer heterogeneity nor the characteristics defining reference groups are a (weak) subset of the other. Being able to separate switching costs and network effects is important as both can lead to inefficient consumer inertia, but depending on its sources policy implications may be very different. Estimates of switching costs range from US-$ 316 to US-$ 630. The willingness to pay for a 20%-point increase in an operator’s market share is on average US-$ 22 per month. My counterfactuals illustrat! e that both effects are important determinants of consumers’ price elasticities potentially translating into market power that helps large carriers in defending their dominant position.

October 20, 2015 | Permalink | Comments (0)

Monday, October 19, 2015

Assessment of Indicators of Price Discrimination on Oligopolistic Markets of Commodities of the Russian Federation

Agapova, E. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) ; Smirnova, Olga (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) ; Elagina, A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) explore Assessment of Indicators of Price Discrimination on Oligopolistic Markets of Commodities of the Russian Federation.

ABSTRACT: Analysis of the regulatory practice of price discrimination shows that in most cases the decision of antitrust authorities challenged in court and in more than 50% of cases are canceled. In addition, from 2009 to 2013 in the arbitration courts of various levels was considered 227 cases of violation of the antimonopoly legislation on sub 6 paragraph 1 of Article 10 of the Law on Protection of Competition number 135, indicating a high load on the judicial system and anti-monopoly authorities in the regulation of price discrimination . As a result of the proposed methods for the assessment of indicators proposed form of price discrimination practices of formation of commodity prices under oligopoly to form the upper limit of the price, which will reduce the price differentiation between buyers and not the associated costs for the implementation of sales. Also, to reduce the capacity to implement price discrimination suggests approaches to improve the practices of the exchange trading in commodity markets.

October 19, 2015 | Permalink | Comments (0)

Antimonopoly regulation method based on perfect price discrimination

Vadim Borokhov proposes Antimonopoly regulation method based on perfect price discrimination.

ABSTRACT: We propose a method of antimonopoly regulation in a day-ahead power market with locational marginal pricing which forms economic incentives for a producer, operating a portfolio of generating units, to submit an offer indicating its true cost and faithful values of technical parameters, entering generating units constraints. The uncertainty faced by regulator when applying the method affects neither nodal output/consumption volumes nor locational marginal prices but manifests itself in overall uplift or downlift for the market, which may be allocated among the other market players in a way preserving the price signals produced by the market.

October 19, 2015 | Permalink | Comments (0)

Full versus partial collusion among brands and private label producers

Hasnas, Irina and Wey, Christian discuss Full versus partial collusion among brands and private label producers.

ABSTRACT: We analyze the incentives to collude when brand manufacturers compete with a private label producer of inferior quality. Full collusion is easier to sustain than partial collusion from the brands perspective when horizontal differentiation is large and vertical differentiation is small. The private label firm is better off under full collusion than under partial collusion if goods are sufficiently homogenous (horizontal and/or vertical). Partial collusion could be preferred by the private label exactly when full collusion is easier to sustain. Improving the private label's quality makes full collusion more likely, either because it relaxes the brand producers' incentive constraint or because it shifts the preference of the private label firm from partial collusion to full collusion. Fully collusive behavior reveals itself through a nonnegative price effect on the brands' side caused by a quality increase of the private label good.

October 19, 2015 | Permalink | Comments (0)

Tacit Collusion in Repeated Contests with Noise

Boudreau, James W. ; Shunda, Nicholas examine Tacit Collusion in Repeated Contests with Noise.

ABSTRACT: We analyze the determinants of tacit collusion in an infinitely repeated contest with noise in the contest success function. Sustaining collusion via Nash reversion strategies is easier the more noise there is, and is more difficult the larger is the contest's prize value. An increase in the contest's number of players can make sustaining collusion either more or less difficult.

October 19, 2015 | Permalink | Comments (0)

Friday, October 16, 2015

Competing with Asking Prices

Benjamin Lester; Ludo Visschers; and Ronald Wolthoff investigate Competing with Asking Prices.

ABSTRACT: In many markets, sellers advertise their good with an asking price. This is a price at which the seller will take his good off the market and trade immediately, though it is understood that a buyer can submit an offer below the asking price and that this offer may be accepted if the seller receives no better offers. Despite their prevalence in a variety of real world markets, asking prices have received little attention in the academic literature. We construct an environment with a few simple, realistic ingredients and demonstrate that using an asking price is optimal: it is the pricing mechanism that maximizes sellers' revenues and it implements the efficient outcome in equilibrium. We provide a complete characterization of this equilibrium and use it to explore the implications of this pricing mechanism for transaction prices and allocations.

October 16, 2015 | Permalink | Comments (0)

Multi-Product Duopoly With Cross-Product Cost Interdependencies

Gary Biglaiser (University of North Carolina) and Andrei Hagiu (Harvard Business School, Strategy Unit) identify Multi-Product Duopoly With Cross-Product Cost Interdependencies.

ABSTRACT: Many multi-product firms incur a complexity fixed cost when offering different product lines in different quality tiers relative to the case when offering all products lines in the same quality tier (high or low). Such fixed costs create an interdependency between firms' choices of quality tiers across different product lines, even when demands are independent. We investigate the effects of this interdependency on equilibrium profits in a Stackelberg duopoly game. Both firms' profits are (weakly) higher when the complexity cost is infinite than when it is 0. The Stackelberg leader's profits are always (weakly) higher with a positive complexity fixed cost, but its profits can be non-monotonic in the magnitude of this cost. The Stackelberg follower's profits can be lower when the complexity fixed cost is positive than when it is equal to 0.

October 16, 2015 | Permalink | Comments (0)

The Reform of the Application of Article 102 TFEU: Mission Accomplished?

Pinar Akman, University of Leeds examines The Reform of the Application of Article 102 TFEU: Mission Accomplished?

ABSTRACT: This article examines the European Commission’s recent reform of its application of Article 102 TFEU (the prohibition of abuse of dominance). Using the Commission’s own reform documents and in particular the Guidance on enforcement priorities as the benchmark, the article investigates the post-reform decisions to establish the potential impact of the reform. Thus, the article analyses whether the application of Article 102 has indeed been reformed as a matter of fact (which in this context refers to the Commission’s decisional practice under Article 102) in line with the Commission’s aspirations and rhetoric. The study leads to several significant findings. Specifically, it finds that: the Commission has become considerably more active post-Guidance (2009-2014) in comparison to the period between the publication of DG Competition’s Discussion Paper and the publication of the Guidance (2005-2009); commitments make up half of all decisions taken in the period 2005-2014 and have quadrupled in number since the Guidance paper; there is little to no explicit use of the Guidance in the decisions taken; and, the rejection decisions are potentially the most important type of enforcement in which the effects of any modernisation of the approach to Article 102 can be observed.

October 16, 2015 | Permalink | Comments (0)

Thursday, October 15, 2015

Drug Wars: A New Generation of Generic Pharmaceutical Delay

Robin Feldman, University of California Hastings College of the Law and Evan Frondorf, University of California Hastings College of the Law discuss Drug Wars: A New Generation of Generic Pharmaceutical Delay.

ABSTRACT: Thirty years ago, Congress ushered in a new and miraculous era in medicine, with the creation of the Hatch-Waxman system for approval of generic drugs. The progress, however, has not been without resistance. Our paper presents an overview of three generations of games pharmaceutical companies play to keep generics off the market and maintain monopoly pricing. In “Generation 1.0,” branded companies simply paid generics to delay entering the market, reaping billions of dollars of benefit. “Generation 2.0” involves paying for delay through multiple side deals that camouflage the value of the payment. Generation 2.0 also includes what we call “boy scout clauses” — agreements to behave honorably that actually mask anticompetitive collusion. The newest generation, however, moves from collusion to obstruction. Generation 3.0 uses administrative processes, regulatory schemes, and drug modifications to prevent generics from getting to market. Society, however, cannot blame companies for engaging in behavior that is strongly in their economic self-interest. One cannot expect mice to run in the appropriate direction if the cheese is located at the other end.  Thus, our goal in this paper is two-fold: first, to shine light on the complex behaviors as they are unfolding and second, to explore the contours of how new approaches could be structured. To paraphrase one former FDA commissioner, we do not want the most creative activity at pharmaceutical companies to take place in the legal department. And after 30 years of experience with Hatch-Waxman, it is time for the next phase.

October 15, 2015 | Permalink | Comments (0)

Asian Competition Forum 11th Annual Conference, 30th November - 1st December 2015, Hong Kong Polytechnic University

Asian Competition Forum 11th Annual Conference

Asian Competition Forum 11th Annual Conference The 11th Annual Asian Competition Forum 30th November - 1st December 2015 Hong Kong Polytechnic University

Due Process and Transparency in Competition Law in Asia

This year's ACF conference will look closely at issues of due process and transparency across competition regimes, a topic of substantial interest worldwide.

The Hong Kong Competition Ordinance coming into effect shortly after the conference takes place and, in addition, the recent passing of the Philippine Competition Act naturally raises questions as to due process and transparency in competition regulation in the Asian region. Furthermore, the business sector has consistently raised its concerns as to regulatory transparency in competition law. We will explore these issues and more at this year's conference with a range of distinguished speakers including legal practitioners, economic experts and competition academics.

This year ACF is delighted to announce that The Honourable Chief Justice Robert Shenton French of the High Court of Australia will be our keynote speaker, drawing on his longstanding expertise to provide us with insight into the role of courts in competition law.

Registrations for speakers and delegates remain open. I hope that you will consider attending the conference and I look forward to hearing from you soon.

October 15, 2015 | Permalink | Comments (0)

The Rise and Fall of Cartels with Multi-Market Colluders

Jun Zhou, Zhejiang Wanli University; Tilburg Law and Economics Center (TILEC) explores The Rise and Fall of Cartels with Multi-Market Colluders.

ABSTRACT: The majority of cartels discovered by the European Commission (EC) over the last 30 years involved firms that engaged in collusion in more than one product. I investigate the impacts of the EC’s cartel enforcement on the hazards that firms join and leave cartels in multiple products. I estimate discrete-time recurrent event hazard models for a set of 126 multi-product colluders prosecuted between 1985 and 2014. EC investigations in a market decrease the rate at which the cartel members join new cartels and increases the rate at which they leave cartels in other markets. My results shed light on enforcement efforts against cartels and other forms of organized crime.

October 15, 2015 | Permalink | Comments (0)

CPI Antitrust Chronicle OCT-15(1) Autumn 2015, Volume 10 Number 1 What's New at the IP and Antitrust Crossroad

The intersection of antitrust and intellectual property continues to be tricky to navigate. Several competition authorities (Canada, Japan, Korea) have issued new approaches while other countries (India) have begun to look at case law. This week we're going to look at some of these trends; in our next issue we're going to burrow deeper and analyze a significant case in Europe, the Huawei decision. Welcome back to the land of acronyms, trolls, sticky patents, holdups, and much more. 

What's New at the IP and Antitrust Crossroad
  1. Douglas Ginsburg, Koren Wong-Ervin, Joshua Wright, Oct 14, 2015

    The Troubling Use of Antitrust to Regulate FRAND Licensing

      These new rules are premised upon the mistaken belief that holdup is both frequent and results in significant consumer harm. Douglas H. Ginsburg, Koren W. Wong-Ervin, & Joshua D. Wright (George Mason University School of Law)

      • Lisa Kimmel, Oct 14, 2015

        Injunctive Relief for Infringement of FRAND-Assured Standard-Essential Patents: Japan and Canada Propose New Antitrust Guidance

          Regulators across the globe should ensure that any antitrust restrictions that constrain the ability of SEP owners to enforce their rights be grounded in a case-specific analysis of competitive effects. Lisa Kimmel (Crowell & Moring)

          • Anita Banicevic, Mark Katz, Oct 14, 2015

            Canada’s Updated Draft Intellectual Property Enforcement Guidelines and the Pharmaceutical Industry

              The draft IPEGs reflect a significant (and helpful) departure from the previously suggested approach of applying the criminal conspiracy provisions to such settlements in a potentially broad manner. Anita Banicevic & Mark Katz  (Davies Ward)

              • David Rosner, Oct 14, 2015

                Canada’s New Intellectual Property Enforcement Guidelines—New Rules for SEPs in Canada

                  In turn, this reduces the likelihood that the Bureau will have actual cases to investigate and bring forward in the near term. David Rosner (Blake)

                  • Samir Gandhi, Fadi Metanios, Hemangini Dadwal, Oct 14, 2015

                    Competition Law and FRAND: Developments and Challenges in India

                      The rapid development of technology-based industries and growth of the smartphone user base in India increases the likelihood of industry participants choosing India as a jurisdiction in which to challenge FRAND commitments. Samir R. Gandhi, Fadi Metanios, & Hemangini Dadwal (AZB & Partners)

                      • Arshad (Paku) Khan, Dhruv Rajain, Oct 14, 2015

                        FRAND Developments—An Indian Competition Law Perspective

                          The CCI’s prima facie orders have received mix reviews from various quarters of the Indian economy, specifically due to the observations made by the Delhi High Court on the jurisdictional issue. Arshad (Paku) Khan & Dhruv Rajain  (Khaitan & Co.)

                          • Douglas Ginsburg, Joshua Wright, Bruce Kobayashi, Koren Wong-Ervin, Oct 14, 2015

                            Digging Deeper: Supplemental Reading

                              Reprints of four comments submitted by former FTC Commissioner Joshua Wright and Judge Douglas Ginsburg, among others, regarding new IP legislation in Canada, Japan, China, and Korea.

                            October 15, 2015 | Permalink | Comments (0)

                            Searching for harm or harming search? A look at the European Commission’s antitrust investigation against Google

                            Andrea Renda, Centre for European Policy Studies is Searching for harm or harming search? A look at the European Commission’s antitrust investigation against Google.

                            ABSTRACT: As the European Commission’s antitrust investigation against Google approaches its final stages, its contours and likely outcome remain obscure and blurred by a plethora of nonantitrust- related arguments. At the same time, the initial focus on search neutrality as an antitrust principle seems to have been abandoned by the European Commission, in favour of a more standard allegation of ‘exclusionary abuse’, likely to generate anticompetitive foreclosure of Google’s rivals. This paper discusses search neutrality as an antitrust principle, and then comments on the current investigation based on publicly available information. The paper provides a critical assessment of the likely tests that will be used for the definition of the relevant product market, the criteria for the finding of dominance, the anticompetitive foreclosure test and the possible remedies that the European Commission might choose. Overall, and regardless of the outcome of the Google case, the paper argues that the current treatment of exclusionary abuses in Internet markets is in urgent need of a number of important clarifications, and has been in this condition for more than a decade. The hope is that the European Commission will resist the temptation to imbue the antitrust case with an emphasis and meaning that have nothing to do with antitrust (from industrial policy motives to privacy, copyright or media law arguments) and that, on the contrary, the Commission will devote its efforts to sharpening its understanding of dynamic competition in cyberspace, and the tools that should be applied in the analysis of these peculiar, fast-changing and often elusive settings.

                            October 15, 2015 | Permalink | Comments (0)

                            Information Exchange Through Non-Binding Advance Price Announcements: An Antitrust Analysis

                            Willem H. Boshoff, Stellenbosch University - Department of Economics, Stefan Frübing, Centre for European Economic Research (ZEW), and Kai Huschelrath, Centre for European Economic Research (ZEW) describe Information Exchange Through Non-Binding Advance Price Announcements: An Antitrust Analysis.

                            ABSTRACT: We study the welfare effects of non-binding advance price announcements. Applying a differentiated Bertrand model with horizontal products and asymmetric information, we find that such announcements can help firms to gain information on each other thereby allowing them to achieve higher profits. However, our results also show that the overall welfare effects of such announcements in a context of heterogeneous products are not as clear-cut as previous research in a homogeneous products framework has suggested. We conclude that – although non-binding advance price announcements may raise competition concerns – in many settings, their positive effects are likely to outweigh the potential detrimental effects on welfare.

                            October 15, 2015 | Permalink | Comments (0)

                            A Broader Look at Patent Royalties and Antitrust

                            Erik N. Hovenkamp, Northwestern University, offers A Broader Look at Patent Royalties and Antitrust.

                            ABSTRACT: It is well known in antitrust economics that competitors can rely on patent licensing with high royalties as a surrogate for price fixing.  This paper addresses a number of alternative situations in which patent royalty agreements may raise antitrust concerns, even if the royalty rate is ostensibly reasonable.  For example, a royalty charged to a competitor creates an "alignment effect" by giving the licensor a stake in its rival's success.  This is the same problem that arises when a firm buys stock in a competitor (a potential antitrust violation).  By aligning the firms' interests, this blunts competition and benefits both parties independently of the underlying exchange.  Thus, for example, if a firm charges a rival $5 per unit for an invention that lowers production costs by the same $5, then even the rival-licensee strictly benefits, because its net costs are unchanged, but now the market is less competitive.  More generally, the alignment effect may lead welfare to decline overall even if the royalty rate is strictly lower than the licensing value (e.g. $4), just as a merger may reduce welfare even if it produces some cost efficiencies.

                            Additionally, offsetting (i.e. reciprocal) license payments between competitors often warrant scrutiny even if each royalty appears individually reasonable.  Even under cross-licensing, offsetting payments are never necessary for the parties to reach a mutually-beneficial agreement, which is generally the relevant antitrust question.  Instead, the practical effect of offsetting royalties is to replicate a collusive agreement to restrain consumer pass-through, ensuring the firms retain more of the licensing surplus.  The results shed new light on the competitive impact of patent pools, which typically create widespread royalty offset and alignment between competing members, even if patents are complementary.

                            October 15, 2015 | Permalink | Comments (0)

                            Wednesday, October 14, 2015

                            The Ordoliberal Concept of 'Abuse' of a Dominant Position and its Impact on Article 102 TFEU

                            Peter Behrens, Europa-Kolleg Hamburg describes The Ordoliberal Concept of 'Abuse' of a Dominant Position and its Impact on Article 102 TFEU.

                            ABSTRACT: This paper explores the impact of ordoliberal thinking on the drafting of the prohibition of “abuse” of a dominant position in the market that was included in the competition rules of the Rome Treaty establishing the European Economic Community as well as on its interpretation by the Commission and the Court of Justice of the European Union (CJEU). Firstly, it is shown that the ordoliberal school must not be regarded as a set of ideas frozen in its formative period of 1933 to 1950 or 1957 when the “Freiburg School” was established but rather as an approach that has been dynamically developed and refined over the last 75 years (i.e. over four generations of ordoliberals) up to the present day by integrating important new insights without, however, giving up its core tenets and convictions. Secondly, it is shown on the basis of the preparatory work which lead in the 1950ies to the Rome Treaty that the adoption of the concept of “abuse” for the control of dominant undertakings was due to the strong influence of the German negotiating team that consisted of (in the meantime second generation) ordoliberals. Thirdly, it is explained how ordoliberal thinking about the “system of undistorted competition” and the protection of “residual competition against exclusionary practices” has influenced the application of the “abuse” concept in the jurisprudence of the Commission and the CJEU from the Continental Can case to the recent Intel case. This approach has come under attack from welfare-economic approaches which emphasize efficiency instead of competition and which have accused the ordoliberal approach of formalism, lack of sufficient economic analysis, preoccupation with fairness, protection of competitors instead of competition, obsession with interventionist regulation etc. This paper demonstrates that all of these characterizations are based on fundamental misunderstandings of what ordoliberal thinking originally meant and what it stands for today.

                            October 14, 2015 | Permalink | Comments (0)

                            Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?

                            Benjamin G. Edelman, Harvard University - HBS Negotiations, Organizations and Markets Unit and Damien Geradin, George Mason University School of Law; Tilburg University - Tilburg Law and Economics Center (TILEC) ask Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?

                            ABSTRACT: New software platforms use modern information technology, including full-featured web sites and mobile apps, to allow service providers and consumers to transact with relative ease and increased trust. These platforms provide notable benefits including reducing transaction costs, improving allocation of resources, and information and pricing efficiencies.  Yet they also raise questions of regulation, including how regulation should adapt to new services and capabilities, and how to correct market failures that may arise. We explore these challenges and suggest an updated regulatory framework that is sufficiently flexible to allow software platforms to operate and deliver their benefits, while ensuring that service providers, users and third parties are adequately protected from harms that may arise.

                            October 14, 2015 | Permalink | Comments (0)

                            Procedural Fairness in Competition Proceedings

                            Paul Nihoul, Professor, Universite catholique de Louvain, Belgium and Tadeusz Skoczny, Professor, University of Warsaw (CARS), Poland offer Procedural Fairness in Competition Proceedings.

                            BOOK ABSTRACT: How substantive competition rules are enforced plays a crucial role in achieving their goals. This thoughtful book examines procedural issues that have arisen from the increased enforcement of competition law worldwide. Such issues are reviewed by expert contributors in Europe and around the globe. Special attention is paid to certain rights including the right to be heard, the right to defence, the right to protection of business secrets and the right to judicial review. The overarching structure of the book proposes an agenda for the solution of procedural fairness within competition proceedings for the future. This astute work will be a useful point of reference for scholars, practitioners and policy makers alike, who will benefit from the critical insight into how best to attain procedural fairness in the enforcement of competition law.

                            October 14, 2015 | Permalink | Comments (0)

                            Tuesday, October 13, 2015

                            11th CRESSE Summer School & Conference 3rd CRESSE Lawyers’ Course

                            11th CRESSE Summer School & Conference             3rd CRESSE Lawyers’ Course Rhodes, 25th June - 8th July, 2016

                            The Athens University of Economics and Business (AUEB) will organise the 11th Annual Competition and Regulation European Summer School and Conference (CRESSE) and the 3rd CRESSE Lawyers’ Course in AMATHUS BEACH HOTEL in Rhodes island in Greece.
                            The CRESSE Summer School brings together many of the top European and USA economists and legal experts in Competition and Regulation, from over 25 distinguished Universities, as well as from law practices, authorities and economic consultancies (see School Faculty - Modules - Teaching Schedule). The CRESSE 2016 Summer School will take place from 25th to 8th July, 2016.
                            Fellowships from CRESSE Summer School Partners

                            The CRESSE Lawyers Course on "The Role of Economics in Competition Law and Practice" is taught by some of the foremost competition economists in the world, is targeted to lawyers, enforcers and judges working in competition law or any other field of law where the knowledge of economic theory is important. The 3rd CRESSE Lawyers’ Course  will take place from 1st to 4th July 2016.
                            The CRESSE Conference will be on "Advances in the Analysis of Competition Policy and Regulation" and will take place from 1st to 3rd of July, 2016. The CRESSE 2016 Conference Keynote Speakers will be Prof. Aviv Nevo (Northwestern University) and Prof. William Rogerson (Northwestern University). (see also Past CRESSE Keynote Speakers and Conference Programme/Papers).               

                            October 13, 2015 | Permalink | Comments (0)