Monday, October 31, 2016

Endogenous Choice of Price or Quantity Contract with Upstream R&D Investment: Linear Pricing and Two-part Tariff Contract with Bargaining

Lee, DongJoon ; Choi, Kangsik ; Nariu, Tatsuhiko offer Endogenous Choice of Price or Quantity Contract with Upstream R&D Investment: Linear Pricing and Two-part Tariff Contract with Bargaining.

ABSTRACT: We investigate the endogenous choice of strategic variable (a price or a quantity) by downstream firms in a two-tier industry in which an upstream firm performs the R&D investment. We show that when the upstream firm offers either linear discriminatory or uniform input price, it is a dominant strategy for each downstream firm to choose Bertrand competition when two products become relatively differentiated. Second, from the viewpoint of downstream firms, we show that Bertrand competition is more efficient than Cournot competition in some boundaries of Cournot equilibrium, which implies that each downstream firm faces a prisoners' dilemma under the Cournot equilibrium. However, when the downstream firms involve in centralized bargaining with an upstream firm to determine the two-part tariff discriminatory (uniform) input pricing contracts, we find that choosing price (quantity) contract is the dominant strategy for downstream firms. In this case, we fu! rther show that the level of social welfare is the same regardless of the mode of product market competition (i.e., Bertrand or Cournot).

October 31, 2016 | Permalink | Comments (0)

Patent rights, product market reforms, and innovation

Aghion, Philippe ; Howitt, Peter ; Prantl, Susanne discuss Patent rights, product market reforms, and innovation.

ABSTRACT: In this paper, we provide empirical evidence to the effect that strong patent rights may complement competition-increasing product market reforms in fostering innovation. First, we find that the product market reform induced by the large-scale internal market reform of the European Union in 1992 enhanced, on average, innovative investments in manufacturing industries of countries with strong patent rights since the pre-sample period, but not so in industries of countries with weaker patent rights. Second, the positive response to the product market reform is more pronounced in industries where, in general, innovators tend to value patent protection higher than in other industries, except for the manufacture of electrical and optical equipment. The observed complementarity between competition and patent protection can be rationalized using a Schumpeterian growth model with step-by-step innovation. In such a model, better patent protection prolongs the peri! od over which a firm that successfully escapes competition by innovating, actually enjoys higher monopoly rents from its technological upgrade.

October 31, 2016 | Permalink | Comments (0)


I hope that everyone has a festive Diwali.

Fast and Furious Star Vin Deisel wishes everyone a Happy Diwali below:



October 31, 2016 | Permalink | Comments (0)

Collusion, Customization and Transparency

Francisco Martínez Sanchez (Universidad de Alicante) explores Collusion, Customization and Transparency.

ABSTRACT: We analyze the effect of customizing a product on the ability of firms to tacitly collude on prices when some consumers are not informed about price. Following Bar-Isaac et al. (2014), we allow firms to be located inside the circle in the Salop model (1979). Our analysis shows that the e¿ect of product customization on the stability of collusion depends on the sensitivity of consumers’ utility to the degree of customization. We also obtain that collusion becomes harder to sustain when more consumers are informed about prices. From our welfare analysis, we conclude that the effects of customizing depend on the sensitivity of consumers’ utility to the degree of customization. Finally, we find that transparency has no effect on the equilibrium outcome under collusion. However, at the punishment stage, the e¿ect of transparency is positive on the consumer surplus and negative on the producer surplus. Since these two effects cancel each other out, we obtain that having more informed consumers on prices does not a¿ect welfare.

October 31, 2016 | Permalink | Comments (0)

Friday, October 28, 2016

Empirical Evidence of Drug Pricing Games - A Citizen's Pathway Gone Astray

Robin Feldman, University of California Hastings College of the Law, Evan Frondorf, University of California Hastings College of the Law, and Andrew K. Cordova University of California Hastings College of the Law offer Empirical Evidence of Drug Pricing Games - A Citizen's Pathway Gone Astray.

ABSTRACT: The FDA’s citizen petition process was created in the 1970s as part of an effort to fashion more participatory regimes, in which ordinary citizens could access the administrative process. The theoretical underpinnings hypothesize that a participatory structure will prevent regulatory agencies from being captured by the very industries they were intended to police. Anecdotal evidence suggests, however, that the FDA’s citizen petition process may have taken a different turn. This empirical study explores whether pharmaceutical companies are systematically using citizen petitions to try to delay the approval of generic competitors. Delaying generic entry of a drug — even by a few months — can be worth hundreds of millions of dollars of additional revenue, a cost ultimately born by consumers and government agencies in the form of high drug prices.

The study results provide empirical evidence that the citizen petition process at the FDA has now become a key avenue for strategic behavior by pharmaceutical companies to delay entry of generic competition It is a far cry from the “participatory citizen” notion that fueled the creation of such avenues at regulatory agencies. The article concludes by examining the nature of the problem and exploring the feasibility of three types of approaches to curb the behavior. These include:

1) a simple prohibition, if one were to conclude that most behavior in the category is likely to be inappropriate;

2) procedural blocks to ensure that the behavior cannot create sub-optimal results; or

3) punitive measures as a deterrent.

October 28, 2016 | Permalink | Comments (0)


Damien Geradin, one of the leading competition lawyers in Europe has a new blog COMPETITION LITIGATION & ARBITRATION FORUM.

October 28, 2016 | Permalink | Comments (0)

12th CRESSE Conference on Advances in the Analysis of Competition Policy and Regulation - Friday 30th June – Sunday 2nd July 2017



   12th CRESSE Conference on Advances in the Analysis of Competition Policy and Regulation

Friday 30th June – Sunday 2nd July 2017

   12th CRESSE Summer School on Competition Policy and Regulation

Saturday 24th June – Thursday 6th July 2017

   4th CRESSE Lawyers’ Course on The Role of Economics in Competition Law and Practice

Friday 30th June – Monday 3rd July 2017


Venue: Out of the Blue Capsis Elite Resort

Heraklion-Crete, Greece



We are happy to announce the organization of the upcoming CRESSE 2017 event that will take place in the Out of the Blue Capsis Elite Resort in Heraklion-Crete in Greece.


CRESSE has established itself as the top academic summer event in the areas of Competition and Regulation Policy in Europe. The CRESSE Scientific Committee is composed of Prof. Joseph Harrington (the Wharton School, Univerity of Pennsylvania), Prof. Yannis Katsoulacos (Athens University of Economics and Business) who acts as a Coordinator and is responsible for day to day management, Prof. Pierre Regibeau (Vice-President Charles River Associates), Prof. Patrick Rey (Toulouse School of Economics), Prof. Thomas Ross (Sauder School of Business, University of British Columbia) and Prof. David Ulph (University of St. Andrews).

   12th CRESSE Summer School on Competition Policy and Regulation

Saturday 24th June – Thursday 06th July 2017

The Summer School is organized for 12th consecutive year and is designed for professionals working in the wider areas of Competition Policy and Network Industry Regulation. The School provides a comprehensive account of the most up to date developments in economic theory, empirical analysis, legislation and policy in the areas of Competition and Regulation. Participants of the Summer School join a vibrant community of motivated students from all over the world and a distinguished international faculty. The Contents are organised in 9 self-contained Modulesof up to 16 hours duration each. Particular emphasis is placed on the presentation and discussion of Case Studies.

   4th CRESSE Lawyers’ Course on The Role of Economics in Competition Law and Practice

Friday 30th June – Monday 3rd July 2017

The Lawyers’ Course is organized for 4th consecutive year and is targeted to lawyers practicing in competition law as counsels, enforcers or judges or in another field of law in which knowledge of economics is helpful. The course is taught by some of the foremost competition economists in the world. It covers both an introduction to microeconomics, game theory and industrial organization theory, as well as, all the areas in the application of economics to competition policy. The Course is organized in 15 sessions of 2 academic hours each.

   12th CRESSE Conference on Advance in the Analysis of Competition Policy and Regulation

Friday 30th June – Sunday 2nd July 2017

The CRESSE Conference is organized together with the Summer School for 12 consecutive years and brings together many of the top European and USA economists and legal experts in Competition and Regulation.


CRESSE 2017 Keynote Speakers will be:

 Prof. Louis Kaplow (Harvard Law School)

 Prof Carl Shapiro (University of California at Berkeley)

Special Keynote Lawyers’ Lecture:

 Prof. William Kovacic (The George Washington University Law School)

We welcome submissions of theoretical, policy oriented or empirical papers related to any one of the main aspects of Competition Policy (dominance, collusion or mergers) or Sectoral Regulation or to issues of policy implementation, enforcement and Stade-Aid.
Submissions by legal experts are also encouraged.

Deadline for paper submission: 1st April, 2017.
Acceptance of papers by 08th May, 2017
Those who wish to present should send their papers electronically to [email protected]

Please find attached the Summer School and Conference Synopsis and the CRESS Lawyers Course Synopsis.

Application/Registration forms can be found here.


***IMPORTANT NOTE: CRESSE negotiates special room charges at the CRESSE Venue and a number of alternative nearby hotels. For more information regarding your accommodation arrangements please see link Accommodation (that is regularly updated) and book your room as soon as possible as early July is an extremely high touristic period for Crete.


For all further information on the CRESSE 2017 Event please access the CRESSE Website at or contact:

Ms. Eleni Metsiou

Athens University of Economics and Business

tel. +30 210 8203348

fax +30 210 8223259

E-mail: [email protected], [email protected]


*Please forward this Announcement to anyone you think might be interested.

*Please accept our sincere apologies for any crossed e-mail.

Platinum Sponsors

(alphabetical order)




Gold Sponsor



October 28, 2016 | Permalink | Comments (0)

The Impact of Economic Efficiency on Employment: A Case Study of Mergers & Acquisitions

Anca D. Chirita Durham University, Durham Law School analyzes The Impact of Economic Efficiency on Employment: A Case Study of Mergers & Acquisitions.

ABSTRACT: This paper seeks to challenge the present rhetoric used by competition policy makers and enforcers when advancing economic efficiency as a goal of competition policy. The fixation on the promotion of economic efficiency and intense or fierce competition comes at the expense of other sensible social values, such as job creation. This trend of modern competition policy is based on a reductionist assumption about how markets work in practice.

A dogmatic application of competition policy serving economic calculus, rather than the social order, has silently ignored the negative impact of competition on wages and employment. Over the past many years of successful enforcement of competition laws, no attempts have been made to reverse the negative social impact that has been inflicted by fierce and aggressive forms of competition.

By revisiting the classical price and wage efficiency theoretic assumptions, this paper challenges the use of the ‘efficiency’ benchmark at both micro- (industrial organization) and macroeconomic levels. The case study of mergers and acquisitions (M&A) across several sectors of the economy will be used to demonstrate how internal growth and merger-specific efficiencies – some of which include the elimination of labour costs - affect wage efficiency and employment prospects. While 6.5% out of 3.7 million jobs losses as a result of M&A activity during a four-year period does not seem to have created a major macroeconomic imbalance, a closer look at recent M&A trends during 2013-2016 demonstrates that, indeed, job losses far outweigh the balance of job creation, i.e. one newly created job for every 40 job cuts.

This paper challenges the well-established assumption that ‘new jobs replace old jobs’ following a successful merger. This false assumption is basically at odds with the fact that the majority of European Union mergers are approved, even if subject to conditions, leaving an insignificant percentage of mergers blocked since 1990 (24 or 0.3%).

October 28, 2016 | Permalink | Comments (0)

The Post-Internet Order Broadband Sector: Lessons from the Pre-Open Internet Order Experience

Tim Brennan, University of Maryland, Baltimore County - Department of Public Policy; Resources for the Future describes The Post-Internet Order Broadband Sector: Lessons from the Pre-Open Internet Order Experience.

ABSTRACT: A significant component of the contentious debate over the Federal Communications Commission’s (FCC) 2015 Open Internet Order (OI 2015) has been its effects on future broadband investment and the development of Internet content and other applications. Although such debate can advance understanding of the potential consequences of the OI 2015, much of it, albeit informed by economics, is of necessity speculative. It may be useful to see how experience up to OI 2015 might be informative. That experience is notably thin, with the FCC citing two to four instances in ten years that would have violated OI 2015. After explaining why the OI 2015 order and its predecessor may be largely non-binding, we look at the four examples for lessons in what kinds of behavior OI 2015 might prevent. This experience suggests that non-economic concerns should have been more explicit in OI 2015.



October 28, 2016 | Permalink | Comments (0)

Thursday, October 27, 2016

A Unifying Analytical Framework for Loyalty Rebates

Fiona M. Scott Morton, Yale School of Management; National Bureau of Economic Research (NBER) and Zachary G Abrahamson, Yale University - Law School offer A Unifying Analytical Framework for Loyalty Rebates.

ABSTRACT: This article asserts and operationalizes the principle that demand contestability determines the competitive effects of loyalty rebates. We urge antitrust courts and enforcers to recognize the construction of a loyalty rebate contract as an act with competitive consequences. These consequences turn on the interaction of three important features of the contract: the discount, the threshold, and the contestable share, all of which are chosen by the incumbent firm. Our analysis shows that the impact on competition is unlikely to be found by applying existing marginal cost rubrics.

In place of the fractured analogical reasoning that characterizes American discounting doctrine today, we simplify by using the characteristics of a loyalty rebate contract to calculate one metric - the penalty imposed on the entrant by the rebate contract. Specifically, we measure how much the entrant must lower price on its own units – the burden it faces – in order to fully counteract the financial incentives the rebate contract creates for customers. This “effective entrant burden” measures the extent to which the dominant firm leverages its non-contestable assets into anti-competitive exclusion. The size of this penalty, we assert, makes sense of the divergent holdings of courts confronted with loyalty rebate disputes.

October 27, 2016 | Permalink | Comments (0)

Regulating Patent Assertions

Paul R. Gugliuzza, Boston University School of Law is Regulating Patent Assertions.

ABSTRACT: Recent years have seen a proliferation of statutes regulating and lawsuits challenging patent enforcement conduct. The Federal Circuit, however, has held that acts of patent enforcement are illegal only if there is clear and convincing evidence both that the patent holder’s infringement allegations were objectively baseless and that the patent holder knew or should have known its allegations were baseless. This chapter summarizes recent efforts by state governments and the federal government to control patent enforcement behavior, questions the broad immunity the Federal Circuit has conferred on patent holders, and seeks to improve pending federal legislation governing patent enforcement.

In the past three years, the Supreme Court has twice overturned Federal Circuit case law embracing objective/subjective tests similar to the court’s immunity rule. A more flexible standard, focused on the patent holder’s good faith or bad faith, would not only accommodate the Supreme Court’s disdain for rigid rules in patent law, it would accord with a century of well-reasoned regional circuit and district court case law that the Federal Circuit has ignored. More importantly, a good-faith standard would allow courts to condemn the deceptive tactics lately deployed by so-called bottom feeder patent trolls while still respecting patent holders’ rights to make legitimate allegations of infringement.

Although pending federal legislation to regulate patent demand letters would rely heavily on the Federal Trade Commission for implementation, this chapter sketches a regulatory model that emphasizes the comparative advantages of both state governments and the federal government. The federal government’s strengths include Congress’s ability to provide a uniform legal standard governing demand letters and to clarify questions of personal and subject matter jurisdiction that arise in cases challenging patent enforcement conduct. By contrast, state governments, as well as private parties, have a superior ability to identify deceptive patent assertions and to pursue lawsuits against patent holders who violate the law. A model of cooperative federalism, grounded in these functional considerations, would deter and punish overzealous patent enforcement with minimal uncertainty about what, exactly, the law prohibits.

October 27, 2016 | Permalink | Comments (0)

Profitable Competition

Kentaro Inomata, Competition Policy, Japan Fair Trade Commission examines Profitable Competition.

ABSTRACT: This paper investigates the profitability of a decrease in the degree of product differentiation in vertical relations. We consider the multiproduct duopoly model with vertical relations and obtain three results in both Cournot and Bertrand: i) if each downstream firm procures multiple products from independent upstream firms, both downstream firms may increase profits from a decrease in the degree of product differentiation due to the larger amount of alleviation of double marginalization than the single-product firm case. Also, ii) upstream firms can increase their profits as the degree of product differentiation decreases when they take place intra-brand mergers. In that case, the welfare level is lower when upstream competition exists than when there is no competitor. Finally, iii) an efficient firm loses its benefit as the degree of product differentiation decreases while the inefficient firm may increase its profit. It contrasts with Zanchettin (2006).



October 27, 2016 | Permalink | Comments (0)

Competition in the Fixed Telecommunication Market Segment: Challenges and Theories

Ines Ben Dkhil describes Competition in the Fixed Telecommunication Market Segment: Challenges and Theories.

ABSTRACT: The persistence of the market power in the fixed telecommunication markets in both developed and developing economies is due to the technical and economic features of this industry. This paper provides an overview of these characteristics and changes. It also suggests a comparative critical survey of the access pricing theories that are “the key” to the transition to the competition in the fixed telecommunication segment. Through this overview, we aim to underline among that the central role that the regulation should play to ensure the establishment of sustainable competition in the fixed telecommunication markets.

October 27, 2016 | Permalink | Comments (0)

Wednesday, October 26, 2016

Collusive Upward Gasoline Price Movements in Medium-Sized German Cities

Arne Neukirch (Leuphana University Lueneburg, Germany) and Thomas Wein (Leuphana University Lueneburg, Germany) study Collusive Upward Gasoline Price Movements in Medium-Sized German Cities.

ABSTRACT: Do we have effective competition between the gasoline's big five oligopolists (Aral, Shell, Esso, Total and Jet) and fringe gasoline stations? Using 2014 Market Transparency price data from 66 cities with populations between 60,000 and 100,000, we analyze which brands lead price increases, the first average price mark-up in the evening, and the trend on price increases until midnight. Furthermore, we measure the response time it takes for competitors to react to these price increases, and how much prices change from the beginning to the end of a day. By watching local activities of the big brands, it is possible to measure how smaller businesses, such as Jet or independent retailers, react to Aral's and Shell's price changes. Multivariate estimations allows to control for gasoline type (regular or diesel), school holidays, weekends, weekdays, location -such as East or West Germany-, wholesale and starting prices. Descriptive results show the typical patte! rns. Aral (or Shell) will start a price increase round, and then Shell (or Aral) will more or less immediately follow. Total, Esso and Non-Oligopolists react within one or two hours. Jet behaves more as an "outsider" with later reaction times and lower price mark-ups. Multivariate estimation indicates that the single cause "price change by competitors" is less important and nearly irrelevant for Jet.

October 26, 2016 | Permalink | Comments (0)

Collusion Along the Learning Curve: Theory and Evidence from the Semiconductor Industry

Danial Asmat (Antitrust Division, U.S. Department of Justice) has an interesting paper on Collusion Along the Learning Curve: Theory and Evidence from the Semiconductor Industry.

ABSTRACT: This paper formulates a theory of collusion with learning-by-doing and multiproduct competition and tests it with data from an explicit cartel. The model shows that collusion is harder to sustain on a new product generation, where learning is high, than an old generation, where learning is low. Collusion on the old generation shifts demand toward the new generation, raising its output. Empirical analysis exploits variation between cartelization and competition in the DRAM market to identify counterfactual quantities and prices. Consistent with the model, cartel firms cut output of older generations by up to 50% and increased output of newer generations manifold.

October 26, 2016 | Permalink | Comments (0)

Optimal Completeness of Property Rights on Renewable Resources in Presence of Market Power

Alexandre Croutzet and Pierre Lasserre discuss Optimal Completeness of Property Rights on Renewable Resources in Presence of Market Power.

ABSTRACT: There are many instances where property rights are imperfectly defined, incomplete, or imperfectly enforced. The purpose of this normative paper is to address the following question: are there conditions under which partial property rights are economically efficient in a renewable resource economy? To address this question, we treat the level of completeness of property rights as a continuous variable in a renewable resource economy. By design, property rights restrict access to the resource, so that they may allow a limited number of firms to exercise market power. We show that there exists a level of property rights completeness that leads to first-best resource exploitation; this level is different from either absent or complete property rights. Complete rights are neither necessary nor sufficient for efficiency in presence of market power. We derive an analytic expression for the optimal level of property rights completeness and discuss its policy rel! evance and information requirements. The optimal level depends on i) the number of firms; ii) the elasticity of input productivity and iii) the price elasticity of market demand. We also find that a greater difference between the respective values of input and output requires stronger property rights. In fact, high profits both imply a severe potential commons problem and may be the expression of market power; strong property rights limit the commons problem; their incompleteness offsets market power. Biology also impacts the optimal quality of property rights: when the stock of resource is more sensitive to harvesting efforts, optimal property rights need to be more complete.

October 26, 2016 | Permalink | Comments (0)

On the optimality of bank competition policy

Ioannis G. Samantas (University of Athens) provides thoughts On the optimality of bank competition policy.

ABSTRACT: This study examines whether the effect of market structure on financial stability is persistent, subject to current regulation and supervision policies. Extreme Bounds Analysis (EBA) is employed over a sample of 2450 banks operating within the EU-27 during the period 2003-2010. The results show an inverse U-shaped association between market power and soundness and a stabilizing tendency in markets of less concentration, where policies lean towards limited restrictions on non-interest income, official intervention in bank management and book transparency. Regulation significantly contributes as a stability channel through which bank competition policy is optimally designed.

October 26, 2016 | Permalink | Comments (0)

Tuesday, October 25, 2016

Communication in vertical markets: Experimental evidence

Mollers, Claudia; Normann, Hans-Theo; and Snyder, Christopher M. identify Communication in vertical markets: Experimental evidence.

ABSTRACT:  When an upstream monopolist supplies several competing downstreamfirms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash-in-Nash bargaining fits the pattern of shifting surpluses well. Using third-party coders, unsupervised text mining, among other approaches, we uncover features of the rich chat data that are correlated with market ou! tcomes. We conclude with a discussion of the antitrust implications of open communication in vertical markets.

October 25, 2016 | Permalink | Comments (0)

Threat of Entry and Debt Maturity: Evidence from Airlines

Gianpaolo Parise, Bank for International Settlements discusses the Threat of Entry and Debt Maturity: Evidence from Airlines.

ABSTRACT: I explore the effect of the threat posed by low-cost competitors on debt structure in the airline industry. I use the route network expansion of low-cost airlines to identify routes where the probability of future entry increases dramatically. I find that when a large portion of their market is threatened, incumbents significantly increases debt maturity before entry occurs. Overall, the main findings suggest that airlines respond to entry threats trading off the benefits of short-term financing for lower rollover risk. The results are consistent with models in which firms set their optimal debt structure in the presence of costly rollover failure.



October 25, 2016 | Permalink | Comments (0)

Consumer Demand with Unobserved Stockpiling and Intertemporal Price Discrimination

Thierry Magnac (Toulouse School of Economics) and Pierre Dubois (Toulouse School of Economics) theorize about Consumer Demand with Unobserved Stockpiling and Intertemporal Price Discrimination.

ABSTRACT:We construct a tractable structural dynamic model of consumption, purchase and stocks by consumers for whom stockpiling is unobserved and for whom preferences are isolastic and affected by independent and identically distributed shocks. Consumers purchase in stores which they meet randomly and which are supposed to maximize short run profits. We show that a two-price mixed strategy by stores satisfies conditions for an equilibrium in which consumers and stores coordinate their expectations on this stationary solution. We derive a simple and tractable estimation method using log linearized demand equations and equilibrium conditions. We estimate parameters using scanner data registering soda purchases by French consumers during 2005-2007.

October 25, 2016 | Permalink | Comments (0)