Antitrust & Competition Policy Blog

Shopping Malls, Platforms and Consumer Search

Alexei Parakhonyak and Maria Titova discuss Shopping Malls, Platforms and Consumer Search.

ABSTRACT: Abstract: We consider a general model of a market for differentiated goods, in which firms are located in marketplaces: shopping malls or platforms. There are search frictions between the marketplaces, but not within them. Marketplaces differ in their size. We show that consumers prefer to start their search from the largest marketplace and continue in the descending order of their size. We show that the descending search order is the only search order which can be a part of an equilibrium for any market configuration. Despite charging lower prices, firms at larger marketplaces earn higher profits, and under free entry all firms cluster at one place. If a marketplace determines the price of entry, the equilibrium marketplace size depends negatively on search costs.

Price Competition in Product Variety Networks

Philip Ushchev (NRU-Higher School of Economics) and Yves Zenou (Monash University, Stockholm University, IFN and CEPR) discuss Price Competition in Product Variety Networks.

ABSTRACT: We develop a product-differentiated model where the product space is a network defined as a set of varieties (nodes) linked by their degrees of substitutability (edges). We also locate consumers into this network, so that the location of each consumer (node) corresponds to her “ideal” variety. We show that, even though prices need not to be strategic complements, there exists a unique Nash equilibrium in the price game among firms. Equilibrium prices are determined by both firms’ sign-alternating Bonacich centralities and the average willingness to pay across consumers. They both hinge on the network structure of the firm-product space. We also investigate how local product differentiation and the spatial discount factor affect the equilibrium prices. We show that these effects non-trivially depend on the network structure. In particular, we find that, in a star-shaped network, the firm located in the star node does not always enjoy higher monopoly power than the peripheral firms.

Vertical integration and upstream horizontal mergers

Ioannis Pinopoulos (Department of Economics, University of Macedonia) opines on Vertical integration and upstream horizontal mergers.

ABSTRACT: In this paper, we study upstream horizontal mergers in vertically related markets. A key aspect of our analysis is that one of the merging parties is a vertically integrated firm. We consider a two-tier market consisting of two competing vertical chains, with one upstream and one downstream firm in each chain. We assume that one vertical chain is vertically integrated whereas the other chain is vertically separated. We also assume that the vertically integrated chain is more cost-efficient in its downstream operations than the independent downstream firm. We show that a horizontal merger between the vertically integrated firm and the independent upstream supplier will increase the equilibrium input price and reduce both consumer and total welfare. When an upstream competitive fringe exists, however, the merger still decreases consumer surplus but it may increase total welfare. The latter finding is important since it implies that whether antitrust authorities favor a consumer or total welfare objective can lead to very different conclusions regarding the merger’s desirability.

Identifying Price-Leadership Structures in Oligopoly

Paul W. Dobson (University of East Anglia); Sang-Hyun Kim (University of East Anglia) and Hao Lan (University of East Anglia) are Identifying Price-Leadership Structures in Oligopoly.

ABSTRACT: Oligopoly can give rise to complex patterns of price interaction and price adjustment. While firms in oligopolistic markets may divide into price leaders and price followers, it is not inconceivable that some may take on dual roles, being a leader to one group but a follower to a different group. Thus who leads and who is led can be complicated and hierarchical. To help disentangle such pricing relationships, this paper develops a method to empirically identify price-leadership structures in n-firm oligopolistic markets by generalizing the duopoly method proposed by Seaton and Waterson (2013). Applying the method to UK food retailing industry, our analysis finds that it has a three-tier structure in which the two largest players (Tesco and Asda), tend to price-lead other retailers, while the other two of the Big 4 major chains (Sainsbury and Morrisons) play both follower (to the top two) and leader (to the smaller, premium/convenience positioned supermarket chains).

Market Power and Welfare in Asymmetric Divisible Good Auctions

Carolina Manzano, Universitat Rovira Virgili and Xavier Vives, University of Navarra - IESE Business School observe Market Power and Welfare in Asymmetric Divisible Good Auctions.

ABSTRACT: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we find that an increase in transaction costs and/or a decrease in the precision of a bidding group's information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group - which has more precise private information, faces lower transaction costs, and is more oligopsonistic - has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.

 

Firm Pricing with Consumer Search

Simon P. Anderson, University of Virginia - Department of Economics and Regis Renault, University of Cergy-Pontoise - THEMA analyze Firm Pricing with Consumer Search.

ABSTRACT: Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.

 

A Multi Criteria Study of Collusion Risk Factors

Andrea Ellero, Ca Foscari University of Venice - Department of Management, Paola Ferretti, Ca Foscari University of Venice - Dipartimento di Economia, and Elena Zocchia, Ca Foscari University of Venice offer A Multi Criteria Study of Collusion Risk Factors.

ABSTRACT:  Market features can be considered as forerunners of the European Commission’s actions aimed at recognizing collusive behaviours. To identify information that might support the Commission in the exercise of its role of antitrust authority we propose a multi criteria approach. Its focus is on the manufacturing sector and the aim is also to prevent undesired behaviours. Market sector features, such as price-cost margin or market entrance rate, are linked to the likelihood of a collusive behaviour in the sector in terms of “implications rules” by means of Dominance-based Rough Set Approach. Data come from institutional sources concerning different manufacturing sectors from five countries (France, Germany, Italy, Spain and United Kingdom) from 2000 to 2010.

Renata Hesse to Sullivan & Cromwell

Renata Hesse, after a successful time as head of DOJ Antitrust, is moving to Sullivan & Cromwell.  This is a big pickup for S&C, which lacked a DC antitrust insider to navigate its merger deals.

The settlement procedure in the European Commission’s cartel cases: an early evaluation

Kai Huschelrath and Ulrich Laitenberger offer The settlement procedure in the European Commission’s cartel cases: an early evaluation.

ABSTRACT: The introduction of the European Union (EU) Settlement Procedure in 2008 aimed at promoting the speed and efficiency of cartel investigations by the European Commission (EC). We use a data set consisting of 84 cartels decided by the EC from 2000 to 2014 to estimate the impact of the EU Settlement Procedure on the duration of EC cartel investigations. We find a statistically significant reduction in the duration of settled cases of about 8.7 months, suggesting that the settlement procedure has reached its primary aim. However, based on the identification and discussion of possible further impacts of the settlement procedure—particularly on the determination of fines, the operability of the leniency programme, the probability and success of appeals, follow-on private enforcement as well as overall deterrence—we conclude that further empirical analyses are necessary for a comprehensive evaluation of the overall welfare implications of the introduction of the settlement procedure in cartel cases in the EU.

 

Developing Behavioural Economics as a Practical Tool for Market Authorities: Lessons learned from the first era of behavioural case work

Benjamin J.R. Nunez has a paper on Developing Behavioural Economics as a Practical Tool for Market Authorities: Lessons learned from the first era of behavioural case work.

ABSTRACT: Market authorities in the UK now have almost a decade of collective experience in interpreting and applying the principles of behavioural economics. Those entities have sought to use insights from the field that show why consumer behaviour sometimes diverges from wealth-maximising predictions as a tool to improve their abilities to diagnose and address problematic market features. This paper reviews the first era of behaviourally-informed case work to derive a series of lessons learned that should inform future applications of the theory. This review begins with a discussion of how authorities have interpreted the findings of behavioural research to be of relevance for their strategic approach to case work. The centrepiece is a survey of recent case work in which the analysis has been driven by the application of behavioural theory. A major lesson that emerges is that behavioural research has facilitated authorities to undertake more nuanced and comprehensive examinations of possible demand-side issues. Currently, however, behavioural theory is not capable of providing robust a priori predictions for the purposes of remedy design; therefore, adequate testing of behavioural remedies is likely to prove crucial for their effectiveness.

Effectiveness of Judicial Review in the Polish Competition Law System and the Place for Judicial Deference

Maciej Bernatt University of Warsaw, discusses Effectiveness of Judicial Review in the Polish Competition Law System and the Place for Judicial Deference.

ABSTRACT: The article discusses the effectiveness and the intensity of judicial review in the Polish competition law system. First, it studies whether the judicial review offered by the 1st instance Court of Competition and Consumer Protection in Warsaw (SOKiK) is effective in practice. Next, the article analyzes whether Polish courts tend to defer to the findings of the Polish competition authority, UOKiK. Judgments of the Supreme Court concerning relevant market definition serve as case studies. Finally, the article discusses whether proceedings before the Polish competition authority ensure sufficient due process guarantees, the impartiality of decisionmakers, and the overall expert character of UOKiK’s decision-making process.On this basis the article examines whether there are grounds for the reviewing courts to defer to UOKiK’s findings. The article concludes that currently the review undertaken by SOKiK happens to be superficial and thus ineffective. At the same time, the Supreme Court’s review of the determination of the relevant market is not deferential towards UOKiK’s findings. The Supreme Court substitutes its own definition of the relevant market for that of UOKiK and that of the lower courts. However, the article shows that there are no grounds at the moment for arguing for greater judicial deference. Proceedings held before UOKiK, despite recently introduced improvements, still do not offer sufficient due process guarantees or a division between investigatory and decision-making functions. In addition, UOKiK’s expertise is not sufficient for both institutional and practical reasons.

 

U.S. / EU Antitrust Friction In The Time Of Brexit: Toward A Rosier Scenario?

Tad Lipsky (FTC) asks U.S. / EU Antitrust Friction In The Time Of Brexit: Toward A Rosier Scenario?

ABSTRACT: Although U.S. and EU antitrust rules share many elements, their historical roots are distinct and a variety of important tensions and inconsistencies persist between the two systems. Firms with operations in both jurisdictions are typically required to follow different legal advice and to operate differently in each. In many circumstances such firms can tolerate the added expense and business limitations without significant effects on their fundamental business models. Where there are important complementarities and cross-influences between U.S. and EU business conduct, however, the clash in antitrust rules can alter the fate of a business enterprise or an entire industry.

Strategic Incentives When Supplying to Rivals With an Application to Vertical Firm Structure

Serge Moresi, Charles River Associates (CRA) and Marius Schwartz, Georgetown University have a paper on Strategic Incentives When Supplying to Rivals With an Application to Vertical Firm Structure.

ABSTRACT: We consider a vertically integrated input monopolist supplying to a differentiated downstream rival. With linear input pricing, at the margin the firm unambiguously wants the rival to expand — unlike standard oligopoly with no supply relationship — for either Cournot or Bertrand competition. With a two‐part tariff for the input, the same result holds if downstream choices are strategic complements, but is reversed for Cournot with strategic substitutes. We analyze vertical delegation as one mechanism for inducing expansion or contraction by the rival/customer.

 

Competition Infringements and Procurement Blacklisting

Albert Sanchez-Graells, University of Bristol Law School has written Competition Infringements and Procurement Blacklisting.

ABSTRACT: In this article I explore the rules for the blacklisting of competition infringers under relevant EU and UK public procurement law, including their interpretation by the European Court of Justice. I also consider the practical difficulties for their enforcement by procurement professionals in the UK and suggest additional roles that the Competition and Markets Authority (CMA) and Crown Commercial Service (CCS) could have in order to facilitate their effectiveness. Finally, I also stress the existence of a trade-off between a more active enforcement of procurement blacklisting rules and the attractiveness of the CMA’s leniency policy. By way of concluding remarks, I set out a blueprint for targeted policy reform. I submit that this should include the development of mechanisms for the provision of CMA support to procurement professionals that identify indicia of bid rigging, the development of a policy on the imposition of procurement blacklisting as a sanction for competition law infringers, and the creation of a UK-wide blacklisting register operated by CCS.

 

EU Competition Law Analysis of FRAND Disputes

Nicolas Petit, U Liege offers a EU Competition Law Analysis of FRAND Disputes.

ABSTRACT: This paper describes the degree of obligation created by a FRAND commitment on the holders of a Standard Essential Patent (“SEP”) from an EU competition law perspective. It shows that the EU courts case-law does not seem supportive of the reading of FRAND as a distributional, pricing commitment. Instead, it views FRAND as a soft commitment device, designed to promote cooperation and exchange amongst independent firms. This is apparent in the Huawei v ZTE judgment, which conveys an invitation on both SEP holders and unlicensed implementers to follow basic procedural requirements in licensing talks. In addition, the paper contributes to the debate on the legal applicability of Article 102 TFEU to SEP holders other than practicing entities. Last, the paper discusses if Standard Setting Organizations (“SSOs”) ex ante specifications of FRAND terms can constrain the conduct of SEP holders under EU competition law.

 

Call for papers: 12th International Conference on Advances in the Analysis of Competition Policy and Regulation (CRESSE) June 30th to July 2nd 2017

We invite submissions of papers to the 12th International Conference on Advances in the Analysis of Competition Policy and Regulation (CRESSE) that will take place in the island of Crete, near Heraklion city (GREECE), from June 30^th to July 2^nd 2017, at the Venue Out of the Blue Capsis Elite Resort.

 

The CRESSE Scientific Committee consists of: Prof. Joseph Harrington (Business Economics and Public Policy Department, The Wharton School, University of Pennsylvania), Prof. Yannis Katsoulacos (Athens University of Economics and Business), Dr. Pierre Régibeau (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).

 

CRESSE 2017 Keynote Speakers will be:

        Prof. Louis Kaplow (Harvard Law School). Title of presentation: “Price-Fixing Policy”

        Prof Carl Shapiro (University of California at Berkeley). Title of presentation: "Antitrust in a Time of Populism"

 

Special Keynote Lawyers’ Lecturer will be:

        Prof. William Kovacic (The George Washington University Law School). Title of presentation: TBA

 

Invited Speakers will be:

        Prof. Volker Nocke (UCLA and University of Mannheim). Title of presentation: "Multiproduct-Firm Oligopoly: An Aggregative Games Approach"

    Prof. Massimo Motta (Barcelona Graduate School of Economics). Title of presentation “Investment, Innovation and Merger Assessment”

 

Other confirmed speakers include: Prof. Heski Bar-Issac, Prof. Neil Gandal, Prof. Joe Harrington, Prof. Marc Ivaldi, Prof. Frederic Jenny, Prof. Bruno Jullien, Prof. Fiona Scott Morton, Prof. Patrick Rey, Prof. Howard Shelanski, Prof. Tommaso Valletti and Prof. Frank Verboven Topics: 

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 State-Aid. Submissions by legal experts are also encouraged.

Deadline for paper submission: 1^st April, 2017 Acceptance of papers by 8^th May, 2017.  Those who wish to present should send their papers electronically to [email protected].

 

Registration:

The Conference registration fee is 400.00 euros. Conference Speakers, Discussants and PhD Students get a 50% discount. CRESSE Summer School Students may participate in the Conference free of charge.

Registration fees cover participation in the Conference, the Conference bags with the articles that will be presented, participation to the coffee breaks, the (three) Conference lunches as well as participation to the Conference dinner (Sunday July 2nd).

 

The Rule of Reason

Herb Hovenkamp, Iowa discusses The Rule of Reason.

ABSTRACT: Antitrust’s rule of reason was born out of a thirty year (1897-1927) division among Supreme Court Justices about the proper way to assess multi-firm restraints on competition. By the late 1920s the basic contours of the rule for restraints among competitors was roughly established. Antitrust policy toward vertical restraints remained much more unstable, however, largely because their effects were so poorly understood.

This article provides a litigation field guide for antitrust claims under the rule of reason – or more precisely, for situations when application of the rule of reason is likely. At the time pleadings are drafted and even up to the point of summary judgment, the parties are often uncertain whether a court will apply the rule of reason. Because the choice of rule presents a question of law, it is generally established prior to trial. The first section examines pleading and summary judgment rules, including the role of stare decisis, arguing that stare decisis should apply to a mode of analysis rather than to a specific class of restraints. Then it discusses numerous problems surrounding the burden of proof and the quality of evidence needed to shift the burden or get to a jury. I argue that the plaintiff’s burden for a prima facie case should be relatively stringent for the market power requirement, but relatively light for proof of an anticompetitive act.

I also show why a consumer welfare standard for antitrust violations is the only manageable one for evaluating practices under the rule of reason. The alternative, general welfare standard requires that all consumer losses be quantified and compared with producer efficiency gains, as well as likely effects on others. Aside from any substantive reasons for preferring a consumer welfare standard, a general welfare standard is impossible to apply in any but the most obvious cases. The consumer welfare standard queries only whether output will be higher or lower (or prices lower or higher) under the restraint. This query can be difficult enough but is nevertheless much simpler than the proof requirements for a general welfare standard. Finally, this section examines the possibility of truncated, or “quick look,” analysis as an alternative to both the rule of reason and the per se rule, arguing against recognition of any categorical “quick look.” I conclude with a brief discussion of “balancing,” and why the rule of reason’s staged set of queries is designed so that courts can avoid balancing whenever possible.

The next section considers how to identify the types of conduct to which antitrust’s rule of reason should be applied. It also examines the question of appropriate remedies, particularly when the basic features of joint activity are either unchallenged or conceded to be competitive, but a specific provision or practice threatens competition. Then it turns briefly to the special case of antitrust restraints in markets for intellectual property rights. A final section examines the market structure requirements for antitrust rule of reason cases, including vertical agreements as well as agreements that have both horizontal and vertical elements. For rule of reason cases involving collaborative conduct generally, market power requirements should be less than those for single firm conduct. The principal exception is vertical exclusionary agreements (mainly, tying and exclusive dealing), where power requirements should be equivalent to those used in monopolization cases.

John Kwoka's Mergers, Merger Control, and Remedies: A Critical Review

Michael Vita, U.S. Federal Trade Commission - Bureau of Economics and F David Osinski, Federal Trade Commission have an attack on John Kwoka's Mergers, Merger Control, and Remedies: A Critical Review.

ABSTRACT: John Kwoka’s recently published Mergers, Merger Control, and Remedies (2015) has received considerable attention from both antitrust practitioners and academics. The book features a meta-analysis of retrospective studies of consummated mergers, joint ventures, and other horizontal arrangements. Based on summary statistics derived from these studies, Kwoka concludes that domestic antitrust agencies are excessively tolerant in their merger enforcement; that merger remedies are ineffective at mitigating market power; and that merger enforcement has become increasingly lax over time. We review both his evidence and his empirical methods, and conclude that serious deficiencies in both undermine the basis for these conclusions.

Competition Soft Law in National Courts: Quo Vadis?

Zlatina Rumenova Georgieva, Tilburg Law and Economics Center ask Competition Soft Law in National Courts: Quo Vadis?

ABSTRACT: This paper is based on an empirical dataset of 103 national competition cases of EU Member States, which contain judicial reasoning on supranational, Commission-issued competition soft law. The paper enquires into the possible reasons for detected national judicial attitudes to supranational soft competition instruments – namely – endorsement, rejection, persuasion, and neglect.

In particular, the empirical data suggests that the overwhelming majority of judicial endorsement of soft law happens with regard to the so-called Guidelines on Vertical Restraints, which are also the most cited supranational competition soft instrument in the courts of the jurisdictions under observation (Germany, France, the Netherlands and the United Kingdom). A staggering 62 per cent of all judicial soft law references are references to the said guidelines. By contrast, the so-called Article 82 Guidance Paper receives the lowest amount of references – a mere 8 per cent – and is also more often than not either rejected or neglected by the national judiciaries. The other two soft instruments under observation in this study – the Guidelines on Horizontal Cooperation Agreements and the Article 81(3) Guidelines – are engaged with sparingly (they comprise 13 and 16 per cent of the total cases, respectively) and with varying success. The thus summarized results offer fruitful ground for analysis, which this paper performs in its Section 4. Several factors that could explain the above observations are therefore discussed in detail.

Firstly, it is hypothesized that observed outcomes are determined by interactions between the national and supranational (EU) level. Those interactions comprise of informational exchanges with regard to the judicial endorse-ability of said soft law instruments. With their competition judgments, the CJEU and the GC show their position on Commission-issued competition soft law and thus send a signal to the national judiciary, which – in turn – absorbs/transforms the signal and sends it back to the supranational level.

Secondly, it is hypothesized that the peculiarities of competition enforcement and – even more generally – the legal systems of each Member State under observation, influence judicial engagement with supranational soft law. The particular peculiarities examined in this study are: 1) intensity of judicial review for public enforcement cases, 2) type of court handling the case (specialized or not) for both public and private enforcement cases and 3) the existence or not of a national soft law instrument that is equivalent or identical to its supranational counterpart. All of the above-enumerated factors, it is argued, can influence the ability of national courts to engage with supranational competition soft law and/or their attitude towards it.

Exit, Tweets, and Loyalty

Joshua S. Gans, University of Toronto - Rotman School of Management; NBER, Avi Goldfarb, University of Toronto - Rotman School of Management, and Mara Lederman, University of Toronto - Rotman School of Management have a fascinating paper on Exit, Tweets, and Loyalty.

ABSTRACT: Hirschman’s Exit, Voice, and Loyalty highlights the role of “voice” in disciplining firms for low quality. We develop a formal model of voice as a relational contact between firms and consumers and show that voice is more likely to emerge in concentrated markets. We test this model using data on tweets to major U.S. airlines. We find that tweet volume increases when quality – measured by on-time performance – deteriorates, especially when the airline operates a large share of the flights in a market. We also find that airlines are more likely to respond to tweets from consumers in such markets.