Antitrust & Competition Policy Blog

Assistant Attorney General Makan Delrahim Delivers Remarks at Naturalization Ceremony in Washington, D.C. ~ Friday, September 28, 2018

Assistant Attorney General Makan Delrahim Delivers Remarks at Naturalization Ceremony in Washington, D.C.  Read the speech here.

I like the speech a lot.  Makan discussed his immigrant experience.  I was moved and I can relate.  I was naturalized on April 12, 1994 (before I met my wife, so I married for love).  My swearing-in as an American citizen is one of those special dates for me that rank along with my wedding, the births of our children and my bar mitzvah as the most important days of my life.

Of course Collusion Should be Prosecuted. But Maybe... Or (The case for international antitrust agreements)

Filomena Garcia (Indiana University, & UECE); Jose Manuel Paz y Minõ (Indiana University); Gustavo Torrens (Indiana University) have written on Of course Collusion Should be Prosecuted. But Maybe... Or (The case for international antitrust agreements).

ABSTRACT: We study the incentives of competition authorities to prosecute collusive practices of domestic and foreign firms. For that purpose, we develop a model of multi-market contact between two firms that can engage in collusion in two countries. In each country, there is a competition authority with a mandate to maximize national welfare. Each competition authority decides its prosecution policy at the beginning of time and commits to it. In equilibrium, the ownership distribution of the firms (domestic versus foreign) affects prosecution policies. The country that does not own the firms prosecutes them as soon as information of collusion becomes available. On the contrary, the country that owns the firms has an incentive to protect their profits in foreign markets delaying prosecution. This strategic delay is valuable because it contains the information spreading that could trigger prosecution in the foreign country. Prosecution delays, however, are not optimal from the point of view of global welfare, something that could be solved through the integration of the competition authorities. The country of origin of the firms would nevertheless oppose integration. Finally, in a multi-industry setting, both countries delay prosecuting domestic firms, which again is not optimal from the point of view of global welfare. Moreover, in a multi-industry setting, both countries can be better off under integration.

Pricing of Complements in the U.S. freight railroads: Cournot versus Coase

Alexandrov, Alexei; Pittman, Russell; Ukhaneva, Olga explore Pricing of Complements in the U.S. freight railroads: Cournot versus Coase.

ABSTRACT: Monopolists selling complementary products charge a higher price in a static equilibrium than a single multiproduct monopolist would, reducing both the industry profits and consumer surplus. However, firms could instead reach a Pareto improvement by lowering prices to the single monopolist level. We analyze administrative nationally-representative pricing data of railroad coal shipping in the U.S. We compare a coal producer that needs to ship from A to C, with the route passing through B, in two cases: (1) the same railroad owning AB and BC and (2) different railroads owning AB and BC. We do not find that price in case (2) is higher than price in case (1), suggesting that the complementary monopolist pricing inefficiency is absent in this market. For our main analysis, we use a specification consistent with the previous literature; however, our findings are robust to propensity score blocking and machine learning algorithms. Finally, we perform a difference-in-differences analysis to gauge the impact of a merger that made two routes wholly-owned (switched from case 2 to case 1), and these results are also consistent with our main findings. Our results have implications for vertical mergers, tragedy of the anticommons, mergers of firms selling complements, and royalty stacking and patent thickets.

Georgetown University Law Center Honors Former FTC Chair Robert Pitofsky, Arnold & Porter's Bill Baer Delivers Tribute

From the press release:

On September 13, 2018, Georgetown University Law Center hosted a luncheon in honor of former Federal Trade Commission (FTC) Chair Robert Pitofskyduring the FTC's Hearings on Competition and Consumer Protection in the 21st Century. During the event, Arnold & Porter Antitrust partner Bill Baer, DOJ's Former Antitrust Head and Acting Associate Attorney General, delivered a tribute to Pitofsky. Pitofsky became the FTC chair in 1995, and Baer served as Director of the Bureau of Competition at the FTC from 1995 to 1999.

Baer's remarks highlighted Pitofsky's role in encouraging the FTC to tackle the consumer protection and antitrust challenges of a global and increasingly high-tech economy. The 1995 Global Competition and Innovation Hearings, known as the "Pitofsky Hearings," brought together scholars, practitioners, consumer representatives, and the business community. The resulting seminal report helped shape FTC consumer protection and competition enforcement for the last 23 years.

» Read the full remarks.

The Application of Article 102 TFEU by the European Commission and the European Courts

Romano Subiotto QC David R Little and Romi Lepetska describe The Application of Article 102 TFEU by the European Commission and the European Courts.

ABSTRACT: The Commission has continued to enforce Article 102 TFEU actively. In 2017, the Commission conducted four unannounced inspections in relation to possible Article 102 infringements. The Commission has opened two formal investigations, and issued one SO. Three investigations in which the Commission issued a Statement of Objections (‘SO’) in 2016 remained open at the end of 2017.⁴ The Commission’s high-profile investigations into Gazprom and Qualcomm were also ongoing at the end of 2017.

Crossing challenging waters: a time of transition

Matthew Boswell of the Canadian Competition Bureau gave a speech Crossing challenging waters: a time of transition at the CBA Competition Law Fall Conference on
September 27, 2018.  I think highly of the Bureau - both its leadership and staff.  Much like Canada overall, it punches above its weight globally. For the Bureau, it specifically means impact in terms of the small size of the Bureau to the outsized positive impact it has for Canadian consumers.   The Bureau is also a global leader in the global competition community.  I hope to see more global leadership in areas both dealing with procedural fairness and substantive issues.

Measuring the Welfare of Intermediation in Vertical Markets

Javier D. Donna (The Ohio State University); Pedro Pereira; Tiago Pires (Department of Economics, University of North Carolina); André Trindade (FGV EPGE Brazilian School of Economics and Finance) are Measuring the Welfare of Intermediation in Vertical Markets.

ABSTRACT: We empirically investigate the welfare implications of intermediaries in oligopolistic markets, where intermediaries offer additional services to differentiate their products from the ones of the manufacturers. Our identification strategy exploits the unique circumstance that, in the outdoors advertising industry, there are two distribution channels: consumers can purchase the product either directly from manufacturers, or through intermediaries. We specify a differentiated products’ equilibrium model, and estimate it using product-level data for the whole industry. On the demand side, the model includes consumers who engage in costly search with preferences that are specific to the distribution channel. On the supply side, the model includes two competing distribution channels. One features two layers of activity, where manufacturers and intermediaries bargain over wholesale prices, and intermediaries compete on final prices to consumers. The other is vertically integrated. The estimated model is sed to simulate counterfactual scenarios, where intermediaries do not offer additional services. We find that the presence of intermediaries increases welfare because the value of their services outweighs the additional margin charged.

Increased Margins and Merger Assessment: No Need to Fret

Gregory J Werden (DOJ) and Luke M Froeb (Vanderbilt) discuss Increased Margins and Merger Assessment: No Need to Fret.

ABSTRACT: Data-driven, case-by-case assessment of likely merger effects, using standard analytical tools, accounts for characteristics of the relevant market and of the merging firms, most especially margins. Thus, the observation of increased margins throughout the economy warrants no change in merger control. To explain, we begin with what margins are and what factors cause margins to be high or low. We then review how margins came to be accounted for in merger assessment. Finally, we demonstrate that increased margins can aggravate or mitigate the unilateral competitive effects from a horizontal merger. Offsetting forces have different relative strengths depending on market circumstances, but these circumstances are accounted for using standard tools.

UNDERSTANDING GOOGLE’S SEARCH PLATFORM AND THE IMPLICATIONS FOR ANTITRUST ANALYSES

John Yun (George Mason) explains UNDERSTANDING GOOGLE’S SEARCH PLATFORM AND THE IMPLICATIONS FOR ANTITRUST ANALYSES.

ABSTRACT: Google Search and its algorithm have been subject to intense antitrust scrutiny from competition authorities both in the United States and around the world. Google’s introduction of Universal Search in 2007 integrated specialized search results within a narrow category (for example, shopping or local businesses) with its customary “blue links.” This integration led to objections that Google was engaging in “search bias,” and thus foreclosing specialized search rivals to the detriment of competition and consumers. In this paper, we describe the precise nature of the anticompetitive claims against Google and develop an economic framework and empirical test to assess these claims. We rely upon our economic framework to offer insights for competition authorities to consider for future cases involving platforms and allegations of foreclosure and exclusion.

 

Price Effects of a Merger: Evidence from a Physicians’ Market

Thomas Koch, Federal Trade Commission, Bureau of Economics and Shawn W. Ulrick U.S. Federal Trade Commission (FTC) examine Price Effects of a Merger: Evidence from a Physicians’ Market.

ABSTRACT: Physicians’ practices vary widely, as do their effectiveness and reimbursement. Using a merger of six orthopaedic groups in southeastern Pennsylvania, we find that such groups can generate large, anti-competitive price increases without any demonstrated increases in quality (indirectly measured by way of revealed preference) or efficiency. Further, we find that these price increases were targeted at certain beneficiaries, payors and codes, so any research design that omits care and billing along any of these dimensions is likely to be biased.

Information Technology and Industry Concentration

James E. Bessen, Technology & Policy Research Initiative, BU School of Law explores Information Technology and Industry Concentration.

ABSTRACT: Industry concentration has been rising in the US since 1980. Firm operating margins have also been rising. Are these signs of declining competition that call for a new antitrust policy? This paper explores the role of proprietary information technology systems (IT), which could increase industry concentration and margins by raising the productivity of top firms relative to others. Using instrumental variable estimates, this paper finds that IT system use is strongly associated with the level and growth of industry concentration and firm operating margins. The paper also finds that IT system use is associated with relatively larger establishment size and labor productivity for the top four firms in each industry. Successful IT systems appear to play a major role in the recent increases in industry concentration and in profit margins, moreso than a general decline in competition.

Market Power and its Determinants in the Chinese Railway Industry

Hongchang Li, Beijing Jiaotong University, Kemei Yu, Beijing Jiaotong University - School of Economics and Management, Kun Wang, University of British Columbia, Sauder School of Business, Anming Zhang, University of British Columbia (UBC) - Sauder School of Business identify Market Power and its Determinants in the Chinese Railway Industry.

ABSTRACT: This study measures the market power of China’s national railway operator and analyzes its contributing and determining factors. A newly-developed stochastic frontier method is used to estimate the Lerner indexes of the operator’s 18 regional railway bureaus from 1995-2014. A regression is then conducted on these indexes to identify the determining factors of market power in this industry and explain any regional heterogeneity. We find that China’s monopoly operator of rail transportation has an overall positive Lerner’s index signifying that it exercises significant market power. We further find that obvious regional heterogeneity in market power exists among the railway bureaus. For example, railway bureaus in Eastern China typically have the highest Lerner index scores possibly owing to greater regional rail traffic and demand. We learn that China’s dramatic high-speed rail (HSR) development in recent years appears to have no effect on the market power of the rail operator. Finally, we propose continued railway market deregulation, especially a series of price liberalizations in recent years, may provide railway bureaus with more autonomy to exert their market power, widening observable heterogeneity.

Assistant Attorney General Makan Delrahim Delivers Remarks at the 2018 Global Antitrust Enforcement Symposium ~ Tuesday, September 25, 2018

Makan Delrahim's remarks are available here.

Mixed Bundling in Retail DVD Sales: Facts and Theories

Luis M. B. Cabral, New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR) and Gabriel Natividad, Universidad de Piura have an interesting paper on Mixed Bundling in Retail DVD Sales: Facts and Theories.

ABSTRACT: Many DVD titles are sold in retail stores in bundles, typically a bundle of two different titles with common characteristics: same lead actor/actress, same director, same genre, etc. This suggests that consumer valuations are positively correlated across the bundle components, which in turn runs counter to the received wisdom that bundling is most profitable when valuations are negatively correlated. In this paper, we propose a solution to this puzzle, one that is based on the observation that DVDs are sequentially released durable goods. At the time the second title is released, it is likely that high-valuation buyers will have bought the first one. For this reason, even though ex-ante valuations are positively correlated, ex-post -- that is, at the time the second title is released -- valuations are negatively correlated. We provide sufficient conditions such that mixed bundling increases revenues and the revenue increase is greater the more positively correlated valuations are. We also provide empirical confirmation of this prediction as well as an independent estimate from a calibrated analytical model.

Distortions of Competition by Contracting Authorities — Bringing Some of the Pieces Together

Albert Sanchez-Graells, University of Bristol - School of Law describes Distortions of Competition by Contracting Authorities — Bringing Some of the Pieces Together.

ABSTRACT: This paper stresses that public procurement regulation and practice can result in distortions of competition and offers stylised economic analysis of the ways in which they can unfold. Against that backdrop, the paper provides updated analysis of the distortions of competition that can derive from the exercise of administrative discretion by public buyers and their treatment under EU competition and public procurement law. The paper concentrates, in particular, on a proposal to boost the role of the principle of competition of Article 18(1)II of Directive 2014/24/EU as a tool to promote pro-competitive public procurement regulation and practice.

Do Firms Strategically Announce Capacity Expansions to Deter Entry?

Matthew J. Bloomfield, The Wharton School of the University of Pennsylvania and Marcel Tuijn, Erasmus University Rotterdam (EUR); University of Chicago - Booth School of Business ask Do Firms Strategically Announce Capacity Expansions to Deter Entry?

ABSTRACT: Using plausibly exogenous variation in entry threats, we provide evidence that firms strategically preannounce capacity expansions to deter entry into their product markets. To do so, we first construct a novel text-based measure of voluntary disclosure that reflects firms’ explicit forward-looking statements about capacity expansion plans. We validate our measure, and demonstrate that such disclosures are credible, by showing that it accurately predicts increases in capacity, as captured by CAPEX, PP&E, sales, COGS, and inventories. We then show that firms respond to heightened entry threats by announcing capacity expansions. Consistent with our predictions, larger firms are more likely to respond in this fashion, while firms with more private information about industry prospects are less likely to respond in this fashion. Capacity expansion announcements appear to be effective at deterring entry.

Digital Markets, Mobile Payments Systems and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience

Jörg Hoffmann, Max Planck Institute for Innovation and Competition, Mor Bakhoum, Max Planck Institute for Innovation and Competition, and Francisco Beneke, Max Planck Institute for Innovation and Competition address Digital Markets, Mobile Payments Systems and Development – Competition Policy Implications in Developing Countries in Light of the EU Experience.

ABSTRACT: The digitization of economic activity has important socio-economic development implications and at the same time creates challenges for antitrust analysis. These implications and challenges have been met differently in jurisdictions around the world. In this paper we analyze the different experiences in the EU and developing countries, focusing on mobile payments. We find that this market exhibits special characteristics that need to be taken into account in the analysis of competition conditions. First, it is enabled by mobile telecommunications infrastructure and is offered by network operators, which causes competition in both markets to be closely linked. Second, there are factors, such as the lack of interoperability and geographical reach, that make network effects in this industry different from those present in other platforms. Third, since mobile payments in developing countries serve a niche—the population underserved by mainstream banking—the definition of the relevant market is not straightforward. We propose the criteria to be applied when making such definition. Finally, since mobile payments have associated financial services, there is an interaction between competition and financial stability that needs to be considered.

Neither Populist Nor Neoclassical: The Classical Roots of the Competition Principle in American Antitrust

Nicola Giocoli University of Pisa - Department of Law describes Neither Populist Nor Neoclassical: The Classical Roots of the Competition Principle in American Antitrust.

ABSTRACT: Much of the current critical views on American antitrust law focus on a supposed misinterpretation by modern, welfare-driven antitrust enforcers of the true meaning of the competition principle. The paper contributes to the debate by reconstructing the principle’s historical origin. While it did not feature in the Sherman Act, the competition principle was introduced by the Supreme Court during the formative era of antitrust law. Between 1897 and 1911 the Court proposed alternative versions of the principle; the one which eventually prevailed was neither populist nor neoclassical, as it was based on classical political economy and, in particular, on freedom of contract and “natural” values. Yet, this historical circumstance is not necessarily bad news for recent proposals to reform antitrust law.

Collective Certification in UK Competition Law – Commonality, Costs and Funding

Cento Veljanovski, Case Associates; Institute of Economic Affairs identifies Collective Certification in UK Competition Law – Commonality, Costs and Funding.

ABSTRACT: The certifications of the first two opt-out collective (class) actions - Gibson v. Pride Mobility Scooter and Merricks v MasterCard - were dismissed by the Competition Appeal Tribunal (CAT) under the new UK competition law ‘class action’ regime. Here a critical assessment of the CAT’s two judgments is undertaken focusing on common issues, pass-on, distribution of damages, costs and funding of the emerging UK collective certification process.

Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing

Elena Argentesi, University of Bologna - Department of Economics, Paolo Buccirossi, LEAR, Roberto Cervone, Tomaso Duso, German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE) and Alessia Marrazzo, Lear - Laboratory of Economics, Antitrust, Regulation ask Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing.

ABSTRACT: Assortment decisions are key strategic instruments for firms responding to local market conditions. We assess this claim by studying the effect of a national merger between two large Dutch supermarket chains on prices and on the depth as well as composition of assortment. We adopt a difference-in-differences strategy that exploits local variation in the merger’s effects, controlling for selection on observables when defining our control group through a matching procedure. We show that the local change in competitive conditions due to the merger did not affect individual products’ prices but it led the merging parties to reposition their assortment and increase average category prices. While the low-variety and low-price target’s stores reduced the depth of their assortment when in direct competition with the acquirer’s stores, the latter increased their product variety. By analyzing the effect of the merger on category prices, we find that the target most likely dropped high priced products, while the acquirer added more of them. Thus, the merging firms reposition their product offerings in order to avoid cannibalization and lessen local competition. Further, we show that other dimensions of heterogeneity, such as market concentration, whether a divestiture was imposed by the Dutch competition authority, and the re-branding strategy of the target stores, are important for explaining the post-merger dynamics. A simple theoretical model of local-market variety competition explains most of our findings.