Friday, September 21, 2018

On the Geographic Scope of Retail Mortgage Markets

Dean F. Amel, Elliot Anenberg, Board of Governors of the Federal Reserve System and Rebecca Jorgensen provide thoughts On the Geographic Scope of Retail Mortgage Markets.

ABSTRACT: In this note, we first discuss why markets for mortgage originations are likely to be national in scope. We then show that even if mortgage markets were local, they would be unconcentrated. Finally, we test for an empirical relationship between the local concentration of mortgage lending and changes in mortgage rates and find essentially no correlation of concentration and rates.

September 21, 2018 | Permalink | Comments (0)

Competition Policy and Sector-Specific Regulation in the Financial Sector

Martin F. Hellwig, Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics describes Competition Policy and Sector-Specific Regulation in the Financial Sector

ABSTRACT: Reforms of financial regulation after the crisis of 2007-2009 raise the question of what is the relation between financial regulators and competition authorities. Should competition authorities play a role in financial regulation? Should they co-operate with financial regulators? Or should they keep at a distance? The paper gives an overview over some of the issues that are involved in the discussion. Drawing on the experience of the network industries, the first part of the paper discusses the relation between competition authorities and sector-specific regulators more generally. Whereas competition policy involves the application of legal norms involving prohibitions that are formulated in abstract terms, sector-specific regulation involves authorities actually prescribing desired modes of behavior. The ongoing nature of relations makes regulators more prone to capture than competition authorities. In the financial sector, the potential for capture is particularly great because everyone is tempted by the idea that banks should fund their pet projects. Following an overview over the evolution of regulation and competition in the financial industry, the paper discusses various issues that are relevant for competition policy: Technological and regulatory barriers to entry, distortions of competition by explicit or implicit government guarantees, distortions of competition by bailouts making for artificial barriers to exit. Guarantees and bailouts in particular pose special challenges for merger control and for state aid control.

September 21, 2018 | Permalink | Comments (0)

Theory and Evidence on Employer Collusion in the Franchise Sector

Alan B. Krueger and Orley Ashenfelter offer Theory and Evidence on Employer Collusion in the Franchise Sector.

ABSTRACT: In this paper we study the role of covenants in franchise contracts that restrict the recruitment and hiring of employees from other units within the same franchise chain in suppressing competition for workers. Based on an analysis of 2016 Franchise Disclosure Documents, we find that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. The implications of these no-poaching agreements for models of oligopsony are also discussed. No-poaching agreements are more common for franchises in low-wage and high-turnover industries.

September 21, 2018 | Permalink | Comments (0)

Thursday, September 20, 2018

Empirical Properties of Diversion Ratios

Christopher T. Conlon and Julie Holland Mortimer offer Empirical Properties of Diversion Ratios.

ABSTRACT: A diversion ratio, which measures the fraction of consumers that switch from one product to an alternative after a price increase, is a central calculation of interest to antitrust authorities for analyzing horizontal mergers. Two ways to measure diversion are: the ratio of estimated cross-price to own-price demand derivatives, and second-choice data. Policy-makers may be interested in either, depending on whether they are concerned about the potential for small but widespread price increases, or product discontinuations. We estimate diversion in two applications -- using observational price variation and experimental second-choice data respectively -- to illustrate the trade-offs between different empirical approaches. Using our estimates of diversion, we identify candidate products for divestiture in a hypothetical merger.

September 20, 2018 | Permalink | Comments (0)

On the relevant cost standard for price–cost test in abuses of dominance

Pietro Crocioni providers thoughts On the relevant cost standard for price–cost test in abuses of dominance.

ABSTRACT: In price-based (exclusionary) abuse of dominance cases, price–cost tests often tend to be the main, if not only, a piece of evidence relied upon to conclude whether or not an infringement has taken place. Although we consider that this assigns too much weight and relevance to this element of the analysis, this article focuses on a few open questions on the relevant cost standard for price-based abuses of dominance. It puts forward six main practical suggestions starting from the observation that the key question a price–cost test seeks to answer is whether a dominant firm by expanding its output incurs losses.

September 20, 2018 | Permalink | Comments (0)

Assistant Attorney General Makan Delrahim Delivers Remarks at IAM’s Patent Licensing Conference in San Francisco ~ Tuesday, September 18, 2018

See his speech on Antitrust Law and Patent Licensing in the New Wild West here.

Some highlights:

First, courts have recognized that not every type of conduct that may enhance a business’s market power is actionable, such as when the application of Section 2 would impose a duty that contravenes the policies of the antitrust laws themselves. 

Second, the Supreme Court has cautioned against antitrust standards that would create an unacceptable risk of “false positives” or condemnations of lawful pro-competitive conduct. 

There is no duty under the antitrust laws for a patent holder to license on FRAND terms, even after having committed to do so.  A FRAND commitment is a contractual representation that a patent holder will license on “fair,” “reasonable,” and “non-discriminatory” terms.  It is not the same as a promise to pay a specific price in a final contract.  Indeed, commentators have noted that by failing to specify a specific price, a FRAND commitment is an incomplete contract term.

To be clear, a FRAND commitment may create a duty under contract law to fulfill that obligation, and courts may be tasked with determining the relevant FRAND rate where parties disagree over this contract term.  Section 2, however, is agnostic to the price that a patent-holder seeks to charge after committing to such a term.  Breaking down “FRAND” by its component terms makes clear why this is so.

First, the Sherman Act does not police “fair” prices or competition; it protects the competitive process.  Judge Easterbrook once asked, “Who says that competition is supposed to be fair, that we judge the behavior of the marketplace by the ethics of the courtroom? . . . When economic pressure must give way to fair conduct . . . rivals will trim their sails”; introducing conceptions of “fairness” into the Sherman Act “is to turn antitrust law on its head.”

Second, having undertaken a contractual duty to charge “nondiscriminatory” rates, the Sherman Act does not compel a patent-holder to abide by this promise.  The Sherman Act is indifferent to price discrimination; indeed, in some circumstances price discrimination may be pro-competitive.

Third, the Sherman Act does not authorize courts to determine “reasonable” licensing rates.  The Supreme Court has emphasized repeatedly that antitrust law does not recognize a cause of action that would “require[] antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited.”

It, therefore, would be a mistake to infer that a contractual FRAND commitment somehow establishes a duty under the antitrust laws to license on terms demanded by a licensee or that violations of an ambiguous FRAND term become an antitrust violation.

September 20, 2018 | Permalink | Comments (0)

Coty, Clarifying Competition Law in the Wake of Pierre Fabre

Denis Waelbroeck and Zachariah Davies address Coty, Clarifying Competition Law in the Wake of Pierre Fabre.

ABSTRACT: On 6 December 2017, the EU Court of Justice delivered a long awaited ruling on selective distribution systems and third-party platforms in Coty. In the context of a dispute between luxury cosmetics producer Coty and one of its selected distributors Parfümerie Akzente, the Frankfurt Higher Regional Court posed a number of questions on the application of Article 101(1) TFEU and the Vertical Block Exemption Regulation (the ‘VBER’) to Coty’s selective distribution system.

September 20, 2018 | Permalink | Comments (0)

German Monopolies Commission translates reports into English on AI collusion, common ownership and inter-sectoral market power development

The German Monopolies Commission just published English translations of its Biennial Report's sections on price algorithms, common ownership, and inter-sectoral market power developments:

 

Algorithms and collusion: http://www.monopolkommission.de/images/HG22/Main_Report_XXII_Algorithms_and_Collusion.pdf

 

Common ownership: http://monopolkommission.de/images/HG22/Main_Report_XXII_Common_Ownership.pdf

 

Inter-sectoral market power developments: http://www.monopolkommission.de/images/HG22/Main_Report_XXII_Market_Power.pdf

September 20, 2018 | Permalink | Comments (0)

Alcogroup v Commission: More on Inspections and the Concept of a Reviewable Act

Julie Vandenbussche and Susanna Kärkelä have written on Alcogroup v Commission: More on Inspections and the Concept of a Reviewable Act.

ABSTRACT: The General Court (‘GC’) dismissed as inadmissible an action for annulment against a Commission inspection decision and a letter refusing to end investigative measures.

September 20, 2018 | Permalink | Comments (0)

Wednesday, September 19, 2018

Competition Lore - episodes 9 and 10

Episode 9 with Prof Colin Bennett on the political economy of privacy and Episode 10 with Prof Michal Gal on algorithmic collusion are now up.

Transcripts are now available for each episode on the website

September 19, 2018 | Permalink | Comments (0)

The Quiet Death of Secondary-Line Discrimination as an Abuse of Dominance: Case C-525/16 MEO

Robert O’Donoghue QC discusses The Quiet Death of Secondary-Line Discrimination as an Abuse of Dominance: Case C-525/16 MEO.

ABSTRACT: Price discrimination by a dominant firm between its (non-associated) customers only be an abuse if strict conditions are met, notably an impact on competition.

September 19, 2018 | Permalink | Comments (0)

The Proof on the Quantification of the Damage in Assumptions of Defense of Competition. (Spanish Law)

Enrique Sanjuan, University of Malaga - Facultad de Derecho analyzes The Proof on the Quantification of the Damage in Assumptions of Defense of Competition. (Spanish Law).

ABSTRACT: In the present work, we focus on the test on the quantification of damages in cases of private actions for infringements of competition law and on the adaptation of the Spanish regulations to the Damage Directive of 2014. In the first part, we analyze the quantification of damages and the burden of proof distinguishing the cases of evidentiary burden with respect to the infringement and evidentiary burden with respect to the quantification. From there, the ordinary assumptions of those that establish some type of exceptions are discriminated. In the second part, we focus on the test on quantification and the different aspects that the latter can offer us in terms of the existence of leniency programs, resolutions of other courts, direct purchases, indirect or third-party damages, etc. The objective is to determine the existence of differences in each of the sections that we point out and the judicial criteria that should preponderate in each of them.

September 19, 2018 | Permalink | Comments (0)

Did the Swedish Tobacco Monopoly Set Monopoly Prices?

Marcus Asplund London Business School - Department of Economics; Göteborg University - School of Business, Economics and Law; Centre for Economic Policy Research (CEPR) asks Did the Swedish Tobacco Monopoly Set Monopoly Prices?

Abstract: Empirical evidence is scarce on whether firms set profit‐maximizing prices, as these typically depend delicately on details of difficult‐to‐observe strategic interactions. To avoid this problem, this paper provides a detailed case study of the Swedish Tobacco Monopoly's pricing with data from 1916 to 1959. Prices are found to be below those that maximize the expected net present value of profits. However, the difference between actual and optimal price diminishes over time, and towards the end of the period the two are almost indistinguishable. The net present value of actual profits is approximately 60% of what could have been obtained. Overall, the pricing patterns appear more consistent with the firm learning about demand conditions than being the result of maximization of something other than profits.

September 19, 2018 | Permalink | Comments (0)

ASSESSING ANTICOMPETITIVE PRACTICES IN TWO-SIDED MARKETS: THE BOOKING.COM CASES

Chiara Caccinelli and Joëlle Toledano are ASSESSING ANTICOMPETITIVE PRACTICES IN TWO-SIDED MARKETS: THE BOOKING.COM CASES.

ABSTRACT: This paper aims to shed light on the economic tools, as well as the legal-economic reasoning, which are used by different European antitrust authorities to assess the allegedly anticompetitive practices of a platform operating in a two-sided market (2SM). First of all, we show that despite the flourishing literature on 2SM economics, antitrust authorities are still facing major challenges when taking decisions concerning two-sided platforms (2SPs). Secondly, we perform a cross-country, comparative study of recent competition proceedings towards the 2SP Booking.com and highlight conceptual and practical divergences among antitrust authorities which are bound by and applying a common European legislation. By concretely and thoroughly showing where the differences lie, our study contributes to identifying the issues to tackle to ensure a better harmonized implementation of measures towards 2SPs at the EU level. Finally, building on the results of our work, we propose some alternative approaches which could benefit future antitrust analyses in 2SMs.

September 19, 2018 | Permalink | Comments (0)

Tuesday, September 18, 2018

Market Concentration, Foreign Ownership and Determinants of Bank Financial Performance: Evidence from MENA Countries

Hatem Elfeituri University of East London - Royal Docks Business School investigates Market Concentration, Foreign Ownership and Determinants of Bank Financial Performance: Evidence from MENA Countries.

ABSTRACT: The purpose of this paper is to investigate the market concentration, foreign ownership and determinants of profitability for commercial banks operating in the MENA economies over the period 1999-2012. This paper uses panel analysis via GMM estimation to examine a large sample of banks for a period that includes the recent global crisis and Arab uprising, marked by political changes, liberalisation and market transformation. Findings indicate that the SCP hypothesis is not rejected; highlighting that increased market power yields monopoly profits. The fact that the impact of market concentration is positive in MENA economies is vital evidence, at least to a certain extent that bank performance is explained by market concentration. Findings also confirm that there is a positive and significant relationship between profitability and capital adequacy, confirming that regulators and policy makers should ensure banks are well capitalised to guarantee survival and stability for MENA banks. Cost efficiency and bank size have decreased profitability of banks, and banks with foreign ownership are more profitable and perform better than state banks. Overall, the paper finds evidence of structural reforms and uncovers measures that have led to the improvement of regulation, and the implementation of frameworks which should continue to improve competitiveness within MENA banking sectors. In addition, future policy on the banking sector should take account of intervention to change the market structure and to stimulate competition.

September 18, 2018 | Permalink | Comments (0)

Input Price Discrimination by Resale Market

Jeanine Miklós-Thal University of Rochester - Simon Business School and Greg Shaffer University of Rochester - Simon Business School study Input Price Discrimination by Resale Market.

ABSTRACT: This paper analyzes the drivers and welfare effects of supply contracts that discriminate between resale in different markets. In a game between a supplier and competing downstream firms that resell the supplier's input in multiple (independent or interdependent) markets, we show that, all else equal, the supplier wants to discriminate against resale in the market with more intense downstream competition. Unlike monopolistic third-degree price discrimination in final-goods markets, input price discrimination by resale market can have a positive allocation effect, which implies that welfare can rise with discrimination even if total output decreases. The output effect of input price discrimination by resale market, in turn, is shown to depend on the competitive pass-through rates and on the curvatures of the demand functions. Our insights are relevant for the policy treatment of vertical restraints on online sales.

September 18, 2018 | Permalink | Comments (0)

Measuring the Deterrent Effect of European Cartel Law Enforcement

Birgit Moritz, Martin Becker, and  Dieter Schmidtchen are Measuring the Deterrent Effect of European Cartel Law Enforcement.

ABSTRACT: This article proposes a new approach to measuring the deterrent effect of cartel law enforcement by combining a game-theoretic model with Monte Carlo simulations. The game-theoretical analysis shows which type of perfect Bayesian Nash equilibria is obtained depending on the parameter setup: perfect compliance, imperfect compliance or zero compliance. For each equilibrium, we also derive the probabilities of type I (false-positive) and type II (false-negative) errors committed by the cartel authority. To account for the uncertainty and the vague knowledge concerning the model parameters, we perform Monte Carlo simulations based on parameter ranges extracted from the related literature. The simulations indicate that zero compliance dominates the picture and that the error probabilities are high for type II and negligible for type I errors. The results are fairly robust against correlation in the input parameters. Further robustness studies and interactive visualizations can be obtained with a supplemental web application.

September 18, 2018 | Permalink | Comments (0)

Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications Thursday, October 25, 2018

Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications

Thursday, October 25, 2018

 

Top of the Hill Conference Center
Minutemen Ballroom—5th Floor
One Constitution Ave., NE
Washington, DC 20002

The Searle Center on Law, Regulation, and Economic Growth at Northwestern Pritzker School of Law will host a Public Policy Forum on Coordination and Collusion in Standard Development Organizations – Governance and Antitrust Implications.  This lunch-time forum event will be held at Top of the Hill in Washington D.C. (One Constitution Ave., NE, Washington DC) on Thursday, October 25, 2018  There is no registration fee for this widely attended event that is sponsored by the Searle Center.

 

The forum will begin with registration in the Top of the Hill Ballroom starting at 10:30 a.m. with a buffet lunch commencing at 11:45 am.  Please see the full program agenda and registration instructions below.

The panel discussion will explore the proper application of antitrust law to Standard Setting Organizations (SSOs). Panelists will discuss antitrust implications of evolving forms of coordination among SSO participants, principles of good conduct in SSO governance and policy development, and the role of diversity and coordination among SSOs.  The event will also feature a presentation on a forthcoming study on the governance of Standard Development Organizations and their policies on intellectual property rights.

 


Thursday, October 25th

10:30 a.m.           Registration Check-in

11:00                     Introduction and Opening Remarks

Matthew L. Spitzer, Director, Searle Center on Law, Regulation, and Economic Growth and Howard and Elizabeth Chapman Professor, Northwestern Pritzker School of Law 

11:10                     "Making the Rules - The Governance of Standard Development Organizations and their Policies on Intellectual Property Rights"     
(Presentation of the results of a comparative study for the European Commission)

 

Justus Baron, Senior Research Associate, Searle Center on Law, Regulation, and Economic Growth, Northwestern Pritzker School of Law

Pierre Larouche, Professor of Law, Faculty of Law, Université de Montréal            

11:45                     Buffet Lunch Available

12:00                     Panel Discussion on Antitrust and Collusion in Standard Setting Organizations

Moderator:  Justus Baron, Senior Research Associate, Searle Center on Law, Regulation, and Economic Growth, Northwestern Pritzker School of Law

Andrew Finch, Principal Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice

David J. Kappos, Partner, Cravath, Swaine & Moore LLP; former Under Secretary of Commerce and Director of the United States Patent and Trademark Office (USPTO)


Bruce Kobayashi, Director, Bureau of Economics, U.S. Federal Trade Commission; Professor of Law, Antonin Scalia Law School, George Mason University

Suzanne Drennon Munck, Chief Counsel for Intellectual Property, Deputy Director, Office of Policy Planning, Federal Trade Commission

1:45                        Adjourn

To confirm your attendance please fill out the RSVP form at the following link

REGISTER NOW

https://www.surveymonkey.com/r/SearleDCPolicy

 

If you have any questions please contact us at searlecenter@law.northwestern.edu

September 18, 2018 | Permalink | Comments (0)

Profit Margins Rather Than Concentration to Measure Merger Effects

A recent article in GCR on Agency economists see profits as antitrust concern has me thinking about corporate finance and M&A in a way that is distinct from IO antitrust analysis.  Do higher profit margins mean that certain industries or firms have higher monopoly rents?  Not necessarily.

Profit margins may mean very different things in different industries, and we would expect cross-industry differences independent of market concentration/competition.  Two other issues come to mind. First, even in the same industry, net profit margins (measured simply as net income/sales) also vary with leverage -- all else equal, companies with a higher percentage of debt will have lower accounting-based profit margins (although their economic profits would not necessarily be lower). Second, companies with high accounting-based profit margins are not necessarily generating large economic rents if they regularly have a high required level of net investment. For example, a cable company or cell phone company may have to continually make large capital investments, which means that the free cash flow they actually generate for their investors may not be that large even in those cases when they have what might appear to be high profit margins.

September 18, 2018 | Permalink | Comments (0)

Common Ownership and Market Entry: Evidence from Pharmaceutical Industry

Melissa Newham, KU Leuven; German Institute for Economic Research (DIW Berlin), Jo Seldeslachts, University of Amsterdam; Tinbergen Institute, Albert Banal-Estañol, Universitat Pompeu Fabra - Department of Economics and Business (DEB); City University London - Department of Economics offer Common Ownership and Market Entry: Evidence from Pharmaceutical Industry.

ABSTRACT: Common ownership - where two firms are at least partially owned by the same investor - and its impact on product market outcomes has recently drawn a lot of attention from scholars and practitioners alike. Theoretical and empirical researchsuggests that common ownership can lead to higher prices. This paper focuses on implications for market entry. To estimate the effect of common ownership on entry decisions, we focus on the pharmaceutical industry. In particular, we consider the entry decisions of generic pharmaceutical firms into drug markets opened up by the end of regulatory protection in the US. We first provide a theoretical framework that shows that a higher level of common ownership between the brand firm (incumbent) and potential generic entrant reduces the generic's incentives to entry. We provide robust evidence for this prediction. The effect is large: a one-standard-deviation increase in common ownership decreases the probability of generic entry by 9-13%. We extend our basic theoretical framework and allow for multiple entrants. Our model shows that for sufficiently high levels of common ownership, the classical idea of entry decisions being strategic substitutes can be reversed into being strategic complements. Our empirical results provide some support for these predictions.

September 18, 2018 | Permalink | Comments (0)