Wednesday, November 14, 2018
Stuart Craig, University of Pennsylvania - The Wharton School, Matthew Grennan, University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER), and Ashley Swanson, University of Pennsylvania - The Wharton School; NBER offer Mergers and Marginal Costs: New Evidence on Hospital Buyer Power.
ABSTRACT: We estimate the effects of horizontal mergers on marginal cost efficiencies – a ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.
Deputy Assistant Attorney General Roger Alford Delivers Remarks at the LeadershIP EU 2018 Annual Conference in Brussels
Aaron Honsowetz Bethany College has written on Federal Preemption of Local Government Telegraph Franchise Entry Barriers.
ABSTRACT: The United States central government enactment of the 1866 Post Roads Act preempted state and municipal telegraph franchise entry barriers. Like present-day telecommunication companies, local franchise regulations were an entry barrier to United States telegraph companies. These pre-1866 state and municipal telegraph laws were barriers of both entry and trade between states. Trade barriers reduced the benefits of a common market and undermined market-preserving federalism (Weingast 1995). I document what laws were preempted by the 1866 Post Roads Act, explain how these laws increased entry barriers, provide evidence that preemption was enforced, and uses two counterfactuals to calculate rough estimates of the decrease in entry costs from enforcement of the act.
Tuesday, November 13, 2018
Andrea Attar, University of Roma Tor Vergata; Toulouse School of Economics, Eloisa Campioni, University of Rome Tor Vergata - Dept. of Economics and Finance, and Gwenael Piaser, IPAG Business School provide thoughts On Competing Mechanisms Under Exclusive Competition.
ABSTRACT: We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct examples showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.
Xavier Fageda, University of Barcelona - Department of Economic Policy, Ricardo Flores-Fillol, Universitat Rovira i Virgili (URV), and Ming Hsin Lin, Osaka University of Economics - Faculty of Economics discuss Vertical Differentiation and Airline Alliances: The Effect of Antitrust Immunity.
ABSTRACT: This paper explores, both theoretically and empirically, the impact of granting antitrust immunity (ATI) to airline alliances in a novel and realistic framework characterized by vertically-differentiated air services. Our theoretical model suggests that non-ATI alliances produce an up-market movement yielding higher quality services at higher fares, whereas ATI alliances induce a down-market movement. Using data for fares on the transatlantic market from the Official Airlines Guide (OAG) corresponding to the period 2010-2017, our theoretical findings are empirically confirmed except for the effect of ATI alliances on fares. Finally, our results (both theoretical and empirical) indicate that alliances tend to concentrate a higher proportion of frequencies on high-quality routings, although airport congestion could partially compensate this effect.
JOSÉ MARÍA BAÑO FOS has a new book on THE DOGMATIC OF ARTICLE 101 TFEU AND INFORMATION EXCHANGES.
BOOK ABSTRACT: Information exchanges are at the heart of most European and national investigations nowadays. In fact, they cover a substantive part of the Commission’s Guidelines on Horizontal Cooperation. In bureaucratic terms, they are a “policy priority”.
However, the development of such an infringement has come at the expense of legal certainty as it implies, de facto, redrawing the red lines that safeguard Article 101 TFEU. By punishing this behavior as a “self-standing” infringement, the area of protection of Article 101 TFEU is broadened. It is no longer necessary to show the existence of a cartel, it suffices to show that the exchange (or disclosure) could most logically end up in a cartel, for the practice to be prohibited and punished.
This raises several questions that this book seeks to answer: is there an economic basis for such a conclusion? If so, does this infringement fit within the wording and purpose of Article 101 TFEU? And ultimately, as with any other infringement, how can we avoid committing type I mistakes while ensuring the effectivity of Article 101 TFEU?
Addressed towards practitioners and scholars this book provides a useful toolkit for analyzing information exchanges and their likelihood to carry out a fine while, at the same time, develops a systematic analysis on the legal nature of Article 101 TFEU.
James Killick and Assimakis Komninos examine Excessive Pricing in the Pharmaceutical Market – How the CAT Shot Down the CMA’s Pfizer/Flynn Case.
ABSTRACT: The article analyses the recent judgment of the UK Competition Appeal Tribunal (CAT) which annulled the decision fining Pfizer and Flynn Pharma for abusing their dominant position by charging excessive prices for a pharmaceutical product. While competition authorities have historically been quite reluctant to bring excessive pricing cases, lately there has been a flurry of activity, particularly in the pharmaceutical markets. The UK Competition and Markets Authority (CMA) has been at the forefront of this activity. The CAT’s ruling serves as a useful reminder that competition authorities can of course elect to prioritise excessive pricing cases but their decisions must be ‘soundly based on proper evidence and analysis’.
The Right of Defense in the Decentralized System of EU Competition Law Enforcement: A Call for Harmonization from Central and Eastern Europe
Maciej Bernatt University of Warsaw, Centre for Antitrust and Regulatory Studies, Marco Botta Max Planck Institute for Innovation and Competition, and Alexandr Svetlicinii, University of Macau - Faculty of Law address The Right of Defense in the Decentralized System of EU Competition Law Enforcement: A Call for Harmonization from Central and Eastern Europe.
ABSTRACT: The article compares the application of the right of defense in competition law proceedings by seven National Competition Authorities (NCAs) of Central and Eastern Europe (CEE). In particular, the article focuses on four sub-rights that are part of the right of defense: right to be informed; right to access the file; privilege against self-incrimination (PASI) and legal professional privilege (LPP). The article shows that the NCAs selected as case studies generally provide lower procedural guarantees in comparison to DG Competition of the European Commission. The findings of the article are relevant in view of the Directive aiming at harmonizing the powers of NCAs (“ECN Directive”). The legislation aims at strengthening the investigatory tools of NCAs, while it pays limited attention to the procedural guarantees followed by NCAs. In view of the diverging application of the right of defense by the NCAs selected as case studies, the article challenges such policy choice, claiming that stronger investigative powers should be counterbalanced by a more homogenous application of the right of defense by NCAs of the EU Member States.
Monday, November 12, 2018
Ohio v. American Express: Misunderstanding Two-Sided Platforms, the Credit Card 'Market,' and the Need for Procompetitive Justifications
Jeffrey Lynch Harrison, University of Florida - Levin College of Law explains Ohio v. American Express: Misunderstanding Two-Sided Platforms, the Credit Card 'Market,' and the Need for Procompetitive Justifications.
ABSTRACT: In Ohio v. American Express Co., the United States Supreme Court had its first knowing encounter with what it incorrectly viewed as a two-sided platform in the context of American Express’ Non Disclosure Provisions (NDP). Under these provisions merchants accepting the American Express card for payment are not permitted to inform consumers that other cards charge merchants less for their use and that this could be reflected in the final price paid. The opinion includes poor reasoning, a lack of attention to precedent, and bad news for those who thought antitrust law was due for a revival. Yet, and perhaps surprisingly, the outcome may be correct. Part II of this Essay very briefly summarizes the antitrust landscape in order to provide an understanding of where the practices of America Express fit. Part III then discusses the two-sided market issue generally and how it was treated in American Express specifically. That Part includes an explanation of why what was involved in American Express was actually a one-sided market that had been segmented in the interests of price discrimination. In fact, American Express and its competitors sell a single product to one group of customers: the right to delay payment to purchasers of goods and services. Part IV also makes the point that the American Express system shares characteristics of tying, resale price maintenance, and exclusive dealing. It further claims that the NDP shares none of the qualities that make those practices frequently lawful. American Express’s activity skirts the edges of several vertical restraints and its underlying character restricted interbrand competition. Part V includes general observations about the case and suggests the outcome may be correct but that the reasoning employed to get there is troublesome in that it continues the trend to minimize the importance of antitrust law.
Stephen Houck, Offit Kurman, P.A. asks Android - Is There a Viable Monopolization Case?
ABSTRACT: This paper considers the viability of a Sherman Act § 2 enforcement action in respect of Google’s Android operating system. It discusses the applicability of the D.C. Circuit’s 2001 Microsoft opinion in which Microsoft was found to have engaged in anticompetitive conduct to maintain its Windows operating system monopoly. The paper explains why, despite some superficial similarities, the facts that gave rise to liability in Microsoft are different in crucial respects from those pertaining to Android. The paper concludes 1) that Google lacks monopoly power in a properly defined market in which Android competes; and 2) that Google has not engaged in the type of anticompetitive conduct condemned in Microsoft. The facts underlying Microsoft and the D.C. Circuit’s reasoning strongly suggest that an enforcement action in the United States is unlikely to succeed notwithstanding the European Commission’s July 2018 Android decision.
Murthy Kambhampaty, CAP Economics; Navigant Economics assesses Sound Guppi Safe Harbor: A Calibrated Unilateral Effects Screen for Merger Enforcement.
ABSTRACT: The 2010 Horizontal Merger Guidelines (Guidelines) advance the use of the Gross Upward Pricing Pressure Index (GUPPI) for analyzing unilateral effects of mergers in differentiated-products industries. However, the Guidelines do not quantify a GUPPI safe harbor threshold, whereas the Guidelines do quantify thresholds for concentration (HHI) and change in concentration (ΔHHI) below which a merger is considered unlikely to harm competition, i.e., to lie within a safe harbor. Prior proposals for a GUPPI safe harbor threshold reflect a calibration to the 5 percent benchmark for the “small but significant nontransitory increase in price” (SSNIP) in the Guidelines, but the benchmark SSNIP is not a safe harbor threshold. This paper presents a GUPPI safe harbor defined as (a.) a GUPPI threshold that is derived from the ΔHHI safe harbor, along with (b.) a diversion ratio threshold to address the concern that a GUPPI safe harbor threshold produces false negatives under specific conditions. A sound GUPPI safe harbor, as derived in this paper, improves the clarity, consistency, and transparency of merger enforcement under the Guidelines.
ABSTRACT: Only merging party conduct that materially contributes to the change of target control during the standstill period is prohibited gun-jumping.
Sunday, November 11, 2018
Episode 13: Academics and big tech, with Prof Daniel Sokol: https://competitionlore.com/podcasts/academics-and-big-tech/
Episode 14: Why we need maverick academics, with Prof Ioannis Lianos: https://competitionlore.com/podcasts/maverick-academics-antitrust/
Friday, November 9, 2018
Primary Care Competition and Quality of Care: Empirical Evidence from Medicare's Physician Quality Reporting System
Christopher Brunt, Georgia Southern University - Department of Finance and Economics, Joshua R. Hendrickson, University of Mississippi; American Institute for Economic Research, and John R. Bowblis, Miami University of Ohio - Department of Economics identify Primary Care Competition and Quality of Care: Empirical Evidence from Medicare's Physician Quality Reporting System.
Abstract: Using data from Medicare’s Physician Compare Quality Reporting System, we explore the effects of primary care physician (PCP) practice competition on four distinct quality metrics directly tied to screening and follow-up care. Controlling for physician and practice attributes, we find strong evidence that primary care practices in more concentrated markets are less likely to perform screening and follow- ups for blood pressure, body weight, depression, and tobacco use. These results suggest that mergers of physician practice may harm quality competition implying that antitrust merger review should not only focus on how provider mergers impact commercially insured prices but also quality for Medicare beneficiaries.
John R. Allison, University of Texas - McCombs School of Business formulates Patent Value.
ABSTRACT: This paper provides an analysis of the concept of patent value and the identification of patents with economic value. It distinguishes private and social value, and critically analyzes the literature on the subject of patent value.
Luis Cabral, NYU is Standing on the Shoulders of Dwarfs: Dominant Firms and Innovation Incentives.
ABSTRACT: We develop a dynamic innovation model with three important features: (a) asymmetry between large and small firms ("giants" and "dwarfs"); (b) technology transfer by acquisition; and (c) the distinction between radical innovation (compete for the market) and incremental innovation (compete within the market). We provide conditions such that (a) greater asymmetry between giant and dwarfs decreases incremental innovation but increases radical innovation; and (b) allowing for technology transfer increases incremental innovation but decreases radical innovation.
These results have several policy implications, including: (a) with weak markets for technology, a soft antitrust policy toward dominant firms leads to an increase in radical innovation but a decrease in incremental innovation; (b) a merger policy that restricts the acquisition of fringe firms by dominant firms leads to lower incremental innovation rates and higher radical innovation rates; (c) the effect of IP protection on innovation is mixed: by increasing the prize from patenting, it increases incremental innovation; but, by improving the market for technology, it reduces the rate of radical innovation.
Thursday, November 8, 2018
Allen P. Grunes, The Konkurrenz Group and Maurice E. Stucke, The Konkurrenz Group; University of Tennessee College of Law think about Potential Legal Issues in Terminating the ASCAP and BMI Decrees.
ABSTRACT: This paper addresses some of the likely challenges that the DOJ would face should it seek to terminate the ASCAP and BMI consent decrees.
In Part I, we provide some background on ASCAP and BMI, the consent decrees, and market structure. In Part II, we discuss how these two decrees have become an important part of the legal scaffolding for licensing music over the past 70 years.
Given the important role the decrees have played in mitigating the antitrust risks from ASCAP and BMI while promoting the efficiencies from collective licensing, Part III examines the legal standard the federal court would likely apply in determining whether to terminate the decrees. One problem is that if the ASCAP and BMI consent decrees were terminated, the duopoly would remain, and licensees and consumers would bear the risk of unduly restrictive anticompetitive practices. A second problem is the difficulties the DOJ would likely face in convincing the court that terminating the decrees would benefit the public, given that it reached the opposite conclusion a couple of years ago. Moreover, the concerns the DOJ heard during its review process from licensees, such as Netflix, Pandora, and religious broadcasters, would undercut the argument that the public would somehow benefit from the decrees’ termination.
Part IV examines the interplay between competition and regulation. One assumption is that an antitrust agency’s mission to promote competition is in tension with prescriptive government regulation. This is certainly true at times. But at other times, particularly in markets with high transaction costs and dominant players, regulation may be needed to promote competition. So this Part explores how behavioral regulatory decrees, like ones in ASCAP, BMI, and other notable antitrust cases, can actually promote, rather than undermine, competition.
If terminating the decrees will harm, rather than help, competition and consumers, what are the alternatives? Part V offers three potential paths going forward.
Gregory J. Werden, U.S. Department of Justice - Antitrust Division has a fascinating paper on the Establishment of the Antitrust Division of the U.S. Department of Justice.
ABSTRACT: Official sources state that the Antitrust Division of the U.S. Department of Justice was created by Attorney General Homer S. Cummings in 1933, but no corroboration is provided. This note carefully examines the events of 1933 as well prior history, and it discovers that the Antitrust Division actually was established by Attorney General A. Mitchell Palmer in 1919.
Kate Ho, Princeton University - Department of Economics; National Bureau of Economic Research (NBER) and Robin S. Lee, Harvard University - Department of Economics; National Bureau of Economic Research (NBER) have an interesting paper on Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets.
ABSTRACT: We evaluate the consequences of narrow hospital networks in commercial health care markets. We develop a bargaining solution, Nash-in-Nash with Threat of Replacement, that captures insurers' incentives to exclude, and combine it with California data and estimates from Ho and Lee (2017) to simulate equilibrium outcomes under social, consumer, and insurer-optimal networks. Private incentives to exclude generally exceed social incentives, as the insurer bene fits from substantially lower negotiated hospital rates. Regulation prohibiting exclusion increases prices and premiums and lowers consumer welfare without significantly affecting social surplus. However, regulation may prevent harm to consumers living close to excluded hospitals.
Competition Law and Trade in Energy vs. Sustainable Development: A Clash of Individualism and Cooperative Partnerships?
Paolo Davide Farah, West Virginia University (WV, USA); gLAWcal - Global Law Initiatives for Sustainable Development (United Kingdom) and Tivadar Ötvös, gLAWcal - Global Law Initiatives for Sustainable Development ask Competition Law and Trade in Energy vs. Sustainable Development: A Clash of Individualism and Cooperative Partnerships?
ABSTRACT: At first sight the potential discrepancy between competitive behavior of market participants, trade rules and the basic notion of sustainable development may seem to be of a negligible importance. However, during the interactions of market processes with sustainability goals through various levels of support, provided by public or private entities problems arise, even more so in the light of the commitments of the Paris Agreement, the United Nations Sustainable Development Goals (SDGs) and corporate social responsibility principles. This Article aims to address the most obvious overlappings between these areas under the coverage of legal provisions regulating the grant of state aid, subsidies and policies related to mutual cooperation of private subjects towards achieving sustainability. The purpose is to draw conclusions regarding the criteria taken into consideration during the evaluation of competition distorting behaviors in case of environmental and sustainable energy state aid, subsidy- and contract-based cooperation and coalitions among private entities.