Antitrust & Competition Policy Blog

Competition in Print Advertising between Paid and Free Newspapers

Lydia Cheung (School of Economics, Auckland University of Technology) and Geoffrey Brooke (School of Economics, Auckland University of Technology) study Competition in Print Advertising between Paid and Free Newspapers.

ABSTRACT: This paper looks at the market for print advertising in New Zealand, which is characterized by rich variation in ownership structures of overlapping paid daily metropolitan newspapers and free weekly suburban newspapers. We first present stylized empirical facts on advertising rates and readership shares, from an original dataset. We then present a simple model whose market outcome varies with ownership structure in the same manner as our empirical observation.

Multiple-Quality Cournot Oligopoly and the Role of Market Size

Miao, Zhuang; Long and Ngo Van study Multiple-Quality Cournot Oligopoly and the Role of Market Size.

ABSTRACT: We model an oligopoly where firms can choose the quality level of their products by incurring set-up costs that generally depend on quality level. If the set-up cost is independent of product quality, firms may choose to supply both types of quality.We focus on the long run equilibrium where free entry and exit ensure that the profit for each type of firm is zero. Using this framework, we study the implications of an increase in the market size. We show that for the existence of an equilibrium where some firms specialize in the low quality product it is necessary that the set-up cost for the lower quality product, adjusted for quality level, is lower than that for the higher quality product. In the case where the unit variable costs are zero, or they are proportional to quality level (so that unit variable costs, adjusted for quality, are the same), we show that an increase in the market size leads to (i) an increase in the fraction of firms that specialize in the high quality products, (ii) the market shares (both in value terms and in terms of volume of output) of high quality producers increases, and (iii) the prices of both types of product decrease. In the case where higher quality requires higher set-up cost (per unit of quality) but lower unit variable cost (per unit of quality), subject to certain bounds on the difference in unit variable costs, we obtain the result that an increase in the market size decreases the number of low quality firms, increases the number of high quality firms, and decreases the prices of both products. In the special case where the set up cost is independent of quality level, we find that all firms will produce both type of quality levels. In this case, an increase in the market size will reduce the value shares of low quality products, but will leave their volume share unchanged; and the market expansion induces a fall in the relative price of the low quality product, and in the prices of both products in terms of the numeraire good. We carry out an empirical test of a version of the model, where set-up costs now refer to set-up costs to establish an export market, and they vary according to the quality of product that the firm exports to that market. We show that the data supported the hypothesis that the average qualities of the product are higher for bigger export markets.

Prices for Medical Services Vary Within Hospitals, But Vary More Across Them

Nathan Wilson, Government of the United States of America - Federal Trade Commission, Bureau of Economics, Ted Rosenbaum, Federal Trade Commission Bureau of Economics, and Matthew Panhans, Federal Trade Commission Bureau of Economics, study Prices for Medical Services Vary Within Hospitals, But Vary More Across Them.

ABSTRACT: Using commercial claims for 2012-2013 from Colorado’s All-Payer Claims Database, we examine how medical service prices vary for five hospital-based procedures and the complexity adjusted inpatient price. We find that prices vary substantially in multiple dimensions. Our analysis indicates that there is significant price variation across payers for the same service in the same hospital. If prices converged to the lowest rate each hospital receives, commercial expenditures would fall by 10-20%. The share of overall price variation accounted for by hospitals variation tends to be even more substantial. For four out of six prices, we find that differences associated just with hospitals’ metropolitan areas account for over 45% of the total variation. We observe substantial residual variation (17-50%) after accounting for factors specific to a given payer or provider.

Product Proliferation and First Mover Advantage in a Multiproduct Duopoly

Yi-Ling Cheng (Institute of Economics, National Sun Yat-sen University) and Takatoshi Tabuchi (Faculty of Economics, The University of Tokyo) study Product Proliferation and First Mover Advantage in a Multiproduct Duopoly.

ABSTRACT: This study aims to understand product proliferation and Â…first mover advantage in the case of multiproduct Â…firms that engage in Stackelberg competition on the number of varieties and prices. We show that when fiÂ…rms sequentially choose the number of varieties and then simultaneously decide prices, the leader produces more varieties and enjoys fiÂ…rst mover advantage. By contrast, when the leader sets both the number of varieties and prices before the follower does, the follower tends to produce more varieties and enjoy second mover advantage in the case of a large demand and a small cost of expanding product lines. This result sharply contrasts with those of studies on the sequential entry of single-product firms. We also show that the market provides too few varieties relative to the social optimum.

Globalization and U.S. Industry Concentration

Thomas P. Griffin, Drexel University - Bennett S. LeBow College of Business explores Globalization and U.S. Industry Concentration.

ABSTRACT: I show that a tariff policy change that increased trade with China led to a decline in U.S. public listing rates and elevated industry concentration. Consistent with heterogeneous firm models of trade, the shock impeded the entry and performance of small manufacturers but did not adversely impact large multinationals. Stock price reactions to the policy change and threat of reversal by President Trump imply that trade liberalization increases the value of large firms and destroys the value of small firms. These findings suggest that globalization contributed to recent trends in the U.S. equity market by disproportionately harming small firms.

RE-CONCEPTUALIZING ‘OBJECT’ ANALYSIS UNDER ARTICLE 101 TFEU: THEORETICAL AND COMPARATIVE PERSPECTIVES

Kelvin Hiu Fai Kwok, HKU is RE-CONCEPTUALIZING ‘OBJECT’ ANALYSIS UNDER ARTICLE 101 TFEU: THEORETICAL AND COMPARATIVE PERSPECTIVES.

ABSTRACT: Recent expansive applications of the ‘object’ prohibition under Article 101 Treaty on the Functioning of the European Union have left the scope of ‘object’ restrictions in a state of uncertainty and incoherence. This article undertakes an unprecedented theoretical study of the ‘object’ test in comparison with U.S. antitrust law. It re-conceptualizes ‘object’ analysis as a form of preliminary enquiry that serves a similar classificatory function as a U.S. ‘quick look’ analysis, namely to distinguish naked restrictions from non-naked ones in order to determine whether summary condemnation or an effect-based analysis is called for. This normative theory rests on the important conceptual distinction between proximate and ultimate objects, and a detailed comparison of the methods of antitrust analysis under E.U. and U.S. law. The article constructs a ‘quick look’ framework for ‘object’ analysis that combines both theoretical and comparative insights, and applies this framework to critically analyze joint venture restrictions, regulatory restrictions, vertical restrictions, and industry restructuring arrangements.

 

What Can We Learn About the Application of the As Efficient Competitor Test in Fidelity Rebate Cases from the Recent US Case Law?

Miroslava Marinova, University of Reading, School of Law asks What Can We Learn About the Application of the As Efficient Competitor Test in Fidelity Rebate Cases from the Recent US Case Law?

ABSTRACT: It is accepted that the treatment of fidelity rebates is one of the most controversial topics in European Union competition law. It remains an outstanding issue despite the clear position of the Court of Justice in both the Intel and Post Danmark II judgments to depart from the strict form-based approach and to endorse an approach based on an evaluation of the possible anticompetitive effects of fidelity rebates. In particular, it remains unclear whether a price-cost test should be deployed. The conditions when a price-cost test should be applied to fidelity rebates as opposed to alternative approaches is a central issue in recent US case law of fidelity rebates and associated scholarly debate. This article examines the academic debate in the US and compares the treatment of fidelity rebates on both sides of the Atlantic in an attempt to clarify under which circumstances a price-cost test should be used as a tool to determine the anticompetitive effects of fidelity rebates and how this clarification can be translated into concrete lessons for European case law. It reveals that the economic theory of raising rival’s cost explains that the assessment of a strategy to exclude an as efficient competitor does not require a price-cost test.

COMPETITION AND ENGINEERING?

Competition Lore is back for 2019.  Up first is Bill Kovacic (GW, Kings) who asks

COMPETITION AND ENGINEERING?

Institutional Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry

Jin Xie, The Chinese University of Hong Kong (CUHK) and Joseph J. Gerakos, Tuck School of Business at Dartmouth College; Dartmouth College - Tuck School of Business Institutional identify Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry.

ABSTRACT: Brand-name pharmaceutical companies often file lawsuits against generic drug manufacturers that challenge the monopoly status of patent-protected drugs. Institutional horizontal shareholdings, measured by the weight of generic shareholders' ownership in the brand-name company relative to their ownership in the generic manufacturer, are significantly positively associated with the likelihood that the two parties will enter into a settlement agreement in which the brand pays the generic to stay out of the market. Horizontal shareholdings are also positively associated with the brand's daily abnormal returns around the settlement agreement. Generic manufacturers who settle with the brand-name company and receive a 180 day period of marketing exclusivity are more likely to delay the sale of generic substitutes if they have higher horizontal shareholdings with the brand-name firms. These delays preclude other generic firms from entering the market.

Gender, Competition Policy and reducing the GUDP (Grossly Undervalued Domestic Product)

Sarah Long, Euclid Law has an interesting paper on Gender, Competition Policy and reducing the GUDP (Grossly Undervalued Domestic Product).

ABSTRACT: The GUDP (Grossly Undervalued Domestic Product) results in a black market of domestic work that women are contributing to for absolutely nothing. However, competition authorities may have a role in reducing the GUDP by prioritising those markets in which women supply the biggest share of unpaid work.

Economic Foundations for 21st Century Freight Rail Rate Regulation

John W. Mayo, Georgetown University - Department of Strategy/Economics/Ethics/Public Policy and Robert Willig, Princeton University - Woodrow Wilson School of Public and International Affairs Economic have written on Foundations for 21st Century Freight Rail Rate Regulation.

ABSTRACT: The Staggers Rail Act of 1980 made a substantial break from an almost century-old policy of pervasively regulating the prices for freight rail services provided in the United States. In particular, rather than regulators establishing prices, Staggers permits shippers and railroads to voluntarily negotiate rates, terms and conditions, with regulation providing a fallback if negotiation fails or is too onerous for what is at stake on the shipment. While largely deregulating the rate-setting process, the statute requires that rates be “reasonable” in the event of a complaint filed by a shipper and where a railroad is found to be market dominant – a requirement that necessitates that regulators determine a method for assessing whether a given rate or set of rates is, in fact, reasonable. In the wake of the passage of Staggers, the Interstate Commerce Commission (ICC) [now the Surface Transportation Board (STB)] established the method for determining whether a rate is “reasonable,” in which case the rate is allowed to stand; or whether the rate is unreasonable and must be reduced. The system, known as Constrained Market Pricing (CMP), was established largely on a bedrock of economic theory and has been in place now for almost thirty-five years. Yet, absent a refresher, the passage of time creates the prospect that the economic foundations of CMP will fade. The purpose of this paper is to provide that refresher. Along the way we seek to re-establish the fundamental economic appeal of CMP, reflect on criticisms and alternatives that have been proffered, and offer refinements for rail regulation moving forward.

Specificity, Monopoly and Solidarity in the European Commission’s ISU (International Skating Union) Decision: Anything New Under the Sun?

Jacob Kornbeck asks Specificity, Monopoly and Solidarity in the European Commission’s ISU (International Skating Union) Decision: Anything New Under the Sun?

ABSTRACT: On 8 December 2017 the European Commission announced its decision in the case of the International Skating Union’s (ISU) Eligibility rules (‘Rule 102’⁴), and on 23 March 2018 the publication of a preliminary, non-confidential, partly redacted in-extenso version of the decision ensued. The Commission ruled that loyalty clauses⁵ of this sports governing body (SGB) prohibiting athletes from selling their services to alternative event organisers are incompatible with Art. 101 TFEU.

The Wider Implications of the UK’s Withdrawal Agreement for Competition and Trade

Anca D. Chirita, Durham University - Law School offers The Wider Implications of the UK’s Withdrawal Agreement for Competition and Trade.

ABSTRACT: This contribution covers some preliminary aspects of an orderly Withdrawal, including the doctrine of acquired rights and trade in goods; procedural aspects of the 599-page Withdrawal Agreement, including temporal application, jurisdictional, mutual recognition and cooperation matters; and the substantive aspects of the Withdrawal Agreement, including the Protocol on Northern Ireland, in particular its Annex 4 on state aid and competition, followed by final reflections on the state of play of the negotiations. It has been updated to include the changes brought about by the non-binding political declaration of 25 November 2018.

It argues that the present Withdrawal Agreement represents a convoluted approach to free trade and competition through Northern Ireland’s backstop solution. It could have been made more ambitious by offering at least a preview of a more comprehensive trade package that included some common rules on competition, labour, taxation, and the environment in exchange for free trade in goods and services for the whole of the UK. Instead, an interpretation in the spirit of the Protocol on Northern Ireland is that the Withdrawal Agreement delivers for competition law a hard blown Brexit, as it severs the close ties between the Commission and the CMA for the remaining territories of the UK which are not part of Northern Ireland. Given that until the end of 2020, the UK will have neither the time nor the appetite for a radical overhaul of its competition regime with a view to securing an EU trade agreement, this may not be a major problem, at least for the time being.

Given that the details of such a trade agreement would have taken more time to negotiate, the Withdrawal Agreement delivers on many of its promises. It offers an original solution, which, if it were properly implemented, would not change the existing status quo and would maintain certainty for businesses. In the event that an independent authority would be established for Northern Ireland only, it might be possible that businesses could operate on the same ‘level playing field’ from anywhere in Northern Ireland by re-locating from the South to the North. However, if, instead of an interpretation delivered in the spirit of the Protocol on Northern Ireland, the implementation were to adopt a literal interpretation of the wording of the competition provisions, then the regulatory and competition policy regime will continue to apply to the whole of the UK. On the whole, the Agreement usefully spells out the required parameters for the negotiation of a more comprehensive trade agreement that would, at least, include competition, state aid, labour, taxation, and the environment as key areas of close cooperation and coordination, if not more.

In the end, there are not too many options left to play with in these negotiations: (a) accepting it subject to significant improvements to be made in the future economic partnership that will be concluded between the UK and the EU; or (b) rejecting it and maintaining the present status quo. Time will tell which of these will come to fruition.

However, a daunting (d) prospect of reaching no agreement at all, which is widespread among ‘hard line Brexiteers’, is like divorcing without a court ruling on the actual divorce. Severing the UK’s ties to the EU cannot proceed in a disorderly manner, as that would trigger an abuse of fundamental human rights and an undermining of the rule of law and democracy and of peace and prosperity throughout the whole of the UK. The latter prospect is simply unacceptable and inhumane, and those advocating for it – after nearly half of a century of close ties to the EU – need to give serious consideration to the reality of their proposals.

EU and National Approaches to Passing On and Causation in Competition Damages Cases

Pedro Caro de Sousa, Organization for Economic Co-Operation and Development (OECD) examines EU and National Approaches to Passing On and Causation in Competition Damages Cases.

ABSTRACT: In dealing with defences raised in cases of damages claims following competition infringements, national courts have often adopted an openly “legal approach” to passing on, rather than a more economic approach which would, in theory, lead to a more accurate allocation of losses between different levels of the production or distribution chain affected by a competition infringement. This article examines whether such “legal approaches” infringe the rules on passing on and the principle of full compensation set out in EU law, e.g. the EU Damages Directive. Legal approaches to passing on must comply with European law, and must not be such as to make it practically impossible or excessively difficult to rely on passing on. As this article showed, there is nothing to prevent such an objective from being achieved through the deployment of national doctrines on the calculation of damages or on the basis of national rules of evidence and causation, as national courts have been doing.

The Evolution of Canadian Competition Policy: A Retrospective

Michael J. Trebilcock, University of Toronto - Faculty of Law and Francesco Ducci, University of Toronto, Faculty of Law, Students offer The Evolution of Canadian Competition Policy: A Retrospective.

ABSTRACT: This paper provides a critical review of the evolution of competition policy in Canada. We first identify four central reforms that have shaped today’s Canadian competition law: the extension of the Competition Act to the services sector; the shift away from the criminal treatment of various types of conduct; the development of the regulated conduct defence; and the introduction of private enforcement. We then discuss both positive developments and unresolved challenges in the areas of horizontal agreements, abuse of dominance and reviewable practices, and merger review, respectively. Finally, we discuss the institutional structure of Canadian competition law and the problematic role of the Competi- tion Tribunal. In providing this retrospective, we suggest that priority for future reforms should be given to designing a more prominent role and coherent framework for private enforcement, addressing some of the remaining inconsistencies between abuse of dominance and reviewable practices, and evaluating possible institutional reforms, including potentially a shift toward an integrated agency model.

Why Some Platforms Thrive and Others Don’t

Makan Delrahim referenced the paper Why Some Platforms Thrive and Others Don’t by Feng Zhu (Harvard Business School) and Marco Iansiti (Harvard Business School) in the Harvard Business Review.  He encouraged every lawyer to read it in remarks made on Friday.  They should.  

 

 

The Roles of Innovation in Competition Law Analysis

Paul Nihoul, Professor, Université catholique de Louvain and Pieter Van Cleynenbreugel, Professor, University of Liège, Belgium have edited The Roles of Innovation in Competition Law Analysis.

BOOK ABSTRACT: Rapid technological innovations have challenged the conventional application of antitrust and competition law across the globe. Acknowledging these challenges, this original work analyses the roles of innovation in competition law analysis and reflects on how competition and antitrust law can be refined and tailored to innovation.

With chapters from well-established and up-and-coming competition law and economics scholars – from the Academic Society for Competition Law (ASCOLA) – this book reflects on the role innovation has played, and can continue to play, within competition and antitrust law. In addition to uncovering innovation concerns within their analysis, the authors also make important contributions to academic and policy debates on the relationship between these areas of law and other instruments of innovation regulation, such as data protection regulation, intellectual property law, the regulation of big data, platforms and artificial intelligence.

Academics in competition and intellectual property law, economics and political science working on data protection or innovation more generally will find this book a useful insight into future challenges for constructing meaningful and effective laws within the area of innovation. Policymakers and practising lawyers will also find the example cases useful, especially for refining and restructuring perception about innovation in competition law.

Product Innovation of an Incumbent Firm: A Dynamic Analysis

Verena Hagspiel, Norwegian University of Science and Technology (NTNU) - Department of Industrial Economics and Technology, Kuno Huisman, Tilburg University - Department of Econometrics & Operations Research, Peter M. Kort, Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER), Cláudia Nunes, University of Lisbon - CEMAT, Rita Pimentel, University of Lisbon - CEMAT discuss Product Innovation of an Incumbent Firm: A Dynamic Analysis.

ABSTRACT: In case of a product innovation firms start producing a new product. While doing so, such a firm should decide what to do with its existing product after the firm has innovated. Essentially it can choose between replacing the established product by the new one, or keep on producing the established product so that it produces two products at the same time. The aim of this paper is to design a theoretical framework to analyze this problem. Due to technological progress the quality of the newest available technology, and thus the quality of the innovative product that can be produced by this technology, increases over time. The implication is that a later innovation enables the firm to produce a better innovative product. So, typically the firm faces the tradeoff between innovating fast, which boosts its profits soon but only by a small amount, or innovating later, which leads to a larger payoff increase. The drawback here is that the firm is stuck with producing the established product for a longer time. We fund that a highly uncertain economic environment makes the firm delay abolishing the old product market. But if the innovative market is more volatile, the firm enters the market sooner, provided it will be active on the old market, at least for some time. Moreover, the smaller the initial demand for the innovative product market, the better the quality of the innovative product needs to be for the product innovation to be optimal.

The Italian Unilever Judgment on Exclusive Dealing: Helpful Clarification or Misguided Limitation of the Court of Justice’s Intel Ruling?

Geert Goeteyn and Gaetano Lapenta ask The Italian Unilever Judgment on Exclusive Dealing: Helpful Clarification or Misguided Limitation of the Court of Justice’s Intel Ruling? 

ABSTRACT:

The Italian Competition Authority’s decision fining Unilever was the first of a national competition authority to deal with exclusivity obligations and rebates after the Court of Justice’s Intel judgment.

When upholding the decision, the Italian Regional Administrative Tribunal provided a response to a number of questions left unanswered by the Intel ruling, in particular as regards the scope of application of the Intel judgment and whether previous decisions such as Hoffmann-La Roche are still good case law or must be considered as ‘overruled’.

In the Italian court’s view, the Hoffmann-La Roche per se approach will still be applicable to exclusive purchasing obligations which will be considered by their very nature to restrict competition.

By contrast, the requirements set out in the Court of Justice’s Intel ruling will apply to abuses implemented solely by means of a rebate system.

Measuring the Welfare of Intermediaries in Vertical Markets

Javier Donna, Ohio State University (OSU) - Economics, Pedro Pereira, Autoridade da Concorrência, Tiago Pires, University of North Carolina (UNC) at Chapel Hill, Andre Trindade, Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finança are Measuring the Welfare of Intermediaries in Vertical Markets.

ABSTRACT: We empirically investigate the welfare of intermediaries in oligopolistic markets, where intermediaries offer additional services. We exploit the unique circumstance that, in our empirical setting, consumers can purchase from manufacturers or intermediaries. We specify an equilibrium model, and estimate it using product-level data. The demand includes consumers with costly search and channel-specific preferences. The supply includes two distribution channels. One features bargaining about wholesale prices between manufacturers and intermediaries, and price competition among intermediaries. The other is vertically integrated. The model is used to simulate counterfactuals, where intermediaries do not offer additional services. We find that intermediaries increase welfare.