Thursday, September 19, 2019
Christos Genakos, Cambridge Judge Business School; Athens University of Economics and Business (AUEB); Center for Economic Policy Research (CEPR); Center for Economic Performance (CEP) and Mario Pagliero, University of Turin - Collegio Carlo Alberto identify issues in Competition and Pass-Through: Evidence from Isolated Markets.
ABSTRACT: We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations, we study how unanticipated and exogenous changes in excise duties (which vary across different petroleum products) are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.44 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60% higher in more competitive markets. Finally, we show that geographic market definitions based on arbitrary measures of distance across sellers, often used by researchers and policy makers, result in significant overestimation of the pass-through when the number of competitors is small.
Wednesday, September 18, 2019
Bruce H. Kobayashi, George Mason University - School of Law, and Joshua D. Wright, George Mason University - Antonin Scalia Law School, Faculty ask What’s Next in Apple v. Pepper? The Indirect Purchaser Rule and the Economics of Pass-Through.
ABSTRACT: In Apple v. Pepper, the Supreme Court issued a narrow 5-4 decision holding that iPhone users who purchased apps from the Apple App Store were direct purchasers. Justice Brett Kavanaugh, writing for the majority, held that the iPhone users had standing under Illinois Brick to sue Apple for alleged monopolization under Section 2 of the Sherman Act. The dissent, written by Justice Gorsuch, concluded that the iPhone users were direct purchasers of distribution services provided by Apple, and thus relied on a "pass-on" theory to recover damages from Apple. On remand, the plaintiffs will have to show that they were harmed by Apple's ad valorem royalty rate. Our analysis demonstrates that the plaintiffs are unlikely to prevail because they have not been harmed by Apple's ad valorem rate. We also explain that the Supreme Court correctly accepted the plaintiff's alleged market definition at the motion to dismiss stage, and therefore did not abandon its ruling in American Express.
ABSTRACT: Rules and regulation play an increasingly important role in our modern societies. They facilitate trade and exchanges between countries in a globalised world. They also tend to govern every aspect of life within these countries. Not only do rules and regulation replace traditional conflict avoidance and settlement mechanisms, but they must also keep pace with new technological and societal developments. Although the widening scope and increasing complexity of the rules are a phenomenon that affects every legal discipline, its impact is particularly felt in the field of competition law, i.e. the set of rules that govern the playing field on which firms seek to sell their products and services.
Mark Jamison, University of Florida is Applying Antitrust in Digital Markets.
ABSTRACT: This paper analyzes antitrust principles in the context of digital markets, i.e., areas of the economy where resources are obtained and managed, and value is created primarily through the use of digital technologies. It demonstrates that traditional notions of market power are inadequate for these situations because markets lose boundaries, data used to identify markets and market power decays before it can give meaningful answers, and rivalry occurs across markets. It identifies an alternative approach – resource flow – that focuses on root causes of what has been traditionally called market power. An institution can be considered to be able to avoid competitive pressures when resources flows needed to provide such pressures are throttled, either by inadequate sources or by channel constraints. The paper explores the implications of such throttling being created by firms, occurring through nature, or created by government.
Tuesday, September 17, 2019
ABSTRACT: Non-price considerations in merger control and unilateral conduct enforcement have been elements of the competition authorities’ assessment in the past few decades. Recently a revamped emphasis on such factors and in particular on the importance of innovation has characterized the European Commission’s enforcement practice. The article looks into merger control cases as well as two unilateral conduct cases (Microsoft and Google Shopping) and discusses the approach the European Commission has taken on the impact of concentrations as well as of abusive conducts on innovation. The article argues that the approach the European Commission takes in assessing innovation in merger control is pragmatic and appropriate for dynamic competition that characterizes innovative markets. In relation to the assessment of the harm on innovation in unilateral conduct cases, the article emphasizes the need for a balanced approach that prevents an adverse impact on innovation incentives of the dominant company while at the same time maintains a robust approach to competition harm induced by abusive conducts.
Auyon Siddiq, University of California, Los Angeles (UCLA) - Anderson School of Management and Terry Taylor, University of California, Berkeley - Haas School of Business analyze Ride-Hailing Platforms: Competition and Autonomous Vehicles.
ABSTRACT: Problem Definition: Ride-hailing platforms, which compete over drivers and riders, assert that autonomous vehicles (AVs) will transform their operations by reducing variable cost payments to drivers. This paper explores the implications of competition and access to AVs for the management of ride-hailing platforms.
Academic/Practical Relevance: Ride-hailing, which has been transformed by platforms' use of independent driver-workers, has the potential to be transformed again by AVs. Methodology: We employ a game-theoretic model that captures platforms' AV fleet size, price and wage decisions.
Results: A platform's access to supply-side (namely, AV) technology changes prescriptions for its demand-side (namely, pricing) decisions: The intuitive prescription from the setting without AVs, that price increases in the intensity of competition in the labor market, is reversed. The presence of demand-side competition changes prescriptions for a platform's supply-side (namely, AV fleet size) decisions: The intuitive prescription from the setting without demand-side competition, that the AV fleet size increases in the intensity of competition in the labor market, is reversed. We characterize the conditions under which these reversals occur and explain the driving forces behind the reversals. Finally, whether a platform benefits from its rival's access to AV technology depends on a simple comparison between the relative wage sensitivity of labor and the relative price sensitivity of demand.
Managerial Implications: Competition and access to AVs each reverse intuitive prescriptions for the management of ride-hailing platforms.
Herb Hovenkamp, Penn explores Competition Policy for Labour Markets.
ABSTRACT: Competition law in many jurisdictions defines its consumer welfare goal in terms of low consumer prices. For example, mergers are challenged when they threaten to cause a price increase from reduced competition in the post-merger market. While the consumer welfare principle is under attack in some circles, it remains the most widely expressed goal of antitrust policy.
We would do better, however, to define consumer welfare in terms of output rather than price. Competition policy should strive to facilitate the highest output in any market that is consistent with sustainable competition. That goal is in most ways the same as a goal of pursuing lower consumer prices; that is, as output goes up prices go down.
In the United States we have traditionally seen anti-labour policies as coming from the political right, through such means as right-to-work laws that drive wages down or other forms of anti-union activity. But today the competition policy advocated on the left has its own share of anti-worker sentiment, particularly in the form of attacks on low prices. Higher prices certainly harm consumers, but they also harm labour by reducing output. Product consumers and labourers have one thing in common: just as consumers benefit from high output because it produces lower prices in product markets, so too labour benefits from high output because it increases the demand for jobs and, in the process, boosts wages.
This paper examines competition policy toward labour, focusing on these themes. In particular we look at anticompetitive mergers in labour markets; anti-poaching agreements; excessive noncompetition covenants, particularly those that bind only the employees working in a particular franchise, such as McDonald’s; and anticompetitive occupational licensing.
Mark Armstrong, University of Oxford and John Vickers, University of Oxford address Patterns of Competitive Interaction.
Abstract: We explore patterns of competitive interaction by studying mixed-strategy equilibrium pricing in oligopoly settings where consumers vary in the set of suppliers they consider for their purchase. In the case of "nested reach" we find equilibria, unlike those in existing models, in which price competition is segmented: small firms offer only low prices and large firms only offer high prices. We characterize equilibria in the three-firm case using correlation measures of competition between pairs of firms. We then contrast them with equilibria in the parallel model with capacity constraints. A theme of the analysis is how patterns of consumer consideration matter for competitive outcomes.
Monday, September 16, 2019
Murat C. Mungan, George Mason University - Antonin Scalia Law School, Faculty and Joshua D. Wright, George Mason University - Antonin Scalia Law School, Faculty suggest Optimal Standards of Proof in Antitrust.
ABSTRACT: Economic analyses of antitrust institutions have thus far focused predominantly on optimal penalties and the design of substantive legal rules, and have largely ignored the standard of proof used in trials as a policy tool in shaping behavior. This neglected tool can play a unique role in the antitrust context, where a given firm may have the choice to engage in exceptional anticompetitive or procompetitive behavior, or simply follow more conventional business practices. The standard of proof used in determining the legality of a firm's conduct affects not only whether the firm chooses to engage in pro- versus anticompetitive behavior, but also whether it chooses to remain passive. We introduce a model to investigate the effects of this additional tradeoff on the optimal standard of proof. The nature of these effects depends upon the relationship between the beneficial impact of procompetitive behavior versus the harmful impacts of anticompetitive behavior, since this relationship is what determines the costs associated with Type I and Type II error. Adopting Judge Easterbrook's presumption that preventing procompetitive behavior is more harmful than allowing anticompetitive behavior, we show that the standard of proof facing plaintiffs in antitrust cases ought to be stronger than preponderance of the evidence.
GOVERNING CHINA’S ADMINISTRATIVE MONOPOLIES UNDER THE ANTI-MONOPOLY LAW: A TEN-YEAR REVIEW (2008–2018) AND BEYOND
ABSTRACT: An important focus of China’s Anti-Monopoly Law (AML) is “administrative monopolies”—government-imposed restraints on competition. Since adopting the AML in 2008, China gradually has strengthened its efforts to curb administrative monopolies. Despite notable reforms such as the creation of the Fair Competition Review System (FCRS), government restrictions remain a major obstacle to competition in China’s economy. The 2008 legislation narrowly defined what constitutes improper government intervention, adopted a permissive standard for determining when public restraints were legitimate, and relied heavily on internal administrative controls to correct infringements. This paper draws upon experience in China and abroad to enhance the ability of China’s competition authorities to challenge administrative monopolies. Suggested upgrades include augmenting the robustness of FCRS, introducing new tools to improve competition advocacy, bolstering the ability of competition authorities to initiate or join litigation to attack administrative monopolies, and narrowing the range of justifications that can immunize public restraints.
Nicolas Petit, Liege explores why THE SMALLEST SALABLE PATENT PRACTICING UNIT AND COMPONENT LICENSING: WHY $1 IS NOT $1.
ABSTRACT: The smallest salable patent pricing unit (SSPPU) is a valuation method used as a preliminary step toward the calculation of fair, reasonable, and nondiscriminatory royalties for licenses over standard-essential patents (SEPs). Under SSPPU, royalties should reflect the value added to the smallest salable component implementing the patented invention. In this paper, we discuss policy-making proposals to convert SSPPU into a pricing rule that not only assists the assessment of SEPs’ added value but also forces the specification of royalties terms as a share of component costs in SEP licensing negotiations. We call this new rule SSPPU+ and we show that it distorts the distribution of surplus between SEP owners and implementers by laying down a revenue cap on standardized technologies. Therefore, a change in the royalty basis is not neutral and $1 is not $1. Furthermore, SSPPU+ imposes uniform pricing of SEPs across different industries and does not allow SEP owners to take advantage of complementarities between technologies. This pleads against a generalization of SSPPU+ at early standardization and negotiation stages.
Maciej Bernatt, University of Warsaw, Faculty of Management assesses Competition Law and the Digital Economy: Poland.
ABSTRACT: The report discusses the enforcement of competition law in Poland in the context of the digital economy. Topics covered include the goals of competition law in the digital era, market power and market definition, the characteristics of behaviour considered anticompetitive, as well as regulatory overlaps and enforcement challenges. The report has been prepared as of 30 June 2019.
Friday, September 13, 2019
Application of the Domestic and EU Antitrust Prohibitions: an analysis of the UK competition authority's enforcement practice
ABSTRACT: This article makes a significant and original contribution to the literature on the enforcement practices of competition authorities by providing the first comprehensive account of the work of the UK National Competition Authority (The OFT and latterly the CMA) in its primary task of enforcing the EU and domestic antitrust prohibitions. A rigorous empirical study of the full 19 years of enforcement practice provides the only detailed analysis of this central pillar of UK competition law enforcement, based on a new data-set on the prohibition Case Outcomes in that period which provides information on the quantity of cases, competition law provisions applied and types of Case Outcome. The article identifies and explains the apparent focus to date on by-object agreement competition law infringements and reveals data on the fining record of the UK competition authority. The article also provides the first data and narrative on the enforcement of the EU antitrust prohibitions within the UK. Overall, the article reveals a disappointing track record by the UK competition authority in enforcing both the domestic and EU prohibitions, on an absolute and relative basis, in comparison with other leading EU MS NCAs, and provides an empirically-driven account which allows us to reflect on experience to date and inform enforcement practice for the future.
Reminder: Call for Papers for 2020 Next Generation of Antitrust, Data Privacy and Data Protection Scholars Conference (submissions due September 15, 2019)
Harry First, NYU
Danny Sokol, University of Florida
Kathy Strandburg, NYU
Maciej Bernatt, University of Warsaw, Faculty of Management addresses Rule of Law Crisis, Judiciary and Competition Law.
ABSTRACT: This article discusses the implications of the rule of law crisis on a core area of EU law: competition law. It analyses the reforms of the judiciary in selected EU Member States and the reaction of EU institutions. The article shows that the reforms of the judiciary give rise to doubts regarding the independence and expertise of courts which are responsible for reviewing the decisions of national competition authorities adopted under Articles 101-102 TFEU and national competition laws. As a result, the effective judicial protection required by EU primary law is undermined. In addition, mutual trust, upon which the decentralized enforcement of EU competition law is based, is put into question. The article calls upon EU institutions, and in particular the European Commission, to more closely and effectively monitor the developments in Member States which may affect the enforcement of EU (and national) competition rules.
Carl Shapiro, Berkeley has a great paper on Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets.
ABSTRACT: Accumulating evidence points to the need for more vigorous antitrust enforcement in the United States in three areas. First, stricter merger control is warranted in an economy where large, highly efficient and profitable "superstar" firms account for an increasing share of economic activity. Evidence from merger retrospectives further supports the conclusion that stricter merger control is needed. Second, greater vigilance is needed to prevent dominant firms, including the tech titans, from engaging in exclusionary conduct. The systematic shrinking of the scope of the Sherman Act by the Supreme Court over the past 40 years may make this difficult. Third, greater antitrust scrutiny should be given to the monopsony power of employers in labor markets.
Thursday, September 12, 2019
Naomi R. Lamoreaux studies The Problem of Bigness: From Standard Oil to Google.
ABSTRACT: This article sets recent expressions of alarm about the monopoly power of technology giants such as Google and Amazon in the long history of Americans' response to big business. I argue that we cannot understand that history unless we realize that Americans have always been concerned about the political and economic dangers of bigness, not just the threat of high prices. The problem policymakers faced after the rise of Standard Oil was how to protect society against those dangers without punishing firms that grew large because they were innovative. The antitrust regime put in place in the early twentieth century managed this balancing act by focusing on large firms' conduct toward competitors and banning practices that were anticompetitive or exclusionary. Maintaining this balance was difficult, however, and it gave way over time—first to a preoccupation with market power during the post–World War II period, and then to a fixation on consumer welfare in the late twentieth century. Refocusing policy on large firms' conduct would do much to address current fears about bigness without penalizing firms whose market power comes from innovation.
Assistant Attorney General Makan Delrahim Delivers Remarks at the 7th Bill Kovacic Antitrust Salon Washington, DC ~ Monday, September 9, 2019
Steven Berry, Martin Gaynor, and Fiona Scott Morton ask Do Increasing Markups Matter? Lessons from Empirical Industrial Organization.
ABSTRACT: This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the "structure-conduct-performance" literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.