Antitrust & Competition Policy Blog

General Equilibrium Oligopoly and Ownership Structure

José Azar, University of Navarra, IESE Business School; CEPR and Xavier Vives, University of Navarra - IESE Business School; Universitat Pompeu Fabra (UPF); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) suggest General Equilibrium Oligopoly and Ownership Structure.

ABSTRACT: We develop a tractable general equilibrium framework in which firms are large, have market power with respect to both products and labor, and in which ownership structure influences firms’ decisions. We characterize the Cournot-Walras equilibrium of an economy where each firm maximizes a shareweighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing, then an increase in “effective” market concentration (which accounts for common ownership) leads to declines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one are attained as the number of sectors in the economy increases.

The Philippine Competition Act: A Mestiza?

Alizedney Ditucalan, Kyushu University asks The Philippine Competition Act: A Mestiza?

ABSTRACT: The proliferation of competition law regimes among developing countries has exponentially grown in the past three decades. Although competition law is not new in the Philippine legal system, it was only in 2015 that Philippines eventually passed into law a national competition law regime, which appears to be a marriage of EU and US regimes. Anent, this article undertakes to analyze the implications of combining the two systems in the Philippine Competition Act. In particular, one major concern is the interpretation of the analytical framework of the two competition law systems – the dichotomy of per se doctrine and rule of reason in the US on the one hand, and the bifurcated framework of Article 101 of the TFEU and the dichotomy of “object” rule and “effect” rule. It argues that fusion created a complex regime that has a downside effect on the administrability and predictability of the law. It illustrates further that the motivations of the adoption of the PCA reflect that the Philippine competition law aims to achieve multifaceted goals, not only purely economic goal and that the lawmaking dynamics can zealously overshadow contextualization. The paper concludes that it would have been more pragmatic for the lawmakers to have singly focused on the US antitrust legal system as model in designing the provisions of the PCA both from institutional and normative consideration. For one, the Philippine competition law norms, prior to the passage of the PCA, have always been aligned with the US antitrust law system.

Competition and Market Concentration in the Municipal Bond Market

Dario Cestau, IE Business School, IE University has written on Competition and Market Concentration in the Municipal Bond Market.

ABSTRACT: Lack of competition among the underwriters of municipal bonds increases the borrowing costs of local municipalities. I find that the proportion of municipal bonds sold in competitive sales in the state has an economically significant effect on several measures of competitiveness. Competitive sales increase the number of active underwriters in the state and substantially decrease the concentration in the market for underwriting services for municipal bonds. I also find that state restrictions on the negotiated sale of municipal bonds can materially decrease market concentration. Market concentration has increased considerably over time, but only negotiated deals have contributed to greater concentration.

Overlapping Ownership, Endogenous Quality, and Welfare

Duarte Brito, New University of Lisbon, Ricardo Ribeiro, Universidade Católica Portuguesa, Católica Porto Business School, and Helder Vasconcelos, Universidade do Porto - Faculdade de Economia (FEP) identify Overlapping Ownership, Endogenous Quality, and Welfare.

ABSTRACT: This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms' profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms' profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.

Capping Bundle Discounts: Two Regulatory Rationales

Martin C. Byford, RMIT University - School of Economics, Finance and Marketing and Stephen P. King, Monash University - Department of Economics; Productivity Commission address Capping Bundle Discounts: Two Regulatory Rationales.

ABSTRACT: Mixed-bundling of groceries and gasoline is common in a range of countries including Australia, the US, the UK, and parts of Europe. However, it has raised competition concerns. In Australia, the competition authority, fearing 'predation' and exit by independent gasoline retailers, has imposed a cap on such discounts. This paper develops an innovative extension to the standard Hotelling approach to consider bundled discounts when two conglomerates and an independent retailer compete over two independent products. We provide an economic foundation for the predatory concerns of bundle discounts and analyze optimal limitations on these discounts. We show that optimal regulatory intervention depends critically on both the objective of the regulator and the potential for exit, with optimal policies ranging from no intervention to a tight limit on discounts. In particular, we show that the Australian competition authority's intermediate price cap is consistent with either an attempt to raise the welfare of the worst off consumers (in the absence of exit) or overall consumer surplus (where the cap prevents exit).

Competition Policy Implications of Sharing Economy Enterprises

Max Huffman, Indiana University Robert H. McKinney School of Law investigates Competition Policy Implications of Sharing Economy Enterprises.

ABSTRACT: As the sharing economy increases its share of the aggregate of overall productivity in nations around the globe, it is natural that it will attract competition policy concerns. Long experience shows that new firm and enterprise structures, contract relationships, and industries attract law enforcement and regulator attention — both because they upend traditional norms governing the way economies are believed to function and because they may violate legal rules developed around those norms.

Experience also shows the danger of stifling innovation in business practices by hewing to a traditional view of the “right” way for economies to operate. Such stifling may undermine growth and development where old ways are preferred to innovation. Stifling may have asymmetric impacts on those not currently in the market.

The law must accommodate the immutable goal of market access. The sharing economy presents a particular challenge because, as I define it below, the foundational enterprise structure challenges traditional norms, disrupting regulatory systems to achieve greater economic efficiency. The degree of intervention to limit activity by sharing economy enterprises that is appropriate depends on the legitimacy of the regulatory structure being disrupted. That in turn might best be understood as the accessibility of the jurisdiction’s markets in the status quo ante.

The paper outlines a structure for analyzing the impact of sharing economy enterprises on economic outcomes across a variety of jurisdictions, including both the developing and the developed world. Part I gives a “first principles” look at the role of competition policy in protecting markets, suggesting that the need for competition policy in the context of the sharing economy depends on the regulatory state of affairs in the industry it is disrupting. Part II considers the sharing economy as an enterprise structure, including its seven defining characteristics and how those characteristics may confound traditional competition law principles. Part III discusses the benefits to markets the sharing economy promises and set those against the apparent competition policy concerns.

Pay-for-Delay and the Structure of Article 101(1) TFEU: Points of Law Raised in Lundbeck and Paroxetine

Pablo Ibáñez Colomo, London School of Economics - Law Department discusses Pay-for-Delay and the Structure of Article 101(1) TFEU: Points of Law Raised in Lundbeck and Paroxetine.

ABSTRACT: • Pay-for-delay cases raise fundamental points of law, including the notion of (potential) competition and restriction by object.

• According to the rich case law addressing the relationship between Article 101(1) TFEU and intellectual property – including Nungesser and BAT (Toltecs-Dorcet) – a settlement addressing a genuine patent dispute is not in itself restrictive of competition.

• The decisions in Lundbeck and Paroxetine depart in some respects from the relevant case law in that they suggest that even a settlement addressing a genuine patent dispute can violate Article 101(1) TFEU by its very nature.

• The approach suggested in the two decisions would herald a new relationship between EU competition law and intellectual property.

MOOT de Libre Competencia 2020 04, 05, 06 y 07 de Agosto

MOOT de Libre Competencia 2020

04, 05, 06 y 07 de Agosto

Competencia en la que estudiantes de Derecho y Economía pondrán a prueba sus destrezas y conocimientos de derecho de la competencia y análisis de mercados.

• 04 Ago - Inaguración

• 05 y 06 Ago - Rondas Generales

• 07 Ago - Finales

 

Mergers and Innovation Portfolios

José L. Moraga-González, VU University Amsterdam; University of Groningen, Evgenia Motchenkova, VU University Amsterdam - Department of Economics; TILEC, Saish Nevrekar, Universidad Carlos III de Madrid identify Mergers and Innovation Portfolios.

ABSTRACT: This paper studies mergers in markets where firms invest in a portfolio of research projects of different profitability and social value. The portfolio nature of the investment problem brings about novel insights on the external effects of firms’ investments. The investment of a firm in one project imposes a negative business-stealing externality on the rival firms because it lowers the probability they win the innovation contest for that project; however, the investment of a firm in one project also exerts a positive business-giving externality on the rival firms because it increases the likelihood they win the contest for the alternative project.

Merging firms internalize these positive and negative externalities they impose on each other. We show that when the project that is relatively more profitable for the firms is also the more appropriable, then a merger increases consumer welfare by reducing investment in the most profitable project and increasing investment in the alternative (less profitable) project. For the case of linear demand and constant marginal costs, the portfolio effect of mergers makes them consumer welfare improving. With constant elasticity of demand and constant marginal costs, a merger increases consumer welfare if the more profitable project corresponds to the market with the higher elasticity of demand. The portfolio effect of mergers may dominate the usual market power effects of mergers.

Rule of Law Challenges and the Enforcement of EU Competition Law a Case – Study of Hungary and Its Implications for EU Law

Kati Cseres University of Amsterdam - Amsterdam Centre for European Law and Governance and Amsterdam Center for Law & Economics explores Rule of Law Challenges and the Enforcement of EU Competition Law a Case – Study of Hungary and Its Implications for EU Law.

Abstract: For the first time in its history the EU is facing a serious challenge of its Member States’ commitment to the rule of law. The financial crisis brought to light the vulnerability of the neo-liberal economic model and national strategies globally shifted towards more inward-looking policies challenging the fundamental ideas of free trade and market competition. The economic downturn corroded the legitimacy of democratic regimes and populist appeals gained ground. The impact of these developments on economic regulation and competition law enforcement has been significant in and outside of the EU and its Member States. Rising populism and economic nationalism both in the US and in the EU raised fundamental questions on how competition law and its enforcement should form part of the democratic process. Politicising the competitive process in order to support national economic interests has been widespread practice of the Hungarian government since winning the elections in 2010. The drastic re-transformation of the constitutional system has fabricated a framework for economic regulation where accumulation of political power has resulted in accumulation of economic power. The new framework of economic governance systematically undermined key legal rules and independent institutions of the functioning Hungarian market economy. The rate and scope of constitutional re-engineering of Hungary´s economic governance framework and most notably the enforcement of competition rules pose questions beyond the Hungarian context on the current interplay of politics, law and economics as well as on the role of markets, states and the competitive process in EU competition law and policy. The aim of the paper is to critically analyse the way “rule of law backsliding” has tarnished the young but effective competition law enforcement that developed in Hungary in the period after 1989 and analyse its broader implications for the (decentralised) enforcement of EU competition law. Using Hungary’s example, the paper aims to demonstrate the relevance of promoting democracy and rule of law values as a goal of competition law as well as competition law as a fundamental institution of a democratic system.

From Coercion to Cooperation: Settlement within EU Competition Law

Niamh Dunne, London School of Economics - Law Department discusses From Coercion to Cooperation: Settlement within EU Competition Law.

Abstract This paper explores the proliferation of settlement mechanisms within contemporary antitrust enforcement pursued by the European Commission under Regulation 1/2003. To do so, it develops a taxonomy of settlement devices deployed in recent enforcement activity, considering for each the level of cooperation required, alongside what is at stake for defendants and the Commission in terms of the outcome of the administrative process. The chapter then addresses both the underlying motivations, and the broader implications in terms of law and practice, of the shift from coercion to cooperation as the default model of competition enforcement in the EU.

The Economics of Platforms: A Theory Guide for Competition Policy

BRUNO JULLIEN, University of Toulouse 1 - Toulouse School of Economics (TSE), Centre for Economic Policy Research (CEPR), CESifo (Center for Economic Studies and Ifo Institute) and WILFRIED SAND‐ZANTMAN, University of Toulouse 1 - Toulouse School of Economics (TSE) offer The Economics of Platforms: A Theory Guide for Competition Policy.

ABSTRACT: Over the past 20 years, the development of the internet has transformed the global economy and had an impact on almost every aspect of our lives. Designed primarily as a means of communication, the internet has revolutionized the way we produce and exchange services and goods, whether they are digital or not. A simple comparison of the world’s most valuable companies in 2007 and in 2018 is a clear testimony of this change. Not only have standard brick-and-mortar firms progressively disappeared from the list, but companies of a new kind have emerged at the top. Since the development of computers in the 1990s, tech giants like Apple and Microsoft have taken over, at least partially, from more traditional firms operating in banking, insurance or the oil industry. But the past 15 years have seen another wave of companies – like Amazon, Alibaba, Baidu, Facebook, Google, Airbnb, Booking.com or Uber, to name a few – whose business model is mainly to facilitate interaction between individuals and/or businesses. These companies rely on different business models but they belong to the same general category, now known as platforms, and share many characteristics. The objective of this report is to discuss these common features in order to explain the functioning of markets with platforms. The main focus of this report will be on whether competition can be effective.

Competition Law for the Digital Economy

Competition Law for the Digital Economy

ASCOLA Competition Law series

Edited by Björn Lundqvist, Stockholm University, Sweden and Michal S. Gal, University of Haifa Faculty of Law, Israel

The digital economy is gradually gaining traction through a variety of recent technological developments, including the introduction of the Internet of things, artificial intelligence and markets for data. This innovative book contains contributions from leading competition law scholars who map out and investigate the anti-competitive effects that are developing in the digital economy.

Contents:

Preface
PART I GENERAL PERSPECTIVES ON COMPETITION POLICY AND THE APPLICATION OF TRADITIONAL TOOLS FOR THE DIGITAL ECONOMY
1 Regulating competition in the digital economy 2
Björn Lundqvist
2 Taming the shrew: is there a need for a new market power definition for the digital economy? 29
Hedvig K. Schmidt
3 Competition at the dawn of artificial intelligence 71
Robin C. Feldman and Nick Thieme
4 Competition by design 93
Simonetta Vezzoso

PART II CONDUCT THAT VIOLATES ANTITRUST AND THE INTERFACE BETWEEN DATA PROTECTION RULES, OTHER SECTOR-SPECIFIC RULES, AND COMPETITION LAW
5 Privacy-as-a-quality parameter of competition 126
Samson Y. Esayas
6 How to measure privacy-related consumer harm in merger analysis? 173
Elias Deutscher
7 Regulation complementing EU competition law in the digital economy 212
Juha Vesala
8 Online platforms and the Japan Fair Trade Commission: the DeNA case as an example of early market intervention 231
Steven Van Uytsel and Yoshiteru Uemura
9 The European Commission’s decision in Google Search 264
Konstantina Bania

PART III REMEDIES TO BE IMPOSED IN CASE OF RESTRICTION ON DIGITAL MARKETS
10 Consent-based case resolution 303
Katharina Voss
11 Antitrust governance in an era of rapid change 325
Stavros Makris
Index 365

Event Studies in Merger Analysis: Review and an Application Using U.S. Tnic Data

Timo Klein, U Amsterdam shares Event Studies in Merger Analysis: Review and an Application Using U.S. Tnic Data.

ABSTRACT: There is a growing concern that U.S. merger control may have been too lenient, but empirical evidence remains limited. Event studies have been used as one method to acquire empirical insights into the competitive effects of mergers. However, existing work suffers from strong identifying assumptions, unreliable competitor identification or small samples. After reviewing the use and challenges of event studies in merger analysis, I use a novel application of Hoberg-Phillips (2010, 2016) Text-Based Network Industry Classification (TNIC) data to readily proxy a ranking of competitors to 1,751 of the largest U.S. mergers between 1997 and 2017. I document that following a merger announcement, the most likely competitors experience on average an abnormal return of around one percent. These abnormal returns are also associated with concerns of market power, which suggests that results are at least in part driven by an anticipation of anti-competitive effects, and hence insufficient merger control.

Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry

Kyle F. Herkenhoff, Gajendran Raveendranathan ask Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry.

ABSTRACT: How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.

From Pierre Fabre to Coty and Beyond: How Far Can Suppliers Ban Online Sales?

Yves Botteman and Daniel Barrio ask From Pierre Fabre to Coty and Beyond: How Far Can Suppliers Ban Online Sales?

ABSTRACT: How far can suppliers prevent their retailers from engaging in the online resale of their products in the EU? This question has been widely debated by courts, antitrust enforcers, and competition professionals following the European Court of Justice (CJEU) rulings in Pierre Fabre and Coty.

On the Law & Economics of the Android Case

Paolo Siciliani offers thoughts On the Law & Economics of the Android Case.

ABSTRACT:

• The Android decision, specifically the tie of Google Play with Google Search, is best described as a case of anticompetitive creation of a position of dominance aimed at preserving an original position of dominance in an adjacent market

• In practise, the defendant is prevented from preserving its core business model on a level playing field, thus raising the risks of false positives

• The economic theory of harm put forward to underpin this infringement decision is incomplete, as it does not take into consideration the dynamic feature of the impugned conduct, specifically the fact that when the alleged tie was put in place the position of dominance in the tying market was far from certain

Antitrust Law in Kosovo: Challenges in Following the EU Enforcement Jurisprudence

Avdylkader Mucaj describes Antitrust Law in Kosovo: Challenges in Following the EU Enforcement Jurisprudence.

 

Industry Structure, Segmentation, and Competition in the U.S. Hotel Industry

R. Andrew Butters, Thomas N. Hubbard study Industry Structure, Segmentation, and Competition in the U.S. Hotel Industry.

ABSTRACT: This paper investigates how increases in concentration can be interrupted or reversed by changes in how firms compete on quality. We examine the U.S. hotel industry during the past half century. We document that starting in the early 1980s, quality competition came more in the form of costs that vary with hotel size, and less in the form of costs that are fixed with hotel size, particularly for business travelers. We then show that, consistent with Sutton (1991), industry structure has evolved differently since then in areas that are business travel versus personal travel destinations. Demand increases have been associated with more, but smaller, hotels in business travel destinations. In contrast, the growth in the number of hotels is much smaller, and the growth in average hotel size is much greater, in personal travel destinations. We provide evidence that this change reflects the emergence of two new classes of hotels – limited service and all-suites hotels – that did not exist before the early 1980s. These entrants – many of which had high quality rooms but which had limited out-of-room amenities – had a narrower competitive impact on other hotels than did the entrants of the 1960s and 1970s, which competed more on out-of-the-room amenities, and this led the industry structure to evolve differently.

Fútbol Club Barcelona v Commission: Foul Play—if in Doubt, the Commission to Question the Evidence Submitted by the Parties

Jan Przerwa and Jon Polanec describe Fútbol Club Barcelona v Commission: Foul Play—if in Doubt, the Commission to Question the Evidence Submitted by the Parties.

ABSTRACT: The General Court rules that the Commission should investigate beyond the evidence submitted by the parties if it is in possession of documents calling that evidence into question.