Antitrust & Competition Policy Blog

Does competition increase pass-through?

Does competition increase pass-through?

By:	Ritz, R.
Abstract:	How does market power affect the rate of pass-through from marginal cost to the market price? A standard intuition is that more competition makes prices more “cost-reflective” and thus raises cost pass-through. This paper shows that this intuition is sensitive to the common assumption in the literature that firms’ marginal costs are constant. If firms have even modestly increasing marginal costs, more intense competition actually reduces pass through. These results apply to the “normal” case where pass-through is less than 100%. They have implications for competition policy and environmental regulation.
Keywords:	Cost pass-through, imperfect competition, perfect competition, production technology
URL:	http://d.repec.org/n?u=RePEc:cam:camdae:1974&r=com

Antitrust Regional Networking Reception - Palo Alto Feb 27, 2020

Antitrust Regional Networking Reception - Palo Alto

Garden Court Hotel, 6 PM PST

Please join us at this Antitrust Law Section networking event in San Francisco where you will have the opportunity to interact with colleagues and connect with Section leaders, members, and staff. THERE IS NO COST TO ATTEND THIS EVENT, WHICH IS OPEN TO ANTITRUST SECTION MEMBERS, ALL GOVERNMENT EMPLOYEES, AND OTHER INTERESTED LAWYERS, ECONOMISTS, AND LAW STUDENTS.

This event is co-sponsored by the Intellectual Property, Joint Conduct, and Media and Technology Committees.This event will feature remarks from:

Speakers:
Leonor Davila; Senior Counsel, Global Antitrust Compliance at Intel
Michael Lawrence; Senior Competition Counsel at Google

Event Details

Format

In-Person

Location

Garden Court Hotel
520 Cowper StPalo Alto, CA 94301-1823

Date

Feb 27, 2020

Register here.

Patterns of Competitive Interaction

Patterns of Competitive Interaction

By:	Armstrong, Mark; Vickers, John
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.
URL:	http://d.repec.org/n?u=RePEc:cpr:ceprdp:13821&r=com

Another Look at “Bank Competition and Financial Stability: Much Ado about Nothing?”

Another Look at “Bank Competition and Financial Stability: Much Ado about Nothing?”

By:	Samangi Bandaranayake; Kuntal K. Das (University of Canterbury); W. Robert Reed (University of Canterbury)
Abstract:	This study replicates Zigraiova and Havranek’s (2016) meta-analysis of banking competition and financial stability. It performs multiple types of replications: a “Reproduction” replication where Z&H’s data and code are verified to reproduce the results of their study; a “Repetition” replication where the studies used by Z&H are independently recoded and then re-analyzed; an “Extension” replication where additional studies on banking competition and stability are analyzed; and a “Robustness Analysis” where we check Z&H’s results using an alternative empirical procedure. Our analysis strongly confirms Z&H’s main finding that competition in the banking sector has an economically negligible effect on financial stability. This result is consistently confirmed across a variety of replication analyses. Most impressively, we confirm their finding even when we analyze a completely independent set of 35 studies not included in Z&H’s meta-analysis. Our results for Z&H’s other findings are less supportive. As the first comprehensive replication of a meta-analysis, this study also provides insights into the robustness of meta-analysis. We find that meta-regression analysis, where estimated effects are related to data, estimation, and study characteristics, is sensitive to how data are coded and to the choice of estimation procedure; and that this sensitivity extends to “best practice” estimates.
URL:	http://d.repec.org/n?u=RePEc:cbt:econwp:19/08&r=com

Fundamental Procedural Rights and Effective Enforcement of Articles 101 and 102 TFEU in the European Competition Network

Wouter P. J. Wils, King's College London – The Dickson Poon School of Law; European Union - European Commission discusses Fundamental Procedural Rights and Effective Enforcement of Articles 101 and 102 TFEU in the European Competition Network.

ABSTRACT:

This paper deals with the fundamental procedural rights of companies that are targeted in the enforcement of Articles 101 and 102 TFEU by the European Commission or the competition authorities of the EU Member States. The paper first provides a (non-exhaustive) list of such rights as applicable to the enforcement of Articles 101 and 102 TFEU by the European Commission, and explains the source of these fundamental rights in the EU legal order. The paper then examines the relationship between fundamental procedural rights and effective enforcement of Articles 101 and 102 TFEU. It argues that procedural rights often contribute to effective enforcement, but not always. The interplay between fundamental rights of legal persons and competition enforcement remains a balancing exercise, and this balancing exercise is not the same as in traditional criminal law. Finally, the paper examines the question whether or to what extent EU Member States can, for the enforcement of Articles 101 and 102 TFEU by their national competition authorities, provide for a lower or a higher level of procedural rights than the level of fundamental procedural rights applicable to the enforcement of Articles 101 and 102 TFEU by the European Commission.

Scientific and Policy Workshop on market power trends in Germany and Europe in Berlin March 11th 2020 jointly organized by the German Monopolies Commission and the Bertelsmann Foundation

Scientific and Policy Workshop on market power trends in Germany and Europe in Berlin March 11th 2020 jointly organized by the German Monopolies Commission and the Bertelsmann Foundation. See here.

Call for Papers for a Special Issue on "Market Power and Concentration Developments: Evidence and Implications for Germany and Europe"

Call for Papers for a Special Issue on "Market Power and Concentration Developments: Evidence and Implications for Germany and Europe" of the Journal of Economics and Statistics. Submission deadline April 30th. More information can be found here:

 

From Local to Global Competitors on the Beer Market

From Local to Global Competitors on the Beer Market

By:	Erik Strøjer Madsen (Department of Economics and Business Economics, Aarhus University)
Abstract:	Liberalization of trade has been high on the political agenda after the Second World War. First through the international corporation in GATT and WTO and later the creation of the internal market in Western Europe and the opening up of Eastern Europe and China. The breweries respond to these changes in institution by a global M&A strategy and the following concentration of ownership among breweries increased the large breweries’ global market share dramatically. Why does this concentration in ownership take place, and was there some pay off to the breweries of this strategy? We will examine the market power hypothesis, how the increasing concentration has affected the growth of global brands and the beer prices. First, we examine where the increasing global concentration is reflected in a concentration of ownership in local markets. Next, we examine the effects of ownership concentration on the level of beer prices. Finally, we examine the effects of the global ownership on the market share of the global beer brand.
URL:	http://d.repec.org/n?u=RePEc:aah:aarhec:2019-11&r=com

Competition and Pass-Through: Evidence from Isolated Markets

Competition and Pass-Through: Evidence from Isolated Markets

By:	Genakos, Christos D.; Pagliero, Mario
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.
URL:	http://d.repec.org/n?u=RePEc:cpr:ceprdp:13882&r=com

Guiding Principles in Setting Cartel Sanctions

Guiding Principles in Setting Cartel Sanctions

By:	Marcel Boyer; Anne Catherine Faye; Éric Gravel; Rachidi Kotchoni
Abstract:	We discuss various theoretical and empirical hurdles that antitrust authorities and courts must overcome to determine appropriate cartel sanctions, namely regarding the probability of detection, cartel dynamics, cartel duration, and cartel overcharge.
URL:	http://d.repec.org/n?u=RePEc:cir:cirwor:2019s-18&r=com

Marketing Science Special Issue on Consumer Protection

See here.

The Honorable Douglas H. Ginsburg to Receive Justice Department's 2020 John Sherman Award

Judge Ginsburg has made an important contribution to antitrust and I am glad he is being recognized.  He is also one of the kindest people in the business.

From the press release:

The Antitrust Division of the Department of Justice will present Judge Douglas H. Ginsburg with the John Sherman Award for his lifetime contributions to the development of antitrust law and the preservation of economic liberty.  Judge Ginsburg will deliver remarks and receive the award during a ceremony on May 8, 2020, in the Great Hall of the Robert F. Kennedy Department of Justice Building.  

“Judge Ginsburg’s role in the advancement of antitrust law and policy cannot be overstated,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “It is a privilege for the division to recognize his career and achievements with this award.  Judge Ginsburg’s leadership in the Antitrust Division, as well as his incisive and cogent scholarship, has brought sound economic analysis to the forefront of antitrust law.  His contributions have greatly improved the ability of antitrust law to protect consumer welfare and to spur economic growth.”

Created in 1994, the John Sherman Award is presented by the Justice Department's Antitrust Division to a person or persons for outstanding contributions to the field of antitrust law, the protection of American consumers, and the preservation of economic liberty.

Judge Ginsburg received his undergraduate degree from Cornell University and his J.D. from the University of Chicago.  Following law school, Judge Ginsburg clerked for Judge Carl McGowan of the U.S. Court of Appeals for the D.C. Circuit and for U.S. Supreme Court Justice Thurgood Marshall.  He joined the faculty at Harvard Law School from 1975 to 1983, before serving as the Deputy Assistant Attorney General for Regulatory Affairs, Antitrust Division, U.S. Department of Justice, from 1983 to 1984; Administrator, Information and Regulatory Affairs, OMB, from 1984 to 1985; and Assistant Attorney General, Antitrust Division, U.S. Department of Justice, from 1985 to 1986.  Judge Ginsburg was appointed to the U.S. Court of Appeals for the District of Columbia Circuit in November 1986 and served as Chief Judge from July 2001 until February 2008.  Concurrent with his service on the federal bench, Judge Ginsburg has taught at the University of Chicago Law School and the New York University School of Law. He is currently a Professor of Law at the Antonin Scalia Law School, George Mason University, and a visiting professor at the University College London, Faculty of Laws. 

Judge Ginsburg’s efforts to incorporate economic analysis in antitrust enforcement is instrumental to how agencies and practitioners approach antitrust law today.  Of his many notable contributions, Judge Ginsburg elevated the role of economic analysis in antitrust enforcement by expanding the Division’s economics section and by creating the position of the Deputy Assistant Attorney General for Economic Analysis during his tenure as the Assistant Attorney General of the Antitrust Division.  Through his work with the Global Antitrust Institute at the Antonin Scalia Law School, Judge Ginsburg is renowned for helping international enforcers and judges apply economic insights in competition law.   Judge Ginsburg’s jurisprudence and scholarship further reflect the intellectual rigor that has marked his distinguished career.  He was an influential judge on the landmark United States v. Microsoft case in 2001, and the case remains foundational to understanding competition in high-tech markets. Judge Ginsburg’s scholarship is widely admired, and his academic works — ranging in topic from the application of antitrust law in a changing economy to the effects of extra-jurisdictional remedies — tackle complex questions and continue to influence students, enforcers, and practitioners alike. 

The award is named for the author of the Sherman Act of 1890, the nation's first and foremost antitrust law. John Sherman, a former congressman and senator, also served as Secretary of the Treasury from 1877 to 1881 and as Secretary of State from 1897 to 1898. Previous recipients have included Diane P. Wood (2015), James F. Rill (2012), Robert Pitofsky (2010), Herbert Hovenkamp (2008), Robert H. Bork (2005), Richard A. Posner (2003), Milton Handler (1998), Thomas Kauper and William Baxter (1996), Phillip Areeda (1995), and Howard Metzenbaum (1994).

Assistant Attorney General Makan Delrahim Delivers Opening Remarks at Public Workshop on Venture Capital and Antitrust

See here.

The Impact of Product Qualities on Downstream Bundling in a Distribution Channel

The Impact of Product Qualities on Downstream Bundling in a Distribution Channel

By:	Angelika Endres (Paderborn University); Joachim Heinzel (Paderborn University)
Abstract:	We study the impact of exogenous product qualities on a downstream firm’s decision to bundle and the welfare effects of downstream bundling. We consider a distribution channel with two downstream firms and two price-setting monopolistic upstream producers. One upstream firm sells its good 1 exclusively to one downstream firm and the other upstream firm sells its good 2 to both downstream firms. The downstream firms compete in prices and the two-product downstream firm has the option to bundle its goods. We find that downstream bundling aggravates the problem of double marginalization in the channel, but reduces the intensity of downstream competition. Finally, bundling is profitable for the two-product downstream firm only when the quality of good 2 exceeds the quality of good 1. However, bundling is always profitable when the production process is controlled by the downstream industry. The impact on total welfare is ambiguous and depends on the distribution of market power in the channel and the quality levels of the goods.
URL:	http://d.repec.org/n?u=RePEc:pdn:ciepap:124&r=com

Legal Obstacles to Private Enforcement of Competition Law

Michal Gal, University of Haifa - Faculty of Law and Rivi Dahan, University of Haifa, Faculty of Law identify Legal Obstacles to Private Enforcement of Competition Law.

ABSTRACT: Private enforcement of competition law serves many important goals, including deterrence of future anti-competitive harms and correction of past harms. This article sheds light on several potential legal obstacles to such enforcement which could prevent it from achieving its goals. The examples mainly build upon the experience of different jurisdictions with private litigation. It also suggests some possible solutions for dealing with or limiting such obstacles. As Europe is in the early stages of applying its Damages Directive and creating a private competition law enforcement regime, recognising – and possibly avoiding – obstacles to efficient private enforcement is both timely and important.

The Incentives to Arbitrate (or to Settle) Antitrust Damages Actions under Directive 2014/104

Yves Herinckx, Brussels Court of Appeal has written on The Incentives to Arbitrate (or to Settle) Antitrust Damages Actions under Directive 2014/104.

ABSTRACT: The European Directive 2014/104 of 26 November 2014 deals with the private enforcement of competition law in the European Union, i.e. with damages claims arising from breaches of competition law. In its recital 48, the Directive states that it wishes to encourage the arbitration of these claims and their settlement. Various provisions of the Directive seek to constitute incentives to arbitration and settlement. This paper analyses these provisions and assesses their effectiveness, or lack of.

The Curious Case of Competition Law and Health Equity

Theodosia Stavroulaki, University of Michigan Law School; University of Turin - Collegio Carlo Alberto describes The Curious Case of Competition Law and Health Equity.

ABSTRACT: Healthcare markets have started being created in Europe. Indeed, some countries, such as the UK, have introduced competitive forces in their health systems as a means to improve their efficiency and quality. The role of competition in healthcare is a hotly debated topic with some considering it “anathema” and others seeing it as “a magic bullet”. Aiming to spark this heated, albeit unsettled, debate, this article raises an additional concern: it contends that when competitive forces are introduced into a health system, the main actors involved in the provision of healthcare, mainly physicians acting either as gatekeepers or purchasers of healthcare services may enter into agreements that restrict competition among healthcare providers with a view to protecting equity and access to care. Shining a light on these antitrust concerns, this article asks the wider question: should competition authorities in Europe consider in their competition analysis the core objectives their health systems strive to attain, such as equity? How and to what extent can the antitrust enforcers integrate distributive concerns into their competition assessment on the basis of article 101 TFEU?

Institutions and Incentives in Antitrust Enforcement

Spencer Waller, Chicago Loyola addresses Institutions and Incentives in Antitrust Enforcement.

ABSTRACT: One of the most vexing questions in U.S. antitrust law is the meaning of the rule of reason under Section One of the Sherman Act. The U.S. Supreme Court has struggled for over a century to give meaning and guidance for the broad language of the Sherman Act banning contracts, combinations, and conspiracies in restraint of trade. The modern Supreme Court has a relatively new interpretative strategy to consider what legal standard should apply to agreements that potentially harm competition.

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

Kyle Herkenhoff, University of Minnesota - Minneapolis and Gajendran Raveendranathan, McMaster University 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.

Innovate to Lead or Innovate to Prevail: When Do Monopolistic Rents Induce Growth?

Roberto Piazza, International Monetary Fund (IMF) and Yu Zheng, Queen Mary University of London ask Innovate to Lead or Innovate to Prevail: When Do Monopolistic Rents Induce Growth?

ABSTRACT: This paper extends the Schumpeterian model of creative destruction by allowing followers' cost of innovation to increase in their technological distance from the leader. This assumption is motivated by the observation the more technologically advanced the leader is, the harder it is for a follower to leapfrog without incurring extra cost for using leader's patented knowledge. Under this R&D cost structure, leaders innovate to increase their technological advantage so that followers will eventually stop innovating, allowing leadership to prevail. A new steady state then emerges featuring both leaders and followers innovating in few industries with low aggregate growth.