Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, December 2, 2019

HARMFUL SIGNALS: CARTEL PROHIBITION AND OLIGOPOLY THEORY IN THE AGE OF MACHINE LEARNING

Stefan Thomas identifies HARMFUL SIGNALS: CARTEL PROHIBITION AND OLIGOPOLY THEORY IN THE AGE OF MACHINE LEARNING.

ABSTRACT: The traditional legal approach for distinguishing between illicit collusion and legitimate oligopoly conduct is to rely on criteria that relate to the means and form of how rivals interact, such as elements of “practical cooperation”, or on the finding of an anticompetitive intent. These criteria ultimately refer to the inner sphere of natural persons and its emanations in communicative acts. Some authors therefore conclude that the cartel prohibition of Article 101 Treaty on the Functioning of the European Union (TFEU) or Section 1 of the U.S. Sherman Act is unable to capture collusion if it is achieved by autonomously acting computers relying on machine learning capabilities. It is instead suggested here to define collusion as parallel informational signals, which achieve a supracompetitive equilibrium, and to use the consumer welfare standard as a proxy for distinguishing between illicit collusion and legitimate oligopoly conduct. This approach is not tantamount to the idea of prohibiting tacit collusion as such. Rather, it is to check singular elements of communication, that is, “informational signals”, within an existing oligopolistic setting for their propensity to create consumer harm. This approach can help to close potential regulatory gaps currently associated with the surge of algorithmic pricing.

December 2, 2019 | Permalink | Comments (0)

Friday, November 29, 2019

GDPR and the Localness of Venture Investment

Jian Jia, Illinois Institute of Technology - Stuart School of Business, Ginger Zhe Jin, University of Maryland - Department of Economics; National Bureau of Economic Research (NBER), and Liad Wagman, Illinois Institute of Technology - Stuart School of Business, IIT have an interesting paper on GDPR and the Localness of Venture Investment. Worth downloading!

ABSTRACT: We examine how investors' tendency to prefer investing in local ventures interacts with the effects of the General Data Protection Regulation (GDPR) on venture investment in the European Union (EU). Using five-year investment data in EU and US ventures, we demonstrate that GDPR's enactment and rollout differentially affect investors as a function of their proximity to ventures. Specifically, we show that GDPR's rollout in 2018 has a negative effect on EU venture investment and the effects are higher when ventures and lead investors are not in the same country or union. The relationship manifests in the number of deals per month and in the amount invested per deal, and is particularly pronounced for newer and data-related ventures. We further show that GDPR's enactment in 2016 exhibits similar effects but only with respect to lead investors that invest across different industries.

November 29, 2019 | Permalink | Comments (0)

Apple v Pepper: the unintended fallout in Europe

Konstantinos Stylianou discusses Apple v Pepper: the unintended fallout in Europe.

ABSTRACT: In Apple vPepper, the US Supreme Court (hereinafter ‘the Court’) held that iPhone users were direct purchasers of apps from Apple, which, according to precedent set by Illinois Brick vIllinois, made them the proper plaintiffs to sue Apple for antitrust damages. The damages were the result of Apple’s alleged monopolization of the app distribution aftermarket through imposing a supra-competitive 30 per cent commission fee to the price of each downloaded app.

November 29, 2019 | Permalink | Comments (0)

Thursday, November 28, 2019

National and International Developments: The Austro-German proceedings against Amazon and its online marketplace

Wednesday, November 27, 2019

Call for Papers: Michigan Law School 2020 Junior Scholars Conference April 17-18, 2020

Michigan Law School 2020 Junior Scholars Conference
April 17-18, 2020
Call for Papers
Deadline for Submission: January 3, 2020
The University of Michigan Law School is pleased to invite junior scholars to attend the 6th Annual
Junior Scholars Conference which will be held on April 17-18, 2020, in Ann Arbor, Michigan.
The conference provides junior scholars with a platform to present and discuss their work with peers and
receive detailed feedback from prominent members of the Michigan Law faculty. The Conference aims to
promote fruitful collaboration between participants and to encourage their integration into a community
of legal scholars. The Junior Scholars Conference is intended for academics in both law and related
disciplines. Applications from graduate students, SJD/PhD candidates, postdoctoral researchers, lecturers,
teaching fellows, and assistant professors (pre-tenure) who have not held an academic position for more
than four years, are welcomed.
Submission
To apply to the conference, please submit an abstract of no more than 500 words reflecting the
unpublished work that you wish to present and a copy of your CV through the online submission form by
January 3, 2020. Please save all files as word documents in the following format:
LAST NAME – FIRST NAME – ABSTRACT/CV/FUNDING
Selection will be based on the quality and originality of the abstract as well as its capacity to engage with
other proposals and to foster a collaborative dialogue. Decisions will be communicated no later than
January 31, 2020. Selected participants will be required to submit final papers by March 16, 2020, so
that they may be sent to your faculty commentator and circulated among participants in advance.
Financial Assistance
A very limited fund is available to help cover partial travel expenses and accommodation for selected
participants. If you wish to be considered for financial assistance, please submit a separate written request
through the online form specifying your city of departure and an estimate of travel costs. We regret in
advance that we are unable to provide full financial assistance to participants.
Questions can be directed to the Organizing Committee Chair through the email address below.
Chun-Han Chen, Chair
University of Michigan Law School Center for International and Comparative Law
Junior Scholars Organizing Committee 200 Hutchins Hall, 625 South State Street
law-doconf@umich.edu Ann Arbor, MI 48109-1215, U.S.A.

November 27, 2019 | Permalink | Comments (0)

Platform Software Versus the Software of Competition Law

On the Effectiveness of Price-Ceiling Regulations: The Case of Fluid-Milk Market in Israel

By: Bar-Nahum, ZivFinkelshtain, IsraelKan, Iddo
Abstract: We integrate a differentiated goods oligopoly model with a political-economy model to assess the effectiveness of the partial price-ceiling policy in the Israeli fluid-milk market. We estimate minor political influence of the industry on regulators with respect to the price ceilings, and find markups in the regulated segment considerably lower than those in the unregulated one. Compared to a simulated unregulated industry, the prevailing partial price-ceiling regulation is found reducing market prices by 22% and markups by 78%, and increasing social welfare by 12%. The hypothesis of collusion in the unregulated segment is statistically rejected. We show that the combined estimates of political influence and demand substitution across products turn collusion in the laissez-faire segment an inferior strategy from the industry’s perspective.
URL: http://d.repec.org/n?u=RePEc:ags:huaedp:290055&r=com

November 27, 2019 | Permalink | Comments (0)

Dynamic hospital competition under rationing by waiting times

By: Luís SáLuigi SicilianiOdd Rune Straume
Abstract: We develop a dynamic model of hospital competition where (i) waiting times increase if demand exceeds supply; (ii) patients choose a hospital based in part on waiting times; and (iii) hospitals incur waiting time penalties. We show that, whereas policies based on penalties will lead to lower waiting times, policies that promote patient choice will instead lead to higher waiting times. These results are robust to different game-theoretic solution concepts, designs of the hospital penalty structure, and patient utility specifications. Furthermore, waiting time penalties are likely to be more effective in reducing waiting times if they are designed with a linear penalty structure, but the counterproductive effect of patient choice policies is smaller when penalties are convex. These conclusions are partly derived by calibration of our model based on waiting times and elasticities observed in the English NHS for a common treatment (cataract surgery).
URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_7661&r=com

November 27, 2019 | Permalink | Comments (0)

Tuesday, November 26, 2019

King's College Law Public Policy Workshop - Competition and Digital Platforms, 13 December 2019

This event will explore the role of competition law and digital platforms

Fri, 13 December 2019

08:30 – 17:00 GMT

Public Policy Workshop Day 1 - Competition and Digital Platforms

 

8:30-9:00 Breakfast

9:00-9:10 Welcome Professor Renato Nazzini, Director of Research in Construction Law, King’s College London

9:10-9:30 Morning Keynote Dr. Mike Walker, Chief Economic Advisor, Competition and Markets Authority

9:30-11:00 Session 1 Killer Acquisitions –

Moderator: Claire Jeffs, Partner, Slaughter and May

Panelists:

Saunders Kleinglass, Legal Counsel, Intel

Dr. Cristina Caffarra, Head of Competition, Charles River Associates

Dr. Adrian Majumdar, Partner, RBB Economics

Nick Levy, Partner, Cleary Gottlieb

11:00-11:15 Break

11:15-12:45 Session 2 Exploitative Abuse (including collection of user data and provision of ad intermediation services)

Moderator: Dr. Liza Lovdahl Gormsen, Director, Competition Law Forum, British Institute of International and Comparative Law

Panelists:

Tim Capel, Legal Director, Competition and Markets Authority

Thomas Graf, Partner, Cleary Gottlieb

Professor Renato Nazzini, King’s College London

Stephen Lewis, Partner, RBB Economics

12:45-13:45 Lunch

13:45-15:15 Session 3 – Use and valuation of Big Data

Moderator: Lewis Crofts, Editor in Chief, MLex Market Insight

Panelists: Professor D. Daniel Sokol, University of Florida

Dr. Michael A. Salinger, Professor of Management and Economics, Boston University

Anja Lambrecht, Professor of Marketing, London Business School

15:15-15:30 Break

15:30-17:00 Session 4 – Institutional Issues

Moderator: Niamh Dunne, Associate Professor of Law, London School of Economics

Panelists:

Dr. Philip Marsden, Deputy Chair Enforcement Decision Making Committee, Bank of England

Henri Piffaut, Vice President, French Competition Authority

Isabel Taylor, Partner, Slaughter and May

Ben Hooper, Director, Fingleton Associates

17:00 Drinks Reception

November 26, 2019 | Permalink | Comments (0)

Market power and innovation in the intangible economy

By: de Ridder, Maarten
Abstract: Productivity growth has stagnated over the past decade. This paper argues that the rise of intangible inputs (such as information technology) can cause a slowdown of growth through the effect it has on production and competition. I hypothesize that intangibles cause a shift from variable costs to endogenous fixed costs, and use a new measure to show that the share of fixed costs in total costs rises when firms increase ICT and software investments. I then develop a quantitative framework in which intangibles reduce marginal costs and endogenously raise fixed costs, which gives firms with low adoption costs a competitive advantage. This advantage can be used to deter other firms from entering new markets and from developing higher quality products. Paradoxically, the presence of firms with high levels of intangibles can therefore reduce the rate of creative destruction and innovation. I calibrate the model using administrative data on the universe of French firms and find that, after initially boosting productivity, the rise of intangibles causes a 0.6 percentage point decline in long-term productivity growth. The model further predicts a decline in business dynamism, a fall in the labor share and an increase in markups, though markups overstate the increase in firm profits.
URL: http://d.repec.org/n?u=RePEc:ehl:lserod:100946&r=com

November 26, 2019 | Permalink | Comments (0)

The Effect of Medicare Part D on Evergreening, Generic Entry, and Drug Prices

By: Geoffrey T. SanzenbacherGal Wettstein
Abstract: Medicare Part D was established to expand outpatient prescription drug coverage to all seniors. An obvious effect of Part D was to improve the well-being of those who gained coverage by reducing their exposure to drug costs. But, the law also boosted demand for drugs used by those ages 65 and over, and extended the bargaining power enjoyed by commercial plans vis a vis drug manufacturers to the Part D market. Both these changes could give branded drug manufacturers extra incentive to protect their products’ monopoly status through so-called “evergreening,” with unforeseen impacts on the generic drug market and ultimately on prices. While work to date has generally found that Part D decreased prices through increased insurer bargaining power, that literature focused on the few years after Part D launched, a time before the effect of increased evergreening or decreased generic entry could be felt. This paper takes a longer view of how Part D has affected evergreening, generic entry, and ultimately drug prices in a difference-in differences design that compares these outcomes for drugs used frequently by those ages 65 and over to those used infrequently by this population. The results show that Part D increased evergreening and reduced generic entry, and suggest that these effects are associated with higher prices. However, Part D’s overall effect on drug prices is still negative, as the impact of insurer bargaining power apparently more than offsets the effect of more limited supply-side competition.
URL: http://d.repec.org/n?u=RePEc:crr:crrwps:wp2019-8&r=com

November 26, 2019 | Permalink | Comments (0)

On individual incentives to bundle in oligopoly

By: Federico InnocentiDomenico Menicucci
Abstract: This paper examines competition in an oligopoly with multiproduct firms when some firms bundle but other firms sell their products separately, whereas the existing literature on competitive bundling focuses on the extreme cases of competition among bundles or among individual products. Our analysis reveals each firm’s individual incentive to bundle, and allows to study a two-stage game in which first each firm chooses its pricing strategy (bundling or independent pricing), then price competition occurs given the price regime each firm has selected at stage one. When firms are ex ante symmetric, we find that bundling is weakly dominated by independent pricing. In a setting in which a firm’s products have higher quality than its rivals’ products, individual incentives to bundle emerge (eventually for all firms) if the quality difference is large.
URL: http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_16.rdf&r=com

November 26, 2019 | Permalink | Comments (0)

Monday, November 25, 2019

Happily ever after? Vertical and horizontal mergers in the U.S. media industry

By: Stöhr, AnnikaNoskova, VictoriiaKunz-Kaltenhäuser, PhilippGänßle, SophiaBudzinski, Oliver
Abstract: This paper provides an economic analysis of recent vertical and horizontal mergers in the U.S. industry for audiovisual media content, including the AT&T-Time Warner and the Disney-Fox mergers. Using a theory-driven approach, we examine economic effects of these types of mergers on market competition, focusing on digital media content distribution. In doing so, we address three research questions: (i) Is the current development of analyzing industry with its recent merger activity concerning? (ii) Would vertical or horizontal integration be more preferable for overall welfare and competition in this industry? (iii) What are implications for antitrust policy? We conclude from our analysis that in the already highly horizontally concentrated U.S. market for audiovisual content the process of further vertical integration creates concerns from a competition policy perspective. Moreover, even though horizontal concentration on some of the market stages may be anticompetitive as well, vertical integration is likely to be more harmful. As a consequence, we recommend a stricter approach to vertical merger control in this industry, as well as a more active abuse control against already vertically-integrated media companies.
Date: 2019

November 25, 2019 | Permalink | Comments (0)

Firm Performance and Asymmetry of Supplier and Customer Relationships

By: FUJII DaisukeSAITO Yukiko
Abstract: This paper examines how transaction relationships are correlated with firm performance focusing on differences between supplier and customer relationships. In theory, both suppliers and customers positively affect sales and profit but their channels are different. A supplier set affects a firm's productivity lowering its marginal cost of production whereas a customer set only expands the size without affecting productivity. We consider a simple model of production with intermediate inputs, and examine whether theoretical implications are consistent with empirical evidence by estimating panel regressions using Japanese inter-firm transaction network data. We find that sales elasticities of in- and out-degree are positive. In- and out-degrees exhibit complementarity on sales implying that the marginal benefit of having more suppliers increases with the number of customers, and vice versa. Also, the elasticity of in-degree increases with size while that of out-degree is constant. This is also consistent with the theory, which predicts a leveraged effect of lowering a marginal cost when the scale is large.

November 25, 2019 | Permalink | Comments (0)

Mergers of Complements and Entry in Innovative Industries

By: Federico Etro
Abstract: I study a merger between producers of complement inputs facing potential entry, with investment by the incumbents in deterministic cost reduction and by the entrants in probabilistic innovation, and then competition in prices. The merger solves Cournot complementarity problems in investment and pricing, which is what makes it profitable but also potentially anti-competitive. When the demand is inelastic the merger harms consumers by reducing R&D of the entrants if the incumbents are efficient enough (always when bundling is adopted). Instead, with a demand elastic enough, the merger increases consumer surplus (even with bundling).
URL: http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_15.rdf&r=com

November 25, 2019 | Permalink | Comments (0)

Friday, November 22, 2019

R&D and market size: who benefits from orphan drug regulation?

By: Simona Gamba (Department of Economics (University of Verona)); Laura Magazzini (Department of Economics (University of Verona)); Paolo Pertile (Department of Economics (University of Verona))
Abstract: Since the early 80s, orphan drug regulations have been introduced to stimulate R&D for rare diseases. We develop a theoretical model to study the heterogeneous impact on optimal R&D decisions of the incentives for diseases with different levels of prevalence. We show the mechanisms through which the type of incentives deployed by orphan drug regulations may stimulate R&D more for orphan diseases with comparatively high prevalence, thus increasing inequality within the class of orphan diseases. Using data from the Food and Drug Administration on the number of orphan designations, our empirical analysis shows that, while R&D has increased over time for all orphan diseases, the increase has been much greater for the less rare. According to our baseline specification, the difference between the predicted number of orphan designations for a disease belonging to the highest and the lowest class of prevalence is 5.6 times larger after 2008 than it was in 1983. Our findings support the idea that the type of incentives in place may be responsible for this increase in inequality within orphan diseases.
URL: http://d.repec.org/n?u=RePEc:ver:wpaper:09/2019&r=com

November 22, 2019 | Permalink | Comments (0)

Trust, Investment and Competition: Theory and Evidence from German Car Manufacturers

By: Calzolari, GiacomoFelli, LeonardoKoenen, JohannesSpagnolo, GiancarloStahl, Konrad O
Abstract: Based on data from a comprehensive benchmarking study on buyer-supplier relationships in the German automotive industry, we show that more trust in a relationship is associated with higher idiosyncratic investment by suppliers and better part quality|but also with more competition among suppliers. Both associations hold only for parts involving comparatively unsophisticated technology, and disappear for parts involving sophisticated technology. We rationalize all these observations by means of a relational contracting model of repeated procurement with non-contractible, buyer-specific investments. In relationships involving higher trust, buyers are able to induce higher investment and more intense competition among suppliers|but only when the buyer has the bargaining power. This ability disappears when the bargaining power resides with the supplier(s).
URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:13750&r=com

November 22, 2019 | Permalink | Comments (0)

On the Competitive Effects of Screening in Procurement

By: Seres, G. (Tilburg University, TILEC); Pigon, Adam
Abstract: Procuring authorities frequently use screening in order to mitigate risky bids. This study estimates the effect of bid screening and litigation on entry and bidding using a unique data set on highway construction procurement auctions in Poland. The market exhibits a screening method that ex post selects eligible offers. We demonstrate with an empirical model that this method disproportionately affects small firms and creates a barrier to entry. Our results suggest that screening increases bids by two channels. First, it directly inflates bids as well as decreasing entry. Second, in a competitive market, lower entry also inflates bids and prices.
URL: http://d.repec.org/n?u=RePEc:tiu:tiutil:78e45bf6-3a0a-46a0-9abd-78a8baa4e3ad&r=com

November 22, 2019 | Permalink | Comments (0)

Thursday, November 21, 2019

A network approach to cartel detection in public auction markets

By: Johannes WachsJ\'anos Kert\'esz
Abstract: Competing firms can increase profits by setting prices collectively, imposing significant costs on consumers. Such groups of firms are known as cartels and because this behavior is illegal, their operations are secretive and difficult to detect. Cartels feel a significant internal obstacle: members feel short-run incentives to cheat. Here we present a network-based framework to detect potential cartels in bidding markets based on the idea that the chance a group of firms can overcome this obstacle and sustain cooperation depends on the patterns of its interactions. We create a network of firms based on their co-bidding behavior, detect interacting groups, and measure their cohesion and exclusivity, two group-level features of their collective behavior. Applied to a market for school milk, our method detects a known cartel and calculates that it has high cohesion and exclusivity. In a comprehensive set of nearly 150,000 public contracts awarded by the Republic of Georgia from 2011 to 2016, detected groups with high cohesion and exclusivity are significantly more likely to display traditional markers of cartel behavior. We replicate this relationship between group topology and the emergence of cooperation in a simulation model. Our method presents a scalable, unsupervised method to find groups of firms in bidding markets ideally positioned to form lasting cartels.
URL: http://d.repec.org/n?u=RePEc:arx:papers:1906.08667&r=com

November 21, 2019 | Permalink | Comments (0)

Private Labels and Product Quality under Asymmetric Information

By: Zhiqi Chen (Department of Economics, Carleton University); Heng Xu (Business School, China University of Political Science and Law)
Abstract: Contrary to the existing theories of private label products, we demonstrate that the introduction of a private label product by a retailer may improve the profits of the supplier of a competing national brand product. Our theory is built on two main elements. First, the introduction of a private label product may expand the total demand for the products carried by the retailer and thus enlarge the joint profit to be split between the retailer and the supplier of the national brand product. Second, in an environment where consumers do not know the quality of the private label product, the national brand serves as a bond to assure consumers that the retailer sells high-quality products only. This quality assurance enhances the joint profit generated by the introduction of the private label product, which, in conjunction with the weakening of the retailer’s bargaining position caused by asymmetric information, may enable the national brand supplier to earn a larger profit than in the absence of the private label product.
URL: http://d.repec.org/n?u=RePEc:car:carecp:19-02&r=com

November 21, 2019 | Permalink | Comments (0)