Monday, October 11, 2021

Abuse Without Dominance and Monopolisation Without Monopoly

Abuse Without Dominance and Monopolisation Without Monopoly

Akman, Brook, Stylianou (eds.) Research Handbook on Abuse of Dominance and Monopolization (Edward Elgar Publishing, Forthcoming)

 

Or Brook

University of Leeds

Magali Eben

University of Glasgow

 

Abstract

The EU and US antitrust law provisions on unilateral conduct are often understood as remedying the competitive harm resulting from the exercise of significant market power. They only apply when firms hold dominance or monopoly positions.

Nonetheless, this chapter explores existing laws and planned legislative proposals diverging from this premise. It highlights the different degrees and types of economic power embedded in the EU and US rules that limit the conduct of firms holding lower thresholds of market power, relative power (e.g., economic dependence, and unfair practices), or gatekeeper powers.

The chapter exposes a gap between the notions of power and the theory of harm, challenging the dividing line between protection against harm to effective competition and harm to competitors. Accordingly, the chapter calls upon legislators and enforcers to align the notions of power with the harm and interests covered by the laws.

October 11, 2021 | Permalink | Comments (0)

Friday, October 8, 2021

A Storm Is Brewing: How Federal Ambivalence Regarding Below-Cost Pricing Turns a Blind Eye Towards Monopoly Risk in the Beer Market

A Storm Is Brewing: How Federal Ambivalence Regarding Below-Cost Pricing Turns a Blind Eye Towards Monopoly Risk in the Beer Market

 

Daniel Croxall

University of the Pacific, McGeorge School of Law

Abstract

Large beer manufacturers, known colloquially as “Big Beer,” have been steadily losing market share to small, independent craft breweries. Big Beer wants its market share back, and in some cases will go to great lengths to try to defend its dominance—even anticompetitive conduct. Below-cost pricing is one avenue that presents a risk to independent craft breweries. This article examines how Big Beer can manipulate the beer market in its favor by engaging in predatory pricing. Further, this article proposes a solution that could be implemented on a nation-wide scale to curtail Big Beer’s anticompetitive activities with respect to pricing.

October 8, 2021 | Permalink | Comments (0)

Thursday, October 7, 2021

Decision Theory and Legal Process in EU Competition Law

Decision Theory and Legal Process in EU Competition Law

 

Jorge Padilla

Compass Lexecon

 

Abstract

In this brief essay I set out my views on the way in which competition assessments should be conducted so that they be consistent with the standard of proof in EU competition cases and Easterbrook’s error cost minimization principle. My goal is to develop a normative benchmark against which to assess the European Commission’s actual decision-making practice. I conclude by discussing whether actual practice is consistent with such a benchmark.

October 7, 2021 | Permalink | Comments (0)

Wednesday, October 6, 2021

Dynamic Merger Policy and Pre-Merger Investment: Equilibrium Product Choice by an Entrant

Dynamic Merger Policy and Pre-Merger Investment: Equilibrium Product Choice by an Entrant

 

 

Richard Gilbert

University of California, Berkeley

Michael L. Katz

University of California, Berkeley - Department of Economics; Haas School of Business

Date Written: February 28, 2021

Abstract

We examine the effects of merger and merger policy on a potential entrant’s pre-merger investment incentives. We establish conditions under which the possibility of merger can induce an entrant to inefficiently imitate an incumbent’s product instead of innovating with a more differentiated product. Turning to policy, current practice is to evaluate a proposed merger by focusing on post-merger effects (e.g., whether the merged firm will charge higher prices or invest less in innovation than would the two firms if they remained independent of one another). We show that policies focused solely on a proposed merger’s ex post welfare effects can induce an entrant to choose an inefficient direction for its pre-merger investment, either because doing so maximizes the profits of a merger that would be approved regardless of the direction of its efforts, or because the nature of the approval process itself distorts incentives with respect to the direction of pre-merger investment.

October 6, 2021 | Permalink | Comments (0)

What Does Expanding Horizontal Control Mean for Antitrust Enforcement? A Look at Mergers, Partial Ownership, and Joint Ventures

What Does Expanding Horizontal Control Mean for Antitrust Enforcement? A Look at Mergers, Partial Ownership, and Joint Ventures

 

Diana L. Moss

American Antitrust Institute

 

Abstract

AAI issued a new white paper, “What Does Expanding Horizontal Control Mean for Antitrust Enforcement? A Look at Mergers, Partial Ownership, and Joint Ventures.” The paper is authored by AAI President and economist, Diana Moss. The paper explains that the many mechanisms for expanding horizontal ownership and control of economic resources pose ongoing challenges for merger enforcement. This is readily apparent in markets that have undergone profound structural change from horizontal consolidation and rising concentration over the last several decades, including wireless telecommunications, airlines, hospitals, health insurance, meat processing, and others.

Horizontal control is a central concept in industrial organization and frequently encountered concern in antitrust enforcement. For example, the vast majority of all merger transactions challenged by the U.S. Department of Justice (DOJ) Antitrust Division and Federal Trade Commission (FTC) involve some form of horizontal control. Horizontal mergers that completely and permanently eliminate an independent competitor receive the most attention. But other forms of horizontal control that do not completely eliminate a rival—including acquisitions of partial ownership stakes and some joint venture agreements—have no less important implications for competition and consumers.

For example, production, marketing, and R&D joint ventures (or “competitor collaborations”) can weaken incentives for parties to the agreement to compete independently. Such arrangements have become more common, as we have seen, for example, in the agricultural biotechnology and pharmaceutical sectors. Rivals’ partial ownership stakes in each other, and private equity and institutional investors that acquire stakes in multiple rivals competing in the same product markets, can also weaken competitive incentives.

Private equity buyouts raise broader concerns about the damage left behind in the wake of rapid exits and in raising prices to consumers. Yet there remains little transparency around the role of private equity in the broader landscape of horizontal control. Moreover, research indicates that partial ownership can lessen incentives to compete more than under a monopoly. Meanwhile, there is ongoing debate over whether antitrust can reach to competitive issues raised by institutional investor ownership of stock in rivals in sectors such as airlines and banking.

As antitrust enforcers try to keep pace with the many forms of horizontal control and their competitive implications, we see indications of weakening merger enforcement under Section 7 of the Clayton Act. For example, the scales have tipped sharply toward merging parties in merely predicting the pro-competitive effects of their deals, while the government bears a nearly insurmountable burden of proving that a merger will harm competition. Research shows that the benefits of mergers are often speculative and never materialize, leaving consumers with higher prices, lower quality, less innovation. Moreover, data on merger enforcement reveals that the antitrust agencies increasingly seek remedies for problematic mergers, rather than moving to block them or to force their abandonment. Yet we see a growing list of failed merger remedies, leaving consumers with higher prices, lower quality, and less innovation.

Given its many faces, ubiquity, and indubitable link to market concentration, it is time to take a fresh look at horizontal control. Analysis in this White Paper reveals troubling issues for antitrust enforcement in light of rising concentration, weakening enforcement, evidence of failed mergers and merger remedies, and growth of the partial ownership model. These takeaways should inform potential antitrust reform proposals and approaches to invigorating merger enforcement and competition policy. The first part of the paper examines the competitive dynamics of different forms of horizontal control. The second part examines major enforcement and policy issues raised by expanding horizontal control and highlights areas of much needed analysis.

This includes analyses of failed merger remedies, whether litigated mergers have produced claimed benefits, and how partial ownership acquisitions by private equity firms have affected market concentration. The paper also recommends that the agencies withdraw the “safe harbor” provision for some partial ownership acquisitions in their proposed revisions to the Hart Scott Rodino (HSR) Act filing requirements.

October 6, 2021 | Permalink | Comments (0)

Tuesday, October 5, 2021

Corporate Social Responsibility by Joint Agreement

Corporate Social Responsibility by Joint Agreement

 

 

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Leonard Treuren

University of Amsterdam - Amsterdam School of Economics (ASE)

 

Abstract

Industry-wide voluntary agreements are touted as a means for corporations to take more corporate social responsibility (CSR). We study what type of joint CSR agreement induces competitors to increase CSR efforts in a model of oligopolistic competition with differentiated products. Consumers have a willingness to pay for more responsibly manufactured products. Firms are driven by profit, and are also possibly intrinsically motivated, to invest in CSR efforts. We find that cooperative agreements directly on the level of CSR reduce CSR efforts compared to competition. Such agreements throttle both for-profit and intrinsic motivation for CSR. CSR efforts only increase if agreements are permitted solely on output. Such production agreements, however, reduce total welfare in the market and raise antitrust concerns. Taking externalities into account may help justify a production agreement under a broader welfare standard, but not agreements on CSR directly. Moreover, simply requiring a higher CSR level by regulation while preserving competition always gives higher within-market welfare.

October 5, 2021 | Permalink | Comments (0)

Monday, October 4, 2021

Market Power and Systematic Risk

Market Power and Systematic Risk

 

 

Fabian Hollstein

Leibniz University Hannover - School of Economics and Management

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Christoph Wuersig

Leibniz Universität Hannover - Faculty of Economics and Management

 

Abstract

We investigate the impact of product market competition on firms' systematic risk. Using a measure of total product market similarity, we document a strong negative link between market power and market betas. There is a more than threefold increase in the effect during the most recent low-competition period. Announcements of anti-competitive mergers lead to a significant reduction in market betas, underlining the causality of the market power--systematic risk relationship. Firms that face less competition appear to be partly insulated from systematic discount-rate shocks. Lower equity costs therefore mean that market power is in part self-reinforcing.

October 4, 2021 | Permalink | Comments (0)

Friday, October 1, 2021

Acting Assistant Attorney General Richard A. Powers of the Antitrust Division Delivers Remarks at Fordham's 48th Annual Conference on International Antitrust Law and Policy

Acting Assistant Attorney General Richard A. Powers of the Antitrust Division Delivers Remarks at Fordham's 48th Annual Conference on International Antitrust Law and Policy

Here

October 1, 2021 | Permalink | Comments (0)

A Synthetic Model of Disruption and Experimentation

A Synthetic Model of Disruption and Experimentation

 

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

 

Abstract

This paper examines how a firm's choice of the type of experiment impacts on its potential exploitation of new technological opportunities. It does so in the context of the failure of successful firms (or disruption) where the literature has informally suggested that firms undertake errors in experimental choice (in particular, choosing experiments that involved biased signals). It is shown that firms will generically choose biased over unbiased experiments even when there are no differences in their relative costs. This is done to better inform decisions regarding the exploitation of technological opportunities. It is shown that these choices can differ between incumbents and entrants based on their fundamentals as well as because of the anticipation of competition between them.

October 1, 2021 | Permalink | Comments (0)

Thursday, September 30, 2021

Value Preserving Platform Regulation: Network effects, platform value and regulatory remedies

Value Preserving Platform Regulation: Network effects, platform value and regulatory remedies

 

Carmelo Cennamo

Copenhagen Business School - Department of Strategy and Innovation; SDA Bocconi

 

Abstract

The digitization of the economy is transforming not just the internal firms’ operational processes but entire sectors by redefining how firms create and deliver value. This is achieved through new ways of organizing firms’ value chains and interfirm relationships, which now increasingly occur not in isolation but in digital ecosystems and digital marketplaces. Digital platforms represent the engine of this transformation: they enable new structures of economic relationships, facilitate and manage interactions among multiple groups of users, and create new roles and innovation opportunities by empowering value-adding contributions by external firms and users. While this market orchestration power has produced large benefits for consumers and the economy at large, those benefits may hide risks associated with market power concentration. This report explores these implications by revisiting first the role of network size for network effects, then discusses when data can lead to network effects dynamics and create entry barriers or when they might stimulate greater innovation and competition. It concludes with a brief account of the challenges and issues with the writing of effective competition law.

September 30, 2021 | Permalink | Comments (0)

Wednesday, September 29, 2021

OECD Gender Inclusive Competition Policy Project: Ways Forward

FROM 16H00 TO 18H00 CET TIME

The fight for gender equality is one of the defining challenges of our age. While progress has been made in many areas, the relationship between gender and competition policy remains largely unexplored. After producing a series of blogs, papers, interviews and discussions, the OECD launched its Gender Inclusive Competition Policy project in the summer of 2020 with the support of the Canadian Government. As part of the project, the OECD asked research teams from around the world to generate new evidence to inform the debate and help us to develop guidance on how to develop a more gender inclusive competition policy.
More info on the project: www.oecd.org/daf/competition/gender-inclusive-competition-policy.htm

Oct 7, 2021 04:00 PM in Amsterdam, Berlin, Rome, Stockholm, Vienna

September 29, 2021 | Permalink | Comments (0)

Leveling the Playing Field in the Standards Ecosystem: Principles for A Balanced Antitrust Enforcement Approach to Standards-Essential Patents

Vertical Control

Vertical Control

NYU Law Review Online (2021)

Herbert Hovenkamp

University of Pennsylvania Carey Law School; University of Pennsylvania - The Wharton School; University College London

Abstract

Antitrust litigation often requires courts to consider challenges to vertical “control.” How does a firm injure competition by limiting the behavior of vertically related firms? Competitive injury includes harm to consumers, labor, or other suppliers from reduced output and higher margins.

Historically antitrust considers this issue by attempting to identify a market that is vertically related to the defendant, and then consider what portion of it is “foreclosed” by the vertical practice. There are better mechanisms for identifying competitive harm, including a more individualized look at how the practice injures the best placed firms or bears directly on a firm’s ability to reduce output and increase its price without losing so many sales that the price increase is unprofitable.

One important consequence of these new approaches is that the market share numbers that the antitrust case law traditionally attaches to foreclosure percentages are not particularly meaningful. The tying and exclusive dealing case law generally aggregates the market subject to foreclosure concerns and considers foreclosure as a percentage of an undifferentiated whole. In general, it proclaims minimum market foreclosure percentages in the range of 30% - 40% as a condition for illegality. When we focus more accurately on marginal effects and the possibility of raising rivals’ costs, however, these numbers are much less significant. For example, if the lowest cost firm in a market is subject to an exclusivity agreement, anticompetitive results, particularly RRC, could obtain even if the percentage of total sales is far less than 30%. By contrast, if only the least efficient firm or firms in a market were made subject to such an agreement, even aggregate foreclosure percentages higher than 40% might result in no competitive harm.

September 29, 2021 | Permalink | Comments (0)

Tuesday, September 28, 2021

Reforming Merger Reviews to Preserve Creative Destruction

Aurelien Portuese, ITIF has written on Reforming Merger Reviews to Preserve Creative Destruction.

September 28, 2021 | Permalink | Comments (0)

Can Self-Regulation Save Digital Platforms?

Can Self-Regulation Save Digital Platforms?

 

Michael Cusumano

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Annabelle Gawer

University of Surrey

David Yoffie

Harvard University - Strategy Unit

Abstract

This article explores some of the critical challenges facing self-regulation and the regulatory environment for digital platforms. We examine several historical examples of firms and industries that attempted self-regulation before the Internet. All dealt with similar challenges involving multiple market actors and potentially harmful content or bias in search results: movies and video games, radio and television advertising, and computerized airline reservation systems. We follow this historical discussion with examples of digital platforms in the Internet era that have proven problematic in similar ways, with growing calls for government intervention through sectoral regulation and content controls.
We end with some general guidelines for when and how specific types of platform businesses might self-regulate more effectively. Although our sample is small and exploratory, the research suggests that a combination of self-regulation and credible threats of government regulation may yield the best results. We also note that effective self-regulation need not happen exclusively at the level of the firm. When it is in their collective self-interest, as occurred before the Internet era, coalitions of firms within the same market and with similar business models may agree to abide by a jointly accepted set of rules or codes of conduct

September 28, 2021 | Permalink | Comments (0)

Monday, September 27, 2021

Monopoly and Monopsony: Antitrust Standing, Injury, and Damages

Monopoly and Monopsony: Antitrust Standing, Injury, and Damages

 

Tirza Angerhofer

University of Florida - Warrington College of Business Administration - Department of Economics; Duke University - Department of Economics

Roger D. Blair

University of Florida

Abstract

This article examines the economic consequences of collusion in both the output market and one of the input markets. We examine the results of sequential collusion, which leads to complications and inconsistencies in measuring antitrust damages. We also examine simultaneous collusion in both the input and output markets. Ultimately, the profit maximizing equilibrium are identical but there are complications along the way to the final collusive equilibrium. The article explores the private plaintiff problems involving antitrust standing, proving antitrust injury, and estimating antitrust damages.

September 27, 2021 | Permalink | Comments (0)

Friday, September 24, 2021

Price Effects of Horizontal Mergers: A Retrospective on Retrospectives

Price Effects of Horizontal Mergers: A Retrospective on Retrospectives

 

Annika Stöhr

Ilmenau University of Technology

 

Abstract

In this comprehensive review of ex-post merger studies price effects of horizontal transactions are evaluated. By combining and further analyzing the results of 52 retrospective studies on 82 mergers or merger-like transactions it can be shown that the industry alone is no strong indication for the direction of price-related merger effects. However, the “size” or “importance” of a transaction as well as market concentration pre-merger and change in concentration due to the transaction seem to have an impact on post-transaction price development.

September 24, 2021 | Permalink | Comments (0)

Vertical Mergers with Bilateral Contracting and Upstream and Downstream Investment

Vertical Mergers with Bilateral Contracting and Upstream and Downstream Investment

 

 

Mark A. Israel

Compass Lexecon

Daniel P. O'Brien

Compass Lexecon

Abstract

We extend the theory of bilateral vertical contracting to a double moral hazard setting where upstream and downstream firms make complementary investments that enhance demand, downstream firms make fixed investments to enter the downstream market, and contracts are private information and determined through simultaneous bilateral bargaining. We show that vertical mergers mitigate bilateral contracting externalities and hold-up, which leads to an increase in complementary investments. If downstream products are either sufficiently distant or sufficiently close substitutes, a vertical merger benefits the merging firm, consumers, and the unintegrated downstream firm. For intermediate degrees of product differentiation, a case with linear demand and quadratic investment costs shows that consumers benefit if the marginal cost of investment is sufficiently low as revealed, for example, by a high ratio of R&D investments to sales. We apply the model to a vertical merger in the computer industry.

September 24, 2021 | Permalink | Comments (0)

Thursday, September 23, 2021

How Will the FTC Evaluate Vertical Mergers?

Carl Shapiro (Berkeley) and Herb Hovenkamp (Penn) have written How Will the FTC Evaluate Vertical Mergers?

When the leading figures in antitrust economics and law write, it is worth reading and taking what they say very seriously.

September 23, 2021 | Permalink | Comments (0)

How Will the FTC Evaluate Vertical Mergers?

Carl Shapiro (Berkeley) and Herb Hovenkamp (Penn) have written How Will the FTC Evaluate Vertical Mergers?

When the leading figures in antitrust economics and law write, it is worth reading and takin g what they say very seriously.

September 23, 2021 | Permalink | Comments (0)