Antitrust & Competition Policy Blog

ABA Antitrust Section Janet Steiger Fellowship Opportunity for Summer 2010

Posted by D. Daniel Sokol

The ABA Antitrust Section Janet D. Steiger Fellowship is available again for up to 20 first and second year law students throughout the United States . The fellowship program, named the Janet D. Steiger Fellowship Project, honors the memory of the late Chairman of the Federal Trade Commission. Each of the 20 selected students will serve for a minimum of eight weeks in the consumer protection department of one of the participating State Attorneys General[1] during the summer of 2010:

Anchorage, Alaska
Little Rock, Arkansas
California (Los Angeles or San Francisco )
Wilmington, Delaware
Jacksonville, Florida
Atlanta, Georgia
Des Moines, Iowa
Topeka, Kansas
Baltimore, Maryland
Helena, Montana
Las Vegas, Nevada
Concord, New Hampshire
Santa Fe, New Mexico
New York, New York
Columbus, Ohio
Harrisburg, Pennsylvania
Austin, Texas
Richmond, Virginia
Washington (Seattle, Spokane or Tacoma)
Charleston, West Virginia

Each selected student will receive a $5,000 stipend for the summer (administered through the offices of the state attorneys general and subject to certain federal taxes). The program also offers a supplemental housing/travel allowance of up to $2,000 for those students who are not living at home for the summer (administered through the American Bar Association). This supplemental allowance will not be considered until after Fellows have been selected The application period is (November 15, 2009 until February 5, 2010). Applications will not be accepted beyond the February 5, 2010 deadline date. Students must submit: (1) the application form; (2) resume; (3) writing sample; (4) statement of interest; and (5) copy of unofficial transcript. The application form is available at www.abanet.org/antitrust.

Competition in two-sided markets with common network externalities

Posted by D. Daniel Sokol

David Bardey (University of Rosario), Helmuth Cremer (Toulouse School of Economics), and Jean-Marie Lozachmeur (School of Economics IDEI and GREMAQ-CNRS) explain Competition in two-sided markets with common network externalities.

ABSTRACT: We study competition in two sided markets with common network externality rather than with the standard inter-group effects. This type of externality occurs when both groups benefi…t, possibly with different intensities, from an increase in the size of one group and from a decrease in the size of the other. We explain why common externality is relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satisfi…es an homogeneity condition then platforms’ pro…ts and price structure have some speci…c properties. Our results reveal how the rents coming from network externalities are shifted by platforms from one side to other, according to the homogeneity degree. In the specifi…c but realistic case where the common network externality is homogeneous of degree zero, platform’s pro…t do not depend on the intensity of the (common) network externality. This is in sharp contrast to conventional results stating that the presence of network externalities in a two-sided market structure increases the intensity of competition when the externality is positive (and decreases it when the externality is negative). Prices are affected but in such a way that platforms only transfer rents from consumers to providers.

Equal Strength or Dominant Teams: Policy Analysis of NFL

Posted by D. Daniel Sokol

Burhan Biner (Minnesota - Econ) analyzes Equal Strength or Dominant Teams: Policy Analysis of NFL.

ABSTRACT: In North America, professional sports leagues operate mostly as cartels. They employ certain policies such as revenue sharing, salary caps to ensure that teams get high revenues and players get high wages. There are two major hypotheses regarding the talent distribution among the teams that would maximize the total revenues, dominant teams rule and equal strength team rule. This paper examines the revenue structure of National Football League and proposes policy recommendations regarding talent distribution among the teams. By using a unique, rich data set on game day stadium attendance and TV ratings I am able to measure the total demand as a function of involved teams’ talent levels. Reduced form regression results indicates that TV viewers are more interested in close games, on the other hand stadium attendees are more interested in home teams’ dominance. In order to identify the true effects of possible policy experiments, I estimate the parameters of the demand for TV as functions of team talent , fixed team and market variables by using partial linear model described as in Yatchew (1998) which uses non-parametric and difference-based estimators. I then estimate the demand for stadium attendance using random coefficients model by using normative priors for the 32 cities that hosts the teams. Estimated demand for TV ratings and stadium attendance corroborates the findings of reduced form regressions, stadium demand and TV demand working against each other. We therefore propose a “somewhat” equal strength team policy where big market teams has a slight advantage over the others. Total revenues of the league is maximized under such a policy.

Software Innovation and the Open Source threat

Posted by D. Daniel Sokol

German Lambardi (Toulouse School of Economics) has an interesting paper on Software Innovation and the Open Source threat.

ABSTRACT: In this paper I study how innovation investment in a software duopoly is affected by the fact that one of the firms is, or might become Open Source. Firms can either be proprietary source (PS) or open source (OS) and have different initial technological levels. An OS firm is a for profit organization whose basic software is OS and it is distributed for free. The OS firm, however, is able to make profits from selling complementary software and, on the cost side, it receives development help from a community of users. I first compare a duopoly composed by two PS firms with a mixed duopoly of a PS and OS firm and I find that a PS duopoly might generate more innovation than a mixed duopoly if the initial technological gap between firms is small. However if this gap is large, a PS duopoly generates less innovation than a mixed duopoly. I then extend the setting to allow PS firms to switch to OS or to remain PS. A PS firm want! s to become OS if it gets behind enough in the technological race against a competitor. I find that the outside option to become OS might soften competition on innovation since the technological leader prefers to reduce his innovation investment to avoid the OS switch of the follower. Therefore, although the switch to OS could generate higher investment levels ex-post it might generate lower investment ex-ante. In this context I find that a government subsidy to OS firms could be potentially harmful for innovation.

European Competition Law - A Commentary

Posted by D. Daniel Sokol

Rainer Bechtold, Ingo Brinker, Wolfgang Bosch and Simon Hirsbrunner(all Gleiss Lutz) have a book out on European Competition Law - A Commentary.

BOOK ABSTRACT: European Competition Law is now among the most important branches of European law, and is of considerable importance to business people all over the world, and to lawyers practising in competition (antitrust) law. Much of the law is now directly applicable in the courts of the Member States, and displaces the relevant domestic law. This Commentary covers in detail EC Treaty Articles 81 – 86, Council Regulation No 1/2003 on the implementation of the rules on competition, Six Block Exemption Regulations (namely Commission Regulation (EC) No 2659/2000 concerning categories of research and development agreements, Commission Regulation (EC) No 1400/2002 concerning vertical agreements and concerted practices in the motor vehicle sector, Commission Regulation (EC) No 2658/2000 concerning categories of specialisation agreements, Commission Regulation (EC) No 772/2004 concerning categories of technology transfer agreements, Commission Regulation (EC) No 358/2003 concerning certain categories of agreements, decisions and concerted practices in the insurance sector, Commission Regulation (EC) No 2790/1999 concerning categories of vertical agreements and concerted practices) and EC-Merger Regulation No 139/2004.

Welfare Enhancing Mergers Under Product Differentiation

Posted by D. Daniel Sokol

Tina Kao and (ANU - Econ) Flavio Menezes (Queensland - Econ) analyze Welfare Enhancing Mergers Under Product Differentiation.

ABSTRACT: This paper considers a model of duopoly with differentiated products to examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the parameter range for welfare enhancing merger widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.

Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium

Posted by D. Daniel Sokol

Jacob A. Bikker (University of Utrecht, Economics), Sherrill Shaffer (University of Wyoming, Department of Economics and Finance), and Laura Spierdijk (University of Groningen, Faculty of Economics & Business) write on Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium.

ABSTRACT: The Panzar-Rosse model has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample covering more than 110,000 bank-year observations on almost 18,000 banks in 67 countries during 1986-2004.

State Resale Price Maintenance Laws After Leegin

Posted by D. Daniel Sokol

Michael Lindsey (Dorsey & Whitney) has created a very useful guide on State Resale Price Maintenance Laws After Leegin.

Hotelling's Spatial Competition Reconsidered

Posted by D. Daniel Sokol

Takatoshi Tabuchi (Faculty of Economics, University of Tokyo) analyzes Hotelling's Spatial Competition Reconsidered.

ABSTRACT: Oligopoly models are usually analyzed in the context of two firms anticipating that market outcomes would be qualitatively similar in the case of three or more firms. This is not an exception in the literature on Hotelling's location-then-price competition. In this paper, we show that the main findings in Hotelling's duopoly, brand bunching and the max-min principle of product differentiation no longer hold once three or more firms are allowed to enter the market. That is, oligopolists with three or more firms proliferate brands and neither maximize nor minimize product differentiation.

Competitive Pressure and the Adoption of Complementary Innovations

Posted by D. Daniel Sokol

Tobias Kretschmer (Institute for Communication Economics, LMU Munich), Eugenio Miravete (Department of Economics, University of Texas at Austin), and José Pernías (Department of Economics, Universidad Jaume I de Castellón) explain Competitive Pressure and the Adoption of Complementary Innovations.

ABSTRACT: Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial restructuring of the industry and increasing the competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation strategies with this regime change. Using French data we evaluate the existence of complementarities among adoptions of innovations and the scale of production. We conclude that as firms expand their scale of production they concentrate their effort in one type of innovation only. Results are robust to the existence of unobserved heterogeneity.

Call for Papers - The Next Generation of Antitrust Scholarship Conference NYU School of Law, January 29, 2010

Posted by D. Daniel Sokol

Call for Papers

The Next Generation of Antitrust Scholarship Conference
NYU School of Law
January 29, 2010
Co-sponsored by NYU School of Law, American Association of Law Schools – Antitrust and Trade Regulation Section and the American Bar Association – Antitrust Section

Conference Co-organizers
Harry First – NYU School of Law
Ilene Knable Gotts – Wachtell, Lipton, Rosen & Katz
Edward Cavanaugh – St. John’s School of Law
D. Daniel Sokol – University of Florida Law Levin College of Law

This conference is the first ever conference for the Next Generation of Antitrust Scholars.  Much has changed in both the law and economic theory of antitrust in the past 30 years.  The purpose of this event is to convene a conference of the next generation of antitrust law professors (people who started their teaching career in or after 2000) and provide them an opportunity to present their latest research.  Senior antitrust scholars and practitioners in the field will comment on the papers. 

Submissions are open to professors around the world.  Papers will be accepted based upon the highest scores given to the 1,000-2,000 word abstract or full article submitted. Speakers who are accepted by an abstract must have a completed draft of the paper ready two weeks before the conference.

The conference organizers will not pay for any expenses for speakers or discussants.  Refreshments at the conference, however, will be provided free of charge.

Please send abstracts of papers or completed drafts to nyuantitrustconference2010@gmail.com.  Please email any questions about the conference to nyuantitrustconference2010@gmail.com.

The deadline for submissions is November 20, 2009.  Participants will be notified by November 30, 2009.

Antitrust community in Latin American: the role of universities

Posted by D. Daniel Sokol

Law professor Juan Gutierrez of the University of Javeriana (Colombia) writes in with a request:

I am conducting a research on the Latin American antitrust community as part of the investigation projects of the Competition Law Study Center (CEDEC) at U. Javeriana  in Bogota(actually I will try to submit it of NYU’s call for papers). In particular I am interested in studying how competition law is taught in our region and the impact of Universities in the development of competition law.

 

For that purpose I am collecting information regarding courses on competition law and policies (and related areas, such as industrial organization and regulation) in Latin America. I published a first draft in the “Boletín Latinoamericano de Competencia” N°26, (titled  “La comunidad académica y la defensa de la libre competencia: Bases para una propuesta en América Latina”) that justifies the research topic and explains the academic proposal.

Therefore, we hope to collect more data with the help of Latin American Universities, professors and practitioners. The information per course that we require is the following:

•           University’s name.

•          Geographical location of the University.
•          School or department that offers the course (law school, economics, management).
•          Title of the course.
•          Type of course. Undergraduate (mandatory or optional), Graduate (specialization, masters or Phd) or a short course (seminar, certificate, etc:).
•          Course length and class hours per week
•          The teacher’s name and e-mail.
•          The teacher’s academic experience and studies.
•          The syllabus (subjects studied during the course) for each course.
•          Number of students (average or per course)
•          Since when it has been taught.
•          Periodicity of the course. (once every two years, once a year, twice a year, monthly, etc).
•          Additional information. Website, events, publication, concluded researches or on going, etc. 

 

I cordially invite everyone to send us the information, to the following e-mail addresses:

jdg@cable.net.co  and cedec@cable.net.co.

Collected information will be available here. Once the information has been processed, we will get in touch with all those who participated in the research in order to share the results and strengthen the bonds between them.

As some of the readers know, I have a chapter in Latin American Competition Law and Policy that addresses the human dimension of competition policy in Latin American that touches upon some of these issues.  This project by Professor Gutierrez is an important one.  I hope you Latin American readers can help him out.

Product Durability in Markets with Consumer Lock-in

Posted by D. Daniel Sokol

Tobias Langenberg (Free University of Berlin) has a new working paper on Product Durability in Markets with Consumer Lock-in.

ABSTRACT: This paper examines a two-period duopoly where consumers are locked-in by switching costs that they face in the second period. The paper's main focus is on the question of how the consumer lock-in affects the firms' choice of product durability. We show that firms may face a prisoners' dilemma situation in that they simultaneously choose non-durable products although they would have higher profits by producing durables. From a social welfare perspective, firms may even choose an inefficiently high level of product durability.

Competition policy and productivity growth: An empirical assessment

Posted by D. Daniel Sokol

For those interested in competition policy and development, Paolo Buccirossi (LEAR), Lorenzo Ciari (EUI and LEAR), Tomaso Duso (Humboldt University and the WZB), Giancarlo Spagnolo (University of Rome Tor Vergata), and Cristiana Vitale (LEAR) have a new paper on Competition policy and productivity growth: An empirical assessment.  It looks interesting.

ABSTRACT: This paper empirically investigates the effectiveness of competition policy by estimating its impact on Total Factor Productivity (TFP) growth for 22 industries in 12 OECD countries over the period 1995-2005. We find a robust positive and significant effect of competition policy as measured by newly created indexes. We provide several arguments and results based on instrumental variables estimators as well as non-linearities, to support the claim that the established link can be interpreted in a causal way. At a disaggregated level, the effect on TFP growth is particularly strong for specific aspects of competition policy related to its institutional set up and antitrust activities (rather than merger control). The effect is strengthened by a good legal system, suggesting complementarities between competition policy and the efficiency of law enforcement institutions.

Input pricing by an upstream monopolist into imperfectly competitive downstream markets

Posted by D. Daniel Sokol

Ioannis Pinopoulos ((Department of Economics, University of Macedonia) examines Input pricing by an upstream monopolist into imperfectly competitive downstream markets.

ABSTRACT: In downstream markets where entry is independent from profitability conditions, the upstream supplier’s optimal pricing policy is invariant with respect to downstream market structure. This price invariant result, however, is reversed when there is free entry in downstream market. When entry is endogenously dependent on profitability conditions, the upstream supplier’s price-setting behavior depends on the number of operative firms in the final good market. We show that the upstream supplier charges a higher input price under a free entry situation in downstream market than under a no-entry condition. We also show that a higher input price is set under Bertrand competition than under Cournot competition in a downstream market with free entry.

The EU’s Flawed Assessment of Horizontal Aspects in GE/Honeywell: Re-Visiting the Last Pillar of the European Prohibition Decision

Posted by D. Daniel Sokol

Philipp Schumacher, Technical University of Berlin explains The EU’s Flawed Assessment of Horizontal Aspects in GE/Honeywell: Re-Visiting the Last Pillar of the European Prohibition Decision.

ABSTRACT: This paper argues that - in contrast to the decision of the European Commission in 2001 and the ruling of the Court of First Instance in 2005 - the merger between General Electric and Honeywell International would not have led to anti-competitive horizontal effects. Applying the European Commission Merger Regulation valid in 2001 and on the basis of empirical evidence available in that year, the relevant markets are defined taking into account demand-side and supply-side substitutability. The worldwide bidding markets for large regional jet aircraft engines, corporate jet aircraft engines and small marine gas turbines are characterised by potentially volatile market shares, high importance of after-sales revenue and profitable outside options. According to the two-level approach of the European Commission, firstly the competitive situation of the engine manufacturer in relation to its direct customer, the aircraft or marine vessel manufacturer, and secondly the competitive effects in the respective market of end-use applications are analysed. The paper shows that GE was not in the position to exert market power prior to the merger and would not have been ex post.

Getting Linkedin to Antitrust and Competition Issues

Posted by D. Daniel Sokol

Ever wonder who the other readers of the blog are and your potential opportunities to network with them?  I have created a Linkedin site for readers of the blog to network and post announcements on substantive issues and also on any job announcements and tenders.  Click here to join.  If anyone can create a logo for the site, please let me know.

McCarran-Ferguson Antitrust exemption repealer legislation update

Posted by Chris Sagers

The comprehensive House health care bill introduced for floor consideration this morning contains, as section 262, the McCarran-Ferguson repealer that was voted out of House Judiciary earlier this month (the original bill repealing the exemption had been H.R. 3596). There are some non-trivial changes from the original text of H.R. 3596, including the inclusion of some of the "safe harbor" defenses that the ABA Antitrust Section has been urging for about 20 years.  Also, this version would preserve insurer's McCarran immunity from FTC Act section 5 liability.  However, the limitation of repeal to "price fixing, bid rigging, or market allocation" still appears in this version of the bill. I believe that language is extremely unwise because, on my understanding, health insurers are not allowed even now to engage in that conduct under existing law (because state insurance regimes authorize it only as to specific property/casualty insurers). Also, if there is a competitive problem in health insurance my sense is it's not conspiracy, but consolidation.

Apparently the House health care bill in its most current form has been hard to find on the Thomas website.  Here is a link to the (nearly 2000 page) document:

http://docs.house.gov/rules/health/111_ahcaa.pdf

The McCarran repealer, which is section 262 of the bill, appears on p. 150.

Endogenous Mergers Under Multi-Market Competition

Posted by D. Daniel Sokol

Tina Kao and (ANU - Econ) Flavio Menezes (Queensland - Econ) analyze Endogenous Mergers Under Multi-Market Competition.

ABSTRACT: This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increasing producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutabilit! y between goods 1 and 2.

Competition, Essential Facilities, Bottlenecks and the Pricing of Mobile Phone Service

Posted by D. Daniel Sokol

Stanford L. Levin, Southern Illinois University Edwardsville and Stephen R. Schmidt, TELUS Communications, Inc. describe Competition, Essential Facilities, Bottlenecks and the Pricing of Mobile Phone Service.

ABSTRACT: Two mobile service pricing frameworks have developed around the world, calling party pays (CPP) and mobile party pays (MPP). With CPP, a wireline customer is billed for placing a call to a mobile phone, and there is no charge to the mobile customer for receiving the call. The mobile customer is charged for placing a call, and there is no charge to the receiving party, wireline or mobile. In contrast, with MPP the mobile customer pays for both incoming and outgoing calls, and there is no charge to a mobile or wireline customer for placing calls to or receiving calls from a mobile customer other than those normally associated with placing a call from a mobile or wireline phone or receiving a call on a mobile phone.

This paper provides an analysis of the competition and monopoly issues behind the CPP and MPP regimes and offers the tools to understand if regulation is needed under each of the two pricing frameworks and, if so, over what specific prices and under what conditions. To do so, one begins with an analysis of what competition means for mobile service. This continues with the distinction between an essential facility and a bottleneck and the application of these concepts to mobile service in order to understand more completely the reasons for the different pricing outcomes that result under CPP and MPP. The general theoretical framework of essential facilities, bottlenecks, and market power offers particular insight into the specific case of mobile termination rates. The paper also identifies regulatory interventions in selected jurisdictions aimed at the control of mobile termination charges and assesses those measures using the concepts of an essential facility and a monopoly bottleneck.