Antitrust & Competition Policy Blog

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

Friday, July 22, 2016

Competitive Price Targeting with Smartphone Coupons

Jean-Pierre H. Dube, Zheng Fang, Nathan Fong and Xueming Luo experiment with Competitive Price Targeting with Smartphone Coupons.

ABSTRACT: We conduct a large-scale field experiment to study competitive price discrimination in a duopoly market with two rival movie theaters. The firms use mobile targeting to offer different prices based on location and past consumer activity. A novel feature of our experiment is that we test a range of relative ticket prices from both firms to trace out their respective best-response functions and to assess equilibrium outcomes. We use our experimentally-generated data to estimate a demand model that can be used to predict the consumer choices and corresponding firm best-responses at price levels not included in the test. We find an empirically large return on investment when a single firm unilaterally targets its prices based on the geographic location or historical visit behavior of a mobile customer. However, these returns can be mitigated by competitive interactions whereby both firms simultaneously engage in targeting. In practice, firms typically test on! ly their own prices and do not consider the competitive response of a rival. In our study of movie theaters, competition enhances the returns to behavioral targeting but reduces the returns to geo-targeting. Under geographic targeting, each theater offers a discount in the other rival's local market, toughening price competition. In contrast, under behavioral targeting, the strategic complementarity of prices coupled with the symmetric incentives of the two theaters to raise prices charged to high-recency customers softens price competition. Thus, managers need to consider how competition moderates the profitability of price targeting. Moreover, field experiments that hold the competitor's actions fixed may generate misleading conclusions if the permanent implementation of a tested action would likely elicit a competitive response.

July 22, 2016 | Permalink | Comments (0)

Patent Settlements in the Pharmaceutical Industry: What Can We Learn From Economic Analysis?

Severin Frank (University of Marburg) and Wolfgang Kerber (University of Marburg) ask Patent Settlements in the Pharmaceutical Industry: What Can We Learn From Economic Analysis?

ABSTRACT: Patent settlements between originator and generic firms in the pharmaceutical industry have been challenged by antitrust and competition authorities in the U.S. and the EU. Particularly settlements with large "reverse payments" to generic firms raise the concern of collusive behaviour for protecting weak patents and delaying price competition through generic entry and therefore harming consumers. However, it is still heavily disputed under what conditions such patent settlements are anticompetitive and violate antitrust rules. This article scrutinizes critically what economic analysis has so far contributed to our knowledge about the effects of these patent settlements and the possible rules for their antitrust treatment. An important claim of this paper is that the problem of patent settlements can only be understood, if we analyze it not only from a narrow antitrust perspective but also take into account its deep interrelationship with the problems (and! the economics) of the patent system. Therefore we identify three different channels of effects, how patent settlements can influence consumer welfare: (1) price effects, (2) innovation incentive effects, and (3) effects via the incentives to challenge weak patents. The paper critically analyzes the existing economic studies and identifies a number of research gaps, especially also in regard to trade offs between different effects. It also suggests that policy solutions for these patent settlements should also be sought in combination with patent law solutions.

July 22, 2016 | Permalink | Comments (0)

Thursday, July 21, 2016

Ten Most-Cited Antitrust Faculty, 2010-2014 (inclusive)

Using the data from the Sisk study, Brian Leiter has the rankings here.

July 21, 2016 | Permalink | Comments (0)

Strategy Revision Opportunities and Collusion

Matthew Embrey (University of Sussex) ; Friederike Mengel (University of Essex and Maastricht University) and Ronald Peeters (Maastricht University) theorize Strategy Revision Opportunities and Collusion.

ABSTRACT: 

This paper studies whether and how strategy revision opportunities affect levels of collusion in indefinitely repeated two-player games. Consistent with standard theory, we find that such opportunities do not affect strategy choices, or collusion levels, if the game is of strategic substitutes. In contrast, there is a strong and positive effect for games of strategic complements. Revision opportunities lead to more collusion. The latter cannot be explained by renegotiation or standard risk-dominance considerations, but is consistent with a notion of fear of miscoordination based on minmax regret.

July 21, 2016 | Permalink | Comments (0)

Monopoly VS Competition: Market Structure’s Impact on Product Innovation-with Endogenous Quality of New Product

Jinrui Yang thinks about Monopoly VS Competition: Market Structure’s Impact on Product Innovation-with Endogenous Quality of New Product.

ABSTRACT: This paper focuses on innovation for new product with exogenously determined horizontal difference from initial product which is provided either by a monopolist or by competitive firms. The innovator, no matter initially under monopoly or competition, will be unique producer of new product and need decide quality of new product which is correlated with investment for innovation. The paper through a model shows that for horizontally similar new product, competition is superior to monopoly to innovate. However, for typical horizontally differentiated product, a monopolist would choose higher quality and invest more than a competitive innovator does if innovation is complex, but brings about lower endogenous quality than the innovator initially under competition does if innovation is easy. Monopoly can support sales of new product with higher price of initial product, but also hamper product innovation to avoid erosion of initial profit. If it is presumed th! at complexity of innovation is always huge at the beginning, monopoly is more likely to generate innovation for horizontally different product while competition for similar product, respectively compared to each other.

July 21, 2016 | Permalink | Comments (0)

On Competing Mechanisms under Exclusive Competition

Andrea Attar; Eloisa Campioni; and Gwenael Piaser provide thoughts On Competing Mechanisms under Exclusive Competition.

ABSTRACT:  We study games in which several principals design incentive schemes in the presence of privately informed agents. Competition is exclusive: each agent can participate with at most one principal, and principal-agents corporations are isolated. We analyze the role of standard incentive compatible mechanisms in these contexts. First, we provide a clarifying example showing how incentive compatible mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling equilibria are robust against unilateral deviations toward arbitrary mechanisms. We then consider the single agent case and exhibit sufficient conditions for the validity of the revelation principle.

July 21, 2016 | Permalink | Comments (0)

Wednesday, July 20, 2016

The Theory of Abuse in Google Search: A Positive and Normative Assessment Under EU Competition Law

Pinar Akman, University of Leeds offers The Theory of Abuse in Google Search: A Positive and Normative Assessment Under EU Competition Law.

ABSTRACT: In its ongoing investigation into Google’s search practices, Google Search, the Commission alleges that Google abuses its dominant position on the web search market by giving systematic favourable treatment to its ‘comparison shopping product’ (namely, ‘Google Shopping’) in its general search results pages. This article analyses whether the conduct in question in Google Search can be an abuse under Article 102TFEU and if so, under what conditions. The article proceeds by first providing a positive assessment of the application of Article 102TFEU and the relevant case law to the issues involved in Google Search on the assumption that the Commission may seek to place the facts under an existing category of abuse. Three categories of abuse are analysed to this end: refusal to deal (including the essential facilities doctrine); discrimination; and, tying. The article then proceeds to a normative assessment of the circumstances under which Article 102TFEU should be applied in Google Search under a principled conceptualisation of ‘abuse’: one which requires exploitation, exclusion, and a lack of an increase in efficiency. The article finds that the facts in Google Search do not meet the requirements of the existing law to be found abusive unless the established frameworks for the types of abuse examined are unjustifiably disrupted. It also finds that under the conceptualisation of abuse adopted in this article, the facts in Google Search do not represent the type of conduct that should be found abusive either.

 

 

July 20, 2016 | Permalink | Comments (0)

Competitive Search with Ex-post Opportunism

Pere Gomis-Porqueras (Deakin University); Benoit Julien (University of New South Wales) and Liang Wang (University of Hawaii Manoa) analyze Competitive Search with Ex-post Opportunism.

ABSTRACT: We consider a frictional market where buyers are uncoordinated and sellers can not commit to a per-unit price and quantity of a divisible good ex-ante. By doing so sellers can exploit their local monopoly power by adjusting prices or quantities depending on the case once the local demand is realized. We find that when sellers can adjust quantities ex-post, then there exists a unique symmetric equilibrium where the increase in the buyer-seller ratio leads to higher quantities and prices in equilibrium. When sellers post ex-ante quantities and adjust prices ex-post, a symmetric equilibrium does not exist.

July 20, 2016 | Permalink | Comments (0)

The Optimal Trading Partner for an Upstream Monopolist

Mai Yamada theorizes on The Optimal Trading Partner for an Upstream Monopolist.

ABSTRACT: We examine an optimal trading partner for an upstream monopolist, an input supplier, in a situation in which the intensity of market competition depends on trading partner choice. The upstream monopolist supplies the input to either the incumbent or the entrant. We assume only incumbent has the outside option which it can make the input by itself and then produces the final product. On the other hand, the entrant does not have the outside option. If the upstream firm chooses the incumbent as its trading partner, it can have a bilateral monopoly relationship with the incumbent. If the upstream firm chooses the entrant as its trading partner, it faces downstream competition. We show trading with the entrant can yield greater profits for the upstream monopolist than trading with the incumbent. Thus, the upstream monopolist has incentives to encourage downstream competition through its trading partner choice. Our paper suggests that the existence of the incum! bent's outside option encourages new entry into the downstream market.

July 20, 2016 | Permalink | Comments (0)

Vertical Differentiation and Collusion: Cannibalization or Proliferation?

Jean J. Gabszewicz (CORE, Université Catholique de Louvain) ; Marco A. Marini (Universita La Sapienza, Roma) and Ornella Tarola (Universita La Sapienza, Roma) ask Vertical Differentiation and Collusion: Cannibalization or Proliferation?

ABSTRACT: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.

July 20, 2016 | Permalink | Comments (0)

Tuesday, July 19, 2016

Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power - A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market

Germeshausen, Robert (Center of European Economic Research (ZEW)) ; Panke, Timo (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) and Wetzel, Heike (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) are Investigating the Influence of Firm Characteristics on the Ability to Exercise Market Power - A Stochastic Frontier Analysis Approach with an Application to the Iron Ore Market.

ABSTRACT:  This paper empirically analyzes the existence of market power in the global iron ore market during the period 1993-2012 using an innovative Stochastic Frontier Analysis approach introduced by Kumbhakar et al. (2012). In contrast to traditional econometric procedures, this approach allows for the estimation of firm- and time-specific Lerner indices and, therefore, the assessment of the influence of individual firm characteristics on the ability to generate markups. We find that markups on average amount to 20%. Moreover, location and experience are identified to be the most important determinants of the magnitude of firm-specific markups.

July 19, 2016 | Permalink | Comments (0)

Functionality of the Kosovo Competition Authority on the basis of European Union standards a guarantee for loyal economy in Kosovo

Armand Krasniqi examines the Functionality of the Kosovo Competition Authority on the basis of European Union standards a guarantee for loyal economy in Kosovo.

ABSTRACT: Legal regulation of market mechanisms and the implementation of economic policies for a fair competition in TEs is a challenging issue. The competition is a complex economic phenomenon that is manifested and characterized by the strength and content that gives to the market economy. In Kosovo specific economic entities, in one way or another, are tempted to gain as much buyers or markets and create much more profits. The problem is connected with the irregularity. Such behavior and unfair actions are not only damaging the image of the country but are a serious threat the harmonious development of the national economy and the country’s accession process to the EU. The parliament of Kosovo established the Kosovo Competition Authority as an independent institution with special competences to control and fight this negative phenomenon. Based to official data it turns out that the effectiveness of this institution is not only incomplete but also non-function! al. This is because of the “ignorance” and non-adequate treatment that is reserved for this authority by the parliamentary and governmental institutions. All this because the members are not elected based to regular procedures and not allocating the necessary financial means to operate. At least so far, the Kosovo Competition Authority was not allowed to hire professionals with clear competences to act and investigate the negative phenomenon of unfair competition. Certainly, this situation does not guarantee effective implementation of laws and quality protection of competition. Therefore, the mobilization of parliamentary and governmental levels is needed to enhance professional capacities and increase their competence in scope of the investigation including cooperation with prosecutors and courts. These actions should be reconsidered with the aim of creating a competitive safe environment for all operators. To conclude, the loyal competition policies and legislative f! ramework should be harmonized in forms and content with the policies and rules of the EU.

July 19, 2016 | Permalink | Comments (0)

Switching costs and financial stability

Stenbacka, Rune and Takalo, Tuomas address Switching costs and financial stability.

ABSTRACT: We establish that the effect of intensified deposit market competition, measured by reduced switching costs, on the probability of bank failures depends critically on whether we focus on competition with established customer relationships or competition for the formation of such relationships. With inherited customer relationships, intensified competition (i.e., lower switching costs) destabilizes the banking market, whereas it stabilizes the banking market if we shift our focus to competition for the formation of customer relationships. These findings imply that the proportion between new and locked-in depositors is decisively important when determining whether intensified competition destabilizes the banking market or not.

July 19, 2016 | Permalink | Comments (0)

Monday, July 18, 2016

On the private and social desirability of mixed bundling in complementary markets with cost savings

Christine Halmenschlager (CRED, Université Panthéon-Assas Paris II) and Andrea Mantovani (University of Bologna & IEB) have thoughts On the private and social desirability of mixed bundling in complementary markets with cost savings.

ABSTRACT: The aim of this paper is to study both the private and the social desirability of a mixed bundling strategy that generates a cost savings effect. We confirm that mixed bundling is the dominant strategy for multiproduct firms, although it may give rise to a prisoner’s dilemma. Moreover, we show that mixed bundling may maximise social welfare, provided that cost savings are sufficiently high. Finally, we highlight the parametric regions where the social and the private interests coincide, and those where they do not. The recent evolution of broadband telecommunications services provides an ideal framework to apply our theoretical predictions.

July 18, 2016 | Permalink | Comments (0)

Vertical Differentiation and Collusion: Cannibalization or Proliferation?

Gabszewicz, Jean J. ; Marini, Marco A. and Tarola, Ornella ask Vertical Differentiation and Collusion: Cannibalization or Proliferation?

ABSTRACT: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.

July 18, 2016 | Permalink | Comments (0)

Repeated Interaction in Standard Setting

Pierre Larouche, Tilburg Law and Economics Center (TILEC); College of Europe - Bruges; Tilburg University - Tilburg Law School; Center on Regulation in Europe (CERRE) and Florian Schuett, Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration investigate Repeated Interaction in Standard Setting.

ABSTRACT: As part of the standard-setting process, certain patents become essential. This may allow the owners of these standard-essential patents to hold up implementers of the standard, who can no longer turn to substitute technologies. However, many real-world standards evolve over time, with several generations of standards succeeding each other. Thus, standard setting is a repeated game in which participants can condition future behavior on whether or not hold-up has occurred in the past. In the presence of complementarity between the different patents included in the standard, technology contributors have an incentive to discipline each other and keep royalties low, which can be achieved by threatening to exclude contributors who have engaged in hold-up from future rounds of the process. We show that repeated standard setting can sustain FRAND royalties provided the probability that another round of standard setting will occur is sufficiently high. We also examine how the decision-making rules of standard-setting organizations affect the sustainability of FRAND royalties.

July 18, 2016 | Permalink | Comments (0)

Innovation and competition in Internet and mobile banking: an industrial organization perspective

Mariotto, Carlotta and Verdier, Marianne offer Innovation and competition in Internet and mobile banking: an industrial organization perspective.

ABSTRACT: Over the recent years, the development of Internet banking and mobile banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several platforms or large retailers have started to offer innovative financial products to their customers. In this paper, we survey the issues related to innovation and competition in Internet banking and mobile banking and discuss some perspectives for future research.

July 18, 2016 | Permalink | Comments (0)

Friday, July 15, 2016

The Welfare Effects of Vertical Integration in Multichannel Television Markets

Gregory S. Crawford ; Robin S. Lee ; Michael D. Whinston ; Ali Yurukoglu explore The Welfare Effects of Vertical Integration in Multichannel Television Markets.

ABSTRACT: We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and raising rivals' costs incentives. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and de-mergers of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry.

July 15, 2016 | Permalink | Comments (0)

Brand Loyalty and Generic Competition

WAN, Yunyun examines Brand Loyalty and Generic Competition.

ABSTRACT:  Facing generic competition, a brand-name drug company sometimes launches its own generic called an "authorized generic" (AG) through a third-party entity. If an authorized party transfers a substantial part of its profits to the brand-name drug company, the latter's total profit increases as a result and every branded drug that comes off the patent should have its AG version. However, in actual fact only a small proportion of branded drugs have AGs. To explain this puzzle, I develop a model that features switching costs due to the customer base a brand-name drug develops prior to generic entry. The model predicts that AGs are launched when switching costs to the generics are sufficiently low. I test this hypothess using prescription drug data and find strong support for it.

July 15, 2016 | Permalink | Comments (0)

Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining

Matthew Grennan and Ashley Swanson have an interesting paper on Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining.

ABSTRACT: We empirically examine the role of information in business-to-business bargaining between hospitals and suppliers of medical technologies. Using a new data set including all purchase orders issued by over sixteen percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals’ joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying high prices relative to other hospitals and for products purchased in relatively large volumes, and we demonstrate that they are consistent with hospitals resolving asymmetric information problems between themselves and their suppliers. We estimate that the achieved savings due to information provision amount to 26 percent of the savings we would observe if all hospitals paying above ave! rage prices for a given product at a point in time were to instead pay the average price. These results have implications for understanding the economic effects of introducing more information into relatively opaque business-to-business markets, including the emerging role of intermediaries offering benchmarking data and policymakers’ calls for transparency in medical device pricing.

July 15, 2016 | Permalink | Comments (0)