Antitrust & Competition Policy Blog

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

Monday, February 20, 2017

Innovation, Competition and Technical Efficiency

Elina Berghall discusses Innovation, Competition and Technical Efficiency.

ABSTRACT:  Contradictory empirical and theoretical evidence on the relationship between innovation and competition has been reconciled in a model that yields an inverted U-shaped curve. I test whether the predictions of the model are supported by the data with an unbalanced panel of firms for 1990-2003 in a high productivity growth, high-tech industry, Finnish ICT manufacturing. In particular, I investigate how well alternative, yet rigorous measures of innovation and the technology gap, such as R&D intensity, R&D elasticity, technical change, technical efficiency and total factor productivity fare with respect to competition measured by the Lerner index. The results prove sensitive to the choice of variable. Overall, the model is not supported by the empirical evidence of the industry.

February 20, 2017 | Permalink | Comments (0)

Friday, February 17, 2017

Reputation and foreclosure with vertical integration: Experimental evidence

Claudia Mollers discusses Reputation and foreclosure with vertical integration: Experimental evidence.

ABSTRACT: Building on the seminal paper of Ordover, Saloner and Salop (1990), I study the role of reputation building on foreclosure in laboratory experiments. In one-shot interactions, upstream firms can choose to build a reputation by revealing their price history to the current upstream competitor. In particular, integrated firms can establish a reputation to foreclose the input market.an outcome that would otherwise not be tenable due to a commitment problem. I get three main results: First, withdrawal from the input market is three times more common with reputation building of the integrated firm. Second, the anticompetitive effects are much stronger when the integrated firm builds a reputation. Third, integrated firms choose to build a reputation significantly more often than non-integrated firms. Markets with reputation building of the integrated firm are ten times more often monopolized than without.

February 17, 2017 | Permalink | Comments (0)

Consumer Loss Aversion, Product Experimentation and Implicit Collusion

Salvatore Piccolo (Università Cattolica del Sacro Cuore (Milano), and CSEF) and Aldo Pignataro (Università Cattolica del Sacro Cuore (Milano)) identify Consumer Loss Aversion, Product Experimentation and Implicit Collusion.

ABSTRACT: Two firms supplying experience goods compete to attract loss averse consumers that are uncertain about how well these goods fit their needs. To resolve valuation uncertainty, firms can allow perspective customers to test (experiment) their products before purchase. We investigate firms' dynamic incentives to allow experimentation and analyze the resulting effects on the profitability and the stability of horizontal price fixing. The analysis shows that, depending on the regulatory regime in place | i.e., whether experimentation is forbidden, mandated or simply allowed but not imposed (laissez-faire) | the degree of consumer loss aversion has ambiguous effects both on the profits that firms can achieve through implicit collusion and on the extent to which these agreements can be sustained. Moreover, we also show that while in static environments consumer welfare is always maximized by a policy that forbids experimentation, the opposite might happen in a dynamic environment.

February 17, 2017 | Permalink | Comments (0)

The European Commission's E-commerce Sector Inquiry

Thomas Kramler, DG Competition describes The European Commission's E-commerce Sector Inquiry.

ABSTRACT: E-commerce in the EU has grown steadily over the past years. Today, the EU is the largest e-commerce market in the world. In total, 53 per cent of the EU population shopped online in 2015. The rapid development of e-commerce affects both consumers and businesses alike. The enhanced transparency in online markets lowers search costs for consumers who are now able to instantaneously obtain and compare product and price information online. This provides consumers with better choice at better prices as the price transparency leads to more intensive price competition. For businesses, e-commerce brings opportunities in terms of wider reach of potential customers but also challenges in terms of preserving the brand image, the quality of distribution, and guarding against free-riding. EU competition policy and enforcement needs to be in sync with these new market realities.

February 17, 2017 | Permalink | Comments (0)

Thursday, February 16, 2017

FTC Acting Chairman Ohlhausen Announces Tad Lipsky as Acting Director of Bureau of Competition

FTC Chair Maureen Ohlhausen has tapped the highly capable Tad Lipsky to be the Acting Head of the Bureau of Competition.  Tad has had a distinguished career.  He also may be the coolest person to ever have practiced antitrust.  Put differently, unless you too have played onstage with BB King, you will never be as cool as Tad.  Tad was also the first guest speaker I ever had for an antitrust class.  He guest lectured for my international antitrust class at the University of Wisconsin in the spring 2007 and the students loved him.

February 16, 2017 | Permalink | Comments (0)

Alleged Scandal involving bribery and the KFTC

News reports from Korea  are not positive for Samsung. The Associated Press reports that anti-corruption prosecutors are investigating the KFTC:

The investigators have also reportedly looked at whether South Korea's fair trade commission gave any favors to Samsung related to a complex cross-shareholding structure that allows the Lee family to exert an outsized influence on Samsung Electronics and its dozens of affiliates, while holding a small stake. The anti-trust regulator was raided earlier this month by prosecutors.

February 16, 2017 | Permalink | Comments (0)

How Far Can the Anti-Monopoly Enforcement Agencies Go When Adopting Commitment Decisions? The Need to Safeguard the Commitment Procedure Under the Chinese Anti-Monopoly Law

Yichen Yang asks How Far Can the Anti-Monopoly Enforcement Agencies Go When Adopting Commitment Decisions? The Need to Safeguard the Commitment Procedure Under the Chinese Anti-Monopoly Law.

ABSTRACT: Since the Chinese Anti-Monopoly Law (AML) entry into force in 2008, the commitment decision as an alternative to an infringement decision has been established for use by the Anti-monopoly Enforcement Authorities (AMEAs) in putting an end to anticompetitive conduct. As Article 45 of the AML stipulates, if the AMEA deems the commitments offered by an undertaking adequately address the identified competitive concerns, the AMEA shall suspend the investigation, which means it may put a long investigatory process to an end without establishing the illegality of the conduct and without imposing a fine on it. The purpose of commitment decisions is to increase procedural efficiency, which represents ‘a rapid solution’ for bringing anticompetitive behaviour to an end and restoring effective competition to the relevant market. So Article 45 of the AML emphasises that commitment decisions are proposed to ‘eliminate the effects of such [monopolistic] conduct by implementing specific measures within the time limit prescribed by the AMEA’.3 This is similar to Article 9 of Regulation 1/2003 under EU competition law that ‘such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission’.

February 16, 2017 | Permalink | Comments (0)

Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers

Alberto Cavallo asks Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers.

ABSTRACT: Online prices are increasingly used for measurement and research applications, yet little is known about their relation to prices collected offline, where most retail transactions take place. I conduct the first large-scale comparison of prices simultaneously collected from the websites and physical stores of 56 large multi-channel retailers in 10 countries. I find that price levels are identical about 72 percent of the time. Price changes are not synchronized but have similar frequencies and average sizes. These results have implications for national statistical offices, researchers using online data, and anyone interested in the effect of the Internet on retail prices.

February 16, 2017 | Permalink | Comments (0)

The effects of competition on medical service provision

Brosig-Koch, Jeannette ; Hehenkamp, Burkhard and Kokot, Johanna analyze The effects of competition on medical service provision.

ABSTRACT: We explore how competition between physicians affects medical service provision. Previous research has shown that, without competition, physicians deviate from patient-optimal treatment under payment systems like capitation and fee-for-service. While competition might reduce these distortions, physicians usually interact with each other repeatedly over time and only a fraction of patients switches providers at all. Both patterns might prevent competition to work in the desired direction. To analyze the behavioral effects of competition, we develop a theoretical benchmark which is then tested in a controlled laboratory experiment. Experimental conditions vary physician payment and patient characteristics. Real patients benefit from treatment decisions made in the experiment. Our results reveal that, in line with the theoretical prediction, introducing competition can reduce overprovision and underprovision, respectively. The observed effects depend on patient characteristics and the payment system, though. Tacit collusion is observed and particularly pronounced with fee-for-service payment, but it appears to be less frequent than in related experimental research on price competition.

February 16, 2017 | Permalink | Comments (0)

'Telephone terrorism' has rattled 48 Jewish centers. Is anyone paying attention?

This story is alarming - CNN reports 'Telephone terrorism' has rattled 48 Jewish centers. Is anyone paying attention?

Of note was the following stat:

In 2014 and 2015 the FBI tallied more than 1,270 hate crime incidents targeting Jews, far more than any other religious groups, and some Jewish leaders say the situation is getting worse.

 

February 16, 2017 | Permalink | Comments (0)

Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach

Lopez, Rigoberto A. (University of Connecticut) ; Zheng, Hualu (University of Connecticut) and Azzam, Azzeddine (University of Nebraska-Lincoln) discuss Oligopoly Power in the Food Industries Revisited: A Stochastic Frontier Approach.

ABSTRACT: This study estimates mark-ups and oligopoly power for U.S. food industries using a stochastic frontier (SF; Kumbhakar, Baardsen and Lien, 2012; Baraigi and Azzam, 2014) approach, where mark-ups are treated as systematic deviations from a marginal cost pricing frontier. We apply the analysis to 36 U.S. food industries using NBER-CES Manufacturing Industry Database (2014), which covers a span of 31 years from 1979 to 2009. Empirical results show that all the food industries in the sample exercise at least some degree of oligopoly power, but most in a moderate manner. The estimated mean Lerner index is approximately 0.06, generally much lower than obtained using the conventional NEIO approaches. The SF model used provides a novel and promising framework to test and measure the degree of market power in agricultural and food markets.

February 16, 2017 | Permalink | Comments (0)

Wednesday, February 15, 2017

Rockets and feathers: Asymmetric pricing and consumer search - Evidence from electricity retailing

Sven Heim examines Rockets and feathers: Asymmetric pricing and consumer search - Evidence from electricity retailing.

ABSTRACT: Recent theories suggest that consumers' search efforts are a function of prices and prices changes, respectively. This may help to explain the 'rockets and feathers' phenomenon often assigned to collusion - prices rise like rockets when costs increase and fall like feathers when costs decrease. This paper empirically investigates the relation between cost pass-through and consumer search intensity for the German electricity retail market utilizing a unique panel dataset on retail electricity prices and consumer search intensity at online comparison sites for retail electricity, both at the zip code level. The main findings are 1) consumers search non-linear with regard to prices and price changes. They search more when prices are high and they decrease search efforts substantially when prices fall but only increase search efforts slightly when prices rise, 2) costs are passed-through asymmetrically with positive cost shocks causing higher pass-through rates than cost decreases and 3) search intensity significantly impacts price adjustments and controlling for search intensity eliminates large parts of the asymmetry. I compare this finding with a counterfactual - the entrants - where all consumers are fully informed. In this case consumer search does not affect cost pass-through.

February 15, 2017 | Permalink | Comments (0)

Patent Disclosures and Standard-Setting

Josh Lerner; Haris Tabakovic and Jean Tirole work on Patent Disclosures and Standard-Setting.

ABSTRACT: A key role of standard setting organizations (SSOs) is to aggregate information on relevant intellectual property (IP) claims before deciding on a standard. This article explores the firms’ strategies in response to IP disclosure requirements—in particular, the choice between specific and generic disclosures of IP—and the optimal response by SSOs, including the royalty rate setting. We show that firms with a stronger downstream presence are more likely to opt for a generic disclosure, as are those with lower quality patents. We empirically examine patent disclosures made to seven large SSOs, and find results consistent with theoretical predictions.

February 15, 2017 | Permalink | Comments (0)

Non-comparative and comparative advertising in oligopolistic markets

Alipranti, Maria ; Mitrokostas, Evangelos ; Petrakis, Emmanuel study Non-comparative and comparative advertising in oligopolistic markets.

ABSTRACT: We study firms' advertising strategies in an oligopolistic market in which both non-comparative and comparative advertising are present. We show that in equilibrium firms mix over the two types of advertising, with the intensity of comparative advertising exceeding that of non-comparative advertising; moreover, that the intensity of comparative increases relatively to non-comparative advertising as market competition intensifies. Interestingly, the use of comparative advertising may lead to higher consumers' surplus and welfare in a mixed advertising market than in the absence of advertising or when either comparative or non-comparative advertising is not present.

February 15, 2017 | Permalink | Comments (0)

Information acquisition, signaling and learning in duopoly

Thomas D. Jeitschko, Ting Liu and Tao Wang have written on Information acquisition, signaling and learning in duopoly.

ABSTRACT: We study firms' incentives to acquire private information in a setting where subsequent competition leads to firms' later signaling their private information to rivals. Due to signaling, equilibrium prices are distorted, and so while firms benefit from obtaining more precise private information, the value of information is reduced by the price distortion. Thus, compared with firms that do not attempt to manipulate rivals' beliefs, signaling firms acquire less precise information. An industry-wide trade-association acquiring information increases firm profit and may also increase consumer surplus, so allowing such collective action may be in the interest of regulatory authorities.

February 15, 2017 | Permalink | Comments (0)

Tuesday, February 14, 2017

Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets

Vicente Lagos, Telecom ParisTech examines the Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets.

ABSTRACT: The aim of this paper is to quantify the impact on retail prices of the Shell-Terpel merger in the Chilean gasoline market, and to evaluate the effectiveness of gas stations’ divestitures in highly concentrated locations as a tool to mitigate an eventual raise in prices. The identification strategy relies on the fact that a merger between two national retail networks should be independent of previous characteristics of different local markets. Results show a modest but significant increase in margins of gas stations geographically impacted by the merger. The divestitures were effective in mitigating this anticompetitive effect, but only for retail outlets closely located to divested stations, i.e., within a 2 Km. radius. Notably, these effects are symmetric for both merging and non-merging parties. Moreover, the evidence suggests that divested gas stations that use an alternative brand (different from Terpel) set significantly lower prices on average. Finally, the presence of unbranded gas stations and/or small alternative brands within a 1 Km. radius seems to be enough in order to offset the price increase generated by the merger in these specific locations.

 

February 14, 2017 | Permalink | Comments (0)

Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets

Vicente Lagos, Telecom ParisTech examines the Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets.

ABSTRACT: The aim of this paper is to quantify the impact on retail prices of the Shell-Terpel merger in the Chilean gasoline market, and to evaluate the effectiveness of gas stations’ divestitures in highly concentrated locations as a tool to mitigate an eventual raise in prices. The identification strategy relies on the fact that a merger between two national retail networks should be independent of previous characteristics of different local markets. Results show a modest but significant increase in margins of gas stations geographically impacted by the merger. The divestitures were effective in mitigating this anticompetitive effect, but only for retail outlets closely located to divested stations, i.e., within a 2 Km. radius. Notably, these effects are symmetric for both merging and non-merging parties. Moreover, the evidence suggests that divested gas stations that use an alternative brand (different from Terpel) set significantly lower prices on average. Finally, the presence of unbranded gas stations and/or small alternative brands within a 1 Km. radius seems to be enough in order to offset the price increase generated by the merger in these specific locations.

 

February 14, 2017 | Permalink | Comments (0)

The Politics of Professionalism: Reappraising Occupational Licensure and Competition Policy

Sandeep Vaheesan and Frank A. Pasquale III, University of Maryland Francis King Carey School of Law take a contrarian view of The Politics of Professionalism: Reappraising Occupational Licensure and Competition Policy.

ABSTRACT: Elite economists and lawyers have united to criticize occupational licensing. They contend that licensure rules raise consumer prices and restrict labor market entry and job mobility. The Obama Administration’s Council of Economic Advisers and Federal Trade Commission have joined libertarians and conservatives in calling for occupational regulations to be scaled back.

Billed as a bipartisan boost to market competition, this technocratic policy agenda rests on thin empirical foundation. Studies of the wage effects of licensing rarely couple this analysis of its putative “costs” with convincing analysis of the benefits of the professional or vocational education validated via licensure. While some licensing rules may be onerous and excessive, licensing rules are inadequate or underenforced in other labor markets. Furthermore, by limiting labor market entry, occupational licensing rules, like minimum wage and labor laws, can help raise and stabilize working and middle class wages — goals that many center-left critics of occupational licensing claim to support.

While current antitrust law provides an ideological framework for technocratic attacks on licensing, it is fundamentally unsuited for a fair evaluation of labor markets. Contemporary antitrust law’s arcane concept of efficiency reflects neither the legislative objectives animating the antitrust statutes, nor popular understanding of what competition policy should do. Occupational licensing should reflect an expansive conception of the public interest and be the product of democratic decisionmaking — not a technocratic mission to advance an esoteric notion of “efficiency.” Both the Department of Justice and the Federal Trade Commission should make occupational licensing and collective action by workers a much lower advocacy and enforcement priority.

February 14, 2017 | Permalink | Comments (0)

Transparency of the Regulatory Authorities: An Analysis of Transparency of Competition Investigations in Turkey

Murat Çokgezen, Marmara University, Ali Ilicak, Independent, and Fevzi Toksoy, ACTECON analyze Transparency of the Regulatory Authorities: An Analysis of Transparency of Competition Investigations in Turkey.

ABSTRACT: This research analyses the transparency of regulations in the field of competition. Even though the topic is on regulations in the field of competition in general, it is specifically focused on: 1) how rules and policies to sustain competition are clear, open and accessible; and 2) transparency of the investigation process commenced by the regulatory authority on enterprises. Two different methods were applied to evaluate the transparency of these two fields. Firstly, a survey was prepared that included propositions on transparency; this was administered to staff of the regulatory authority, academics and legal experts specializing in competition law. Surveyees were asked to evaluate the transparency of each specific field. Secondly, by examining current laws, regulations, decisions of the regulatory authority and public communication channels, problems with the transparency of current rules and their enforcement were assessed. The experiences of the authors, the researchers and legal experts dealing with competition law who were brought together in a workshop organized as a part of this research guided us to determine the problems. The first method aimed to measure the perception of stakeholders, while the second method sought to determine the specific problems based on concrete facts. The following general findings were reached by the end of the research: 1) the legislation of competition and the Competition Authority are quite transparent in comparison with other fields of law and agencies in Turkey; 2) those who are obliged to provide information about competition regulation and those who use this information evaluate the transparency levels of regulations in the field of competition differently; 3) the Competition Authority places less importance on sharing information with third parties and the public than on sharing information with parties of the investigation; 4) problems with regard to the transparency of competition are mostly caused by enforcement of the current rules. The two basic problems regarding enforcement were determined to be: (a) not sharing current information with parties due to ‘confidentiality’ or ‘internal correspondence’; and (b) the Board’s inability to develop consistent practice on issues that are not clearly regulated by the laws.

 

February 14, 2017 | Permalink | Comments (0)

Monday, February 13, 2017

Competition and Capital Structure

Anisha Nyatee, University of Rochester, Simon Business School analyzes Competition and Capital Structure.

ABSTRACT: Manufacturing firms manage their capital structure policy differently in response to domestic and international competition. Competition captures the uncertainty arising from the firm's competitive environment. A rise in uncertainty raises the demand for crash proof liquidity. An asset seizes to be liquid when it suffers a capital loss. This creates a wedge between the current and the collateral value of assets. For firms operating in a competitive domestic environment the wedge between the current and the collateral value of assets is low due to more easily redeployable assets. Thus, firms in these industries have higher leverage. Firms operating in import intensive industries have assets that are less easily redeployable. Thus the wedge between the current and the collateral value of assets is large making assets less desirable as collateral. Therefore, firms operating in these industries have lower leverage.

 

February 13, 2017 | Permalink | Comments (0)