Antitrust & Competition Policy Blog

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

Tuesday, April 18, 2017

Pleading Standards: The Hidden Threat to Actavis

Michael A. Carrier, Rutgers Law School has written on Pleading Standards: The Hidden Threat to Actavis.

ABSTRACT: In FTC v. Actavis, the Supreme Court issued one of the most important antitrust decisions in the modern era. It held that a brand drug company’s payment to a generic firm to settle patent litigation and delay entering the market could violate the antitrust laws.

Since the decision, courts have analyzed several issues, including causation, the role of the patent merits, and whether “payment” is limited to cash. But one issue — the pleading requirements imposed on plaintiffs — has slipped under the radar. This issue has the potential to undercut antitrust law, particularly because settlements with payment and delayed entry today typically do not take the form of cash. The complexity of non-cash conveyances increases the importance of the pleading stage.

For that reason, it is concerning that several courts have imposed unprecedented hurdles. For example, the district court in In re Effexor XR Antitrust Litigation failed to credit allegations that a generic delayed entering the market because a brand promised not to introduce its own “authorized generic” that would have dramatically reduced the true generic’s revenues. The same judge, in In re Lipitor Antitrust Litigation, dismissed a complaint despite allegations that the generic delayed entry in return for the brand’s forgiveness of hundreds of millions of dollars in potential damages in separate litigation.

This essay first introduces the Supreme Court’s Actavis decision. It then discusses the pleading standards articulated by the Court in Bell Atlantic v. Twombly and Ashcroft v. Iqbal. Turning to the cases that applied excessively high pleading requirements, it next focuses on the Effexor and Lipitor cases. Finally, it analyzes the settlement cases that applied a more justifiable analysis.

The essay concludes that the imposition of excessive standards, as was done by the Effexor and Lipitor courts, threatens to overturn established pleading standards and undercut the landmark Actavis decision. Such a result would significantly weaken the antitrust analysis of potentially anticompetitive settlements.

 

 

April 18, 2017 | Permalink | Comments (0)

Monday, April 17, 2017

Vertical Licensing, Input Pricing, and Entry

Elpiniki Bakaouka, Athens University for Economics and Business and Chrysovalantou Milliou, Athens University of Economics and Business theorizes Vertical Licensing, Input Pricing, and Entry.

ABSTRACT: We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm, transforming the licensee into its input supplier. We find that the incumbent opts for licensing even when licensing also transforms the licensee into one of its direct competitors in the final products market. In fact, the licensee's entry into the final products market, although increases the competition and the cost that the licensor faces, it reinforces, instead of weakens, the licensing incentives. Furthermore, the licensee's entry augments the positive welfare implications of vertical licensing.

April 17, 2017 | Permalink | Comments (0)

Market Definition Changes the Story: Competition and Price Dispersion in the Airline Industry Revisited

Myongjin Kim, University of Oklahoma - Department of Economics and Leilei Shen, Kansas State University - Department of Economics explain Market Definition Changes the Story: Competition and Price Dispersion in the Airline Industry Revisited.

ABSTRACT: We analyze the effect of competition on price dispersion in the airline industry and show that the outcome hinges on redefining the extent of a market. Using panel data from 1993 to 2013, an increase in competition has a positive effect on price dispersion in one-way markets but a negative effect in round-trip markets. This is driven by a bigger (smaller) decrease in the 10th percentile of the price distribution in the one-way (round-trip) markets. We provide suggestive evidence that airlines compete more aggressively in the lower tail of the price distribution in one-way markets due to higher markups.

April 17, 2017 | Permalink | Comments (0)

Brexit: Implications for UK Competition Law

Alison Jones, Kings College has written on Brexit: Implications for UK Competition Law.

ABSTRACT: This paper considers the impact of a British exit from the European Union on UK competition law.

The paper commences by summarising the current competition law regime in the UK, before going on to consider how Brexit may affect it both at the point of Brexit and over time. It notes that Brexit is unlikely to reduce the regulatory burden on British business in this sphere but, rather, may increase it. In particular, it increases the risk of ‘double jeopardy’ in terms of investigations and penalties for firms and raises the possibility that UK competition law will diverge further from EU law, so increasing complexity for business.

Brexit also provides the opportunity for the UK competition law system to become more politicised again, with greater scope for intervention on broader industrial policy grounds. There are already indications that the Government is considering these issues in the merger sphere. Between 1998-2003, however, the UK consciously moved away from a competition system which was subject to political interference to one focused on allowing independent competition agencies to safeguard competition. It was believed that such a regime would better protect the free market process and deliver efficiencies for the benefit of consumers. An important question therefore is whether the core of the current competition law rules will be preserved or whether the Government will return to a regime which is more susceptible to political interference. 

April 17, 2017 | Permalink | Comments (0)

Vertical price relationships between different cuts and quality grades in the U.S. beef marketing channel: a wholesale-retail analysis

Panagiotou, Dimitrios and Stavrakoudis, Athanassios study Vertical price relationships between different cuts and quality grades in the U.S. beef marketing channel: a wholesale-retail analysis.

ABSTRACT: The present article offers an empirical assessment of the degree and the structure of price dependence between wholesale and retail market levels in the U.S. beef industry, while accounting for product differentiation. This is pursued using the statistical tool of copulas and monthly rates of price changes for different cuts and quality grades of the beef product for the time period 2002–2016. Six wholesale–retail pairs were formed based on different cuts and quality grades. The empirical results suggest that prices at retail level respond differently to extreme negative and positive wholesale price shocks. More specifically, extreme price increases at the wholesale level are transmitted to the retail level in five out of six pairs whereas extreme price decreases are not passed from the wholesale to the retail market level in five out of six pairs. Based on these findings, there is evidence of asymmetric price relationships between wholesale–retail market levels in the U.S. beef marketing channel, when quality differences in cuts and grades is considered.

April 17, 2017 | Permalink | Comments (0)

Saturday, April 15, 2017

Passover Mistakes

There are a number of ways to enjoy Passover and still properly feel the loss of leavened bread.  Most Jews make the mistake of eating disgusting kosher for Passover foods (ring gels, macaroons, gefilte fish).  For a creative people who have collectively amassed over 20% of all Nobel prizes, traditional Passover foods are disgusting. What are my recommendations:

  1. Stop eating matzah!  It is full of empty carbs and incredibly constipating.
  2. Eat more grilled and sauteed vegetables.  Let me suggest in particular bok choy, brussel sprouts and broccolini. 
  3. This is a holiday based on the spring harvest.  Why don't you take the time to eat more fruits and vegetables more generally?
  4. Stop eating disgusting Passover food that tries to imitate food you eat the rest of the year - no more Passover brownies or cakes! Instead, eat more vegetables and fruit.
  5. If you are going to have baked goods, focus on things you might eat all year round: creme brulee, chocolate flourless cake, or even Sephardic almond cookies (almendrados). I stay away from desert typically.  This is why my pants from my bar mitzvah probably still fit me.
  6. Rediscover root vegetables - beets with some lemon and ginger are really tasty as are baked parmesan sweet potatoes. Root vegetables does not mean eating potato chips!
  7. Use cabbage or lettuce as a wrap for fish.
  8. If you need a crispy snack, try kale chips in lieu of potato chips.

 

April 15, 2017 | Permalink | Comments (0)

Friday, April 14, 2017

A stochastic frontier estimator of the aggregate degree of market power exerted by the U.S. beef and pork packing industries

Stavrakoudis, Athanassios and Panagiotou, Dimitrios offer A stochastic frontier estimator of the aggregate degree of market power exerted by the U.S. beef and pork packing industries.

ABSTRACT: The objective of this study is to measure the amount of market power exercised by the U.S. red meatpacking industry using the recently developed stochastic frontier estimator of market power. The aggregate degree of market power in both the input market (cattle and hogs) and the output market (beef and pork) is estimated using annual time series data for the period 1970- 2009. The empirical results reveal that the farm-to-wholesale price spread is 4.91% and 4.16% above the marginal processing costs, in the beef and pork packing industries, respectively. These findings indicate that rather a small percentage of the farm-to-wholesale price spread can be attributed to market power in both U.S. meat packing sectors.

April 14, 2017 | Permalink | Comments (0)

You can still attend- 17th ANNUAL LOYOLA ANTITRUST COLLOQUIUM April 21, 2017

17th ANNUAL LOYOLA ANTITRUST COLLOQUIUM

April 21, 2017

INSTITUTE FOR CONSUMER ANTITRUST STUDIES
LOYOLA UNIVERSITY CHICAGO
SCHOOL OF LAW

8:45 AM

Continental Breakfast and Registration
Loyola University Chicago School of Law
10th Floor Power Rogers & Smith Ceremonial Courtroom
25 E. Pearson
Chicago, IL. 60611

9:10 AM

Welcome Professor Spencer Weber Waller
Professor and Director
Institute for Consumer Antitrust Studies
Loyola University Chicago School of Law

9:15 AM

Darren Bush, University of Houston Law Center

A Proposal for Singular Antitrust (Non)enforcement

Commentators:

Harry First, New York University Law School
Don Resnikoff, Don Allen Resnikoff Law, LLC
Washington, DC

10:30 AM

Coffee Break

10:45 AM

John Kirkwood, Seattle University Law School

The Meaning and Determination of Market Power

Commentators

Stephen Calkins, Wayne State University Law School
R. Mark McCareins, Clinical Professor of Strategy, Northwestern University Kellogg Graduate School of Management

12:00 PM

Lunch

Faculty Lounge
13th Floor
25 E. Pearson

12:30 PM

Lunch Address

Professor Howard Shelanski
Georgetown University Law Center
Former Administrator of the Office of Information and Regulatory Affairs (OIRA)

Politics, Regulation, and Competition Policy beyond Antitrust

1:30 PM

Warren Grimes, Southwestern Law School

Preserving Entrepreneurial Choice: Antitrust Policy and Government Regulation That Enhance the Quality of Life

Commentators

Susan Beth Farmer, Penn State Law
Paul Slater, Sperling & Slater, Chicago, IL.

2:45 PM

Ice Cream Sundae Break

3:30 PM

Barach Y. Orbach, University of Arizona College of Law

Abstract - Interstate Circuit and Antitrust Puzzles

Interstate Circuit and Antitrust Puzzles

Commentators
Ramsi Woodcock, Georgia State Robinson College of Business
Melissa Maxman, Gresser & Cohen, Washington, DC

6:30 PM

Colloquium Dinner
Osteria Via Stato
620 N. State St.
Chicago, IL 60654

April 14, 2017 | Permalink | Comments (0)

Estimating market power Evidence from the US Brewing Industry

Jan De Loecker and Paul T. Scott are Estimating market power Evidence from the US Brewing Industry.

ABSTRACT:  While inferring markups from demand data is common practice, estimation relies on difficult-to-test assumptions, including a specific model of how firms compete. Alternatively, markups can be inferred from production data, again relying on a set of difficult-to-test assumptions, but a wholly different set, including the assumption that firms minimize costs using a variable input. Relying on data from the US brewing industry, we directly compare markup estimates from the two approaches. After implementing each approach for a broad set of assumptions and specifications, we find that both approaches provide similar and plausible markup estimates in most cases. The results illustrate how using the two strategies together can allow researchers to evaluate structural models and identify problematic assumptions.

April 14, 2017 | Permalink | Comments (0)

Price asymmetry and retailers heterogeneity in Brazilian gas stations

Leonardo Cardoso ; Mauricio Bittencourt and Elena Irwin explore Price asymmetry and retailers heterogeneity in Brazilian gas stations.

ABSTRACT: In a competitive market situation, a symmetric price transmission is expected, and the speed of adjustment of the market should be equal, no matter in which direction input prices are going (up or down). When inputs? prices increase, firms need to pass on costs to avoid negative profit situation. When they go down, firms? reaction is in a direction to avoid market share losses. Therefore, if firms react faster when inputs? prices increase than when they decrease (positive asymmetry), it means a capture of consumers? surplus by the firms. When firms? reaction is slowly when inputs? prices decrease than when they decreases (negative asymmetry), the surplus transfer is from firms to consumers. So far, studies regarding price asymmetry in Brazil used only aggregated database, which likely suffers by summation bias. In a hypothetical city with just two gas stations, one with positive asymmetric behavior and other with negative one, there is high chance that this city accepts the null of a symmetric behavior. The present study will try to overcome this problem with a gas station level dataset. The National Agency for Petroleum, Natural Gas and Biofuels (ANP) has a detailed database with weekly information for gas stations in an unbalanced database, where more than 40% of population is covered every week. This firm-level database has information as purchase and selling price for gasoline, name of gas stations, brand and complete address. This information allows answering if there is price asymmetry in Brazil at firm level. Because database has more than 2 million of observations for more than 17.000 different gas stations, it is also possible to obtain results of price asymmetry against fixed effects to check which of these effects matter to change the likelihood of firms to have price asymmetry. Results indicate that there is heterogeneity regarding price transmission among firms: 71% of gas stations had no asymmetry, 23% had a positive asymmetry pattern and 6% of them had negative asymmetry. Regarding which fixed effects could explain the probability to have a positive asymmetry, higher margins, and a minor number of rivals nearby and be a non-white flag increase the probability of having positive asymmetry. These results strength relations between market power and positive asymmetry and inaugurate a link between spatial competition and price asymmetry transmission.

April 14, 2017 | Permalink | Comments (0)

Thursday, April 13, 2017

Tenth Annual Conference on Antitrust Economics and Competition Policy Call for Papers Friday, September 15, 2017—Saturday, September 16, 2017

 
Tenth Annual Conference on
Antitrust Economics and Competition Policy
 
Call for Papers
 
Friday, September 15, 2017—Saturday, September 16, 2017
 
Submission Deadline: May 19, 2017
 
The Searle Center on Law, Regulation, and Economic Growth at Northwestern Pritzker School of Law is issuing a call for original research papers to be presented at the Tenth Annual Conference on Antitrust Economics and Competition Policy at Northwestern Pritzker School of Law.  This year’s conference will run from approximately 9:00 AM on Friday, September 15, 2017 to 12:30 PM on Saturday, September 16, 2017.  The conference is co-sponsored by the Center for the Study of Industrial Organization at Northwestern University.
 
The goal of this conference is to provide a forum where leading scholars from across the country can gather together with Northwestern’s own distinguished faculty to present and discuss high quality research relevant to antitrust economics and competition policy. Both theoretical and empirical submissions are welcome.  Papers in industrial organization or applied microeconomic theory that address issues relevant to antitrust policy are welcome even if they do not directly focus on particular antitrust policy issues or institutions.  While papers on all topics are welcome, we especially encourage submissions related to the following topic areas: 
 
  • data markets and internet search markets
  • privacy, data security, and competition policy
  • net neutrality and competition policy
  • the EC Digital Single Market initiative
  • patents, patent assertion entities and standard setting organizations
  • vertical contracting and vertical integration
  • antitrust policy in markets where terms are set by bilateral negotiation
 
We hope to involve leading thinkers from the government, non-profit, and private sector, as well as leading academics from economics departments, business schools, law schools and public policy schools. While most of the conference will be devoted to presentation and discussion of original academic research, we also expect to schedule a small number of panels on important current topics or policy issues.   
 

If you have questions about the appropriateness of your topic for the conference, or suggestions for panel subjects, please contact Professor William Rogerson, Professor of Economics and Searle Center Research Director on Competition, Antitrust and Regulation at wrogerson@northwestern.edu.
 
Paper authors will receive an honorarium of $1,000.00 to cover transportation expenses; if more than one author presents at the symposium, the honorarium will be divided equally between the presenters. The Searle Center will also make hotel reservations and pay for rooms for Thursday, September 14th and Friday, September 15th, 2017. Paper authors, including government employees and non-US residents  may elect to be reimbursed for reasonable travel expenses up to the honorarium amount.
 
The conference will also include a dinner reception and Keynote Dinner Address (speaker TBA) on Friday evening.
 
Papers prepared for the Tenth Annual Conference on Antitrust Economics and Competition Policy will be permanently hosted on the Searle Center website as part of our Working Papers Series: www.law.northwestern.edu/searlecenter.      
 
Authors will be free to publish their work in other venues (with appropriate acknowledgement of the Searle Center).
 
 
RESEARCH PROPOSALS: SUBMISSION, REVIEW PROCEDURE AND TIMELINE
 
Research Proposals should include an abstract (300 words maximum) and c.v.
 
Proposal Submission Deadline: Research Proposals should be submitted to searlecenter@law.northwestern.edu by May 19, 2017.
 
Notification Deadline:  Research Proposals will be reviewed by a committee.  Authors will be notified of the committee’s decisions on or around June 30, 2017
 
Discussion Draft Deadline:  Authors should plan to submit a paper suitable for distribution to discussants and other conference participants no later than August 30, 2017.
 
Potential Discussants or panel members should send a message indicating their interest to searlecenter@law.northwestern.edu.
 
The Searle Center on Law, Regulation, and Economic Growth at Northwestern Pritzker School of Law was established in 2006 to research how government regulation and interpretation of laws and regulations by the courts affect business and economic growth.  Information on the Searle Center’s activities may be found at: www.law.northwestern.edu/searlecenter.

April 13, 2017 | Permalink | Comments (0)

As Seen on TV: Price Discrimination and Competition in Television Advertising

Gil, Ricard; Riera-Crichton, Daniel and Ruzzier, Christian discuss As Seen on TV: Price Discrimination and Competition in Television Advertising.

ABSTRACT: In this paper we examine the empirical relationship between price discrimination and competition in television advertising. While most empirical papers on the topic document a positive relationship, we find that price discrimination is negatively related to competition (as measured by the number of competing firms), a result that is consistent with conventional wisdom. Our results also show that only incumbent stations (unlike entrants) respond by engaging less in price discrimination when faced with a more competitive environment. Our evidence suggests that incumbents may use price discrimination as a strategic tool to accommodate entry - a strategy that has received scant attention in the existing entry literature.

April 13, 2017 | Permalink | Comments (0)

A Theory of Bundling Advertisements in Media Markets

Kevin M. Murphy and Ignacio Palacios-Huerta offer A Theory of Bundling Advertisements in Media Markets.

ABSTRACT:  Watching TV and other forms of media consumption represent, after sleeping and working, the main activity that adults perform in developed countries. We present a dynamic theory of commercial broadcasting where the media trade utility-raising goods (programs, information, and services) with audiences in exchange for their exposure to advertisements (utility-decreasing bads), and where goods are otherwise free to the audience except for their opportunity cost of time. Goods and bads are dynamically arranged, and as such traded in an intertemporal bundle. No monetary transfers take place between media and audiences, and this barter exchange is not contractually sustained. We study this dynamic problem in a model that captures the central characteristics of how commercial media markets operate. The model is rich enough to account for a variety of disparate evidence in television, radio, print media and the web.

April 13, 2017 | Permalink | Comments (0)

Optimal Licensing of Non-Drastic and (Super-)Drastic Innovations: The Case of the Inside Patent Holder

Cuihong Fan (Shanghai University of Finance and Economics); Byoung Heon Jun (Korea University, Seoul); and Elmar G. Wolfstetter (Humboldt-University at Berlin and Korea University, Seoul) examine Optimal Licensing of Non-Drastic and (Super-)Drastic Innovations: The Case of the Inside Patent Holder.

ABSTRACT: We reconsider the inside innovators optimal licensing problem, assuming incomplete information and unit cost profiles that may or may not have the potential to propel a monopoly, taking into account restrictions concerning royalty rates and the use of exclusive licenses implied by antitrust rules. We analyze optimal licensing mechanisms using methods developed in the analysis of license auctions with downstream interaction. The optimal mechanism differs significantly from the mechanisms reported in the literature, which assumed complete information or particular cost profiles or probability distributions.

April 13, 2017 | Permalink | Comments (0)

On the Use of Price-Cost Tests in Loyalty Discounts and Exclusive Dealing Arrangements: Which Implications from Economic Theory?

Chiara Fumagalli and Massimo Motta ask On the Use of Price-Cost Tests in Loyalty Discounts and Exclusive Dealing Arrangements: Which Implications from Economic Theory?

ABSTRACT: Recent cases in the US (Meritor, Eisai) and in the EU (Intel ) have revived the debate on the use of price-cost tests in loyalty discount cases. We draw on existing recent economic theories of exclusion and develop new formal material to argue that economics alone does not justify applying a price-cost test to predation but not to loyalty discounts. Still, the latter contain features (they reference rivals and allow to discriminate across buyers and/or units bought) that have a higher exclusionary potential than the former, and this may well warrant closer scrutiny and more severe treatment from antitrust agencies and courts.

April 13, 2017 | Permalink | Comments (0)

Wednesday, April 12, 2017

The more economic approach to predatory pricing

Michael Funk and Christian Jaag offer The more economic approach to predatory pricing.

ABSTRACT: The “more economic approach” was introduced to antitrust in order to achieve a more effect-based and theoretically grounded enforcement. However, related to predatory pricing it resulted in systematic over- and under-enforcement: Economic theory does not require dominance for pre-dation to be a rational (and harmful) strategy while an ex ante dominant firm would often refrain from predation. Hence, within the current legal framework, a more effect-based and theoretically grounded antitrust enforcement with respect to predatory pricing will result in systematic over- and under-enforcement. Therefore, we suggest separating predatory pricing from exclusionary abuse of a dominant firm, both legally and analytically. Instead, predatory pricing should be analyzed along the same logic as a merger. In particular, we argue that three elements from merger control should be adopted: in absence of dominance, market share and/or turnover thresholds may serve as a de minimis rule; recoupment should be analyzed similarly to the competitive effect of a merger between the predator and its prey; and a stronger efficiency defense should be established.

April 12, 2017 | Permalink | Comments (0)

Models of Consumer Demand for Differentiated Products

Bonnet, Céline and Richards, Timothy offer Models of Consumer Demand for Differentiated Products.

ABSTRACT: Advances in available data, econometric methods, and computing power have created a revolution in demand modeling over the past two decades. Highly granular data on household choices means that we can model very specific decisions regarding purchase choices for differentiated products at the retail level. In this chapter, we review the recent methods in modeling consumer demand, and their application to problems in industrial organization and strategic marketing.

April 12, 2017 | Permalink | Comments (0)

Another model of sales. Price discrimination in a differentiated duopoly market

Halvor Mehlum (Dept. of Economics, University of Oslo) have written Another model of sales. Price discrimination in a differentiated duopoly market.

ABSTRACT: Using a model of horizontal differentiation where a variety dimension is added to Hotelling's (1929) "linear city" duopoly model, I show that even when costs and demand are symmetric, price discrimination may be an equilibrium phenomenon. In the model each customer have a preferred variety and a preferred firm. They have perfect information about all prices and may be induced to switch variety and firm given a sufficient price difference. Price discrimination equilibrium exists when a sufficient fraction of consumers are elastic both with respect to variety and firm.

April 12, 2017 | Permalink | Comments (0)

Welfare Analysis of Cournot and Bertrand Competition With(out) Investment in R & D

Jean-Baptiste Tondji theorizes about Welfare Analysis of Cournot and Bertrand Competition With(out) Investment in R & D.

ABSTRACT: I consider the model of a differentiated duopoly with process R&D when goods are either substitute, complements or independent. I propose a non-cooperative two-stage game with two firms producing differentiated goods. In the first stage, firms decide their technologies and in the second stage, they compete in quantities or prices. I evaluate the social welfare within a framework of Cournot and Bertrand competition models with or without investment in research and development. I prove that the Cournot price can be lower than Bertrand price when the R&D technology is relatively inefficient; thus, Cournot market structure can generate larger consumer's surplus and welfare.

April 12, 2017 | Permalink | Comments (0)

Tuesday, April 11, 2017

Secret contracting in multilateral relations

Patrick Rey (Toulouse) and Thibaud Verge (CREST) analyze Secret contracting in multilateral relations.

ABSTRACT: We develop a flexible and tractable framework of (secret) vertical contracting between multiple upstream suppliers and downstream retailers. This framework does not put any restriction on the tariffs that can be negotiated, and yet does take account of the impact of these tariffs on downstream firms'behavior. We show that equilibrium tariffs must be cost-based; as a result, retail prices are the same as with a multi-brand oligopoly. Interestingly, this finding is in line with the empirical analysis of a recent Norwegian merger. We then use this flexible framework to endogenize market structure as well as to analyze the e¤ects of various vertical restraints, such as resale price maintenance and retail price parity clauses. Finally, we show that our framework also applies to the agency relationships that characterize most online platforms.

April 11, 2017 | Permalink | Comments (0)