Journal of Competition Law and Economics - Advance Access

ASSESSING THE EFFECTS OF A ROAD-SURFACING CARTEL IN SWITZERLAND

Huschelrath, K., Leheyda, N., Beschorner, P. — Wed, 07 Oct 2009 22:43:04 PDT

The paper assesses the impact of the detection of a hard-core cartel in the Swiss market for road surfacing on post-cartel competition. In addition to an investigation of supply-side factors, demand-side factors, and market prices, the paper also derives estimates of the economic effects of the Swiss Competition Commission's decision in the road-surfacing cartel case. The results indicate that the detection of the cartel may have led to short-term price reductions; however, the persistent collusion-friendly industry structure forecloses larger and durable gains for the customers.

THE CONCEPT OF CRITICAL LOSS FOR A GROUP OF DIFFERENTIATED PRODUCTS

ten Kate, A., Niels, G. — Fri, 11 Sep 2009 21:35:55 PDT

In a recent article, Daljord, Sørgard, and Thomassen criticize Katz and Shapiro for applying the standard formula for critical loss to the case in which the price of only one product of the candidate market is increased. They argue that the standard formula does not hold in that case and suggest another expression. We show that this argument is correct, but that the formula proposed by Daljord, Sørgard, and Thomassen does not capture the essence of what critical loss really is. We propose another formula that does. Daljord, Sørgard, and Thomassen also modify the Katz–Shapiro aggregate diversion ratio rule for deciding whether a candidate market is an antitrust market. We show that their rule happens to be correct for the single-price-increase case and that the Katz–Shapiro rule remains valid for uniform price increases, but that in both cases this is for different reasons than mentioned by the authors. We believe that the confusion is due to the fact that the critical-loss concept, which was originally designed for a single homogeneous product, needs some further explanation before it can be applied in a setting of multiple differentiated products. Such explanation is given in this article.

MERGER SIMULATION IN COMPETITION POLICY: A SURVEY

Budzinski, O., Ruhmer, I. — Fri, 11 Sep 2009 19:53:01 PDT

Advances in competition economics as well as in computational and empirical methods have offered the scope for the employment of merger simulation models (MSMs) in merger-control procedures during the past almost 15 years. Merger simulation is, nevertheless, still a very young and innovative instrument of antitrust, and, therefore, its "technical" potential is far from being comprehensively exploited, and teething problems in its practical use in the antitrust environment prevail. We provide a classification of state-of-the-art MSMs and review their previous employment in merger cases as well as the problems and limitations currently associated with their use in merger control. In summary, MSMs represent an important and valuable extension of the toolbox of merger policy. However, they do not qualify as a magic bullet and must be combined with other more traditional instruments of competition policy to comprehensively unfold its beneficial effects.

POLITICS AND THE PURSUIT OF TELECOMMUNICATIONS SECTOR EFFICIENCY IN NEW ZEALAND

Howell, B. — Wed, 09 Sep 2009 04:16:15 PDT

Economic analysis takes as its defining performance benchmark the pursuit of increases in efficiency. Competition law and industry-specific regulation provide two competing means of intervention whereby the pursuit of efficiency can be enhanced. Ultimately, legislators decide how governance of industry interaction will be allocated between these two institutional forms. Whereas competition law can govern interaction in most industries, where the underlying economic conditions are sufficiently different, industry-specific regulation offers advantages. However, its weakness is the risk of capture, leading to the subjugation of the efficiency end to the pursuit of other objectives. But if the regulatory institution could be bound in some way to pursue an efficiency objective, could the risk of capture be averted? New Zealand's "light-handed" regulation, instituted in 1987, attempted to enshrine the pursuit of efficiency into statute, first by relying solely upon competition law and contractual undertakings and subsequently creating a regulatory body with an explicit legislated efficiency directive. In practice, however, the inability of a government prioritizing efficiency to bind its successors to pursue the same objective renders sector strategy, and hence the efficiency objective, subject to political capture. Consequently, inherent systemic instability attends the pursuit of the efficiency objective and the institutions overseeing its enforcement.

THE MAP OF COMMERCE: INTERNET SEARCH, COMPETITION, AND THE CIRCULAR FLOW OF INFORMATION

Spulber, D. F. — Mon, 24 Aug 2009 00:14:48 PDT

Search firms provide matchmaking services between consumers and suppliers that are central to the efficiency of the economy. The significant economic contributions of search firms as commercial intermediaries have important implications for antitrust policy towards search markets. As search firms generate more information about buyers and sellers, they become intermediaries for an increasing proportion of economic transactions. This article introduces the concept of the "map of commerce" to describe the extensive directory of business constructed by search firms. This article also introduces the concept of the "circular flow of information" to represent the comprehensive nature of the economic information managed by search firms. These firms induce information revelation through self-selection both by consumers and by advertisers. Consumers reveal personal information through the use of keywords and through their online behavior. Advertisers reveal company information by bidding on positions on the search page. Search firms employ information to match buyers with sellers more effectively and to increase earnings from advertising. The analysis shows that economic efficiencies generated by the circular flow of information depend on the strength of competition among search firms. The discussion considers antitrust policy towards Internet search markets, including issues of privacy, competition, and cooperative agreements.

ORGANIZATION, CONTROL, AND THE SINGLE ENTITY DEFENSE IN ANTITRUST

Williamson, D. V. — Mon, 03 Aug 2009 22:30:28 PDT

Since at least the 1930s, economists have puzzled over how to delineate the boundaries of a firm. With the advent of antitrust legislation in 1890, American courts have been pressed to consider what constitutes conspiracies between corporate entities to restrain commerce. By the 1980s, courts started to characterize conspiracies by negation—that is, by extending the status of "single entity" to certain types of agglomerations. Efforts both in economics and in the law to sort out what constitutes a "firm" or "single entity" have focused on "control." A difficulty is that neither the law nor economics offers an operationally significant concept of control. Even so, both the law and economics contribute concepts other than control that provide a way of understanding economic organization. These concepts—adaptation and control rights—suggest how one can subsume the sometimes confusing array of single entity tests proposed in the case law within a two-stage sequence of tests.

EXPORTING KNOWLEDGE THROUGH TECHNICAL ASSISTANCE AND CAPACITY BUILDING

Sokol, D. D., Stiegert, K. W. — Wed, 01 Jul 2009 00:08:24 PDT

With a significant increase in the number of countries with antitrust laws, technical assistance (TA) to improve the capacity of antitrust agencies has become a key priority for international antitrust aid efforts. Donors have assigned a significant amount of time and financial resources to TA to raise the capacity and effectiveness of younger agencies. However, quantitative analysis of the impact of this TA remains limited at best. In this article, we focus on what appears to be a particularly important part of TA and capacity building—the use of long-term advisors (LTAs) and short-term interventions (STIs). In a year-long project, the International Competition Network surveyed its member antitrust agencies on antitrust TA. The questionnaire contained over 1,000 questions on various aspects of TA. We provide an analysis of the data using formal modeling. The most important findings from the model relate to two structural features of recipient antitrust agencies. First, recipient agencies absorb LTA and STI services best when the agency head has a rank of minister or higher and when agencies have prosecutorial discretion. At the heart of this agency feature is the relative power position of the agency in the recipient country's domestic political and economic structure. Those agencies with a strong power base seem well positioned to receive the current formatted TA involving LTAs and STIs. Second, bilateral donor relationships did remarkably better than multilateral relationships in helping the agencies with their strategic mission.

REGULATION OF LIBERAL PROFESSIONS AND COMPETITION POLICY: DEVELOPMENTS IN THE EU AND CHINA

Philipsen, N. J. — Tue, 21 Apr 2009 07:54:24 PDT

The regulation of professional services has been high on the political agenda for years now in Europe. This paper points out the methods of working and the strategies used by the European Commission (Directorate General for Competition) and various national competition authorities to promote deregulation of the professions throughout the European Union. Central to this discussion are the so-called public interest and private interest approaches to regulation. On the one hand, the European Commission seems to have been influenced by developments in particular Member States (bottom-up effects), whereas on the other hand, there have been top-down effects in recent years, at least in some Member States. The European experience is used to study the recent developments in China, and in particular the regulation of lawyers. I find that the argument of information asymmetry may have more relevance in China than in Europe. In addition, the fact that liability rules may not yet be a good alternative for (or supplement to) quality regulation may also make a stronger case for regulation in China. However, economic theory and European practice have taught us that there is a general risk of disproportional regulation.

DETECTION OF ANTICOMPETITIVE HORIZONTAL MERGERS

Huschelrath, K. — Fri, 03 Apr 2009 01:42:45 PDT

This paper discusses possibilities to detect anticompetitive horizontal mergers. In particular, it develops a detection framework for antitrust authorities. The framework considers the potential welfare effects of mergers through changes in product prices and efficiencies, as well as product variety, marketing, and innovation incentives. The implementation of the framework is addressed through the derivation of back-of-the-envelope formulas.

COMPETITION VERSUS PROPERTY RIGHTS: AMERICAN ANTITRUST LAW, THE FREIBURG SCHOOL, AND THE EARLY YEARS OF EUROPEAN COMPETITION POLICY

Giocoli, N. — Wed, 18 Feb 2009 20:50:04 PST

This paper investigates the influence of the American antitrust tradition on the foundation and early years of European competition policy. Four main propositions summarize my argument made in this paper. First, when one takes the competition versus property rights dichotomy into account, it becomes evident that the economists' contribution to the historical evolution of U.S. antitrust law has been smaller than usually believed. Second, the American antitrust tradition has had less influence than is commonly claimed over the foundations of European Economic Community (EEC) competition policy. Third, a law and economics argument based on the constitutional standing of competition rules, an argument initially put forward by the highly influential Freiburg School of Ordoliberalism, played a crucial role in the birth of EEC antitrust policy. Fourth, the ordoliberal origin of EEC competition rules, when combined with the Community's integration goal, helps explain why the impact of the competition versus property rights dichotomy on European antitrust law has been limited and, contrary to the U.S. example, solved more favorably to competition than to property rights.