Implications For Competition Policy Research Articles

Anticipating the Next Generation of Powerful Digital Players: Implications for Competition Policy

Anticipating the Next Generation of Powerful Digital Players: Implications for Competition Policy

Dynamics of Networks and Regret and Their Implications for Competition Policy and Law and Related 'Wicked' Regulatory Challenges, Puzzles, and Paradoxes Now and in the Future

Dynamics of Networks and Regret and Their Implications for Competition Policy and Law and Related 'Wicked' Regulatory Challenges, Puzzles, and Paradoxes Now and in the Future

Growing Convergence: The Limited Role of Antitrust in Standard Essential Patent Disputes

In the last couple of years, the United States Department of Justice (“DOJ”) and several European countries have reversed previous interventionist decisions and limited the role of antitrust in the resolution of disputes concerning Standard Essential Patent (“SEPs”). These jurisdictions recognize the need to protect intellectual property rights (“IPRs”) by making available injunctions against infringers. Courts have realized that hold-up by a patent holder demanding excessive royalties is not a widespread problem and that patent implementers may hold-out against paying any royalties whilst they continue to practice a patent. They have accordingly adopted new standards for granting injunctions in disputes involving SEPs with the goal of increasing efficiency and legal certainty. We discuss this shift and its implications for competition policy and innovation.

Do LPG prices react to the entry of natural gas? Implications for competition policy

In developing countries, the penetration of Liquefied Petroleum Gas (LPG) is still high, and hence the entry of Natural Gas (NG) networks coexists with the use of LPG by an important fraction of households. A relevant policy question is whether the degree of horizontal integration between NG and LPG providers has an influence on the level of retail prices. Using self-reported retail prices of the largest LPG provider in Chile during years 2013 and 2014, we estimate that the presence of a competing NG network generates an average decrease of LPG retail prices within the range [-4%,-2%]. This result suggests that the degree of horizontal integration between NG and LPG providers should matter, in particular for policy interventions such as merger control by competition authorities and the granting of concessions for deploying NG networks by sectoral regulators.

Detecting Edgeworth Cycles

We propose algorithms to detect Edgeworth cycles, asymmetric price movements that have caused antitrust concerns in many countries. We formalize four existing methods and propose six new methods based on spectral analysis and machine learning. We evaluate their accuracy in station-level gasoline-price data from Western Australia, New South Wales, and Germany. Most methods achieve high accuracy in the first two, but only a few can detect nuanced cycles in the third. Results suggest whether researchers find a positive or negative statistical relationship between cycles and markups, and hence their implications for competition policy, crucially depends on the choice of methods.

Using word of mouth data from social media to identify asymmetric competition in food retailing

Competition between food retailers is often assumed to be asymmetrical, whereby one retailer may compete with another retailer but not vice versa. Little is known about how (a)symmetric competition among retailers currently is. One way to investigate this is to use word of mouth data. A mixed methods analysis of customer comments on social media confirms the existence of asymmetric competition among German food retailers, mainly between supermarkets and discounters. Overall, consumers compare competitors frequently on the basis of their assortments, the price-performance ratio as well as quality and freshness. The results have implications for competition policy and strategic management.

Competition Policy Implications of Sharing Economy Enterprises

As the sharing economy increases its share of the aggregate of overall productivity in nations around the globe, it is natural that it will attract competition policy concerns. Long experience shows that new firm and enterprise structures, contract relationships, and industries attract law enforcement and regulator attention — both because they upend traditional norms governing the way economies are believed to function and because they may violate legal rules developed around those norms. Experience also shows the danger of stifling innovation in business practices by hewing to a traditional view of the “right” way for economies to operate. Such stifling may undermine growth and development where old ways are preferred to innovation. Stifling may have asymmetric impacts on those not currently in the market. The law must accommodate the immutable goal of market access. The sharing economy presents a particular challenge because, as I define it below, the foundational enterprise structure challenges traditional norms, disrupting regulatory systems to achieve greater economic efficiency. The degree of intervention to limit activity by sharing economy enterprises that is appropriate depends on the legitimacy of the regulatory structure being disrupted. That in turn might best be understood as the accessibility of the jurisdiction’s markets in the status quo ante. The paper outlines a structure for analyzing the impact of sharing economy enterprises on economic outcomes across a variety of jurisdictions, including both the developing and the developed world. Part I gives a “first principles” look at the role of competition policy in protecting markets, suggesting that the need for competition policy in the context of the sharing economy depends on the regulatory state of affairs in the industry it is disrupting. Part II considers the sharing economy as an enterprise structure, including its seven defining characteristics and how those characteristics may confound traditional competition law principles. Part III discusses the benefits to markets the sharing economy promises and set those against the apparent competition policy concerns.

Complements and/or Substitutes? The Competitive Dynamics Between News Publishers and Digital Platforms and What It Means for Competition Policy

This paper is to analyse the competitive dynamics between news publishers and digital platforms. News publishers and digital platforms are vertical complements in that news publishers publish content that helps digital platforms to attract users. In turn, digital platforms generate traffic for news publishers. However, the relationship between news publishers and digital platforms is not harmonious. While digital platforms are an important source of traffic, news publishers are concerned that digital platforms free-ride on their valuable content, but also that that distribute that content in a manner that commoditizes it, hence harming their brands. News publishers and digital platforms also horizontally compete for user attention and advertising revenues. Internet users in search of news can go to the website or app of their favourite newspaper, but they may also go to Google News, Facebook or Twitter. Similarly, advertisers can spend their online advertising budget on news publishers, but also on Google or Facebook online properties, which for that matter are also publishers. Linked with technological development, the growing ability of digital platforms to target audiences due to their data advantage has turned the market for online display advertising into a Google and Facebook duopoly. Whether the relationship between news publishers and digital platforms is of a vertical or horizontal nature has implications for competition policy. From a vertical standpoint, some of Google and Facebook’s practices vis-a-vis news publishers could be exploitative in nature. Exploitative cases are, however, difficult to run and in some jurisdictions such as the United States, taking advantage of one’s market power is not illegal even if it harms one’s trading partners. Thus, other avenues may need to be explored to counterbalance the digital platform’s market power and to create a sustainable source of income for news publishers, such as, for instance, joint bargaining or the creation of collective licensing mechanisms for their rights. From an horizontal standpoint, while digital platforms cannot be blamed for seeking to maximize their revenues, competition authorities should however prevent them from engaging in strategies that draw traffic away from news publishers and deprive them of advertising opportunities, either through self-preferencing, discrimination, the imposition of formats and standards that reduce the ability of news publishers to monetize their content, or by making it harder for them to access the data generated by the users’ interaction with their content.

Impact of Vertical Integration on Market Power in Indian Manufacturing Sector During the Post-Reform Period

In the context of declining degrees of vertical integration in major industries of Indian manufacturing sector during the post-reform period, the present paper is an attempt to examine how such “vertical disintegration” has affected firms’ market power and its implications for competition policy. Using panel dataset of 49 majors industries of Indian manufacturing sector for the period 2003–04 to 2010–11 and applying the system generalized method of moments approach to estimate of dynamic panel data models, the paper finds that vertical integration does not cause any significant impact on average market power of firms in an industry. Instead, it is influenced by market size, and selling and technology-related efforts. While selling intensity has a positive impact on market power, the impact of market size and technology intensity is found to be negative. Notably, like vertical integration, market concentration, import to export ratio, and capital intensity also do not have any significant impact on market power. The findings of this paper, therefore, have important implications for competition law and policy in general and policies and regulation relating to technology development and international trade in particular.

Algorithmic Pricing What Implications for Competition Policy?

Pricing decisions are increasingly in the “hands” of artificial algorithms. Scholars and competition authorities have voiced concerns that those algorithms are capable of sustaining collusive outcomes more effectively than can human decision makers. If this is so, then our traditional policy tools for fighting collusion may have to be reconsidered. We discuss these issues by critically surveying the relevant law, economics, and computer science literature.

Bank Competition and Firm Credit Availability: Firm-Bank Evidence From Europe

We examine the impact of bank competition on firms' access to credit using a large panel of 900 banks matched to almost 60.000 firms across the euro area over the period 2010-2016. Results provide empirical support for the market power hypothesis whereby low inter-bank competition worsens firms' credit conditions. Specifically, we find that higher bank market power is associated with lower short and long-term bank credit, higher reliance on trade credit and higher funding costs for corporate borrowers. Furthermore, the effect of bank competition is heterogeneous across firms and banks. On the one hand, high bank market power is especially detrimental for small and opaque firms, suggesting that low competition exacerbates the financial constraint of borrowers most exposed to information problems. On the other hand, the reduction in credit availability associated with high market power is attenuated for firms that borrow from small and local community banks, a finding consistent with the information hypothesis, whereby low competition increases banks’ incentive to supply relationship loans. On balance, however, the predominance of medium-large commercial banks in our sample determines that the overall effect of low inter-bank competition on credit conditions is unequivocally adverse for most firms, i.e. the market power effect outweighs the information effect. This evidence contributes to previous research on bank competition, firms’ credit constraint and relationship lending, and has implications for competition policy. Indeed, with respect to the prospect of greater banking consolidation in the European Union, our results suggest that considerations of efficiency and financial stability should be weighed against the potential negative consequences in terms of firms’ access to credit.

Disruptive Innovation and Implications for Competition Policy

While competition is good for consumers and economies, competition rules alone cannot necessarily produce adequate outcomes for all circumstances. Other norms, particularly regulatory norms, are also often likely to be relevant. The current legal and policy debates about ‘disruptive innovation’ highlight the need for a healthy mixture of competition and regulation. This paper offers a series of reflections arising from the challenges posed by disruptive products, services and business models. These reflections cover matters such as the capacity of legal procedures to keep pace with rapidly changing market environments. Competition advocacy can help regulators decide controversial points. The paper discusses several sectors, such as the car-riding and overnight sleeping sectors, in which different interests must simultaneously be accommodated within the boundaries of national tradition and European Union law. As discussed, some of these matters have now been adjudicated by the EU Courts. The related subjects of the acquisition of data as well as the requirements of privacy and data protection principles are also considered. The paper reflects on the role of network effects and on the difficult choices to be made with regard to the wisdom of relying on competition law or on the nature of innovation itself to deliver appropriate responses to the growth of network-based economic power; and the paper notes but does not suggest a remedy for the problem of delay as inimical to effective judicial review.

Digital Markets, Mobile Payments Systems and Development Competition Policy Implications in Developing Countries in Light of the EU Experience

The digitization of economic activity has important socio-economic development implications and at the same time creates challenges for antitrust analysis. These implications and challenges have been met differently in jurisdictions around the world. In this paper we analyze the different experiences in the EU and developing countries, focusing on mobile payments. We find that this market exhibits special characteristics that need to be taken into account in the analysis of competition conditions. First, it is enabled by mobile telecommunications infrastructure and is offered by network operators, which causes competition in both markets to be closely linked. Second, there are factors, such as the lack of interoperability and geographical reach, that make network effects in this industry different from those present in other platforms. Third, since mobile payments in developing countries serve a niche—the population underserved by mainstream banking—the definition of the relevant market is not straightforward. We propose the criteria to be applied when making such definition. Finally, since mobile payments have associated financial services, there is an interaction between competition and financial stability that needs to be considered.

수평 차별화된 최종재 시장에서 요소가격차별의 후생효과

We analyze the welfare effect of input price discrimination in a horizontally differentiated final-goods market. Previous studies assuming downstream firms competing with homogeneous goods have shown that input price discrimination lowers social welfare by reducing production efficiency. On the other hand, Hahn and Kim(2018) recently showed that input price discrimination can improve social welfare by increasing consumption and production efficiencies when the final-goods market is vertically or horizontally differentiated and consumers have heterogeneous preferences for the products. In contrast, this paper shows that even if the final goods are spatially differentiated, input price discrimination always reduces social welfare as long as all consumers participate and the participation constraint is binding in the middle of the consumer distribution in equilibrium. This result highlights that the welfare effect of input price discrimination in the differentiated final-goods market critically depends on the type of consumer participation constraint, which provides useful implications for competition policy towards the third-degree price discrimination in intermediate-goods markets.

Should Profit Margins Play a More Decisive Role in Horizontal Merger Control?

In a recent speech,1 DG Competition’s Chief Competition Economist, Prof Tommaso Valletti explained that, while there is no evidence of increased market concentration in the five largest European countries (EU-5), profit margins have increased since 2010, reaching a historical maximum in 2016. In his view, the upward trend in profit margins ought to have implications for competition policy in general and, in particular, for merger control. Prof Valletti wrote: ‘The higher the merging parties’ margins in a given case, the more likely traditional market share thresholds will underestimate competitive effects (all else equal)’;2 and added: ‘Merger control matters especially in preventing anticompetitive effects in a world of high margins’.3 Prof Valletti concluded: ‘If we do not properly adapt to changing markets, the risk is politics will (in ways we might not approve of)’.4 If I understand this speech correctly, Prof Valletti advocates in favour of reinvigorating horizontal merger control in Europe in order to prevent further increases in market concentration and thus further increases in profits and inequality. He also seems to believe that such a policy would also deter the emergence of firms with the ability and incentive to foreclose rivals. This policy proposal is in line with that defended by several competition lawyers and economists in the USA. In a recent paper,5 Prof Hovenkamp and Prof Shapiro express concern that merger enforcement has not been aggressive enough in recent years and support proposals, currently discussed in the US Senate,6 to make merger enforcement more aggressive.

Culture, Economics, and Antitrust

What role do cultural dimensions of cooperation and competition play in economic life? Taking a multidisciplinary perspective, this essay uses the example of the concept of trust to consider some implications for competition policy. The author suggests that the field of competition policy is at core about the authoritative allocation of categories of economic activity along a spectrum with individualism and competition at one end and collectivism and cooperation at the other. The allocation is a function of the state, made on the basis of a variety of imprecise inputs—cultural, political, historic, economic, and institutional—and not merely neoclassical economic theory. Sensitivity to the cultural aspects of competition and cooperation places constraints on overly optimistic expectations for global harmonization of antitrust enforcement.

Algorithmic Pricing: What Implications for Competition Policy?

Pricing decisions are increasingly in the “hands” of artificial algorithms. Scholars and competition authorities have voiced concerns that those algorithms are capable of sustaining collusive outcomes more effectively than human decision makers. If this is so, then our traditional policy tools for fighting collusion may have to be reconsidered. We discuss these issues by critically surveying the relevant law, economics and computer science literatures.

Comment of the Global Antitrust Institute, Antonin Scalia Law School, George Mason University, on the Canadian Competition Bureau's White Paper, 'Big Data and Innovation: Implications for Competition Policy in Canada'

This comment is submitted in response to the Canadian Competition Bureau’s White Paper entitled “Big Data and Innovation: Implications for Competition Policy in Canada.” The Global Antitrust Institute’s Competition Advocacy Program commends the Bureau’s conclusion that existing competition laws grounded in sound economic fundamentals deserve primacy in antitrust analysis in all markets, including those characterized by big data, while also urging the Bureau to consider expanding the White Paper to address important issues involving the analyses of big data that would be of considerable value to the international antitrust community.

Competition by Design

Algorithms are the fundamental ingredient of online businesses such as search engines, marketplaces, peer-to peer platforms and social networks. They have already deeply affected the way individuals shop, communicate, and interact with one another. In pursuit of automation-driven efficiencies and market opportunities, firms are increasingly implementing algorithmic solutions that allow them to engage more effectively in commercial activity. In particular, algorithms can be an important source of innovation, allowing companies to develop non-traditional business models and extract more value from data, in order to improve product quality and customisation. Admittedly, advanced algorithms can be powerful tools in the hands of market players, and the challenges posed by algorithms are not entirely new problems for competition enforcers. Whereas the issues of algorithmic transparency and accountability are common to other areas of law and policy, there are further and more specific implications for competition policy. Price-setting algorithms in particular have drawn the attention of academics and policy makers. The current discussions and in-depth reflections, however, are not exclusively on the topic of pricing algorithm and collusion, but include a broader range of questions that are possibly going to inform effective competition policy in the age of algorithms. Against the background of increasingly algorithm-based markets, the paper aims to explore the potential for effective competition policy of the notion of “competition by design”, as broadly derived from the related concept of “data protection by design,” which is enshrined in the upcoming General Data Protection Regulation. EU Competition Commissioner Margarethe Vestager made clear in a series of recent public interventions that firms applying algorithms need to think from the start about how to keep them compliant with competition law (“algorithms will have to go to law school before they are let out”). While the idea of competition compliance by design might be gaining some foothold in the mind-sets of some competition authorities, there are currently no clear indications how it could be integrated into the already complex competition policy fabric. The paper concludes that algorithm design thinking could be a promising new tool at the disposal of competition authorities in the digital economy.

Barriers to Entry and Implications for Competition Policy

Competition requires rivals. While this rivalry may come from imports, the development of local capabilities and productive capacity, including by black industrialists in the South African context, implies understanding barriers to entry for local producers. Barriers to entry are also critical for the correct balance between the risks of over- and under-enforcement and are one reason why it has been recommended that countries should adopt different standards for competition evaluation. This chapter draws on studies of barriers to entry in different markets in South Africa to consider the nature and extent of these barriers and the implications for competition policy. It highlights issues related to regulatory barriers, consumer switching costs and branding, routes to market, vertical integration, as well as economies of scale and access to finance.