ESNIE 2005 ANTI-TRUST: from theories to practices Competition & Transaction Costs ANTONIO NICITA...
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Transcript of ESNIE 2005 ANTI-TRUST: from theories to practices Competition & Transaction Costs ANTONIO NICITA...
ESNIE 2005
ANTI-TRUST: from theories to practices
Competition & Transaction Costs
ANTONIO NICITA
(UNIVERSITY OF SIENA, FACULTY OF ECONOMICS)
Summary
• Is there an Anti-trust theory?• Rise and decline of Sherman act• First revolution: Chicago L&E, NIE, TCE• Second revolution: post-Chicago approach• Regulation vs Competition in US and EU• The methodology of antitrust investigation• New challenges from Behavioural L&E• Antitrust and complex transactions
Anti-trust at the intersection of many theories/1• Evolutionary process• Original effort from politics• Evolution of the economic meaning of markets/competition• From perfect to workable competition• From economic market to relevant market• Who is protected?: consumers, competitors, small firms,
welfare, the market…• Economic agents (and judges) as rational maximizers• OIE, NIE, TCE, IO
The first revolution in Antitrust
• A contract is per se a limitation of economic liberty, freedom to exchange and to renegotiate. Restrictive agreement (both vertical and horizontal)
• This limitation is per se inefficient since it reduces the fundamental mechanism of market efficiency which is freedom to search for better opportunities
• Monopolization, Attempt to Monopolize (leveraging, bundling, discrimination, excessive prices, raising rivals’ costs…)
• Structural remedies
• Protection of small firms against trust in US
Anti-trust at the intersection of many theories/2
OIE
NIE
IO
TCE
FIVE AGENTS TRANSACTIONS
VERTICAL INTEGRATION, FIRMS
MAKE/BUY, TRANSACTION COSTS
MARKET STRATEGY
MARKET STRUCTURE
INCOMPLETE CONTRACTS
SPECIFIC INVESTMENT
GOVERNANCE
The second revolution: Chicago
• Coase’s influence (1937)• A. Director, R. Posner, R. Bork……….O. Williamson
• Dominance, Market power, market share• The economic efficiency of
(i) horizontal/vertical restraints-mergers
(ii) ‘leveraging’ strategies by dominant firm
(iii) monopoly for public good production
(iv) monopoly against rent-seeking
(v) oligopolistic collusion vs forced competition
Chicago/1: vertical restraints/mergers
• Vertical restraints/mergers are mainly motivated by efficiency reasons
Abuse against consumers
(a) Two monopolies (upstream-downstream): double mark-up
(b) One monopoly and one competitive market: just one monopoly profit
Abuse against competitors (strategic barriers to entry)
(a) Blocking downstream efficient entry is irrational and inefficient
(b) Intra-brand vs inter-brand competition (private orderings against post-contractual opportunism with asset specificity)
Chicago/2: efficiency defense in horizontal mergers
• Ex-post Market Concentration ratio should be compared with ex-post improvement in efficiency
• Williamson: efficiency defense in mergers
• Posner/Bork: two is enough in order to have competition
• Horizontal agreement/parallelism: clear distinction between oligopolistic collusion/concerted behavior
Chicago/3: efficiency of bundling
• A bundle of two products is effectively a way of offering discount to customers who buy one of your product, since customers can buy the other product at a lower price than the stand-alone price.
• Do you want to offer a discount on the other product to customers who buy one product?
• Why?
• Price discrimination/efficiency, allocation of common costs
Chicago 4: efficiency of tying• Tied Sales: Tying is the practice of requiring the purchaser of
one product to also purchase a second product.
• In the static tied-sale, the customer who wants to buy A must also buy B. It is possible to buy B without A which explains why this is a tie and not a bundle. Thus, the items for sale are B alone or an A-B package.
• There are many legitimate reasons why firms resort to tied sales. One motivation that leads to an antitrust concern is when the tied sale is used as a device to facilitate price discrimination.
Chicago/3: irrationality of excessive/predatory pricing
• Excessive pricing: What is that? Should we inhibit monopolistic pricing?
• Discrimination: it may improve economic efficiency
• Predatory pricing: you will pay tomorrow today’s policy (the rational agent always accommodate efficient entry)
The rational monopolist will never have
any incentive to start those actions
Chicago/4: market vs regulations
• Rent-seeking/1, Posner (monopoly as a positional good): Increase in dead-weight loss. Forced competition may actually reduce social welfare
• Rent-seeking/2 Tullock: Antitrust authority are not automatically managed but they are the result of ‘hidden’ influences
• Rent-seeking/3 Peltzman: Politicians divert economic efficiency towards political aims
ANTITRUST PARADOX: A LAW AT WAR WITH ITSELF (Bork, 1978)
Anti-trust should focus on ex-post analysis in specific cases
and only by applying a rule of reason
The second revolution: Post-Chicago
• Efficiency of vertical separation (accounting, proprietary)• Creation of new markets for access to Essential Facilities• Strategic Barriers to entry (defensive leveraging)• Dynamic (in)efficiency
Post-Chicago/1
• Efficiency of vertical separation (accounting, proprietary) even if it increases transaction costs
• Incumbent operators in network industries are owners of essential facilities
• Essential facility: essential, not substitutable, easy to share (a test should be very careful: Magill, Oskar Bronner, FS/GWG, IMS )
• Essential facility doctrine (property rights ex-post re-definition, creation of a market for access priced on avoidable costs)
• Internal/External discrimination (Telecommunications, Electricity, Railways)
Owner of the Asset
Essential Asset
consumers
DownstreamCompetitors
•Regulation
•Access price
• Accounting monitoring
•Price squeeze test
•Antitrust
Costs / Benefits
Post Chicago/2
• Defensive leveraging: bundling, tying, target rebates are strategies aimed at increasing rivals’ costs in downstream markets in order to defend upstream monopolies (Microsof US, EU)
• The case of Bork
• Generally speaking NIE&TCE assume exogenous outside options, while firms can affect market dynamics in order to change the rule of the game and contractual power at the renegotiation stage
• TC should include the costs to compete (to affect market conditions)
Practices: the methodology of antitrust investigation- step 1• Relevant Market (the smallest economic context in which it
is possible to raise a market power, p>cm)
• Cross elasticity between products and geographical areas
• SNTRP test (or the virtual monopolist test)
• Cellophane Fallacy
Practices: the methodology of antitrust investigation- step 2
ABUSE
• Action against consumers
• Action against competitors
Discrimination
Excessive pricing
Inefficient entry
Defensive leveraging
Practices: the methodology of antitrust investigation- step 2
ANTICOMPETITIVE AGREEMENT
• CARTELS
• PARALLELISM
EFFECTS?
Is there any economic reasons for oligopolistic equilibria on
FOCAL POINTS?
Practices: the methodology of antitrust investigation- step 2
ANTICOMPETITIVE MERGERS
• EX-ANTE VS EX-POST
• REMEDIES
SINGLE DOMINANCE
COLLECTIVE DOMINANCE
DIVESTITURE
SHARED ACCESS
BEHAVIORAL UNDERTAKINGS
Practices: the methodology of antitrust investigation- step 3
REMEDIES AND SANCTIONS
• REMEDIES
• SANCTIONS
FUTURE ACTIONS
PUNISHMENT
DETERRENCE
LENIENCY PROGRAMS
New challenges
• Behavioural L&E recently has challenged some of the basic assumptions of IO
• Sunk costs are not perceived as sunk
• Incumbents and competitors simply ignore if entry is efficient
• Demand is discontinuous in price and time
A possible research agenda
• Introducing endogenous outside options in the standard TCE approach
• Back to Coase/Commons: introducing competition dynamics within the notion of transaction costs
• Antitrust as a rule of reason for re-defining incomplete property rights
• What do incumbent do?
• Sanctions/Deterrence
• Strategic barriers to entry
Thank you