Pricing Algorithms: the Digital Collusion Scenarios
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Antitrust Enforcement and the Consumer
Many consumers have never heard of antitrust laws, but when these laws are effectively and responsibly enforced, they can save consumers millions and even billions of dollars a year in illegal overcharges. Most States have antitrust laws, and so does the Federal Government. Essentially, these laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, U.S. Department of Justice resulting in higher prices for inferior Washington, DC 20530 products and services. This pamphlet was prepared to alert consumers to the existence and importance of antitrust laws and to explain what you can do for antitrust enforcement and for yourself. 1. What Do the Antitrust Laws Do for the Consumer? Antitrust Antitrust laws protect competition. Free and open competition benefits consumers Enforcement by ensuring lower prices and new and better products. In a freely competitive and the market, each competing business generally Consumer will try to attract consumers by cutting its prices and increasing the quality of its products or services. Competition and the profit opportunities it brings also stimulate businesses to find new, innovative, and more efficient methods of production. Consumers benefit from competition through lower prices and better products and services. Companies that fail to understand or react to consumer needs may soon find themselves losing out in the competitive battle. When competitors agree to fix prices, rig bids, or allocate (divide up) customers, consumers lose the benefits of competition. The prices that result when competitors agree in these ways are artificially high; such prices do not accurately reflect cost and therefore distort the allocation of society’s resources. -
Managerial Economics Unit 6: Oligopoly
Managerial Economics Unit 6: Oligopoly Rudolf Winter-Ebmer Johannes Kepler University Linz Summer Term 2019 Managerial Economics: Unit 6 - Oligopoly1 / 45 OBJECTIVES Explain how managers of firms that operate in an oligopoly market can use strategic decision-making to maintain relatively high profits Understand how the reactions of market rivals influence the effectiveness of decisions in an oligopoly market Managerial Economics: Unit 6 - Oligopoly2 / 45 Oligopoly A market with a small number of firms (usually big) Oligopolists \know" each other Characterized by interdependence and the need for managers to explicitly consider the reactions of rivals Protected by barriers to entry that result from government, economies of scale, or control of strategically important resources Managerial Economics: Unit 6 - Oligopoly3 / 45 Strategic interaction Actions of one firm will trigger re-actions of others Oligopolist must take these possible re-actions into account before deciding on an action Therefore, no single, unified model of oligopoly exists I Cartel I Price leadership I Bertrand competition I Cournot competition Managerial Economics: Unit 6 - Oligopoly4 / 45 COOPERATIVE BEHAVIOR: Cartel Cartel: A collusive arrangement made openly and formally I Cartels, and collusion in general, are illegal in the US and EU. I Cartels maximize profit by restricting the output of member firms to a level that the marginal cost of production of every firm in the cartel is equal to the market's marginal revenue and then charging the market-clearing price. F Behave like a monopoly I The need to allocate output among member firms results in an incentive for the firms to cheat by overproducing and thereby increase profit. -
The Three Types of Collusion: Fixing Prices, Rivals, and Rules Robert H
University of Baltimore Law ScholarWorks@University of Baltimore School of Law All Faculty Scholarship Faculty Scholarship 2000 The Three Types of Collusion: Fixing Prices, Rivals, and Rules Robert H. Lande University of Baltimore School of Law, [email protected] Howard P. Marvel Ohio State University, [email protected] Follow this and additional works at: http://scholarworks.law.ubalt.edu/all_fac Part of the Antitrust and Trade Regulation Commons, and the Law and Economics Commons Recommended Citation The Three Types of Collusion: Fixing Prices, Rivals, and Rules, 2000 Wis. L. Rev. 941 (2000) This Article is brought to you for free and open access by the Faculty Scholarship at ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in All Faculty Scholarship by an authorized administrator of ScholarWorks@University of Baltimore School of Law. For more information, please contact [email protected]. ARTICLES THE THREE TYPES OF COLLUSION: FIXING PRICES, RIVALS, AND RULES ROBERTH. LANDE * & HOWARDP. MARVEL** Antitrust law has long held collusion to be paramount among the offenses that it is charged with prohibiting. The reason for this prohibition is simple----collusion typically leads to monopoly-like outcomes, including monopoly profits that are shared by the colluding parties. Most collusion cases can be classified into two established general categories.) Classic, or "Type I" collusion involves collective action to raise price directly? Firms can also collude to disadvantage rivals in a manner that causes the rivals' output to diminish or causes their behavior to become chastened. This "Type 11" collusion in turn allows the colluding firms to raise prices.3 Many important collusion cases, however, do not fit into either of these categories. -
Buyer Power: Is Monopsony the New Monopoly?
COVER STORIES Antitrust , Vol. 33, No. 2, Spring 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Buyer Power: Is Monopsony the New Monopoly? BY DEBBIE FEINSTEIN AND ALBERT TENG OR A NUMBER OF YEARS, exists—or only when it can also be shown to harm consumer commentators have debated whether the United welfare; (2) historical case law on monopsony; (3) recent States has a monopoly problem. But as part of the cases involving monopsony issues; and (4) counseling con - recent conversation over the direction of antitrust siderations for monopsony issues. It remains to be seen law and the continued appropriateness of the con - whether we will see significantly increased enforcement Fsumer welfare standard, the debate has turned to whether the against buyer-side agreements and mergers that affect buyer antitrust agencies are paying enough attention to monopsony power and whether such enforcement will be successful, but issues. 1 A concept that appears more in textbooks than in case what is clear is that the antitrust enforcement agencies will be law has suddenly become mainstream and practitioners exploring the depth and reach of these theories and clients should be aware of developments when they counsel clients must be prepared for investigations and enforcement actions on issues involving supply-side concerns. implicating these issues. This topic is not going anywhere any time soon. -
35 Measuring Oligopsony and Oligopoly Power in the US Paper Industry Bin Mei and Changyou Sun Abstract
Measuring Oligopsony and Oligopoly Power in the U.S. Paper Industry Bin Mei and Changyou Sun1 Abstract: The U.S. paper industry has been increasingly concentrated ever since the 1950s. Such an industry structure may be suspected of imperfect competition. This study applied the new empirical industrial organization (NEIO) approach to examine the market power in the U.S. paper industry. The econometric analysis consisted of the identification and estimation of a system of equations including a production function, market demand and supply functions, and two conjectural elasticities indicating the industry’s oligopsony and oligopoly power. By employing annual data from 1955 to 2003, the above system of equations was estimated by Generalized Method of Moments (GMM) procedure. The analysis indicated the presence of oligopsony power but no evidence of oligopoly power over the sample period. Keywords: Conjectural elasticity; GMM; Market power; NEIO Introduction The paper sector (NAICS 32-SIC 26) has been the largest among the lumber, furniture, and paper sectors in the U.S. forest products industry. According to the latest Annual Survey of Manufacturing in 2005, the value of shipments for paper manufacturing reached $163 billion or a 45% share of the total forest products output (U.S. Bureau of Census, 2005). Thus, the paper sector has played a vital role in the U.S. forest products industry. However, spatial factors such as the cost of transporting products between sellers and buyers can mitigate the forces necessary to support perfect competition (Murray, 1995a). This is particularly true in markets for agricultural and forest products. For example, timber and logs are bulky and land-intensive in nature, thus leading to high logging service fees. -
Price Fixing and Repeated Games
9781405176323_4_014.qxd 10/19/07 8:12 PM Page 323 14 Price Fixing and Repeated Games In February 2007, the European Union Competition Directorate imposed their largest-ever fines on companies found guilty of colluding to fix prices. Five elevator manufacturers were fined a total of a992 million (approximately $1.4 billion) for operating a cartel that con- trolled prices in Germany, Belgium, Luxembourg and the Netherlands. ThuysenKrupp received the heaviest fine, of more than a479 million since it was judged to be a “repeat offender” by the Commission. Otis was fined a225 million, Schindler a144 million, Kone a142 million, and Mitsubishi’s Dutch subsidiary a1.8 million.1 The elevator case came just one month after another case involving gas insulated switch- gear projects in which the Commission imposed fines totally a750 million on 11 companies for their parts in a price-fixing cartel. In this case, the largest fine of a396.5 million was imposed on Siemens, Germany. This case is particularly interesting because it was broken open largely as a result of the Commission’s leniency policy. Under that policy, the first firm in a conspiracy to confess and “fink” on its co-conspirators gets a much reduced penalty. In fact, the finking firm in the switch-gear case, ABB Switzerland, was granted full immu- nity and paid no penalties in return for its confession and provision of information to the authorities. That reflects a considerable savings from the a215 million it would otherwise have had to pay as a repeat offender. Action to curb the activities of cartels has been equally active in the United States.2 The Department of Justice has recently imposed a total of more than $732 million on companies operating a cartel to control the pricing of dynamic random access memory (DRAM). -
A Structured Outline for the Analysis of Horizontal Agreements
A STRUCTURED OUTLINE FOR THE ANALYSIS OF HORIZONTAL AGREEMENTS by Thomas B. Leary* The antitrust principles applied to “horizontal” arrangements are difficult to summarize. The principles have evolved over an extended period of time and have been shaped by decisions that are often hard to reconcile. I do not claim that the structure outlined below is the only way to read cases or frame issues, but it is one that I believe is consistent with the most recent precedent and learning. I. Introduction An agreement between actual or potential competitors to restrain their rivalry in some respect is commonly called a “horizontal restraint.” This kind of agreement should be distinguished from so-called “vertical” restraints that govern the interface between supplier and customers (who may also be competitors in another capacity). The distinction is fundamental because horizontal and vertical restraints are analyzed in different ways.1 The most significant difference is that horizontal restraints are more likely to be deemed illegal per se and vertical restraints are more likely to be subject to the “rule of reason.” * Commissioner, Federal Trade Commission. This revision of a paper first presented a year ago has been prepared for distribution at The Conference Board 2004 Antitrust Conference (Mar. 3-4, 2004). I have benefitted from discussions with FTC Chairman Timothy Muris, General Counsel William Kovacic, and attorney advisors Thomas Klotz, Lisa Kopchik and Holly Vedova in the preparation of this outline, but it does not necessarily reflect their views or the views of anyone else in the Commission. 1 See, e.g., discussion in ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 79-82 (5th ed. -
Corporate Disclosure As a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations∗
Corporate Disclosure as a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations∗ Thomas Bourveau Guoman She Alminas Zaldokasˇ This version: September 2019 - First version: October 2016 Abstract We empirically study how collusion in product markets affects firms’ financial disclosure strategies. We find that after a rise in cartel enforcement, U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products. This new information potentially benefits peers by helping to tacitly coordinate actions in product markets. Indeed, changes in disclosure are associated with higher future profitability. Our results highlight the potential conflict between securities and antitrust regulations. Keywords: Financial Disclosure, Antitrust Enforcement, Collusion, Tacit Coordination JEL Classification: D43, G38, M41, L15, L41 ∗Bourveau is at Columbia Business School. She and Zaldokasˇ are at the Hong Kong University of Science and Technology (HKUST). Thomas Bourveau: [email protected]; Guoman She: [email protected]; Alminas Zaldokas:ˇ [email protected]. We thank our editor Haresh Sapra and the anonymous referee for their constructive comments and guidance. We thank our discussants Julian Atanassov, Luzi Hail, Rachel Hayes, Gerard Hoberg, Hyo Kang, Vardges Levonyan, Xi Li, Tse-Chun Lin, Tim Loughran, Mike Minnis, Vladimir Mukharlyamov, Vikram Nanda, Kevin Tseng, Jiang Xuefeng, and Xintong Zhan for comments that helped to improve this paper. We also thank Sumit Agarwal, Phil Berger, Jeremy Bertomeu, Matthias Breuer, Jason Chen, Hans Christensen, Anna Costello, Sudipto Dasgupta, Wouter Dessein, Hila Fogel-Yaari, Joey Engelberg, Eric Floyd, Yuk-Fai Fong, Jonathan Glover, Kai Wai Hui, Bruno Jullien, Christian Leuz, J¯uraLiaukonyt_e, Daniele Macciocchi, Nathan Miller, Jeff Ng, Kasper Meisner Nielsen, Giorgo Sertsios, Daniel D. -
Relationship Between Public and Private Antitrust Enforcement, Note by the United States Submitted to the OECD Competition Commi
Unclassified DAF/COMP/WP3/WD(2015)11 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 09-Jun-2015 ___________________________________________________________________________________________ _____________ English - Or. English DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE Unclassified DAF/COMP/WP3/WD(2015)11 Working Party No. 3 on Co-operation and Enforcement RELATIONSHIP BETWEEN PUBLIC AND PRIVATE ANTITRUST ENFORCEMENT -- United States -- 15 June 2015 This document reproduces a written contribution from the United States submitted for Item III of the 121st meeting of the Working Party No. 3 on Co-operation and Enforcement on 15 June 2015. More documents related to this discussion can be found at: http://www.oecd.org/daf/competition/antitrust- enforcement-in-competition.htm Please contact Ms. Naoko Teranishi if you have any questions regarding this document [phone number: +33 1 45 24 83 52 -- E-mail address: [email protected]]. English JT03378179 Complete document available on OLIS in its original format - This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of Or. English international frontiers and boundaries and to the name of any territory, city or area. DAF/COMP/WP3/WD(2015)11 -- United States -- 1. The United States relies on a combination of federal, state,1 and private enforcers to combat anticompetitive conduct.2 The three enforcement groups play different, yet complementary, roles. Federal and state competition law enforcers have similar missions – to protect the public from the harms flowing from anticompetitive conduct. Federal enforcement seeks to protect the interests of all consumers across the nation or within interstate commerce, while state enforcers focus their efforts on the consumers in their respective states. -
Criminalising Cartel Activity: Lessons from the US Experience
Criminalising cartel activity: Lessons from the US experience William Kolasky* The Federal Government has proposed the introduction of criminal sanctions for entities and individuals involved in anti-competitive cartel activity. In this comment, the author provides an historical introduction and overview of the equivalent provisions in the United States. The view put forward is that criminal sanctions are critical as a response to cartel behaviour, with this having the corresponding effect of making compliance programs far more significant as well as placing a greater onus on the legal profession. International cooperation and the role of leniency policies within the regulatory environment will also become increasingly important. Introduction Cartel enforcement in Australia has been on the rise in recent years, most recently aided by the implementation of the Australian Competition and Consumer Commission’s (ACCC) amnesty program in June 2003. Under the existing civil penalty regime in Australia, corporations involved in cartels face pecuniary penalties of up to AUS$10 million per contravention, while their executives face penalties of up to AUS$500,000 per contravention. On 24 June 2004, the Australian Federal Government introduced legislation to amend the Trade Practices Act 1974 (Cth) (TPA) in response to the Dawson Report to further stiffen the sanctions for cartel behaviour. The proposed amendments would introduce criminal sanctions, including jail terms, for individuals for ‘hard-core’ cartel behaviour, as well as substantially increase the maximum fines for corporations. The maximum penalty for corporations would increase from its current level to the greater of AUS$10 million, three times the gain from the contravention, or where the gain cannot be readily ascertained, 10% of the group’s annual Australian turnover. -
Intermediate Microeconomics
Intermediate Microeconomics IMPERFECT COMPETITION BEN VAN KAMMEN, PHD PURDUE UNIVERSITY No, not the BCS Oligopoly: A market with few firms but more than one. Duopoly: A market with two firms. Cartel: Several firms collectively acting like a monopolist by charging a common price and dividing the monopoly profit among them. Imperfect Competition: A market in which firms compete but do not erode all profits. Perfect competition with only 2 firms Assume the following model: ◦ 2 firms that produce the same good (call the firms “Kemp’s Milk” and “Dean’s Milk”). ◦ They both have the same marginal cost (c), and it is constant (so constant AC, too). ◦ The Demand for their good is downward-sloping, but does not have to have a particular shape. ◦ The firms simultaneously choose their prices ( and ). ◦ The firm with the lower price captures the whole market, and the other firm gets nothing. ◦ If both firms set the same price, they split the market demand evenly. Bertrand competition The profit for each firm is given by: = , [ ] and = ( , )[ ]. Π − This model is calledΠ the Bertrand model− of Duopoly—after 19th Century economist, Joseph Louis Francois Bertrand. To find the equilibrium, however, we’re not going to use calculus—just reason. Equilibrium in the Bertrand model Say that you’re Kemp’s dairy. If Dean’s is charging any price that is greater than your own c, then you can choose from among three intervals for your own price: > , = , < . If you go with the first one, ≤ you get no sales because Dean’s undercut your price. If you go with the second one, you get: 1 , . -
When Does Buyer Power Become Monopsony Pricing?
Antitrust , Vol. 27, No. 1, Fall 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. X+Y Company has a large percentage of purchases in the market; and X+Y Company has sufficient buyer When Does Buyer power to drive hard bargains and pay “low” prices to Power Become the farmers. X+Y Company’s downstream, sell-side market is nation - al, includes many competitors, and includes products Monopsony Pricing? beyond those made by X+Y Company. Competition is strong, and X+Y Company has a low market share and BY JOHN D. SHIVELY no ability to increase consumer prices or decrease qual - ity. Any harm from the price X+Y Company pays for inputs is felt directly by the farmers whose profits are HE STRUCTURE OF AGRICULTURAL depressed, but there is no increase in price, or decrease industries breeds monopsony claims, and conse - in quality, to consumers who ultimately buy X+Y quently, those industries are a major arena for Company’s product. conflicting schools of thought on monopsony pric - Ting. The 2 01 0 USDA-DOJ Agriculture Industry The key issue is how to determine whether X+Y Com - Work shops raised issues of buyer power and monopsony pany’s power to pay “low” prices to farmers is (1) buyer pricing by concentrated agribusiness to new prominence power that exists in all competitive markets 1 or (2) anticom - and encouraged the DOJ’s Antitrust Division to take more petitive monopsony power.