Illinois Walls in alternative market structures

This note extends on our paper Illinois Walls: How barring indirect purchaser suits facilitates collusion (Schinkel, Tuinstra and Rüggeberg, 2005, henceforth STR). It presents analyses of two alternative, more competitive, market structures to conclude that when the conditions for existence of Illinois Walls derived in STR are satisfied, Illinois Walls also exist in these alternative market structures. Section 1 considers a market in which each downstream firm is able to buy and sell several varieties of the differentiated product, which increases competition at the downstream level. It is found that Illinois Walls then exist for discount factors higher than a certain critical discount factor, where this critical discount factor is strictly smaller than the critical discount value found in STR. Section 2 studies the case where all wholesalers produce one and the same homogeneous input, which the downstream firms each differentiate into their own variety. In this market structure, competition is strong at the upstream level. Illinois Walls turn out to exist for any positive value of the discount factor. These findings suggest that Illinois Walls are robust to variations in market structure.

Forced Freebies: A Note on Partial Deregulation with Pro Bono Supply Requirements

The liberalization of many former state governed natural monopolies in sectors such as electricity, railroad and telecommunications is done by partial deregulation. Typically, entry is invited into elements of the production chain, yet under strict price and quality controls. This note considers some potential welfare effects of an unconventional type of conditional deregulation, used in the electricity market in Flanders, Belgium, where the utility companies are held to deliver the households they supply a complimentary basic electricity package free of charge. It is shown that, while decreasing the number of new entrants into the liberalized market, such pro bono supply requirements can nevertheless increase net total production. A general condition for a welfare maximizing level of `forced freebies' is derived.

Imperfect Competition Law Enforcement

Competition policy is a subject of often heated debate. Competition authorities, seeking to battle anticompetitive acts in complex cases to the best of their abilities, regularly find themselves advised by rival economic theories and disputed empirical analyses. As a consequence, there is a real possibility that they may occasionally err, missing true violations of competition law or finding firms liable that have actually done nothing but good competition. In this paper, possible consequences of such imperfect competition law enforcement on firm strategies are considered. In a simple cartel setting, it is found that the incidence of anti-competitive behavior increases in both types of enforcement errors: Type II errors decrease expected fines, while Type I errors encourage industries to collude precautionary when they face the risk of false allegations. Hence, fallible antitrust enforcement may stifle genuine competition. Moreover, when enforcement error are non-negligible, competition authorities run the risk of being over-zealous, in the sense that welfare is best served by an authority that is selective in its targeting of alleged anticompetitive acts.

Illinois Walls

In its landmark ruling in Illinois Brick Co. v. Illinois, the U.S. Supreme Court restricted the right to sue for private damages suffered from violations of section 4 of the Clayton Act to direct purchasers. Despite the fact that typically antitrust injury is, at least in part, passed on to firms lower in the production chain and ultimately to consumers, Illinois Brick has since stood as a binding legal constraint. This paper considers the strategic use that upstream firms can make of Illinoi Brick to shield themselves from private damages claims. In a repeated game setting, we find that Illinois Brick may facilitate upstream firms in engaging horizontally in an overt collusive arrangement, with concealed side-payments to their direct purchasers that discourage them from filing suit. An example is given of such an `Illinois Wall', in which downstream firms are given part of the upstream cartel profits through a symmetric rationing of their inputs at low prices. The Illinois Wall is found to be resilient to entry, imperfections of the legal system and leniency programs. In fact, the wall is particularly stable when competition is relatively strong at both the up- and the downstream level.

Illinois Walls: How barring indirect purchaser suits facilitates collusion

In its landmark ruling in Illinois Brick Co. v. Illinois, the U.S. Supreme Court restricted standing to sue for recovery of damages suffered from a breach of federal antitrust law to direct purchasers only. Even though typically antitrust injury is, at least in part, passed on to firms lower in the production chain and ultimately to consumers, Illinois Brick is binding precedent in a majority of states. In this paper, we draw attention to a strategic abuse of the rule as a shield against antitrust damages claims. We show that Illinois Brick facilitates upstream firms in engaging horizontally in a collusive arrangement, allowing them to focus concealed vertical side-payments to discourage civil action on their direct purchasers only. Downstream firms are passed part of the upstream cartel profits through a symmetric rationing of their inputs at low prices. This `Illinois Wall' arrangement sustains collusion in the production chain to the detriment of consumers and reducing total welfare. The more competitive the up- and downstream industries otherwise are, the more scope there is for the arrangement. Illinois Walls are shown to be resilient to entry, as well as to variations in the legal system. Several recent U.S. cartel cases display some of their symptoms, suggesting that the abuse of Illinois Brick is a reality in U.S. industry.

Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

In both US and EU merger control, merger-specific efficiencies are recognized as a possible defense for horizontal mergers that raise competition concerns. We introduce the Werden-Froeb-index (WFI) to assist in evaluating these efficiencies. The index measures the average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the merger is consummated. It has low information requirements and can deal with any number of firms in price- or quantity-competition merging fully or partially, and a large class of demand and cost functions. We show how the WFI complements Phase I merger inquiries as a screening mechanism.

Illinois Walls in alternative market structures

This note extends on our paper Illinois Walls: How Barring Indirect Purchaser Suits Facilitates Collusion (Schinkel, Tuinstra and Rüggeberg, 2005, henceforth STR). It presents analyses of two alternative, more competitive, market structures to conclude that when the conditions for existence of Illinois Walls derived in STR are satisfied, Illinois Walls also exist in these alternative market structures. Section 1 considers a market in which each downstream firm is able to buy and sell several varieties of the differentiated product, which increases competition at the downstream level. It is found that Illinois Walls then exist for discount factors that are always strictly smaller than the critical discount value found in STR. Section 2 studies the case where all wholesalers produce one and the same homogeneous input, which the downstream firms each differentiate into their own variety. In this market structure, competition is strong at the upstream level. Illinois Walls turn out to exist for any positive value of the discount factor. These findings suggest that Illinois Walls are robust to variations in market structure

Illinois Walls: how barring indirect purchaser suits facilitates collusion

In its landmark ruling in Illinois Brick Co. v. Illinois, the U.S. Supreme Court restricted standing to sue for recovery of damages su¤ered from a breach of federal antitrust law to direct purchasers only. Even though typically antitrust injury is, at least in part, passed on to firms lower in the production chain and ultimately to consumers, Illinois Brick is binding precedent in a majority of states. In this paper, we draw attention to a strategic abuse of the rule as a shield against antitrust damages claims. We show that Illinois Brick facilitates upstream firms to engage horizontally in a collusive arrangement by focussing concealed vertical side-payments to discourage civil action on their direct purchasers only. Downstream firms are passed part of the upstream cartel profits through a symmetric rationing of their inputs at low prices. This Illinois Wall arrangement sustains collusion in the production chain, substantially reducing total welfare. The more competitive the up- and downstream industries otherwise are, the more scope there is for the arrangement. Illinois Walls are shown to be resilient to entry, as well as to variations in the legal system. Several recent U.S. cartel cases display Illinois Wall symptoms

Short Subjects: Southeastern State Archives and Local Records: A Sampler

Georgia has 159 counties, 187 school systems, over 500 chartered municipalities and numerous local boards, commissions, and authorities. Many are experiencing dramatic growth, and that is straining their resources and necessitating change in their traditional operations. Preservation of the historical record is a responsibility recognized by Georgia\u27s local government officials. This fact is supported by requests to the Department of Archives and History, by laws passed by the legislature, and by recent studies

Incidence of seropositive myasthenia gravis in Cape Town and South Africa

Background. Myasthenia gravis (MG) is a treatable autoimmune disease characterised by fatiguable weakness of skeletal muscles. More than 85% of MG patients have antibodies to the acetylcholine receptor (AChR) at the neuromuscular junction or are seropositive for MG (SPMG). In the developed world the incidence of MG has increased, particularly among older individuals, but no epidemiological studies have been done on SPMG in Africa. Objectives. To determine the annual incidence rate (IR) of SPMG in the Cape Town (CT) municipality, and the crude annual IR of SPMG for the whole of South Africa (SA). Methods. Positive AChR antibody tests were identified between 1 January 2003 and 1 January 2005 for patients living in CT, and the age- and sex-specific incidences were calculated. To determine the national crude annual IR over the same period, positive assays were identified from the laboratories that process AChR assays for SA. National Census 2001 population statistics formed the denominators. Results. There were 65 positive assays in CT, and 230 nationwide. Based on these figures the annual IR for CT was 11.2 per million per year (95% confidence interval (CI) 8.7 - 14.3), and for South Africa 2.6 per million / year (95% CI 2.2 - 2.9). After a questionnaire response from CT neurologists regarding the routine use of the AChR antibody assay, the annual IR for CT was adjusted to 12.6 per million (95% CI 9.9 - 15.9) to incorporate those presumed to have SPMG without a confirmatory test. In CT, the IR in females was 15.3 per million / year (95% CI 11.2 - 20.4), and in males, 6.8 per million / year (95% CI 4.1 - 10.7). The CT IRs for blacks, coloureds and whites were not statistically different after adjusting for age and gender. The IR of SPMG in CT was 6 times greater in those presenting after the age of 50 years than in those with earlier disease onset (95% CI 3.7 - 9.7). Conclusions. The annual IR of SPMG in CT is much the same as rates recorded recently in other developed countries, but the rest of SA has a much lower IR. A preponderance of MG starting after the age of 50 years reflects a worldwide trend, although the CT data showed a relatively lower-than-expected incidence for older males. IRs for SPMG vary widely in different regions in SA; this is likely to be related to differences in regional health care delivery, and underdiagnosis