Antitrust in Innovative Industries

We study the effects of antitrust policy in industries with continual innovation. A more protective antitrust policy may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We show that in some cases, holding the innovation rate fixed, as suggested by our comparative statics results, the tension does not arise and a more protective policy necessarily raises the rate of innovation.

A distributed knowledge-based approach to flexible automation : the contract-net framework

Includes bibliographical references (p. 26-29)

A simple status quo that ensures participation (with application to efficient bargaining)

We consider Bayesian incentive-compatible mechanisms with independent types and either private values or interdependent values that satisfy a form of "congruence." We show that in these settings, interim participation constraints are satisfied when the status quo is the randomized allocation that has the same distribution as the equilibrium allocation in the mechanism. Moreover, when utilities are convex in the allocation, we can instead satisfy participation constraints with the deterministic status quo equal to the expected equilibrium allocation in the mechanism. For quasilinear settings, these observations imply the possibility of efficient bargaining when the status quo specifies the expected efficient decision provided that the total surplus is convex in the decision.Efficient property rights, asymmetric information bargaining, transaction costs

Entry, Contestability, and Deregulated Airline Markets: An Event Study Analysis of People Express

A number of recent papers have studied the relationship between price and market structure in the deregulated airline industry through a cross-sectional analysis of city-pair markets. Yet, while interesting, several potential difficulties underlie the inferences drawn in these analyses. In this paper, we consider an alternative approach that uses stock price reactions to entry announcements to shed light on the nature of competitive behavior in this industry. The analysis sheds light on three issues. First, it offers a clean test of contestable market theory. Second, it provides evidence on the level of profits or sunk costs present in these markets. Third, it sheds light on the degree of competitive "localization" existing in the industry. The particular entry events that we focus on are those involving People Express Airline in 1984 and 1985. To provide a more complete picture of the effects of these entry events, we also examine the price and quantity changes that occurred following entry.

Exclusive Dealing

In this paper, we provide a conceptual framework for understanding the phenomenon of exclusive dealing, and we explore the motivations for and effects of its use. For a broad class of models, we characterize the outcome of a contracting game in which manufacturers may employ exclusive dealing provisions in their contracts. We then apply this characterization to a sequence of specialized settings. We demonstrate that exclusionary contractual provisions may be irrelevant, anticompetitive, or efficiency-enhancing, depending upon the setting. More specifically, we exhibit the potential for anticompetitive effects in non-coincident markets (that is, markets other than the ones in which exclusive dealing is practiced), and we explore the potential for the enhancement of efficiency in a setting where common representation gives rise to incentive conflicts. In each instance, we describe the manner in which equilibrium outcomes would be altered by a ban on exclusive dealing. We demonstrate that a ban may have surprisingly subtle and unintended effects.

Lectures on Antitrust Economics, Chapter 1: Introduction

Antitrust laws play a prominent role in the business environment of many nations. Indeed, if one is a regular reader of the New York Times or Wall Street Journal, the chances are good of seeing in any given week at least one, and often several, articles devoted to some aspect of antitrust policy, whether about a recently announced merger of two large oil companies, a case alleging that an important software company has violated the antitrust laws by suppressing competition, or the revelation that a group of international firms producing an important feed additive have conspired to fix prices. The same can increasingly be said of newspapers in many capitals around the world. These lectures are intended to serve as an introduction to the economics behind antitrust policies. The lectures do not strive to be comprehensive in their coverage. Rather, I focus selectively on some of the most recent developments in antitrust economics, and on some areas in which I believe there are important open issues requiring further research. As a result, I do not discuss several significant areas of antitrust economics, including - for example - predatory pricing and restrictions on intrabrand competition such as resale price maintenance. In the frst part of the lectures I discuss two topics - price-fixing and horizontal mergers - that involve horizontal collaboration among firms; that is, collaboration among firms at the same stage of the production/distribution chain. In the second part I turn my attention to three potentially exclusionary practices - exclusive dealing, tying, and vertical integration - that involve contracts between entities located at different levels of the production/distribution chain; so-called vertical practices

Does Retailer Power Lead to Exclusion?

This paper examines whether retailer bargaining power and upfront slotting allowances prevent small manufacturers (who have no bargaining power) from obtaining adequate distribution. In contrast to the findings of Marx and Shaffer (2007), who showed that all equilibria involve limited distribution (i.e., exclusion of a retailer), we show that there is always an equilibrium in which full distribution is obtained, provided that full distribution is the industry profit-maximizing outcome. The key feature leading to this differing result is that we do not restrict each retailer to offering the manufacturer a single tariff

Does Retailer Power Lead to Exclusion?

This article examines whether retailer bargaining power and upfront slotting allowances prevent small manufacturers (who have no bargaining power) from obtaining adequate distribution. In contrast to the findings of Marx and Shaffer (2007), who show that all equilibria involve limited distribution (i.e., exclusion of a retailer), we show that there is always an equilibrium in which full distribution is obtained, provided that full distribution is the industry profit-maximizing outcome. The key feature leading to this differing result is that we do not restrict each retailer to offering the manufacturer a single tariff