Response to BIS Consultation

Morten Hviid, Bruce Lyons, Sebastian Peyer and Duncan Sheehan have responded to the Department of Business, Innovation and Skills consultation “Private actions in competition law: A consultation on Options for Reform“.

You can view their full response here.

Policy Brief: Ringleaders in larger numbers, asymmetric cartels

BACKGROUND

The conventional theoretical wisdom is that collusion is more likely in markets in which firms are few and symmetric, because asymmetry and greater numbers create incentives to deviate in the collusive and punishment phases.

However, many real world cartels involve relatively large numbers of firms, who often exhibit considerable asymmetries in size.

METHODOLOGY

  • The authors explore how far the ringleader can be interpreted as an organisational mechanism enabling cartelists to overcome cartel problems in those instances where they are likely to be most pronounced, that is, when cartels comprise relatively large numbers of asymmetric firms.
  • The study draws on a sample of 89 prosecuted European cartels over the period 1990-2008.

KEY FINDINGS

  • The EC was able to explicitly identify a ringleader or ringleaders in 19 of the 89 cartels.
  • Where the ringleader engages in ‘aggressive’ activities, it tends to be the largest member or members of the cartel. But where the activities of the ringleader are confined to a more facilitating organisational nature, it is not uncommon to observe a number of ringleaders, some or all of whom are not dominant.
  • Ringleaders only occur where the conspiracy involves price fixing or bid rigging. Other forms of agreement do not appear to require a ringleader.
  • Ringleaders are less common where an existing Trade Association may be able to fulfil similar roles.
  • The European Commission appears to have had an increasing propensity to name ringleaders in the 1990s, but this has been reversed since 2000. This is consistent with a deterrent role from the increasingly asymmetric fines imposed on ringleaders.
  • The evidence strongly confirms that ringleaders are statistically more likely in cartels with a relatively large number of members who are asymmetrically sized.

POLICY ISSUES

Collusion may not be confined to small-number symmetric-size distributions of firms.

ABOUT THE AUTHORS

Stephen Davies is a Professor in the UEA School of Economics and CCP faculty member, Oindrila De is an Assistant Professor at the Indian Institute of Management, Indore.

Watch this: Review of 2012 Annual Conference

In which Sebastian Peyer and Andreas Stephan look back at our 2012 conference and pick out some of the best bits.

Photography and Video: Scott Summers

Video: David Reader

Music composition: William Bryce

Policy Brief: Pharmaceutical Innovation and Parallel Trade

BACKGROUND

Parallel imports are genuine goods produced under the protection of a patent, a trademark or copyright and then imported into a second market without the authorization of the owner of the intellectual property right.

Parallel trade exists when there are significant price differences between countries making this trade attractive.

International price differences can be sustained only if intellectual property rights are fully protected, making the creator the exclusive owner of her innovation: the patent holder may be expected to exert market power by charging a different price in different markets for the same or similar goods.

This form of third-degree price discrimination yields ambiguous welfare effects.

METHODOLOGY

  • The authors focus on the pharmaceutical sector in examining how different regimes of intellectual property rights interact with specific features of government intervention, namely price cap regulation.
  • The analysis is based on the strategic interaction between a single innovative firm located in the unregulated North, and a foreign government located in the South.
  • A complete welfare analysis is provided that accounts for both global investment decisions in R&D as well as the local costly distribution of drugs.
  • The patent holder’s decisions are examined when a foreign government can introduce a direct price control to lower the price of patented drugs.

KEY FINDINGS

  • The authors clarify the circumstances under which parallel trade, despite weakening intellectual property rights, can actually create higher incentives to conduct R&D. This higher investment also translates into higher global welfare.
  • It is shown that, under parallel trade, investment can rise only when the foreign government takes into full account its impact both on investment and on the firm’s decision to supply the regulated country. This occurs because of a complete withdrawal from price regulation.
  • However, the regulated country is better off under an intermediate form of commitment whereby the foreign government anticipates its effect only on local distribution and delivery but not on global R&D investment. In this case, the government resorts to some price regulation which reduces investment, in particular, under parallel trade.

POLICY ISSUES

Parallel trade makes government policies interdependent and forces every government to consider the consequences of its actions on global incentives to invest. Therefore, a balanced approach towards evaluation of the costs and benefits of allowing parallel imports should fully incorporate the strategic effects of the regulatory regime on the level of both the price and quality of drugs.

ABOUT THE AUTHORS

Anna Rita Bennato is a Post Doctoral Researcher at the CCP, Tommaso Valletti is a Professor at Imperial College London.

 

The original Policy Briefing is available for download here, the Working Paper on which this Briefing is based is available here.

Researcher Receives $10,000 Award in United States

Really good news for Sebastian Peyer, one of our Post Docs:

CCP Post Doctoral Research Fellow, Dr Sebastian Peyer, has been chosen as a Scholar-in-Residence by the Antitrust Law Section of the American Bar Association (ABA) and invited to undertake his competition policy research in Washington D.C. Applications for the inaugural award were invited from junior academics and recent Ph.D. students worldwide.

Dr Peyer will visit the United States for three months in spring 2013 to continue his research on private antitrust enforcement. During the visit he will interact with members of the U.S. antitrust community and participate in the annual ABA Antitrust Spring Meeting in Washington D.C. – the largest meeting of antitrust specialists worldwide. The Scholar-in-Residence-Programme will also enable him to establish contact with key federal agency personnel as well as a range of academics, lawyers, and consulting firms.

Sebastian commented “I am very delighted to receive the award. My research compares European and US private antitrust enforcement and I have an unique opportunity to undertake the US-related research in Washington D.C. . I am very much looking forward to engaging with the members and contacts of the ABA.” 

More about the Section for Antitrust Law at the American Bar Association can be found here.

New Working Paper: Pharmaceutical Innovation and Parallel Trade

Anna Rita Bennato, a CCP Post Doctoral Researcher and Tommaso Valletti of Imperial College London, University of Rome “Tor Vergata” and CEPR, have published their new working paper (12-9) on pharmaceutical innovation and parallel trade:

This paper investigates the effects yielded by the interaction between government regulation policies and parallel trade, with a particular focus on the pharmaceutical sector. We provide a complete welfare analysis that accounts for both global investment decisions in R&D as well as local costly distribution of drugs. We study the patent holder’s decisions when a foreign government can introduce a direct price control to lower the price of patented drugs. We show that, under parallel trade, investment can rise only when the foreign government takes into full account its impact both on investment and on the firm’s decision to supply the regulated country. This arises because of a complete withdrawal from price regulation. The regulated country is however better off under an intermediate form of commitment whereby the foreign government anticipates its effect only on local distribution and delivery, but not on global R&D investment. In this case, the government resorts to some price regulation, which reduces investment in particular under parallel trade.

You can download the paper here.

The 2012 series of working papers is here.

Dr Peter Whelan has joined the Editorial Board of World Competition

Dr Peter Whelan, a Faculty Member of the CCP, has joined the Editorial Board of World Competition. Since it was first published in 1977, World Competition has become hugely important in the field of global antitrust, examining as it does all aspects of competition policy from primarily, a legal perspective, but also from an economic point of view. For more information on World Competition, please click here.