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- Preliminary Material
- Main Text
- 1 Introduction: Starting From First Principles
- Preliminary Material
- 1.1 Competition Economics and You
- 1.2 What Does Economics Contribute to Competition Law?
- 1.3 The Book’s Approach to Explaining Competition Economics
- 1.4 Explaining Some Basic Principles the Economic Naturalist’s Way
- 1.4.1 Demand curves, with no chart
- 1.4.2 The level of demand, and interaction with other products
- 1.4.3 Supply curves, still with no chart
- 1.4.4 Where demand and supply meet
- 1.4.5 When supply curves are upward-sloping
- 1.4.6 The level of demand, economies of scale, and the number of suppliers for which there is room in the market
- 1.4.7 Competition ‘good’
- 1.4.8 Monopoly ‘bad’
- 1.4.9 Monopoly profit as a fundamental market signal
- 1.4.10 A recap of the concepts used so far
- 1.5 Some Health Warnings on Competition, Competition Policy, and Competition Economists
- 1.6 The Remainder of the Book, and What’s New in this Second Edition
- 2 Market Definition
- Preliminary Material
- 2.1 Why Market Definition?
- 2.2 Dimensions of the Relevant Market
- 2.3 The Demand Side: Substitution and Elasticities
- 2.18
- 2.3.1 The demand curve, with chart
- 2.3.2 Shifts in the demand curve due to interaction with other products
- 2.3.3 Responsiveness of demand to price
- 2.3.4 Own-price elasticity of demand
- 2.3.5 Cross-price elasticity of demand
- 2.3.6 Own-price elasticities and market definition
- 2.3.7 A health warning on elasticities: They change as you move along the demand curve
- 2.4 The Hypothetical Monopolist Test
- 2.4.1 Drawing the line: Hypothetical cartels and monopolists
- 2.4.2 The orthodox formulation of the hypothetical monopolist test
- 2.4.3 The hypothetical cartel once more
- 2.4.4 What the hypothetical monopolist would do: Maximize profits
- 2.4.5 Profit-maximization and the SSNIP
- 2.4.6 Why the ‘SS’ in SSNIP?
- 2.4.7 Why the ‘N’ in SSNIP?
- 2.4.8 An iterative process: From the focal product to the smallest market
- 2.4.9 Picking the right focal product and area
- 2.4.10 Multiple focal products
- 2.4.11 Asymmetric markets
- 2.4.12 Getting to the smallest market
- 2.4.13 Ranking substitutes: Diversion ratios and cross-price elasticity
- 2.4.14 The second iteration onwards: Which of the monopolist’s products does the SSNIP question apply to?
- 2.4.15 Purity of the SSNIP test, with some pragmatism
- 2.5 Critical Loss Analysis
- 2.5.1 Would or could: Two different hypothetical monopolists
- 2.5.2 Would or could: Does it matter?
- 2.5.3 The concept of critical loss
- 2.5.4 The critical loss formula
- 2.5.5 Critical loss illustrated
- 2.5.6 A numerical example of critical loss
- 2.5.7 The marginal customer matters
- 2.5.8 Case study: Critical loss analysis in a holiday parks merger
- 2.5.9 Critical loss in markets with differentiated products
- 2.6 The Cellophane Fallacy
- 2.7 Supply-side Substitution and Market Aggregation
- 2.7.1 What if the hypothetical monopolist is not ‘the only future supplier’?
- 2.7.2 Classic examples: Paper and bus services
- 2.7.3 Three criteria for supply-side substitution: No sunk costs, swiftness, and scale
- 2.7.4 The risk of overstating competitive pressure from supply-side substitution
- 2.7.5 The risk of getting supply-side substitution in the wrong direction
- 2.7.6 Keeping an eye on the focal product
- 2.7.7 Market aggregation
- 2.8 Price Discrimination Markets
- 2.9 Chains of Substitution
- 2.10 Other Aspects of Geographic Market Definition
- 2.11 Market Definition for Complements and Bundles
- 2.11.1 Substitutes, complements, and bundles
- 2.11.2 Selecting the right starting point
- 2.11.3 Markets for bundles
- 2.11.4 Market definition for aftermarkets
- 2.11.5 A systems market or separate markets?
- 2.11.6 Market definition in two-sided platform markets
- 2.11.7 A numerical example of critical loss analysis in two-sided markets
- 2.12 Markets Along the Vertical Supply Chain
- 2.12.1 The vertical dimension of the market
- 2.12.2 Markets in different vertical layers and their interaction
- 2.12.3 Derived demand and market definition: The air cargo example
- 2.12.4 Turning the supply chain upside down for market definition
- 2.12.5 Self-supply by vertically integrated companies
- 2.12.6 Do end-consumers always matter most?
- 2.13 Product Substitution Versus Product Migration
- 2.14 Market Definition for Features Other than Price
- 2.15 Quantitative Tools for Market Definition
- 2.16 Conclusion: Why Market Definition?
- 3 Market Power
- Preliminary Material
- 3.1 A Central Concern in Competition Law
- 3.1.1 A long-standing concern
- 3.1.2 A central concern, but not tackled directly
- 3.1.3 Market power is a matter of degree
- 3.1.4 Monopolistic competition
- 3.1.5 Market power: A stockpile that can be exhausted
- 3.1.6 Degrees of market power that worry competition authorities
- 3.1.7 Dominance
- 3.1.8 Super-dominance and monopoly
- 3.1.9 The remainder of this chapter
- 3.2 Market Shares and Concentration Measures
- 3.2.1 Market shares and market power
- 3.2.2 Measuring market shares: Not as easy as it might seem
- 3.2.3 Market shares by value and volume
- 3.2.4 Capacity market shares
- 3.2.5 Market shares over time
- 3.2.6 Concentration measures
- 3.2.7 The Herfindahl–Hirschman Index
- 3.2.8 When is a market too concentrated?
- 3.2.9 The Lerner index
- 3.3 Entry and Exit Barriers
- 3.3.1 Definition of entry barrier
- 3.3.2 Absolute entry barriers
- 3.3.3 Strategic entry barriers
- 3.3.4 Informational entry barriers
- 3.3.5 Economies of scale and scope
- 3.3.6 Sunk costs
- 3.3.7 Contestable markets
- 3.3.8 Network effects as an entry barrier
- 3.3.9 Do network effects mean the end of all competition?
- 3.3.10 Two-sided markets with network effects
- 3.4 Profitability as a Measure of Market Power
- 3.4.1 Profitability captures the essence of market power
- 3.4.2 Who uses profitability analysis?
- 3.4.3 Measures of economic profitability: NPV and IRR
- 3.4.4 Truncating the period of analysis
- 3.4.5 Accounting versus economic measures of profitability
- 3.4.6 Margins and return on sales
- 3.4.7 Asset valuation
- 3.4.8 Valuing intangible assets
- 3.4.9 Cost allocation issues
- 3.4.10 What is the competitive benchmark?
- 3.4.11 Case study: Sky-high profits in the pay-TV market
- 3.4.12 Interpretation of the results of profitability analysis
- 3.4.13 Is profitability analysis ‘too difficult’?
- 3.5 Buyer Power and Bidding Markets
- 3.5.1 What happens when buyers have the power?
- 3.5.2 Theories of harm from buyer power: Squeezing suppliers
- 3.5.3 Case study: Cable consolidation and buyer power
- 3.5.4 Theories of harm from buyer power: The waterbed effect
- 3.5.5 Countervailing buyer power in bidding markets
- 3.5.6 Criteria for bidding markets
- 3.5.7 Examples of the bidding market defence: Soft drinks and fresh eggs
- 3.6 Behavioural Economics and Market Power
- 3.6.1 Understanding the consumer
- 3.6.2 How consumers form preferences and make choices
- 3.6.3 Types of consumer bias: Context-dependent preferences
- 3.6.4 Types of consumer bias: Heuristics and time-inconsistency in decision-making
- 3.6.5 How biases influence the interaction between demand and supply
- 3.6.6 Market power and disciplining by consumers
- 3.6.7 Market power and disciplining by competitors
- 3.6.8 Add-ons, partitioned pricing, and drip pricing: Creating market power in narrow markets?
- 3.6.9 Case study on market power in narrow markets: Payment protection insurance
- 3.6.10 How can you use behavioural economics in assessing market power?
- 3.7 Market Power, Investment, and Innovation
- 4 Abuse of Dominance
- Preliminary Material
- 4.1 Successful Competitor or Bull in a China Shop?
- 4.2 General Principles for Assessing Exclusionary Conduct
- 4.2.1 Why the effects-based approach is different
- 4.2.2 Relevance of the degree of market power
- 4.2.3 Assessing effects: The welfare, profit-sacrifice, and no-economic-sense tests
- 4.2.4 Assessing effects: The as-efficient competitor test
- 4.2.5 Abuse of collective dominance
- 4.2.6 Dominance and abuse in related markets
- 4.3 Cost Benchmarks for Exclusionary Conduct
- 4.4 Predation
- 4.4.1 What is predation, from an economic perspective?
- 4.4.2 Legitimate reasons for below-cost pricing
- 4.4.3 Recoupment, and the feasibility of predation
- 4.4.4 Determinants of the feasibility of predation
- 4.4.5 Reputation effects: Achieving recoupment by deterring future entrants
- 4.4.6 The (limited) relevance of intent
- 4.4.7 Newspaper wars: The predation principles illustrated
- 4.5 Price Discrimination
- 4.6 Quantity, Loyalty, and Exclusivity Rebates
- 4.7 Margin Squeeze
- 4.8 Bundling and Tying
- 4.8.1 Some definitions first
- 4.8.2 Supply-side efficiencies of bundling and tying
- 4.8.3 Demand-side efficiencies of bundling and tying
- 4.8.4 An illustration of welfare and foreclosure effects of bundling
- 4.8.5 Bundling and tying to leverage market power: The Chicago critique and responses to it
- 4.8.6 Bundling and tying to protect an existing market position
- 4.8.7 The as-efficient competitor and attribution tests for bundling
- 4.9 Refusal to Supply and Essential Facilities
- 4.10 Excessive Pricing
- 4.10.1 Should excessive prices be controlled, and is competition law the right tool?
- 4.10.2 Relying on the market instead of intervening: From tampons to condoms
- 4.10.3 Comparisons with other prices: Bananas, funeral services, and morphine
- 4.10.4 Excessive pricing based on excessive profits: Debit cards in the Netherlands
- 4.10.5 Economic value to downstream purchasers: Ports and horseracing data
- 4.10.6 Economic value through free interaction of demand and supply: Steel in South Africa
- 4.10.7 Common misperceptions: What economics can and cannot say about excessive pricing
- 5 Cartels and Other Horizontal Agreements
- Preliminary Material
- 5.1 Are All Cartels Bad?
- 5.2 Economic Characteristics of Hardcore Cartels
- 5.3 Concerted Practices and Information Sharing
- 5.4 Co-operation Among Competitors: Joint Purchasing, Joint Selling, and Other Forms of Collaboration
- 5.5 Technology and Intellectual Property Agreements: Beneficial or Anti-competitive?
- 5.6 Finding Cartels: Can Economics Help?
- 6 Vertical Restraints
- Preliminary Material
- 6.1 Business Practices, the Law, and the Economics
- 6.2 Economic Rationales for Vertical Restraints
- 6.2.1 The problem of double marginalization
- 6.2.2 Free-rider problems: Other manufacturers
- 6.2.3 Free-rider problems: Other distributors
- 6.2.4 The hold-up problem: Relationship-specific investments
- 6.2.5 The hold-up problem: Required contract duration
- 6.2.6 Other distribution efficiencies achieved through vertical restraints
- 6.2.7 Vertical restraints as a bargaining outcome: Sharing the pie, and ‘jilted distributors’
- 6.3 Is a Restraint a Restriction? Counterfactual Analysis under Article 101(1)
- 6.4 Foreclosure Effects of Vertical Restraints
- 6.5 ‘Hardcore Vertical Restraints’: Resale Price Maintenance and Exclusive Territories
- 6.6 Vertical Restraints in Online and Digital Markets
- 7 Mergers
- Preliminary Material
- 7.1 Mergers Under Scrutiny
- 7.2 The Substantive Test: SLC, SIEC, and Other Variants
- 7.3 The Counterfactual: Current Market, Entry, or Failing Firm?
- 7.4 Unilateral Effects: Assessing Closeness of Competition
- 7.4.1 Homogeneous versus differentiated products
- 7.4.2 Diversion ratios as a measure of closeness of competition
- 7.4.3 Which diversion ratio?
- 7.4.4 Consumer surveys to estimate demand responsiveness and diversion ratios
- 7.4.5 Good practice in consumer survey design
- 7.4.6 Conjoint analysis
- 7.4.7 Other evidence on closeness of competition
- 7.5 Unilateral Effects: Simulating Price Rises
- 7.5.1 From simple to complex merger simulation
- 7.5.2 Illustrative price rise analysis
- 7.5.3 Illustrative price rises with efficiencies and asymmetric diversion
- 7.5.4 UPP and GUPPI
- 7.5.5 GUPPI in practice: Petrol stations, cinemas, and channel crossings
- 7.5.6 Full merger simulation
- 7.5.7 Rivals’ reactions: Entry and repositioning
- 7.5.8 Price–concentration analysis to infer price effects
- 7.6 Co-ordinated Effects
- 7.7 Non-horizontal Mergers
- 7.8 Minority Shareholdings
- 7.9 Merger Efficiencies
- 8 Design of Remedies
- Preliminary Material
- 8.1 After the Diagnosis, What’s the Cure?
- 8.2 Structural Remedies in Mergers
- 8.3 Structural Remedies in Conduct Cases
- 8.4 Behavioural Remedies: Price and Access
- 8.5 Behavioural Remedies: FRAND
- 8.6 Behavioural Remedies: Insights from Behavioural Economics
- 8.7 Setting Fines
- 8.8 Measuring the Costs and Benefits of Remedies, and of Competition Law
- 9 Quantification of Damages
- Preliminary Material
- 9.1 Damages Claims, Economics, and the Law
- 9.2 Harm from Hardcore Cartels: Conceptual Framework
- 9.3 Harm from Exclusionary Conduct: Conceptual Framework
- 9.3.1 Lost profit: Legal principles determining the relevant economic questions
- 9.3.2 Lost profit: Cases where courts have been cautious
- 9.3.3 The concept of lost profit: An economic framework
- 9.3.4 The effect of infringements that increase input prices
- 9.3.5 The counterfactual in exclusion cases: Competitive or barely legal conduct?
- 9.4 A Classification of Methods and Models for Quantifying Damages
- 9.5 Comparator-based Approaches: Cross-sectional
- 9.6 Comparator-based Approaches: Time Series
- 9.7 Comparator-based Approaches: Difference-in-Differences
- 9.8 Approaches Based on Financial Analysis
- 9.9 Approaches Based on Market Structure and Industrial Organization Theory
- 9.9.1 What are market-structure-based approaches?
- 9.9.2 How close is the cartel outcome to monopoly, and how competitive is the counterfactual?
- 9.9.3 Use of IO models to determine or cross-check the counterfactual
- 9.9.4 Example of a market-structure-based approach to estimate lost profits: Bus fights in Cardiff
- 9.10 Pass-on of Overcharges
- 9.10.1 The policy debate about the passing-on defence
- 9.10.2 Pass-on in theory: The relationship between prices and costs in economic models
- 9.10.3 Pass-on in competitive markets: Industry-wide versus firm-specific cost increases
- 9.10.4 Pass-on in monopoly and other models of competition: An illustration
- 9.10.5 Pass-on in theory: Further insights
- 9.10.6 Small versus large cost increases
- 9.10.7 The effect of pricing practices and price friction
- 9.10.8 Empirical evidence on pass-on
- 9.10.9 Pass-on and volume effects
- 9.10.10 Passing the buck: Remaining policy and practical questions
- 9.11 Interest and Discounting
- 10 The Use of Economic Evidence in Competition Cases
- Preliminary Material
- 10.1 Smokescreens and Mud-slingers?
- 10.2 Best Practice in Presenting Economic Evidence
- 10.3 Economists in Court: When Can You Rely on Them?
- 10.4 Economists in Court: Do They Get a Fair Hearing?
- 10.5 The Use of Economics in Competition Law: A Promising Future?
- 1 Introduction: Starting From First Principles
- Further Material
