Economics at the Antitrust Division: 2017–2018

This article describes some of the work of Antitrust Division economists over the past year, with a focus on modeling. It begins by illustrating the mapping from evidence to prediction using tools for assessing the effects of mergers using Bertrand, Cournot, and auction models. It then turns to two hot topics in competition policy: the implications of claims of increasing margins for merger enforcement and the validity of claims of increasing concentration. Finally, it considers how mergers affect prices in bargaining models.     

An Introduction to the Symposium on the Use of Simulation in Applied Industrial Organization

Simulation offers a rigorous methodology for addressing policy or litigation issues that require a comparison of an observed state of the world with an unobserved one. Simulation employs a calibrated, structural oligopoly model to describe the unobserved state of the world. Calibration involves reliance on real-world observations to set the key parameter values in the model. Simulation is an increasingly important tool of the industrial organization economist, particularly in analyzing the competitive effects of mergers. Papers in this symposium illustrate merger simulations in a variety of contexts and one other application of simulation.     

Patent Hold‐Up and Antitrust: How A Well‐Intentioned Rule Could Retard Innovation

Licensing technology essential to a standard can present a hold‐up problem. After designing new products incorporating a standard, a manufacturer could be confronted by an innovator asserting patent rights to essential technology. This hold‐up problem can be solved with a damages remedy provided by antitrust or some other body of law, but a damages remedy can reduce the innovator's licensing revenue and thereby retard innovation. The availability of an ex post damages remedy also alters the licensing terms in ex ante bargaining with the result that fewer socially beneficial R&D projects are undertaken.     

Can mergers increase output? Evidence from the lodging industry

We find that hotel mergers increase occupancy. In some specifications, price also rises. Because these effects occur only in markets with high capacity utilization and high uncertainty, we reject simple models of price or quantity competition in favor of models of “revenue management,” where firms price to fill available capacity in the face of uncertain demand.     

刍议跨国并购交易中的几个关注因素

在全球经历了五次并购浪潮后，越来越多的中国公司希望通过跨国并购的形式寻求海外投资机会，实现跨越式发展。有鉴于此．中华咨询与美国波士顿商学院联合进行了跨国并购领域的专项研究，     

The reverse Cellophane fallacy in market delineation

In the landmark Cellophane case, the Supreme Court erroneously concluded that du Pont did not have significant market power because the Court evaluated the elasticity of demand for Cellophane at the monopoly equilibrium, at which the elasticity was far higher than at the competitive equilibrium. The Court's error is commonly referred to as the Cellophane fallacy. This paper contends that there also is a reverse Cellophane fallacy. Markets delineated on the basis of prevailing demand elasticities are likely to be too small and the potential for the exercise of market power is likely to be overstated.     

The Use of the Logit Model in Applied Industrial Organization

Qualitative choice models, such as the logit model, can capture important firm and product asymmetries. This paper surveys use of the logit model in industrial organization, with special focus on its application to merger analysis. The basic model and its motivation are reviewed, as is its estimation. Discussed in some detail is the use of the logit model to predict the price and welfare effects of horizontal mergers in differentiated products industries. Simulation using a qualitative choice model is argued to be far superior to traditional structural analysis. Logit merger simulations have the particular virtues of low informational and computational burdens and the use of the logit model can be motivated as reflecting a diffuse prior on the structure of demand.     

Lost Profits from Patent Infringement: The Simulation Approach

A patent owner is entitled to recover any additional profits that would have been earned but for infringement. This paper suggests the use of an adaptation of merger simulation to assess lost profits in patent infringement cases. A model of the industry with infringement is calibrated to observed prices and quantities and estimated demand elasticities. Lost profits are then estimated by calculating a new equilibrium without the infringing product(s).