Successive rounds of international trade negotiations have reduced trade barriers worldwide consistently over the past few decades. Simultaneously, the total volume of mergers worldwide has been growing at an enormous rate (42% per year over the period 1980-1999, according to the UN's World Development Report.) Has trade liberalization played an active role in encouraging those mergers? In a recent discussion paper, Amrita Ray Chaudhuri (TILEC) uses a dynamic dominant-firm model to examine this question. Domestic and cross-border mergers and demergers are allowed for. When firms are myopic and the dominant firm has a sufficiently high pre-merger capital share in any one country, trade liberalization causes the industry to become significantly more concentrated. When firms are forward-looking, this anti-competitive effect of
trade liberalization is mitigated. Tariff reduction from a prohibitive to a non-prohibitive level aligns merger patterns across countries and initiates merger (or demerger) waves simultaneously across countries, provided all firms are equally forward-looking. These results, thus, highlight the importance of taking into consideration existing industry structure and firms' discount rates whilst formulating competition policy in the face of trade liberalization.
TILEC 2007 report available
TILEC's annual report for 2007 is now available on the TILEC website. Last year turned out to be a good year for TILEC. With a new budget plan and a second TILEC Agreement signed by the two parent faculties, each of these covering the five-year period 2007-2011, a stable framework for the future was established. Substantial additional funding was provided by the Executive Board of Tilburg University, which allowed TILEC to support the hiring of new researchers in its core research areas. With a membership of over 50, about equally divided between the Faculty of Law and the Faculty of Economics and Business Administration (with roughly two-thirds of the researchers working in the research line 'Institutions, Competition and Regulation' and one-third in 'Law and Finance'), TILEC has now reached the critical size that allows for fruitful interactions. Its coming challenge is to further deepen the interdisciplinary cooperation between legal scholars and economists in the fields covered by its research programme. The annual report describes the institutional efforts exerted to that purpose and also contains a summary of recent research findings.
TILEC workshop on private enforcement of competition law
The European Commission has issued its long-awaited white paper on antitrust damages on 2 April 2008. On 20 June 2008, TILEC will organise a half-day workshop on this topical issue of private enforcement in the context of competition law. The workshop will be divided into two parts. The first part will deal with the legal and policy aspects of the discussion. Eddy de Smijter (European Commission) will focus on the policy developments behind the white paper, and Jeroen Kortmann (University of Amsterdam) will provide the audience with a tort-law perspective on antitrust damages. The second part of the workshop will deal with the more specific issue of the assessment of total damages and the distribution thereof. Here, three sets of speakers of economics will present their work: Wieland Müller and Jan Boone (both TILEC), Theon van Dijk (Lexonomics) and Frank Verboven (KU Leuven), and Maarten Pieter Schinkel, Jan Tuinstra and Martijn Han (all University of Amsterdam). The workshop will take place at Tilburg University, from 12:00 to 17:00. Registration is free and is possible until 13 June 2008. More information on the workshop can be found at the TILEC website.
Apr 24, 2008
Is the retailing sector plagued with competition problems?
Retailing is concentrated in many countries. A national supermarket chain can easily represent 25% of the turnover of many manufacturers. Should we be concerned about this situation? On 18 April 2008, TILEC devoted a seminar to this issue. Jeanine Miklòs-Thal (University of Mannheim) presented her work (joint with P. Rey and T. Vergé) on slotting allowances (fees that suppliers pay retailers so as to gain access to shelf space). In her model rival retailers, endowed with all the bargaining power, offer contracts to a manufacturer. Contracts that allow for a fixed fee and exclusivity provisions (in addition to specifying the unit price) are not sufficient to achieve monopolization of the industry. Richer arrangements (including, e.g., slotting allowances) are required to that effect. The policy implications are however ambiguous, if only because slotting fees are not strictly necessary to achieve this outcome. Pieter Kuipers (Unilever) addressed the problems raised by the recent development of 'private labels' (retailer's brands). As a result of this trend, retailers now combine the roles of customer of branded goods as well as competitor, with the risk of compromising their function as efficient gatekeepers to final consumers.
Quality of the legal system and financial contracting
Does the legal system really matters for economic outcomes? In a recent TILEC discussion paper, Marco da Rin (TILEC) and co-authors Laura Bottazzi (Bologna) and Thomas Hellmann (British Columbia) focus on the venture capital market and develop a theory and empirical test of the ways the legal system affects the relationship between venture capitalists and entrepreneurs. When some actions on both sides are not fully contractible, in a legal system where investors are generally more protected the optimal contract calls for them to give more informal support to entrepreneurs and to receive more downside protection (instruments such as debt or preferred equity). Those predictions are tested on a hand-collected sample of capital venture deals in 17 European countries and clearly supported. The results hold for legal origin, using the common interpretation that the Anglo-Saxon common law system is better for investors than systems based on civil law. They also hold for two widely used index measures of the quality of the legal system: the rule of law and the degree of procedural complexity. The paper is forthcoming in the Journal of Financial Intermediation.
Microjustice as a solution for the poor?
In developing countries, many people do not have effective access to justice to protect their rights. Taking the cue from microfinance, Maurits Barendrecht (TILEC and Intervict) and Patricia van Nispen (International Legal Alliances) introduce the concept of 'Microjustice' in their TILEC discussion paper as an approach to tackle this issue. As a starting point, people with limited resources pay relatively more for services than wealthier people, since they often purchase small amounts of services. For the authors, this implies that current first-world approaches to the provision of justice need to be adapted to large markets with low-budget consumers. If this can be achieved, there should be a viable and effective market for justice for poorer persons. The authors point to a large untapped potential for innovation in current justice systems. They explore which principles may be used to develop innovative legal services for those with limited resources, and give examples of what 'Microjustice' might look like. What is needed in particular are new forms of delivery of neutral interventions, by trustworthy and independent decision makers, who have the necessary incentives to be transparent, induce cooperation between their clients, and serve clients at the low end of the market.