UNIVERSITY OF ALBERTA
Department of Economics
ECON 472 – B1
Market Power: Theory and Policy Winter 2017
Instructor:
Andrew Eckert Office: Tory 9-29 Phone: 492-3959
Email: [email protected]
Class Schedule:
Lectures: Monday, Wednesday and Friday, 10:00 – 10:50, in T1-119.
Office Hours: Mondays and Wednesdays, 2:00 – 3:00. I am also available by appointment. Additional office hours will be added before exam dates.
Prerequisites:
ECON 384 and MATH 113 or consent of the Department. These prerequisites will be checked and registration will be cancelled for students without these courses.Purpose of the Course:
In this course we will discuss the economics of competition policy with a focus on the application of the Canadian Competition Act. Topics to be discussed will include the measurement of market power, merger analysis, collusion and other horizontal agreements, predation, abuse of dominance and vertical integration and restraints.
Important competition cases will be discussed under each topic.
Evaluation:
The final grade (out of 100) for the course will be determined according to the following formula:
Writing Assignment 1 (Circulated January 9; Due February 17) 15%
Writing Assignment 2 (Circulated March 3; Due April 5) 15%
Mid-term exam (March 1) 30%
Final Exam (April 25) 40%
These grades will then be translated into letter grades, targeting a class average between 3.0 and 3.6 (so approximately a B+ average) although in certain circumstances it is possible for the class average to lie outside of this interval. Both absolute performance and performance relative to the rest of the class will be considered in determining your letter grades. Credit is not given for attendance or in-class participation.
This course involves two writing assignments. Each is a small research project that must be carefully written in at most 8 pages including references and title page. Grades on these assignments will based on writing as well as content. More detail on each project will provided on the day that it is circulated.
University policy on missed exams and term work can be found in Section 23.2 of the Calendar. Term papers submitted late without an acceptable reason being given will receive a grade of zero. Note that approval for late submission of a term paper or for missing the midterm exam is at my discretion. Students who offer a medical justification must submit the Request for Deferral of Examinations and/or Term Work form, available on the Faculty of Arts webpage. Students who miss the midterm exam for an acceptable reason will have the weight of the midterm put on the final exam. Students requesting a deferred final exam must do so at their home Faculty office.
Access to Past and Present Evaluative Materials
Past exams, along with additional practice questions for both the midterm and final (without answer keys) will be posted online on the course eclass page. Eclass will also be used to distribute PowerPoint slides after each lecture.
Books:
This course has no single required textbook. Some chapters from the following book (referred to below as CW) will be required reading:
Church, J. and R. Ware (2000): Industrial Organization: A Strategic Approach, McGraw- Hill. Available online at http://homepages.ucalgary.ca/~jrchurch/page4/page4.html.
Other required or recommended readings come from the following books (referred to below as BK, Buccirossi, TWCI, Motta and DG). All are available on reserve.
Blair, R. and D. Kaserman (2009): Antitrust Economics, Oxford University Press.
Buccirossi, P., editor (2008): Handbook of Antitrust Economics, MIT Press. Available on reserve in Rutherford.
Trebilcock, M., R. Winter, P. Collins and E. Iacobucci (2002): The Law and Economics of Canadian Competition Policy, University of Toronto Press. Available online through
the University of Alberta library.
Motta, M. (2004): Competition Policy: Theory and Practice, Cambridge University Press.
Davis, P. and E. Garces (2010): Quantitative Techniques for Competition and Antitrust Analysis, Princeton University Press.
Throughout the course, we will be referring to the Competition Act. This is available on eclass, and also can be found online at the Department of Justice website, at
http://www.laws.justice.gc.ca/eng/acts/C-34/index.html. We will also be discussing various Guidelines issued by the Competition Bureau; these are available on the Competition Bureau website and on eclass.
Other readings are available online through the library website, are on reserve in Rutherford library, or can be found on the website for this course.
Course Outline and Readings
Note: This course outline is subject to change. New readings may be added, and the order of presentation may change. ALSO, note that the dates given are
approximate.
1. Introduction: The Monopoly Problem and Competition Policy (January 9-11) Required Readings
CW, Appendix, Chapter 2 and Chapter 4 Competition Act, Parts I, VI, VIII, IX Recommended Readings
BK, Chapter 3
Motta, Chapters 1 and 2.
Ross, T. (1998): “Introduction: The Evolution of Competition Law in Canada,” Review of Industrial Organization, 13: 1-23.
TWCI, Chapters 1 and 2.
OECD country reviews of competition policy frameworks: available at
https://www.oecd.org/daf/competition/countryreviewsofcompetitionpolicyframew orks.htm.
2. Review of Oligopoly (January 13-16) Recommended Readings
Online notes, available on eclass CW, Ch. 8
3. Market Definition and Measurement of Market Power (January 18 - 30) Required Readings
CW, Chapters 12, 19
Competition Bureau Merger Enforcement Guidelines, Parts III and IV DG, Chapter 4 (excluding certain sections to be announced in class).
Audy, E. and C. Erutku (2005): “Price Tests to Define Markets: An Application
to Wholesale Gasoline in Canada,” Journal of Competition, Industry and Trade, 5: 137-154.
Commissioner of Competition v. Ultramar Ltd., Statement of Grounds and Material Facts, available on eclass.
Recommended Readings
BK Chapter 6
McAfee, P., H. Mialon and M. Williams (2004): “What is a Barrier to Entry?” American Economic Review, 94: 461-465.
TWCI, Chapter 2, sections X and XI.
Perloff, J., L. Karp and A. Golan (2007): Estimating Market Power and Strategies, Cambridge University Press.
Motta, Chapter 3.
Ashenfelter, O., D. Ashmore, J. Baker, S. Gleason and D. Hosken (2006): “Empirical Methods in Merger Analysis: Econometric Analysis of Pricing in FTC v. Staples,”
International Journal of the Economics of Business, 13: 265-279.
Baziliauskas, A. and R. Ware (2005): “Does Canada Pipe Really Have Market Power?”, Canadian Competition Record, Fall: 65-77.
Brown, D., D. Harding and R. Ware (2008): “Identifying Market Power in Natural Gas Storage,” Canadian Competition Record, Spring: 91-109.
Martin, S. (2012): “Market structure and Market Performance,” Review of Industrial Organization, 40: 87-108.
Sanderson, M. and R. Winter (2002): “ ‘Profits’ Versus ‘Rents’ in Antitrust Analysis: An Application to the Canadian Waste Services Merger,” Antitrust Law Journal, 70:
485-511.
Spiller, P. and C. Huang (1986): “On the Extent of the Market: Wholesale Gasoline in the Northeastern United States,” Journal of Industrial Economics, 35: 131-145.
4. Collusion (February 1 - 17) Required Readings
CW, Chapter 10
Competition Bureau Competitor Collaboration Guidelines Online notes on screening
Ross, T. and J. Brander (2006): "Estimating Damages from Price-Fixing,” Canadian Class Action Review, 3: 335-369.
Erutku, C. and V. A. Hildebrand (2010): “Conspiracy at the Pump,” Journal of Law and Economics, 53: 223-236.
Buccirossi, Chapter 6
Recommended Readings
DG Chapter 7, section 7.1 TWCI, Chapter 3.
Motta, Chapter 4.
BK, Chapters 9, 10 and 11 (sections 2 to 5)
Connor, J. (2001): “’Our Customers Are Our Enemies’: The Lysine Cartel of 1992- 1995,” Review of Industrial Organization, 18: 5-21
Hughes, P. and M. Sanderson (1998): “Conspiracy Law and Jurisprudence in Canada:
Towards and Economic Approach,” Review of Industrial Organization, 13: 153- 176.
Levenstein, M. and V Suslow (2006): “What Determines Cartel Success?”, Journal of Economic Literature, 44: 43-95.
Porter, R. and J. Zona (1999): “Ohio School Milk Markets: An Analysis of Bidding,”
RAND Journal of Economics, 30: 263-288.
MIDTERM EXAM: MARCH 1!!
5. Horizontal Mergers (February 27- march 13) Required Readings
CW Chapter 23
Competition Bureau Merger Enforcement Guidelines
Simpson, J. and Taylor, C. (2008) Do gasoline mergers affect consumer prices? The Marathon Ashland Petroleum and Ultramar Diamond Shamrock Transaction.
Journal of Law and Economics 51: 135–152.
Recommended Readings
BK, Chapter 12 DG, Chapter 8 Motta, chapter 5
The Commissioner of Competition v. Superior Propane Inc., 2000 Comp Trib. 15.
Federal Court of Appeal Decision in Commissioner of Competition v. Superior Propane Inc. and ICG Propane Inc., April 4, 2001.
Mathewson, G.F. and Winter, R. (2000): “The Analysis of Efficiencies in Superior Propane: Correct Criterion Incorrectly Applied”, Canadian Competition Record, 20: 88-97.
Ross, T. And R. Winter, (2005): “The Efficiency Defence in Merger Law: Economic Foundations and Recent Canadian Developments,” Antitrust Law Journal, 72:
471-503.
Perry, M. and R. Porter (1985): “Oligopoly and the Incentive for Horizontal Merger,”
American Economic Review, 75: 219-227.
Winter, R. (2015): “Tervita and the Efficiency Defence in Canadian merger Law”, Canadian Competition Law Review, 133-159.
6. Predation (March 15 - 27) Required Readings
CW Chapter 21
Competition Bureau, Abuse of Dominance Guidelines
Baumol, W. (1996): “Predation and the Logic of the Average Variable Cost Test”, Journal of Law and Economics, 39: 49-72.
McFetridge, D. (2004): “The Commissioner of Competition v. Air Canada: Phase I,”
Canadian Competition Record, Spring, 81-98. Available online at http://http-server.carleton.ca/~dmcfet/personal/predpap5.PDF.
Recommended Readings
Online notes BK Chapter 8
Motta, Chapter 7, section 7.2 TWCI Chapters 5 (Section 1)
Eckert, A. and D. West (2006): “Predation in Airline Markets: A Review of Recent Cases,” in Advances in Airline Economics, Vol. 1, D. Lee, editor, 25-52.
Morton (1997): “Entry and Predation: British Shipping Cartels 1879-1929”, Journal of Economics and Management Strategy, 6: 679-724.
Riordan, M., P. Bolton and J. Brodley (2000): "Predatory Pricing: Strategic Theory and Legal Policy" Georgetown Law Journal, 88: 2239-2330.
Ross, T. And W. Stanbury (2001): “Dealing with Predatory Conduct in the Canadian Airline Industry: A Proposal,” Canadian Competition Record, Summer: 59-76 Winter, R. (2014): “The Gap in Canadian Competition Law Following Canada Pipe”,
Canadian Competition Law Review, September: 293-322.
7. Vertical Mergers and Restraints (March 29 – April 12) Required Readings
CW Chapter 22 Buccirossi Chapter 10
Hastings, J. (2004): “Vertical Relationships and Competition in Retail Gasoline Markets:
Empirical Evidence from Contract Changes in Southern California,” American Economic Review 94: 317–328.
Recommended Readings
BK Chapters 14 -16, 21 TWCI Chapters 6 and 7
Aghion, P. and P. Bolton (1987): “Contracts as a Barrier to Entry,” American Economic Review, 77: 388-401.
Basso, L. and T. Ross (2010): “Measuring the True Harm From Price-Fixing to Both Direct and Indirect Purchasers,” Journal of Industrial Economics, 58: 895-927.
Chen, Z., T. Ross and W. Stanbury (1998): “Refusals to Deal and Aftermarkets,” Review of Industrial Organization, 13: 131-151.
Mathewson, F. and R. Winter (1998): “The Law and Economics of Retail Price Maintenance,” Review of Industrial Organization, 13: 57-84.
Slade, M. (1998): Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets,” Journal of Law, Economics and Organization,
Slade, M. (1998): “Beer and the Tie: Did Divestiture of Brewer-Owned Public Houses Lead to Higher Beer Prices?” Economic Journal, 108: 565-602.
Tan, G. (2001): “The Economic Theory of Vertical Restraints,” available online at http://www-bcf.usc.edu/~guofutan/research/vertical.pdf.
Other Notes:
Audio or video recording of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommodation plan. Recorded material is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).
Policy about course outlines can be found in the Evaluation Procedures and Grading System section of the University Calendar.
The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour and avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence.
Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.
Student Accessibility Services: If you have a condition that may require some classroom or exam modifications, please contact SAS (www.ssds.ualberta.ca) to obtain a
determination as to what accommodations should be made.
Student Success Centre: The Student Success Centre (www.studentsuccess.ualberta.ca) offers a variety of learning resources, including a variety of workshops in learning effective study and exam strategies. Sessions are available in person and online, for a fee.
Centre for Writers: The Centre for Writers (www.c4w.ualberta.ca) offers free one-on- one writing coaching to all students. Students can request consultation for a writing project at any stage of development, including completed and graded work.
