UNIVERSITY OF ALBERTA
Department of Economics ECON 571– B1
Market Power: Theory and Policy Winter 2022
Instructor:
Andrew Eckert Office: Tory 9-29 Phone: 492-3959
Email: [email protected]
Lectures: Video lectures teaching course material will be prerecorded and posted on eClass, where they are organized by topic. Video lectures will be accompanied by typed online notes.
Live Practice Problem Sessions: Each Tuesday from 11:00 – 12:20 PM Edmonton Time, I will be going through practice questions in a live zoom meeting. I will also use these sessions to discuss relevant competition cases as time permits. You are encouraged to attend if possible given your time zone, and ask questions! The problems will be posted in advance on Fridays. I recommend attempting questions in advance, and
discussing these with classmates by email etc. in advance. After these sessions I will post my written answers to the questions along with the recording of the Zoom practice session, for students who are unable to attend the live session. Note that this recording is removed from eClass after 24 hours! The first Tuesday of the course, January 11, will be used as an introduction/Q&A session.
Office Hours: I will be available on Zoom to answer questions on Tuesdays from 3:30 – 4:30 PM ( Edmonton time). Office hours may be adjusted throughout the term, and additional hours may be added before the midterm exam.
I am also happy to schedule one-on-one Zoom meetings with students, particularly if your time zone means that it is not convenient to attend my regular office hours. Send me an email if you want to do this. I will also answer questions by email. Some notes on this:
1. I reserve the right to not answer emails immediately. I will respond to all emails within 24 hours. If you have not heard from me within 24 hours, please send me a reminder.
2. If emailed questions are complicated, I may ask you to attend one of the Zoom office hours or book a one-on-one meeting.
3. If I receive similar emailed questions from multiple students, I may post a video answering the questions instead of responding to individual emails.
Purpose of the Course:
In this course we will discuss the economics of competition policy and its application.
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:
Weekly quizzes 25%
Term paper (Due April 5) 20%
Mid-term exam (March 3) 25%
Final Exam (April 22 (tentative)) 30%
These grades will then be translated into letter grades, targeting a class average between 3.0 – 3.6 (ie. approximately a B+) 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.
Weekly open book quizzes will be conducted through eClass. Each quiz will involve both mathematical problems, and short essay questions that may require some research. Each quiz will open on Thursday at 7:30 PM (Edmonton time) and will be open until 11:59 PM the following Sunday. THE FIRST QUIZ WILL BE ON JANUARY 20. Quizzes will be based on material covered in the recorded lectures and live practice session for the previous week. Your weakest two quizzes will be dropped, and your remaining quiz scores used to compute the quiz portion of your grade.
Your term paper (due April 5) will be a discussion and analysis of a competition case.
More detail is given on eClass.
The midterm exam and final exam will be open book and conducted through eClass. The midterm exam will become available at 7:30 PM on Thursday March 3, and will close at 7:30 PM on Friday March 4 (Edmonton time). Once you begin the midterm exam on eClass, you will have 3 hours to complete it. The final exam will open at 9:00 AM on Friday April 22, and will close at 9:00 AM on Saturday April 23. Once you begin the final exam on eClass, you will have 4 hours to complete it. Note that you are not expected to write continuously for 4 hours. In general, the final exam will be one that I think a student could complete in 2 hours. The 4 hour window is provided to avoid technical difficulties. The schedule for the final exam is tentative and may change.
University policy on missed exams and term work can be found in the Attendance section of the Calendar. I will not be granting extensions or deferrals of the quizzes, since your lowest two quiz grades are being dropped. 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.
Note: Students requesting a deferred final exam must do so at their home Faculty office.
The deferred final exam (for those students granted one) will be held on May 27, 2022.
Access to Past and Present Evaluative Materials
Past exams (without answer keys) will be posted online on the course eClass page.
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 Buccirossi, TWCI, Motta and DG). All four books are available online through the UofA library website.
Buccirossi, P., editor (2008): Handbook of Antitrust Economics, MIT Press.
Trebilcock, M., R. Winter, P. Collins and E. Iacobucci (2002): The Law and Economics of Canadian Competition Policy, University of Toronto Press.
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
https://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.
Finally, we will be making use of notes I have written on the various sections of the course. These are available on eClass, and are considered required reading.
Other readings are available online through the library website, 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, and represent the dates I probably would have lectured on each topic in a standard in-person class.
1. Introduction: The Monopoly Problem and Competition Policy (January 11-13) Required Readings
CW, Appendix, Chapter 3 and Chapter 5 Competition Act, Parts I, VI, VIII, IX Online notes
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. Basic Oligopoly Theory (January 18-20) Recommended Readings
Online notes CW, Ch. 8
3. Market Definition and Measurement of Market Power (January 25 – February 3) 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.
Online notes
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.
Brown, D. and D. Olmstead (2017): “Measuring Market Power and the Efficiency of
Alberta's Restructured Electricity Market: An Energy‐only Market Design,”
Canadian Journal of Economics, 50: 838-870.
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.
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.
4. Collusion (February 8-17)
Required Readings CW, Chapter 10
Competition Bureau Competitor Collaboration Guidelines
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.
Ivaldi, M., Jullien, B., Rey, P., Seabright, P. and J. Tirole (2003): “The Economics of Tacit Collusion,” available on eclass.
Online notes
Recommended Readings Buccirossi, Chapter 6 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.
READING WEEK FEBRUARY 22 -25: NO PRACTICE SESSION OR QUIZ THAT WEEK
NOTE: YOUR MIDTERM EXAM OPENS ON MARCH 3, AND COVERS TOPICS 1 TO 4 ABOVE.
5. Horizontal Mergers (March 1 - 10) 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.
Online notes
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. Predatory Pricing (March 15-17) Required Readings
CW Chapter 21
Competition Bureau, Abuse of Dominance Guidelines
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.
Online notes
Recommended Readings BK Chapter 8
Motta, Chapter 7, section 7.2 TWCI Chapters 5 (Section 1)
Baumol, W. (1996): “Predation and the Logic of the Average Variable Cost Test”, Journal of Law and Economics, 39: 49-72.
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 22 – 31) Required Readings
CW Chapter 22 Buccirossi Chapter 10 Online notes
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.
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.
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.
7. Network Effects and Two-Sided Markets (April 5-7) Required Readings
Evans, D. and R. Schmalensee (2013): “The Antitrust Analysis of Multi-Sided Platform Businesses.” Working Paper.
Online notes
Recommended Readings
Competition Bureau (2018): “Big Data and Innovation: Key Themes for Competition Policy in Canada,” available online at https://www.competitionbureau.gc.ca/eic/site/cb- bc.nsf/eng/04342.html
Other Notes:
Please note that practice problem sessions for this course will be recorded. Recordings of this course will be used for the purposes of allowing students enrolled in the course to review the material and will be disclosed to other students enrolled in this section of the class. Students have the right to not participate in the recording and are advised to turn off their cameras and audio prior to recording; they can still participate through text- based chat. It is recommended that students remove all identifiable and personal
belongings from the space in which they will be participating. Recordings will be made available until 24 hours after the practice problem session and accessible on eClass.
Please direct any questions about this collection to the professor of this course.
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