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Jeong Pyo Choi

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Edited by Jay P. Choi, Wonhyuk Lim and Sang-Hyop Lee

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Jay Pil Choi, Wonhyuk Lim and Sang-Hyop Lee

During the past decade and a half, there has been a marked shift in emphasis from industrial policy to competition policy. Yet many challenges remain. Many industries are still highly concentrated and overall market concentration has increased since the mid-2000s. The Fair Trade Commission is still committed to its competition-advocacy role, but institutional legacies tend to impede progress on core competition issues. The commission should conduct rigorous market studies and adopt appropriate remedies to make markets work better for consumers. Policy on contentious issues should be based on sound economic theory and empirical analysis. The chapters that follow examine these issues. Authored by experts from Canada, Korea and the United States, they provide international comparisons of market structures with particular reference to the impacts of foreign competition on market concentration. The book also examines core competition issues, including international experiences with abuses of dominance, mergers and collusion, and vertical restraints.

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Jay Pil Choi

This chapter discusses issues that arise with “decentralized” enforcement of antitrust across jurisdictions due to the proliferation of independent antitrust authorities. The overview examines potential pitfalls of antitrust proliferation, particularly enforcement externalities. The chapter then focuses on specific enforcement areas such as mergers and acquisitions, single-firm conduct by dominant firms and international cartels. The author suggests potential pathways to achieve policy harmonization across jurisdictions. He proposes that the best way to achieve any commonality and harmonization is through movement toward effects-based antitrust enforcement guided by sophisticated economic reasoning rather than a formalistic approach. The effects-based approach enables antitrust agencies to find common ground and be insulated from political considerations and subjective beliefs, thereby promoting predictability and uniformity in antitrust enforcement.

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William E. Kovacic

This chapter examines various types of market studies and how they can be used to inform and design government policy. Market studies serve three important functions for a competition agency: (1) expanding the base of knowledge; (2) facilitating the preparation of reports about competitive conditions within and across commercial sectors; and (3) enabling the competition agency to engage in competition advocacy and to prepare recommendations for regulatory reform. A competition agency must anticipate strong political opposition and may have to select cautiously among controversial issues. The more effective the study is in redressing substantial monopoly power, the greater the political hazards it can pose to the agency. To confront these challenges, an agency must have a skilled research team, anticipate demands on resources, anticipate political risks and devise strategies for effective implementation. High-quality market analysis is a necessary ingredient for good policy making.

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Suil Lee

The author carries out empirical analysis on potential and actual competitive pressure from the foreign sector on the profitability of domestic industry in Korea, in order to identify the importance of the foreign sector on competition in the domestic market. Estimation results show that potential competitive pressure, defined as a response of imports to changes in an industry’s profitability, operates in Korea with a one-year time lag. There is, however, no empirical evidence of the existence of actual competitive pressure—the negative impact of increasing imports on industry profitability. The author concludes that imports increase in response to increases in the profitability of the domestic industry and that importers may choose to enjoy higher profits by stringing along with domestic firms rather than fiercely competing with them.

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Yong Hyeon Yang

Given the widely held agreement that competition authorities must prove anticompetitive effects in order to accuse monopolists of abusive behaviors, this study suggests taking a “structured rule of reason” approach, focusing on tying arrangements, to prove anticompetitiveness. In this approach, competition authorities follow step-by-step procedures, with options to drop cases at any stage, to prove anticompetitive effects. Defendant firms have the opportunity to disprove charges either by refuting the logic or the empirical evidence or by claiming efficiency-enhancing effects. This study also offers a recommendation for enforcement of the Fair Trade Act for Korean competition policy. Abusive behavior must, in principle, be governed by the article on the abuse of dominance, only after proving dominance. Exceptions should be limited to cases where the existence of market power is highly likely but difficult to prove. Exceptional cases must be explicitly specified.

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Joseph Farrell

This chapter describes procedural and substantive economic issues in the role of horizontal merger guidelines, with particular emphasis on the 2010 US Horizontal Merger Guidelines (HMG). In particular it discusses upward pricing pressure and the adjacent concepts of merger simulation and illustrative price rises. It discusses the nature of coordinated effects and the 2010 US HMG’s approach to parallel accommodating conduct. It also urges more focus on maximizing learning from experience.

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Robert C. Marshall, Leslie M. Marx and Claudio Mezzetti

Once firms are prosecuted for collusion, strategies remain available that have the potential to reduce the penalties they face. Settlement negotiations offer opportunities to negotiate restricted pleas that limit penalties from follow-on litigation, and leniency programs such as Amnesty Plus offer opportunities to reduce fines associated with collusion in one product by revealing collusion in another. The authors offer implications for antitrust policy and consider firms’ strategies during settlement negotiations and leniency applications while these firms are being prosecuted for collusion. They discuss the effects of settlement negotiations on deterrence through such settlement negotiations on follow-on litigation and suggest that limited criminal pleas can handicap the ability of civil litigants to pursue damages and, hence, reduce deterrence. They show how leniency programs can affect incentives for multiproduct colluders, potentially decreasing deterrence in the main product market and creating incentives for the formation of sacrificial cartels in secondary product markets.

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Ralph A. Winter

This chapter examines the economic foundations of competition policy toward vertical restraints, with a focus on resale price maintenance (RPM). It outlines the theories of RPM as potentially anticompetitive on the basis that such practices support collusion or exclusion at either the upstream supplier stage of a supply chain or, more rarely, the downstream retail stage. Evidence supporting one or more of these theories should be necessary for intervention because, in a wide range of circumstances, RPM is simply a means of altering the mix of price and nonprice competition among downstream retailers. Against the background of economic theory, the author outlines six fallacies that appear in the policy literature in this area, and extends the discussion to other vertical restraints.