Volume 2, Issue 1

Buying market share occurs when firms price below the profit-maximizing price in order to gain market share, even though recoupment of lost profit is impossible. Although perceived by rivals as predatory pricing, buying-market-share pricing does not generally damage competition even when it forces efficient rivals to exit, and current predatory pricing policy yields desirable antitrust enforcement outcomes. However, buying market share can harm competition when share-based entry barriers exist and product differentiation is sufficiently weak. With weak product differentiation and share-based entry barriers, even prices set above average costs can have anticompetitive consequences.

The Trojan Horse enforcement mechanism turns law-breakers into law-enforcers by entrusting them with the right to file a private suit and to collect a fine from their accomplices. Unlike leniency or state witness programs, the Trojan Horse mechanism is not dependent on an effective public enforcement agency operating in the background. It positions conspirators in a prisoner dilemma at the very first stage of their conspiracy, long before public enforcers are on their tails, thus enabling the state to decriminalize certain conspiracies. As shown in this paper, the Trojan Horse mechanism has a (comparative) advantage in asymmetric settings, such as in the employment of illegal immigrants. Whereas fines and other criminal sanctions hardly deter empty-pocket lawbreakers such as illegal immigrants, the carrot this mechanism waves might lure illegal immigrants into suing their employers and leaving the country with a prize in their pockets. Thus, it provides a more humane enforcement mechanism than the prevailing ones, and creates a strong deterrent effect on employers who consider hiring illegal immigrants.

This paper extends the law enforcement model to include court congestion. Society suffers harm from court congestion since delay affects the credibility and the reliability of the criminal justice system. The core result of the paper is that the probability of apprehension and the probability of conviction should be considered separately by the enforcement authority. Because the level of congestion is affected by the probability of apprehension only, the use of fines and conviction should be exhausted before resorting to the costlier (in terms of court congestion costs) instrument of apprehension.

Merger analysis is a field in which economic theory is systematically applied, day-in, day-out. Economics structures the definition of the relevant market, and then economics drives the evaluation of the likely competitive effect of the merger. Exactly which models are used by Federal Trade Commission staff would be of great interest to the stake-holder community, as would any details on how the models are applied. This paper provides those details with an in-depth study of the FTC merger review process focused on single market horizontal mergers evaluated between 1993 and 2003. Five different market models are identified with a homogeneous goods analysis (two choices) useful in about one-third of the cases and a differentiated goods analysis (three choices) relevant for the others. Unilateral effects analysis was used in slightly more than half of the cases and coordinated interaction theories in just less than half. Evidence contained in hot documents, validated customer concerns and event analyses appears to play an important role in confirming the implications of Guidelines-based theoretical models of a merger’s competitive effect.

Antitrust authorities often consider parallel pricing and market share stability to be clues of illegal collusion. To analyze whether this inference is correct, I develop a model of price competition with differentiated products in which demand and costs vary over time. In many cases parallel pricing does not distinguish between a competitive and a collusive outcome. However, in some cases perfect parallel pricing is compatible only with a competitive equilibrium, and therefore provides some evidence that firms did not collude. I also show that the competitive equilibrium is characterized by a higher market share stability than a collusive equilibrium.

The judicial review of legislation can be configured in any of a number of ways. In particular this task may be concentrated in a constitutional court, or diffused among ordinary judges. Recent studies have shown that the design of judicial institutions can have important legal, social, and economic consequences for a given polity. Scholars have dwelled on the reasons that lead political actors to the choice of one model of judicial review over another, but there has been little empirical study on this choice. Here, several hypotheses as to the circumstances that lead to the establishment of constitutional courts are tested on the basis of a data set of 128 democratic constitutions. I find that the degree of political uncertainty facing politicians is an important predictor of whether or not a constitutional court will be established.