C. Scott Hemphill and Tim Wu on ‘Nascent Competitors’ (2020) University of Pennsylvania Law Review (forthcoming)

A nascent competitor is a firm whose prospective innovation represents a serious future threat to an incumbent. Nascent rivals play an important role in both the competitive process and in developing innovation. New firms with new technologies can challenge and even displace existing firms; sometimes, innovation by an unproven outsider may be the only way to provide new competition to an entrenched incumbent. For competition enforcers, nascent competitors pose a dilemma. While nascent competitors often pose a uniquely potent threat to an entrenched incumbent, the firm’s eventual significance is uncertain, given the environment of rapid technological change in which such threats tend to arise. That uncertainty, along with a lack of present, direct competition, may make enforcers and courts hesitant or unwilling to prevent an incumbent from acquiring or excluding a nascent threat. This essay, available here, identifies nascent competition as a distinct category and outlines a program of antitrust enforcement to protect it. It favours an enforcement policy that…

Tommaso Valletti and Hans Zenger on ‘Mergers with differentiated products: Where do we stand?’

This paper, available here, provides an overview of the state of economic analysis of unilateral effects in mergers with differentiated products. It discusses both static and dynamic competition. Section 2 focuses on price competition and discusses the calibration of unilateral effects using diversion-based tools such as upward pricing pressure. One of the most prominent developments of the past decades was to put closeness of substitution at the heart of unilateral effects analysis. It is well known that market shares can be off the mark in trying to account for consumers’ heterogeneous switching patterns between differentiated products. When robust data is available, it is therefore more sensible to assess competitive overlaps directly via diversion ratios than to rely on market shares as an imperfect proxy. Obtaining an estimate of diversion is feasible in many, though far from all, significant mergers (e.g., through switching data, bidding data, customer surveys, event studies or demand estimation). While diversion ratios provide a good indication of…