MARKET, ECONOMICS AND REGULATION

Knowledge and understanding:

Understand the economic rationale underlying market regulation and competition policy, with particular attention to public utility sectors. Know the main industrial-organisation models applied to economic regulation. Theoretical analysis is complemented by the study of the operating practices of the Italian sector-specific regulatory authorities and of the Italian (AGCM) and European (European Commission) antitrust authorities in assessing anti-competitive strategies (collusive agreements, mergers and abusive practices).

Applying knowledge and understanding:

Analyse the welfare implications of the various anti-competitive strategies pursued by firms. Develop a critical understanding of the mechanisms used, from a competition-policy perspective, to assess collusive or unilateral conduct by firms, as well as of antitrust enforcement processes.

Making judgements:

Acquire the ability to use the economic and regulatory approach to form an informed, critical and autonomous judgement on the issues characterising firms’ strategies and antitrust enforcement processes. Critical judgement is stimulated through in-class discussion of antitrust case studies.

Communication skills:

Be able to express oneself appropriately, using the economic and legal language typical of regulatory and antitrust practice – in English.

Learning skills:

Be able to understand and critically evaluate, from a social welfare standpoint, the strategies pursued by firms, in order to propose appropriate regulatory interventions.

The course is delivered through traditional face-to-face lectures, supported by slides and supplementary teaching material made available to students on the Studium platform. In-class discussion of antitrust case studies is included.

If the course is delivered in blended or remote mode, appropriate adjustments may be made to the above, in order to ensure consistency with the syllabus.

Knowledge and understanding:

Understand the economic rationale underlying market regulation and competition policy, with particular attention to public utility sectors. Know the main industrial-organisation models applied to economic regulation. Theoretical analysis is complemented by the study of the operating practices of the Italian sector-specific regulatory authorities and of the Italian (AGCM) and European (European Commission) antitrust authorities in assessing anti-competitive strategies (collusive agreements, mergers and abusive practices).

Applying knowledge and understanding:

Analyse the welfare implications of the various anti-competitive strategies pursued by firms. Develop a critical understanding of the mechanisms used, from a competition-policy perspective, to assess collusive or unilateral conduct by firms, as well as of antitrust enforcement processes.

Making judgements:

Acquire the ability to use the economic and regulatory approach to form an informed, critical and autonomous judgement on the issues characterising firms’ strategies and antitrust enforcement processes. Critical judgement is stimulated through in-class discussion of antitrust case studies.

Communication skills:

Be able to express oneself appropriately, using the economic and legal language typical of regulatory and antitrust practice – in English.

Learning skills:

Be able to understand and critically evaluate, from a social welfare standpoint, the strategies pursued by firms, in order to propose appropriate regulatory interventions.

Attendance is not compulsory but is strongly recommended in order to fully understand the subject matter and to keep up with the most recent developments in regulatory and antitrust practice.

Economic regulation and its alternatives. The concept of natural monopoly. Competition for the market and in the market. Regulation of natural monopoly under asymmetric information. Network industries: distinctive features, access problems and regulatory approaches. Regulation of public utility sectors. U.S., European and Italian antitrust law. Relevant market: definition and delineation. Collusive agreements: forms, causes, standards of proof and enforcement. Mergers and acquisitions: forms, economic effects and assessment by the European Commission. Abuse of dominant position: predatory and exclusionary practices, economic theories and imputation tests.

Text 1 – Regulation (core textbook: rationale, pricing, incentive regulation, network access, sector case studies, digital markets)

Decker, C. (2023), Modern Economic Regulation: An Introduction to Theory and Practice, 2nd edition, Cambridge University Press. Covers the rationale for regulation, natural monopoly, Ramsey pricing, rate-of-return regulation, price cap regulation (RPI–X), access pricing and the ECPR, and sector case studies including electricity, gas, water, telecommunications, rail, aviation, payment systems and digital platforms. This single, up-to-date text now covers nearly the entire regulation part of the course, including digital markets regulation (Lesson 15), which is not covered by other available textbooks.

Text 1a – Regulation under asymmetric information (targeted reading)

Laffont, J-J. & Tirole, J. (1993), A Theory of Incentives in Procurement and Regulation, MIT Press – selected sections of Chapters 1–2, covering the Loeb–Magat (1979) and Baron–Myerson (1982) models of incentive regulation under adverse selection with the full formal treatment (participation and incentive-compatibility constraints) used in the course; Decker (2023) introduces these models at a more intuitive level and is not sufficient on its own for this section.

Text 3 – Antitrust / Competition Policy: formal economic models

Cabral, L.M.B. (2017), Introduction to Industrial Organization, 2nd edition, MIT Press. Chs. 7–9 (oligopoly games, collusion and price wars, market power and concentration indices), 11 (horizontal mergers), 12 (market foreclosure, entry deterrence and predatory pricing).

Text 3a – Antitrust / Competition Policy: comparative US/EU legal-institutional framework

Van den Bergh, R., Camesasca, P.D. & Giannaccari, A. (2017), Comparative Competition Law and Economics, Edward Elgar Publishing. A systematic, economically-grounded comparison of EU competition law and U.S. antitrust law: Ch. 1 (introduction), Ch. 2 (economic approaches to competition law), Ch. 3 (goals of competition law), Ch. 4 (market power, market definition and entry barriers), Ch. 5 (horizontal restrictions), Ch. 7 (unilateral conduct of dominant firms), Ch. 8 (enforcement).

Text 4

Motta, M. (2008), “On Cartel Deterrence and Fines in the European Union”, European Competition Law Review, 29(4), 209–220.

Text 5

Padilla, A.J. (2005), “Efficiencies in Horizontal Mergers: Williamson Revisited”, in Issues in Competition Law and Policy, W.D. Collins (ed.), American Bar Association Press. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=812989

Text 6

Motta, M. (2009), “The European Commission’s Guidance Communication on Article 82”, European Competition Law Review, 30(12), 593–599; or, alternatively, Kellerbauer, M. (2010), “The Commission’s New Enforcement Priorities in Applying Article 82 EC to Dominant Companies’ Exclusionary Conduct: A Shift Towards a More Economic Approach?”, European Competition Law Review, 31(5), 175–186.

Note on digital markets regulation (Lesson 15):

Covered by Text 1 (Decker, 2023), which includes a dedicated chapter on the regulation of digital platforms. Supplementary teaching material on the EU Digital Markets Act remains available on Studium for further depth.

Further recommended reading (optional, for deeper study):

•     Laffont, J-J. & Tirole, J. (2000), Competition in Telecommunications, MIT Press.

•     Buccirossi, P. (ed.) (2008), Handbook of Antitrust Economics, MIT Press.

•     Church, J.R. & Ware, R. (2000), Industrial Organization: A Strategic Approach, Irwin McGraw-Hill.

•     Cretì, A. & Fontini, F. (2019), Economics of Electricity: Markets, Competition and Rules, Cambridge University Press.

•     Davis, P. & Garcés, E. (2009), Quantitative Techniques for Competition and Antitrust Analysis, Princeton University Press.

oral test to assess: 1) the student’s knowledge of the subject; 2) command of the appropriate technical-economic language; 3) reasoning and critical-analysis skills. Access to all exam sessions is exclusively through the standard mandatory online booking procedure.

Learning assessment may also be carried out on-line, should the conditions require it. To ensure equal opportunities and in compliance with current laws, interested students may request a personal interview in order to plan any compensatory and/or dispensatory measures based on educational objectives and specific needs. Students can also contact the CInAP (Centro per l’integrazione Attiva e Partecipa ta — Servizi per le Disabilità e/o i DSA) referring teacher within their department (https://www.cinap.unict.it/content/referenti)

1) what does Callophane Fallacy mean?

2) Compare (also with the support of appropriate graphs) pricing mechanisms based on Fully Distributed Costs with a Ramsey-style tariff structure, setting out the main advantages and disadvantages of each mechanism.

3) Define natural monopoly in the multi-product case. 

4) Explain what is meant by ‘unbundling’ in the context of network-industry liberalisation processes, and discuss the types of unbundling that exist.

5) Give a historical account of the development of antitrust law in the United States, Europe and Italy. Explain the scope of application of this legislation, in terms of both the types of conduct it regulates and its geographic jurisdiction.

6) Describe monopolisation practices other than predatory pricing.

7) Consider two industries (A and B), characterised by the distribution of output among firms given in an accompanying table. Calculate the HHI index and the C3 concentration index for each market, and determine which market is more concentrated. Given that, in both markets, the elasticity of demand is constant (with specified values for εA and εB), determine the aggregate Lerner index for each market. Explain whether, under the US Merger Guidelines, a merger between two specified firms in industry A would be authorised by the Federal Trade Commission. Justify your answer.

8) What is meant by the ‘merger paradox’? What assumptions are necessary for it to arise?

9) What is meant by the pro-collusive effects of mergers? For what reasons can they arise?

10) What is meant by a ‘feasible’ industry configuration? When is a feasible industry configuration also ‘sustainable’? Explain your answer.