Abstract We develop a continuousâtime control approach to optimal trading in a ProofâofâStake (PoS) blockchain, formulated as a consumptionâinvestment problem that aims to strike the optimal balance between a participant's (or agent's) utility from holding/trading stakes and utility from consumption. We present solutions via dynamic programming and the HamiltonâJacobiâBellman (HJB) equations. When the utility functions are linear or convex, we derive closeâform solutions and show that the bangâbang strategy is optimal (i.e., always buy or sell at full capacity). Furthermore, we bring out the explicit connection between the rate of return in trading/holding stakes and the participant's riskâadjusted valuation of the stakes. In particular, we show when a participant is riskâneutral or riskâseeking, corresponding to the riskâadjusted valuation being a martingale or a subâmartingale, the optimal strategy must be to either buy all the time, sell all the time, or first buy then sell, and with both buying and selling executed at full capacity. We also propose a riskâcontrol version of the consumptionâinvestment problem; and for a special case, the âstakeâparityâ problem, we show a meanâreverting strategy is optimal.
Blockchain may transform transactions the same way the Internet altered the dissemination and nature of information. If that were to be the case, all relationships between companies would change, including prohibited ones such as collusive agreements. For that reason, the stakes are crucial and the absence of academic studies entirely dedicated to this issue must be remedied.
To this end, this article introduces the first taxonomy of collusion on blockchain. The discussion then moves on to explore their functioning, their robustness and their limits through the three fundamental stages of the existence of collusive agreements: their birth, life and death. The article further highlights how companies may use smart contracts and sophisticated algorithms to collude in the blockchain environment, thus contributing to the literature solely focused on algorithms.
Using empirical studies, economic analyses and existing case law, we draw legal conclusions that we extend beyond the sole blockchain technology. Along the way, we propose methods of action for antitrust and competition agencies.
INTRODUCTIONAt its heart, antitrust law believes it is exceptional. Unlike most areas of regulation where rules must trade off costs and benefits different in kind, antitrust claims to pursue one single goal: competition.1 Courts often endorse the idea that the values traded off in regulation-the procompetitive effects and the anticompetitive effects-are commensurate. For example, courts frequently characterize Sherman Act § 1 as condemning restraints on trade having a net anticompetitive effect, and condoning those whose effects sum to a neutral or procompetitive effect. This supposedly unitary goal of antitrust-to facilitate competition-allows the law to appear to avoid the murky, value-laden compromises struck by other areas of regulation.But antitrust law is not exceptional. Even within the nowdominant paradigm that antitrust pursues only economic goals,2 value judgments are unavoidable. What are typically offered in antitrust cases as procompetitive and anticompetitive effects are rarely two sides of the same coin, and there is no such monolithic thing as competition that is furthered or impeded by competitor conduct. In fact, competition-whether defined as a process or as a set of outcomes associated with competitive markets-is multifaceted. Antitrust law often must trade off one kind of for another, or one salutary effect of (such as price, quality or innovation) for another. And in so doing, antitrust courts must make judgments between different and incommensurate values.The incommensurability problem is not entirely unrecognized in antitrust discourse, but it is downplayed in a manner harmful to policy and doctrine.3 Antitrust scholars acknowledge-and sometimes even highlight-the incomparability of the effects they measure.4 Judicial opinions occasionally, although less often, contain explicit discussions of the disparate competitive values at stake.5 But more often, these judgments are implicit.The absence of attention to the fact that procompetitive and anticompetitive effects, as they are presented in an antirust suit, are usually incommensurate, and the absence of debate about how to trade them off means that antitrust law is under-theorized. Rhetoric of commensurability in antitrust has made it unpopular for judges to acknowledge the use of value judgments in deciding antitrust cases.6 This has pushed important debates about those values into the subtext of antitrust opinions rather than allowing for the full and open discussion that they merit. It has also led to a set of doctrines that courts use to avoid the appearance of judgment, which distort antitrust litigation usually in favor of defendants. These evasive maneuvers have made a mess out of questions such as when the burden of production shifts from plaintiff to defendant, which arguments require empirical proof or a rigorously defined market, and what kinds of procompetitive justifications are categorically illegitimate.This Article uses Sherman Act § 1 liability to illustrate the incommensurability of most pro- and anticompetitive effects in antitrust litigation. Although the problem pervades antitrust law and policy, § 1 doctrine nicely illustrates the (false) exceptionalism of antitrust. The rhetoric of the Rule of Reason7 (the dominant mode of §1 analysis) exemplifies the problem: it claims to protect agreements that enhance and condemn those that destroy it,8 as if competition referred to one single value that antitrust must promote. But below the surface, the cases and rules actually do struggle with how to trade off very different benefits and costs of agreements among competitors. Examples include trading off quantitative for qualitative measures of consumer welfare, balancing present and future competitive effects, and trading off competitive effects on different classes of consumers. These latent debates play out in cases considering restraints that suppress intrabrand while stimulating interbrand competition,9 that trade a free market with failures for a self-regulated market with suppressed rivalry,10 and that create a new product by otherwise restricting competition. âŠ
Either a company store or a local retailer can be used to establish a sales channel. For high-value products with an existing competing brand, this choice represents a crucial decision a brand-named manufacturer must make for a new market. Under the burden of high operating costs, a weak local retailer may find it difficult to sustain and using it may hurt the manufacturerâs chance to successfully establish the channel. We consider a chain-to-chain competition model comprising two manufacturers and two retailers, in which one retailer may be unable to continue its operation because of high financing costs. We identify a threshold policy for the manufacturers to select the channel structure. Interestingly, we find that channel integration is not always better. Without the consideration of contract termination risk, the manufacturer will bear the operating expenses when its opportunity cost is low or the retailerâs financing cost is sufficiently high. In equilibrium, the manufacturers will choose either (decentralized, decentralized) or (integrated, integrated) channel structure. However, when the termination risk is considered, the equilibrium channel structure would be more likely (integrated, integrated) or (integrated, decentralized).
We examine the relationship between the organization of a multi-divisional firm and its ability to adapt production decisions to changes in the environment. We show that even if lower-level manag-ers have superior information about local conditions, and incentive conflicts are negligible, a centralized organization can be better at adapting to local information than a decentralized one. As a result, and in contrast to what is commonly argued, an increase in product market competition that makes adaptation more important can favor centralization rather than decentralization. (JEL D21, D23, F23, L22) The organization theorist Chester Barnard and the economist Friedrich Hayek shared the view that the âeconomic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place â (Hayek 1945, 524). But whereas Hayek viewed adaptation as an autonomous process, undertaken by individual economic actors, Barnard (1938) stressed the ability of organizations to engage in what Oliver Williamson (1996, 2002) calls âcoordinated adaptation.â Williamson (1996, 103), referring to Barnard and challenging Hayek, argues that:
We provide novel insights on the decentralization of optimal outcomes under monopolistic competition with nonseparable utility, variable demand elasticity, and endogenous firm heterogeneity. Relative to the unconstrained optimum, equilibrium firm selection is too weak, average firm size is too small, low-cost firms are too small, and high-cost firms are too large. The unconstrained optimum can be decentralized through differentiated production subsidies to producers financed through lump-sum taxes on entrants and consumers. When differentiated subsidies and transfers from entrants are not viable, the constrained optimum can be decentralized through a common production subsidy financed by a lump-sum tax on consumers.
According to EU competition law, the existence of an anticompetitive agreement can be inferred from a number of coincidences and indicia only in the absence of another plausible explanation of the facts at stake. According to U.S. federal law (antitrust law included), only a complaint that states a plausible claim for relief can survive a motion to dismiss at the pleading stage. What is plausible, however? After explaining the relationship between facts and evidence law, this chapter analyses the general meaning of the notion of plausibility, discusses the degree of discretion that it introduces, how it affects the justifications that judges and fact-finders make for their choices, and remarks on how this concept relates to substantial accuracy. On the other hand, the chapter acknowledges that antitrust law, by relating our understanding of what is plausible to economic models, debunks these concerns and raises another striking issue. Since economics is rooted in various axioms and value-choices, the link that antitrust law establishes among plausibility, standards of proof and economics grants to these axioms and value-choices the possibility of affecting the antitrust decisions about facts, although these decisions (as all factual decisions) should amount to pure descriptions of the concrete facts disputed at trial or during the administrative procedure.
Specific supply-chain investments are vital in achieving faster lead-time performance and more competitive costs. In practice, such as in the highly leveraged telecom sector, the coordinating original equipment manufacturers (OEM) often delegate the upstream coordination of suppliers to contract manufacturers. This can be justified by informational advantages or economies of scale. However, the rationale of such schemes has also been challenged by analytical work on three-stage chains, leading to open questions. In this paper, we study the organizational and contractual choice of a supply chain coordinator (say an OEM) to either control or delegate the investment decision of some shared resource (say dedicated machines, information or product standards, etc) to a contract manufacturer (CM) or to an upstream supplier in a three-stage supply chain. The analysis derives closed-form results for the economic performance of three scenarios under asymmetric information on investment cost: direct contracting with an integrated CM-supplier, decentralized contracting to tier-1 suppliers and centralized contracting to tier-1 and tier-2 suppliers. The results show that the observed practice to delegate investments to tier-1 and possibly tier-2 suppliers leads to relatively poor performance due to under-investments. The superior arrangement is the centralized conditional model, where the OEM forces coordination among upstream suppliers by offering conditional financing. We close the paper with an analogy to the Boeing 787 supply chain and some discussion about the assumptions and applicability of the model.
OHADA, the Organization for the Harmonization of Business Law in Africa, has a long tradition of drafting uniform business laws for the Francophone countries of West and Central Africa. However, OHADA has not so far addressed the topic of competition law, although several regional economic integration systems in Africa already have supranational competition law in place, such as the competition law of the West African Monetary and Economic Union (WAEMU), or are about to draft and implement such laws. This paper discusses what role OHADA could play in the future in the field of competition law. It thereby adopts a European perspective by relying on the experience of the European Union regarding the harmonization of the domestic competition law of its member states. As a basis for the analysis, the paper first describes the advantages of having competition law for African states in general. It identifies a dual economic and political function of competition law. First, competition law would help to increase the efficiency of the African domestic economies and protect these economies against restraints on competition initiated in particular by multinational firms. Second, competition policy should be part of a policy package of good governance that addresses problems of corruption and bid rigging in particular. The need for competition law and the advantages deriving from it as well as the institutional challenges it presents are illustrated by a discussion of the case of Tanzanian beer, which was dealt with by the Tanzanian Fair Trade Commission but which would have been a prime candidate for the new regional competition law of the East African Community. In a substantive analysis, the paper first explains that the EU and OHADA apply different concepts of harmonization. While the EU uses the term with regard to the harmonization of domestic laws, OHADA adopts uniform laws directly applicable in its member states. It may be surprising the EU has never forced its member states to harmonize their national competition laws. Yet, within the framework of Regulation 1/2003, EU law has set up a decentralized procedural system that integrates the national authorities and courts for the purpose of enforcing EU competition law. It is this procedural approach that has most recently accelerated a process of autonomous harmonization of domestic competition laws with the EU standards. The paper explains the reasons for this kind of âsoftâ harmonization against the background of the decisions of the German legislature in reaction to the adoption of Regulation 1/2003. The paper then discusses various options for OHADA to deal with competition law in the future. It rejects the classical approach, which consists of drafting a uniform competition law applicable in all OHADA member states, the adoption of a supranational OHADA competition law, which would also include the creation of an OHADA competition authority, and the harmonization of the domestic competition laws of member states. Rather, it proposes an approach consisting of âsoftâ harmonization. This approach would consist of the development of non-binding recommendations on competition policy issues, which could be followed by a competition authorityâdomestic or regionalâthat would take into account the specific socioeconomic situation of the region as well as the need for sustainable development and for integrating Sub-Saharan countries into the world economy. Finally, the paper criticizes the current EU policy of exporting competition law as part of its negotiations of Economic Partnership Agreements with developing countries in particular. Instead of promoting regional competition law, which might easily involve regional reorganization, the paper recommends that the EU support the creation of an African Competition Policy Center that would work on policy guidelines with a view to developing an African competition policy. However, whether the financing of such a Center should come from the EU and whether this Center should be established as part of the OHADA institutional framework are secondary questions.
This paper covers network investment problems under decentralized control of regulation, infrastructure ownership and management. The model features two countries managing domestic infrastructures, used simultaneously for downstream international service provision. Initially, the welfare losses from non-cooperative investment financing policy and access pricing are derived. The impact of strategic interaction between the countries' access prices on the choice of financing policy is investigated. Under strict budget balancing, there are no incentives for efficiency improving investments. Further, investment coordination is shown useless in the absence of regulatory coordination. Illustrations from European network regulation policy for energy and rail are presented.
Separation of ownership from management, multidivisional firm organizations, delegation of production decisions to worker teams, delegation of pricing and advertising decisions to retail franchisers, reliance on intermediaries in trade or finance, and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision-making authority instead of centralizing it. This paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination. It starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ. One class of models pertain to contexts where the classical Revelation Principle applies, i.e., where costs of contractual complexity, information processing, or communication are absent, agents do not collude, and the mechanism designer can commit to the mechanism. Delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives. Sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality, top-down contracting, and monitoring of transfers or production assignments between subordinates. The next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility, which has to be traded off against possible control losses of delegation. Finally, consequences of collusion among agents is discussed, which typically enlarge the range of circumstances under which delegation can attain optimal second-best outcomes. The paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role: adoption of innovative human resource management practices, new information technologies and retail franchising.
This paper studies the issue of designing an optimal organizational form: design for sub-units' task allocation, decision-making structure, and incentive schemes for organizational members. Depending on the way tasks are allocated between the sub-units, and whether decision-making is centralized or not, organizations face a trade-off between coordination and information. Task allocation by production processes calls for coordination more strongly than the allocation by final products. Centralized decision-making serves for better coordination, whereas decentralization serves for better information. The coordinational benefit under centralization gets bigger as the organization's common uncertainty increases, and this benefit is magnified when the sub-units are functionally divided by production processes. The informational benefit under decentralization gets bigger as the organization's local uncertainty increases, and this benefit is magnified when the sub-units are designed autonomous. Thus, complementarily designed organizations tend to have centralized decision-making structures and fixed salary scheme, whereas less complementarily designed organizations tend to have decentralized decision-making and 'pay for performance' incentive contract.
A wave of privatization is sweeping the globe, affecting about 100 countries and adding up to an average of more than $60 billion a year in business in the past decade. The challenge is to ensure that privatization yields clear benefits. Empirical studies suggest that ownership change by itself will often yield results, especially when it reduces government interference. But the regulation required in areas of natural monopoly can become overly intrusive and undermine progress. Real competition is required to generate sizable and lasting welfare improvements. But in infrastructure sectors, the introduction of competition is complicated by the existence of complex transport and communications networks. Debate about whether and how to introduce competition in network industries is sometimes heated. Certain questions recur: Will continuing regulation be needed? Whether and at what terms will private finance be forthcoming? The author argues that policymakers need to understand how competitive forces can be brought to bear in network industries. He explains the following: 1) common principles that are often lost in"technical"debates about specific sectors; 2) various methods for introducing competition in network industries; 3) competition for the market, and bidding for franchises; 4) options for competition for existing networks; 5) options for expanding competitive systems by decentralizing investment in new network capacity; 6) the option of allowing competition among multiple networks; and 7) the implications of these options for the sectors and for financing industry expansion. In case of doubt, he contends, policymakers should not restrict the entry of competitive firms in such networks. If they do, entry restrictions should be subject to an automatic test after a set period, and reviewed for costs and benefits.
Alternative devices for efficient pricing in multiproduct monopoly situations Two rules for the efficient pricing of monopoly firms have been widely discussed in the literature. The marginal-cost rule was the center of controversy in the 1940s and 1950s, and the Ramsey ruleâ was the fashionable topic of the last decade. Both rules require substantial information for their implementation. Mainly because outside regulators lack such information, the marginal-cost rule has lost its popularity. Information to implement the Ramsey rule may be even harder to come by. However, as this chapter shows, the information requirement to implement both rules can be lowered substantially by setting appropriate performance indices for public-enterprise managers. A combination of two features distinguishes the public enterprise from other economic institutions: (1) it is mainly financed by the revenues derived from the sale of its products in markets, which makes it differ from ordinary public administration, and (2) it differs from private capitalistic enterprises by virtue of public (state) ownership. This hybrid position of public enterprises gives rise to two natural starting points for a normative analysis. First, what can be gained by decentralizing part of the administration via public enterprises? Second, what advantages can public enterprises hold over private firms? If there are such advantages, they must have a restricted domain, because otherwise the hybrid would dominate its parents. To be the superior institutional setup, public enterprises first have to be feasible. This is of major relevance for the decision to turn a government administration into a public enterprise. If the administration's output consists of pure public goods with no possibility to exclude, a public enterprise simply is not feasible.