Antitrust & Competition Policy Blog

Conference on Law and Economic Development in Latin America: A Comparative Approach to Legal Reform

Posted by D. Daniel Sokol

Though not a conference dedicated to antitrust and competition policy, there will be many antitrust experts presenting at Chicago Kent's conference on Law and Economic Development in Latin America:  A Comparative Approach to Legal Reform.  Antitrust speakers include: Bill Kovacic, Eduardo Perez Motta, David Gerber, D. Daniel Sokol, Shyam Khemani, Antonio Vives, Ana Maria Alvarez, and Ignacio de Leon.  I will present a paper entitled " Why is this Chapter Different From All the Others? An Examination of Why Countries Enter Into Non-enforceable Competition Policy Chapters in Free Trade Agreements Versus Other Alternatives."  Conference papers will appear in the first issue of the 2008 Chicago Kent Law Review. 

Sector Regulation vs. Antitrust

Posted by D. Daniel Sokol

Some of my current research focuses on government created immunities from antitrust.  In some cases, these immunities may be explicit such as with export cartels.  In others, there is an implied immunity.  The implied immunity may be a function of the possibility of concurrent sector regulation.  The Supreme Court will examine antitrust implied immunity this term in Credit Suisse Securities (USA) LLC v. Billing in the securities area. The parties’ briefs and those of amici are available here. 

Profitability Measures and Competition Law

Posted by D. Daniel Sokol

A new paper, Profitability Measures and Competition Law, by Paul Grout of the University of Bristol and Ania Zalewska of the University of Bath offers a new approach for antitrust law. 

ABSTRACT: The paper outlines various measures of profitability and considers what role they can play in competition law. We argue that profitability measures can provide a good answer to the wrong question and a much less good answer to the question we really want to answer. Using appropriate definitions of asset value it is possible to identify whether a firm earns more than the absolute minimum needed to cover cost and compensate for risk, i.e., whether profitability measures such as the internal rate of return and the accounting rate of return are above the cost of capital. However, both the empirical evidence we present and theory indicates that this does not really help in most cases. Knowing that a firm is earning, say, half a percent more than the cost of capital is not really much help in almost all competition law cases. But we show that once the rate of return deviates from the cost of capital it becomes hard to measure. Using simple examples we show that shifts in cash flows that preserve the net present value of a project can have dramatic effects on profitability measures. Hence, it is hard to assess the quantity of the excessive return. Furthermore, this problem is likely to be far more prevalent today than in the past given the growth in outsourcing (since outsourcing has exactly this type of effect on cash flows). Despite such problems, we argue that the measurement of profit has a role to play in competition law but that the analysis is far more of an art form and far less of a simple statistical procedure.

Quantitative Analysis of Coordinated Effects

Posted by D. Daniel Sokol

One area in which we are developing a better sense of antitrust is in understanding coordinated effects.  A new paper by William E. Kovacic, Robert C. Marshall, Leslie M. Marx, and Steven P. Schulenberg that focuses on coordinated effects in a merger context entitled Quantitative Analysis of Coordinated Effects sheds light and challenges some previously held assumptions.  Among other things, it has made me rethink the Arch Coal case.

Abstract: Mergers can affect the extent, probability, and payoffs of coordinated interaction among firms in an industry. Current analyses of coordinated effects typically provide little quantification of these effects and instead typically rely on arguments based on the number of firms, Herfindahl Index, ability to detect and punish deviations, ease of entry, and maverick firms. We offer an approach for quantifying the magnitude of the potential post-merger gains from incremental explicit collusion by subsets of firms in the post-merger industry. If the incremental payoffs to post-merger collusion are small (large), then coordinated effects are less (more) of a concern. Our approach also allows one to identify which post-merger cartels create the greatest concern and to quantify the effects of post-merger collusion on consumer surplus. We illustrate the implementation and value of this approach with applications to Hospital Corporation and Arch Coal.

The Story of Empagran

Posted by D. Daniel Sokol

Eleanor Fox and Daniel Crane are preparing one of the most interesting books in antitrust, entitled Antitrust Stories.  One of the entries is the story of Empagran, one of the most interesting cases of the past 10 years.  The two able storytellers for Empagran are my former law school professor Al Sykes and Alvin Klevorick. Their telling of the story is entitled United States Courts and the Optimal Deterrence of International Cartels: A Welfarist Perspective on Empagran.

Abstract:

E. Hoffmann-La Roche Ltd. v. Empagran S.A. concerned a private antitrust suit for damages against a global vitamins cartel. The central issue in the litigation was whether foreign plaintiffs injured by the cartel's conduct abroad could bring suit in U.S. court, an issue that was ultimately resolved in the negative. We take a welfarist perspective on this issue and inquire whether optimal deterrence requires U.S. courts to take subject matter jurisdiction under U.S. law for claims such as those in Empagran. Our analysis considers, in particular, the arguments of various economist amici in favor of jurisdiction and arguments of the U.S. and foreign government amici against jurisdiction. We explain why the issue is difficult to resolve, and identify several economic concerns, which the amici did not address, that may counsel against jurisdiction. We also analyze the legal standard enunciated by the Supreme Court and applied on remand by the DC Circuit, and we argue that its focus on independent harms and proximate causation is problematic and does not provide an adequate economic foundation for resolving the underlying legal issues. A revised version of this paper is forthcoming in ANTITRUST STORIES from Foundation Press, edited by Daniel Crane and Eleanor Fox.