Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Saturday, May 26, 2007

Difference in Differences Analysis in Antitrust

Posted by D. Daniel Sokol

John Simpson and David Schmidt of the Federal Trade Commission have a new paper that asks the question Difference in Differences Analysis in Antitrust: What Does it Really Measure? on retrospective merger analysis.

ABSTRACT: Merger retrospectives often use a difference in differences (DID) approach to measure the price effects of mergers. As used in these studies, this approach implicitly assumes that the price in the control market fully controls for supply and demand shocks in the treatment market if the two markets experience the same demand and supply shocks. In this paper, we first show that this is only true if the parameters that determine how supply and demand shocks affect price are the same in the two markets. We then show that in many plausible circumstances the DID approach could either overestimate or underestimate the price effects of a merger.

May 26, 2007 | Permalink | Comments (0) | TrackBack (0)

Friday, May 25, 2007

State Aid Reform

Posted by D. Daniel Sokol

Neelie Kroes  spoke earlier this week at the European State Aid Law Institute Conference in Brussels.  In her speech, she outlined four guiding principles have underpinned state aid reform:

  • less and better targeted State Aid
  • a refined economic approach
  • more effective procedures, better enforcement, higher predictability and enhanced transparency and
  • a shared responsibility between the Commission and Member States.

The priority for DG Competition this coming year, according to Kroes, is the General Block Exemption, which will be adopted by mid-next year.  Let us hope for a system in which the principles set out above are realized.

May 25, 2007 | Permalink | Comments (0) | TrackBack (0)

Competition Law and Copyright Misuse

Posted by D. Daniel Sokol

To stay on the theme of the Antitrust-IP interface, I found a new working paper by John Cross of the University of Louisville and Peter Yu of Michigan State University.  They explore copyright issues in their article entitled Competition Law and Copyright Misuse

ABSTRACT:  In the past decade, copyright protection throughout the world has been greatly expanded to respond to challenges posed by new communications technologies and copyrightable subject matters. As protection increases, the growing power of copyright owners has also led to market abuses that stifle competition and innovation. Thus, courts, litigants, policy makers, and commentators have increasingly embraced competition law, copyright misuse, the unclean hands doctrine, and other tort law concepts to reduce abuse by copyright owners. This article discusses the different types of abuse and the various legal doctrines that Canadian and U.S. courts have used to resolve these abuse cases.

The first section discusses the limited monopolies of copyright owners and the various safeguards that have been built into the copyright system. Using four recent cases in the United States, this section highlights the growing abuse of copyright by its owners in recent years. The second section discusses the uneasy relationship between copyright and monopoly laws. It explores four categories of abuse cases and how monopoly law has been applied to deal with each of these types. The final section examines legal doctrines that lie outside competition law, but yet have been used to deal with copyright abuse. In particular, this section discusses copyright misuse, the doctrine of unclean hands, and claims of abuse of process and of tortuous interference.

May 25, 2007 | Permalink | Comments (0) | TrackBack (1)

Thursday, May 24, 2007

More Thoughts on Twombly

Posted by D. Daniel Sokol

Richard Epstein, James Parker Hall Distinguished Service Professor of Law at the University of Chicago law School has an op-ed in today's Wall Street Journal in which he provides some thoughts on Twobley entitled Legal Santiy Discovered (subscription required).   From the title, you can imagine that he is doing hand stands in his Hyde Park office as a result of the Supreme Court's decision.  One question that Epstein asks is "whether Twombly's healthy skepticism carries over, for example, to class-action claims in securities or antidiscrimination cases."  I tend to keep my comments limited to antitrust but if any readers want to share thoughts, feel free to do so.   

May 24, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 23, 2007

Strategic Behavior in Standard-Setting Organizations

Posted by D. Daniel Sokol

In the Antitrust-IP interface, one area in which we find a the potential for anti-competitive conduct is standard setting (e.g., Rambus).    A team of researchers from Harvard including  Brian J. DeLacey, Kerry Herman , David Kiron and Josh Lerner have just published a working paper entitled Strategic Behavior in Standard-Setting Organizations, which is worth a read.

ABSTRACT: This paper seeks to better understand the competitive behavior of firms in  standard-setting organizations by examining two case studies. We examine the development of mobile Internet standards by the Institute of Electrical and Electronics Engineers (IEEE); and the development of DSL standards. The case studies highlight that standard-setting bodies play critical roles in these industries. Because innovations are typically not promulgated by a single firm, but rather draw together technologies developed in multiple firms, the coordination role played by these organizations is critical. And certainly in some cases, particularly where parties commit in advance to a formal process (such as the xDSL one), the standardization process can lead to a dispassionate selection of a superior technology as a standard.

But as the IEEE 802.11 case suggests, the situation is often more complex. For in many cases, the selection of a technological standard has very substantial economic implications for the firms participating in the process. As a result, the standardization process can become side-tracked as warring factions seek to promote their own agenda. The process can be very much delayed as a result. Rules of standard-setting bodies that were originally intended to insure a fair process can be manipulated by firms to promote their own agenda or even to delay the project indefinitely. As a result, firms may be tempted to by-pass formal standards development organizations, and instead reach a private agreement with like-minded peers.

May 23, 2007 | Permalink | Comments (0) | TrackBack (0)

Examining the Performance of Competition Policy Enforcement Agencies

Posted by D. Daniel Sokol

Measuring the capabilities and effectiveness of antitrust agencies has proved to be a difficult task.  It seems that objective measures have significant limitations.  Measure the total number of cases brought and you may reward agencies for brining small cases, even if they are not good cases.  Measure based on success rate of enforcement and you penalize agencies that bring difficult cases that are close.  One method is to measure the quality of the agency based on perceptions by international antitrust practitioners and international businesspeople.  In the first cross country analysis of agency effectiveness, Armando Rodriguez of the University of New Haven and Lesley DeNardis of Sacred Heart University measure the effectiveness of antitrust agencies by this third approach in their paper Examining the Performance of Competition Policy Enforcement Agencies: A Cross-Country Comparison. 

ABSTRACT: An examination of a cross-section of 102 nations reveals marked differences in the performance of their competition policy enforcement agencies. Likely explanatory factors considered include gross domestic product per capita, the intensity of competition, physical size, the level of corruption, national experience with a modern antitrust law and whether the common law prevails.

Competition policy agencies operate poorly in jurisdictions characterized by corruption and poor competitive intensity. In fact, differences in levels of corruption and variations in the intensity of competition account for approximately 78 percent of the observed variance in agency performance. Group characteristics, however, vary by region and have varying impact on the observed performance gap. Rather than a generalized approach to the promotion and diffusion of competition policies, our results suggest that distinct policies for each region are likely to be more successful.

Download jbes_rdenfinal.pdf

May 23, 2007 | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 22, 2007

FTC Litigation at the Antitrust/Intellectual Property Interface

Posted by D. Daniel Sokol

On the FTC website, FTC Commissioner Tom Rousch has a thoughtful presentation on FTC Litigation at the Antitrust/Intellectual Property Interface in which he discusses branded and generic drug firms settlements and abuses of intellectual property rights outside the patent settlement context. 

May 22, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, May 21, 2007

Some Thoughts on Twombly

Posted by Shubha Ghosh

Thanks to my co-blogger for being so prompt in posting on Twombly.  I just finished my first read of the opinion, and the opinion seems consistent with the Court's 2004 decision in Trinko: it's darn hard, and perhaps frankly impossible, to challenge the RBOC's under the antitrust laws.   Trinko forecloses Section Two challenges, for the most part, and now the proof of agreement required after Twombly for a Section One claim seems insurmountable given how the Court understands the Telecommunications industry.  Danny cited the appropriate language about the legal standard.  Here is a telling passage about how the Court applies that standard to telecom:

"[Twombly's complaint] was not suggestive of conspiracy, not if history teaches anything.  In a traditionally regulated industry with low barriers to entry, sparse competition among large firms dominating separate geographical segments of the market could very well signify illegal agreement, but here we have an obvious alternative explanation.  In the decade preceding the 1996 Act and well before that, monoply was the norm in telecommunications, not the exception."

Hence, the Court goes on, the lack of entry into a neighbor's market is consistent with the regional Bells accepting the status quo ante the 1996 Act and does not necessarily provide a basis to claim an agreement as required under Section One.  In effect, the Court adopts the district court's view of the pleadings: if there is an explanation of the pleaded facts consistent with unilateral action, then the Section One claim is dismissed.

But how about this interpretation of events, from a decidedly public choice perspective: the 1996 Act itself is the agreeement to not compete on each other's territory?   That theory requires a facial challenge to the statute itself under the antitrust laws and seems to be foreclosed by Trinko as well as today's decision in Twombly.

More on this later...

May 21, 2007 | Permalink | Comments (1) | TrackBack (0)

Twombly is Out - Supreme Court Reverses 2nd Circuit

Posted by D. Daniel Sokol

The Supreme Court decision in Twombly just came out.  I cannot say that I am surprised by the decision nor do I disagree with it.  We don't want to allow for unnecessary fishing expeditions in our court system.  If there is a good case, there should be evidence to support it. 

The important quote is the following:

In applying these general standards to a §1 claim, we hold that stating such a claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement... It makes sense to say, therefore, that an allegation of parallel conduct and a bare assertion of conspiracy will not suffice. Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality. Hence, when allegations of parallel conduct are set out in order to make a §1 claim, they must  be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.

You can download the decision below.
Download Twombly2007.pdf

May 21, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, May 20, 2007

Priceless? The Competitive Costs of Credit Card Merchant Restraints

Posted by D. Daniel Sokol

An article that I have been meaning to post on for quite some time (both because it is really good and because as I will be teaching payment systems in spring 2008, I am focusing on the intersection of commercial law with competition issues) is Adam Levitin's Priceless? The Competitive Costs of Credit Card Merchant RestraintsLevitin is an assistant professor at Georgetown Law Center.   
ABSTRACT: Credit card transactions cost American merchants six times as much as cash transactions. Why, then, do consumers pay the same price for purchases, regardless of the means of payment?

The answer lies in a set of credit card network rules known as merchant restraints. Merchant restraints forbid merchants from surcharging for credit and discounting for non-cash payments, while the framing effect, a well-documented cognitive bias, makes discounting for cash ineffective. Merchant restraints thus prevent merchants from pricing according to consumers' payment method and from signaling to consumers the costs of different payment methods. Accordingly, consumers never internalize the costs of their choice of payment system.

This article argues that credit card merchant restraints lead to an overconsumption of credit cards as a transacting device and distort competition within the credit card industry and among payment systems in general. The article contends that merchant restraints are antitrust violations and demonstrates that the economic justifications for merchant restraints are unfounded. Rather than being a response to an industrial organization problem inherent in networked industries and necessary for the existence of credit card networks, merchant restraint rules are the response to a no-longer extant legal problem and have outlasted any justifiable purpose. Thus, the article proposes regulatory, legislative, or judicial intervention to ban merchant restraint rules.

May 20, 2007 | Permalink | Comments (0) | TrackBack (0)