Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, December 15, 2007

The SSNIP Test and Market Definition with the Aggregate Diversion Ratio: A Reply to Katz and Shapiro

Posted by D. Daniel Sokol

Øystein Daljord (Norwegian Competition Authority), Lars Sørgard (Norwegian School of Economics and Business Administration), and Øyvind Thomassen (University of Oxford Economics) have written The SSNIP Test and Market Definition with the Aggregate Diversion Ratio: A reply to Katz and Shapiro.

ABSTRACT: The Hypothetical Monopolist or Small but Significant Non-transitory Increase in Prices (SSNIP) test defines the relevant market by determining whether a given increase in product prices would be profitable for a monopolist in the candidate market. The U.S. Merger Guidelines do not specify whether the SSNIP test should be performed with an increase in one price, some prices, or all prices in the candidate market. We argue that this should depend on characteristics of the market: if there are asymmetries between products, increasing only one price might be the best way to identify competitive constraints. Katz and Shapiro derive a one-price test criterion of critical loss in terms of the aggregate diversion ratio. Unfortunately, the derivation is incorrect. We show what the correct criterion should be.

December 15, 2007 | Permalink | Comments (0) | TrackBack (0)

Vertical Relationships and Competition in Retail Gasoline Markets: Comment

Posted by D. Daniel Sokol

Retail gasoline is one of the most interesting sectors for the public.  In an interesting working paper Christopher Taylor, Paul Zimmerman and Nicholas Kreisle of the FTC's Bureau of Economics discuss Vertical Relationships and Competition in Retail Gasoline Markets: Comment.

ABSTRACT: In a paper in the March 2004 AER, Justine Hastings concludes that the acquisition of an independent gasoline retailer, Thrifty, by a vertically integrated firm, ARCO, is associated with sizable price increases at competing stations. To better understand the novel mechanism to which she attributes this effect - which combines vertical integration and rebranding - we attempted but ultimately failed to reproduce the results using alternative data. In addition, we show that the welfare effects of the transaction are ambiguous in the theoretical model which she posits as underlying the empirical results.

December 15, 2007 | Permalink | Comments (0) | TrackBack (0)

Friday, December 14, 2007

Consumer Coordination in the Small and Large: Implications in Antitrust Markets With Network Effects

Posted by D. Daniel Sokol

Spulber_picDaniel Spulber of Northwestern's Kellog School of Management discusses Consumer Coordination in the Small and Large: Implications in Antitrust Markets With Network Effects in the latest issue of the Journal of Competition Law and Economics.

ABSTRACT: Network effects occur in markets when consumers receive mutual benefits from consuming the same good. Markets with network effects that have generated particular policy concerns include the information and communications technology and electronics (ICTE) industries. Many economists and legal scholars argue that the presence of network effects creates a form of market failure known as "network externalities" and recommend new forms of antitrust and regulation targeted at particular firms in the ICTE industries. The debate over network effects is likely to have major consequences for these industries, with effects comparable to landmark antitrust cases involving IBM, AT&T, and Microsoft. This article provides a comprehensive examination of network effects that addresses the legal, economic, and technological basis for this phenomenon. The article develops a general framework for examining consumer coordination in markets with network effects. The discussion demonstrates that consumers can coordinate their consumption decisions to obtain the benefits of network effects. When there are small numbers of consumers, as Coase argued, low transaction costs allow the formation of informal agreements and formal contracts that are economically efficient. When there are large numbers of consumers, the market offers many mechanisms of spontaneous order in the sense of Hayek. The article refers to Coasian negotiation as "coordination in the small," and to Hayekian spontaneous order as "coordination in the large." The discussion demonstrates that consumer coordination, both in the small and in the large, results in efficient consumption of network goods and adoption of new technologies. Market institutions are fully capable of addressing network effects. Antitrust policy based on correcting market failure due to "network externalities" is likely to impact both competition and innovation adversely. Network effects do not provide a sound basis for antitrust policy.

December 14, 2007 | Permalink | Comments (0) | TrackBack (0)

Making Sense of Nonsense: Intellectual Property, Antitrust, and Market Power

Posted by D. Daniel Sokol

Katz_ariel Ariel Katz of the University of Toronto Law School offers a fascinating analysis of the intersection of antitrust and IP in his article Making Sense of Nonsense: Intellectual Property, Antitrust, and Market Power.

ABSTRACT: While the economic rationale for intellectual property ("IP") rights rests on the concepts of "monopoly" or "market power," the U.S. Supreme Court, in Illinois Tool Works v. Independent Ink, has recently joined a "virtual consensus" among antitrust commentators believing that no presumption of market power should exist in antitrust cases involving IP. This Article critically analyzes this consensus, and clarifies the relationship between IP and market power, shows why IP rights often do confer market power in the antitrust sense, but also explains why acknowledging this should not necessarily lead to oversized application of antitrust law to IP.

December 14, 2007 | Permalink | Comments (0) | TrackBack (0)

Thursday, December 13, 2007

Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law Through the Back Door?

Posted by D. Daniel Sokol

Francisco Marcos Fernández and Albert Sánchez Graells bring us Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law Through the Back Door?

ABSTRACT: Tort Law is not harmonised at a European level. Substantive and procedural regulations vary substantially across EU Member States in most of the facets and dimensions of damages actions. These differences derive, amongst other causes, from different legal traditions. However, significant efforts are being made in order to find common ground for the approximation or even harmonisation of these laws across the EU - building on the Principles of European Tort Law and other projects, such as the European Code of Civil Procedure. However, harmonisation of Tort Law and the corresponding Civil Procedure regulations is still open to debate and the process is envisaged to take a significant delay before any formal legal instruments are approved.

Such regulatory diversity is inevitably reflected in the field of antitrust private enforcement-based on claims for harm inflicted as a result of the anticompetitive behaviour, which the European Commission is trying to encourage and promote as a key element of the modernisation process of the EC antitrust rules undertaken in 2003. In this regard, a Green Paper on damages actions for breach of the EC antitrust rules was published in December 2005 with the purpose of opening up a reform process that could facilitate private damages actions across the EU. Most remarkably, the Green Paper put forward most of the divergences in national Tort Law and Civil Procedure regulations that jeopardize the effectiveness of a privately enforced competition system. These differences in national regulations contrast with the nearly-full de facto harmonisation existing in antitrust law and its public enforcement. Consequently, the Commission proposed harmonisation alternatives that imply deep reforms in national Tort Law and Civil Procedure regulations. Those proposals are to be developed and further analysed in a forthcoming White Paper - foreseen to be adopted around the turn of the year 2007.

At this stage, and before the Commission puts forward new harmonisation proposals, this paper analyses its need and adequacy and wonders whether the efforts of the Commission for the harmonisation of antitrust damages actions constitutes a backdoor harmonisation of fundamental aspects of Tort Law and Civil Procedure with much broader implications and effects in fields of Law other than antitrust.

December 13, 2007 | Permalink | Comments (0) | TrackBack (0)

SSRN Top 10 Most Downloaded Antitrust Law Scholars in the Past Year

Posted by D. Daniel Sokol

I include only people affiliated with law schools who regularly write antitrust/competition related articles.  After the top 14, there is a significant drop off.

1. Mark Lemley – Stanford – 9,465 hits
2. Greg Sidak – Georgetown– 6,394 hits
3. Damien Geradin  – Tilburg – 4,166 hits
4. Richard Posner  – University of Chicago – 2,377 hits
5. David Evans – University College London – 1,844
6. Johnathan Baker – American University – 1,580 hits
7. Bruce Kobayashi – George Mason – 1,449 hits
8. Keith Hylton – Boston University -  1,346 hits
9. Spencer Waller - Chicago Loyola - 1,340 hits
10. Randy Picker – University of Chicago - 1,193 hits
11. Phil Weiser – Colorado – 1,016 hits
12. Daniel Sokol – Missouri – 996 hits
13. Herb Hovenkamp – Iowa – 938 hits
14. Josh Wright – George Mason – 913 hits

December 13, 2007 | Permalink | Comments (0) | TrackBack (0)

Market Dominance and Behavior-Based Pricing Under Horizontal and Vertical Differentiation

Posted by D. Daniel Sokol

Thomas Gehrig of the University of Freiburg Department - of Economics, Oz Shy of University of Haifa - Department of Economics and Rune Stenbacka of the Swedish School of Economics and Business Administration ponder Market Dominance and Behavior-Based Pricing Under Horizontal and Vertical Differentiation.

ABSTRACT: We evaluate behavior-based price discrimination from an antitrust perspective by focusing on an industry with inherited market domminance. Under horizontal differentiation behavior-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behavior-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behavior-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare.

December 13, 2007 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 12, 2007

Global Antitrust Prosecutions of International Cartels: Focus on Asia

Posted by D. Daniel Sokol

Jconnor Cartel maven John Connor of  Purdue's Department of Agricultural Economics has some new and important empirical work on cartels in Asia titled  Global Antitrust Prosecutions of International Cartels: Focus on Asia.

ABSTRACT: International cartelists today face antitrust investigations and possible fines in a score of national and supranational jurisdictions. This paper aims at providing quantitative information about the size and impacts of international cartel activity in Asia and uses a sample of modern private cartels to evaluate the relative effectiveness of three prominent Asian antitrust authorities. The sample consists of legal and economic information on 377 international cartels discovered in Asia and the rest of the world during 1990-2007.

The need for assertive anti-cartel enforcement in Asia is demonstrated by the large affected commerce and economic injuries of known international cartels. Affected sales of the 27 Asian-region cartels exceeded US$155 billion. In addition, 86 global cartels also fixed prices in Asia. Affected sales in Asia from discovered cartels both types totals $300 to $400 billion. The overcharges Asian consumers were at least $94 billion in 1990-2007.

While more than US$35 billion in penalties has been imposed world wide, it is doubtful that such monetary sanctions can deter modern international cartels. The three with the most consistent legal responses to global cartels are the United States, Canada, and the EU. Yet, optimal cartel deterrence is frustrated by the failure of compensatory private suits to take hold outside of North America and the low fines in most Asian jurisdictions. Of the three selected jurisdictions, the Korean FTC has the best record of anti-cartel enforcement in Asia, but even the KFTC's surcharges are recouping less than 15% of damages. Without significant increases in cartel detection, in the levels of expected fines or civil penalties, or expansion of the standing of buyers to seek compensation, international price fixing will remain rational business conduct

December 12, 2007 | Permalink | Comments (0) | TrackBack (0)

Leegin Creative Leather Products, Inc. v. PSKS, Inc.: The Strange Career of the Law of Resale Price Maintenance

Posted by D. Daniel Sokol

Lgragliasg Yet another entry into the analysis of Leegin comes from Lino Graglia of the University of Texas Law School titled Leegin Creative Leather Products, Inc. v. PSKS, Inc.: The Strange Career of the Law of Resale Price Maintenance.

ABSTRACT: The article tells the long, fascinating and sometimes hardly credible story of the law of resale price maintenance (RPM). The 1911 Dr. Miles decision, overruled by Leegin, was one of the oldest and most important in the history of antitrust in that it extended the coverage of the Sherman Act from competitor ("horizontal") to buyer-seller ("vertical") agreements, holding manufacturer-dealer RPM agreements illegal per se. Eight years later the Court in effect overruled Dr. Miles in the Colgate case (at the urging of defendant's counsel, former Justice Charles Evan Hughes, the author of Dr. Miles) by making a non-existent distinction between express and tacit agreements. It then effectively overruled Colgate in turn by ignoring the supposed distinction. In 1937 Congress negated Dr. Miles by authorizing the states to pass "fair trade" legislation permitting RPM, but in 1975 repealed the authorization, restoring Dr. Miles to full health. Two years later, Dr. Miles was again effectively overruled by the Court's adoption in the seminal Sylvania decision of the Chicago school of economics' skeptical view of antitrust and per se rules. It was further undermined, if possible, by the Court's revival of the Colgate doctrine and by making the necessary agreement hard to prove. The seemingly shocking Leegin decision, therefore, in fact merely made the overruling explicit. Justice Breyer, joined by Justices Stevens, Souter, and Ginsberg, vigorously dissented, apparently relying more on stare decisis than on the merits of Dr. Miles, a reliance much weakened by the Court's prior overruling of two cases on closely related issues. The paper also briefly discusses the very limited present day relevance and usefulness of the traditional per se/rule of reason distinction, and debunks the Court's conventional assertion that it adopts a per se rule only after long experience with the restraint. The history of the law of RPM illustrates, at its end and at its beginning that ideology can have more to do than economics or logic with the making of antitrust law, paralleling its role in constitutional law. Leegin also makes clear that the newly reconstituted Court remains committed to the Chicago school view of antitrust and has a flexible approach to stare decisis.

December 12, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 11, 2007

Should Innovation Rationalize Supra-Competitive Prices? A Skeptical Speculation

Posted by D. Daniel Sokol

Brennan110 Tim Brennan of the University of Maryland-Baltimore Department of Public Policy offers a thought provoking paper Should Innovation Rationalize Supra-Competitive Prices? A Skeptical Speculation.

ABSTRACT: A recent criticism of competition policy is that antitrust authorities shouldn't focus their concern on prices, since the welfare losses of prices are trivial compared to longer run innovation effects. At minimum, there's a problematic trade-off between so-called static price and dynamic efficiencies. On this view, if there is a credible argument supporting the idea that collusion or merger increases incentives to innovate, one should not worry about price. We entertain here the hypothesis that antitrust should not worry about innovation, just as it should not worry about effects on other markets. Antitrust takes place in the shadow of patent laws, which presumably have evolved to provide efficient innovation incentives when markets are competitive, as most are. To weaken antitrust enforcement presumes that patent law is not set correctly. A better remedy would be to adjust patent law and other tools for encouraging innovation, e.g., tax credits or prizes. To distort the application of antitrust law to fix shortcomings in patent law provides a correction only if there is a potential antitrust violation (e.g., an otherwise anticompetitive merger) to ignore. Sectors with no antitrust "events" would remain uncorrected.

December 11, 2007 | Permalink | Comments (0) | TrackBack (0)

Technocracy and Antitrust

Posted by D. Daniel Sokol

Thumb_faculty_crane_danjpg One of the more thoughtful pieces this year is Technocracy and Antitrust by Dan Crane (Cardozo Law, NYU Law visiting).

ABSTRACT: U.S. antitrust enforcement has declined in political salience over the past few decades even while levels of public antitrust enforcement and funding for the antitrust agencies have remained generally consistent with those of earlier periods. Antitrust has become a technocratic discipline in the minds of the political elite, delegated by Presidents and Congress to specialists in the Justice Department and Federal Trade Commission. Nonetheless, antitrust retains influential populist institutions including the civil and criminal jury, an adjudicatory system focused on binary determinations about guilt or innocence, and a Federal Trade Commission that is constrained from exercising a norm-creation role. The technocratic shift begun by the political elite could be furthered by a variety of reforms including separating cartel enforcement from other antitrust enforcement, moving from adjudication to administration, and granting the FTC norm-creation powers. Technocratic reforms are justified by three key attributes of modern antitrust - consensus on antitrust goals, resolution of the most divisive ideological questions, and the absence of a need to balance the interests of identified groups.

December 11, 2007 | Permalink | Comments (0) | TrackBack (0)

The Quiet Revolution in U.S. Antitrust Law

Posted by D. Daniel Sokol

G_hay George Hay of Cornell Law School suggests that there is The Quiet Revolution in U.S. Antitrust Law that has made antitrust jurisprudence more economics friendly.

ABSTRACT: In this paper, I report on a series of recent decisions in antitrust cases by the U.S. Supreme Court. While each decision, read separately, may be only of moderate interest (even to a U.S. audience), the slate of decisions, looked at in its entirety, conveys a significant message, and one that may have meaning for scholars and practitioners in Australia and other jurisdictions outside the U.S. I would suggest that a quiet revolution is occurring in which the arguments economists have been making for nearly fifty years have suddenly been embraced by both the left and the right on the Court. The revolution is not yet complete; there is still substantial tidying up to do. But it will not take long before the entire corpus of antitrust has been transformed to fit the consumer welfare model with the added feature that it has been tailored to a world in which general purpose federal judges and lay juries (unless put on a very tight leash) can make mistakes which not merely can result in an injustice in the particular matter under litigation, but also can have significant dampening effects on the willingness of large, efficient firms to use their efficiency to compete vigorously. The fact that the law is catching up to a body of defendant-friendly economic theory that is fifty years old at about the same time that economic theory has begun to move in a direction that is more plaintiff-friendly is an ironic footnote to the story.

December 11, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, December 10, 2007

Conflicts between Competition Law and Regulation in the EC Electronic Communications Sector: An Analysis of the Institutional Framework

Posted by D. Daniel Sokol

127leon I have been very interested in my own scholarship in institutional choice to address issues where there is an antitrust overlap with another form of regulation (see here and here).  One area in which we see these institutional choices play out is electronic communications. Liyang Hou of the Katholieke Universiteit Leuven's Interdisciplinary Centre for Law and ICT writes on this issue in his paper Conflicts between Competition Law and Regulation in the EC Electronic Communications Sector: An Analysis of the Institutional Framework.

ABSTRACT: The EC regulatory framework in the electronic communications sector is characterized by the concurrent application of competition law and sector specific regulatory rules. An institutional defect of this dual-regulatory model is the risk of duplication of procedures between competition authorities and regulatory authorities. The 2002 regulatory package issued by the European Parliament and Council of the European Union for electronic communications services and networks makes a great contribution toward resolving the institutional conflicts between the two groups of institutions by establishing a cooperation mechanism. However, the imperfection of the current cooperation mechanism may not fully eradicate institutional conflicts. This paper offers some thoughts on a potential reform of the current cooperation mechanism between competition authorities and regulatory authorities with regard to the residue institutional conflicts.

December 10, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, December 9, 2007

Chambers Rankings for Global Antitrust Practices Are Out

Posted by D. Daniel Sokol

Chambers and Partners has released its most recent global rankings for Antitrust/Competition law:

Band 1
* Cleary Gottlieb Steen & Hamilton LLP
* Freshfields Bruckhaus Deringer

Band 2    
* Arnold & Porter LLP
* Howrey LLP
* Linklaters
* Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates

Band 3    
* Jones Day
* Latham & Watkins LLP
* O'Melveny & Myers LLP
* WilmerHale
* Clifford Chance LLP
* Gibson, Dunn & Crutcher LLP
* McDermott Will & Emery LLP
* Shearman & Sterling LLP

December 9, 2007 | Permalink | Comments (0) | TrackBack (0)

Rethinking Antitrust Law in an Age of Network Industries

Posted by D. Daniel Sokol

Priest_george George Priest of Yale Law School provides analysis on Rethinking Antitrust Law in an Age of Network Industries.

ABSTRACT: Economists have recognized the increasing role of network industries in our modern economy and have substantially advanced the understanding of network economics. This paper discusses how the special economic features of networks and, in particular, practices that networks adopt to enhance network benefits, requires a reconceptualization of modern antitrust analysis. The proposition is demonstrated by the example of several recent antitrust prosecutions of network practices where the economics of networks were largely ignored. The paper also discusses many cases in the antitrust canon that are more adequately analyzed when the network character of the practice is taken into account. The paper propose a reorganization of antitrust analysis to distinguish the fundamental economic analysis of network practices from the analysis of horizontal and vertical industrial practices.

December 9, 2007 | Permalink | Comments (0) | TrackBack (0)