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 22, 2007

First Annual Best Antitrust Books and Articles of 2007 -- Coming December 28

Posted by D. Daniel Sokol

We have invited a group of experts from around the world in both antitrust law and economics for our first annual Best Antitrust Books and Articles Roundtable.  Our experts will provide their favorite articles and books of 2007 on December 28th.  Tune in for the list of what you should have read this year.

December 22, 2007 | Permalink | Comments (2) | TrackBack (0)

European Cartel Enforcement and the Possible Implications for Japanese Companies

Posted by D. Daniel Sokol

Ezrachi_ariel Ariel Ezrachi of the Faculty of Law at Oxford has written on European Cartel Enforcement and the Possible Implications for Japanese Companies.

ABSTRACT: Cartel activities, including, price fixing, market sharing, output limitation and bid rigging have adverse effects on the economy. By artificially limiting the competition that would normally prevail on the market, cartel members are shielded from the competitive pressures that would otherwise lead them to innovate, both in terms of product development and the introduction of more efficient production methods. Such practices hinder efficiency and ultimately result in artificial prices and reduced choice for consumers. In the long term, they lead to a loss of competitiveness and reduced employment opportunities. This paper explores the European competition law regime, its application to cartel activities, and more specifically its application in cases involving Japanese companies. It starts by looking at the substantive law and describing the nature of anticompetitive activities which may be caught under European Competition law. Following this, in what contains the main part of this paper, it considers the enforcement of competition law and the fight against cartels in Europe. Special attention is given to the European Leniency Programme and Notice on the Imposition of Fines. In addition the wider range of deterrents is considered to provide a comprehensive picture of cartel enforcement in Europe. Throughout the paper, references are made to the European enforcement regime's impact on foreign companies to illustrate the possible implications for Japanese companies. The paper concludes with examples of such past and current cases.

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

Friday, December 21, 2007

Wishing You a Sweet Holiday Season- Unless You Are an Alleged Price-fixer in Chocolates

Posted by D. Daniel Sokol

Investigations of price fixing among chocolate companies has moved south of the border from Canada to the United States.  Today's WSJ reports that DOJ has begun investigating price fixing by chocolate producers.

I have general suggestions for big corporations that sell products to end consumers that might raise significant consumer ire if there were price fixing (people understand very well that cartels rip you off if a bar of chocolate that should cost $1.00 costs $1.20 because of price fixing as opposed to things that most consumers don't understand like lysine and so you will lose lots of goodwill in additional to your civil and criminal sanctions if you price fix):

1. Make sure that you have an antitrust compliance program in place;
2. Make sure that your firm's governance structure facilitates involvement and oversight by your general counsel's office and compliance team;
3. Be the first one to the door at DOJ to ask for leniency; and
4. Make sure that you have Don Klawiter's number in case you get caught.

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

The Economic Impact of Merger Control: What is Special About Banking?

Posted by D. Daniel Sokol

Elena Carletti (University of Frankfurt - Center for Financial Studies), Philipp Hartmann (European Central Bank) and Steven Ongena (Tilburg University Department of Finance) ask The Economic Impact of Merger Control: What is Special About Banking?

ABSTRACT: There is a long-standing debate about the special nature of banks. Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen competition policy, analyze their impact on banks and non-financial firms and explain the reactions observed with institutional features that distinguish banking from non-financial sectors. Covering nineteen countries for the period 1987 to 2004, we find that banks are special in that a more competition-oriented regime for merger control increases banks' stock prices, whereas it decreases those of non-financial firms. Moreover, bank merger targets become more profitable and larger. A major determinant of the positive bank returns, after controlling inter alia for the general quality of institutions and individual bank characteristics, is the opaqueness that characterizes the institutional setup for supervisory bank merger reviews. Thus strengthening competition policy in banking may generate positive externalities in the financial system that offset unintended adverse side effects on efficiency introduced through supervisory policies focusing on prudential considerations and financial stability. Legal arrangements governing competition and supervisory control of bank mergers may therefore have important implications for real activity.

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

Thursday, December 20, 2007

Latest Issue of the Antitrust Source is Out

Posted by D. Daniel Sokol

The latest issue of the Antitrust Source is out.  It includes a symposium discussing antitrust issues the Supreme Court has yet to address.

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

Passing-On Defense and Indirect Purchaser Standing in Actions for Damages Against the Violations of Competition Law: What Can the EC Learn from the US?

Posted by D. Daniel Sokol

PhD student Firat Cengiz of the University of East Anglia - Centre for Competition Policy has written a paper on Passing-On Defense and Indirect Purchaser Standing in Actions for Damages Against the Violations of Competition Law: What Can the EC Learn from the US?

ABSTRACT: This paper analyses the raison d'être of the current initiative for the federal policy change in the US regarding the issues of passing-on defense and indirect purchaser standing in order to draw policy lessons for the EC in the light of the Commission's Green Paper on private enforcement of Community competition law. The paper finds that transatlantic policy learning in the substantive sense does not seem plausible due to the dramatic difference between the American rationale regarding the goals of private enforcement and the European doctrine of direct effect. Nevertheless, the paper argues that the US experience contains important policy lessons regarding the risks brought forward by private enforcement under diverse standards in the lack of effective judicial cooperation mechanisms in a multi-level polity. After analysing the current positions of the Community and national laws from this perspective, the Paper finds that there is substantial room for diversity amongst the national standards. In addition, although existing Community measures provide solid ground for judicial cooperation, those measures should be strengthened in order to avert the litigation chaos which forced a policy change in the US. Consequently, the Paper suggests that the Commission gives substantial weight to the procedural aspects of private enforcement in its forthcoming White Paper which the Green Paper largely overlooked.

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

Christmas Tree Growers Association Charged With Price Fixing

Posted by D. Daniel Sokol

Demonstrating that it is possible to be a modern day Grinch, the Danish Christmas Tree Growers Association has been charged with price fixing.  Since Denmark exports 10 million Christmas trees a year, this alleged cartel has international implications.

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

Commission Prohibits MasterCard's intra-EEA Multilateral Interchange Fees

Posted by D. Daniel Sokol

The European Commission yesterday decided that MasterCard's intra-EEA Multilateral Interchange Fees violated Article 81.  The WSJ has analysis here.  The Commission press release explains:

The European Commission has decided that MasterCard's multilateral interchange fees (MIF) for cross-border payment card transactions with MasterCard and Maestro branded debit and consumer credit cards in the European Economic Area (EEA) violate EC Treaty rules on restrictive business practices (Article 81). The Commission concluded that MasterCard's MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies. MasterCard has six months to comply with the Commission's order to withdraw the fees. If MasterCard fails to comply, the Commission may impose daily penalty payments of 3.5% of its daily global turnover in the preceding business year. MIF are not illegal as such. However, a MIF in an open payment card scheme such as MasterCard's is only compatible with EU competition rules if it contributes to technical and economic progress and benefits consumers. In the EU, over 23 billion payments, exceeding a value of €1350 billion, are made every year with payment cards.

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

Wednesday, December 19, 2007

When Does an Optional Tariff Not Lead to a Pareto Improvement? The Ambiguous Effects of Self-Selecting Nonlinear Pricing when Demand is Interdependent or Firms Do Not Maximize Profit

Posted by D. Daniel Sokol

With the long title of When Does an Optional Tariff Not Lead to a Pareto Improvement? The Ambiguous Effects of Self-Selecting Nonlinear Pricing when Demand is Interdependent or Firms Do Not Maximize Profit, you know that John Panzar (Northwestern Economics Department) and Greg Sidak (Georgetown Law School) are not hiding the ball about the topic of this article.

ABSTRACT:  Optional or self-selecting tariffs allow customers to choose between an established tariff and an alternative outlay schedule. The possibility of making the vendor and at least one consumer better off, without making any other consumer worse off, makes optional tariffs appealing to both economists and regulators. In economic terms, the introduction of optional tariffs makes possible a Pareto improvement in the allocation of resources. Unfortunately, the presumed desirability of such tariffs depends crucially on assumptions that may not be fulfilled in the case of a state-owned enterprise - in particular, profit-seeking behavior on the part of the monopoly vendor and independence of consumer demand functions. In this Article, we analyze the economic implications and potential consequences, in general, of introducing negotiated rate and service terms available to a sole user into a pre-existing regulatory regime of uniform tariff rates and conditions of service. We identify the conditions under which it is economically desirable to introduce declining-block rates or other rate structures that discriminate among users of the affected services, with or without any basis in identifiable cost differences. We address the specific economic implications and potential consequences of introducing negotiated rate and service terms available to a sole user where the affected service is provided under a monopoly established by federal statute, taking into account that such negotiated arrangements may include preferential pricing terms; that access to the negotiated terms may be limited to a small number of users for administrative or other reasons; and that competition may exist among users of the affected service or services. Finally, we identify and describe regulatory measures that might be taken to accommodate potential concerns regarding the impact of such negotiated rate and service arrangements on fairness in regulation and competition. We conclude that it is not possible to derive sweeping propositions about the efficiency of optional tariff offerings. Instead, the welfare effects of such pricing plans must be evaluated empirically on an individual basis. Our analysis has practical significance for pricing policies in network industries, particularly those industries served by state-owned enterprises that enjoy statutory monopolies.

December 19, 2007 | Permalink | Comments (0) | TrackBack (0)

The Anticompetitive Effects of Unenforced Invalid Patents

Posted by D. Daniel Sokol

Cleslie_web Christopher Leslie of Chicago Kent Law School addresses The Anticompetitive Effects of Unenforced Invalid Patents.

ABSTRACT: Antitrust law and patent law assume that an invalid patent cannot distort competition unless the patentee enforces the patent by initiating infringement litigation or explicitly threatening to do so. The Article argues that invalid patents can destroy competition - even without such enforcement efforts - by creating legitimate fears of litigation, increasing the costs of market entry, delaying market entry, scaring away competitors' customers and business partners, and deterring research. Despite the anticompetitive risks posed by invalid patents, neither patent law nor antitrust law does an effective job of ridding the marketplace of invalid patents. In particular, because antitrust law currently holds that a monopolist does not violate the Sherman Act unless it actually enforces its invalid patent, a monopolist with an invalid patent can improperly exclude competitors while not exposing itself to antitrust liability. Finally, the Article argues that eliminating the enforcement requirement from antitrust claims based on invalid patents would better accomplish the goals of both antitrust law and the patent system.

December 19, 2007 | Permalink | Comments (0) | TrackBack (0)

EU Competition Policy: Some Real Case Applications

Posted by D. Daniel Sokol

Portuguese PhD student João Oom de Sousa Tovar Jalles (New University of Lisbon Department of Economics) has posted EU Competition Policy: Some Real Case Applications in which he examines the Microsoft-WMP and Volvo-Scania cases.

ABSTRACT: European Union Antitrust Laws have been successfully applied to anti-competitive behavior, which can take place abroad, but have an effect within the EU. Under Antitrust Laws, not only abuse of dominant position practices but also mergers that restrain competition are regarded as illegal and subject to severe remedies. This paper accesses both Microsoft-WMP and Volvo-Scania cases in the light of the EU Competition Policy and identifies the circumstances involved, final decisions made as well as the suggested remedies and the consequences from the consumers' perspective. The issues considered are per se controversial and these are clear examples of the long path to go through, in order to make the competition law regime uniformly applicable in all member states. The lack of international consensus on competition law and enforcement requires huge efforts in co-operation between countries and organizations, because in combination with economic liberalization, nations have come to recognize competition as a powerful instrument for stimulating innovation and economic growth. This paper focus on the past, i.e., already assessed anticompetitive cases; the present - the current EU Competition Policy rules - and finally on the future of Antitrust jurisdiction, in which part I will briefly describe the major actual concerns in the long course towards a common and homogeneously valid system of International Competition Policy.

December 19, 2007 | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 18, 2007

Summary of Second Meeting on Private Antitrust Enforcement

Posted by D. Daniel Sokol

AAI and the State Center for Antitrust and Consumer Protection jointly sponsored a second meeting of a group of State Assistant Attorneys General, private antitrust trial lawyers, and academics to discuss issues of mutual concern involving private/state antitrust enforcement. The meeting summary can be found here.

December 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Licensing Commitments in Standard Setting Organizations

Posted by D. Daniel Sokol

Standard setting and antitrust remains a hot topic. Indeed, today there is an ABA Antitrust Section brownbag on Standard-Setting in the US: What's at Stake in the Rambus Case?  Adding to the academic literature on this topic are François Lévêque (professor of law and economics at the Ecole des mines de Paris) and Yann Ménière (research fellow at Cerna, Ecole Nationale des mines de Paris) with their paper Licensing Commitments in Standard Setting Organizations.

ABSTRACT: This paper compares three possible procedures for the licensing of patents reading on a technology standard. In the first scenario the licensor fixes its royalties once manufacturers have entered the market for standard compliant products. In two alternative scenarios the licensor commits on a royalty level or on a royalty cap before manufacturers enter that market. The licensor's choice between the three procedures depends on a trade-off between the uncertainty it faces on the expected demand for standard compliant products, and a hold-up effect that deters the entry of manufacturers when royalties are set ex post. We show that the first scenario is always dominated by the royalty cap and can be dominated by the commitment on a royalty level. We derive several policy implications for standard setting policies and their antitrust treatment.

December 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Assessing the Competitive Effects of a Merger: Empirical Analysis of Price Differences Across Markets and Natural Experiments

Posted by D. Daniel Sokol

In an article by Gregory K. Leonard and Lawrence Wu in NERA's fall issue of Antitrust Insights provides a great overview for non-economists to understand the econometric work behind cases like Whole Foods.

ABSTRACT: The techniques used by the economist expert witnesses in FTC v. Whole Foods Market, Inc.1 illustrate two approaches that exemplify modern empirical merger analysis. One approach focuses on the relationship between price and the number and identities of competitors. The second approach analyzes historical events or “natural experiments” in the marketplace, such as the responses of incumbent firms to new entry. In our discussion of both approaches, we address three key issues: (1) What antitrust question does each technique address, specifically in the context of assessing the likely competitive effects of a merger? (2) What assumptions and data are needed to implement each technique? And (3) What key questions should counsel ask economists to evaluate the appropriateness
of these types of studies?

Download antitrust_insights_fall_2007.pdf

December 18, 2007 | Permalink | Comments (0) | TrackBack (0)

Monday, December 17, 2007

Implications of Unprofitable Horizontal Mergers: A Re-Interpretation of the Farrell-Shapiro-Framework

Posted by D. Daniel Sokol

Oliver Budzinski and Jürgen-Peter Kretschmer of the University of Marburg Department of Economics discuss Implications of Unprofitable Horizontal Mergers: A Re-Interpretation of the Farrell-Shapiro-Framework.

ABSTRACT: We demonstrate that the popular Farrell-Shapiro-Framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. In addition, we conclude that the FSF need to be explicitly complemented by a freedom of competition principle in order to make it workable as a basis for an economics-based merger policy.

December 17, 2007 | Permalink | Comments (0) | TrackBack (0)

What I Have Learned About Antitrust Law and Economics and How I Try to Apply it to my Daughter's Toilet Training

Posted by D. Daniel Sokol

Since June, my eldest daughter has been in the process of learning to use the toilet.  She still uses diapers and around half of the times tells us beforehand if she has to poop.  As for peeing, other than overnight, she informs us about her need to go perhaps three times a day.  We want her to be fully toilet trained (not counting at night) hopefully within the next month or two. 

My wife and I are trying a new approach based on incentives.  If antitrust law and economics teaches anything about behavior of firms and individuals, it is that incentives help to shape behavior.  We are trying a new set of rewards this week.  As we experiment a few hours a day with her wearing underwear (which have her favorite Disney characters on them) instead of diapers, we made the following economic calculation- a pack of size 4 pull-ups costs us us $80 a month if we buy the generic diapers in bulk at Sam's Club.  Our thought is to take our daughter to Toys R Us today and walk her through a few of the isles and tell her we will buy her anything she wants (up to $150) since we will be making considerable savings after the initial present from no longer having to purchase diapers (or refills for the diaper genie which are $6.99 each).  Any sense of whether or not this will work?

December 17, 2007 | Permalink | Comments (3) | TrackBack (0)

The Law of Group Boycotts and Related Economic Considerations

Posted by D. Daniel Sokol

Harrison My colleague as of this summer when I join the University of Florida law faculty, Jeff Harrison, has written an insightful article titled The Law of Group Boycotts and Related Economic Considerations.

ABSTRACT: One of the more confusing areas of antitrust law is that dealing with group boycotts. The term has been applied to at least three distinct practices. This draft chapter of a forthcoming book focuses on regulatory and classic boycotts. It assesses them from the perspective of the economics of intellectual property. The conclusion is that regulatory boycotts are most appropriately viewed as potential ancillary restraints while classic boycotts are best teated as per se unlawful.

December 17, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, December 16, 2007

Alive and Kicking: Collusion Theories in Merger Analysis at the Federal Trade Commission

Posted by D. Daniel Sokol

Malcolm Coate of the FTC's Bureau of economics has written an important paper that tracks and analyzes all review of 75 merger decisions filed between 1993 and 2005 to identify the conditions that are found to increase the likelihood of a collusion finding is his paper Alive and Kicking: Collusion Theories in Merger Analysis at the Federal Trade Commission.

ABSTRACT: This paper explores the use of collusion theories in merger analysis at the Federal Trade Commission. The 1992 Merger Guidelines focuses on unilateral effect, relegating collusion analysis to a second tier theory. Both structural and behavioral conditions conducive to establishing or maintaining an arrangement to restrict competition are listed in the Guidelines. This paper undertakes a systematic review of 75 merger decisions filed between 1993 and 2005 to identify the conditions that are found to increase the likelihood of a collusion finding. Standard structural concerns are readily identified, while behavioral factors defy characterization. Instead, the analysis seems to develop a Folk Theorem in which structural concerns are validated with some type of performance evidence. Further work finds allegations of maverick conduct add little to the analysis, while the Bush administration appears slightly more likely to identify a collusion problem than the Clinton regulators.

December 16, 2007 | Permalink | Comments (0) | TrackBack (0)