Antitrust & Competition Policy Blog

Amending India's Competition Act

Posted by D. Daniel Sokol

With all the focus in recent years on China within the antitrust community, we often have overlooked India and its antitrust system. Given the history of India 's economic development and its increasing importance as a destination for FDI, it is critically important to start thinking about antitrust issues in India. A new paper by Aditya Bhattacharjea of the University of Delhi - Delhi School of Economics provies an excellent overview of the current state of Indian antitrust law.  His article is entitled "Amending India's Competition Act."

ABSTRACT: For nearly four years, the Indian government has been unable to bring into force the substantive provisions of the Competition Act passed by Parliament in December 2002. The implementation of the Act, and the appointment of the chairman and all but one of the ten members of the proposed Competition Commission of India (CCI), was stalled by a writ petition in the Indian Supreme Court which contended that the constitutional doctrine of separation of powers required that the CCI be headed by a judge chosen by the judiciary and not a bureaucrat chosen by the executive.

The Competition (Amendment) Bill, 2006, contains provisions designed to address the Supreme Court's concerns. It also proposes to make several other changes in sections of the Act dealing with anti-competitive practices. This paper offers a critical assessment of the Bill. Some proposed amendments are quite sensible, while others (notably a modified leniency programme for firms that provide information about their participation in a cartel) have been inadequately thought out. The amendments designed to placate the Supreme Court will also have some negative consequences. Several weaknesses in the original Act, pointed out by this author in an earlier paper, remain unaddressed. Finally, the scarcity of the kind of economic expertise required to interpret the Act's multifarious technical clauses also remains a matter of concern. Intensive capacity building and a reassessment of the Act itself are urgently required.

How Market Fragmentation Can Facilitate Collusion

Posted by D. Daniel Sokol

Kai-Uwe Kuhn of the University of Michigan, Department of Economics has a new working paper entitled, "How Market Fragmentation Can Facilitate Collusion."

ABSTRACT: When regulated markets are liberalized, economists always stress the benefits of fragmenting existing capacities among more firms. This is because oligopoly models typically imply that a larger number of firms generates stronger competition. I show in this paper that this intuition may fail under collusion. When individual firms are capacity constrained relative to total demand, the fragmentation of capacity facilitates collusion and increases the highest sustainable collusive price. This result can explain the finding in Sweeting (2005) that dramatic fragmentation of generation capacity in the English electricity industry led to increasing price cost margins.

Whole Foods to Acquire Wild Oats

Posted by D. Daniel Sokol

On the heels of a House subcommittee investigation on the supermarket industry (previously discussed on this blog) Whole Foods has announced the acquisition of competitor Wild Oats. I don’t foresee any significant antitrust problems in this merger. The two firms do not have a significant overlap in local geographic markets and even where they do, I suspect that the product market definition used to review the deal will be broader than "high end supermarkets that provide free samples and overcharge you on products readily available elsewhere" (hence the nickname “Whole Paycheck” for Whole Foods). This is a defensive move for Whole Foods, which is seeing its profitability erode as other players enter the higher end of the grocery market.

In light of the Congressional investigation by Congressman Kucinich, my own analysis on the supermarket industry is that it has become transformed in the last decade or so through increased consolidation and competition by retailers outside of traditional grocery stores. During this period, WalMart has become the largest supermarket in the United States. The United States has witnessed the rise of club stores (Sam’s Club, BJs, Costco), Dollar stores, and high end groceries (Whole Foods, Trader Joes). Traditional supermarkets are under attack from both value and premium stores. Increasingly, it seems as if the premium stores such as Whole Foods are under attack by everyone else, as other stores focus on higher end shoppers willing to pay higher premiums.

The Whole Foods/Wild Oats merger is not a long term fix for Whole Foods. The Wild Oats stores tend to be smaller than Whole Foods stores and many will need to be expanded and/or upgraded. In the short term, this may placate shareholders seeking greater revenues. However, Whole Foods needs to come up with a new strategy to address a highly competitive supermarket industry.

Inter-American Development Bank/OECD Workshop: Increasing Competition in Latin America and the Caribbean

Posted by D. Daniel Sokol

With over 100 plus antitrust regimes around the world and most fewer than 15 years old, issues of institutional capacity are at the forefront of effective antitrust enforcement. Scholarship to date has only begun to scratch the surface as to determining the most effective strategies to utilize scarce resources for antitrust. An upcoming conference co-sponsored by the Inter-American Development Bank’s Infrastructure and Financial Markets Division of the Private Enterprise and Financial Markets Subdepartment and the Organization for Economic Co-operation and Development (OECD) will provide an opportunity to reflect on these issues.

Increasing Competition in Latin America and the Caribbean

Date: Friday, March 2, 2007
Time: 10:30 a.m. - 2:00 p.m.
Place: Inter-American Development Bank
Conference Room CR-200 (Auditorium - Enrique Iglesias)
1300 New York Avenue, NW
Washington, DC 20577

Effective competition can promote better economic performance, open business opportunities to citizens and reduce costs of goods and services.  The mini-seminar will provide an overview connecting competition to superior economic performance.  It will then look into more details on the role of competition authorities, regulation and enforcement.  The OECD's new “Competition Assessment Toolkit” will offer a methodology for identifying constraints and developing alternative less restrictive policies that still achieve government objectives.  Academics from the University of Wisconsin will focus on how effective antitrust is essential to prevent monopolies and cartels from dominating economies and undermining growth.

Featured Speakers:

Sean Ennis is a Senior Economist in the Competition Division of the OECD where he leads the OECD's competition assessment project. He is responsible for work on competition and regulation and has run technical assistance activities related to competition law and policy in Southeast Europe.

Joe Phillips is Head of the Competition Division of the OECD. He is responsible for a growing program of support for the competition authorities of OECD member countries and, since 1990, a program of technical assistance in competition law and policy for developing and transition countries, including regional training centers in Seoul and Budapest.

D. Daniel Sokol is a William H. Hastie Fellow at the University of Wisconsin Law School. He is editing a book on Latin American antitrust. Sokol serves as one of the editors of the Antitrust Law and Competition Policy Prof Blog.

Kyle W. Stiegert is the Director of the Food System Research Group in the Agriculture and Applied Economics department in the School of Agriculture at the University of Wisconsin.

For additional information, please contact Liliana López (lilianal@iadb.org).

Papers can be downloaded below:

Agenda  Download agendafebrero_20.doc

Brief for Policy Officials Download oecd_competition_assessment_brief.pdf

Guidance  Download OECD_Competition_Assessment_Guidance.pdf

Institutional Options for Competition Assessment Download oecd_competition_assessment_institutional_options.pdf

Executive Overview: Integrating Competition Assessment into Regulatory Impact Analysis Download oecd_competition_assessment_integrating_into_ria.pdf

Relationship between Competition Policy and Economic Performance Download comp_econ_perf_8_feb_2007.pdf

Technical Assistance for Law and Economics: An Empirical Analysis in Antitrust/Competition Policy

BROOK GROUP APPLIES TO PREDATORY BUYING CASES

POSTED BY SHUBHA GHOSH

The Supreme Court ruled today that the Brooke Group standard applies to predatory buying cases, reversing the Ninth Cicuit in Weyerhaueser. 9-0. Commentary to follow. Here is the slip opinion:

Download 05-381.pdf

Weyerhaeuser Opinion is Out

Posted by D. Daniel Sokol

PDf available here (Download 05-381_All.pdf).   I have not read the opinion yet, so my remarks are based on the briefs, which I read a while ago.  I think that the Court reached the right result.  I am suspcicious of predation claims unless the government is somehow involved in altering the competitive landscape through state owned enterprises (revenue maximization goal instead of profit maximization goal) or through various government imposed barriers or aids that artificially reduce marginal cost.  In a non-US setting, these issues play particular importance because of greater state intervention in the economy.  That is, I don't think that the Brooke Group test works in much of the rest of the world.  In this respect, the EU has done a better job in addressing state created distortions due to predation such as in the Deutsche Post abuse of dominance and state aids decisions.

Political Economy Constraints in Developing Countries: A Research Symposium

Posted by D. Daniel Sokol

A common complaint among comparative and international antitrust scholars is that the quantity of scholarship that focuses on developing and transition countries is rather sparse. A conference by the CUTS Competition, Regulation and Development Research Forum seeks to fill in this gap of scholarship. From March 22 to March 24, CUTS will be hosting a conference entitled “Political Economy Constraints in Developing Countries: A Research Symposium” at the Hotel Le Méridien New Delhi. Registration is available here.

Research papers cover experiences of following countries:

Africa:
Kenya, South Africa, Zambia, Zimbabwe

Asia:
Bangladesh, Bhutan, India, Indonesia, Malaysia, Nepal, Philippines, Pakistan,Sri Lanka

Latin America:
Argentina, Bolivia, Brazil, Chile, Colombia, Guyana, Peru, Venezuela

Caribbean:
Antigua, Barbados, Grenada, Jamaica, St. Kitts and Nevis, Trinidad and Tobago

Central America:
El Salvador, Guatemala, Nicaragua, Panama

Europe:
Belgium, Bulgaria, Malta, Russia, Serbia, Turkey

A list of speakers is available here.  My co-author will be presenting our paper "Technical Assistance for Law & Economics: An Empirical Analysis in Antitrust/Competition Policy."

Competition Policy Law and Development in Transitional Countries

Posted by D. Daniel Sokol

In teaching my class on comparative and international antitrust law and economics this semester, the class has spent a great deal of time on discussions of how antitrust/competition policy fits within a larger market oriented framework. Philip Marsden, Director of the Competition Law Forum and Senior Research Fellow British Institute of International and Comparative Law, recently sent me some of the latest research by the the European Bank for Reconstruction and Development (EBRD) on competition policy among transition countries. This research provides results of the EBRD Legal Indicator Survey, in particular the enforcement of competition law and policy within the Bank’s countries of operations. There are important policy implications for how to use competition policy effectively in transition economies and wider lessons that can be utilized within a developing world antitrust context.

This is an issue near and dear to my heart. I have written an empirical study on antitrust/competition policy technical assistance that I will be presenting next month at the World Bank and Inter-American Development Bank.