Antitrust & Competition Policy Blog

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

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Saturday, January 5, 2008

Mandatory Contracting Remedies in the American and European Microsoft Cases

Posted by D. Daniel Sokol

Page_big My colleague as of this summer Bill Page at the University of Florida Fredric G. Levin College of Law (my soon to be new academic home) has done some great analysis of Microsoft. His book (along with co-author John Lopatka) The Microsoft Case: Antitrust, High Technology, and Consumer Welfare was the book most cited as the best of 2007 in our end of the year expert's guide to the best antitrust literature of the year. Continuing the Microsoft theme, his newest paper is Mandatory Contracting Remedies in the American and European Microsoft Cases.

ABSTRACT: Antitrust law has long recognized that firms have a qualified right to refuse to deal. Nevertheless, a refusal to deal or an exclusionary contract may reduce competition by denying a dominant firm's rivals needed resources or outlets. As a remedy in such cases, a court may require the defendant to form contracts (or at least offer to form contracts) on specified terms. The American and European Microsoft cases both resulted in mandatory contracting remedies aimed at fostering competition. Various provisions in the orders require Microsoft (1) to permit its trading partners to deal on favorable terms with Microsoft's rivals; (2) to permit computer manufacturers to sell machines with versions of the Windows operating system from which certain functionality has been deleted; and (3) to disclose and license to rivals certain types of interoperability information. Parts of these orders are still being implemented, but it is now possible to evaluate the outcomes of most of them. While the orders in the first category have benefited consumers to some degree, the orders in the second category have accomplished nothing. The interoperability provisions have thus far accomplished little at great expense; the European order on this subject may actually facilitate cloning of Microsoft's proprietary server functionality. These experiences should provide guideposts for courts in crafting future mandatory dealing orders.

January 5, 2008 | Permalink | Comments (0) | TrackBack (1)

Friday, January 4, 2008

Free Riding: An Overstated, and Unconvincing, Explanation for Resale Price Maintenance

Posted by D. Daniel Sokol

Marina Lao of Seton Hall law School has posted Free Riding: An Overstated, and Unconvincing, Explanation for Resale Price Maintenance, which provides an alternative approach to the winning side in Leegin.

Abstract:     This paper was prepared as a chapter for a forthcoming book, Where the Chicago School Overshot The Mark: Effect of Conservative Economic Analysis on U.S. Antitrust (Ed. Robert Pitofsky, Oxford Univ. Press).

Lester Telser's free rider theory provided a rational efficiency explanation for vertical restraints under the conditions of his model. It soon became the basis for a comprehensive claim that vertical restraints, including resale price maintenance, generally increase distribution efficiency, enhance interbrand competition, and improve consumer welfare. This claim was a principal rationale for the Court's recent 5-4 decision, in Leegin, to overrule Dr. Miles' per se rule for minimum RPM.

I argue that the free rider concept, though theoretically correct, cannot support such a broad claim. The theory has limited application in its original formulation because few goods require tangible dealer services for effective marketing. I also analyze why the expansive versions of the theory, which include free riding on general intangible services and on reputation or quality certification are flawed on their own terms. Moreover, free riding, ubiquitous in our economy, is not necessarily harmful and does not have to be eliminated wherever it occurs. In the absence of good empirical data, we should not assume that minimum RPM usually confers substantial consumer benefits.

In overruling Dr. Miles without good empirical evidence of (or economic consensus about) the regularity or harshness of the free rider problem, Leegin apparently assumes that the per se rule is inappropriate for any class of conduct for which procompetitive benefits are possible. This approach seems contrary to modern decision theory, which requires focus, not on whether a practice has any procompetitive benefit (or anticompetitive harm), but on the frequency and relative magnitude of those benefits and harms, and on the availability of less anticompetitive alternatives.

The full implications of Leegin will depend on how lower courts interpret that opinion and apply the rule of reason. Given minimum RPM's anticompetitive risks, I suggest that courts reject the Sylvania rule of reason standard, which has become a de facto legality rule, and instead apply the quick-look standard now frequently employed in horizontal restraint cases.

January 4, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 3, 2008

AALS Annual Meeting Antitrust Section

Posted by D. Daniel Sokol

The  Association of American Law Schools has its annual meeting in New York City this week (take that AEA!).  The antitrust section will convene on Saturday.

The topic for this year's panel is Antitrust History

Moderator:
Christopher R. Leslie, Chicago-Kent College of Law Illinois Institute of Technology

Speakers:
Daniel A. Crane, Yeshiva University Benjamin N. Cardozo School of Law
Harry First, New York University School of Law
James P. May, American University Washington College of Law

 

January 3, 2008 | Permalink | Comments (0) | TrackBack (0)

Tele-seminar on the New Chinese Anti-Monopoly Law

Posted by D. Daniel Sokol

For those who need an introduction to the implications of the new Chinese Anti-Monopoly Law, the ABA Antitrust Section will have a tele-seminar (register here) to discuss its implications.

China has enacted its first national competition law, the Anti-Monopoly law. This is a major milestone in China’s increasingly market-driven economy and will be of critical importance to companies operating or hoping to operate in China.  The law, which will become effective on August 1, 2008, establishes a detailed regulatory structure and a new competition authority.  It is important that businesses and counsel begin preparing to operate under the new regulatory scheme.

Our panel of experienced international practitioners will discuss the new law and how the Chinese authorities are likely to enforce it.  The program will include an overview of the law and its broader context within Chinese business regulations.  The panelists will then discuss the law’s enforcement mechanism as well as specific issues relating to merger regulation, concerted and unilateral conduct, and intellectual property rights.

Program Faculty Program Moderator
H. Stephen Harris, Jr., Alston + Bird LLP, Atlanta, GA

Program Faculty
Subrata Bhattacharjee, Heenan Blaikie, Toronto, Canada
Joy K. Fuyuno,  Paul Hastings, Tokyo, Japan
Lester Ross, WilmerHale, Beijing, China

January 3, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 2, 2008

American Economics Association Annual Meeting and the Lack of Antitrust Scholarship

Posted by D. Daniel Sokol

Once again the American Economics Association annual meeting is upon us.   This year the meeting (January 4-6, 2008) is in New Orleans.  As I noted last year, there do not seem to be many antitrust related papers at the conference.  Is antitrust not sexy among academic economists or perhaps are the academic economists too busy as expert witnesses to present at this meeting?  As far as I can tell from the meeting's program, the following are the only antitrust related papers:

YOUNGJUN CHEN, Renmin University of China and Johns Hopkins University--Antitrust and Regulation: The Experience of U.S. and Its Implications for China

LAWRENCE WHITE, New York University--The Role of Economics in Antitrust Analysis

VOLKER NOCKE, Oxford University, and MICHAEL D. WHINSTON, Northwestern University--Sequential Merger Review

JAMES D. DANA JR. and YUK-FAI FONG, Northwestern University--Product Quality, Reputation, and Tacit Collusion

LUDWIG RESSNER and MARKUS REISINGER, University of Munich--Dynamic Duopoly with Inattentive Firms

January 2, 2008 | Permalink | Comments (0) | TrackBack (0)

The Need to Measure the Effect of Merger Policy and How to Do It

Posted by D. Daniel Sokol

155638 Dennis Carlton, Professor of Economics at the University of Chicago Graduate School of Business (and currently a Deputy Assistant Attorney General for the Antitrust Division), has written a very interesting working paper titled The Need to Measure the Effect of Merger Policy and How to Do It.

ABSTARCT: In this article, I explain the inadequacy of our current state of knowledge regarding the effectiveness of antitrust policy towards mergers. I then discuss the types of data that one must collect in order to be able to perform an analysis of the effectiveness of antitrust policy. There are two types of data one requires in order to perform such an analysis. One is data on the relevant market pre and post merger. The second is data on the specific predictions of the government agencies about the market post-merger. A key point of this article is to stress how weak an analysis of only the first type of data is. The frequent call for retrospective studies typically envisions relying on just this type of data, but the limitations on the analysis are not well understood. As I explain below, retrospective studies that ask whether prices went up post merger are surprisingly poor guides for analyzing merger policy. It is only when the second type of data is combined with the first type that a reliable analysis of antitrust policy can be carried out. There is a need both to collect the necessary data and to analyze it correctly.

January 2, 2008 | Permalink | Comments (0) | TrackBack (0)

Competition Law Takes Off in Singapore: An Analysis of Two Recent Decisions

Posted by D. Daniel Sokol

Burton2 Burton Ong of the National University of Singapore Faculty of Law has written about developments in Singaporian competition policy in his article  Competition Law Takes Off in Singapore: An Analysis of Two Recent Decisions, which focuses on two cases involving agreements among airlines.

ABSTRACT: The first two decisions by the Competition Commission of Singapore, issued in the first quarter of 2007, represent important milestones in the implementation of competition law in Singapore since the enactment of the Competition Act 2004. Both cases involved cooperation agreements between airline operators who had sought negative clearance through the Commission’s notification process. This article provides an overview of the legal and policy background behind the new competition regime and, in particular, explains how the new statutory provisions concerned with anticompetitive agreements were applied to the two notified agreements described above. An analysis of these two cases is also conducted to illustrate how the competition regulator has interpreted the relevant competition law principles in the course of its decision-making process.

January 2, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 1, 2008

The Pros and Cons of High Prices

Posted by D. Daniel Sokol

The Swedish Competition Authority has put out a collection of essays on The Pros and Cons of High Prices

ABSTRACT: Could there be any pros of high prices? The question is as natural as the question we got four years ago when we published "The Pros and Cons of Low Prices" – could there be any cons of low prices? These are questions competition authorities get from the public from time to other. It is a somewhat hard pedagogical task to answer them. The answer to both questions is yes, there are indeed pros of high prices and cons of low prices. The volume is devoted to exploring the pros and cons of high prices.

In the first contribution, Massimo Motta and Alexandre de Streel guides us through the last years policy debate regarding the treatment of excessive pricing. They call for extreme caution when taking action against excessive prices. In view of the different suggested methods, they propose a three plus one-condition test that has to be fulfilled.

Nils Wahl gives, in the second contribution, his personal reflection on the European case law regarding excessive prices. His conclusion from the case law is: “the Court has not yet condemned a particular pricing practice, in a free and unregulated market, as amounting to unfairly high and exploitative prices and thus constituting an infringement of Article 82.”

Bruce Lyons starts the third contribution with the apparent paradox of the exclusion of exploitative abuse. Monopoly pricing is the textbook abuse that every economics student learn in their first year of study. In other areas of competition law, the policy is concerned with attacking price-raising cartels, price-raising mergers and exclusionary abuse that lead to consumer exploitation. Yet, most competition economists do not want to see action against direct exploitation; why is it so?

Timothy Brennan focuses the fourth contribution on the contrast between static efficiency and dynamic efficiency. Should we allow firms to exploit market power in the short run in order to stimulate innovation? He dives into the literature and dissects the arguments put forward in favour of a non-interventionist approach.

In the last contribution, Mark Williams asks the question: excessive prices – do we care, and how would we know? We are more tolerant towards excessive prices as such compared to cartels or mergers to monopoly even if the outcome is the same. This implies that the way the excessive prices are achieved matters. He goes through several good reasons why this is so.

Taken together, the five contributions shed light on the issue of the pros and cons of high prices. Hopefully, this volume contributes towards a better understanding of the mechanisms through which high prices have an impact on markets – and towards a more effective enforcement of the competition rules.

 

January 1, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, December 31, 2007

SMP vs. Dominance: Divergence Out of Convergence

Posted by D. Daniel Sokol

127leonLiyang Hou of the Katholieke Universiteit Leuven's Interdisciplinary Centre for Law and ICT addresses treaty-wide dimensions of competition policy in his paper SMP vs. Dominance: Divergence Out of Convergence.

ABSTRACT: This paper aims to compare the concept of significant market power (SMP) within Article 14 of Framework Directive with that of Dominance under Article 82 of EC Treaty. According the European Commission's guideline on the assessment of SMP, the concept of SMP is equivalent to that of dominance. However, the Commission does indicate a difference between the two concepts that the former should be assessed on a forward-looking approach and the latter on a backward-looking approach. Nevertheless, the Commission does not further specify how this difference will affect the assessment of SMP. Recently the first round of market review process has almost been finished. Therefore, it is a good time to examine the Commission decisions under Article 7 procedure to see what the difference should be. This paper will base on those decisions to find out the difference between SMP and dominace.

In the following a summary of each part of this paper is provided.

1. In the first part, a different starting point between EC competition law and regulation is identified. It is that competition law is not based on the existence of dominance whereas the electronic communications regulation is based on the existence of SMP.

2. The second part will look at the relationship between market definition and SMP designation. In order to define relevant markets for the electronic communications regulation, the Commission advocates a three-criterion test: (i) the existence of high and non-transitory entry barriers, (ii) absence of dynamic competition behind entry barriers and (iii) insufficiency of EC competition law remedies alone. The report considers that the first two criteria are overlapped with the criteria of assessing SMP and should be deleted. Furthermore, some thoughts on the insufficiency of EC competition remedies are provided.

3. The third part is to examine how the single SMP is assessed. In this part, it is first investigated that a very high market share is evidence of SMP save in exceptional circumstances. The threshold of such a very high market share is above 50% recommended by the Commission. Nevertheless, I find that in practice the threshold is much higher, i.e. above 65%. Subsequently, since the market share is not the decisive criterion for SMP assessment the other criteria are also discussed. With regard to the assessment of the other criteria, the major problem is identified that the Commission does not attach specific values to each of the other criteria. In order solve this problem, this report divides the 12 other criteria into three category, (i) decisive criteria, (ii) other important criteria and (iii) non-important criteria. The criteria in the first category include (1) control of infrastructure that is not easily replicated, (2) potential/dynamic competition and (3) countervailing buying power. A further examination of the three criteria are followed.

4. The fourth part is concerned with joint SMP. This part first looks at the overlap of single SMP and joint SMP; and then it finds that this overlap is significant to the electronic communications regulation. Following it, it gives out a picture how the joint SMP is assessed in practice.

5. The fifth part is to discuss the leverage of SMP, i.e. that an undertaking is regarded as having SMP on a market when it already holds SMP in another closely related market. It concludes that this concept has added value for EC competition law, however it has little added value for the electronic communications regulation. 6. The last part offers some points to compare SMP with dominance. Nevertheless, this part has not been fully explored and will be developed in a later stage.

December 31, 2007 | Permalink | Comments (0) | TrackBack (0)

Sunday, December 30, 2007

Some Economics on Abuse of Dominance

Posted by D. Daniel Sokol

Vickersj John Vickers of the University of Oxford's Department of Economics has written the very helpful and insightful Some Economics on Abuse of Dominance.  He begins his paper with what I believe to be the best analysis of the state of Article 82 jurisprudence, "European competition law and policy towards mergers and anti-competitive agreements have become much more soundly based in economic principles over the past decade. The law on abuse of dominance has not."

ABSTRACT: The aim of this paper is to appraise from an economic perspective selected aspects of current law and policy on Article 82 (see box) concerning exclusionary abuse of dominance. The topic of exploitative abuse, important though it is, lies beyond its scope. Ideally, especially at a conference celebrating fifty years of the Treaty, the paper would trace the evolution of lines of case law on Article 82 (formerly 86) but here too I will be selective, and focus on three cases on which judgment has been given this year. Since, quite unlike the US, the evolution of EC law on abuse of dominance has been rather limited, history will not be lost from view.  Two of the exclusionary abuses to be discussed involve pricing. Section 4 below looks at predatory pricing from the perspective of the Wanadoo case.3 Section 5 concerns discounts and rebates, which were at issue in British Airways.4 The Microsoft case concerned the "non-price" abuses of refusal to supply and tying and bundling, which are considered in section 6. As will be seen, "non-price" abuses often involve prices especially when it comes to remedies. The discussion of these abuses is preceded, in Section 3, by a quick tour of the economics of anti-competitive exclusion. However, since there is no abuse without market dominance, a word on that is due first.

Download VickersIESE.pdf

December 30, 2007 | Permalink | Comments (0) | TrackBack (0)