Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, April 19, 2008

The Language of Sex and Antitrust

Posted by D. Daniel Sokol

Something in English that has not translated into other languages has been the sexualized language of antitrust- “naked” and “hard-core” cartels (although perhaps one also could make the case for “cheap talk”). I will omit discussion of “abuse of a dominant position” because of the European origin of the term. Why use these sexualized terms in the first place and what are the origins of these terms? I will leave the former and more theoretical question to the law and literature crowd. As to the latter question, I have tracked these terms in both the JLR and ALLCASES databases in Westlaw (appropriate since Thompson-West is our exclusive sponsor—click on their advertisements!). The first article in which the term “hard core” cartel appears in a law journal is an article by Rick Rule in the Antitrust Law Journal in 1985 (54 Antitrust L.J. 1121). The term “naked” restraint of trade first appeared in a 1950 Harvard Law Review note (63 Harv. L. Rev. 1400). Interestingly, though the term “hard core” cartel has appeared in 450 academic articles, it has been mentioned only twice in US cases, both in the last seven years Tritent Intern. Corp. v. Commonwealth of KY, 467 F.3d 547 (2007) and A.D. Bedell Wholesale Co., Inc. v. Philip Morris Inc., 263 F.3d 239 (2001). When I searched for a “naked” restraint of trade and/or a “naked” cartel or a “naked” market division, I found 470 cases, the oldest of which is White Motor Co. v. U.S., 372 U.S. 253 (1963). What about the use of the terms in the internet age by antitrust agencies?  As between US antitrust enforcement agencies, only DOJ can prosecute cartels, so I searched their website. They have 595 mentions of the term “hard core” cartels and 253 mentions of the term “naked.” So, it seems that academics and DOJ staff are far more into sexualized antitrust terms than judges, particularly when referring to “hard core” cartel offenses.  Interestingly, even though the FTC does not take on criminal cases, there are 9,455 mentions of the term hard core cartel on the FTC website and 16,617 mentions of naked cartels, agreements or restraints.        

April 19, 2008 | Permalink | Comments (3) | TrackBack (0)

Issue 4 of Competition Survey Journal is Out

Posted by D. Daniel Sokol

Issue 4 of th COMPETITION SURVEY: STUDIES AND RESEARCHES RELATING TO ECONOMIC COMPETITION, by the Competition Council of Romania is now out and can be downloaded below.  As my grandmother (my mother's mother) was born in Bucharest, I take particular pride in Romanian competition policy accomplishments.  More agencies around the world should be publishing journals to increase the profile of their work and to create an indigenous competition economics and legal academic and practitioner base.

Download a2020competition20survey2042020dec200720romania.pdf

 

April 19, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, April 18, 2008

New Zealand Institute for the Study of Competition and Regulation (ISCR) Looking For a New Executive Director

Posted by D. Daniel Sokol

NZ INSTITUTE FOR THE STUDY OF COMPETITION AND REGULATION                            
Pipitea Campus                          

Executive Director     

The Institute for the Study of Competition & Regulation is New Zealand's leading centre for research on the economics of competition, regulation, markets, and industrial organisation. Since its establishment in 1996 it has built an outstanding record of academic research, policy, publications, engagement and graduate supervision.     

JOB DESCRIPTION: The Executive Director has the responsibility of managing the day-to-day operation of the Institute, for the research performance of the Institute and for implementing its      strategic direction.     

JOB QUALIFICATIONS: The successful appointee should preferably have a higher degree in economics and demonstrated research record to a level that enables an appointment as, or up to, a Professor at Victoria University of Wellington. Candidates with exceptional records and promise may be considered.      Demonstrable management skills and the ability to communicate with a wide range of audiences are essential.     

APPLICATION PROCEDURE: Reference A091-08A.  Applications close 02 May 2008. For further information and to apply online visit: http://vacancies.vuw.ac.nz.

April 18, 2008 | Permalink | Comments (0) | TrackBack (0)

The Political Economy of European Merger Control: Evidence Using Stock Market Data

Posted by D. Daniel Sokol

Tomaso Duso (Humboldt University Berlin), Damien J. Neven (Graduate Institute of International Studies and DG Competition), and Lars-Hendrik Röller (European School of Management and Technology) discuss The Political Economy of European Merger Control: Evidence Using Stock Market Data in their latest article.

ABSTRACT: The objective of this paper is to investigate the determinants of European Union (EU) merger control decisions. We consider a sample of 167 EU mergers between 1990 and 2002 and evaluate their competitive consequences by the reaction of the stock market price of competitors to the merging firms. We then account for the discrepancies between the actual and optimal decisions as indicated by the stock market in terms of the political economy surrounding the cases. Our results suggest that the commission’s decisions cannot be solely accounted for as protecting consumer surplus. The institutional and political environment does matter. As far as influence is concerned, however, our data suggest that the commission’s decisions are not sensitive to firms’ interests. Instead, the evidence suggests that other factors—such as market definition and procedural aspects, as well as country and industry effects—do play a significant role.

April 18, 2008 | Permalink | Comments (0) | TrackBack (0)

Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and the Meaning of FRAND

Posted by D. Daniel Sokol

Ratom_2 Geradind_1 Miguel Rato and Damien Geradin (both of Howry though Damien also heads the College of Europe's Competition Law Center) ask Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and the Meaning of FRAND?

ABSTRACT: Standard-setting activities play a fundamental role in fostering innovation and competition in a variety of markets. Typically carried out by armies of engineers, they would generally not be expected to fascinate lawyers and economists. But they do - and they have recently received much attention as a result of high-profile cases, complaints lodged with competition authorities and attempts by members of standard-setting organizations to have their rules and procedures modified to prevent allegedly anti-competitive outcomes. This article aims to disprove the growing perception, largely fed by certain interest groups, that current standard-setting procedures generally based on the so-called fair, reasonable and non-discriminatory ("FRAND") licensing regime unduly allow opportunistic holders of Intellectual Property ("IP") embedded in a standard to extract excessive royalties from their licensees. First, we demonstrate that the existing FRAND regime works and that recent proposals to alter it by tilting the bargaining position of IP licensors in favour of licensees are driven by a war of business models. It is shown that such proposals are not only unnecessary, being based on false premises, but would also prove detrimental to investment and innovation. Second, we argue that excessive pricing cases under Article 82 EC should not be pursued except in a very narrow set of circumstances. Given the potential for error of any attempt to determine the competitive price of intangible assets, decisions on the appropriate royalty levels of valuable IP should be left to the market.

April 18, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, April 17, 2008

Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act

Posted by D. Daniel Sokol

Page_big My soon to be colleague at UF Bill Page (we move next month to Gainesville) has posted a new working paper, Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act.

ABSTRACT: Successful collusion requires that rivals reach consensus on the key terms and deploy some means of detecting and penalizing cheaters, usually by tracking rivals' transaction prices. Economists have shown that firms in an oligopoly can, in certain conditions, achieve noncompetitive prices and outputs without an express agreement by making choices that anticipate each others' likely responses. "Facilitating practices" are mechanisms that enhance rival firms' ability to police such an arrangement. If firms expressly agree to adopt one of these facilitating practices, for example as a trade association rule, and the effect of the practice is to reduce competition, then that agreement may be independently illegal under Section 1 of the Sherman Act. Moreover, the Sherman Act may preempt a state law that requires rivals to use a facilitating practice. A more difficult question arises, however, where the firms each adopt the same facilitating practice without any express agreement: does parallel pricing together with parallel adoption of facilitating practices allow a court to infer the requisite agreement? Both Donald Turner and Richard Posner believed that, unlike simple parallel pricing, the parallel adoption of a facilitating practice that permits noncompetitive pricing should be unlawful, because the problem of remedy is mitigated.

But conduct is not evidence of an anticompetitive agreement simply because it can be enjoined. Facilitating practices may do more than simply facilitate rivals' efforts to achieve an inefficient oligopoly price. They also may provide certain immediate benefits to consumers by, among other things, reducing search or transaction costs. In these circumstances, the firms' adoption of the practice might well be for the benign reason rather than the collusive reason. Courts will not easily infer an agreement from the parallel adoption of facilitating practices where the practices have beneficial functions apart from facilitating price coordination.

Unfortunately, the stated legal definitions of agreement under which courts evaluate circumstantial evidence, including facilitating practices, are inadequate. In this article, I review the deficiencies of the present law governing the definition and proof of agreement under Section 1 and propose that the law should recognize that communication among rivals is necessary for concerted action. I then examine cases involving facilitating practices in a variety of Section 1 contexts, and suggest that the courts have come to recognize the importance of communications among rivals in evaluating whether the evidence warrants an inference of agreement.

April 17, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 16, 2008

Second Annual Conference on Competition Law, Economics and Policy in South Africa

Posted by D. Daniel Sokol

The Second Annual Competition Commission, Competition Tribunal and Mandela Institute Conference on Competition Law, Economics and Policy in South Africa will be held on Friday, 6 June 2008 at the Chalsty University of the Witwatersrand in Johannesburg.  Details are available here.

April 16, 2008 | Permalink | Comments (0) | TrackBack (0)

Abolishing the Price Squeeze as a Theory of Antitrust Liability

Posted by D. Daniel Sokol

SidakGreg Sidak of Georgetown Law School and Criterion Economics suggests that the US Supreme Court should undertake an effort at Abolishing the Price Squeeze as a Theory of Antitrust Liability.

ABSTRACT: A “price squeeze,” or “margin squeeze,” is a theory of antitrust liability that concerns the pricing practices of a vertically integrated monopolist that sells its upstream bottleneck input to firms that compete with the monopolist in the production of a downstream product sold to end users. At issue is the size of the margin between the input price and the price that the monopolist charges in the downstream market for the end product incorporating that particular input.

Trinko, it should go without saying that a “squeeze” that neither causes nor threatens the monopolization of an identifiable market cannot pass muster under section 2 of the Sherman Act. Trinko established a rule that a monopolist’s refusal to deal with a competitor does not state an antitrust violation “where there has been no prior course of voluntary dealings between the parties.” Further, Brooke Group instructs that courts should not discourage “a price cut” that “forces firms to maintain supracompetitive prices, thus depriving consumers of the benefits of lower prices.”

The fountainhead of antitrust’s pre-Trinko price-squeeze jurisprudence is Judge Learned Hand’s 1945 opinion in Alcoa. Under Alcoa, a vertically integrated monopolist must charge downstream competitors not more than a “fair price” for its bottleneck input, and it must charge end users a retail price for its downstream product that is high enough to ensure that its competitors can match that price and still make a “living profit.” A new generation of antitrust price-squeeze cases in the telecommunications industry rests upon the Alcoa model of price-squeeze antitrust liability, and has divided the U.S. Courts of Appeals.

The D.C. Circuit has properly concluded that because under the antitrust laws a vertically integrated monopolist retains the greater power to refuse to provide its upstream inputs to its downstream competitors, it naturally retains the lesser power to raise the price of its upstream inputs without incurring antitrust liability. On the other hand, through its decision in linkLine, the Ninth Circuit permitted a price-squeeze theory to survive a motion for judgment on the pleadings. The Ninth Circuit’s analysis implies (1) that the primary concern in price-squeeze cases is not consumers, but competitors, and (2) that, in the American setting, the requisite analysis more resembles the work of a public utilities commission than that of a federal judge presiding over an antitrust case.

The price squeeze theory is incompatible with contemporary antitrust jurisprudence as well as economic principles. A price squeeze by a firm lacking market power cannot possibly rise to the level of an antitrust violation because it has no chance of reducing consumer welfare. Further, the antitrust laws are concerned with the competitive process, not its end results. The inability of a single firm to stay in business is irrelevant as a matter of antitrust law unless the behavior inducing that firm to exit the market also harms the competitive process. Price-squeeze liability also discourages investment, retail price competition, and the voluntary provision of inputs on negotiated terms by vertically integrated monopolists to current and potential rivals otherwise unable to obtain or self-provide them. Finally, a price squeeze is a regulatory issue, which makes sense only as a rule of price regulation in an industry already subject to duties to deal and to control by institutionally competent regulators.

The Supreme Court should resolve the dispute among the circuits and clarify that the proper response to a price-squeeze allegation is a regulatory undertaking, not an antitrust cause of action. The price-squeeze theory of antitrust liability provides courts and litigants an excuse to depart from Trinko, Brooke Group, or both by recasting claims appropriately analyzed as refusal-to-deal cases or predation cases as something different—price-squeeze” claims. It is timely for the Supreme Court to revisit Alcoa and to explain why alleging a price squeeze neither states a claim in American antitrust law nor justifies deviation from the principles announced in Brooke Group and Trinko.

April 16, 2008 | Permalink | Comments (0) | TrackBack (0)

Oxford Centre for Competition Law & Policy Round Table Discussion - Article 82 EC

Posted by D. Daniel Sokol

Oxford's Centre for Competition Law & Policy will host a Round Table Discussion on Article 82 EC.  Speakers include:

Dr Gunnar Niels, OXERA, on ‘Economic effects-based tests and legal (un)certainty under Article 82’
Dr Ioannis Lianos, University College London, on ‘Classification of abuses in Article 82 EC: a straight story?’
Dr Ariel Ezrachi, CCLP, on ‘Private enforcement and Article 82 EC’
Prof. Steve Anderman, University of Essex, on ‘The essential facilities reasoning in Article 82 and IPRs’.
Prof Ulf Bernitz, IECL, on ‘The sanction of voidness under Article 82 EC and possible contractual consequences’
Dr Dan Eklöf, Stockholm University, on ‘The Microsoft judgment’

April 16, 2008 | Permalink | Comments (0) | TrackBack (0)

Post Merger Product Repositioning

Posted by D. Daniel Sokol

Maybe mergers are not as anti-competitive as we might otherwise assume.  This is a finding in an excellent new article by Amit Gandhi (Department of Economics, University of Wisconsin-Madison), Luke Froeb (Owen Graduate School of Management, Vanderbilt University), Steven Tschantz (Department of Mathematics, Vanderbilt University) and Greg Werden (DOJ Antitrust) on Post Merger Product Repositioning.

ABSTRACT: This paper analyzes the effects of mergers between firms competing by simultaneously choosing price and location. Products combined by a merger are repositioned away from each other to reduce cannibalization, and non-merging substitutes are, in response, repositioned between the merged products. This repositioning greatly reduces the merged firm's incentive to raise prices and thus substantially mitigates the anticompetitive effects of the merger. Computation of, and selection among, equilibria is done with a novel technique known as the stochastic response dynamic, which does not require the computation of first-order conditions.

April 16, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 15, 2008

Competition Policy in Auctions and 'Bidding Markets'

Posted by D. Daniel Sokol

Paul Klemperer of University of Oxford's Department of Economics has a wonderful literature review in the  HANDBOOK OF ANTITRUST ECONOMICS (P. Buccirossi, ed., MIT Press, Forthcoming) on  Competition Policy in Auctions and 'Bidding Markets'.

ABSTRACT: The existence of a "bidding market" is commonly cited as a reason to tolerate the creation or maintenance of highly concentrated markets. We discuss three erroneous arguments to that effect: the "consultants' fallacy" that "market power is impossible", the "academics' fallacy" that (often) "market power does not matter", and the "regulators' fallacy" that "intervention against pernicious market power is unnecessary", in markets characterised by auctions or bidding processes.

Furthermore we argue that the term "bidding market" as it is widely used in antitrust is unhelpful or misleading. Auctions and bidding processes do have some special features - including their price formation processes, common-values behaviour, and bid-taker power - but the significance of these features has been overemphasized, and they often imply a need for stricter rather than more lenient competition policy.

April 15, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, April 14, 2008

The ICN Recommended Practices for Merger Process: Why They Matter

Posted by D. Daniel Sokol

Bill Blumenthal, the General Counsel of the FTC, has a short speech worth reading titled The ICN Recommended Practices for Merger Process: Why They Matter.    

April 14, 2008 | Permalink | Comments (0) | TrackBack (0)

Most Interesting Take-Away From Day 1 of the ICN Meeting

Posted by D. Daniel Sokol

I discovered that Greenland now has a competition authority.  Antitrust practitioners, add this to your list of jurisdictions for client counseling.  I would love to hear the justification for this agency.  A number of years ago Michal Gal wrote an excellent book titled Competition Policy for Small Market Economies.  I think that she needs a follow up book on competition policy for micro economies. We now have competition agencies in places like Jersey, Greenland and Barbados.  Can Vatican City be far behind?

April 14, 2008 | Permalink | Comments (0) | TrackBack (0)

Sunday, April 13, 2008

Revenue Sharing Distortions and Vertical Integration in the Movie Industry

Posted by D. Daniel Sokol

Ricard Gil (Economics at University of California Santa Cruz) writes on Revenue Sharing Distortions and Vertical Integration in the Movie Industry.

ABSTRACT:  I analyze how variation in firm boundaries affect economic outcomes in the movie industry. Specifically, I focus on movie distributors and their contracts with exhibitors to show their movies on their screens. I argue that vertical integration solves the distortion on movie run length created by the revenue sharing contracts used in the industry. Since I observe the same movie showing in the same period under different organizational forms in the Spanish market, I use a difference on different approach to exploit this variation and study differences in outcomes across organizational forms. I show that integrated theaters run their own movies longer than other movies, and longer than nonintegrated theaters do. This effect is stronger for movies of more uncertain demand due to higher contractual complexity. I also find that integrated distributors specialize in the movies of higher demand uncertainty.

April 13, 2008 | Permalink | Comments (0) | TrackBack (0)

ICN Meeting in Kyoto

Posted by D. Daniel Sokol

I am jetlagged and in Kyoto for the ICN meeting.  It will be interesting to gauge agency and practitioner thoughts on the Chinese AML. In flight movies were excellent.  I watched There Will be Blood, I Am Legend and Om Shanti Om.

April 13, 2008 | Permalink | Comments (0) | TrackBack (0)