Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, June 7, 2008

Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries

Posted by D. Daniel Sokol

Susan Beth Farmer of Penn State - Dickinson School of Law has a new piece on Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries.

ABSTRACT:  The past several decades have witnessed a trend away from regulation and towards market competition in a wide variety of economic sectors including, for example, telecommunications, financial services, health care, transportation and energy markets. The antitrust laws have assumed an enhanced role in a post-regulatory environment, particularly in the area of mergers. This article is part of a forthcoming book published by Edward Elgar Publishing, Competition Policy and Merger Analysis in Deregulated and Newly Competitive Industries (Peter Carstensen, Univ. Of Wisconsin, and Beth Farmer, Penn State Dickinson Law School, eds.). The European experience offers a useful contrast to American deregulation in a number of market sectors. The European project of deregulation and market liberalization is proceeding primarily in a highly regulatory, top-down fashion directed by the executive and administrative bodies of the Community, both enforcing European statutory law and jawboning member state governments to bring competition to previously regulated industries and eliminate subsidies that benefit national champion industries. In key sectors of the economy, including such important industries as gas and electric utilities and banking, the goals of competition on the one hand, and national protectionism, on the other, continue to clash despite the best hopes of the original architects and modern leaders. By comparison, the market for airline transportation has become increasingly competitive since deregulation, reflected in increasingly substantive review and ultimate approval of a series of mergers in the industry.

The policy of deregulation in the European Union offers an illuminating contrast to deregulation in American industries for four reasons: (1) it is the result of conscious economic policy choice adopted from the outset of the Community, (2) it paints with a broad brush, encompassing many industries, (3) issues of federalism are more acute as the regulators in Brussels seek to impose market competition, or "liberalisation" in European parlance, and limit protectionism, or "state aid," on the sovereign member states, and (4) all three functions are bundled in the Directorate General for Competition, which is responsible for enforcing the antitrust laws, promoting liberalization and enforcing regulations against state aid in most sectors of the economy. The European strategy of deregulation and competition has proceeded unevenly and has been more successful in some industries, and some countries, than others. The agricultural and financial industries, for example, are still characterized by important national protections while sectors including energy, both gas and electricity, and airline transportation have shaken off the chains of regulation and leapt ahead into growing intra-national competition.

Several conclusions follow from a review of the European experience with deregulation and subsequent mergers that provide a contrast with the similar deregulation undertakings in the same industries in the United States. First, enforcement and regulatory authority are largely bundled at the supra-national level of the EU within Commission Directorates General. DG Comp is responsible for enforcing European Union antitrust law, investigating and directing national deregulation of markets, and finally, enforcing the rules against discriminatory state support and preferences in most industries (though individual member states also have responsibility for antitrust enforcement, deregulating their markets and eliminating state aid). Centralizing the authority within the Commission allows it to develop and enforce a consistent plan to promote competition in Europe, but runs the risk that one prong or another will be neglected. Indeed, the complexity of the Community organization, increases the likelihood that deregulation will not take place evenly in all sectors of the economy. Second, deregulation has proceeded more quickly and smoothly in some industries than in others. This chapter discusses the energy, airline transportation and financial services sectors, which provide an overview of the varying Community approach to de-regulation and a good comparison with United States legal developments discussed in other chapters. To briefly summarize: energy and financial services are officially de-regulated but are not yet fully competitive, there are important conflicts between national protection and European competitive goals in the energy sector, and, finally and competition in transportation markets is proceeding in airline services and access to airports, while railroads remain highly regulated in much of Europe. Third, the barriers to Europe-wide competition depend, in part, on characteristics peculiar to each industry. In general, the firms in the industries discussed were founded in particular local markets, in most cases before the founding of the European Community, and some of the geographic markets are still largely national. Gas and electric utilities markets suffer from two barriers to European competition; state or municipal ownership and the need to access the transmission lines or pipelines to move the product geographically. Cross-border competition in transportation depends on the mode: railroads face interconnection technology issues and state aid while national airlines may benefit from state protection and aid but are less limited by technical bottlenecks. Financial institutions are subject to regulation by national banking agencies, which may not view competition as an important goal. In addition, the legal barriers to branching to another country are low, but the psychological barriers appear to be high as consumers are reluctant to trust a foreign bank with their assets. Finally, national officials have granted preferences to national firms, most recently in a cross-border merger of electric and gas utility firms. The article concludes that liberalization of European markets has a positive economic effect, noting that an OECD report quantifies the benefit as yielding a 2% to 3% annual growth in GDP.

June 7, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, June 6, 2008

Intel is in Big Trouble

Posted by D. Daniel Sokol

As if Intel didn't have enough to worry about in the EU, Korea (where Intel was fined this week by the KFTC for an anti-competitive rebate scheme) and Japan with various monopolization cases, it now faces an FTC investigation.  Coming on the heels of the ABA Antitrust Conference of Monopolization Remedies, I echo some thoughts from what I said at that conference:

A. We need to think about remedies from Day 1 of any case
B. Ineffective remedies are worse than inaction or, as Richard Epstein put it in in his paper on which I commented, "less is more."  My colleague Bill Page presented an excellent paper on the problems of the Microsoft protocol licensing remedy.  My comments on Bill's paper focused on how we need to be particularly cautious in crafting effective remedies when we are dealing with industries centrally involved in innovation.
C. Appropriate institutional arrangements are critical to crafting effective remedies.

Not my thoughts from the conference but ones that I wish I could claim as my own-- Greg Werden's paper for the symposium (forthcoming in the Antitrust Law Journal) was very good.  Greg's insights include the following five points.
1. Consider a targeted structural remedy.
2. Do not prohibit competition on the merits.
3. Do not undermine the incentive to compete.
4. Frame all prohibitions in bright-line terms.
5. Do not substitute regulation for competition.

June 6, 2008 | Permalink | Comments (0) | TrackBack (0)

ABA Section 2 Remedies Conference

Posted by D. Daniel Sokol

I am on my way home from the excellent ABA Section 2 Remedies conference that UVA Law School and Chris Sprigman hosted.  More on the conference later but let me suggest that the format and participants made this the best ABA event I have been to in a long time.

June 6, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, June 5, 2008

How the 2007 Amendment to the M&A Guideline Has Changed Merger Control Policy in Japan

Posted by D. Daniel Sokol



On March 27, 2007, the Japan Fair Trade Commission released its amended Guideline to Application of the Antimonopoly Act Concerning Review of Business Combination, which provides substantial revisions to the original Guideline to Application of the Antimonopoly Act Concerning Review of Business Combination, and its amended Policies dealing with prior consultation regarding business combination plans.

This article provides background on the amended M&A and Consultation Guidelines and analyzes the revised points.

June 5, 2008 | Permalink | Comments (0) | TrackBack (0)

Is the EU Insurance Block Exemption Regulation Still Relevant?

Posted by D. Daniel Sokol



ABSTRACT: On April 17, 2008, the European Commission launched a public consultation on the Insurance Block Exemption Regulation (Regulation 358/2003).

The ultimate purpose of the consultation is to determine whether there remain sufficient grounds to maintain a block exemption from the application of Article 81(1) EC of certain types of agreements in the insurance sector, on the BER's expiry on March 31, 2010. The Commission has invited comments on its Consultation Paper by July 17, 2008, after which the Commission will draft a report to be submitted to the European Parliament and Council before March 2009.

Based on the Commission's current stance, those companies which currently benefit from the BER and wish to see it or some alternative form of guidance remain in place will need to provide clear and convincing arguments for its retention.

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

Observations on the Commission’s Evanston Remedy: When Is Divestiture, or Any Remedy, Not Appropriate for a Consummated Anticompetitive Merger?

Posted by D. Daniel Sokol



ABSTRACT: On April 28, 2008, the U.S. Federal Trade Commission issued its final order, specifying the remedy for the antitrust violation it determined Evanston Northwestern Healthcare Corporation and Highland Park Hospital committed in 2000 when ENHC acquired Highland Park. The Commission had already decided on August 6, 2007, that it would forego a structural remedy (i.e., divestiture) in favor of a conduct remedy.

The April order established the specific terms of the remedial conduct order. Perhaps more importantly, it is the most recent decision from an enforcement agency regarding remedies for consummated anticompetitive mergers and stakes out a position significantly different from prior indications.

June 5, 2008 | Permalink | Comments (0) | TrackBack (0)

Standard-Setting Policies and the Rule of Reason: When Does the Shield Become a Sword?

Posted by D. Daniel Sokol

Jennifer Driscoll (Mayer Brown) asks about Standard-Setting Policies and the Rule of Reason: When Does the Shield Become a Sword?

ABSTRACT: The rewards and pitfalls of standard setting conjure images of the legend of Damocles. From afar, the benefits of a “collaborative standard-setting process [that] enable[s] industry participants to share knowledge and develop a best-of-breed product or process” (Barnett, 2006) appear enormously attractive.

The widespread acceptance of a standard that promotes product interoperability “may expand the availability of a technology and ancillary products and services by enabling more firms to rapidly enter and serve the market,” thus “impart[ing] pro-competitive benefits to markets and their participants, both producers and consumers, by capitalizing on the ‘network effects’ at play in an advanced industrial economy” (Carvill & Khoja, 2003).

Despite these substantial rewards, the specter of patent holdup looms as an ever-present threat.

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

Wednesday, June 4, 2008

Comments on the CFI's Recent Ruling in Deutsche Telekom v. European Commission

Posted by D. Daniel Sokol

Bernard Amory & Alexandre Verheyden (Jones Day) provide some Comments on the CFI's Recent Ruling in Deutsche Telekom v. European Commission.

ABSTRACT: This brief paper discusses the implications on the test for price squeeze arising from the Deutsche Telekom ruling of the European Court of First Instance (CFI) of April 10, 2008. Price squeeze is a relatively novel form of abuse. In many respects, it is a concept that is still evolving, and various issues remain open, such as the need for a finding of dual dominance both at the retail and wholesale level, and the scope of the service or the size of the market affected.

The CFI ruling provides some clarity on the issues of (i) price squeeze as a stand-alone ground for abuse and (ii) the relevance of the two tests (hypothetical competitor and reasonably efficient competitor) proposed by the Commission in support of a price squeeze allegation. Our comments will focus on these two points. However, we submit that this judgment raises a number of new questions.

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

Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy

Posted by D. Daniel Sokol

Damien Geradin, Howrey LLP, Tilburg University - Tilburg Law and Economics Center (TILEC), Anne Layne-Farrar, LECG and A. Jorge Padilla, LECG, have a new and interesting paper Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy.

ABSTRACT: Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: "patent trolls." While court opinions and competition agency decisions have focused on "non-practicing" patent holders as the source of anticompetitive exclusion and hold up problems, this view of upstream specialists is far too narrow. In fact, patents in the hands of non-practicing entities can increase competition, lower downstream prices, and enhance consumer choice. We explain why and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Without a better understanding of the many complicated effects of patents in high technology markets, we run the very real risk of misguided policy decisions.

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

Competition vs. Regulation in Mobile Telecommunications

Posted by D. Daniel Sokol

Johan Stennek, Research Institute of Industrial Economics (IFN), Centre for Economic Policy Research (CEPR) and Thomas Tangeraas, Research Institute of Industrial Economics (IFN) compare Competition vs. Regulation in Mobile Telecommunications.

ABSTRACT: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.

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

Tuesday, June 3, 2008

Retail Competition and the Dynamics of Consumer Demand for Tied Goods

Posted by D. Daniel Sokol

Wesley R. Hartmann, Stanford University - Graduate School of Business and Harikesh Nair, Stanford University - Graduate School of Business bring us Retail Competition and the Dynamics of Consumer Demand for Tied Goods

ABSTRACT:  We empirically investigate the demand for tied goods sold through competing retail channels. Tied good pricing strategies commonly involve a low price on the initial purchase (i.e. the primary good) to drive adoption, and a substantial markup on aftermarket goods to capture value. However, if the goods are sold through downstream channels, retail market power and a misalignment of incentives could distort the relative prices of primary and aftermarket goods. To evaluate whether retail competition is strong enough to prevent such distortions, we explore the commonly noted example of razors and blades, which are sold through drug, grocery, mass merchandising, and club stores. We specify a forward-looking demand model that incorporates dynamics arising from the tied good nature of the products and the stockpiling and durability aspects of razors and blades. Furthermore, we allow intertemporal substitution in the purchase of both razors and blades to occur across channels as well as time. This modeling feature enables a novel approach to measuring retail competition in single category demand analyses. Our estimates indicate that there is substantial cross-channel substitution in razors, but some retail market power in blades. However, the channel with the most market power in blades, club stores, specializes in high volume customers that would adopt a razor even if blade prices are higher. This suggests that the manufacturer can achieve its desired level of razor adoption without vertical restraints, though blade sales may be slightly reduced by double marginalization.

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

Compulsory Access to Intellectual Property and Network Facilities

Posted by D. Daniel Sokol

Estelle Derclaye, University of Nottingham - School of Law, has posted a paper on Compulsory Access to Intellectual Property and Network Facilities

ABSTRACT:  One of the questions that this Congress addresses concerns an important relationship between competition law and intellectual property rights, namely the refusal to licence an intellectual property right such as a patent, trade mark, design or copyright and the correlative power of the competition authorities and courts to order compulsory access to such intellectual property. Such refusals are prohibited only if the undertaking abuses a dominant position. This report analyses how Belgian law tackles this question. As Belgian law is very sparse on the topic, to the extent possible, the report will make comparisons with the solutions adopted concerning the corresponding relationship between competition law and tangible property. To this effect, the report first sets out the Belgian legal framework (section 1), then reviews the case law relating to refusals to licence (section 2) and finally to refusals to supply and buy (section 3). In light of this analysis, the report then provides answers to the questions asked by the International Rapporteur (section 4) after which a conclusion is drawn.

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

Market Definition and Unilateral Competitive Effects in Online Retail Markets

Posted by D. Daniel Sokol

Michael R. Baye of the Kelly School of Business at Indiana University (currently head of BE at the FTC) has a great piece on Market Definition and Unilateral Competitive Effects in Online Retail Markets in the latest issue of the Journal of Competition Law and Economics.

ABSTRACT: Although the basic principles used to define a relevant market or to analyze unilateral competitive effects in traditional retail settings also apply in online retail markets, several features of the online environment add complexities to the analysis. This paper examines some of the results in the economics and marketing literatures that can influence market definition and competitive effects analysis in online retail settings. I argue that a failure to account properly for certain aspects of online markets can lead to erroneous definitions of the relevant market and, more importantly, erroneous conclusions regarding the unilateral competitive effects of horizontal mergers.

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

Early Commitments Help Patent Pool Formation

Posted by D. Daniel Sokol

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) address IP-Antitrust issues in their paper Early Commitments Help Patent Pool Formation.

ABSTRACT:  This paper explores in what circumstances patent owners can be expected to join unilaterally a patent pool. We develop a simple model in which owners of patents reading on a standard grant licences to competing manufacturers. Manufacturers must sink a fixed cost to enter the market for standard compliant products, and are thus exposed to hold up when royalties are set after their entry. We show that the formation of non-cooperative patent pools nearly always fails if it takes place once manufacturers have incurred fixed costs - as is usually the case. By contrast, allowing the formation of patent pools ex ante facilitates the emergence of stable non-cooperative patent pools. Such ex ante pools yield lower prices and higher licensing profits than ex post patent pools would. We discuss the policy implications of these results concerning the credibility of licensing commitments required by standard setting bodies.

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

Monday, June 2, 2008

A 'Revolutionary Decision': Court of Cassation Judgment 9878/08 and the Notary's Opposing Interest in Not Working in a Competitive System

Posted by D. Daniel Sokol

Andrea Bortoluzzi, Universita' dell'Insubria has written a new paper on A 'Revolutionary Decision': Court of Cassation Judgment 9878/08 and the Notary's Opposing Interest in Not Working in a Competitive System.

ABSTRACT: A decision of the Court of Cassation of 28 February 2008 has examined the question of the legitimacy in Italy of a scale of charges for notarial services that sets minimum fees, in the light of the provisions of the EC Treaty regulating free competition.

The Court not only rules on the disciplinary liability of a notary not complying with the minimum scale of fees but also establishes a principle of law to the effect that notarial services are extraneous to the market for professional services.

Such a principle is truly revolutionary because it establishes an interest of the notary as an individual and of the bodies representing the class of notaries in operating outside a competitive context, an interest that can be protected by seeking damages in the courts

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

Economic Foundations of Competition Laws: The Benefits of Monopoly vs. the Benefits of Competition

Posted D. Daniel Sokol

A paper by Alfonso Londoño and Juan Gutierrez of Pontificia Universidad Javeriana's Law School provide an analysis of the Economic Foundations of Competition Laws: The Benefits of Monopoly vs. the Benefits of Competition.

ABSTRACT: Antitrust Law can be described as the set of legal rules that regulate the current or potential power of the companies on a certain market, on behalf of public interest. In practice, the Antitrust Law prohibits the execution of restrictive competition practices, the acquisition of a dominant position in the market through the accomplishment of these practices and the abuse of the dominant position.

This document is an approach to the analysis of one of the fundamental premises of this discipline, which states that the markets in competition produce greater benefits to society than the markets with monopolistic structures. In this order, we will analyze the origins, evolution and purpose of the Antitrust Law, the practical difficulties that the competition authorities must face 'particularly the Latin American authorities', and also the criticisms that have been formulated against the laws that develop Antitrust.

For this is purpose the following subjects are exposed: 1) Origins and evolution of the Antitrust Law in the United States of America, the European Union, Latin America and the Caribbean. 2) Economic Aspects of the Antitrust Law 3) Competitive markets and monopolistic markets. 4) Criticisms to the Antitrust Law 5) The challenges for the Latin American competition authorities.

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

Acquisitions that Create Efficiencies: Merger Analysis and the Treatment of Reductions in Fixed Costs

Posted by D. Daniel Sokol

Robertrubinovitz018_web Robert N. Rubinovitz of NERA discusses Acquisitions that Create Efficiencies: Merger Analysis and the Treatment of Reductions in Fixed Costs in a short and informative piece.

ABSTRACT: This piece examines the ways in which reductions in fixed costs can lead to lower prices or better product quality and innovation. This may seem contrary to conventional economic theory, which focuses on marginal cost pricing, but the effect of fixed cost savings on consumers becomes clearer if we consider how firms actually set their prices. Are prices determined through cost-based pricing and bidding? Will a reduction in fixed costs—particularly in the area of research and development—lead to additional research efforts, increased innovation, and, as a result, increased competition and lower prices? Rob’s conclusion is that if we focus on these questions, among others, we will be in a better position to assess whether and how a reduction in fixed costs may result in benefits to both consumers and competition.

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

Lithuania's Competition Council Marks the 15th Anniversary

Posted by D. Daniel Sokol

Happy 15th birthday to  Lithuania's Competition Council.  The press release is here.

Enforcement records
1993-2007
Investigated breaches of the Law on Competition
Total number of decisions -454,
of which:
96 - on abuse of dominant positions,
57 - on prohibited agreements,
99 - on restrictive actions of public and local authorities,
135 - on unfair competition,
51 - on illegal concentration,
16 - on fail to fulfil the obigations of the Competition institution.
Permissions given for concentrations845.

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

Sunday, June 1, 2008

An Assessment of Carbon Capture and Storage Under EC Competition Law

Posted by D. Daniel Sokol

Hans Vedder provides a rare synthesis of environmental and competition laws in his paper An Assessment of Carbon Capture and Storage Under EC Competition Law.

ABSTRACT: This paper examines the impact of carbon capture and storage (CCS) on competition and EC competition law. Firstly, the state aid framework is analysed as CCS-projects will need subsidisation. Secondly,the impact of CCS on industry structure in the energy sector is analysed. It is concluded that CCS will probably lead to vertical integration and possible foreclosure. These problems can be overcome by an effective third party acces regime, but this is lacking in the legal framework for CCS. The rules on state aid are also considered to provide insufficient guidance.

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