Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, August 9, 2008

Fighting Cartels: Some Economics of Council Regulation (EC) 1/2003

Posted by D. Daniel Sokol

Birgit E. Will and Dieter Schmidtchen both of Saarland University - Center for the Study of Law and Economics address Fighting Cartels: Some Economics of Council Regulation (EC) 1/2003.

ABSTRACT: This paper investigates the effectiveness of the new Council Regulation (EC) 1/2003 which replaces the mandatory notification and authorization system by a legal exception system. Effectiveness is operationalized via the two subcriteria compliance to Art. 81 EC Treaty and the probabilities of type I and type II errors committed by the European Commission. We identify four different types of Perfect Bayesian Nash Equilibria: full-compliance, zero-compliance, positive-compliance and full-deterrence. We show that the Commission can, in principle, hit the full-compliance equilibrium, where the cartelizing firms fully obey the requirements of Art 81(3) EC Treaty and both error probabilities are zero.

August 9, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, August 8, 2008

Is a Safe Harbour for Insurance Still Justified?

Posted by D. Daniel Sokol

Eithne McCarthy (European Commission, DG Competition) asks Is a Safe Harbour for Insurance Still Justified?

ABSTRACT: On April 17, 2008, the European Commission launched a public consultation to examine the functioning of the insurance block exemption regulation. The replies to the Consultation will enable the Commission to determine whether or not to renew the Block Exemption which will expire automatically on March 31, 2010. Following closure of the Consultation on July 17, 2008, the Commission will prepare a report for the European Parliament and Council by March 2009 which will contain any proposals for amendment.

The original objective and key justification of the Block Exemption was to facilitate the Commission’s task in view of the large number of individual notifications being received prior to modernization of the EC competition rules by Council Regulation (EC) No. 1/2003. However, modernization has now abolished the system of individual notifications and companies must self-assess whether their agreements infringe Article 81(1) of the EC Treaty and, if so, whether they meet the exemption from prohibition criteria of Article 81(3).

As the Consultation points out, only a few sectors currently benefit from a sector specific block exemption regulation and in other sectors block exemptions have expired and not been renewed. The Commission now needs to consider whether there are sufficient grounds to continue to declare by regulation, Article 81(3) applicable to certain categories of agreements in the insurance sector.

August 8, 2008 | Permalink | Comments (0) | TrackBack (0)

Required Reading for the New Antitrust Administration

Posted by D. Daniel Sokol

A number of practitioners and academics (including one tall and lanky law professor whom you might know) were asked by the Antitrust Source to each provide a reading list to whoever becomes the new antitrust administration.

August 8, 2008 | Permalink | Comments (0) | TrackBack (0)

Causation in EC Merger Control

Posted by D. Daniel Sokol

Antonio F. Bavasso (Allen & Overy and University College London - Law) and Alistair Lindsay (Allen & Overy) provide some thoughts on Causation in EC Merger Control.

ABSTRACT: This article looks at two areas of merger control under EC Law where the principles of causation are applied and, in our view, misapplied. The article traces the development of the concept of the counterfactual in antitrust law. It then draws on this analysis in considering the operation of the failing firm defense, and in particular the standard of proof employed by the Commission when analyzing the counterfactual in relation to the failing firm defense. We argue that the Commission employs an excessively high standard of proof, and that this standard of proof contributes to the drawing of the failing firm defense too narrowly, through a misapplication of the principles of causation. We then proceed to contrast and prefer the approach of the UK Competition Commission in recent cases. In the final part of the article we consider scenarios where two or more mergers are contemplated in the same market at the same time, in cases of both parallel and overlapping mergers. In these complicated scenarios, which require prospective, multifaceted analysis, we set out in detail how, despite inherent difficulties, a similarly rigorous application of the principles of causation produces coherent results.

August 8, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, August 7, 2008

Exclusionary Pricing and Consumers Harm: The European Commission's Practice in the DSL Market

Posted by D. Daniel Sokol

Laura Ferrari Bravo (University of Rome - Public Economics) and Paolo Siciliani (Vodafone Group) address Exclusionary Pricing and Consumers Harm: The European Commission's Practice in the DSL Market.

ABSTRACT: The assessment of exclusionary abuses by dominant firms is by no means an easy task. This is particularly true for pricing abuses, as there is no clear-cut way of distinguishing a price cut that is abusive from one that instead is pro-competitive. We argue that there are several shortcomings in the way the European Commission as assessed exclusionary pricing abuses in two important decisions concerning Internet access service markets: Deutsche Telekom AG and Wanadoo Interactive. First of all, in computing downstream costs to apply the price squeeze test the incumbent's economies of scale and unavoidable costs should be factored in, as the test is only meant to establish whether an as-efficient competitor has been unlawfully foreclosed. Secondly, since the price squeeze test provides only for a necessary condition for predation to occur, it is also necessary to prove that the recoupment of initial losses is a plausible scenario so that the conduct under examination may indeed turn out to be harmful to consumers. This is all but a trivial task, as there are some sources of endogeneity that may cause a radical change in the underlying market structure. Particularly, in markets at early stage of development, entry barriers that may facilitate the recoupment of initial losses ex-ante may cause a change such that market structure no longer supports recoupment ex-post.

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

Competition Law and Economics: Advances in Competition Policy and Antitrust Enforcement

Posted by D. Daniel Sokol

Out in bookstores is the new Competition Law and Economics: Advances in Competition Policy and Antitrust Enforcement by Abel M. Mateus (Universidade Nova de Lisboa - Economics) and Teresa Moreira (Directorate-General for Economic Activities (Portugal)).

BOOK ABSTRACT: Everyone recognizes that competition is the process by which companies are induced to offer consumers the lowest prices and introduce innovations to earn higher profits. Antitrust enforcement should focus on real competition problems, on behaviour that has actual or likely restrictive effects on the market, and which harms consumers; it should be aimed at protecting competition and not competitors. A real revolution in the application of European competition law took place with the modernization package implemented in the last few years, involving the now-decentralized application of Articles 81 and 82 EC, new merger regulations, and the ongoing review of guidelines for the prosecution of abuses of a dominant position. This book presents the proceedings of the First Lisbon Competition Law and Economics under the auspices of the Portuguese Competition Authority. It was a ground-breaking event in which leading European judges and competition enforcers, as well as some of the leading world economists and law professors on competition issues, took a critical look at the instruments of competition policy conceived to implement EC Regulation 1/2003, with a broader focus on modernization in the EU and in the USA. In wide-ranging discussions they evaluated theories of harm to competition for the most frequently-occurring types of abusive behaviour, and developed guidelines for a competition policy that offers both an economically sound framework and a workable and operational tool for making rules that can be enforced effectively and with a reasonable degree of predictability.

Among the many issues arising in the proceedings recorded in this book are the following:

 

  • special powers of investigation;
  • leniency programs and individual sanctions;
  • the problem of “forum shopping” in the present merger regulation system;
  • the impact of regulations and competition on economic growth;
  • competition and regulatory costs;
  • judicial review of the European Commission merger decisions;
  • consumer welfare effects of mergers;
  • who should apply competition law to utilities;
  • and the link between competition and innovation and the development of a country.


The book will be of immeasurable value to judges, academics, and economic and law practitioners active in competition policy and enforcement, as well as to officials of European national competition authorities. Equally interested will be students of law and economics concerned with competition issues, and non-governmental organizations dealing with consumer protection and private enforcement of competition law. By giving ample evidence of the impact of competition and efficient regulation on economic growth, this far-reaching book will help elucidate the main current topics in need of further reform and underline the importance of competition policy in modern market economies.

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

Protecting the Freedom of Competition vs. More Economic Approach? The Evolution of the Normative Foundations of European Competition Policy

Posted by D. Daniel Sokol

Oliver Budzinski of the University of Marburg Department of Economics discusses Protecting the Freedom of Competition vs. More Economic Approach? The Evolution of the Normative Foundations of European Competition Policy (Wettbewerbsfreiheit Und More Economic Approach: Wohin Steuert Die Europaeische Wettbewerbspolitik?).

ABSTRACT: The more economic approach of European competition policy entails the implementation of a new (normative) conceptual approach of antitrust policy: decisions become more strongly focused on short-run and quantifiable price and quantity effects. This paper contributes to the widespread discussion whether this efficiency-orientation stands in contrast to the idea of protecting the freedom of competition as the prerequisite of (in the long-run) sustainable competitive markets (freedom approach). Despite finding considerable scope for compatibility of the two approaches, the paper identifies as the main difference the underlying assumptions about the predictability, computability and measurability of competitive processes: while the more economic approach (implicitly) assumes that - with the help of modern economic techniques and instruments like econometrics and simulations - future market equilibria can be calculated and predicted ex ante to a considerable extent, the freedom approach expects competitive processes to be less accessible for predictive quantitative analysis, or, in other words, a lower degree of reliability of quantitative predictions. Therefore, the freedom approach assumes extensive case-by-case analysis to produce a higher frequency of the occurrence of error types I and II compared to more general rules, whereas the more economic approach assumes the opposite.

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

Wednesday, August 6, 2008

Some Dynamics of High-Tech Merger Analysis in General and with Respect to XM-Sirius

Posted by D. Daniel Sokol

Thomas W. Hazlett, George Mason University - School of Law, has written an interesting article on Some Dynamics of High-Tech Merger Analysis in General and with Respect to XM-Sirius.  I like the idea of using financial event studies.

ABSTRACT: Horizontal merger evaluation is heavily reliant on market definition. While a SSNIP framework formats the analysis, demand elasticity evidence used to apply the test is often sparse, as is often found in high-technology industries. This paper examines other sources of evidence that reveal the dynamics of market structure, data that are also probative in the evaluation of competitive effects. These sources include capital valuations of firms, financial event studies, and the public positions taken with respect to the merger by interested parties. Such evidence is examined in the XM-Sirius merger (2007-08), and shown - in two of the three instances - to be relatively informative in merger welfare analysis.

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

Competition and Development: The Power of Competitive Markets

Posted by D. Daniel Sokol

Susan Joekes (IDRC) and Phil Evans (FIPRA) are the authors of Competition and Development: The Power of Competitive Markets.

ABSTRACT: The growth of international trade and investment and the spread of bilateral and multilateral trade agreements have resulted in increasing economic integration, affecting almost all nations of the world. This has brought about many changes in the economies of developing countries, including a move away from state-controlled enterprise. However, it has also made developing countries more vulnerable to new and potentially harmful types of anticompetitive business practices.

This book demonstrates the importance of true and fair competition to sustainable development and an effective marketplace, touching on issues of globalization, consumer welfare, cartels and monopolies, and trade liberalization. It provides an introduction to competition, and competition law and policy in developing countries. It focuses on the practical problems faced in developing countries and the steps that have been and can be taken to overcome those problems. It is about anticompetitive practices as they occur in developing countries and the policies that governments and citizens can promote and practice to limit the impact of such practices.

The book will be of particular interest to consumer’s groups and NGOs, as well as to government officials, legislators, trade negotiators, and the judiciary. Educators, students, development professionals, and business groups will also find the book useful. For more analysis, discussion, and case material, visit the companion website, www.idrc.ca/in_focus_competition, which is included with the book, on CD.

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

The Industrial Organization of Air Transport in Chile

Posted by D. Daniel Sokol

Claudio Agostini (Universidad Alberto Hurtado - Economics) has posted The Industrial Organization of Air Transport in Chile.

ABSTRACT: Over the last 20 years, demand for air passenger transport has grown dramatically. At the same time, the two largest domestic airlines merged and several smaller entrants exited without being able to make significant inroads. As a result, the industry is highly concentrated, with a dominant firm and a few fringe firms. This condition has generated considerable public debate about the degree of competition in the airline industry in Chile. With the purpose of contributing to the public discussion, this paper analyzes the industry from an industrial organization point of view. Specifically, the paper describes the domestic airline industry in Chile, defines the relevant market and then analyzes both the degree of concentration and entry conditions. In particular, I focus on the roles played by vertical integration, the computer reservation systems and the revenue management practice. I then evaluate self-regulation of airfares by the dominant firm and propose several public policies to increase competition.

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

Modernization of Antitrust Law – Private and Public Enforcement and Abuses – Europe and the U.S.

Posted by D. Daniel Sokol

Deb Garza (DOJ), presented a speech, Modernization of Antitrust Law – Private and Public Enforcement and Abuses – Europe and the U.S. at The Stanford Institute of Economic Policy Research, the John M. Olin Program in Law and Economics and School of Law, and the Hoover Institution, Stanford University Program on May 29, 2008.

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

Tuesday, August 5, 2008

Do Gasoline Mergers Affect Consumer Prices? The Marathon Ashland Petroleum and Ultramar Diamond Shamrock Transaction

Posted by D. Daniel Sokol

The new issue of the Journal of Law and Economics has an interesting piece on Do Gasoline Mergers Affect Consumer Prices? The Marathon Ashland Petroleum and Ultramar Diamond Shamrock Transaction by John Simpson and Christopher Taylor, both of the FTC.

ABSTRACT: In 1999, Marathon Ashland Petroleum (MAP) acquired the Michigan assets of Ultramar Diamond Shamrock (UDS), which increased MAP's share of terminal storage in Michigan from about 16 percent to about 25 percent and increased the share of gasoline stations bearing a MAP brand from about 16 percent to about 24 percent. In this paper, we examine whether this acquisition affected the retail price of gasoline. We use a difference-in-differences model to compare price movements in six Michigan cities affected by the acquisition with price movements in two nearby cities unaffected by the acquisition. Using this model, we find no evidence that this acquisition led to higher prices for consumers.

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

Market Power and Merger Simulation in Retail Banking

Posted by D. Daniel Sokol

József Molnár (Bank of Finland), provides an analysis on Market Power and Merger Simulation in Retail Banking.

ABSTRACT: This paper tests market power in the banking industry. First, I calculate price- cost margins predicted by di¤erent oligopoly models using discrete-choice demand estimates of own and cross-price elasticities. Second, I compare these predicted price-cost margins to price-cost margins computed with the observed interest rates and estimates of marginal costs. This paper is among the …rst to apply this method- ology on a detailed, bank-level dataset from the retail banking sector. I extend the previous papers and illustrate the advantages of structural modelling by simulating a counterfactual merger experiment among pairs of the biggest banks and studying the unilateral e¤ect of the mergers on the interest rates. I provide another evidence that concentration measures (such as Her…ndahl index) could be very misleading indicators of market power.

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

Consolidation in The Pennsylvania Health Insurance Industry

Posted by D. Daniel Sokol

David Balto's testimony on Consolidation in The Pennsylvania Health Insurance Industry to the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights is now available.

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

Margin Squeeze in Regulated Industries: The CFI Judgment in the Deutsche Telekom Case

Posted by D. Daniel Sokol

Pierre Buigues (Toulouse Business School) & Robert Klotz (Hunton & Williams) provide some thoughts on Margin Squeeze in Regulated Industries: The CFI Judgment in the Deutsche Telekom Case.

ABSTRACT: In its long-awaited ruling of April 10, 2008, the Court of First Instance upheld the decision of the European Commission imposing on the German incumbent operator Deutsche Telekom a fine of EUR 12.6 million for abuse of a dominant position on the market for local access to its fixed network.

The Commission found that the German incumbent operator had charged, between 1998 and 2003, a higher price to its competitors for the provision of wholesale access to subscriber lines than what it had claimed from its own retail customers for the subscription to the fixed telephony network. Deutsche Telekom’s market behavior was thus tantamount to an abusive margin squeeze.

The judgment is noteworthy in three points:

  • first, it constitutes the first clear legal confirmation that the margin squeeze represents a stand-alone type of abuse;
  • second, it defines the scope of application of the competition rules in sectors subject to ex-ante regulation; and
  • third, the judgment sheds some light on the extent to which an effects-based analysis is required in order to establish that a certain practice is contrary to Article 82 EC.
  • August 5, 2008 | Permalink | Comments (0) | TrackBack (0)

    Monday, August 4, 2008

    A Critique of Partial Leniency for Cartels by the U.S. Department of Justice

    Posted by D. Daniel Sokol

    Jconnor John Connor of Purdue University's Applied Economics Department writes a biting Critique of Partial Leniency for Cartels by the U.S. Department of Justice.

    ABSTRACT: This paper models a key outcome of secret negotiations: partial-leniency fine discounts from plea bargaining in criminal price-fixing cases. Models tested explain up to 52% of variation in percentage discounts. A minor portion is explained by such defendants characteristics as the defendants rank in queue and delay in settling. Most variation is explained by cartel characteristics. International conspiracies, global cartels, and bid-rigging schemes are granted lower percentage than domestic price-fixing. Discounts were higher in the Bush II than in the Clinton administration. Participants in durable conspiracies are rewarded with larger discounts, but more severe treatment of recidivists cannot be detected.

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

    The Evolving Food Chain: Competitive Effects of Wal-Mart’s Entry into the Supermarket Industry

    Posted by D. Daniel Sokol

    Emek Basker (University of Missouri) and Michael Noel (University of California–San Diego) touch upon antitrust in supermarkets in their new working paper The Evolving Food Chain: Competitive Effects of Wal-Mart’s Entry into the Supermarket Industry.

    ABSTRACT: We analyze the effect of Wal-Mart’s entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Mart’s entry on competitors’ prices of 24 grocery items across several categories. Wal-Mart’s price advantage over competitors for these products averages approximately 10%. On average, competitors’ response to entry by a Wal-Mart Supercenter is a price reduction of 1–1.2%, mostly due to smaller-scale competitors; the response of the “Big Three” supermarket chains (Albertson’s, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercise, in which we test for Wal-Mart’s effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

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

    Of Arms and Armour - The European Commission's White Paper on Damages Actions for Breach of EC Antitrust Law

    Posted by D. Daniel Sokol

    Friedrich Wenzel Bulst of DG Competition has posted Of Arms and Armour - The European Commission's White Paper on Damages Actions for Breach of EC Antitrust Law, which appeared in the Bucerius Law Journal.

    ABSTRACT: In April 2008 the European Commission published a White Paper on Damages actions for breach of the EC antitrust rules and an accompanying Commission Staff Working Paper. The White Paper's primary objective is to improve the legal conditions for victims of violations of the EC antitrust rules to exercise their right under the EC Treaty to reparation of all damage suffered as a result of such a violation. The author analyses both documents covering indirect purchaser standing, collective redress, access to evidence, binding effect of administrative decisions, fault as a prerequisite to civil liability, definition and quantification of damages, the passing-on of overcharges, limitation periods, costs of actions and the interaction between leniency programmes and damages actions.

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

    Sunday, August 3, 2008

    Second International Conference of IMEDIPA - Which competition policy for regulated industries?: governance and sector-specific perspectives

    Posted by D. Daniel Sokol

    The second international conference of IMEDIPA (Institute of Studies in Competition Law and Policy) will be held on Friday September 5, and Saturday, September 6, 2008 at Bilgi University, Istanbul on the following topic:

    "Which competition policy for regulated industries?: governance and sector-specific perspectives"

    The conference is organized in collaboration with University College London and Istanbul Bilgi University Faculty of Law.

    The conference will examine the intersection of competition law and regulation in a number of key network industries(such as energy, telecoms, transports, financial industry) in the context of the transition, developing or small market size economies of the Eastern Mediterranean region. The conference will delve into the economic and legal aspects of competition policy in regulated industries and it will examine current topics of practical importance for competition litigation (e.g. long-term contracts in the energy sector, margin squeeze and bundling in the telecoms sector, anticompetitive agreements and interchange fees in the financial industry sector).

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