Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, September 13, 2008

Should Banking Be Kept Separate from Commerce?

Posted by D. Daniel Sokol

Alexander Raskovich (DOJ Antitrust) asks- Should Banking Be Kept Separate from Commerce?

ABSTRACT: In the U.S., unlike much of the rest of the world, the mixing of banking and commerce is largely prohibited. One exception is industrial loan companies (ILCs), state chartered depository institutions some of which are owned by commercial parents. In 2006, the FDIC put a moratorium on the chartering of new ILCs pending resolution of a controversy sparked by Wal-Mart's application to start up an ILC in Utah. Wal-Mart subsequently withdrew its bid. This paper reviews the major arguments that have been raised against the mixing of banking and commerce, finding most to be theoretically weak or lacking in empirical support, and discusses several efficiencies that may arise from the integration of banking and commerce.

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

Friday, September 12, 2008

Workshop on Basics of the Premerger Notification Program

Posted by D. Daniel Sokol

The FTC has announced an all day Workshop on Basics of the Premerger Notification Program.  According to the press release:

The workshop will cover such topics as how to determine whether premerger notification is required and how to prepare an HSR filing. Pre-registration is now open, and, due to space considerations, is limited to practitioners with less than one year of experience with premerger notification rules and filings. The workshop will be held at the FTC’s satellite building conference center, located at 601 New Jersey Avenue, N.W., Washington, DC. All attendees will be required to display a current driver’s license or other form of photo identification for entry. The workshop also will be webcast live; check the Web site link below on the day of the event to view.

   

For more information or to preregister, visit http://www.ftc.gov/bc/workshops/hsr/.

September 12, 2008 | Permalink | Comments (0) | TrackBack (0)

The Distribution of Harm in Price-Fixing Cases

Posted by D. Daniel Sokol

The Distribution of Harm in Price-Fixing Cases is an interesting new paper by Jan Boone, Tilburg University - Center for Economic Research and Wieland Müller, Tilburg University Center and Faculty of Economics and Business Administration.

ABSTRACT: We consider a vertically related industry and analyze how the total harm due to a price increase upstream is distributed over downstream firms and final consumers. For this purpose, we develop a general model without making specific assumptions regarding demand, costs, or the mode of competition. We consider both the case of homogeneous and differentiated goods markets. Furthermore, we discuss data requirements and suggest explicit formulas and regression specifications that can be used to estimate the relevant terms in the harm distribution in practice, even if elevated upstream prices are rather constant over time. The latter can be achieved by considering perturbations of the demand curve. This in turn can be used to construct a supply curve for the case of imperfect competition that includes perfect competition and monopoly as special cases. Finally, we illustrate how basic intuition from the tax incidence literature carries over to the distribution of harm.

September 12, 2008 | Permalink | Comments (0) | TrackBack (0)

Analytical Screens for Electricity Mergers

Posted by D. Daniel Sokol

Richard Gilbert (Berkeley - Economics) and David Newbery (University of Cambridge - Economics) provide some thoughts on Analytical Screens for Electricity Mergers.

ABSTRACT: Electricity mergers pose distinct challenges for competition policy. Electricity demand is highly inelastic in the short run, storage is limited, and transmission constraints limit the ability to substitute generation at other locations.As a result, a merger can affect prices in many different markets and even generatorswith smallmarket shares may be able to exercise market power. The U.S. Federal Energy Regulatory Commission’s approach for screening horizontal mergers, based on the concentration thresholds in the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines, can fail to identify mergers that lessen competition, and mergers that fail the FERC screen may have no significant anticompetitive effect. We propose competitive residual demand (CRD) analysis, which examines the supply curves of the markets affected by a merger and considers the ability and incentive of firms to raise prices before and after a proposed merger. CRD analysis is a relatively easy way to address the incentives for generators to exercise market power and relies on data that are often available. Vertical (convergent) mergers between electricity and gas raise additional concerns, and we propose a methodology to screen vertical mergers.

September 12, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 11, 2008

Issues in Competition Law and Policy

Posted by D. Daniel Sokol

The ABA Antitrust Section has just published Issues in Competition Law and Policy.

BOOK ABSTRACT: Competition policy in the United States, Europe, and elsewhere is embedded in a complex regime of laws predicated on the public policy choices of each jurisdiction. While other books provide a comprehensive treatment of the current state of antitrust law in the United States, this 3-volume hardcover set examines directly and in detail, the technical legal framework of competition law and the policy issues that lie behind the law.

The focus of the book is a complete and detailed perspective on issues in the design and enforcement of competition law, and is not a treatise on the case law. This book is the perfect complement to Antitrust Law Developments, the premier handbook on U.S. antitrust law, as Antitrust Law Developments scrupulously avoids policy issues. Issues in Competition Law and Policy now fills this informational void for the first time.

Here's what's included in this 3-volume set:

In 9 chapters and over 220 pages, The Jurisprudence Section addresses some of the fundamental issues of competition policy design, such as its social policy objectives, its evolutionary process (especially through the common-law tradition in the United States), the balance of underinclusiveness and overinclusiveness enforcement errors, allocations of burdens of proof, and the dividing line between competition law and other forms of government intervention in the marketplace.

In over 550 pages and 24 chapters, The Economic Foundations Section surveys the current industrial organization scholarship that is relevant to the design and enforcement of competition law.

In over 1,000 pages and 44 chapters the middle sections deal with Single Firm Conduct, Cooperation among Competitors, Mergers and Acquisitions, Distribution, and the Intellectual Property-Antitrust Law Interface, contain the applied chapters.

In the 12 chapters and over 260 page final, Enforcement Section, you'll find a detailed discussion of the issues in competition law enforcement, including the mechanisms for enforcement, the fashioning of criminal, injunctive, and monetary relief, and the extraterritorial reach of a jurisdiction's antitrust laws.

This massive 3-volume hard-cover book is essential for judges, enforcement officials, lawyers, and economists for understanding the jurisprudential, substantive, and methodological issues confronting modern competition law and policy, and each chapter in this 2,400+ page book will provide a comprehensive, up-to-date, and balanced survey of the area it covers. The authors of this book include policy makers, academics, economists, and lawyers from across the globe, ensuring a variety of perspectives and approaches on competition law and policy. It's the complete resource for anyone who deals with competition laws.

September 11, 2008 | Permalink | Comments (0) | TrackBack (0)

Optimal Sharing Strategies in Dynamic Games of Research and Development

Posted by D. Daniel Sokol

Optimal Sharing Strategies in Dynamic Games of Research and Development is the new paper by Nisvan Erkal (University of Melbourne Department of Economics) and Deborah Minehart (DOJ Antitrust).

ABSTRACT: This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. In practice, research and development projects can take years or even decades to complete. We model an uncertain research process, where research projects consist of multiple sequential steps. We ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity and the uncertainty that the firms face decreases. Such a dynamic approach allows us to analyze the interaction between how close the firms are to product market competition and how intense that competition is. If product market competition is relatively moderate, the lagging firm is expected never to drop out and the incentives to share intermediate research outcomes decreases monotonically with progress. However, if product market competition is relatively intense, the incentives to share may increase with progress. These results illustrate under what circumstances it is necessary to have policies aimed at encouraging cooperation in R&D and when such policies should be directed towards early vs. later stage research.

September 11, 2008 | Permalink | Comments (0) | TrackBack (0)

Entrepreneurial Innovations, Competition and Competition Policy

Posted by D. Daniel Sokol

Pehr-Johan Norbäck and Lars Persson, both of the Research Institute of Industrial Economics in Sweden have a paper out on Entrepreneurial Innovations, Competition and Competition Policy.

ABSTRACT: We construct a model where an entrepreneur could either innovate for entry or for sale. It is shown that increased product competition tends to increase the relative profitability of innovation for sale relative to entry. Increased competition reduces entrants' and acquirers' profits in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition than entrants' profits. This, in turn, implies that the incentive for innovation for sale can increase with increased competition. Finally, we show that a stricter, but not too strict, merger policy tends to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation, without reducing the total rents for innovations too much.

September 11, 2008 | Permalink | Comments (0) | TrackBack (0)

Analyzing Mergers Using Capacity Closures

Posted by D. Daniel Sokol

Nicholas Hill of DOJ-Antitrust has authored a paper on Analyzing Mergers Using Capacity Closures.

ABSTRACT: In this paper I describe a method for analyzing mergers in industries in which it is more cost
effective to close capacity than to idle it. The method can be used to define markets, to assess
the likelihood of competitive effects and to evaluate divestitures. I also discuss the method’s
data requirements and how it can be modified to deal with the types of issues that often arise
during an antitrust investigation.

September 11, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 10, 2008

Dr. Miles is Dead. Now What?: Structuring a Rule of Reason for Evaluating Minimum Resale Price Maintenance

Posted by D. Daniel Sokol

LamberttThom Lambert of the University of Missouri School of Law discusses Dr. Miles is Dead. Now What?: Structuring a Rule of Reason for Evaluating Minimum Resale Price Maintenance and engages in some written sparring with a number of others on this topic.

ABSTRACT: In Leegin Creative Leather Prods., Inc. v. PSKS, Inc., decided in 2007, the U.S. Supreme Court overruled its 1911 precedent declaring vertical minimum resale price maintenance (RPM) to be per se illegal. The Leegin Court held that the practice should instead be examined on a case-by-case basis under antitrust's rule of reason. The Court further exhorted the lower courts to craft a "structured" rule of reason for evaluating RPM. This article critiques six approaches that have been proposed for evaluating minimum RPM and offers an alternative approach. The six approaches critiqued are (1) the Brandeisian, unstructured rule of reason; (2) Judge Posner's rule of per se legality; (3) the approach advocated by 27 states in the recent Nine West case; (4) the approach adopted by the Federal Trade Commission in that case; (5) the approach advocated by economists William Comanor and F.M. Scherer; and (6) the approach proposed in the Areeda & Hovenkamp Antitrust Law treatise. Finding each of these approaches deficient, the article proposes an alternative evaluative approach that harnesses economic learning and allocates proof burdens in a manner that minimizes the sum of decision and error costs, thereby maximizing the net social benefits of RPM regulation.

September 10, 2008 | Permalink | Comments (0) | TrackBack (0)

Antitrust Versus Regulatory Merger Review: The Case of Electricity

Posted by D. Daniel Sokol

Diane Moss of the American Antitrust Institute has authored Antitrust Versus Regulatory Merger Review: The Case of Electricity.

ABSTRACT: This paper focuses on the implications of multi-agency review of electricity mergers. It highlights fundamental differences between regulatory and antitrust merger enforcement procedures–ranging from standards of review to data collection, economic analysis, and remedies. Such disparities potentially introduce costly and potentially conflicting redundancy into the merger review process. Illustrative examples are drawn from a number of cases, including apparent inconsistencies across applicant-filed analyses in FERC merger cases. Absent the delegation of competition analysis to the antitrust agencies, the paper makes the case for harmonizing review across regulators and antitrust enforcers.

September 10, 2008 | Permalink | Comments (0) | TrackBack (0)

Netscape is Dead: Remedy Lessons from the Microsoft Litigation

Posted by D. Daniel Sokol

First Harry First of NYU Law School weighs in on Netscape is Dead: Remedy Lessons from the Microsoft Litigation.

ABSTRACT: On March 1, 2008, AOL officially pulled the plug on the Netscape Browser, killing off the killer app of 1995 whose success had led Microsoft on an exclusionary campaign which eventually triggered the now-famous Microsoft monopolization litigation. Although the government plaintiffs in the United States were eventually successful on the merits in the monopolization litigation, Netscape's death highlights the problem of remedy. Microsoft retains its monopoly position in the desktop PC operating system market; Microsoft's Internet Explorer browser still has nearly 75 percent of the browser market, despite the challenge from the technologically superior Firefox browser. The European Commission's parallel case has fared no better. Microsoft was found to have abused its dominant position by tying its media player to Windows and by refusing to disclose necessary server-system interoperability information. But the Commission's media player unbundling remedy failed completely and its interoperability order has not halted Microsoft's progress toward dominance in the work group server operating system market. In fact, in 2008, after imposing more than $2.3 billion in fines on Microsoft for the initial violations and Microsoft's failure to comply with the Commission's remedy orders, the Commission announced that it was opening two new investigations into Microsoft, one of which involves the tying of Internet Explorer to Windows.

September 10, 2008 | Permalink | Comments (1) | TrackBack (0)

The Most Beautiful Law School in the US?

Posted by D. Daniel Sokol

The answer is Stetson Law School in the Gulfport suburb of Tampa/St. Petersburg.  I gave a work in progress talk on Monday  The law school has the campus of a liberal arts college, including tennis courts, a swimming pool, fitness center and beautiful Spanish style architecture, just off the bay.

Campuscover Stucenter2 Library_2 Stucenter3






Most of the students live in dorms or in Stetson owned housing near campus.  The law school is very student oriented with lots of emphasis given to teaching innovations.  If the US News ever changes it law school rankins to include student satisfaction, Stetson would rate very highly.

September 10, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 9, 2008

George Mason Law Review 12th Annual Symposium on Antitrust Law

Posted by D. Daniel Sokol

The agenda for the George Mason Law Review 12th Annual Symposium on Antitrust Law is now available.  This is a great line-up of some of the luminaries in antitrust.

December 4, 2008
Ronald Reagan Building & International Trade Center
Washington, DC

8:00 a.m. Registration & Continental Breakfast

8:45 a.m. OPENING REMARKS & INTRODUCTION A. Douglas Melamed, Partner, WilmerHale
KEYNOTE ADDRESS Judge Douglas H. Ginsburg, U.S. Court of Appeals for the District of Columbia Circuit

9:30 a.m. PANEL ONE | THE RULE OF REASON – DOES IT NEED TO BE STRENGTHENED?
Moderator William J. Kolasky, Partner, WilmerHale
Speakers Einer Elhauge, Petrie Professor of Law, Harvard Law School
Abbott “Tad” B. Lipsky, Jr., Partner, Latham & Watkins LLP
Discussants Michael A. Carrier, Professor of Law, Rutgers University School of Law –
Camden Eric L. Cramer, Shareholder, Berger & Montague, P.C.

10:45 a.m. Break

11:00 a.m. PANEL TWO | MERGER ENFORCEMENT
Moderator Alden F. Abbott, Associate Director, Bureau of Competition, U.S. Federal Trade Commission Speakers James A. Langenfeld, Director, LECG, LLC
J. Gregory Sidak, Founder, Criterion Economics LLC
Discussants Deborah Platt Majoras, Vice President and General Counsel, Procter & Gamble Company Gregory J. Werden, Senior Economic Counsel, Antitrust Division, U.S. Department of Justice

12:15 p.m. Lunch

12:45 p.m. INTRODUCTION George Mason Law Review LUNCHEON ADDRESS Robert Pitofsky, Professor of Law, Georgetown University Law Center

2:00 p.m. Break

2:15 p.m. INTRODUCTION Jeffrey A. Eisenach, Chairman, Criterion Economics LLP
CLOSING ADDRESS William E. Kovacic, Chairman, U.S. Federal Trade Commission

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

Is DOJ Ready to Take on Google?

Posted by D. Daniel Sokol

According to today's WSJ, DOJ Antitrust has hired Sandy Litvack to potentially take on Google's advertising practices. As a practical matter, shouldn't all the voices who have spent the past ten year's decrying Microsoft's practices be equally incenses about Google?  From I have seen in print and at various academic conferences, I have not heard much from the anti-Microsoft academic crowd on Google.

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

Competition when Consumers Value Firm Scope

Posted by D. Daniel Sokol

Nathan Miller of DOJ Antitrust analyses Competition when Consumers Value Firm Scope.

ABSTRACT: I model multimarket competition when consumers value firm scope across markets. Such competition is surprisingly common – consumers in many industries prefer firms that operate in more geographic and/or product markets. I show that these preferences permit firms of differing scopes to coexist in equilibrium. Within markets, firms of greater scope have higher prices and market shares. I turn to the commercial banking industry for the empirical implementation. Structural estimation of the model firmly supports the assumptions on consumer preferences, and empirical predictions specific to the model hold in the data. The results suggest that theoretical model is empirically relevant.

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

Some Thoughts on the DOJ Section 2 Report

Posted by D. Daniel Sokol

The separate DOJ Section 2 Report has to be seen as an example of how fractured the inter-agency relationship has become between the DOJ and FTC.  FTC Chairman Bill Kovacic's comments from February 2007 are all the more striking today:

Relations between the federal antitrust authorities need fundamental reform with greater coordination of the activities of the agencies responsible for protecting competition, said Federal Trade Commissioner William E. Kovacic. He said that too often there was little in the way of cooperation between the Federal Trade Commission, Department of Justice, industry-specific regulators and state attorneys general. “We have an archipelago of policy makers with very inadequate ferry service between the islands,” said Kovacic, in an interview with Dow Jones Newswires Thursday. “In too many instances when you go to visit those islands the inhabitants come out with sticks and torches and try to chase you away.” … Kovacic said relations between European Union antitrust authorities and his agency at times were better than those between the FTC and Department of Justice. “We develop more effort internationally with our counterparts to cooperate in the competition area than we do domestically with our counterparts,” he said. Such an observation is striking, considering that the two agencies sit almost directly across Pennsylvania Avenue from each other. One clear difference between the two agencies, said Kovacic, was how they dealt with disputes between international antitrust agencies. “You will not see the kinds of fairly pointed critiques that have come from our sister agency especially in connection to GE Honeywell,” said Kovacic.

As Steve Calkins (Wayne State Law) reminds us:

Compare remarks of AAG Tom Barnett at the opening session:

I hope that these hearings and the report that the Federal Trade Commission and the Antitrust Division intend to publish together after they conclude will be helpful to courts when they are called upon to review unilateral conduct. Similarly, I hope the hearings generate helpful guidance for businesses seeking to comport with antitrust law's obligations.

with footnote 3 of the Report's introduction:

While the Department is grateful to the many FTC personnel for their contributions throughout the process, the Department remains solely responsible for the contents of this report.

Let's look at the FTC responses to the Report.  Commissioners Harbour, Leibowitz, and Rosch believe that the Department’s report, if adopted by the courts, “would be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act.”  They add that the FTC “stands ready to fill any Sherman Act enforcement void that might be created if the Department actually implements the policy decisions expressed in its Report.”

Chairman Kovacic is only a little bit less ticked off but is more diplomatic about it.  At one point he states:

Robust public debate – even between the two federal antitrust agencies – can serve the valuable end of pressing the U.S. antitrust system toward the acceptance of better practices. If one fears one’s ideas cannot survive an open intellectual contest, it is time to get new ideas. I do not expect today’s events to diminish the efforts of the DOJ and the FTC to cooperate in addressing key issues and in performing the valuable function of giving guidance about their views of doctrine and about their enforcement intentions.

Later on in his statement, Kovacic focuses on his take on a deficiency in the DOJ Report

I had hoped that a DOJ/FTC report on the unilateral conduct deliberations would devote considerable effort to put modern developments in context – to examine how the U.S. antitrust system developed as it did, and to assess what that history means for the future of U.S. and global competition policy.

As I gear up to work on a 50 years time series study with Vivek Ghosal to understand empirically the complimentarity and/or substitutability of public and private monopolization cases (examining state, federal and international levels), I have to agree with Kovacic about the importance of historical context in these matters. 

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

Monday, September 8, 2008

DOJ Section 2 Report

Posted by D. Daniel Sokol

I was in transit today after giving a talk at Stetson Law School in Tampa (more on that in tomorrow's blog) so apologies for the late posting but DOJ has posted its Section 2 Report.

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

European Cartel Digest

Posted by D. Daniel Sokol

Ewoud Sakkers (DG Comp) and Johan Ysewyn (Linklaters) have published the 2008 European Cartel Digest

Table of Contents:

Introduction

  • Foreword by the Heads of the EU, French, German and UK Competition Authorities ;

Jurisdictions

European Union

  • Introduction
  • Summary tables
  • Substantive cases
  • Procedural cases
  • Legislation

France

  • Introduction
  • Summary tables
  • Substantive cases
  • Procedural cases
  • Legislation

Germany

  • Introduction
  • Summary tables
  • Substantive cases
  • Procedural cases
  • Legislation

United Kingdom

  • Introduction
  • Summary tables
  • Substantive cases
  • Procedural cases
  • Legislation

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

Vertical Integration, Institutional Determinants and Impact: Evidence from China

Posted by D. Daniel Sokol

Joseph P. H. Fan, Chinese University of Hong Kong - School of Accountancy, Randall Morck, University of Alberta - Department of Finance and Management Science, Jun Huang, Shanghai University of Finance and Economics, and Bernard Yin Yeung, Leonard N. Stern School of Business - Department of Economics have some new findings on Vertical Integration, Institutional Determinants and Impact: Evidence from China.

ABSTRACT: In environments where the legal system and market disciplinary forces are weak to enforce contracts, vertical integration is a means to overcome transaction difficulties. Yet, these weak institution environments are also characterised by high government interventions and even corruption. Vertical integration can be a means to deal with these burdens or to enhance rent-seeking. These variations in motive for vertical integration lead to nuance in the contribution of integration to firm value and to the overall economy.

China offers a suitable background for empirical examination of these hypotheses: her legal and market institutions are often weak but there are substantial variation across sub-regions. Using Chinese data, we find that vertical integration is more common in regions with weaker legal protection for property rights, poorer local government quality, and greater direct government involvement in the economy. Moreover, companies led by insiders with political connections are more likely to be vertically integrated.

Vertical integration is weakly associated with firm value if the top corporate insider is not politically connected. It is negatively associated with share value if the top corporate insider is politically connected, but positive associated with share value if the firm is independently audited. Finally, integration by non-connected firms is associated with growth in per capita GDP while the opposite is true for integration by the politically connected, which validates the rent-seeking nature of these integrations.

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

Sunday, September 7, 2008

FTC at 100: A U.K. Perspective

Posted by D. Daniel Sokol

The agenda for the London roundtable for the FTC at 100 is now available.

Location
Competition Commission
Victoria House
Southampton Row
London WC1B 4AD

Date
Friday, September 12

10:00-10:15 Opening Remarks by Alden Abbott and Peter Freeman

10:15-11:45 Assessing the Effectiveness of the FTC
This session will focus on measuring agency effectiveness. Is welfare the appropriate measure of effectiveness? How can one accurately estimate the welfare benefits an agency’s actions? What other metrics can be used to evaluate agency performance?
Participants: John Fingleton, Ed Humpherson, John Vickers, Catherine Waddams, Stephen Wilks

11:45-1:15 FTC’s Enforcement, Advocacy, and Research Agenda

This session will discuss how agencies develop an enforcement, advocacy, and research agenda. What priorities should an agency follow when selecting cases? How should research projects be chosen and evaluated? How well is the FTC doing at selecting the right cases and remedies, and areas for advocacy and research efforts? How appropriate is the guidance the FTC provides in press releases, decisions, speeches, and guidelines?
Participants: Peter Freeman, Jeremy Lever, Philip Marsden, Simon Pritchard, Debra Valentine

1:15-2:15 Buffet lunch

2:15-3:45 The International Agenda:
How should an agency prioritize its international efforts? What is the value of international outreach? What rating should be given to the FTC’s international efforts? What should the FTC be learning from other agencies, including OFT, CC, and EC? How can the FTC improve its international efforts?
Participants: David Aitman, Bill Bishop, Margaret Bloom, Val Korah, Richard Whish

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