Antitrust & Competition Policy Blog

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

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Saturday, September 20, 2008

Settlements in Cartel Cases

Posted by D. Daniel Sokol

Neelie Kroes, European Commissioner for Competition Policy, gave a speech on Settlements in Cartel Cases at the annual IBA antitrust meeting in Fiesole.

 

September 20, 2008 | Permalink | Comments (0) | TrackBack (0)

Friday, September 19, 2008

FTC vs. Whole Foods: Which Standards? Which Substitutes?

Posted by D. Daniel Sokol

Brennan110 Tim Brennan of the University of Maryland-Baltimore Department of Economics has written FTC vs. Whole Foods: Which Standards? Which Substitutes?

ABSTRACT: If email traffic over the American Bar Association’s Antitrust Section “conversation” list is any indication, the recent 2-1 decision by a panel of the U.S. Court of Appeals for the DC Circuit Court in FTC v. Whole Foods is the hottest current topic, at least in the U.S. corner of the competition policy community. In that decision, the DC Circuit reversed a district court’s denial of the U.S. Federal Trade Commission’s (“FTC’s”) request to enjoin Whole Foods’ acquisition of Wild Oats. The FTC provided evidence and expert testimony supporting a claim that these were the two largest chains of “premium, natural, and organic supermarkets” (“PNOS”). The parties contended that the firms would lack market power after the merger because consumers would respond to higher prices by going to conventional grocery stores.

The decision has inspired so much comment because of the quantity of issues it raises. In this article, I briefly discuss some legal issues, then turn to aspects of market definition, and conclude with observations relating to recent discussions on the role of distributional considerations in merger assessment.

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

The Relevant Market: A Concept Still in Search of a Definition

Posted by D. Daniel Sokol

Adriaan ten Kate and Gunnar Niels (Oxera) have penned The Relevant Market: A Concept Still in Search of a Definition.

ABSTRACT: We identify some shortcomings of the hypothetical monopolist definition (HMD) of the relevant market as set out in the 1992 U.S. Merger Guidelines and followed by competition regimes worldwide, and propose a rephrased version to give the HMD a greater scientific rigor. It is shown that market boundaries under the HMD depend significantly on supply-related factors (such as pre-merger competitive interaction and the shape of cost functions), contrary to the claim in the Guidelines that market definition focuses solely on demand substitution factors. We formulate two alternative definitions of relevant market that build on the same logic as the HMD but do depend only on demand factors.

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

Thursday, September 18, 2008

From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007

Posted by D. Daniel Sokol

Bronwyn_howell_1 Bronwyn E. Howell, NZ Institute for the Study of Competition and Regulation Inc. and Victoria Management School, Victoria University of Wellington provides an overview of what I believe is one of the world's most interesting experiments in the area of telecom competition in her paper From Competition to Regulation: New Zealand Telecommunications Sector Performance 1987-2007.

ABSTRACT: Using an efficiency-based framework, this paper analyses the performance of New Zealand's telecommunications sector under competition law-based sector governance (the period from 1987 to 2001) and under industry-specific regulation (2001 to 2007). The framework considers the productive, allocative and dynamic efficiency effects of each regime, and the nature of the strategic interaction of sector participants.

The analysis reveals that substantial gains in all forms of efficiency were achieved during the 1990s, both compared to historic New Zealand and contemporary OECD benchmarks. Under industry-specific regulation, however, transfers to consumers appear to have reduced, transaction costs have increased and delays are being incurred in the deployment of new applications and technologies relative to the competition law regime as participants engage in strategic gaming with politicians and the regulator and respond predictably to the range of incentives offered under the regulatory regime. The paper concludes that on balance in the New Zealand circumstances, the regime based predominantly upon competition law appears to have outperformed the industry-specific regulatory regime, albeit due in large part to sector participant interaction shaped by contractual obligations imposed by the government on the incumbent which have prevailed unchanged under both regimes.

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

Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach

Posted by D. Daniel Sokol

Thomas Borek, Eidgenossische Technische Hochschule Zurich (ETHZ) - Department of Mathematics, Stefan Buehler, University of St. Gallen - Department of Economics, and Armin Schmutzler, University of Zurich - Socioeconomic Institute (SOI) provide Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach.

ABSTRACT: This paper provides a simple reduced-form framework for analyzing merger decisions in the presence of asymmetric information about firm types, building on Shapiro's (1986) oligopoly model with asymmetric information about marginal costs. We employ this framework to examine what types of firms are likely to be involved in mergers. While we give sufficient conditions under which only low-type firms merge, as a lemons rationale would suggest, we also argue that these conditions will often be violated in practice. Finally, our analysis shows how signaling considerations affect merger decisions.

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

The Financial Crisis and Its Effects on Antitrust

Posted by D. Daniel Sokol

We are in the worst financial crisis since the Great Depression.  Even the Wall Street Journal has come around to this conclusion.  What does this mean for antitrust?  In terms of mergers, certainly the failing firm defense comes to mind for the acquisition of a number of our financial institutions.  However, I ask the question in the much larger sense of what does this systemic shock mean for antitrust policy as we know it.  Here is my prognosis (of which I would gladly eat my hat if I am proven wrong given how gloomy it is) by events as they continue to unfold: 

  1. We are likely to see a return to a more populist based antitrust as policy-makers, Congress and the general public's new-found general distrust for markets permeates into the antitrust realm. 
  2. Most efforts to curb bad government interventions in the economy, whether new or existing, through competition advocacy will fail.  Expect to see many non-financial bailouts.  For example, the US auto industry is certainly going to use this crisis to push for a bailout even though its problems are of its own making.
  3. Antitrust decisions will take on a more political nature, which will take antitrust away from the more bureaucratic, efficiency based system based on economic reasoning that it has become.
  4. It will be much tougher to sell the idea of antitrust and of a larger competition policy abroad, particularly to China and India.
  5. Countries will erect more non-antitrust restrictions to cross country mergers, thereby increasing the cost of business.   

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

Northwestern Law School Conference on Networks in Communications

Posted by D. Daniel Sokol

I am off today to Northwestern, where I will be participating in a Research Roundtable on Networks in Telecommunications at Northwestern University Law School's Searle Center.  The agenda and list of participants is available here.

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

Wednesday, September 17, 2008

Varian in Defense of Google-Yahoo

Posted by D. Daniel Sokol

Hal Varian (Berkeley Economics) who is on leave as Google's Chief Economist counters some negative commentary on the competitive effects of the proposed deal on the Google Public Policy Blog.

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

Collusion and Research Joint Ventures

Posted by D. Daniel Sokol

Kaz Miyagiwa, Osaka University - Institute of Social and Economic Research (ISER) has some thoughts on Collusion and Research Joint Ventures.

ABSTRACT: We examine whether cooperation in R&D leads to product market collusion. Suppose that firms engage in a stochastic R&D race while maintaining the collusive equilibrium in a repeated-game framework. Innovation under competitive R&D creates inter-firm asymmetries, which destabilizes the collusive equilibrium. Innovation sharing through cooperative R&D preserves symmetries, thereby facilitating collusion. Sharing an efficient technology also increases industry profit, which contributes to the collusion stability but also raises social welfare. Interestingly, a welfare improvement is less likely if innovation leads to a large cost reduction. The effect of licensing under competition R&D is also examined.

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

House Committee on Transportation and Infrastructure Hearing on the Effects of Proposed Arrangement Between DHL and UPS on Competition, Customer Service, and Employment

Posted by D. Daniel Sokol

For those who want to see local parochialism in action on competition matters, check out the House Committee on Transportation and Infrastructure Hearing on the Effects of Proposed Arrangement Between DHL and UPS on Competition, Customer Service, and Employment.  The written testimony is available on the web.  This is not a 3 to 2 merger as opponents portray it.  Indeed, it is not a merger at all, but that is a different story.  Have people forgotten that the US Postal Service also competes in this market as well (and does so in ways that distorts competition according to a recent FTC study)?

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

Collusion in Repeated Procurement Auction: A Study of a Paving Market in Japan

Posted by D. Daniel Sokol

Rieko Ishii of the Institute of Social and Economic Research of Osaka University has undertaken Collusion in Repeated Procurement Auction: A Study of a Paving Market in Japan.

ABSTRACT: We examine auction data to determine if bid rigging presents in procurement auctions for paving works in Ibaraki City, Osaka, Japan. We first show that sporadic bidding wars are caused by the participation of potential outsiders. Assuming that the ring is all-inclusive if the auction is not the bidding war, we estimate the scheme by which the ring allocates a win to its members. It is found that the ring tends to select a bidder whose winless period is long and whose winning amount in the past is small relative to other bidders.

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

Tuesday, September 16, 2008

The Petroleum Industry, Merger Enforcement, and the Federal Trade Commission

Posted by D. Daniel Sokol

Diana L. Moss of the American Antitrust Institute writes on The Petroleum Industry, Merger Enforcement, and the Federal Trade Commission.

ABSTRACT: This article attempts to provide a context for understanding the complex industry landscape against which joint ventures and mergers are evaluated and almost always approved by the FTC. It argues that fundamental changes in the domestic petroleum sector over the last 20 years should factor importantly into antitrust decisionmaking. It is not clear that the FTC's predictable approach has considered many of these changes and subtleties, so the article suggests ways in which that objective can be accomplished. The following section pieces together a picture of the domestic refining-marketing industry that should ideally inform all analysis of refining and marketing mergers. That picture is characterized by: (1) rapid, large-scale consolidation, (2) changes in refining technology and scale and contraction of wholesale marketing capacity, and (3) empirical economic analysis that identifies market power as a central concern. The next section offers thoughts on what is potentially missing from the analysis of refining and marketing mergers and the final section concludes.

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

Derecho de la Competencia en Argentina y su control judicial Análisis de la jurisprudencia relevante para la práctica profesional

Posted by D. Daniel Sokol

Fundación Justicia & Mercado has organized a first rate conference in Argentina on competition policy.

Derecho de la Competencia en Argentina y su control judicial
Análisis de la jurisprudencia relevante para la práctica profesional
28 DE OCTUBRE DE 2008
AMERICAS TOWERS HOTEL
– Libertad 1070 Buenos Aires – Argentina
ORGANIZA: FUNDACION JUSTICIA & MERCADO
Programa

8,30 hrs  Acreditación y entrega a los inscriptos del material de trabajo.

9.00 hrs. a  9,15 hrs Palabras de apertura Dr. Eduardo M. Favier Dubois (h), Presidente de la Fundación Justicia & Mercado

9,15 a 11,15 hrs. Primer Panel: Actos y conductas anticompetitivas
Temario: Fijación vertical de precios. Acuerdos de división del mercado. Multas por acuerdos de precios. Posición Dominante. Abuso de posición de dominio. Conductas Exclusorias. Aplicación Medidas Cautelares.
Panelistas: Graciela Medina – Germán Coloma – Diego P. Povolo Moderador: Norma A. Pascar

11,15 a 11,30 hrs. Coffee Break

11,30 a 13,30 hrs. Segundo Panel: Concentraciones económicas Temario: Concentración económica. Conformación e integración CNDC. Subordinación y/o condicionamientos a una concentración económica. Multas por notificación fuera de plazo. Intervención en procesos de concentración económica. Parte coadyuvante. Panelistas: Jorge Otamendi - Julián Peña - Santiago Urbiztondo - Humberto G. Mendonca Moderador: Roxana Kahale

13,30 Receso

15,30 hrs. a 17,15 hrs Tercer Panel: Publicidad comparativa. Competencia desleal Temario: Publicidad comparativa. Aplicación de multas. Libre competencia. Desviación de clientela. El delito de competencia desleal y el uso de los medios informáticos. Panelistas: Pablo Palazzi - Sebastián García Menéndez - Gabriel Martínez Medrano Moderador: Carlos Alberto González

17,15 a 17,30 Coffee Break

17,30 hrs. a 19,30 hrs. Cuarto Panel: Aplicación directa de la LDC en el ámbito concursal y societario Temario: Exclusión del voto del acreedor en competencia. Competencia desleal. Medidas cautelares en los concursos. Desvío de clientela. Deber de fidelidad. Interes contrario. Panelistas: José Luis Monti – Guillermo Cabanellas  – Daniel R. Vitolo. Moderador: Hugo Rossi

19,30 hrs. Entrega de certificados y clausura Director: Eduardo M. Favier Dubois (h) Sub-Directora: Guillermina Tajan Coordinadores académicos: Flavio Varennes y Lucia Spagnolo. Secretarios Académicos: Marina Meijide Castro  y Marcelo Villoldo. Relatores: Especialistas designados por la Fundación Justicia & Mercado. Destinatarios: abogados, contadores, escribanos y administradores de sociedades comerciales, economistas, publicistas. Jueces, funcionarios, peritos y empleados judiciales. Funcionarios y personal administrativo de la CNDC. Profesores y estudiosos de la materia. Metodología de trabajo: Al comenzar cada bloque temático los Relatores expondrán una sintesis de los hechos y criterios sentados por cada uno de los fallos que lo componen, los que serán seguidos de comentarios doctrinarios de los Moderadores y Panelistas de cada bloque. Posteriormente se abrirá un debate con la participación de los asistentes para ir delineando, en conjunto, una síntesis conclusiva sobre el estado actual de la jurisprudencia y la doctrina en cada tema (“STARE DECISIS”) y/o sobre las tendencias principales, de utilidad para el desempeño y/o las estrategias profesionales de los diversos operadores jurídicos y económicos. Material: Se entregará a cada participante un libro  conteniendo los fallos relativos al temario, incluyendo trabajos doctrinarios, todo ello bajo la Dirección del Dr. Eduardo M. Favier Dubois (h).

Costo de inscripción: $ 400.- (hasta el 1º de octubre $ 300.-).

Becas: Se concederán a integrantes de la CNDC y del Poder Judicial teniendo en cuenta los pedidos concretos y en proporción a las inscripciones aranceladas.

VACANTES LIMITADAS Informes e inscripción: Fundación Justicia y Mercado Reconquista 661 9º A, Ciudad Autónoma de Buenos Aires Tel.: 011-4315-0127 Fax 4315-3436 [email protected] www.justiciaymercado.org

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

From Overt to Tacit Collusion: Experimental Evidence on the Adverse Effects of Corporate Leniency Programs

Posted by D. Daniel Sokol

Jeroen Hinloopen, University of Amsterdam - Department of Economics and Adriaan R. Soetevent, Amsterdam School of Economics, Tinbergen Institute an important new piece - From Overt to Tacit Collusion: Experimental Evidence on the Adverse Effects of Corporate Leniency Programs.

ABSTRACT: Recent laboratory experiments support the popular view that the introduction of corporate leniency programs has significantly decreased cartel activity. The design of these repeated game experiments however is such that engaging in illegal price discussions is the only way for subjects to avoid the one-shot competitive equilibrium. Subjects in the experiment of this paper have multiple feasible Nash equilibrium strategies to avoid the competitive equilibrium. These strategies differ in the difficulty of the coordination problem they have to solve. The experimental results show that if the efforts of the antitrust authority and the leniency program are directed exclusively to the most straightforward collusive scheme, subjects manage to switch to a more intricate form of coordination. This shift from overt collusion to tacit collusion questions the acclaimed success of corporate leniency programs.

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

Irish Competition Authority Report Finds Competition between Grocers is Limited by the Retail Planning System

Posted by D. Daniel Sokol

The Irish Competition Authority released a report this week on competition in the supermarket sector.  As regular readers of this blog know, supermarkets are hot topics in the US, UK, Australia, Chile and Ireland. In the Authority's press release, we learn that:

“The retail planning system limits competition among grocery retailers and as a result consumers are not getting the best possible choice or value for money”, according to Bill Prasifka, Chairperson of the Authority.

The report has found that the planning system has influenced the type of grocery retailers that trade in Ireland, where they locate, what they offer consumers and the prices that consumers pay. Despite growth in the number and size of grocery retail outlets in Ireland since 2001, the planning system acts as a barrier to competition in grocery retailing in three ways;

1. Restrictions on the size of a grocery retail outlet.

2. Restrictions on where a grocery retail outlet can locate.

3. The uncertainty regarding planning permission can raise the cost and delay the arrival of a new retail outlet.

These factors limit competition between retailers and also between grocery brands. Together they restrict consumer choice and value for money. As a result, Ireland does not have any large scale, low cost grocery retailers, as exist in other European countries; discount retailers face more stringent limitations on size than other grocery retailers; size restrictions on grocery retailers result in less shelf space and subsequently less competition between branded goods; and consumers all over the country are denied the benefits of competing grocery retailers in their local area due to prolonged planning delays.

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

Monday, September 15, 2008

DOJ/FTC Technical Asssitance Workshop - Tanscript Now Available Online

Posted by D. Daniel Sokol

The transcript from the highly successful DOJ/FTC Technical Assistance Workshop held in February is now available online.  In particular, read pages 298-304 in which the transcript provides my long rant about everybody's shortcomings involved in technical assistance.  My harsh words seemed to resonate because on p. 308 after I finished my diatribe, the record shows "applause" when I was done.

September 15, 2008 | Permalink | Comments (1) | TrackBack (0)

Turning On Itself: How Dueling Agencies In The Bush Administration Made Mincemeat Of Antitrust Regulation Policy

Posted by D. Daniel Sokol

Jon Baker of American University's Washington College of Law has an interesting short article in the current issue of the New Republic on Turning On Itself: How Dueling Agencies In The Bush Administration Made Mincemeat Of Antitrust Regulation Policy.  As Baker summarizes, "This interagency clash pits mainstream conservative defenders of traditional competition against radical non-interventionist advocates of broad marketplace rights for big business--and it proves that in competition policy, as elsewhere, the Bush administration has gone sadly astray."

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

Does the Rule of Reason Violate the Rule of Law?

Posted by D. Daniel Sokol

Stuckemaurice Maurice Stucke of the University of Tennessee Law School has posted Does the Rule of Reason Violate the Rule of Law?

ABSTRACT: In the past few years, the Supreme Court has been more active in deciding antitrust issues. The Court's choice of legal standards affects future market behavior and the incentives for individuals and organizations to engage in productive activity. Despites its increased activity, the Court never assesses the deficiencies of its rule-of-reason standard under rule-of-law principles. This assessment is critical. This article analyzes the standard's significant deficiencies, and how these deficiencies adversely affect antitrust enforcement and competition policy generally. Perfect compliance with rule-of-law ideals, however, may be unobtainable and undesirable, so the Article recommends several improvements to reorient the rule of reason closer to rule-of-law ideals.

I provided Maurice some comments on this paper in an earlier draft.  This paper is a fun read, particularly in some of the footnotes.  My favorite is fn 216:

President Nixon in 1971 discussed intimidating the nation's three major television networks by keeping the constant threat of an antitrust suit hanging over them. In a July 2, 1971 taped recorded discussion, aide Charles W. Colson told Nixon that whether filing an antitrust case against ABC, NBC and CBS ―is good or not is perhaps not the major political consideration. But keeping this case in a pending status gives us one hell of a club on an economic issue that means a great deal to those three networks ... something of a sword of Damocles." Nixon responded, ―Our gain is more important than the economic gain. We don't give a goddam about the economic gain. Our game here is solely political. ... As far as screwing them is concerned, I'm very glad to do it.

―If the threat of screwing them is going to help us more with their programming than doing it, then keep the threat," said Nixon. ―Don't screw them now. [Otherwise] they'll figure that we're done." As for the antitrust actions, the White House kept the DOJ from filing suit until April 1972, when the government accused the networks of restraining trade and monopolizing prime-time entertainment with their own programs. The suits were dismissed without prejudice in 1974 after the government was unable to identify the requested documents.

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

A Switching Costs Explanation of Tying and Warranties

Posted by D. Daniel Sokol

Iacobucci_e Edward Iacobucci of the University of Toronto Law School has a very interesting piece on A Switching Costs Explanation of Tying and Warranties in the latest issue of the Journal of Legal Studies.

ABSTRACT: Competitive markets in which buyers face a cost of switching suppliers can result in an inefficient pricing pattern: sellers initially seek to gain market share with below-cost prices, then later exploit past customers with above-cost prices. This article shows that, rather than simply offer cash discounts initially, sellers can bundle a tied good that is worth more to high-demand buyers. This bundling strategy can efficiently screen out socially undesirable sales to low-demand buyers that a straight cash discount would invite. This theory can explain warranties, which are a kind of tying contract in which aftermarket service is bundled with a durable good. The theory also has application in imperfectly competitive markets, in which sellers for reasons of price discrimination prefer a pricing pattern with high aftermarket prices and low durable-good prices. Finally, the theory has implications for antitrust law in the Kodak setting and antitrust cases involving warranties specifically.

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

Sunday, September 14, 2008

Chinese Antimonopoly Commission of the State Council In Operation

Posted by D. Daniel Sokol

The Wall Street Journal reports that the Chinese Antimonopoly Commission of the State Council is now in operation.  Coke's potential acquisition of China Huiyuan Juice Group is an issue.  According to the article:

On the domestic front, the commission will "ensure the control of state enterprises in important industries and key sectors" while also "preventing companies from abusing a position of market dominance to violate the rights and interests of other operators and the majority of consumers," the Xinhua report said. The meeting also agreed that enforcement of the law will provide "equal protection for all the legitimate rights and interests of foreign investors" but also "prevent malicious foreign takeovers and protect national economic security."

I am hoping that "malicious foreign takeovers" does not mean takeovers that have no competitive impact other than a bruise to the national ego.  If the United States can allow the sale of Anheuser-Busch to a Brazilian-Belgian concern without resorting to spurious antitrust claims (after previous sales of Coors to Canadians and Miller to South Africans which means that no major American brewery is in US hands... and what is more American than beer?), other countries should be equally willing to understand that foreign ownership from an antitrust perspective is not a problem in and of itself.  What should drive the antitrust inquiry is not xenophobia but whether the proposed transaction substantially lessens competition and as a consequence the merger does not encourage the price-reducing and quality-enhancing effects of competition.

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