Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, October 24, 2008

An Empirical Assessment of the European Leniency Notice

Posted by D. Daniel Sokol

Andreas Stephan of the University of East Anglia Centre for Competition Policy provides An Empirical Assessment of the European Leniency Notice.

ABSTRACT: A study of the Directorate General for Competition's (DG Competition) 1996 "Notice on the non-imposition or reduction of fines in cartel cases" suggests that it largely failed to induce members of active cartels to self-report. Instead, immunity and fine discounts were predominantly awarded in cases where cartels were failing, or had already failed. A majority of leniency cases followed (or were broadly contemporaneous to) equivalent investigations by the U.S. Department of Justice. All but one EU only leniency case had failed before self-reporting occurred. Moreover, nearly half of leniency cases concerned closely related infringements in the chemicals industry. The majority of those U.S.–EU leniency cases had failed (or were failing) at the time of self-reporting. A preliminary analysis of the revised 2002 notice suggests less reliance on U.S. successes, but still more cartels connected to previous infringements in the chemicals industry. A central challenge is preventing the leniency program from providing a way for failed cartelists to tame the end game, or to use leniency as a strategic tool to put former cartel members (now competitors once more) at a disadvantage. Such cases risk overwhelming DG Competition with leniency applications that do little to enhance deterrence.

October 24, 2008 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 23, 2008

The Complement Market/Final Consumer Distinction: Exclusion and Predation in the U.S. Department of Justice Section 2 Report

Posted by D. Daniel Sokol

Brennan110 Tim Brennan of the University of Maryland-Baltimore Department of Public Policy offers his insights on the DOJ Section 2 Report with his paper The Complement Market/Final Consumer Distinction: Exclusion and Predation in the U.S. Department of Justice Section 2 Report.

ABSTRACT: Most competition law falls into one of three categories. The first, cartel behavior, is relatively uncontroversial. The basics of the second, horizontal mergers, are generally accepted, but how best to implement it—efficiency defenses, welfare standards, the need for market definition, or the value of customer testimony—can be hotly contested. The most controversial category is single-firm conduct, called monopolization in the United States and abuse of dominance in much of the rest of the world...

One indicator of the intensity of the controversy is the contrast between the U.S. statute regarding monopolization and the U.S. Department of Justice’s (DOJ) just-released report (“Report”) on single-firm conduct. The statutory description of illegal conduct, Section 2 of the Sherman Act, takes only 43 words:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.

The Report supplies 181 pages of guidance—not counting an executive summary and appendices—on how to interpret this mere sentence for a statute under which it filed only six cases between 1998 and 2007.

October 23, 2008 | Permalink | Comments (0) | TrackBack (0)

A Second Look at Section 2 of the Sherman Act

Posted by D. Daniel Sokol

In the current issue of Antitrust Insights published by NERA, "Tim Daniel and Elizabeth (Liz) Bailey discuss and debate the key questions that don’t seem to have any easy answers. Why is it so difficult to distinguish procompetitive conduct from anticompetitive conduct? When does harm to a competitor imply harm to the competitive process? What types of analyses and evidence should we be doing to get the answers?  Their conversation is a preview of what we can expect going forward and a discussion that is filled with examples drawn from their past experience and expertise." 

Download insights_fall_2008.pdf

October 23, 2008 | Permalink | Comments (0) | TrackBack (0)

New Commission Notice on Remedies Acceptable Under the Merger Regulation

Posted by D. Daniel Sokol

The European Commission has according to its press release provides details regarding merger remedies.

On 22 October 2008, the Commission has published a Revised Commisison Notice on remedies acceptable under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the "Merger Regulation"). Some of the revisions have also required an amendment of the Merger Implementing Regulation (Commission Regulation (EC) No 802/2004 of 7 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings).

The full text is available here.

October 23, 2008 | Permalink | Comments (0) | TrackBack (0)

The Influence of National Competition Policy on the International Competitiveness of Nations

Posted by D. Daniel Sokol

Andreas Mitschke is the author of the new book The Influence of National Competition Policy on the International Competitiveness of Nations.

BOOK ABSTRACT: Two fields of economic research in competition policy have gained in importance in times of economic globalization. Firstly, globalization has resurrected the debate whether there is a need for international competition rules against private anticompetitive practices and how these rules could be implemented in the best way. Secondly, the concept of the international competitiveness of nations has become a significant issue for all open economies. The discussion of both themes directs the attention to a specific interface of these two issues. The implementation of international competition rules would limit or even eliminate national competition policy. The matter in question is to what extent national competition policy has to be regarded as a factor of international competitiveness so that national antitrust policy should be given priority over international antitrust rules.

October 23, 2008 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 22, 2008

Do Slotting Allowances Harm Retail Competition?

Posted by D. Daniel Sokol

Oystein Foros and Hans Jarle Kind, both of the Norwegian School of Economics and Business Administration,ask Do Slotting Allowances Harm Retail Competition?

ABSTRACT: Slotting allowances are fees paid by manufacturers to get access to retailers' shelf space. Both in the USA and Europe, the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists. One school of thought claims that slotting allowances are efficiency enhancing, while another school of thought maintains that slotting allowances are used in an anti-competitive manner. In this paper, we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized. Using a formal model, we show that there are good reasons to expect anti-competitive effects of slotting allowances. We further point out that competition authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances.

October 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Is Google the Next Microsoft? Competition, Welfare and Regulation in Internet Search

Posted by D. Daniel Sokol

A grad student in econ at Cambridge, Rufus Pollock, asks Is Google the Next Microsoft? Competition, Welfare and Regulation in Internet Search.

ABSTRACT: Internet search (or perhaps more accurately 'web-search') has grown exponentially over the last decade at an even more rapid rate than the Internet itself. Starting from nothing in the 1990s, today search is a multi-billion dollar business. Search engine providers such as Google and Yahoo! have become household names, and the use of a search engine, like use of the Web, is now a part of everyday life. The rapid growth of online search and its growing centrality to the ecology of the Internet raise a variety of questions for economists to answer. Why is the search engine market so concentrated and will it evolve towards monopoly? What are the implications of this concentration for different 'participants' (consumers, search engines, advertisers)? Does the fact that search engines act as 'information gatekeepers', determining, in effect, what can be found on the web, mean that search deserves particularly close attention from policy-makers? This paper supplies empirical and theoretical material with which to examine many of these questions. In particular, we (a) show that the already large levels of concentration are likely to continue (b) identify the consequences, negative and positive, of this outcome (c) discuss the possible regulatory interventions that policy-makers could utilize to address these.

October 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Reconciling the Conflicting Views of the DOJ Report on Single-Firm Conduct

Posted by D. Daniel Sokol

Luke Froeb (Vanderbilt Owen Graduate School of Management) & Pingping Shan (ERS Group) present Reconciling the Conflicting Views of the DOJ Report on Single-Firm Conduct.

ABSTRACT: The U.S. Department of Justice (“DOJ”) report, Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (“DOJ Report”) is either (1) an extraordinarily useful and well written summary of the legal and economic analyses in the most difficult and contentious area of antitrust or (2) a set of standards that makes it nearly impossible to bring a monopolization case.

In this essay, we attempt to: (1) reconcile the competing views of the report; (2) understand how the agencies’ common attempt to achieve a more uniform guidance on enforcement instead illuminated the differences between them; and (3) try to determine what this state of affairs means for policy.

October 22, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 21, 2008

How Loyalty Discounts Can Perversely Discourage Discounting

Posted by D. Daniel Sokol

Elhaugee Einer Elhauge of Harvard Law School  provides his thoughts on How Loyalty Discounts Can Perversely Discourage Discounting.

ABSTRACT: Loyalty discounts are agreements to sell at a lower price to buyers who buy all or most of their purchases from the seller. This article proves that (assuming no efficiency justifications) loyalty discounts can create anticompetitive effects, not only because they can impair rival efficiency, but because loyalty discounts perversely discourage discounting even when they have no effect on rival efficiency. The essential reason, missed in prior work, is that firms using loyalty discounts have less incentive to compete for free buyers, because any price reduction to win sales to free buyers will, given the loyalty discount, also lower prices to loyal buyers. This in turn reduces the incentive of rivals to cut prices, because there will exist an above-cost price that rivals can charge to free buyers without being undercut by the firm using loyalty discounts. These anticompetitive effects occur even if buyers can breach or terminate commitments, and even if the loyalty conditions require no buyer commitments and less than 100% loyalty. These anticompetitive effects also differ from those created by most-favored-nation or price matching clauses, neither of which require the seller to commit to maintain a price difference between loyal and disloyal buyers. Further, I prove that these anticompetitive effects are exacerbated if multiple sellers use loyalty discounts. None of the results depend on switching costs, market differentiation, imperfect competition, or whether the loyalty discount bundles contestable and incontestable demand. Contrary to commonly held views, I prove these anticompetitive effects exist even (1) when all prices are above seller or rival costs; (2) buyers voluntarily agree to the conditions; and (3) discount and foreclosure levels are low, although such low levels do lower the likelihood buyers would agree to anticompetitive loyalty discounts. I also derive formulas for calculating the inflated price levels in each situation. However, because loyalty discounts can have efficiencies, rule of reason analysis remains appropriate.

October 21, 2008 | Permalink | Comments (0) | TrackBack (0)

The Law of Vertical Integration and the Neoclassical Business Firm: 1880-1960

Posted by D. Daniel Sokol

Herberthovenkampphp Herb Hovenkamp, University of Iowa - College of Law, writes on The Law of Vertical Integration and the Neoclassical Business Firm: 1880-1960.

ABSTRACT: Vertical integration occurs when a firm does something for itself that it could otherwise procure on the market. For example, a manufacturer that opens its own stores is said to be vertically integrated into distribution. One irony of history is that both classical political economy and neoclassicism saw vertical integration and vertical contractual arrangements as much less threatening to competition than cartels or other horizontal arrangements. Nevertheless, vertical integration has produced by far the greater amount of legislation at both federal and state levels and has motivated many more political action groups. Two things explain this phenomenon. First, while economists prior to the 1930s rarely saw a threat, neither did they understand why firms integrate or enter into long term contracts, except for fairly obvious savings in production costs. Second, vertical integration led to many bankruptcies of small family businesses unable or unwilling to take on the costs and associated risks of integrating vertically themselves. When that happened, politics inevitably triumphed over economics.

Both the common law and classical economists tended to view vertical integration favorably. The principal limitation on vertical integration by contract was common law rules limiting restraints on alienation. The managerial revolution in the United States in the nineteenth century occasioned the rise of significant vertical integration. At the same time, however marginalist, or neoclassical, economics first began to see significant competitive problems. The emergent legal policy toward vertical control by contract was developed first in intellectual property law's "first sale" doctrine, and later on in antitrust policy.

In his 1937 article on the "Nature of the Firm," Ronald H. Coase formulated a purely marginalist theory of vertical integration, but it was ignored by both economists and legal policy makers for nearly half a century. Economists continued to wrestle with theories that were far more myopic, and as a result much less satisfactory. The result was that vertical integration became much more vulnerable to special interest legislation than did competition policy generally. By the mid-twentieth century a set of aggressive antitrust policies had emerged that dealt harshly with both vertical integration by contract and ownership vertical integration.

October 21, 2008 | Permalink | Comments (0) | TrackBack (0)

Department of Justice to Host Antitrust Workshop on Airline Competition

Posted by D. Daniel Sokol

According to a press release, "The Department of Justice's Antitrust Division today announced it will host a one-day workshop on recent academic research into developments in airline antitrust and competition to mark the 30-year anniversary of airline deregulation in the United States."  On this topic, Darren Bush (one of our two new contributing editors) hosted a wonderful symposium at the University of Houston on the same topic earlier this year.  The conference will take place on October 23.

The current schedule is as follows:

9:00am–10:00am   Keynote Lecture    
    Speaker: Severin Borenstein, E.T. Grether Professor of Business Administration and Public Policy, Haas School of Business, University of California, Berkeley; Director of the University of California Energy Institute; and Research Associate, National Bureau of Economic Research (NBER)    
    Paper: "How Airline Markets Work...Or Do They? Regulatory Reform in the Airline Industry" by Severin Borenstein and Nancy Rose (Professor of Economics, Massachusetts Institute of Technology, and Research Associate, NBER)

10:15am–12:00pm   Session 1: Airline Competition, Financial Volatility and Recent Trends    
    Presenter: Panle Jia, Assistant Professor, Department of Economics, Massachusetts Institute of Technology, and Faculty Research Fellow, NBER    
    Paper: "Tracing the Woes: An Empirical Analysis of the Airline Industry" by Steven Berry (James Burrows Moffatt Professor of Economics, Yale University, and Research Associate, NBER) and Panle Jia

Presenter: Federico Ciliberto, Assistant Professor, Department of     Economics, University of Virginia           
          Paper: "Bankruptcy and Product-Market Competition: Evidence from the     Airline Industry" by Federico Ciliberto and Carola Schenone (Assistant     Professor, Finance Area, McIntire School of Commerce, University of     Virginia)      
 

Presenter: Rene Kamita, Economist, Economic Analysis Group, Antitrust Division, U.S. Department of Justice       
       Paper: "Analyzing the Impact of Antitrust Immunity: Price Effects Following the Aloha-Hawaiian Antitrust Immunity Agreement" by Rene Kamita

 

1:15pm–2:30pm   Session 2: Airline Competition, Airport Delays and Congestion       
      Presenter: Cliff Winston, Senior Fellow, Economic Studies, Brookings Institution       
       Paper: "Airline Delays: Can Airport Privatization Help?" by Cliff Winston and Steven Morrison (Professor, Department of Economics, Northeastern University)       

Presenter: Jan Brueckner, Professor, Department of Economics, University     of California, Irvine            
             Paper: "Price vs. Quantity-Based Approaches to Airport Congestion     Management" by Jan Brueckner
   
      

2:45pm–4:00pm   Session 3: Airline Competition, Entry and Potential Competition       
      Presenter: Abe Dunn, Economist, Economic Analysis Group, Antitrust Division, U.S. Department of Justice       
       Paper: "Do Low Quality Products Affect High Quality Entry? Multiproduct Firms and Nonstop Entry in Airline Markets" by Abe Dunn

Presenter: John Kwoka, Neal F. Finnegan Distinguished Professor of     Economics, Northeastern University      
      Paper: "Eliminating a Competitive Constraint: The Price Effect of Merging     with a Potential Entrant in Airlines" by John Kwoka and Evgenia     Shumilkina (PhD student and lecturer, Department of Economics,     Northeastern University)


October 21, 2008 | Permalink | Comments (0) | TrackBack (0)

What Has Competition Done for Consumers in Liberalised Markets?

Posted by D. Daniel Sokol

Kati Cseres, University of Amsterdam - Amsterdam Center for Law & Economics, asks What Has Competition Done for Consumers in Liberalised Markets?

ABSTRACT: This paper reviews current regulatory approaches designed to correct market failures and distribute the benefits of liberalization to consumers in recently liberalised network industries. Present evaluations of the liberalisation process show that opening up markets to more competition has not yet resulted in either expected levels of competitiveness or in envisaged consumer benefits. Many consumer related failures were little anticipated; legislation to protect and assist consumers was either late coming or inadequate and often lacked effective enforcement. The paper examines market failures primarily related to the demand side; such as information asymmetries, unfair trade practices, unfair standard contract terms, high search and switching costs, and imperfect decision-making processes. It, however, discusses these imperfections in the broader context of market failures related to incoherent regulation and ineffective competition law enforcement and shows how poor coordination between these regulatory fields leads to suboptimal outcomes. The interplay between general consumer protection and specific consumer issues of sector regulation is discussed and elaborates on specific market deficiencies that draw attention to the intersection between consumer protection and competition law. The discussion incorporates theoretical insights from neoclassical and behavioural economics to consumer problems. The paper focuses on what the liberalization process, so far, has done for consumers by looking at and evaluating both the legislative and policy developments and recent proposals at European level as well as actual implementation and enforcement of these legislations at national level. More specifically, it deals with the energy and the telecommunications markets and their recent developments in the EU. Two case studies provide insight on national regulatory approaches: a case study of the liberalization of the Hungarian telecommunications market and a case study of the liberalization of the Dutch electricity market. The paper proposes a new mode of regulation as well as a new mode of coordination among different layers and fields of regulation and enforcement in order to remedy consumer problems and to achieve competitive markets.

October 21, 2008 | Permalink | Comments (0) | TrackBack (0)

Monday, October 20, 2008

Justice Department Files Lawsuit to Stop JBS S.A. from Acquiring National Beef Packing Co.

Posted by D. Daniel Sokol

In an important enforcement move, the Justice Department has filed a lawsuit to Stop JBS S.A. from Acquiring National Beef Packing Co.

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

Should Common Law Doctrines Influence Our Approach to Restraint of Trade?

Posted by D. Daniel Sokol

From the land of vegemite sandwiches, Mark Humphery von Jenner, University of New South Wales - School of Banking and Finance, University of New South Wales - Faculty of Law asks Should Common Law Doctrines Influence Our Approach to Restraint of Trade?

ABSTRACT: This article considers if common law doctrines should influence the interpretation of the restraint of trade doctrine. In so doing it compares and contrasts the prohibitions under the United States Sherman Act Section 1 with the prohibitions in Australia's Trade Practices Act Part IV and Section 45B. The article finds that common law doctrines should influence Sherman Act Section 1 but not Trade Practices Act Part IV. This has important implications for the imposition and regulation of salary caps in professional sport, which may be a 'reasonable' restraint of trade at common law, but may contravene Trade Practices Act Section 45B.

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

The Justice Department’s Section 2 Report: The Widening Schism on Pennsylvania Ave.

Posted by D. Daniel Sokol

Kolasky William Kolasky of Wilmer Hale articulates his thoughts on The Justice Department’s Section 2 Report: The Widening Schism on Pennsylvania Ave.  Bill is a very thoughtful practitioner and I encourage you to read this work.

ABSTRACT: The Justice Department's Section 2 report and the Federal Trade Commission's sharp reaction leave practitioners in the perplexing situation where there seems to be strong disagreement between our two federal antitrust enforcement agencies over what standards should apply to single-firm conduct under Section 2 of the Sherman Act. This not only makes counseling more difficult than ever, but it also severely undermines the ability of our U.S. antitrust enforcers to play a role in shaping global antitrust policy toward single-firm conduct, an area in which many of us have long observed we already have a wide divergence between the United States and European courts.

I think the primary result will be one that was suggested by Chairman Kovacic in his separate statement—more discussion, and unfortunately little resolution. In the interest of trying to move that discussion forward and perhaps even heal the schism, I have a few overarching observations to share.

In my view, the Report, overall, is quite well done. It discusses what everyone acknowledges are very difficult issues in a well-informed and careful manner, and the approaches it proposes to take to the particular types of conduct it discusses (price predation, tying, bundled and loyalty discounts, refusals to deal, and exclusive dealing) seem generally sound in the sense of identifying the right issues to be examined in individual cases.

Where the Report veers off course—and where the comments from the majority of the FTC commissioners have the most persuasive force—is in the general standards it proposes for exclusionary conduct.

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

Hong Kong Polytechnic University Seeks Research Associate in Competition Policy

Posted by D. Daniel Sokol

The School of Accounting and Finance, Hong Kong Polytechnic University has posted an advertisement for a Research Associate in Competition Policy.

HT: Chinese Law Prof Blog

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

Sunday, October 19, 2008

Issues in Competition Law and Policy

Posted by D. Daniel Sokol

The ABA Antitrust Section has 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.

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