Antitrust & Competition Policy Blog

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

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Saturday, November 8, 2008

Call for Papers: Harvard-Standard International Junior Faculty Forum

Posted by D. Daniel Sokol

Harvard Law School and Stanford Law School
Second Annual International Junior Faculty Forum
Call for Papers

       The first annual International Junior Faculty Forum was held at Stanford Law School on October 17 and 18th, 2008.  Organized by Professors William P. Alford and Lawrence M. Friedman, it was sponsored jointly by the Harvard and Stanford Law Schools.  Ten papers were selected for presentation, out of a large number of applicants.  A panel of twenty distinguished senior scholars from the United States and several other nations was involved in the final selection process. At the Forum itself, each of the selected papers had two commentators, drawn from the panel of international senior scholars.  The papers represented a wide range of subjects and disciplines, and, together with the senior scholars, represented more than a dozen different countries. 

      The stated purpose of the Forum was to stimulate the international exchange of ideas and research among members of the legal academy, to encourage and further the work of younger scholars in the international community, and to surmount barriers between scholars of different traditions and cultures, in the interest of the development of legal scholarship on a transnational basis.  In this regard, the consensus of the participants was that the Forum was successful, that it made an excellent start.

      The sponsoring schools, Harvard and Stanford law schools, now announce plans for the second International Junior Faculty Forum. Harvard will be the host school in 2009.  The dates fixed for the Forum are November 6-8, 2009, at the Harvard Law School, Cambridge, Massachusetts.

      Junior scholars whose home institution is outside the United States and who have held an academic position for less than seven years, as of 2009, or whose last degree was earned less than ten years earlier than 2009 and are not U.S. citizens, are invited to apply for the 2009 session.  Students currently enrolled in a degree program in a U.S. law school are ineligible. The first step in applying is to submit an abstract of no more than five pages that lays out the major argument of the paper that he/she would submit, states what method the scholar will pursue to advance that argument, and indicates the paper’s potential contribution to scholarship. The abstract must be in English and must be submitted by January 15, 2009 electronically to both Juliet Bowler (jbowler@law.harvard.edu) and Mary Tye (mtye@law.stanford.edu) with a subject line of International Junior Faculty Forum. Additionally, the abstract must contain the author’s name, home institution and paper title.   

      On the basis of these abstracts, the sponsoring schools will invite the electronic submission of full papers by May 25, 2009. The paper may be on any legally relevant subject, and may utilize any legally relevant approach, quantitative or qualitative, sociological, anthropological, historical, or economic, on the role and function of law and legal systems in the modern world, or in the past.  The papers will be reviewed by an international committee of senior legal scholars, representing many different countries and many different styles and approaches.  Approximately ten of the papers will be selected for presentation at the conference.  As before, each paper will have two commentators, drawn from the international committee of scholars.

             The sponsoring schools will cover expenses of travel, including airfare, lodging, and food, for each participant. Questions should be directed to Juliet Bowler  (jbowler@law.harvard.edu).

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

Friday, November 7, 2008

Changes at DOJ Antitrust - Barnett Steps Down

Posted by D. Daniel Sokol

With the end of the current administration approaching, we have the first of what will be many high profile departures from the DOJ and FTC.  Tom Barnett, the head of DOJ antitrust, will step down on Nov. 19.

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

Antitrust Law and Regulatory Gaming

Posted by D. Daniel Sokol

Stacey L. Dogan, Northeastern University School of Law and Mark A. Lemley, Stanford Law School discuss Antitrust Law and Regulatory Gaming in a new working paper.

ABSTRACT: Antitrust law promotes competition in the service of economic efficiency. Government regulation may or may not promote either competition or efficiency, depending on both the goals of the agency and the effects of industry "capture." Antitrust courts have long included regulated industries within their purview, working to ensure that regulated industries could not use the limits that regulation imposes on the normal competitive process to achieve anticompetitive ends. Doing so makes sense; an antitrust law that ignored anticompetitive behavior in any regulated industry would be a law full of holes.

The role of antitrust in policing regulated industries appears to be changing, however. A cluster of Supreme Court decisions in the past decade have fundamentally altered the relationship between antitrust and regulation, placing antitrust law in a subordinate relationship that, some have argued, requires it to defer not just to regulatory decisions but perhaps even to the silence of regulatory agencies in their areas of expertise.

Absolute antitrust deference to regulatory agencies makes little sense as a matter either of economics or experience. Economic theory teaches that antitrust courts are better equipped than regulators to assure efficient outcomes in many circumstances. Public choice theory - and long experience - suggests that agencies that start out trying to limit problematic behavior by industries often end up condoning that behavior and even insulating those industries from market forces. And as history has shown, relying on regulatory oversight alone without the backdrop of antitrust law would leave both temporal and substantive gaps in enforcement, which unscrupulous competitors could exploit to the clear detriment of consumers. The mere existence of a competition-conscious regulatory structure cannot guarantee against abuses of that structure, or against exclusionary behavior that falls just beyond its jurisdiction. Indeed - and perhaps ironically - the very regulatory structure that exists to promote competition can create gaming opportunities for competitors bent on achieving anti-competitive goals. Such "regulatory gaming" undermines both the regulatory system itself and the longstanding complementary relationship between regulatory and antitrust law.

We argue that the risk of regulatory gaming provides an important example of the need for ongoing antitrust oversight of regulated industries. We define regulatory gaming as private behavior that harnesses pro-competitive or neutral regulations and uses them for exclusionary purposes. We identify three possible instances of regulatory gaming: (1) product-hopping, in which the branded company makes repeated changes in drug formulation to prevent generic substitution, rather than to improve the efficacy of the drug product; (2) manipulation of government standard-setting organizations; and (3) claims of price squeezes by partially regulated industries.

Our goal in this paper is not to persuade the reader that these particular examples of regulatory gaming do or do not violate the antitrust laws. Rather, our point is that whether or not particular acts of regulatory gaming harm competition is and should be an antitrust question, not merely one that involves interpreting statutes or agency regulations. Some level of antitrust enforcement - with appropriate deference to firm decisions about product design and affirmative regulatory decisions that affect market conditions - provides a necessary check on behavior, such as product hopping, that has no purpose but to exclude competition.

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

University of Chicago Seeks Law and Economics Fellow

Posted by D. Daniel Sokol

THE UNIVERSITY OF CHICAGO
                             LAW SCHOOL

            The John M. Olin Program in Law and Economics

                      Law and Economics Fellow


     The Law School's Program in Law and Economics seeks to
     appoint a law and economics fellow for the 2009-10 academic
     year.


     QUALIFICATIONS:

     Each candidate's record must demonstrate distinguished work
     in legal or economic scholarship.


     APPLICATION PROCEDURE:

     To be considered as a candidate for this position please
     send a cover letter, resume, research statement and writing
     samples to:

     CONTACT:       Marjorie Holme
                    John M. Olin Program in Law and Economics
                    University of Chicago Law School
                    1111 East 60th Street
                    Chicago, IL 60637

     The University of Chicago is an Affirmative Action/Equal
     Opportunity Employer. If you have any questions about the
     position or the hiring procedures, please contact Marjorie
     Holme at:

     Email: mholme@uchicago.edu

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

Conglomerate Mergers

Posted by D. Daniel Sokol

Jeffrey Church, University of Calgary - Economics provides an overview into Conglomerate Mergers.

ABSTRACT: This chapter provides an overview of the economics of conglomerate mergers, with a focus on the potential for an increase in its product portfolio to lead to conduct that is anticompetitive. The economics of portfolio power indicates that a conglomerate merger that results in a firm posttransaction having a larger portfolio or product range may have the ability and incentive to engage in anticompetitive conduct. The key question for enforcement is how and whether to identify transactions that might give rise to an anticompetitive effect because of portfolio power, especially since most such transactions will be procompetitive. The chapter traces the evolution of conglomerate enforcement policy in the United States and Europe and considers the appropriateness of current enforcement policy.

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

Thursday, November 6, 2008

FTC Announces First in Series of Hearings on Evolving Intellectual Property Marketplace

Posted by D. Daniel Sokol

An important hearing is the FTC's recently announced hearing on the Evolving Intellectual Property Marketplace.  According to the Notice in the Federal Register:

The December 5 hearing will include three th panels addressing a range of topics related to the valuation of patents and the operation of the market for intellectual property. A primary goal of this first hearing is to identify those issues that require more in-depth study in subsequent hearings. In the first panel, participants will discuss the operation and impact of emerging business models, aspects of the patent system that support those models, and industry responses. The second panel will explore remedies law and the need for economic analysis in this area. In the third panel, participants will examine legal doctrines that affect the value and licensing of patents, such as the recent Supreme Court cases on obviousness, declaratory judgment and exhaustion, and doctrines that make the scope and enforcement of patents unpredictable. The panel will consider whether the notice function of patents operates to support an efficient marketplace. The Commission invites public comments discussing the current marketplace for intellectual property, in particular its impact on innovation incentives and competition concerns and the role of economic analysis in this assessment. The Commission will accept comments, as described above, until February 5, 2009. Comments addressing any of the following questions would be particularly helpful.

1. How has the IP marketplace changed in the past five to ten years? What changes are expected in the future? What aspects of the patent system drive those changes? What is the impact of those changes on innovation?

2. What are the new business models involving intellectual property? What has motivated the development of these business models? What is their impact on innovation?

3. What economic evidence is relevant when analyzing whether to grant a permanent injunction following a finding of infringement? What proof have courts required? How should the analysis take into account the incentives to innovate provided by the patent system and the benefits of competition? What is the appropriate remedy when the court has denied a permanent injunction after a finding of infringement?

4. Do the legal rules governing patent damages result in awards that appropriately compensate patentees? Are there circumstances in which they result in overcompensation or undercompensation of patentees? What evidence is there of the extent of these problems? What information would be helpful to better assess whether damage awards appropriately compensate patentees? Are courts and juries able to make damages determinations with sufficient accuracy? To the extent that there are problems resulting from the determination of damages for patent infringement, how should they be addressed?

5. How have changes in willfulness doctrine changed the behavior of patentees and potential infringers? Do recent changes in the law adequately address the concerns with willfulness doctrine identified in the October 2003 FTC IP Report?

6. How will changes in patent law rendered by Supreme Court and Federal Circuit decisions of the past five years affect the value of patents? How will these changes affect the operation of the IP marketplace? How will they affect innovation and competition?

7. How does uncertainty regarding the validity and scope of patents affect the operation of the IP marketplace? Does the current system adequately fulfill the notice function of patents? How does uncertainty influence the operation of the IP marketplace? What are the sources of uncertainty that affect the value of patents and the operation of the IP marketplace? What could be done to address them?

8. How transparent is the current IP marketplace? Can it be made more transparent? Is that desirable?

9. During the past five years, what new learning has furthered the understanding of the patent system and the IP marketplace?

DATES: The first hearing will be held December 5, 2008, in the Conference Center of the FTC office building at 601 New Jersey Avenue, N.W., Washington, D.C. All interested parties are welcome to attend. An agenda for that hearing will be posted on the FTC’s website, www.ftc.gov. The Commission may hold subsequent hearings in Washington, D.C. and other locations. Prior to each hearing, the Commission will publish an agenda on its website.

ADDRESSES: Any interested person may submit written comments responsive to any of the topics identified in this Federal Register notice or in any subsequent announcement related to hearings on the Evolving IP Marketplace. Respondents are encouraged to provide comments as soon as possible, but no later than February 5, 2009. The FTC will only accept comments submitted by weblink or in hard copy format. Information about how to submit comments will be posted on the website for the hearings, accessible at http://www.ftc.gov/ftc/workshops.shtm

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

Economics, Law and Institutions: The Shaping of Chinese Competition Law

Posted by D. Daniel Sokol

Dgerber_web David Gerber of Chicago Kent Law has posted a wonderful new piece, Economics, Law and Institutions: The Shaping of Chinese Competition Law.

ABSTRACT: China has been considering enactment of an anti-monopoly (antitrust) law since 1993, and it has now enacted such a law. Given the potential importance of this legislation, there is much uncertainty about what the enactment means and what roles it is likely to play in influencing the development of the Chinese economy. This article applies a neo-institutionalist analysis in examining some of the factors that have influenced the shaping of the legislation and that are likely to influence the operation of competition law and its organizations. The main argument is that the central dynamic in both the creation of the statute and its structuring has been the interaction of Chinese economic policy institutions with foreign pressures (institutional mechanisms intended to "push" the Chinese decision makers in certain directions) and foreign cognitive influence (cognitive factors that accord influence to foreign organizations, experience, and laws). These interactions also provide insights into how the law is likely to be applied. The paper also explores these two concepts - foreign pressure and foreign cognitive influence - in relation to the theory of institutional change.

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

Cartel Overcharges and Optimal Cartel Fines

Posted by D. Daniel Sokol

Robert H. Lande of the University of Baltimore Law School and John Connor of Purdue University Applied and Agricultural Economics have a wonderful new work on Cartel Overcharges and Optimal Cartel Fines.

ABSTRACT: This chapter examines how high cartels raise prices on average and what this should mean for the current criminal fine levels in the U.S. Sentencing Guidelines. We utilize two distinct data sets (economic and other studies, and verdicts in final cartel cases) and find that cartels have caused average overcharges in the range of 31 to 49 percent and median overcharges in the range of 22 to 25 percent of affected commerce. We conclude that the current Sentencing Commission presumption that cartels overcharge on average by 10 percent is much too low, and the current levels of cartel penalties should be increased significantly.

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

Future of Private Antitrust Enforcement Invitational Symposium

Posted b y D. Daniel Sokol

The American Antitrust Institute presents

Future of Private Antitrust Enforcement Invitational Symposium
December 11, 2008 - December 11, 2008

On Thursday, December 11, 2008, the American Antitrust Institute will host its second annual Invitational Symposium on the Future of Private Antitrust Enforcement.  The event will take place in the Holeman Lounge of the National Press Club in Washington D.C. Several prominent antitrust lawyers and academics will discuss and debate a variety of topical issues and judicial developments pertaining to private enforcement. A complete agenda follows, or download the agenda here.

 

There is no cost for the program, but it is an invitational event with limited seating. If you have received an email invitation and wish to register, please complete the registration form at www.antitrustinstitute.org before Monday, November 24, 2008. If you would like to request an invitation, please email aai@antitrustinstitute.org.

 

Information about the speakers for this event is available here.


AGENDA:

9:00 a.m. – Welcome

Bert Foer, President, American Antitrust Institute


9:30 a.m. - New Information on the Deterrent Effects of Private Enforcement

An update on the AAI's 2007 Report on the benefits of private enforcement.

Robert Lande, Venable Professor of Law, University of Baltimore; AAI Director


9:45 a.m. – Restoring the Legitimacy of Private Enforcement: A Discussion of the AAI’s Transition Report

A discussion of the major recommendations of the Private Enforcement chapter from The Next Antitrust Agenda: The American Antitrust Institute’s Transition Report on Competition Policy to the 44th President of the United States. The chapter and recommendations are now available here.


Moderator:

Richard Brunell, AAI Director of Legal Advocacy; Adjunct Professor of Law, Boston College Law School


Panelists:

Jonathan Cuneo, Partner, Cuneo Gilbert & LaDuca

Einer R. Elhauge, Petrie Professor of Law, Harvard Law School

The Hon. J. Thomas Rosch, Commissioner, Federal Trade Commission


10:45-11:00 BREAK


11:00 a.m. – Action on the Class Action Front: A Potpourri

Harvard Law School’s David Rosenberg, author of "Mandatory-Litigation Class Action: The Only Option for Mass Tort Cases,” will provide an overview of recent challenges to class certification. The panel discussion will also consider a variety of topics relating to class actions


Overview:

David Rosenberg, Lee S. Kreindler Professor of Law, Harvard Law School


Panelists:

Joseph Bruckner, Partner, Lockridge Grindal Nauen PLLP

Vince Esades, Partner, Heins Mills & Olson PLC

Daniel A. Small, Partner, Cohen, Milstein, Hausfeld & Toll PLLC


12:15 p.m. – Luncheon Address: The Future of Antitrust Enforcement: Public and Private

An analysis of how the 2008 Presidential election results could affect antitrust policy.


Introduction:

Katherine Kinsella, President, Kinsella/Novak Communications, LLC


Address:

Einer R. Elhauge, Petrie Professor of Law, Harvard Law School


1:45 p.m. - Associated General Contractors: Implications for States and Private Actions

A discussion of challenges relating to standing in indirect purchaser class actions.

Kathleen E. Foote, Senior Assistant Attorney General, Chief, Antitrust Section, California Department of Justice

Daniel E. Gustafson, Partner, Gustafson Gluek PLLC

 

2:30 p.m. – How Private Enforcement in Europe Will Change the Antitrust World

With European nations beginning to introduce private remedies, how will this change the role of U.S. firms and the development of antitrust law?

Michael Hausfeld, Partner, Cohen Milstein Hausfeld & Toll PLLC


3:00 p.m. - Judicial Resolution of Contested Facts in Antitrust Cases

An examination into the possibility of a disturbing new trend in jury-avoidance.

Joshua P. Davis, Professor and Director, Center for Law and Ethics, University of San Francisco School of Law

Eric L. Cramer, Shareholder, Berger & Montague, P.C.


3:30 p.m. - Has Daubert Become an Unfair Method of Competition?

An economist and legal practitioners discuss the implications of Daubert relating to the standards for the admissibility of expert testimony and economic evidence in antitrust cases.


Moderator:

James Langenfeld, Director, LECG


Panelists:

Peter B. Nordberg, Shareholder, Berger & Montague, P.C

Joseph R. Saveri, Partner, Lieff Cabraser Heimann & Bernstein


4:15 p.m. – Closing

Bert Foer, President, American Antitrust Institute

 

WHEN:

Thursday, December 11, 2008. 9:00 am – 4:30 pm. Continental breakfast and lunch (Sponsored by Rust Consulting) will be served.


WHERE:

National Press Club, Holeman Lounge

529 14th St. NW, 13th Floor - Washington, DC 20045


RSVP:

There is no cost for the program, but seating is limited and we are requiring registration in advance. Please complete the registration form before Monday, November 24, 2008.

 

This is an invitational symposium. To request additional invitations, or to transfer your invitation, please contact AAI at aai@antitrustinstitute.org.

 

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

Dynamic Competition' Does Not Excuse Monopolization

Posted by D. Daniel Sokol

Jbaker Jon Baker of American University's Washington College of Law has a great short new piece, Dynamic Competition' Does Not Excuse Monopolization, that argues against the position taken by Evans and Hylton in their work The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust.

ABSTRACT: This comment on a forthcoming article by Keith Hylton and David Evans explains why considerations of "dynamic competition" do not argue against antitrust enforcement. While the prospect of achieving monopoly may foster innovation, that observation misleads as to appropriate antitrust policy unless qualified by the observation that the push of competition generally spurs innovation more than the pull of monopoly. Moreover, the longstanding doctrinal rule that mere monopoly pricing is not illegal should not be read as demonstrating that antitrust law values monopolies for their role in promoting innovation.

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

Wednesday, November 5, 2008

Google/Yahoo Agreement is Over

Posted by D. Daniel Sokol

The official Google Blog has announced that the advertising agreement will not be pursued any further.

November 5, 2008 in Books | Permalink | Comments (0) | TrackBack (0)

Competition Day Program in Chile

Posted by D. Daniel Sokol

Competition Day is an annual tradition in many countries.  The program for Chile's Competition Day is available here and will be held on November 13, 2008.

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

A Price-Fixer's Memoir — Exculpation and Revenge While Confronting the Antitrust Abyss: An Essay on Threshold Resistance by Alfred Taubman

Posted by D. Daniel Sokol

Arthur Austin (Case Western Law) has a wonderful new piece in the latest issue of the Antitrust Source on A Price-Fixer's Memoir — Exculpation and Revenge While Confronting the Antitrust Abyss: An Essay on Threshold Resistance by Alfred Taubman.

ABSTRACT: United States v. Taubman was a class-driven trial with a Henry James-Norman Mailer template: high art descends to the shopping mall. A Wall Street Journal article on the case was even entitled, To Sotheby’s Boss, Selling Art Is Much Like Selling Root Beer, a reference to the source of Sotheby’s chairman Alfred Taubman’s considerable wealth, shopping malls. Instead of testimony from accountants and economists duking it out over bookkeeping ploys and arcane marketing strategy, the public got haughty exchanges from specialists in wheeling and dealing Monets, Renoirs, and Warhols, while discussing price strategy. In 2005 I published an essay discussing Sotheby’s implications for the price-fixing narrative. Using Adam Smith’s commentary as the anchor, I focused on conspiracy—the most troublesome issue in the pricing conundrum. Two years later Taubman has published a candid account of his experiences, Threshold Resistance— a raw glimpse into his reactions to a conviction as one of the alleged instigators of the most pernicious form of commercial deviancy. This Essay seeks to fathom the psychology and tactics of the hunted as he responds to the accusations of a trusted colleague while coping with what Justice Holmes called a “foolish law.

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

Antitrust Under an Obama Administration

Posted by D. Daniel Sokol

This was an electoral landslide.  What the election means for antitrust remains to be seen depending on who runs DOJ and FTC.  The Daily Deal suggests that the next head of DOJ Antitrust will be Bill Kolasky of Wilmer and the next FTC Chairman will be current FTC Commissioner Jon Leibowitz.

Some initial thoughts on what will be different:

1. increased challenges of mergers and monopolization cases, especially at DOJ

2. more consumer protection work at the FTC with a push to more expansive consumer rights

3. less language by US enforcers internationally about "convergence" and more on "harmonization"

4. a move away from cartels as the supreme evil of antitrust to more holistic approach that elevates unilateral conduct (if I am right, Josh Wright must be beside himself in terms of what this means under an error/cost framework)

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

The Democracy of Competition - EC (Competition) Law and the Fine Line between Markets, Public Interests and (Self-)Regulation

Posted by D. Daniel Sokol

Hans Vedder of University of Groningen discusses The Democracy of Competition - EC (Competition) Law and the Fine Line between Markets, Public Interests and (Self-)Regulation in his latest working paper.

ABSTRACT: The EC and it's Member States struggle to draw the line between markets and public interests. Traditionally, these two are contrasted, most prominently by the continental Member States and followed by a conclusion that public interests require public governance. Some of this public governance takes the form of a public law framework within which self-regulation by the members of a profession occurs. We also see a more subtle version of self-regulation, whereby regulators are so dependent on specific information from the professions concerned, that they effectively become captive regulators. In those circumstances, the degree to which the public interest, rather than the interest of the professions concerned, is actually served may be doubted.

This holds true even more where legislators, both at the EC and the Member State level, are moving the line between markets and public interests towards the market side. It is uniformly recognised that public governance is not the blanket solution for market failures and the introduction of market mechanisms may actually increase consumer welfare. The contrast between public interests and markets may therefore also be rephrased into a citizens versus consumers antithesis. EC (competition) law plays a prominent role in this debate in that it requires member state regulators to rethink how and to what extent their actions serve the public interest. This role of EC (competition) law requires a fundamental rethinking of the market (consumer) and public interest (citizen) antithesis. The hypothesis central to this paper is that EC (competition) law can serve as a democratic instrument to increase legitimacy whilst refining the line between markets and public interests.

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

Tuesday, November 4, 2008

Network Structure and Design in the Deregulated U.S. Airline Industry: An Argument for Re-Regulation?

Posted by D. Daniel Sokol

Sayed A. Hussain, University of Toronto and Serkan Bahçeci, J.P. Morgan Chase & Co. - JPMorgan Asset Management discuss Network Structure and Design in the Deregulated U.S. Airline Industry: An Argument for Re-Regulation?

ABSTRACT: This paper develops a model to explain and analyze the evolution of network structure (connectivity) and design (flight frequency, aircraft size, prices) in the post-deregulation U.S. airline industry. We show that legacy carriers choice of Hub-and-Spoke networks and the emergence of low cost carriers (LCCs) operating Point-to-Point networks were optimal choices. We demonstrate that LCCs need not necessarily charge lower prices, and their entry impacted legacy carriers' prices in all markets, even those where there is no direct competition. We show that in response to entry, legacy carriers optimally lower flight frequency, leading to longer wait times between flights for which passengers are compensated by lower prices; conversely, if the entrant later exits, legacy carriers raise flight frequency and therefore prices, which may erroneously appear to be predatory pricing when in fact it is the consequence of optimal network redesign. Finally, we demonstrate that even though low cost carriers lower prices, total social welfare with competing network structures can also be lowered. In other words, the poor financial performance of legacy carriers is not due to their inefficiency per se but due to an efficient Hub-and-Spoke network undermined by competition from inefficient Point-to-Point networks. We argue that social welfare may have been, and still can be, higher if entry and exit in air passenger travel industry is regulated.

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

Beyond the Cartel Law Handbook: How Corruption, Social Norms and Collectivist Business Cultures can Undermine Conventional Enforcement Tools

Posted by D. Daniel Sokol

Andreas Stephan of the University of East Anglia Centre for Competition Policy offers his thoughts on Beyond the Cartel Law Handbook: How Corruption, Social Norms and Collectivist Business Cultures can Undermine Conventional Enforcement Tools.

ABSTRACT: The combination of leniency programmes, high sanctions, complaints from customers and private actions for damages, has proven very successful at uncovering and punishing cartel agreements in the US. Countless jurisdictions are being encouraged to adopt these 'conventional' enforcement tools, in the absence of an international competition authority. The purpose of this paper is to widen the debate on cartel enforcement by identifying three issues which can undermine their effectiveness in some jurisdictions: (1) Corruption and organised crime; (2) Social norms that are sympathetic to collusive practices; (3) Collectivist business cultures built on personal relationships.

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

Twombly and Communication: the Emerging Definition of Concerted Action Under the New Pleading Standards

Posted by D. Daniel Sokol

Page_big My colleague Bill Page has posted an excellent working paper Twombly and Communication: the Emerging Definition of Concerted Action Under the New Pleading Standards.

ABSTRACT: After the Supreme Court's 2007 decision in Bell Atlantic Corp. v. Twombly, an antitrust plaintiff who tries to plead an agreement in restraint of trade under Section 1 of the Sherman Act must allege more than parallel conduct and an undefined "conspiracy." Now, the complaint must include "enough factual matter (taken as true) to suggest that an agreement was made." Although the Court insisted it was not imposing a heightened pleading standard, it did require antitrust plaintiffs to provide enough detail to make the claimed agreement plausible. In this article, I examine an important substantive consequence of Twombly's pleading regime. In nineteen reported cases, federal courts have applied the new pleading standard to complaints alleging concerted action under Section 1 of the Sherman Act. In doing so, the courts have had to address a crucial defect in the substantive law of agreement: the Supreme Court's traditional definitions of agreement, which Twombly itself simply repeated, are too vague to help litigants and courts distinguish between consciously parallel conduct and concerted action. In the course of applying Twombly, however, the lower courts have adopted a more meaningful definition, one that requires that the parties have communicated to each other their intentions to act in a certain way, and their reliance on each other to do the same. This clarification of the standard has important implications for the role of discovery in pleading and resolving claims of concerted action.

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

Vertical Mergers

Posted by D. Daniel Sokol

Jeffrey Church, University of Calgary - Economics provides an overview into Vertical Mergers.

ABSTRACT: This chapter provides an overview of the economics of vertical mergers. The overview strongly supports, on both theoretical and empirical grounds, a presumption that vertical mergers are welfare enhancing and good for consumers. However, vertical mergers can be anticompetitive if they result in either foreclosure or enhanced coordination. The difficult challenge for enforcement policy is effectively distinguishing between anticompetitive and procompetitive transactions. The economics of vertical mergers can provide a basis for this distinction and thus inform optimal enforcement policy and the nature of vertical merger enforcement guidelines.

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

Monday, November 3, 2008

The Misuse of the Less Restrictive Alternative Inquiry in Rule of Reason Analysis

Posted by D. Daniel Sokol

Gfeldman1 Gabe Feldman (Tulane Law) has just posted The Misuse of the Less Restrictive Alternative Inquiry in Rule of Reason Analysis.

ABSTRACT: The rule of reason articulated by the Supreme Court in 1918 in Chicago Board of Trade has long been the target of scorn and ridicule by scholars and judges. The rule, which is used to determine the legality of restraints under Section 1 of the Sherman Act, instructs courts to identify and balance a restraint's competitive effects - restraints that are net procompetitive are legal. Critics argue that the rule is easy to state but impossible to apply, as it asks courts to identify the unidentifiable and balance the unbalanceable. Despite the steady criticism, the rule has remained the exclusive rule of reason approach of the Supreme Court for nearly a century.

Yet, perhaps in an attempt to improve the test, each of the federal circuits has incorporated the less restrictive alternative inquiry as an independent and dispositive prong of the rule of reason. Under this newly created test, a restraint that achieves a net procompetitive benefit - and thus is legal under the Supreme Court standard - is illegal if the procompetitive benefits could have been attained by a less restrictive alternative. Surprisingly, the new test has not only avoided much criticism, but has received widespread support from scholars across the ideological spectrum.

Rather than improve the rule of reason, however, use of the less restrictive alternative inquiry as a dispositive factor transforms an already difficult analysis into a virtually unworkable multi-tiered balancing adventure. It adds a new level of confusion and opacity to Section 1 analysis and threatens to change the role of antitrust law from an ex ante deterrent of net anticompetitive behavior to an ex post regulator of net procompetitive business decisions.

This Article examines the historical use of the less restrictive alternative inquiry and its emergence in the modern rule of reason analysis. The Article argues that use of the inquiry in the modern rule of reason is both theoretically and practically flawed. The Article concludes that proof of less restrictive alternatives should be used solely as proof of anticompetitive intent, which in turn should only be used as one factor to aid courts in balancing the competitive effects of a restraint of trade. Such use of the search for less restrictive alternatives is consistent with nearly one hundred years of Supreme Court precedent and maintains the proper focus of the antitrust laws on the competitive impact of the restraint.

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