Antitrust & Competition Policy Blog

Should Competition Law Promote Efficiency? Some Reflections of an Economist on the Normative Foundations of Competition Law

Posted by D. Daniel Sokol

Wolfgang Kerber, Philipps University Marburg - Department of Business Administration and Economics asks, Should Competition Law Promote Efficiency? Some Reflections of an Economist on the Normative Foundations of Competition Law.

ABSTRACT:  The discussion on the normative foundations of competition law is not well-developed. Economic efficiency cannot be the final answer to this normative question. There are different concepts of efficiency with their specific problems and deficits. The discussion in economics, which is narrowed down to total welfare standard vs. consumer welfare standard, does not sufficiently grasp the complexity of the normative problems. In the paper the normative key concepts are clarified, which economists use in regard to competition policy - such as static and dynamic efficiency as well as the problem of redistribution through market power. Afterwards an alternative approach is briefly presented, which - based on constitutional economics - allows for a broader normative discussion of the goals of competition law. The decisive difference is that here the preferences (and values) of the citizens of a society are the relevant normative criterion, from which the goals of competition laws should be derived. From that perspective it is argued that it is unlikely that the citizens would agree on a total welfare standard or a pure consumer welfare standard. It might also be possible to defend the protection of certain rights of market participants as a goal of competition law as well as the consideration of notions of fairness, as long as these normative notions reflect widely-held values of the citizens. Most important is that a broader interdisciplinary discussion on the goals of competition law is necessary.

Initial Thoughts on Microsoft/Yahoo Potential Merger

Posted by D. Daniel Sokol

The EU essentially treats Microsoft as a regulated firm and continues to push against Microsoft with two new investigations.  In the US, just this week, Judge Kollar-Kotelly extended all the oversight provisions of the Microsoft consent decree until November 2009.  If Microsoft is as dominant as its critics claim, then why has it offered to acquire Yahoo in what seems to me to be a defensive move because of the threat of Google to Microsoft?  It goes to show that antitrust needs to proceed carefully against unilateral conduct in markets that change so quickly (is anyone having an IBM case tingle?).  The landscape of 10 years ago in which Microsoft was dominant looks quite different today.  On another note, what would we call the combined company- Microhoo or Yahoosoft? 

Antitrust Faculty on the Move

Posted by D. Daniel Sokol

We want to compile a list of faculty in law, economics and business who teach and write in antitrust law or economics who will be either visiting at an institution other than their permanent home in 2008-09 or who have made a permanent move to another institution for as of 2008-09. 

The CFI Decision in Microsoft: Why the European Commission's Guidelines on Abuse of Dominance Are Necessary and Possible

Posted by D. Daniel Sokol

Frederic Jenny of ESSEC Business School and the Supreme Court of France (Cour de Cassation) has written on The CFI Decision in Microsoft: Why the European Commission's Guidelines on Abuse of Dominance Are Necessary and Possible.

ABSTRACT: The Court of First Instance’s Microsoft decision provided the Court with an opportunity to express its views on several aspects of the current debate on the interpretation of Article 82 of the EC Treaty.

This short note focuses on the “refusal to deal” part of the decision to derive some conclusions on the advisability and the possibility for the European Commission to adopt guidelines on the enforcement of Article 82.

Should Intent Be a Separate Element of an Abuse of Market Dominance?

Posted by D. Daniel Sokol

Hyungbae Kim of the Korean Fair Trade Commission asks Should Intent Be a Separate Element of an Abuse of Market Dominance? in the context of the Korean Supreme Court POSCO refusal to deal case.

ABSTRACT: In the history of Korean competition law enforcement, the decision of the Korean Supreme Court in the refusal to deal case, POSCO, is a milestone in market dominance abuse cases (a concept similar to monopolization under U.S. antitrust law).

On November 22, 2007, the Supreme Court held that evidence of specific intent, or purpose, and anticompetitive effects must be proven for there to be a violation of abuse of market dominance. The Court further held that the intent or purpose of maintaining or enhancing dominant position in the relevant market could be presumed in the event that anticompetitive effects are proven.

Despite its historical significance in the treatment of market dominance cases in Korea, the judgment leaves something to be desired and its pros and cons are debated among economists, practitioners, and government officials.

Evaluating Market Power with Two-Sided Demand and Preemptive Offers to Dissipate Monopoly Rent: Lessons for High-Technology Industries from the Proposed Merger of XM and Sirius Satellite Radio

Posted by D. Daniel Sokol

Hal Singer of Criterion Economics andGreg Sidak of Georgetown Law bring us more on the potential implications of XM/Sirius in their paper  Evaluating Market Power with Two-Sided Demand and Preemptive Offers to Dissipate Monopoly Rent: Lessons for High-Technology Industries from the Proposed Merger of XM and Sirius Satellite Radio.

ABSTRACT: Can the standard merger analysis of the Department of Justice's and Federal Trade Commission's Horizontal Merger Guidelines accommodate mergers in high-technology industries? In its April 2007 report to Congress, the Antitrust Modernization Commission (AMC) answered that question in the affirmative. Still, some antitrust lawyers and economists advocate exceptions to the rules for particular transactions.

In the proposed XM-Sirius merger, for example, proponents argue that the Merger Guidelines be relaxed to accommodate their transaction because satellite radio is a nascent, high-technology industry characterized by dynamic demand. We argue that the AMC correctly refrained from recommending high-tech exceptions for defining markets in merger proceedings. Merger proponents naturally seek to expand the relevant product market as much as possible. But if alternative products are included in the relevant market without a showing of significant cross-price elasticities, that is, without evidence of buyer substitution between the two products in response to a relative change in prices, then market definition is unbounded.

The XM-Sirius merger also exemplifies the use of preemptive offers of merger conditions by the merger parties to gain political favor and to allocate post-merger rents to influential third-party intervenors. The most significant preemptive concessions were XM's and Sirius's offer to freeze the monthly subscription price at the pre-merger monthly rate of $12.95 and to offer a variety of new tiered program packages that XM and Sirius characterized as à-la-carte. These offers presumably were intended to neutralize the traditional antitrust concerns that a merger among direct competitors leads to higher prices and to win the support of certain vital constituencies.

To the contrary, we argue that the offer to freeze prices could reduce welfare and that the Federal Communications Commission and the Department of Justice lack the authority to create a rate-regulated monopoly for satellite radio. Furthermore, because the à-la-carte offering would not hold constant other non-price factors, consumer surplus could fall.

Microsoft Court Oversight Extended

Posted by D. Daniel Sokol

Yesterday, over opposition from Microsoft and the Bush Administration via DOJ, Judge Kollar-Kotelly extended all the oversight provisions of the Microsoft consent decree until November 2009.  See below for the opinion.

Download judge_opinion_on_extension.pdf

How Much Does it Hurt? How Australian Businesses Think About the Costs and Gains of Compliance with the Trade Practices Act

Posted by D. Daniel Sokol

Christine E. Parker, University of Melbourne - Law School and Vibeke Lehmann Nielsen, University of Aarhus - Department of Political Science have an interesting data set that measures business perceptions of Austrlian competition law in their article How Much Does it Hurt? How Australian Businesses Think About the Costs and Gains of Compliance with the Trade Practices Act.  This paper is one of a number of papers by the authors to use the data set.  Keep them coming!

ABSTRACT: For the last fifteen years the Australian Competition and Consumer Commission (ACCC) has actively encouraged, and sometimes forced, Australian businesses to implement internal competition and consumer protection compliance programs in order to improve compliance amongst a wider range of businesses than can be reached by enforcement action alone. Have Australian businesses implemented the type of internal management systems and controls that the ACCC, industry best practice and research evidence see as desirable for trade practices compliance? This paper presents data from a survey of 999 of the largest Australian businesses on the extent to which they have implemented trade practices compliance systems. These data show that on the whole Australian business implementation of trade practices compliance systems is partial, symbolic and half-hearted. But ACCC enforcement action does improve compliance system implementation.

Patent Holdup and Oligopsonistic Collusion in Standard Setting Organizations

Posted by D. Daniel Sokol

Greg Sidak of Georgetown Law responds to Mark Lemley and Carl Shapiro regarding standard setting organizations and patent hold ups in his article Patent Holdup and Oligopsonistic Collusion in Standard Setting Organizations.

ABSTRACT: In a recent article, Mark Lemley and Carl Shapiro assert that, in a standard setting organization (SSO), patent owners can "hold up" patent users by demanding high royalties for a patented input after the SSO has adopted the patented technology. Actual SSOs have begun to amend their rules to permit prospective licensees to exchange information concerning the price to be paid for the patented technology, if adopted. The Antitrust Division and Federal Trade Commission believe that such information exchange carries little risk of facilitating oligopsonistic collusion. They conclude that the rule of reason should apply rather than the rule of per se illegality.

This approach is problematic. The antitrust agencies offer no theoretical or empirical foundation for their implicit assumption that the social cost of patent holdup exceeds the social cost of oligopsonistic collusion. It is more plausible that the related theoretical concern of preventing "royalty stacking" would justify applying the rule of reason to such ex ante exchange of purchase price information. However, neither antitrust agency has identified royalty stacking (as opposed to patent holdup) as a justification for coordinated action among competing buyers in an SSO.

If a court did find royalty stacking to be a compelling business justification for restraining trade, the remaining legal question would be whether there are alternative means to avert royalty stacking that do not facilitate oligopsonistic collusion. At least five promising alternatives exist.

Price Discrimination Laws Outside the U.S.: Comparing Apples to Oranges

Posted by D. Daniel Sokol

The ABA Antitrust Section is hosting a tele-seminar on February 20, 2008, Price Discrimination Laws Outside the U.S.: Comparing Apples to Oranges.  You can register here for individuals and here for groups.

New York's Prohibition of Vertical Price-Fixing

Posted by D. Daniel Sokol

Jay Himes, the the chief of the antitrust bureau of the Office of the Attorney General of New York (and hence probably the most important state antitrust official in the US), has written a very informative analysis of NY law and RPM.

Download nylj_rpm_paper.pdf

Expert Economic Testimony, Economic Evidence and Asymmetry of Information in Antitrust Cases

Posted by D. Daniel Sokol

Juan David Gutiérrez of Pontificia Universidad Javeriana Law School (Colombia) has written a comparative piece on Expert Economic Testimony, Economic Evidence and Asymmetry of Information in Antitrust Cases.

ABSTRACT:  The objective of this document is to assess two questions that have a positive and normative nature respectively: 1) What incentives does the legal and institutional framework of the European Community (EC) and the United States (federal level) provide to the different agents involved in antitrust proceedings in regards to the use of expert economic testimonies? 2) What legal and social norms could provide appropriate incentives to the different agents involved in antitrust proceedings in order to align the use of expert economic testimonies with antitrust enforcement goals?

To answer the first research question and prepare the settings for the answer of the second question, the nature of the economic expertise applied in antitrust proceedings, its inherent difficulties (section 2), and the legal and institutional framework applied to them (section 3) are presented in detail.

Secondly, a general exposition of the problems posed by asymmetric information in theory (section 4.1) and concerning the relation between the adjudicator and the economic expert (section 4.2) is made, in order lay the foundations to identify the different factors that determine the incentives of the various "actors" in the proceedings (section 4.3).

Finally, to answer the second research question, the regulatory and non-regulatory features of US and EC enforcement systems are analyzed to identify which factors mitigate the information asymmetry problems. The different alternatives are presented in three different categories, namely, "evidentiary rules", "procedural rules and institutional design" and "a market for experts and the academic community" (section 4.4).

The document contains six conclusions that may be summarized in the following statement: regarding expert economic testimonies, an antitrust enforcement system must aim at the minimization of its costs through the mitigation of the consequences of asymmetric information between the adjudicator and the expert. Therefore a cost-benefit analysis of the use of expert witnesses must take into account the incentives produced by the interaction among the different regulatory and non-regulatory features of the antitrust enforcement system.

Call for Papers- Quantitative Effects of Anti-competitive Business Practices on Developing Countries and Their Development Prospects

Posted by D. Daniel Sokol

UNCTAD is in the process of preparing the pre-conferences for the forthcoming UNCTAD XII Conference taking place in Accra, Ghana, in April 2008.

In this context UNCTAD is seeking contributions from experts and scholars to form part of an edited collection of essays specifically examining the topics mentioned below. The proposed research will fall within the broad theme of "Quantitative effects of anti-competitive business practices on developing countries and their development prospects". In exploring the nature of the impact of anti-competitive business practices, the emphasis will be on empirical research which will (i) measure the impact of restrictive business practices, (ii) estimate their effect on the development prospects for developing countries.

Research themes:

Anti-competitive practices and their adverse effects on competition law enforcement in Regulated Sectors
- How does restrictive business practices affect the access to these services within Utility sectors and can consumers really benefit from these in spite of concentration or monopolization?
- How has the introduction of competition law in the regulated sectors benefited the consumers?

Anti-competitive practices and their adverse effects on consumer welfare
- The interface between competition and consumer laws and policies.
- What are the estimated costs for end consumers originating from cartelization and how can these be measured?
- The conflicts between the attainment of competitive markets and consumer interests.
- What has been the level of participation of a typical consumer in developing country vis-a vis his relationship with the market economic system?

The role of competition law and policy in alleviating poverty in developing countries
- Do anti-competitive practices have a negative impact in achieving the aim of poverty reduction in developing countries?
-How has the adoption of competition law contributed in alleviating poverty?
- The need for developing countries to prioritise either the competition policy or poverty alleviation reforms
- How and to what extent competition law enhanced the social-economic benefits i.e. rising the level of employment in a country?

The contribution of competition policy in enhancing innovation and technological development
- Demonstrate how competition law enforcement has contributed to the enhancement of technological development.

Competition and its impact on the small-scale sector
- Does anti-competitive behaviour limit the individual's right of doing business and to what extent does it affect entrepreneurship and enterprise development in developing countries?
- How competitive is the small scale sector in the face of numerous multi-national corporations in the developing countries?
- Can the competition law be said to be an appropriate legislation for the small scale sector development?

Methodological approach:
The project envisages a qualitative and where possible quantitative impact analysis, supported by decisions taken by competition authorities or sectoral studies. The study will identify criteria to evaluate the impact of anti-competitive practices in developing countries as well as applied economic theory for the evaluation of the sectoral case studies. For instance, to develop quantitative or quatitative criteria to estimate the costs resulting from restrictive business practices on the society, its consumers and its impediment for economic development.

Application procedures and deadlines:
Qualified persons interested in contributing to this project should submit in electronic format:

- A first draft covering a topic relevant for the overall theme of 15000 words inclusive of footnotes.

- Short CV
Deadline for submission: Strictly 31 January 2008

Researchers (external consultants) based in developing countries, ideally affiliated with some institutions that could form the basis of a longstanding research partnership with UNCTAD are particularly encouraged to apply.

Selected candidates will receive a full description of the project with mid-term and final deadlines, financial compensation (around 3000 USD), and other relevant information.

To apply and for further details please contact Mr. George Lipimile or Mr.Novaes Fonseca via e-mail george.lipimile@unctad.org or vitor.novaes.fonseca@unctad.org

If you cannot contribute, please feel free to inform other qualified experts of this notice.
If the topic of your preference has not been included in the themes, you can seek authorisation to come up with a topic of your choice.

Is DOJ Against Cheap Beer?

Posted by D. Daniel Sokol

A number of analysts think that the SABMiller combination with Molson Coors should have been blocked and that enforcement at DOJ would have looked different under a Clinton administration.

Antitrust (Over-?)Confidence

Posted by D. Daniel Sokol

Our friends at Truth on the Market, Thom Lambert of MU School of Law and Josh Wright of GMU Law School, have provided a nice  opening essay to the transcript of the conference at Chicago Loyola Institute for Consumer Antitrust Studies on the future of single firm conduct.  Lambert and Wright title their work Antitrust (Over-?)Confidence.

ABSTRACT: On October 5, 2007, a group of antitrust scholars convened on Chicago's Near North Side to discuss monopolization law. In the course of their freewheeling but fascinating conversation, a number of broad themes emerged. Those themes can best be understood in contrast to a body of antitrust scholarship that was born six miles to the south, at the University of Chicago. Most notably, the North Side discussants demonstrate a hearty confidence in the antitrust enterprise-a confidence that is not shared by Chicago School scholars, who generally advocate a more modest antitrust. As scholars who are more sympathetic to Chicago School views, we are somewhat skeptical. While we applaud many the of the insights and inquiries raised during the conversation, and certainly this sort of discussion in general, our task in this article is to draft a critical analysis of the October 5 conversation. In particular, we critique the North Side discussants' vision of a big antitrust that would place equal emphasis on Sections 1 and 2 of the Sherman Act and would expand private enforcement of Section 2.

Update of January 29: The transcript of the conference is now available on SSRN.

The Next Frontier for Network Neutrality

Posted by D. Daniel Sokol

Phil Weiser at the University of Colorado Law School provides us with the latest in the intersection of competition, innovation and the new with his article The Next Frontier for Network Neutrality.

ABSTRACT: The challenge for policymakers evaluating calls to institute some form of network neutrality regulation is to bring reasoned analysis to bear on a topic that continues to generate more heat than light and that many telecommunications companies appear to believe will just fade away. Over the fall of 2007, the hopes of broadband providers that broadband networks could escape any form of regulatory oversight were dealt a blow when it was revealed that Comcast had degraded the experience of some users of Bittorent (a peer-to-peer application) and engaged in an undisclosed form of network management. This incident, as well as the polarized debate that followed it, underscores the need to reframe the policy and academic debate over broadband regulation and begin evaluating a blueprint for a next generation regulatory strategy that will focus on promoting innovation in the network itself and by applications developers. This Article seeks to do just that.

This Article begins by explaining how the debate over network neutrality has all-too-often presented polarized perspectives and slogans where more nuanced analysis is called for. As Internet pioneer David Clark commented on the network neutrality debate, [m]ost of what we have seen so far (in my opinion) either greatly overreaches, or is so vague as to be nothing but a lawyer's employment act. As the Article explains, any effort by Congress to develop a well-specified response to network neutrality concerns would be premature, as the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC) should first be afforded an opportunity to develop an effective consumer protection and competition policy strategy.

As the Article explains, the FTC has an important opportunity - and indeed a responsibility - to develop and implement a consumer protection strategy in this area, calling for effective disclosure of broadband terms of service and the enforcement of the commitments made in those policies. Moreover, as to the relevant competition policy issues, the Article calls on either the FTC or the FCC (or both) to develop and implement an effective institutional strategy to guard against anticompetitive refusals to provide access to quality of service assurances. In short, the appropriate response to network neutrality concerns is not to ban such quality of service assurances altogether - as that would stifle the Internet's development - but to ensure that the offering of such assurances is not used to injure competition and harm consumers.