Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Saturday, March 14, 2009

The OECD Competition Committee adopts Guidelines for Fighting Bid Rigging in Public Procurement

Posted by D. Daniel Sokol

The OECD Competition Committee has adopted Guidelines for Fighting Bid Rigging in Public Procurement.

March 14, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, March 13, 2009

Why the Supreme Court Was Correct to Deny Certiorari in FTC v. Rambus

Posted by D. Daniel Sokol

WrightJosh Wright of George Mason Law School explains Why the Supreme Court Was Correct to Deny Certiorari in FTC v. Rambus.

ABSTRACT: In November 2008, the Federal Trade Commission petitioned the Supreme Court to review the D.C. Circuit's decision in FTC v. Rambus. That decision reversed the Commission's finding that Rambus knowingly failed to disclose a patent to a standard setting organization and, in so doing, acquired monopoly power in violation of Section 2 of the Sherman Act. In February 2009, the Supreme Court denied the Commission's petition. This article examines some deficiencies in the Commission's arguments, concluding ultimately that the Supreme Court was correct to deny review. Moreover, the article suggests that the patent holdup problem, and ex post opportunism generally, is more effectively handled by contract and patent law. Because parties cannot contract around heavy mandatory antitrust remedies, contract and patent law offer superior substantive doctrine designed to distinguish good faith contractual modifications from bad faith holdup, thereby minimizing the social welfare reducing decision errors.

March 13, 2009 | Permalink | Comments (0) | TrackBack (0)

No Competition

Posted by D. Daniel Sokol

This week is spring break at the University of Florida so the Sokol family has been spending time in DC with my parents.  During this visit, I am reminded that there is one area in which there is no competition - how much a mother can worry about her child (in my case, a 34 year old who is married and has to kids of his own).

My mother worries that:
1. I am too thin and therefore I must not be eating enough.  Yes, I am 155 lbs and 6'3 and therefore by medical standards under-weight but  I have weighed 152 lbs since around 16.  This has been a common complaint ever since I went off to college.   
2. Even if it is warm outside during the day, I am not dressing warmly enough.
3. I do not sleep enough (tough with small children)
4. I do not worry enough about these issues

I suspect that mothers around the world share the concerns of my mother regarding their own children.   

March 13, 2009 | Permalink | Comments (2) | TrackBack (0)

The FTC's Procedural Advantage in Discovering Concerted Action

Posted by D. Daniel Sokol

Page_big My colleague Bill Page has posted an excellent working paper The FTC's Procedural Advantage in Discovering Concerted Action.

ABSTRACT: Scholars have long argued that Section 5 of the Federal Trade Commission Act can or should be interpreted to reach more conduct than Section 1 of Sherman Act - whether, in other words, there are gaps in the coverage of Section 1 that allow certain forms of anticompetitive conduct that Section 5 should condemn. Perhaps the most important issue in the interpretation of Section 1 concerns how courts should distinguish conscious parallelism from unlawful concerted action. In this paper, I argue that there is no substantive gap between the two antitrust statutes on this issue-both statutes prohibit (and permit) the same conduct. There may, however, be a procedural gap. Particularly after the Supreme Court's 2007 decision in Bell Atlantic Corp. v. Twombly, the FTC has an advantage over private plaintiffs in the procedures at its disposal for discovering unlawful concerted action.

March 13, 2009 | Permalink | Comments (0) | TrackBack (0)

Imperfect Enforcement of Predatory Pricing Law

Posted by D. Daniel Sokol

Theon van Dijk, Lexonomics, and Dag Morten Dalen, Norwegian School of Management - Department of Economics, address the Imperfect Enforcement of Predatory Pricing Law.

ABSTRACT: An important action that is illegal according to competition law, both in the US and Europe, is predatory pricing. In this paper we develop a model that allows an entrant to sue an incumbent for predatory pricing. The cost of production is essential for judgments in such cases, and we allow the court to make errors. The imperfect enforcement by courts, affects both the incentives to sue and competition between the entrant and the incumbent. For sufficiently high damages, the predatory pricing law is shown to stifle current competition. Sufficiently low damages may stimulate current competition, but at the expense of weaker future competition. Imperfect enforceability causes distortion in the incumbent's prices, even if a predatory pricing strategy is not adopted. Therefore, the cost of adopting predatory pricing - in terms of 1.period profit loss - is reduced as a consequence of the predatory pricing law.

March 13, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 12, 2009

Antitrust Summer Externship in Washington DC

Posted by D. Daniel Sokol

The American Antitrust Institute is pleased to announce an externship to employ at least  one volunteer who will earn the title of Summer Research  Fellow. Resumes can be sent to Bert Foer.  AAI is particularly interested in  someone who has had an antitrust course or is familiar with IO  economics and most importantly who has excellent writing and editing  skills, as the job will include some editing of the Handbook on  International Private Antitrust Enforcement.  AAI will assure that the extern is exposed to various conferences,  symposia, and other antitrust-related events while in Washington. Externs will be eligible to apply for a grant  (last year it was $5,000) from the ABA Antitrust Section once they  have accepted an offer from AAI, but need to be prepared to cover  their own expenses for the summer.

March 12, 2009 | Permalink | Comments (0) | TrackBack (0)

Carl Shapiro to Join DOJ as Chief Economist

Posted by D. Daniel Sokol

Bloomberg reports that Carl Shapiro, Transamerica Professor of Business Strategy at the Haas School of Business, and Professor of Economics in the Economics Department, at the University of California at Berkeley is set to become the new chief economist at DOJ-Antitrust.

March 12, 2009 | Permalink | Comments (0) | TrackBack (0)

Agency Decision-Making

Posted by D. Daniel Sokol

Now in his new position as Chairman of the US Antitrust practice at Clifford Chance, Bill Blumenthal (formerly FTC General Counsel) made an interesting presentation at the To Enforce and Comply: Incentives inside Corporations and Agencies conference in Amsterdam last week.  Download Bill's powerpoint slides here.

March 12, 2009 | Permalink | Comments (0) | TrackBack (0)

Intra- and Inter-Format Competition Among Discounters and Supermarkets

Posted by D. Daniel Sokol

Kathleen Cleeren Catholic University of Leuven (KUL) - Department of Applied Economics, Marnik Dekimpe Catholic University of Leuven (KUL) - Department of Applied Economics, Katrijn Gielens Erasmus University Rotterdam (EUR) - Economics, and Frank Verboven Catholic University of Leuven (KUL) - Faculty of Business and Economics  discuss Intra- and Inter-Format Competition Among Discounters and Supermarkets.

ABSTRACT: The price-aggressive discount format, popularized by chains such as Aldi and Lidl, is very successful in most Western economies. Its success is a major source of concern for traditional supermarkets. Discounters not only have a direct effect on supermarkets’ market shares, they also exert considerable pressure to improve operational efficiency and/or to decrease prices. We use an empirical entry model to study the degree of intra- and inter-format competition between discounters and supermarkets. Information on the competitive impact of new entrants is derived from the observed entry decisions of supermarkets and discounters in a large cross-section of local markets, after controlling for a number of local market characteristics. In our modeling framework, we endogenize the retailers’ entry decisions, and allow for asymmetric intra- and inter-format competitive effects in a flexible way. We apply our modeling approach to the German grocery industry, where the discount format has stabilized after two decades of continued growth. We find evidence of intense competition within both the supermarket and discounter format, although competition between supermarkets is found to be more severe. Most importantly, discounters only start to affect the profitability of conventional supermarkets from the third entrant onwards. This may explain why many retailers rush to add a discount chain to their portfolio: early entrants may benefit from the growth of the discount-prone segment without cannibalizing the profits of their more conventional supermarket stores.

March 12, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 11, 2009

Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing

Posted by D. Daniel Sokol

Iwan Bos (University of Amsterdam - Law and Economics Center) and Maarten Pieter Schinkel (University of Amsterdam -  Law and Economics Center) have come up with Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing.

ABSTRACT: Basing-point pricing is known to have been abused by geographically dispersed firms in order to eliminate competition on transportation costs. This paper develops a topographic test for collusive basing-point pricing. The method uses transaction data (prices, quantities) and customer project site locations to recover the basing-point(s) from which delivered prices were calculated. These bases are compared to the locations of the production mills in a test that discriminates between competitive and collusive basing-point pricing. We define a measure for the likelihood of collusion that can be used to screen industries that traditionally apply delivered pricing for the presence of cartels. We operationalize this screen with a software. The test is hard to beat for cartels using this otherwise elusive form of price-fixing. When a cartel was found to have abused the basing-point system, our method can be used to estimate antitrust damages.

March 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Are Horizontal Mergers and Vertical Integration a Problem?

Posted by D. Daniel Sokol

Simon Pilsbury (Oxera) and Andrew Meaney (Oxera) ask Are Horizontal Mergers and Vertical Integration a Problem?

ABSTRACT: This report examines market power in rail markets in Europe arising from horizontal and vertical mergers in the sector, and is intended to provide a high-level basis for discussion at the round table itself. It presents factual information on horizontal and vertical merger cases involving rail freight operators, highlighting the processes used by competition authorities to determine the circumstances in which such mergers should be approved. It also provides commentary on the economics of these markets and, hence, the likely prospects for their future shape. The topic of the report is timely. The first set of results are available from a preparatory study for the European Commission on whether policy objectives with respect to moving freight onto rail can best be achieved by giving freight more priority on the rail network.

March 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Why the EU Does Not Have an Independent Competition Agency: French Interests and Transaction Costs in Early European Integration

Posted by D. Daniel Sokol

Yannis Karagiannis, Institut Barcelona d'Estudis Internacionals asks Why the EU Does Not Have an Independent Competition Agency: French Interests and Transaction Costs in Early European Integration.

ABSTRACT: A major achievement of new institutionalism in economics and political science is the formalisation of the idea that certain policies are more efficient when administered by a politically independent organisation. Based on this insight, several policy actors and scholars criticise the European Community for relying too much on a multi-task, collegial, and politicised organisation, the European Commission. This raises important questions, some constitutional (who should be able to change the corresponding procedural rules?) and some political-economic (is Europe truly committed to free and competitive markets?). Though acknowledging the relevance of legal and normative arguments, this paper contributes to the debate with a positive political-scientific perspective. Based on the view that institutional equilibria raise the question of equilibrium institutions, it shows that collegiality was (a) an equilibrium institution during the Paris negotiations of 1950-51; and (b) an institutional equilibrium for the following 50 years. The conclusion points to some recent changes in the way that European competition policy is implemented, and discusses how these affect the "constitutional" principle of collegial European governance.

March 11, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 10, 2009

The Neglected Effects of Demand Characteristics on the Sustainability of Collusion

Posted by D. Daniel Sokol

Andrea Gallice
, University of Sienna, has written The Neglected Effects of Demand Characteristics on the Sustainability of Collusion.

ABSTRACT: According to standard IO models, the characteristics of market demand (intercept, slope, elasticity) and of the technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do affect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant.

March 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Managerial Effort Incentives and Market Collusion

Posted by D. Daniel Sokol

Cécile Aubert  (University of Bordeaux (GREThA) and Toulouse School of Economics (LERNA)) has written an interesting paper on Managerial Effort Incentives and Market Collusion.

ABSTRACT: This paper investigates the interactions between the incentives of managers to collude, and to exert productive effort. Managers have discretion over the competitive strategy of the firm, and private information on their own effort to maximize profits. As both collusion and effort increase profits, a manager may substitute collusion to costly effort. This affects the congruence of interests between the manager and shareholders: Incentives to induce competition may conflict with incentives to undertake a high effort level.

We show that firms may choose inefficient effort levels due to managerial incentives to collude. Welfare losses may thus arise even when the industry does not become cartelized. Efficient competition may no longer be feasible – rendering collusion relatively more attractive to shareholders. Antitrust instruments are studied in this context: Contrary to corporate leniency, individual leniency programs have ambiguous results, even when not used; Individual liability is unambiguously beneficial and complements corporate leniency.

March 10, 2009 | Permalink | Comments (0) | TrackBack (0)

New French Competition Authority Takes Shape

Posted by D. Daniel Sokol

The make-up of the new French competition authority, l'Autorité de la concurrence has been announced.  Members are:

- Bruno Lasserre, président
- Françoise Aubert, vice-présidente
- Anne Perrot, vice-présidente
- Elisabeth Flüry-Hérard, vice-présidente
- Patrick Spilliaert, vice-président
- Reine-Claude Mader-Saussaye, membre
- Pierrette Pinot, membre
- Emmanuel Combe, membre
- Carol Xueref, membre
- Jean-Bertrand Drummen, membre
- Yves Brissy, membre
- Pierre Godé, membre
- Jean-Vincent Boussiquet, membre
- Laurence Idot, membre
- Noël Diricq, membre
- Thierry Tuot, membre
- Denis Payre, membre

March 10, 2009 | Permalink | Comments (0) | TrackBack (0)

European State Aid Law

Posted by D. Daniel Sokol

Out soon is European State Aid Law, the definitive book by Conor Quigley QC (Brick Court Chambers).

BOOK ABSTRACT: This new edition of Conor Quigley's book (originally 'EC State Aid Law and Policy'), offers the most comprehensive and detailed examination of this fast developing field of Community law. The book is designed to provide practitioners and Commission officials with a definitive statement of the law and practice across the many sectors where issues of State aid come into play. At the same time, placing State aid law and policy in its commercial and industrial context, the book fully explores the concept of State aid and its function as a tool of Community law and economic development. All of this is achieved by means of the most thorough available examination of the jurisprudence of the European Courts and the decisions of the Commission in declaring certain aid compatible with the common market. The Commission's supervisory powers as well as the means of enforcing State aid law in the courts are also fully explained.

March 10, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, March 9, 2009

The Anticompetitive Effects of the Antitrust Policy

Posted by D. Daniel Sokol

David Bartolini (Università Politecnica delle Marche, Department of Economics) and Alberto Zazzaro (Università Politecnica delle Marche, Department of Economics) have authored the provocative The Anticompetitive Effects of the Antitrust Policy.

ABSTRACT: Economists, legal scholars and historians have consistently alerted policy makers to the difficulty of establishing the anticompetive nature of cartels and other agreements among firms, to the welfare costs of “too-much” antitrust regulation and the risk of its misapplication.1 Since enforcing antitrust policies is costly, it might be optimal for society (consumers and producers) to tolerate some degree of collusion among firms, while saving on investigation, prosecution and compliance costs and reducing the probability of erroneously acting against non-colluding firms (Besanko and Spulber, 1989; Souam, 2001; Frezal, 2006; Martin, 2006). However, few scholars have seriously considered the possibility that the very existence of an antitrust law might make markets less competitive, stimulating rather than deterring collusive practices. In this chapter, we provide a selective review of this thought-provoking literature.

March 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Competition and Innovation: Dangerous "Myopia" of Economists in Antitrust?

Posted by D. Daniel Sokol

Christian Ewald (Bundeskartellamt) asks Competition and Innovation: Dangerous "Myopia" of Economists in Antitrust?

ABSTRACT: It seems fairly unlikely that the seminal papers of Professor Joseph A. Schumpeter would today have a good chance to be published in one of the leading journals specialized in industrial organization. This judgment, however, is a remarkable contrast with his still profound relevance in the world of antitrust. His warning that putting too much emphasis on static efficiency may risk killing endogenous technological change and growth has already inspired numerous policy debates in the past. A new paper by David S. Evans and Keith N. Hylton provides telling evidence that this is still true exactly 100 years after Schumpeter, for the first time, outlined the basis of what is known today as “Schumpeterian tradeoff”....

My comments on Evans & Hylton’s arguments are twofold: First, I consider it necessary to put at least two question marks behind their diagnosis that there is a severe risk of a “myopic” application of state-of-play antitrust economics. Second, in my view at least two further qualifications have to be made regarding Evans & Hylton’s perception of the scope and limitations of antitrust enforcement which—explicitly or implicitly—drives their argument. Both pillars together carry my view that—to stay within the picture—prescribing antitrust enforcers strong glasses which are in the risk of leading to a severe hyperopia or even blindness seems not to be a suitable therapy for an alleged myopia in antitrust; the Schumpeterian tradeoff should not provide the justification for an overly cautious “hands-off” approach.

March 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Tying, Compatibility and Planned Obsolescence

Posted by D. Daniel Sokol

Chun-Hui Miao (Department of Economics, University of South Carolina) has posted Tying, Compatibility and Planned Obsolescence.

ABSTRACT: According to the hypothesis of planned obsolescence, a durable goods monopolist without commitment power has an excessive incentive to introduce new products that make old units obsolete, and this reduces its overall profitability. In this paper, I reconsider the above hypothesis by examining the role of competition in a monopolist's upgrade decision. I find that, when a system add-on is competitively supplied, a monopolist chooses to tie the add-on to a new system that is only backward compatible, even if a commitment of not introducing the new system is available and socially optimal. Tying facilitates a price squeeze.

March 9, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 8, 2009

Coca-Cola/Huiyuan merger has become a "Hot Potato" in MOFCOM

Posted by D. Daniel Sokol

With the decision on the merger due within two weeks, the Chinese press reports that the Coca-Cola/Huiyuan merger has become a "Hot Potato" in MOFCOM.  This is the most watched merger in China so stay tuned.

HT: Paul Jones

March 8, 2009 | Permalink | Comments (0) | TrackBack (0)