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 21, 2009

Product Pricing When Demand Follows a Rule of Thumb

Posted by D. Daniel Sokol

Christina Matzke and Benedikt Wirth (both University of Bonn - Economics) analyze Product Pricing When Demand Follows a Rule of Thumb.

ABSTRACT: We analyze the strategic behavior of firms when demand is determined by a rule of thumb behavior of consumers. We assume consumer dynamics where individual consumers follow simple behavioral decision rules governed by imitation and habit as suggested in consumer research. On this basis, we investigate monopoly and competition between firms, described via an open-loop differential game which in this setting is equivalent to but analytically more convenient than a closed-loop system. We derive a Nash equilibrium and examine the influence of advertising. We show for the monopoly case that a reduction of the space of all price paths in time to the space of time-constant prices is sensible since the latter in general contains Nash equilibria. We prove that the equilibrium price of the weakest active firm tends to marginal cost as the number of (non-identical) firms grows. Our model is consistent with observed market behavior ! such as product life cycles.

March 21, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, March 20, 2009

Dan Crane to Lateral to the University of Michigan

Posted by D. Daniel Sokol

Antitrust rising star Dan Crane (Cardozo), whose work includes interesting analysis of Section 2 issues, institutional arrangements of antitrust, and antitrust history has accepted a lateral offer to join the University of Michigan law School.  This is big pick up for Michigan.

March 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Daubert Challenges of Antitrust Experts

Posted by D. Daniel Sokol

James Langenfeld, LECG and Chris Alexander, Loyola University of Chicago have posted Daubert Challenges of Antitrust Experts.

ABSTRACT: This paper examines the affect of Daubert v. Merell Dow Pharms and related gatekeeping decisions on expert testimony, particularly on economic testimony in antitrust cases. An analysis of Daubert motions on economic testimony suggests that Daubert may have created additional barriers to plaintiff antitrust cases, and may act to discourage well qualified economists from taking these cases. We find that economists may be more likely to be successfully challenged than other types of experts, and economists are most frequently challenged when providing testimony in antitrust cases. These results suggest further research should be done to determine if there is an actual bias in the application of Daubert, and if so, what actions could be taken to adjust this imbalance.

March 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Ten Points to Consider When Reviewing Regulation 2790/1999

Posted by D. Daniel Sokol

Paul Lugard (Royal Philips Electronics) and Joost Haans (Royal Philips Electronics) offer Ten Points to Consider When Reviewing Regulation 2790/1999.  Paul is one of the most thoughtful antitrust GCs in Europe.  I have had the pleasure of serving as a non-governmental advisor in the ICN unilateral conduct working group with him.  Paul also wrote a chapter in the most recent volume of Barry Hawk's International Antitrust Law & Policy: Fordham Competition Law 2008.

ABSTRACT: Block Exemption Regulation 2790/1999 (also referred to as the “BER”), the single most important legislative instrument in European antitrust law in the field of mainstream vertical restraints, has been in force for more than nine years. The Regulation that provides for a safe harbor for distribution agreements and other types of vertical agreements involving firms with market shares not exceeding 30 percent will expire on May 31, 2010.

The accompanying EC Guidelines on Vertical Restraints (the “Guidelines”) setting out the methodology of analysis for vertical restraints including those that fall outside the safe harbor of the BER will share that fate....

The time has come to consider whether these and other points of criticism voiced at the time have materialized, how the Regulation has functioned in practice, whether the Regulation and Guidelines are in need of modification, and, if so, what must be done. This contribution contains some modest suggestions for the issues that the Commission may want to consider before embarking on modification of the BER.

March 20, 2009 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 19, 2009

International Antitrust Law & Policy: Fordham Competition Law 2008 Book Now In Print

Posted by D. Daniel Sokol

Out this month is the annual Barry Hawk edited International Antitrust Law & Policy: Fordham Competition Law 2008.

BOOK ABSTRACT: Every October the Fordham Competition Law Institute brings together leading figures from governmental organizations, leading international law firms and corporations and academia to examine and analyze the most important issues in international antitrust and trade policy of the United States, the EU and the world. This work is the most definitive and comprehensive annual analysis of international antitrust law and policy available anywhere.

Each annual edition sets out to explore and analyze the areas of antitrust/competition law that have had the most impact in that year. Recent "hot topics" include antitrust enforcement in Asia, Latin America: competition enforcement in the areas of telecommunications, media and information technology.

All of the chapters raise questions of policy or discuss new developments and assess their significance and impact on antitrust and trade policy.

The chapters are revised and updated before publication when necessary. As a result, the reader receives up-to-date practical tips and important analyses of difficult policy issues. The annual volumes are an indispensable guide through the sea of international antitrust law. The Fordham Competition Law Proceedings are acknowledged as simply the most definitive US/EC annual analyses of antitrust/competition law published.

March 19, 2009 | Permalink | Comments (0) | TrackBack (0)

A Progressive Agenda for Antitrust Enforcement at the Antitrust Division

Posted by D. Daniel Sokol

David Balto (Center for American Progress) calls for A Progressive Agenda for Antitrust Enforcement at the Antitrust Division in his Senate testimony.

March 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Unilateral Conduct Workshop

Posted by D. Daniel Sokol

The agenda for the ICN Unilateral Conduct Workshop, which will be held March 23-24, 2009 in Washington, DC prior to the spring meeting is now available.  The agenda and speaker list is really good and it will be a very useful learning experience for those who attend.

March 19, 2009 | Permalink | Comments (0) | TrackBack (0)

The Influence of Industry Concentration on Merger Motives: Empirical Evidence from the Machinery Industry

Posted by D. Daniel Sokol

Florian Geiger, International University School Reichartshausen - Department of Finance & Accounting has a nice empirical piece on The Influence of Industry Concentration on Merger Motives: Empirical Evidence from the Machinery Industry.

ABSTRACT: By linking industrial organization theory and capital market research, we provide empirical evidence that merger motives of firms are influenced by their prevailing industry concentration. We analyze wealth effects on target, acquiring and rival firms for 330 transactions in the machinery industry between 1997 and 2007. We show that mergers in concentrated industries are primarily motivated to achieve productive efficiency gains. This seems surprising, as we rather expect monopolistic collusion motives. For fragmented industries, on the other hand, we observe both productive efficiency and monopolistic collusion motives for firm mergers. In the absence of wealth transfers there seems to be no indication for agency problems. Our findings suggest that the traditional research on merger motives falls short by not considering structural market differences in the form of industry concentration.

March 19, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 18, 2009

The Dynamics of Entry and Exit

Posted by D. Daniel Sokol

Dennis Fok (Erasmus University Rotterdam - Economics), André van Stel (University of Amsterdam - Entrepreneurship), Andrew Burke (Cranfield University - Entrepreneurship), and Roy Thurik (Erasmus University Rotterdam - Economics) address The Dynamics of Entry and Exit.

ABSTRACT: The relation between profits and the number of firms in a market is one of the essential topics in the field of industrial organization. Usually, the relation is modeled in an error-correction framework where profits and/or the number of firms respond to out-of-equilibrium situations. In an out-of-equilibrium situation one or both of these variables deviate from some long-term sustainable level. These models predict that in situations of equilibrium, the number of firms does not change and hence, entry equals exit. Moreover, in equilibrium entry and exit are expected to be equal to zero. These predictions are at odds with real life observations showing that entry and exit levels are significantly positive in all markets of substantial size. Moreover, entry and exitlevels often differ drastically. In this paper we develop a new model for the relation between profit levels and the number of firms by specifying not only an equation for the equilibrium level of profits in a market but also equations for the equilibrium levels of entry and exit. In our empirical application we show that our entry and exit equations satisfy usual error-correction conditions. We also find that a one-time positive shock to entry or profits has a small but permanent positive effect on both the number of firms and total industry profits.

March 18, 2009 | Permalink | Comments (0) | TrackBack (0)

Bathwater Out. Now What to Do with Economic Analysis? Antitrust Standards for Unilateral Conduct: Sense and Consensus

Posted by D. Daniel Sokol

The US Chamber of Commerce has taken a stand in which it defends the Section 2 Report in Bathwater Out. Now What to Do with Economic Analysis? Antitrust Standards for Unilateral Conduct: Sense and Consensus.

ABSTRACT: The Chamber [of Commerce] argues in the following essay that the Section 2 report should not be summarily dismissed and believes that it is a credible and worthy contribution to the debate on single-firm conduct. Regardless of whether future agency leaders adopt the specific approaches taken in the Report, the Chamber urges those leaders to recognize that much of the Report is comfortably within the mainstream of current antitrust analysis, which cannot necessarily be said of all of the criticism of the Report. The Report represents a substantial body of work that, at a minimum, should be carefully considered as future leaders develop their enforcement policies. Any alternative policy prescriptions should be justified by analysis and support that is as substantial as that presented in the Report.

March 18, 2009 | Permalink | Comments (0) | TrackBack (0)

Big Trouble in China - Coca-Cola/Huiyuan Deal Rejected

Posted by D. Daniel Sokol

In what is a troubling development, the Chinese government has rejected the Coca-Cola acquisition of Chinese orange juice maker Huiyuan.  Upon first glance, I do not see how this deal creates anti-competitive effects and indeed the real justification seems to be a nationalistic play on the part of the Chinese.  This may backfire as the Chinese may soon discover that protectionism can work both ways.  The political pressure on Chinese antitrust enforcers may have been too high and for relatively recent entrants into the world of antitrust, they may not have had the political capital to spend domestically to approve the deal.

  

Update: The WSJ Law Blog has the MOFCOM translated press release on its site.

March 18, 2009 | Permalink | Comments (0) | TrackBack (0)

Tender Offer Merger and Regulatory Review in Spanish Law

Posted by D. Daniel Sokol

Fmarcos Francisco Marcos of Instituto de Empresa Business School (and a judge of the Tribunal de Defensa de la Competencia de la Comunidad de Madrid) discusses Tender Offer Merger and Regulatory Review in Spanish Law.

ABSTRACT: The interface and coordination of securities regulation of tender offers, merger review proceedings set up by competition law and any other bodies of sectoral regulation potentially applicable to a given transaction is a key issue in governing modern markets. Indeed, Securities Regulation, Competition Law and Regulation impose mandatory conditions and bureaucratic procedures on mergers and acquisitions - which are inspired in different objectives and with disparate aims - that may delay the execution of these transactions and, in some cases, even lead to the introduction of substantial changes in their terms. In comparison with the pre-existing legal rules, as this paper analyzes in detail, the new regulation of merger review and tender offer proceedings - both of 2007 - make compatible the satisfaction of private business interests with the adequate protection of investors' interests and the public interest in maintaining effective competition in the market, as well as the diverse objectives sought by other regulations, sensibly reducing the delays in tender offers that may distort the working of securities markets. However, several doubts and some problematic issues remain in the overlap of these different regulatory bodies (securities/competition/regulation) that require further reflections, which constitute the focus of the present article.

March 18, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 17, 2009

Pros and Cons of ‘Backing Winners’ in Innovation Policy

Posted by D. Daniel Sokol

Frank A.G. den Butter (University of Amsterdam - Economics) and Seung-gyu Jo (Vrije Universiteit Amsterdam - Economics) focus on the Pros and Cons of ‘Backing Winners’ in Innovation Policy.

ABSTRACT: In the economics profession there is a fierce debate whether industrial and innovation policy should be targeted to specific sectors or firms. This paper discusses the welfare effects of such targeted policies from the perspective of strategic game theory of the firm. A theoretical case for picking winners through a preferential innovative policy is discussed in a third-market international trade model, which is shown to hold without evoking retaliation from foreign competitors. However, in practice information uncertainties remain a concern. The question whether in this case ‘backing winners’ is a wise policy option depends on the characteristics of the information asymmetries and on the extent the government is able to design selection procedures which minimize the transaction costs that may be caused from the market participants’ opportunistic behavior.

March 17, 2009 | Permalink | Comments (0) | TrackBack (0)

The Deterrence Effect of Excluding Ringleaders from Leniency Programs

Posted by D. Daniel Sokol

Jesko Herre, University of Cologne - Economics and Alexander Rasch, University of Cologne - Economics have an interesting account of The Deterrence Effect of Excluding Ringleaders from Leniency Programs.

ABSTRACT: This paper looks at the implications of excluding ringleaders from leniency programs for the sustainability of collusion. We find that excluding ringleaders decreases the sustainability of collusion by forgoing the information an additional potential whistleblower means for the antitrust authority. On the other hand, a ringleader will ask for a compensation for not being able to apply for leniency. Such a compensation, however, results in an asymmetry between the ringleader and the other cartel members which may destabilize collusion. We show that if an antitrust authority investigates an industry only with a low probability, excluding ringleaders from leniency programs increases the sustainability of collusion. If the probability of review is high, an exclusion may decrease the sustainability.

March 17, 2009 | Permalink | Comments (0) | TrackBack (0)

Online Retailing and Antitrust: Taking Account of the Paradigm Shift

Posted by D. Daniel Sokol

Alan Riley (City University London - Law)  writes on Online Retailing and Antitrust: Taking Account of the Paradigm Shift.

ABSTRACT: In the run up to the Commission’s reform of its vertical restraints legislation, the advisers of luxury brands and the online retailers are busily slugging it out. Arguments are traded on free riding and the scope of the single market objective, claims are made as to who is the most pro-consumer. However, above the din of battle in the antitrust silo an enormous paradigm shift is taking place which is likely to render this technical dispute largely irrelevant.

Already before the economic crisis consumer reaction to technology had begun to raise questions as to whether selective distribution systems could legitimately apply online. Now with the economic crisis, the market paradigm underpinning a view of the application of competition law has collapsed. Out of the wreckage we will see a different paradigm rising.

March 17, 2009 | Permalink | Comments (0) | TrackBack (0)

Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy

Posted by D. Daniel Sokol

Jean-Michel Glachant (University Paris XI - Economics) and Adrien de Hauteclocque (University Paris XI - Economics) argue that Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy.

ABSTRACT: Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a context of market building, these effects are likely to be worsened and thus even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the portfolio of long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulation costs and! balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion.

March 17, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, March 16, 2009

Who’s Afraid of the Internet? Time to Put Consumer Interests at the Heart of Competition

Posted by D. Daniel Sokol

Stephen Kinsella
(Sidley Austin) and Hanne Melin (Sidley Austin) ask Who’s Afraid of the Internet? Time to Put Consumer Interests at the Heart of Competition.

ABSTRACT: The on-going review of the Vertical Restraints Regulation (“VRR”) has brought to the surface a conflict between traditional retail models where the consumer takes a back seat and modern ways of retailing where the consumer is given greater freedom to select the right product at the right price.

So far, the important debate about how vertical restraints should be regulated, particularly in the context of online selling, has been rather hijacked by the concerns of the luxury goods industry. Luxury goods manufacturers present the issue as being whether the internet, as a distribution channel, is suitable for the delivery of a package of services dictated by those manufacturers.

However the real issue is consumer choice. The internet makes it possible for consumer demand to drive competition in terms of product offering and price. There is no doubt that “[c]onsumers have everything to gain from the Internet.”

The fundamental principle that EU competition policy exists to help create a single EU market and serve the consumer is ignored by some interested parties, despite being constantly repeated by the Commission. The purpose of this article is to steer the debate back to what is at the heart of competition policy—consumers’ interests. This requires an understanding of how vertical restraints are regulated in the EU and how online restrictions fit into that framework.

March 16, 2009 | Permalink | Comments (0) | TrackBack (0)

University of Florida Levin College of Law Student Wins ABA Antitrust Section Writing Prize for note "Does a Cartel Aim Expressly? Trusting Calder Personal Jurisdiction When Antitrust Goes Global"

Posted by D. Daniel Sokol

I am happy to announce that the winner of the ABA Antitrust Section writing prize for the best antitrust note written by a law school student is our own Larry Dougherty.  Larry  is the outgoing Editor in Chief of the Florida Law Review, and is scheduled to receive his J.D. from the University of Florida Levin College of Law in May 2009. After graduation, Larry will clerk for the Honorable Charles R. Wilson of the U.S. Court of Appeals for the Eleventh Circuit. While in law school, Larry worked as a research assistant for Bill Page, helping to update Kintner’s Federal Antitrust Law.

Larry will be awarded his prize at the spring meeting in another two weeks.

Larry won for his note Does a Cartel Aim Expressly? Trusting Calder Personal Jurisdiction When Antitrust Goes Global.

ABSTRACT: In recent years, plaintiffs have stepped up their use of the effects test from the 1984 Supreme Court case of Calder v. Jones to obtain personal jurisdiction over antitrust defendants. Under this theory, defendants may be haled into a forum, despite a lack of traditional contacts, because of anticompetitive effects that they expressly aimed at that forum. A review of the caselaw shows that although this theory works well with some types of antitrust allegations, the Calder analogy weakens when charges of broad-based anticompetitive conduct collide with the long-arm statutes of particular states. While at least one case attacking international price-fixing contains ample allegations of express aiming sufficient to satisfy the effects test, the Vitamins Antitrust litigation showed that the heightened requirements of various states' long-arm statutes precluded findings of Calder jurisdiction. The Note concludes with a review of public policy arguments that support a broader application of Calder to antitrust cases.

March 16, 2009 | Permalink | Comments (0) | TrackBack (0)

Injecting Innovation into The Rule of Reason: A Comment on Evans and Hylton

Posted by D. Daniel Sokol

Richard Gilbert (University of California at Berkeley - Economics) offers his thoughts on Injecting Innovation into The Rule of Reason: A Comment on Evans and Hylton.

ABSTRACT: The Evans and Hylton paper on The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust arrived in my in-box at about the same time as the U.S. Department of Justice’s report on Competition And Monopoly: Single-Firm Conduct Under Section 2 Of The Sherman Act (“DOJ Report”). The two documents have much in common. Both place the historical development of the legal treatment of monopoly in an historical context and consider appropriate tests to evaluate when single-firm conduct should run afoul of the Sherman Act.

The DOJ Report generated considerable controversy. The Federal Trade Commission co-organized hearings on Section 2 enforcement with the Department of Justice, but did not endorse the final report. Among other criticisms, Commissioners Harbour, Leibowitz, and Rosch faulted the DOJ Report for relying too heavily on economic theory in the consideration of applying antitrust law. Evans and Hylton would appear to agree with this critique if economic theory is interpreted to be a static analysis of competitive effects. The authors fault economists for a “. . . focus on issues that pertain to static competition, not because they are more important than dynamic competition, but because that is what they are able to work out mathematically.” This leads to a “tractability bias” that emphasizes static competition concerns at the expense of potentially more important dynamic effects.

I am sympathetic with the concern that dynamic considerations are often neglected in competition analysis. Dynamic competitive effects, while complex to analyze, are too important to ignore and I have emphasized dynamic competition in my own evaluations of the state of competition policy. Dynamic considerations influence competition policy in two general ways. The first is the role of dynamic competition in identifying the types of conduct that should raise antitrust concerns under the antitrust laws. The second is the role of dynamic competition in evaluating the effects of conduct that is challenged under the antitrust laws.

March 16, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 15, 2009

Vertical Restraints and Competition Policy—Internet Sales, a New Dimension to be Considered

Posted by D. Daniel Sokol

Kornel Mahlstein (Graduate Institute of International and Development Studies) has authored Vertical Restraints and Competition Policy—Internet Sales, a New Dimension to be Considered.

ABSTRACT: The internet expands the size of the market and gives consumers access to more providers and more choice—that is the EC Commission’s conclusion after having studied consumer experience and satisfaction with shopping online. Nevertheless, in recent times there has been an increasing trend of suppliers imposing restrictions on their retailers, preventing them from effectively using the internet for sale and/or advertising, and thus hindering consumers from fully benefitting from this new retail channel.

These vertical restraints, imposed by suppliers on the online distribution channels, are the topic of this study. As a matter of definition, vertical restraints (“VR”s) are contracts between suppliers and retailers that restrict the range of actions the two parties can take. Generally, VRs comprise two groups, resale price maintenance (“RPM”) and selective distribution agreements (“SDA”). Traditionally, with respect to competition policy, these two formats of VRs have received different treatment. RPM is prohibited in most countries; SDAs are generally looked at more favorably.

This short article makes the point that SDAs, and especially those that seek to constrain internet sales, are dubious and potentially very detrimental to consumer welfare.

March 15, 2009 | Permalink | Comments (0) | TrackBack (0)