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 28, 2009

Merger Review of Firms in Financial Distress

Posted by D. Daniel Sokol

Yesterday at the ABA Antitrust Section Spring Meeting, I bumped into DOJ superstar Ken Heyer prior to my session.  Ken let me know that his new paper with Sheldon Kimmel (also of DOJ), Merger Review of Firms in Financial Distress, is now available on the web.  As another plug for Ken, I had him speak to my antitrust class two years ago where he did a spectacular job.  Take note antitrust professors that Ken is available to entertain in class and at Bar Mitzvahs.

ABSTRACT:

With the increased number of firms that are in some form of serious financial distress, once financing becomes more readily available to potential acquirers we might expect an increase in both the number and share of mergers where at least one of the parties is having difficulty staying afloat independently. This raises the importance of the policy question as to the appropriate standard to apply to such mergers. This paper shows that this standard--striking the best balance between the efficiency benefits and the potential anti-competitive effects that a merger might produce--is the same one given in the Merger Guidelines for any merger. Further, we show that requiring money-losing firms to satisfy the conditions demanded by the Guidelines "Failing Firm Defense" is appropriate even when the overall economy is going through very difficult times.

We explain also that when the conditions required by the failing firm defense are satisfied, a proposed acquisition cannot be intended to generate an anticompetitive outcome and must be expected by the acquiring firm to generate efficiencies. This inference is shown to be not only economically sound, but also to be consistent with the Supreme Court decision in which the Court introduced the failing firm defense as a variety of the efficiency defense that it accepted in that case.

March 28, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, March 27, 2009

Regulating Interoperability: Lessons from AT&T, Microsoft, and Beyond

Posted by D. Daniel Sokol

Weiser Phil Weiser at the University of Colorado Law School discusses Regulating Interoperability: Lessons from AT&T, Microsoft, and Beyond.

ABSTRACT: Antitrust law confronted the challenges of regulating interoperability between platforms and applications in both the AT&T and Microsoft cases, but it has yet to mine the series of lessons that can inform how to address this challenge going forward. With the Microsoft consent decree still in place, it may too soon to render a final judgment on the remedy adopted in that case as well as to evaluate more generally whether antitrust law is up to the task of developing the institutional strategies - be it the use of technical committees or reliance on standard setting bodies - for addressing interoperability concerns that are likely to increasingly arise in the information-based economy. Nonetheless, policymakers focused on the interoperability issue need to begin evaluating the possibilities and limits of antitrust law in this context.

This Article argues that the effort to promote interoperability through antitrust oversight must grapple with a twin set of challenges. First, it must appreciate how standard setting bodies operate and how to bolster their effectiveness through appropriate government support and antitrust law oversight. Second, it must evaluate the comparative institutional competence of the available institutions that might play a role in different remedial strategies. If courts and enforcers can exercise increased creativity and develop effective remedial strategies, antitrust law can play an important role in avoiding the type of regulation that has generally governed network industries of critical importance to the economy. To be sure, it may be the case that regulating interoperability requires a regulatory authority to oversee the terms of access (as was the case in AT&T), but there are significant costs associated with moving towards an increased reliance on such authorities. Consequently, it is critically important that antitrust law - along with other institutions, such as standard setting bodies - grapple with the question of how to ensure effective oversight regarding access to a platform in a technologically dynamic environment.

March 27, 2009 | Permalink | Comments (0) | TrackBack (0)

Why Different Jurisdictions Do Not (and Should Not) Adopt the Same Antitrust Rules

Posted by D. Daniel Sokol

Evans David Evans (University of Chicago, University College London, LECG) makes the persuasive case Why Different Jurisdictions Do Not (and Should Not) Adopt the Same Antitrust Rules.

ABSTRACT: This article summarizes the theory on the optimal design of antitrust rules and discusses the application of such theory in different jurisdictional settings. It establishes the proposition that divergence is the norm for antitrust rules. This paper argues that the quest for convergence is quixotic and the disdain when another jurisdiction has a different rule than one's own is uncalled for. Along the way it considers two beacons of divergence that appeared on either side of the Atlantic at the end of 2008 - the US Department of Justice's report on unilateral conduct and the European Commission's enforcement guidelines on abusive exclusionary conduct.

March 27, 2009 | Permalink | Comments (1) | TrackBack (0)

Thursday, March 26, 2009

Revitalizing Section 5 of the FTC Using 'Consumer Choice' Analysis

Posted by D. Daniel Sokol

Lande Robert H. Lande of the University of Baltimore Law School suggests Revitalizing Section 5 of the FTC Using 'Consumer Choice' Analysis.

ABSTRACT: This paper makes two points. First, Section 5 of the FTC Act, properly construed, is indeed significantly broader and more encompassing than the Sherman Act or Clayton Act. Section 5 violations include incipient violations of the other antitrust laws, and also violations of their policy or spirit.

Second, the best - and probably the only - way to interpret Section 5 in an expansive manner is to do so in a way that also is relatively definite, predictable, principled and clearly bounded. This best can be done if Section 5 is articulated using the consumer choice framework. Without the discipline and constraints provided by this framework, the FTC Act risks becoming unduly standardless. Unless the Commission uses the choice framework, any attempt to construe Section 5 that goes beyond the other antitrust laws risks being viewed as giving undue discretion to the Commission, and for this reason probably will not be permitted by reviewing courts.

The paper also presents three illustrations of how this could make a beneficial difference in practice: situations similar to the N Data case, invitations to collude, and incipient tying and exclusive dealing violations.

March 26, 2009 | Permalink | Comments (1) | TrackBack (0)

Professor Carrier's New Book from Oxford University Press

posted by Shubha Ghosh

Congratulations to Professor Michael Carrier of Rutgers-Camden Law School on the publication of his new book Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law, published earlier this month by Oxford University Press.

Professor Carrier shared some of the manuscript chapters with me last year, and so I was lucky enough to have a sneak preview of this important book.  The final product is impressive and worth including in your antitrust/intellectual property/innovation policy library.  The book tackles the difficult task of reconciling intellectual property law and antitrust law.  The tension between the two has typically been understood as one between a body of law that creates monopolies (intellectual property) and one that breaks them up (antitrust).  This dichotomy, we all know, is overly simplistic, but the challenge is to find a way to bring these two areas of law under one umbrella.  Some, like me, have made the case for treating the two bodies of law as governing different (but overlapping) types of competition.  Professor Carrier makes the case for innovation as the normative foundation that reconciles the two fields.  His book makes an excellent argument for this normative foundation and the for the broader proposition that intellectual property and antitrust are more allies than foes.

The book is divided into four parts.  Part One provides an primer on what Professor Carrier means by innovation as well as of the basics of intellectual property law, antitrust law, and the perceived conflict between the two.  Part Two turns to copyright law with a focus on peer to peer technologies, copyright damages, and digital copyright.  Part Three looks at the patent system, and the debates over patent opposition procedure, patent remedies, and biotechnology patents.  Part Four concludes with a consideration of three areas where antitrust and intellectual property overlap: pharmaceutical markets, standard setting organizations, and patent settlement agreements.  The chapters form a ten point proposal for innovation proposal, one that guides the application of both intellectual property and antitrust to the promotion of innovation.

The definition of innovation Professor Carrier adopts is a straightforward one: "Innovation consists of the discovery, development, and commercialization of new and improved products and services." [page 19].   This definition encompasses both the Constitutional goal of using intellectual property to promote progress in science and the useful arts as well as the goal of antitrust in promoting competition and consumer welfare.  What I found particularly appealing about Professor Carrier's approach is his recognition that innovation is a process that occurs over time and in the context of different markets.  He spends time breaking down the various processes that constitute innovation and identifying the roles of intellectual property and antitrust in regulating each of these stages.  This framework is a useful that is adaptable beyond the particular applications in this book.  It would be interesting to see how the approach could be used for merger analysis as well as applications to other types of intellectual property such as trade secrets and trademarks.

Professor Carrier's achievement is a remarkable one, and I am excited to see this topic getting attention by Oxford University Press.  I look forward to more reviews and to the various blog posts that will be dedicated to this book.  Look for more commentary here.

March 26, 2009 | Permalink | Comments (0) | TrackBack (0)

Call for Nominations for the Jerry S. Cohen Award for the Best Antitrust Scholarship of 2009

Posted by D. Daniel Sokol

The Jerry S. Cohen Memorial Charitable Trust is again seeking nominations for its annual award for best antitrust scholarship. Legal, economic, and business articles, monographs, and books published during 2008 are eligible for this award of approximately $8,000-9,000. The Award will be presented during the American Antitrust Institute Annual Conference on June 18, 2009 at The National Press Club in Washington, D.C.

Although the Cohen Award's judges search the literature for worthy scholarship, your nominations, including self-nominations, will help make sure they do not inadvertently overlook any important candidates. The award is made through a trust set up in the memory of antitrust attorney and author Jerry S. Cohen, brought about by efforts and donations of friends, colleagues and his former law firm.

This year's award will be selected by a committee consisting of Professors John Flynn, Eleanor Fox, Warren Grimes; antitrust practitioners Daniel Small and Charles Goodwin; and Judge Ann Yahner. Last year's co-winners were Professor Maurice E. Stucke for “Behavioral Economists at the Gate:Antitrust in the Twenty-First Century” and Professor Robert H. Lande and Neil W. Averitt for “Using the ‘Consumer Choice’ Approach to Antitrust Law.”Previous winners include Professors Lawrence Sullivan and Warren Grimes for “The Law of Antitrust:An Integrated Handbook” (2nd Ed. 2006), Barry Nalebuff for "Exclusionary Bundling," Professor Andrew Gavil for "Exclusionary Distribution Strategies by Dominant Firms: Striking a Better Balance," Professor John Connor, for "Global Price Fixing," and Professors Joseph F. Brodley, Patrick Bolton, and Michael H. Riordan for "Predatory Pricing: Strategic Theory and Legal Policy."

To be considered eligible and selected for the award, submissions should reflect a concern for principles of economic justice, the dispersal of economic power, the maintenance of effective limitations upon economic power or the federal statutes designed to protect society from various forms of anticompetitive activity.Submissions should reflect an awareness of the human and social impacts of economic institutions upon individuals, small businesses and other institutions necessary to the maintenance of a just and humane society--values and concerns Jerry S. Cohen dedicated his life and work to fostering.  Submissions may address substantive, procedural or evidentiary matters that reflect these values and concerns. Please send a copy of your nomination before April 17, 2009 to Daniel A. Small, at dsmall@cohenmilstein.com<, or at Cohen Milstein Sellers & Toll, PLLC, 1100 New York Avenue, N.W., West Tower, Suite 500, Washington, D.C. 20005. For a detailed statement of the Award's eligibility and selection criteria, or if you have any questions about the Cohen Award, please contact Daniel A. Small, at 202-408-4600 or the above e-mail address.

March 26, 2009 | Permalink | Comments (0) | TrackBack (0)

What Drives Channel Choice in Grocery Shopping?

Posted by D. Daniel Sokol

In light on the FTC case against Whole Foods, we have increased interest here at the blog on supermarket issues.  Pradeep K. Chintagunta (University of Chicago Booth-Business), Junhong Chu (NUS Business School) and Javier Cebollada-Calvo, Universidad Pública de Navarra ask What Drives Channel Choice in Grocery Shopping?

ABSTRACT: We provide a descriptive study of a household's decisions on where to shop, when to shop and how much to spend for grocery products in the same grocery chain's online and offline stores. We observe households that shop interchangeably in the online and offline stores and make a majority of their purchases in the chain. The data cover all product categories purchased by households at the chain (packaged goods, perishables, etc.). For each household we identify the top 30 categories that account for a majority of that household's expenditures in the chain. These categories vary across households. We relate a household's shopping decisions to the household's needs in each of its top 30 categories, price promotions in those categories, their perishability, and household and store specific characteristics. We specify a multinomial probit model for store visit and channel choice decision, a competing-risks continuous-time proportional hazard model for trip timing, and a regression model for basket expenditures. We allow all drivers of the shopping decisions to have channel-specific effects and take a hierarchical Bayes approach to estimate the parameters of the proposed models. We find channel-specific effects of inventory levels and price promotions on all three decisions. Depletion of inventories of categories that account for a larger proportion of household expenditures drives a household to the online store while depletion of inventories of lower expenditure categories drives a household to the offline stores. Price promotions influence households to visit the chain, increase the probability of households' visiting the chain, and reduce offline trip expenditure, but do not affect online expenditure much. All these indicate the more planned nature of online shopping trips, which are influenced more by households' internal needs and less by the retailer's marketing activities. There is evidence of sorting of trips whereby households make stock-up trips to the online store and fill-in trips to the offline stores.

March 26, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 25, 2009

Assessing the Consequences of a Horizontal Merger and its Remedies in a Dynamic Environment

Posted by D. Daniel Sokol

Isao Ishida (Faculty of Economics and Graduate School of Public Policy, University of Tokyo)
      Toshiaki Watanabe (Institute of Economic Research, Hitotsubashi University) offer some thoughts on Assessing the Consequences of a Horizontal Merger and its Remedies in a Dynamic Environment.

ABSTRACT: This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition. model.

March 25, 2009 | Permalink | Comments (0) | TrackBack (0)

The Joint Estimation of Firm-level Market Power and Efficiency

Posted by D. Daniel Sokol

Manthos Delis (University of Ioannina Department of Economics) and Efthymios Tsionas (Athens University of Economics and Business) provide The Joint Estimation of Firm-level Market Power and Efficiency.

ABSTRACT: The aim of this study is to provide a methodology for the joint estimation of efficiency and market power of individual banks. The proposed method utilizes the separate implications of the new empirical industrial organization and the stochastic frontier literatures and suggests identification using the local maximum likelihood (LML) technique. Through LML, estimation of market power of individual banks becomes feasible, while a number of restrictive theoretical and empirical assumptions are relaxed. The empirical analysis is carried out on the basis of EMU and US bank data and the results suggest small differences in the market power and efficiency levels of banks between the two samples. Market power estimates indicate fairly competitive conduct in general; however, heterogeneity in market power estimates is substantial across banks within each sample. The latter result suggests that while the banking industries examined are fairly competitive in general, the practice of some banks deviates from the average behavior, and this finding has important policy implications. Finally, efficiency and market power present a negative relationship, which is in line with the so-called “quiet life hypothesis”.

March 25, 2009 | Permalink | Comments (0) | TrackBack (0)

ABA Antitrust Spring Meeting Begins Today

Posted by D. Daniel Sokol

The most important world-wide antitrust conference of the year begins today in Washington DC at the JW Marriott Hotel and the National Press Club.  You can download the agenda here.  Academics in law and economics, practitioners from government, law firms  and economic consulting firms and the general public come in large numbers to participate and hear what are typically very interesting presentations on the cutting edge issues of antitrust in the US and around the world.

I will be speaking at 8:15am on Friday on the emerging antitrust regimes panel.  I get to know many readers of the blog merely via email or phone.  Please stop by before or after my presentation to say hello in person.


March 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Second Annual Searle Center Research Symposium on Antitrust Economics and Competition Policy

Posted by D. Daniel Sokol

The Searle Center on Law, Regulation, and Economic Growth is issuing a call for original research papers to be presented at the Second Annual Research Symposium on Antitrust Economics and Competition Policy at Northwestern University School of Law. The Symposium will run from approximately 9:00 AM on Friday, September 25th to 12:30 PM on Saturday, September 26th, 2009. The Symposium is co- sponsored by the Center for the Study of Industrial Organization at Northwestern University.

OVERVIEW: The goal of this Research Symposium is to provide a forum where leading scholars from across the country can gather together with Northwestern's own distinguished faculty to present and discuss high quality research relevant to antitrust economics and competition policy. Both theoretical and empirical submissions are welcome. Papers in industrial organization or applied microeconomic theory that address issues relevant to antitrust policy are welcome even if they do not directly focus on particular antitrust policy issues or institutions. We hope to involve leading thinkers from the government, non-profit, and private sector, as well as leading academics from economics departments, business schools, law schools and public policy schools. While most of the conference will be devoted to presentation and discussion of original academic research, we also expect to schedule a small number of panels on important current topics or policy issues.

FURTHER INFORMATION: If you have questions about the appropriateness of your topic for the symposium, or suggestions for panel subjects, please contact: Professor William Rogerson Research Director Searle Center Research Project on Competition, Antitrust and Regulation Email: wrogerson@law.northwestern.edu.

The Symposium will feature a Keynote Dinner Address, Speaker TBA. There will be a reception, dinner and program on Friday evening. Paper authors will receive an honorarium of $1,000 to cover reasonable transportation expenses, if more than one author presents at the symposium, the honorarium will be divided equally between the presenters. Government employees and non-US residents may be reimbursed for reasonable travel expenses up to the honorarium amount. Authors and discussants are expected to attend and participate in the full duration of the symposium. The Searle Center will make hotel reservations and pay for rooms for Thursday and Friday. Papers prepared for the Research Symposium on "Antitrust Economics and Competition Policy" will be permanently hosted on the Searle Center website: http://www.law.northwestern.edu/searlecenter Authors will be free to publish their work in other venues (with appropriate acknowledgement of the Searle Center).

RESEARCH PROPOSALS/PAPER SUBMISSION PROCEDURE/REVIEW PROCEDURE AND TIMELINE: Research Proposals should include an abstract (300 words maximum) and c.v. Proposal Submission Deadline: To ensure that attachments get through, proposals for the conference should be submitted to both of the following email addresses: Email: searlecenter@law.northwestern.edu Email: :d-gundersen@law.northwestern.edu by April 15th, 2009.

Notification Deadline: Research Proposals will be reviewed by a three-member committee. Authors will be notified of the committee's decisions by May 15th, 2009. Discussion Draft Deadline: Papers suitable for distribution to discussants and other conference participants must be received by September 1, 2009.

Revision Deadline: November 1, 2009.

Upon revision in response to comments received at the symposium, papers will be permanently hosted on the Searle Center website. Details on last year's symposium can be found here: http://www.law.northwestern.edu/searlecenter/conference/2008/antitrust/index.html

March 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Collusion Sustainability with Multimarket Contacts: Revisiting HHI Tests

Posted by D. Daniel Sokol

Edmond Baranes (LASER-CREDEN Université de Montpellier), Francois Mirabel (LASER-CREDEN Université de Montpellier), and Jean-Christophe Poudou (LASER-CREDEN Université de Montpellier) address Collusion Sustainability with Multimarket Contacts: Revisiting HHI Tests.

ABSTRACT: Our paper focuses on the relationship between market concentration and collusion sustainability in a framework of multimarket contacts. We consider two independent and symmetric markets in which a subset of firms are active in both markets. When firms are able to transfer market power from one market to another, firms have strong incentives to collude even in a highly competitive market. This result is relevant for competition policy since assessing market concentration using HHI index could be misleading in some situations.

March 25, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 24, 2009

Jones Day's $10,000 Swope Antitrust Writing Prize Winners Announced

Posted by D. Daniel Sokol

Law student Anthony J. Alt today won the William E. Swope Antitrust Prize. The writing competition sponsored by international law firm Jones Day awards a $10,000 first prize for an essay illustrating the fact-intensive approach to antitrust analysis pioneered by Mr. Swope, a longtime partner at the Firm.

Mr. Alt, due to graduate this year from Michigan's Ave Maria School of Law, submitted a paper on the insurance industry's federal antitrust exemption and recent proposals to overturn it.

Honorable mention prizes were also announced at the Jones Day Washington office ceremonies. The $1,500 prizes went to Justin Lacour, a third-year student at New York's St. John's University School of Law who wrote about a recent Supreme Court decision on conflicts between antitrust law and federal regulation of the securities industry, and Eric M. Fraser, a University of Chicago Law School 3L, for a paper on "predatory pricing" by technology companies battling to establish industry standards.

The winners were invited to attend the Spring Meeting of the American Bar Association's Antitrust Section as guests of Jones Day.

March 24, 2009 | Permalink | Comments (0) | TrackBack (0)

Quality, Upgrades, and (the Loss of) Market Power in a Dynamic Monopoly Model

Posted by D. Daniel Sokol

James J. Anton (Duke University - Fuqua Business) and Gary Biglaiser (UNC Chapel Hill - Economics) have written on Quality, Upgrades, and (the Loss of) Market Power in a Dynamic Monopoly Model.

ABSTRACT: We examine an in…nite horizon model of quality growth in a durable goods monopoly market. The monopolist generates new quality improvements over time and can sell any available qualities, in any desired bundles, at each point in time. Consumers are identical and for a quality improvement to have value the buyer must possess previous qualities: goods are upgrades. We …nd that the upgrade structure, quality growth, and the fact that consumers are always in the market can lead to an almost complete loss in market power for the seller even though all consumers are identical. This is true for all discount factors. We show that subgame perfect equilibrium payo¤s for the seller range from capturing the full social surplus all the way down to capturing only the current show value of each good and that each of these payo¤s is realized in a Markov perfect equilibrium that follows the socially efficient allocation path. We also …find that equilibria may be inefficient.

March 24, 2009 | Permalink | Comments (0) | TrackBack (0)

A Chicago School Take on Patent Licensing: Understanding the Economics of the Patent Exhaustion Doctrine

Posted by D. Daniel Sokol

Anne Layne-Farrar, (LECG), Gerard Llobet, (Centre for Monetary and Financial Studies), and A. Jorge Padilla, (LECG) offer A Chicago School Take on Patent Licensing: Understanding the Economics of the Patent Exhaustion Doctrine.

ABSTRACT: Under the legal doctrine of patent exhaustion, a patent holder's ability to license multiple parties along a production chain is restricted. How and when such restrictions should be applied is a controversial issue, as evidenced by the Supreme Court's granting certiorari in the Quanta case. The issue is an important one, as it has important implications for how firms can license in vertically disaggregated industries. We explore this issue from an economic viewpoint and find that under ideal circumstances how royalty rates are split along the production chain has no real consequence for social welfare, but rather what matters is the total royalty burden. Even when we depart from ideal conditions, however, we still find no economic justification for a strict application of the patent exhaustion doctrine. To the contrary, we that there are often private and social advantages to charging royalties at multiple stages. Overall, our results advocate for a flexible application of the patent exhaustion doctrine, where exhaustion holds as a default rule but one that can be easily overwritten in patent contracts.

March 24, 2009 | Permalink | Comments (1) | TrackBack (0)

Monday, March 23, 2009

The Evolution of Competition Law and Policy in the United Kingdom

Posted by D. Daniel Sokol

Andrew Scott (LSE Law) describes The Evolution of Competition Law and Policy in the United Kingdom.

ABSTRACT: A modern, statutory competition regime emerged in Britain only after the Second World War, developing somewhat haphazardly thereafter. From today's vantage, this policy was tentative, partial, and under-enforced. Only by the passing of the Competition Act 1998 and the Enterprise Act 2002 did the United Kingdom achieve a regulatory scheme that evinces a coherent design and an orthodox underpinning rationale. The relative tardiness of this development is a perplexing fact. For decades, the UK had been a primary exponent of the neoliberal philosophy that places faith in markets as the most efficient means of allocating societal resources. Yet the introduction of the necessary corollary - an effective policy designed to police newly competitive markets - did not emerge until recent years. This paper, first, notes the pertinent common law in this regard and outlines chronologically the main statutory competition measures introduced in the UK in the fifty years following the Second World War. Secondly, it considers the curious period of inaction in the face of an evident need to revisit competition policy at the end of the C20th. Thirdly, it offers a brief overview of the design of the systems introduced under the Competition Act 1998 and the Enterprise Act 2002, and interrogates the motivations behind such reforms. Finally, it reviews the underpinning purposes and the design of the more minor developments that have occurred since 2003. Ultimately, the intention is to allow some insight into factors which explain how and why UK competition law developed - or conversely, failed to do so - over recent legal history.

March 23, 2009 | Permalink | Comments (0) | TrackBack (0)

The Economics of Injunctive and Reverse Settlements

Posted by D. Daniel Sokol

Keith N. Hylton, Boston University - School of Law and Sungjoon Cho, Chicago Kent College of Law offer their insights into The Economics of Injunctive and Reverse Settlements.

ABSTRACT: This paper extends the economic literature on settlement, and draws some practical insights on reverse settlements. The key contributions to the economic literature on settlements follow from the distinction drawn between standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant's activity. The analysis identifies the conditions under which injunctive settlements (rather than standard settlements) are likely to be observed and the conditions under which reverse settlements will be observed among the injunctive settlements. We also examine the divergence between private and social incentives to settle and policies that would minimize socially undesirable injunctive settlements. The results are applied largely to competition-blocking litigation, such as patent infringement and anti dumping. However, the analysis of settlement here has broader implications for efficient remedies and legal rules.

March 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Incentives to Foreclose

Posted by D. Daniel Sokol

Roman Inderst (University of Frankfurt - Finance) and Tommaso Valletti (Imperial College London - Economics) address Incentives to Foreclose.

ABSTRACT: The European Commission’s new non-horizontal merger guidelines envisage a three-step approach to assessing the threat of subsequent foreclosure (European Commission. The first step concerns the merged firm’s ability to distort competition and harm rivals on the upstream or downstream market through full- or partial-foreclosure. The second step deals with the integrated firm’s incentives to foreclose; then followed, as a third and final step, by the assessment of potential competitive harm.

In this article, we focus, in particular, on the second screen: the assessment of the incentives of a vertically integrated firm to partially or fully foreclose its rivals. Throughout our analysis, we focus exclusively on input foreclosure

March 23, 2009 | Permalink | Comments (0) | TrackBack (0)

Predicting Market Power in Wholesale Electricity Markets

Posted by D. Daniel Sokol

David Newbery discusses Predicting Market Power in Wholesale Electricity Markets.

ABSTRACT: The traditional measure of market power is the HHI, which gives implausible results given the low elasticity of demand in electricity spot markets, unless it is adapted to take account of contracting. In its place the Residual Supply Index has been proposed as a more suitable index to measure potential market power in electricity markets, notably in California and more recently in the EU Sector Inquiry. The paper investigates its value in identifying the ability of firms to raise prices in an electricity market with contracts and capacity constraints and find that it is most useful for the case of a single dominant supplier, or with a natural extension, for the case of a symmetric oligoply. Estimates from the Sector Inquiry seem to fit this case better than might be expected, but suggests an alternative defintion of the RSI defined over flexible output that should give a more reliable relationship.

March 23, 2009 | Permalink | Comments (1) | TrackBack (0)

Selective Distribution of Branded and Luxury Products and the Conjuncture of Online and Offline Commerce in the Light of the European Commission's Revision of the Vertical Restraints Regime

Posted by D. Daniel Sokol

Andrés Font Galarza and Constantin Gissler (both of Mayer Brown) analyze Selective Distribution of Branded and Luxury Products and the Conjuncture of Online and Offline Commerce in the Light of the European Commission's Revision of the Vertical Restraints Regime.

ABSTRACT: The European Commission is currently working on the revision of the Commission Regulation (EC) No 2790/1999 on the application of Article 81(3) EC to certain categories of vertical agreements ("vBER") and the respective Guidelines as the current rules will expire on May 31, 2010. A major issue in this revision is the question of how to deal with online commerce that has been developing at an ever-increasing speed since the making of the vBER in the late 1990s.

Commissioner for Competition, Neelie Kroes, has shown a high interest in online commerce and in how to explore its full potential in the future. A roundtable of stakeholders organized by Commissioner Kroes and a public consultation revealed a number of controversial issues that the Commission will have to address in its revision work in 2009.

In the following, we shed light on the antitrust law issues regarding selective distribution and online commerce as well as on the ongoing policy debate in this respect.

March 23, 2009 | Permalink | Comments (0) | TrackBack (0)