Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, January 9, 2009

Sustaining Collusion in Growing Markets

Posted by D. Daniel Sokol

Helder Vasconcelos
(Universidade Católica Portuguesa - Economics) provides some thoughts on Sustaining Collusion in Growing Markets.

ABSTRACT: The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable grim trigger strategies available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre-entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.

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

Eighth Global Forum on Competition

Posted by D. Daniel Sokol

The OECD will host the Eighth Global Forum on Competition in Paris on February 19-20, 2009.

-- Draft agenda --
(As at 15 December 2008)
-------------------------------------
Thursday 19 February 2009
-------------------------------------
Thursday Morning

Opening (1/2 hour: 9.30-10am)
OECD Secretary General: Angel GURRIA

Keynote Speaker: Dominique STRAUSS KAHN (Managing Director, IMF)

Session I (3 hours: 10am-1pm)
ROUNDTABLE ON COMPETITION POLICY, INDUSTRIAL POLICY AND NATIONAL CHAMPIONS
Possible topics for discussion
•The relationship between competition policy and industrial policy.
•When do they serve each other, when do they conflict?
•Is there a role for national champions?
•Do different considerations apply to developing or small economies?

Thursday Afternoon
Session II (3 hours: 3-6pm)
COMPETITION POLICY AND THE INFORMAL ECONOMY
Possible topics for discussion
•What is the impact of the informal economy on competition?
•Does the informal economy hamper economic growth because of its lower productivity?
•Are foreign investors deterred by a large informal economy which competes unfairly by paying no taxes?
•Is the informal economy outside the reach of competition authorities?
Speakers:
•Luiz DE MELLO (OECD, Economics Department)
•Taimoon STEWART (Trinidad &Tobago)
•William LEWIS (formerly McKinsey)

Friday 20 February 2009
-------------------------------------
Friday Morning

Session III (3 ½ hours: 9.30am-1pm)
CHALLENGES FACED BY YOUNG COMPETITION AUTORITIES
1. Presentations in Plenary (1 hour: 9.30-10.30)
2. Breakout sessions (2 hours: 10.30-12.30am)
Session IV (½ hour: 12.30-1pm)

ANY OTHER BUSINESS

Friday Afternoon

Session V (2 ½ hours: 3-5.30pm)
THE ROLE OF COMPETITION AUTHORITIES IN THE MANAGEMENT OF ECONOMIC CRISES
1. Focus on the food crisis
2. The financial crisis
3. The energy crisis

Session VI (½ hour: 5.30-6pm)
EVALUATION AND FUTURE WORK

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

Thursday, January 8, 2009

A Record 110 Countries and 115 Jurisdictions Now Regulate Mergers Through Antitrust Laws

Posted by D. Daniel Sokol

From the White & Case press release:

A record 115 jurisdictions worldwide now regulate mergers and acquisitions, according to a new survey by global law firm White & Case LLP. Since 1996, White & Case has surveyed worldwide antitrust merger notification requirements.  The 2009 White & Case survey, Worldwide Merger Notification Requirements, covers 217 jurisdictions around the world and has just been published by Aspen Publishers/Wolters Kluwer. The 115 jurisdictions include a record 110 separate countries with merger control laws, as well as regional merger control regimes such as the EC and COMESA. This is a substantial increase over the 68 jurisdictions identified in the 2004 White & Case survey.  Furthermore, the 2009 survey notes that Hong Kong, Kyrgyzstan, and Paraguay are expected in the near future to adopt new competition regulations. “We have witnessed an explosion in merger regulation across the globe over the past 15 years,” said J. Mark Gidley, head of White & Case’s global Antitrust Practice Group and co-editor of the survey said.  “This mega-trend has been fueled by globalization, the rise of the so-called BRIC countries, outreach efforts by US and EU enforcement officials, and a desire by more and more governments to adopt antitrust laws as a means of regulating commerce.” “The growth and modernization of merger control regimes continues to place pressure on global corporations and their antitrust advisors,” noted George L. Paul, a White & Case partner and co-editor of the survey.  “China and India are two notable additions to the roster of active jurisdictions that will have a major impact on many international transactions, and the enlargement of the European Union shows that even the established competition regimes remain dynamic.”

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

The Impact of a Corporate Leniency Program on Antitrust Enforcement and Cartelization

Posted by D. Daniel Sokol

Myong-Hun Chang (Cleveland State - Economics) and Joseph E. Harrington, Jr. (Johns Hopkins - Economics) have an interesting new paper on The Impact of a Corporate Leniency Program on Antitrust Enforcement and Cartelization.

ABSTRACT: To explore the efficacy of a corporate leniency program, a Markov process is constructed which models the stochastic formation and demise of cartels. Cartels are born when given the opportunity and market conditions are right, while cartels die because of internal collapse or they are caught and convicted by the antitrust authority. The likelihood that a cartel, once identified, is convicted depends inversely on the caseload of the antitrust authority due to an implicit resource constraint. The authority also chooses an enforcement policy in terms of the fraction of non-leniency cases that it prosecutes. Using numerical analysis, the impact of a leniency program on the steady-state cartel rate is investigated. Holding the enforcement policy of the antitrust authority fixed, a leniency program lowers the frequency of cartels. However, the additional caseload provided by the leniency program induces the antitrust authority to prosecute a smaller fraction of cartel cases identified outside of the program. Because of this less aggressive enforcement policy, it is possible that the cartel rate is higher when there is a leniency program.

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

Parallel Trade in Europe: Intellectual Property, Competition and Regulatory Law

Posted by D. Daniel Sokol

Christopher Stothers (University College London Law and Milbank Tweed) is the author of Parallel Trade in Europe: Intellectual Property, Competition and Regulatory Law.

ABSTRACT: Are parallel importers the key to free trade, breaking down long-established national barriers for the benefit of all? Or do they instead just operate in a dubious 'grey market' for their own profit, free-loading on the investment of innovators and brand owners to the ultimate detriment of everyone? Parallel trade is in turn lionised and demonised, both in legal commentary and in the mainstream press. As one might expect, the truth lies somewhere between these extremes.

Once goods have been manufactured they are put onto the market in one country by the manufacturer. Parallel trade occurs when the goods are subsequently transferred to a second country by another party (the parallel trader, who may be the end consumer). The distinguishing feature of parallel trade is that the manufacturer did not intend those particular goods to end up in the second country. The goods are normally described in that country as 'parallel imports' or 'grey market goods'. The latter term is generally used to suggest that the trade, while not exactly 'black market', is not entirely lawful either.

Understanding how European Community law operates to permit or restrict parallel trade involves exploring a complex matrix of rules from the fields of free movement, intellectual property, competition and regulatory law, including both private and public enforcement regimes. Where goods are parallel imported from outside the Community these rules change and new considerations come into play, such as obligations arising from the European Economic Area, the World Trade Organization and bilateral free trade agreements. The experience of Europe, which has grappled with the issues on a regional basis for more than four decades, provides a fertile source for examination of parallel trade in other jurisdictions.

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

Wednesday, January 7, 2009

BCS may violate antitrust laws

Posted by D. Daniel Sokol

Sports antitrust has always been a hot topic.  As someone whose school is playing in the BCS championship game (go Gators!), I read with great interest that according to the Utah AG, the BCS may violate antitrust laws.

January 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Exclusionary Vertical Contracts with Multiple Entrants

Posted by D. Daniel Sokol

Hiroshi Kitamura (PhD student - Economics, Osaka University) undertakes an analysis of Exclusionary Vertical Contracts with Multiple Entrants.

ABSTRACT: This paper constructs a model of anticompetitive exclusive dealing in the presence of multiple entrants. Unlike a single-entrant model in the extant literature, an entrant competes not only with the incumbent to deal with buyers but also with other entrants. The competition among entrants then plays the role of commitment such that low wholesale prices are offered to buyers when they deviate from exclusive contracts. We argue that this commitment effect becomes a barrier to exclusive dealing and that the results differ drastically from the predictions of the single-entrant framework.

January 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Collusion via Resale

Posted by D. Daniel Sokol

Thomas Tröger (University of Bonn - Economics), Rodney Garratt (UC Santa Barbara - Economics), and Charles Zheng discuss Collusion via Resale.

ABSTRACT: The English auction is susceptible to tacit collusion when post-auction inter-bidder resale is allowed. We show this by constructing equilibria where, with positive probability, one bidder wins the auction without any competition and divides the spoils by optimally reselling the good to the other bidders. These equilibria interim Pareto dominate (among bidders) the standard value-bidding equilibrium, without requiring the bidders to make any commitment on bidding behavior or post-bidding spoil-division.

January 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Intellectual Property Law and EU Competition Law

Posted by D. Daniel Sokol

Jonathan Turner is the author of the forthcoming Intellectual Property Law and EU Competition Law.

BOOM ABSTRACT: The interface between intellectual property rights and competition policy is one of the most important and difficult areas of EU commercial law. The exploitation of exclusive rights can conflict with competition law, which aims to preserve competition as the driving force in efficient markets. These conflicts have to be resolved against the background of a complicated relationship between EU law, national laws and international treaties relating to intellectual property. There have been major developments recently in this area, including the new Technology Transfer Block Exemption, the Commission's Guidelines on Technology Transfer, and cases such as IMS   and Microsoft concerning the circumstances in which exploitation of intellectual property rights is an abuse of a dominant position.

This book contains a detailed explanation of the application of EU competition law to all types of intellectual property, including recent developments, and the resulting regulatory framework for the exploitation and licensing of intellectual property rights. It has practical analysis of such issues as technology transfer and pools, research and development, and franchising and merchandising.

 

January 7, 2009 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 6, 2009

The Future of Monopolization Under an Obama Administration

Posted by D. Daniel Sokol

I had a heated discussion on this topic with some friends this weekend.  For the record, I am sticking with my prediction (see my forthcoming short essay Change and Continuity in International Antitrust Under an Obama Administration) about the DOJ Section 2 Report:

I suspect that under the Obama administration the DOJ Report on Unilateral Conduct will be consigned to some large room, like the one that houses the Ark of the Covenant in the end credits of Raiders of the Lost Ark.

January 6, 2009 | Permalink | Comments (0) | TrackBack (0)

FTC GC Blumenthal to Clifford Chance

Posted by D. Daniel Sokol

FTC General Counsel Bill Blumenthal is leaving the agency to join international powerhouse Clifford Chance as the head of its US antitrust practice.  Bill has played an important role in international efforts (including in China) and so this is a great fit for him and his expertise. 

January 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Global Competition Law, Markets and Globalization

Posted by D. Daniel Sokol

Dgerber_web David Gerber of Chicago Kent Law has a written a forthcoming book titled Global Competition Law, Markets and Globalization.

BOOK ABSTRACT: Global competition now shapes economies and societies in ways unimaginable only a few years ago, and laws shape and maintain global competition, determining how effective global markets are and how they distribute benefits and harms. Competition (or nullantitrustnull) law plays a central role in this framework of law. These laws are intended to protect the competitive process from distortion and restraint, and in the domestic context, they embody and reflect the relationships between markets, their participants and those affected by them.

On the global level, however, competition law is provided by those players that have sufficient power to apply their laws transnationally. In practice, this means that the US and the EU generally provide the competition law principles for global competition. This book examines this important and controversial aspect of globalization.

Part I examines the evolution of the current system of competition law for global markets, the factors that have shaped it, and how it operates today. There was once a widespread belief that harm to global competition was an international problem that should be addressed through international coordination, but the Cold War submerged this ideal and led to the current system. Since the 1990s efforts have been made to develop transnational cooperation in this area, but the basic system remains in place. The evolution and operation of this system cannot be understood without understanding the factors in national experience that have shaped them.

The second part of the book focuses on these national experiences and the roles they have played in the evolution of the global system. It examines US and European experience as well as the experience of the newer players such as China that will necessarily play major roles in the future.

Finally, the book examines the potential for creating a system that functions more effectively and provides more support for global economic and political development. Drawing on parts I and II and on social science as well as legal literature, it identifies the factors that will play a role in moving towards a more effective legal framework for global competition and suggests a pathway for needed reforms.

January 6, 2009 | Permalink | Comments (0) | TrackBack (0)

How Can National Competition Authorities Mobilize in Times of Global Crisis?

Posted by D. Daniel Sokol

Bruno Lasserre (Conseil de la concurrence) asks How Can National Competition Authorities Mobilize in Times of Global Crisis?

ABSTRACT: The crisis that started with the U.S. mortgage market has spread to the worldwide banking sector. Over the last year, individual defaults have multiplied, even though the central banks massively injected liquidities into the money markets. As a result, confidence has receded, interbank lending has rarefied, and credit has started to crunch.

European governments have taken steps to restore trust. At first, their interventions consisted in ad hoc measures of rescue and restructuring—or in some cases of winding down—aimed at handling individual situations. Later, when it became apparent that the size and the intensity of the crisis were unprecedented, these measures evolved into more comprehensive schemes including guarantees, injections of capital, getting rid of toxic assets, and so on.

In such situations, there are basically two ways of going forward: either each Member State acts unilaterally, with a high risk of taking fragmented and conflicting measures that may either cancel one another or even make things worse; or Member States endeavor to coordinate their initiatives and come up with a consistent approach, beneficial to all. Europe was created out of a major crisis—Word War II—and it has often moved forward in times of crisis. We are now faced with a global market failure, although situations may obviously differ from one bank to another, from one segment of the market to another, and from one Member State to another. I am confident that, this time again, Member States will agree on a common strategy, just as they have begun doing in the last weeks.

The Euro Group and the EU Council and Commission have also started to play their part to ensure this result. The Commission has already accepted almost 25 national measures qualified as State aid, pursuant to discussions that permitted the Member States to design them in a way that was compatible with the common market. Twenty further draft measures are currently under assessment.

At the same time, we have heard a number of sirens calling for a relaxation or even a suspension of competition rules. But I said earlier that European and national leaders agreed to restore “trust," not to restore “trusts”! On the contrary, these leaders have repeatedly insisted that antitrust and, more generally, competition concepts and instruments, are flexible enough to be accommodated in all weather.

Of course, as I said in Fordham last September, competition authorities are not wonder-doers. They are not empowered to do everything and they cannot do everything. Their mission and their means are limited. What they can—and must—do is make sure that firms compete on their merits and do their best to attract consumers with newer or better products and services at better prices. Why? Because competition fuels innovation, productivity, cost-effectiveness, and ultimately growth; and because growth translates into jobs, wages, purchasing power, and, ultimately, consumer welfare.

Still, competition enforcement is well placed to contribute, in its field of competence, to forging viable solutions to the current international market failure. Let’s not forget that our core business is to make markets work and to prevent or remedy a certain type of market failure, namely changes in structures or market behaviors that harm consumer welfare by substantially lessening competition or excluding efficient competitors from the marketplace.

I would like to look at how national competition authorities (“NCAs”) can bring added value to the huge effort of solving the current crisis. I say “can” because a word of caution is warranted: visions never translate into results without hard work. And I shall try to answer the question from the following three angles: Where do we fit in the big puzzle? What can we do? What can we say?

January 6, 2009 | Permalink | Comments (0) | TrackBack (0)

Monday, January 5, 2009

Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appeals

Posted by D. Daniel Sokol

Josh Wright of George Mason Law School and  Michael Baye of the IU Kelley School of Business have an interesting article on Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appeals.

ABSTRACT: Modern antitrust litigation sometimes involves complex expert economic and econometric analysis. While this boom in the demand for economic analysis and expert testimony has clearly improved the welfare of economists-and schools offering basic economic training to judges-little is known about the empirical effects of economic complexity or judges' economic training on decision-making in antitrust litigation. We use a unique data set on antitrust litigation in district courts during 1996-2006 to examine whether economic complexity impacts decisions in antitrust cases, and thereby provide a novel test of the frequently asserted hypothesis that antitrust analysis has become too complex for generalist judges. We also examine the impact of one institutional response to economic complexity: basic economic training by judges. We find that decisions involving the evaluation of complex economic evidence are significantly more likely to be appealed, and decisions of judges trained in basic economics are significantly less likely to be appealed than are decisions by their untrained counterparts. Our results are robust to a variety of controls, including the type of case, circuit, and the political party of the judge. Our tentative conclusion, based on a revealed preference argument that views a party's appeal decision as an indication that the district court got the economics wrong, is that there is support for the hypothesis that some antitrust cases are too complicated for generalist judges.

January 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy

Posted by D. Daniel Sokol

Vincenzo Atella (University of Rome Tor Vergata), Jay Bhattacharya (Stanford University), and Lorenzo Carbonari (University of Rome Tor Vergata) provide us with an analysis of Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy.

ABSTRACT: The aim of this article is to analyze the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: Minimum Efficacy Standards (MES) and Price Controls (PC). We develop a model of adverse selection where a pharmaceutical company can charge different prices to a heterogeneous group of buyers for its (innovative) drug, and we evaluate the properties of the equilibria under the two regimes. We model consumer heterogeneity stemming from differences in the willingness-to-pay for drug quality, measured through ex-post efficacy. The theoretical analysis provides two main results. First, the average drug quality delivered is higher under the MES regime than in the PC regime or a in combination of the two. Second, PC regulation reduces the difference in terms of high-low quality drug prices. The empirical analysis based on Italian and U! S data corroborates these results.

January 5, 2009 | Permalink | Comments (0) | TrackBack (0)

To a New Era of Competition Law Teaching

Posted by D. Daniel Sokol

Dear Readers,

I need you help.  This week I will go to San Diego for a meeting of the American Association of Law Schools (AALS), where American law professors gather on a yearly basis to hear presentations on various subject matters.  I will be presenting on the antitrust panel.  The AALS keeps a list of all professors who teach in the area of antitrust law.  To my knowledge, there is no such global list.  I would like to create a global list of antitrust and competition law professors as a way for such professors to communicate with each other about our common interests.  This list will not be used for marketing purposes (other than professors' own shameless self promotion).

Please post your name, institution and email address in response to this post.  I need to approve all comments (othwise each blog entry would have comments about enhancing various body parts and cheap pharmeceuticals) so do not worry that your comment will not appear instantly.

January 5, 2009 | Permalink | Comments (7) | TrackBack (0)

The Quiet Life of a Monopolist: The Efficiency Losses of Monopoly Reconsidered

Posted by D. Daniel Sokol

Jun Chen and Zhiqi Chen (both of Department of Economics, Carleton University) write on The Quiet Life of a Monopolist: The Efficiency Losses of Monopoly Reconsidered.

ABSTRACT: In this paper we study the efficiency losses of monopoly by analyzing a model where a firm's total costs of production decrease with the manager's effort to control costs. We consider two separate cases with regard to ownership and control: (1) the owner of the firm manages the firm himself; and (2) the owner hires a manager to operate the firm. We demonstrate that even in the case where the owner manages the firm, the level of effort exerted by the owner-manager of a monopoly is not first-best. Interestingly, the productive inefficiency of monopoly in this case may be caused by too much rather than too little effort. In such a situation, moreover, the separation of ownership and control can mitigate the productive inefficiency of monopoly, thus raising the intriguing possibility that managerial slack can actually improve the efficiency of monopoly equilibrium. To phrase our results in Hicks'(1935) terminology, a monopolist does not necessarily live a quiet life, and a quiet life is not necessarily a bad thing from the perspective of economic efficiency.

January 5, 2009 | Permalink | Comments (0) | TrackBack (0)

Sunday, January 4, 2009

Antitrust Legislation and Policy in a Global Economic Crisis—A Canadian Perspective

Posted by D. Daniel Sokol

George Addy
, Anita Banicevic, & Mark Katz (all of Davis Ward Phillips & Vineberg) provide their thoughts on Antitrust Legislation and Policy in a Global Economic Crisis—A Canadian Perspective.

ABSTRACT: As the global economic crisis continues, governments and private parties worldwide have undertaken a number of measures to safeguard the stability of their ailing economies. For example, governments in the United States, Europe, and to a lesser degree, Canada, have delivered significant infusions of capital and facilitated major mergers in the financial sector (e.g., Wells Fargo/Wachovia, Bank of America/Merrill Lynch, JP Morgan/Bear Stearns) in a bid to help financial institutions withstand the crisis. In addition to such unilateral measures, given the increasing interdependence and integration of global financial markets and institutions, governments are considering the need for drastic restructuring of multilateral institutions and trading instruments.

When contemplating the implications of a global economic crisis, one is bound to ask what, if any, is the appropriate role of antitrust legislation and policy and what impact there will be on future antitrust enforcement. On the one hand, it could be argued that antitrust policy should be shunted aside—at least in the context of merger review—and not be allowed to prevent restructurings that are necessary for economic stability even though they may also allow the merging parties to acquire market power. Time is of the essence in responding to the financial crisis and timeliness of decision making has been a serious challenge for competition agencies in the past. On the other hand, it is possible to contemplate an even greater role for antitrust enforcement, particularly in areas such as cartels and abuse of dominance. Furthermore, given the global scope of the contemplated restructurings, it is quite plausible that the enforcement posture of one jurisdiction could lead to pressure to adopt the same stance in other jurisdictions, putting a severe strain on recent inter-agency cooperation.

To date, the approach of antitrust agencies has been anything but uniform. In Canada, the Competition Bureau has been silent on its views of the role of antitrust law and policy in the current crisis.

January 4, 2009 | Permalink | Comments (0) | TrackBack (0)